Delaware
|
|
7372
|
|
52-2263942
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(Primary
Standard Industrial
Classification
Code Number)
|
|
(IRS
Employer
Identification
Number)
|
Carl
F. Barnes, Esq.
Joseph
C. Marrow, Esq.
Morse,
Barnes-Brown & Pendleton, P.C.
1601
Trapelo Road
Waltham,
Massachusetts 02451
(781)
622-5930
(781)
622-5933 (fax)
|
Ralph
V. De Martino, Esq.
F.
Alec Orudjev, Esq.
Cozen
O’Connor
1627
I Street, N.W., Suite 1100
Washington,
D.C. 20006
(202) 912-4800
(202) 912-4830
(fax)
|
Price
to the Public
|
Underwriting
Discounts
and
Commissions
|
Proceeds,
Before
Expenses,
to
the Company
|
||||||||||
Per
Share
|
$ | $ | $ | |||||||||
Total
|
Joseph
Gunnar & Co., LLC
|
Security
Research Associates,
Inc.
|
|
||
eSurvey
|
eNewsletter
|
Relationship
Manager
|
·
|
To
increase sales by developing Web applications such as on-line ordering
systems and proactive integrated marketing tools with lead generation
capabilities.
|
·
|
To
improve customer service and customer loyalty by developing Web
applications that provide self-service portals that automate interactions
between the customers and their partners. These types of portals
reduce
their administrative and operational costs.
|
·
|
To
enhance employee communication and training by developing on-line
training
applications allowing our customers to create topic-based training
programs such as orientation training for new hires and new policy
rollout
training for current employees. These types of on-line training
applications reduce their administrative and operational
costs.
|
·
|
Content
Management
|
·
|
eCommerce
Management
|
·
|
Relationship
Management
|
·
|
eMarketing
Management
|
·
|
Grants
Management
|
·
|
User
experience development
|
·
|
Web
application development
|
·
|
Search
engine optimization
|
·
|
the
complementary technical ability to market, sell and deliver Web-based
software tools in their particular metropolitan market
areas;
|
·
|
the
desire to improve their profit margins by licensing our web software
tools
to their customer base;
|
·
|
an
established base of customers with local market presence that can
potentially accelerate our time to market in geographic areas where
we do
not currently operate;
|
·
|
the
desire reduce development costs by leveraging our Bangalore, India
development center; and
|
·
|
the
desire to leverage certain centralized cost centers such as finance,
human
resources, legal, and marketing.
|
·
|
In
December 2000, we acquired Streamline Communications, a Boston,
Massachusetts-based company.
|
·
|
In
February 2002, we acquired Lead Dog Digital, Inc., a New York, New
York-based company.
|
·
|
In
December 2004, we acquired Interactive Applications Group, Inc.
(“iapps”
®
),
a
Washington, D.C.-based company.
|
·
|
In
April 2006, we acquired New Tilt, Inc. (“New Tilt”), a Cambridge,
Massachusetts-based company.
|
·
|
our
limited operating history on which to evaluate our
operations;
|
·
|
we
have suffered losses since inception which may recur in the future
as we
expand;
|
·
|
our
licenses are renewable on a monthly basis and a reduction in our
license
renewal rate could significantly reduce our revenues;
|
·
|
our
inability to manage our future growth efficiently or
profitably;
|
·
|
our
inability to complete the Objectware acquisition or to efficiently
integrate Objectware into our operations;
|
·
|
if
our products fail to perform properly due to undetected errors or
similar
problems, our business could suffer, and we could face product liability
exposure
|
·
|
if
the security of our software, in particular the hosted Internet solutions
products we have developed, is breached, our business and reputation
could
suffer;
|
·
|
if
we undertake future business combinations and acquisitions, they
may be
difficult to integrate into our existing operations, may disrupt
our
business, dilute stockholder value or divert management’s
attention;
|
·
|
our
external auditors have identified material weaknesses in our internal
controls;
|
·
|
our
dependence on our management team and key personnel and the loss
or
inability to retain these individuals could harm our business;
and
|
·
|
intense
and growing competition, which could result in price reductions,
reduced
operating margins and loss of market
share.
|
Securities
Offered
|
3,000,000
shares of our common stock.
|
Over-Allotment
Option
|
450,000
shares of our common stock.
|
Common
Stock to be Outstanding After This Offering
|
7,277,250
shares (7,727,250 shares if the over-allotment option is exercised
in full
by the underwriters), of which 3,000,000 shares or approximately
41.2%
would be held by persons purchasing in this offering (3,450,000 shares
or
approximately 44.6%, if the over-allotment option is exercised in
full by
the underwriters).
|
Use
of Proceeds
|
We
intend to use the net proceeds from this offering as follows:
·
Approximately
$2,800,000 to repay all of our indebtedness;
·
Approximately
$2,955,000 to pay the cash portion of the acquisition of Objectware,
together with expenses associated with that acquisition;
·
Approximately $2,000,000 over the next four years to complete
future acquisitions; and
·
$6,550,000 for general corporate purposes, including working
capital. See “Use of Proceeds” for additional
information.
|
Trading
Symbols
|
We
have applied for listing of our common stock on the Nasdaq Capital
Market
under the symbol “BLSW”.
|
Risk
Factors
|
You
should consider carefully all of the information set forth in this
prospectus, and, in particular, the specific factors set forth under
“Risk
Factors” beginning at page 11, before deciding whether to invest in our
shares.
|
·
|
490,909
shares issuable upon the acquisition of Objectware and an indeterminate
number of additional shares we may issue quarterly over three years
after
we acquire Objectware, the issuance of which is contingent upon the
achievement by Objectware of certain operating results;
|
·
|
869,432
shares issuable upon the exercise of outstanding options at a weighted
average price of $3.15 per share;
|
·
|
588,852
shares issuable upon the exercise of outstanding warrants;
and
|
·
|
150,000
shares issuable upon exercise of underwriters’ warrants at a price equal
to 150% of the offering price of the
shares.
|
Unaudited
|
||||||||||||||||
Six
Months Ended March 31,
|
Year
Ended September 30,
|
|||||||||||||||
2007
|
2006
|
2006
|
2005
|
|||||||||||||
Historical
Statements of Operations Data:
|
||||||||||||||||
Revenue
|
$
|
4,532,000
|
$
|
3,569,000
|
$
|
8,235,000
|
$
|
5,769,000
|
||||||||
Cost
of revenue
|
2,156,000
|
1,669,000
|
3,809,000
|
3,113,000
|
||||||||||||
Gross
profit
|
2,376,000
|
1,900,000
|
4,426,000
|
2,656,000
|
||||||||||||
Operating
loss
|
(642,000
|
)
|
(68,000
|
)
|
(810,000
|
)
|
(461,000
|
)
|
||||||||
Net
loss
|
(1,328,000 |
)
|
(120,000 |
)
|
(1,448,000 |
)
|
(517,000 |
)
|
||||||||
Basic
and diluted loss per share
|
$
|
(0.31 |
)
|
$
|
(0.03 |
)
|
$
|
(0.36 |
)
|
$
|
(0.14 |
)
|
||||
Weighted
average shares
|
4,275,107 | 3,903,833 | 4,046,278 | 3,804,527 |
Unaudited
Pro forma Statements of Operations Data:
|
Six
Months Ended
March
31, 2007
|
Year
Ended
September
30, 2006 (a)
|
||||||
Revenue
|
$ |
7,156,000
|
$ |
13,056,000
|
||||
Cost
of revenue
|
3,468,000
|
6,653,000
|
||||||
Gross
profit
|
3,688,000
|
6,403,000
|
||||||
Operating
income (loss)
|
34,000
|
(186,000 | ) | |||||
Net
income (loss)
|
19,000
|
(192,000 | ) | |||||
Earnings
(loss) per share:
|
||||||||
Basic
|
$ |
0.00
|
$ | (0.03 | ) | |||
Diluted
|
$ |
0.00
|
$ | (0.03 | ) | |||
Weighted
average shares:
|
||||||||
Basic
|
6,254,016
|
6,336,864
|
||||||
Diluted
|
7,692,703
|
6,336,864
|
As
of March 31, 2007
|
||||||||
Historical
|
Pro
Forma (b)
|
|||||||
Balance
Sheet Data:
|
||||||||
Working
capital (deficit)
|
$
|
(3,324,000
|
)
|
$
|
8,243,000
|
|||
Total
assets
|
$
|
9,384,000
|
$
|
23,434,000
|
||||
Total
liabilities
|
$
|
4,891,000
|
$
|
2,258,000
|
||||
Total
shareholders’ equity
|
$
|
4,493,000
|
$
|
21,176,000
|
·
|
it
does not reflect cash expenditures for capital asset
purchases
|
·
|
it
does not reflect the non-cash impact of stock compensation
expenses
|
·
|
it
does not reflect the cash impact of changes in deferred
revenues
|
·
|
it
does not reflect the cash impact of the changes in deferred assets
and
liabilities
|
|
|
|
Unaudited
|
||||||||||||||||
Six
Months Ended
March
31,
|
Year
Ended September 30,
|
|||||||||||||||
Other
Financial Data:
|
2007
|
2006
|
2006
|
2005
|
||||||||||||
Net loss
|
$ | (1,328,000 | ) | $ | (120,000 | ) | $ | (1,448,000 | ) | $ | (517,000 | ) | ||||
Interest
expense
|
686,000
|
52,000
|
638,000
|
56
,000
|
||||||||||||
Depreciation
|
105,000
|
62,000
|
186,000
|
106,000
|
||||||||||||
Amortization
of intangibles
|
62,000
|
55,000
|
119,000
|
94
,000
|
||||||||||||
EBITDA
|
$ | (475,000 | ) | $ |
49,000
|
$ | (505,000 | ) | $ | (261,000 | ) |
Other
Unaudited Pro forma Financial Data:
|
Six
Months Ended
March
31, 2007 (b)
|
Year
Ended
September
30, 2006 (a)
|
||||||
Net
income
|
$
|
19,000
|
$
|
(192,000
|
)
|
|||
Income
tax provision
|
43,000
|
57,000
|
||||||
Interest
expense
|
12,000
|
17,000
|
||||||
Depreciation
|
120,000
|
166,000
|
||||||
Amortization
of intangibles
|
103,000
|
212,000
|
||||||
EBITDA
|
$
|
297,000
|
$
|
260,000
|
(a)
|
On
April 24, 2006 and December 15, 2004 we acquired New Tilt and iapps
®
,
respectively. The results of operations of New Tilt and iapps are
included in our consolidated financial statements from the dates
of the
acquisitions. Subsequent to the sale of 3,000,000 shares of our common
stock in this offering, we intend to acquire Objectware. A portion
of the
proceeds of this offering will be used to retire indebtedness. The
accompanying summary financial data reflect the effect of these
transactions as if they occurred at the beginning of the most recent
fiscal year on October 1, 2005.
|
(b)
|
Subsequent
to the sale of 3,000,000 shares of our common stock in this offering,
we
intend to acquire Objectware. A portion of the proceeds of this offering
will be used to retire indebtedness. The accompanying summary financial
data reflect the effect of these transactions as if they occurred
at the
beginning of the fiscal year on October 1,
2006.
|
·
|
harm
to our reputation;
|
·
|
lost
sales;
|
·
|
delays
in commercial release;
|
·
|
product
liability claims;
|
·
|
contractual
disputes;
|
·
|
negative
publicity;
|
·
|
delays
in or loss of market acceptance of our products;
|
·
|
license
terminations or renegotiations; or
|
·
|
unexpected
expenses and diversion of resources to remedy
errors.
|
·
|
be
expensive and time consuming to defend;
|
·
|
result
in negative publicity;
|
·
|
force
us to stop licensing our products that incorporate the challenged
intellectual property;
|
·
|
require
us to redesign our products;
|
·
|
divert
management’s attention and our other resources; or
|
·
|
require
us to enter into royalty or licensing agreements in order to obtain
the
right to use necessary technologies, which may not be available on
terms
acceptable to us, if at all.
|
·
|
user
privacy;
|
·
|
the
pricing and taxation of goods and services offered over the
Internet;
|
·
|
the
content of Websites;
|
·
|
copyrights;
|
·
|
consumer
protection, including the potential application of “do not call” registry
requirements on customers and consumer backlash in general to direct
marketing efforts of customers;
|
·
|
the
online distribution of specific material or content over the Internet;
or
|
·
|
the
characteristics and quality of products and services offered over
the
Internet.
|
·
|
variations
in our operating results;
|
·
|
changes
in the general economy and in the local economies in which we
operate;
|
·
|
the
departure of any of our key executive officers and
directors;
|
·
|
the
level and quality of securities analysts’ coverage for our common
stock;
|
·
|
announcements
by us or our competitors of significant acquisitions, strategic
partnerships, joint ventures or capital
commitments;
|
·
|
changes
in the federal, state, and local laws and regulations to which we
are
subject; and
|
·
|
future
sales of our common stock.
|
·
|
Our
inability to attract new customers at a steady or increasing
rate;
|
·
|
Our
inability to provide and maintain customer
satisfaction;
|
·
|
Price
competition or higher prices in the industry;
|
·
|
Higher
than expected costs of operating our
business;
|
·
|
The
amount and timing of operating costs and capital expenditures relating
to
the expansion of our business, operations and infrastructure are
greater
and higher than expected;
|
·
|
Technical,
legal and regulatory difficulties with respect to our business
occur; and
|
·
|
General
downturn in economic conditions that are specific to our market,
such as a
decline in information technology
spending.
|
·
|
authorizing
the issuance of preferred stock that can be created and issued by
our
Board of Directors without prior shareholder approval, commonly referred
to as “blank check” preferred stock, with rights senior to those of our
common stock;
|
·
|
limiting
the persons who can call special shareholder meetings;
|
·
|
establishing
advance notice requirements to nominate persons for election to our
Board
of Directors or to propose matters that can be acted on by shareholders
at
shareholder meetings;
|
·
|
the
lack of cumulative voting in the election of
directors;
|
·
|
requiring
an advance notice of any shareholder business before the annual meeting
of
our shareholders;
|
·
|
filling
vacancies on our Board of Directors by action of a majority of the
directors and not by the shareholders, and
|
·
|
the
division of our Board of Directors into three classes with each class
of
directors elected for a staggered three year term. In addition, our
organizational documents will contain a supermajority voting requirement
for any amendments of the staggered board
provisions.
|
Use
|
Amount
(in
thousands)
|
Percent
|
||||||
Repayment
of indebtedness
|
$
|
2,800
|
19.6
|
%
|
||||
Payment
of cash portion in connection with the acquisition of Objectware,
together
with expenses associated with that acquisition
|
3,305
|
23.1
|
%
|
|||||
Other
potential acquisitions (approximate)
|
2,000
|
14.0
|
%
|
|||||
General
corporate purposes, including working capital
|
6,200
|
43.3
|
%
|
|||||
Total
|
$
|
14,305
|
100.0
|
%
|
·
|
“Actual”
is based on our unaudited financial statements as of March 31,
2007.
|
·
|
“Adjustments”
gives the effect of the sale of shares in this offering and the
application of the net proceeds from this offering as described under
“Use
of Proceeds” on page 23 and assumes that the underwriters do not exercise
their over-allotment option and is further adjusted for issuances
of
shares and options pursuant to the completion of the acquisition
of
Objectware.
|
·
|
“As
Adjusted” gives the net effect of the adjustments to actual for the sale
of shares in this offering and the application of the net proceeds
from
this offering as described under “Use of Proceeds” on page
23 assuming that the underwriters do not exercise their
over-allotment option, and the effect for issuances of shares and
options
pursuant to the completion of the acquisition of
Objectware.
|
March
31, 2007
(Dollars
in thousands)
|
||||||||||||
Actual
|
Adjustments
(a)
|
As
Adjusted
|
||||||||||
Long-term
obligations, including current maturities
|
$
|
2,891
|
$
|
(2,769
|
)
|
$
|
122
|
|||||
Shareholders’
equity:
|
||||||||||||
Common
stock $.001 par value: 20,000,000 shares authorized, 4,277,250 shares
issued and outstanding (actual) and 7,768,159 shares issued and
outstanding (as adjusted)
|
4
|
3
|
7
|
|||||||||
Preferred
stock, $.001 par value: 1,000,000 shares authorized, no shares issued
and outstanding
|
—
|
—
|
—
|
|||||||||
Additional
paid-in capital
|
9,980
|
16,743
|
26,723
|
|||||||||
Accumulated
deficit
|
(5,491
|
)
|
(63
|
)(b)
|
(5,554
|
)
|
||||||
Total
equity
|
4,493
|
16,683
|
21,176
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capitalization
|
$
|
7,384
|
$
|
13,914
|
$
|
21,298
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Gives
effect to the sale of an aggregate 3,000,000 shares of common stock
in
this offering resulting in net proceeds to us of $14,305,000 net
of
underwriters discount of 10.00% and other expenses of the
offering, assuming no exercise of the underwriters’ over-allotment
option, and issuance of an additional 490,909 shares of common stock
upon
the completion of the acquisition of Objectware at an assumed price
of
$5.50 per share combined with $174,000 representing conversion of
Objectware options to Bridgeline
options.
|
(b)
|
Includes
expensing the unamortized debt discount of $31,000 and unamortized
financing fees of $32,000.
|
Unaudited
|
||||||||||||||||||||||||
Six
Months Ended March 31,
|
Year
Ended September 30,
|
|||||||||||||||||||||||
Historical
|
Pro
Forma
|
Historical
|
Historical
|
Pro
Forma
|
Historical
|
|||||||||||||||||||
2007
|
2007
(b)
|
2006
|
2006
|
2006
(a)
|
2005
|
|||||||||||||||||||
Income
Statement Data:
|
||||||||||||||||||||||||
Revenues
|
$
|
4,532
|
$
|
7,156
|
$
|
3,569
|
$
|
8,235
|
$
|
13,056
|
$
|
5,769
|
||||||||||||
Cost
of revenue
|
2,156
|
3,468
|
1,669
|
3,809
|
6,653
|
3,113
|
||||||||||||||||||
Gross
profit
|
2,376
|
3,688
|
1,900
|
4,426
|
6,403
|
2,656
|
||||||||||||||||||
Income
(loss) from operations
|
$
|
(642
|
)
|
$
|
34
|
$
|
(68
|
)
|
$
|
(810
|
)
|
$
|
(186
|
) |
$
|
(461
|
)
|
|||||||
Net
income (loss)
|
$
|
(1,328
|
)
|
$
|
19
|
$
|
(120
|
)
|
$
|
(1,448
|
)
|
$
|
(192
|
) |
$
|
(517
|
)
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share:
|
||||||||||||||||||||||||
Basic
|
$
|
(0.31
|
)
|
$
|
0.00
|
$
|
(0.03
|
)
|
$
|
(0.36
|
)
|
$
|
(0.03
|
) |
$
|
(0.14
|
)
|
|||||||
Diluted
|
$
|
(0.31
|
)
|
$
|
0.00
|
$
|
(0.03
|
)
|
$
|
(0.36
|
)
|
$
|
(0.03
|
) |
$
|
(0.14
|
)
|
|||||||
Number
of weighted average shares:
|
||||||||||||||||||||||||
Basic
|
4,275,107
|
6,254,016
|
3,903,833
|
4,046,278
|
6,336,864
|
3,804,527
|
||||||||||||||||||
Diluted
|
4,275,107
|
7,692,703
|
3,903,833
|
4,046,278
|
6,336,864
|
3,804,527
|
||||||||||||||||||
Unaudited
March
31,
|
September
30,
|
|||||||||||||||||||||||
Unaudited
|
||||||||||||||||||||||||
Historical
|
Pro
Forma
|
Historical
|
Historical
|
Pro
Forma
|
Historical
|
|||||||||||||||||||
2007
|
2007
(b)
|
2006
|
2006
|
2006
(a)
|
2005
|
|||||||||||||||||||
Balance
Sheet Data:
|
||||||||||||||||||||||||
Current
assets
|
$
|
1,494
|
$
|
10,419
|
$
|
1,038
|
$
|
2,073
|
$
|
11,453
|
$
|
935
|
||||||||||||
Total
assets
|
$
|
9,384
|
$
|
23,434
|
$
|
7,026
|
$
|
9,824
|
$
|
23,729
|
$
|
6,739
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
$
|
4,818
|
$
|
2,176
|
$
|
1,378
|
$
|
4,093
|
$
|
1,948
|
$
|
1,114
|
||||||||||||
Total
liabilities
|
$
|
4,891
|
$
|
2,258
|
$
|
1,552
|
$
|
4,192
|
$
|
2,056
|
$
|
1,147
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders’ equity
|
$
|
4,493
|
$
|
21,176
|
$
|
5,475
|
$
|
5,632
|
$
|
21,673
|
$
|
5,592
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
$
|
9,384
|
$
|
23,434
|
$
|
7,026
|
$
|
9,824
|
$
|
23,729
|
$
|
6,739
|
|
|
Unaudited
Six Months Ended
March
31,
|
|
|
Year
Ended September 30,
|
|
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Historical
|
|
|
|
|
|
Historical
|
|
|
Historical
|
|
|
|
|
Historical
|
|
|||||||
|
|
2007
|
|
|
|
|
2006
|
|
|
2006
|
|
|
|
|
2005
|
|||||||||
Cash
Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used in) provided by operating activities
|
|
$
|
(297
|
)
|
|
|
|
|
|
$
|
130
|
|
|
$
|
(733
|
)
|
|
|
|
|
|
$
|
(430
|
)
|
Acquisitions,
net of cash acquired
|
|
$
|
—
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
(553
|
)
|
|
|
|
|
|
$
|
(310
|
)
|
Net
cash used in investing activities
|
|
$
|
(189
|
)
|
|
|
|
|
|
$
|
(69
|
)
|
|
$
|
(842
|
)
|
|
|
|
|
|
$
|
(545
|
)
|
Proceeds
from issuance of short-term debt
|
|
$
|
—
|
|
|
|
|
|
|
—
|
|
|
$
|
2,434
|
|
|
|
|
|
|
$
|
—
|
|
|
Net
increase (decrease) in cash for the period
|
|
$
|
(495
|
)
|
|
|
|
|
|
$
|
(4
|
)
|
|
$
|
453
|
|
|
|
|
|
|
$
|
(818
|
)
|
(a)
|
Reflects
the April 24, 2006 acquisition of New Tilt, the probable acquisition
of
Objectware and this offering.
|
(b)
|
Reflects
the probable acquisition of Objectware and this
offering.
|
Without
giving effect
to
the release of the
closing
escrow in
connection
with the
acquisition
of
Objectware
|
After
giving effect
to
the release of the
closing
escrow in
connection
with the
acquisition
of
Objectware
|
|||||||
Assumed
initial public offering price per share
|
$
|
5.50
|
$
|
5.50
|
||||
Net
tangible book value (deficit) per share before the
offering
|
(0.64
|
)
|
(0.64
|
)
|
||||
Reduction
in deficit in net tangible book value per share attributable to
the
offering
|
2.23
|
2.23
|
||||||
Increase
in deficit in net tangible book value per share attributable to
the
acquisition of Objectware
|
—
|
(0.36
|
)
|
|||||
Pro
forma net tangible book value per share after the offering
|
1.59
|
1.23
|
||||||
Dilution
per share to new investors
|
$
|
3.91
|
$
|
4.27
|
|
|
|
|
|
|
|
|
|
|
|
Consideration
|
|
||||||||
|
|
Shares
|
|
|
Purchased
|
|
|
Total
|
|
|
|
|
|
Price/Share
|
|
|||||
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Average
|
|
|||||
Officers,
directors, promoters and affiliated persons
|
|
|
2,479,216
|
|
|
|
32.35
|
%
|
|
$
|
5,014,605
|
(1)
|
|
|
18.02
|
%
|
|
$
|
2.02
|
|
Other
existing shareholders
|
|
|
2,184,908
|
|
|
|
28.51
|
%
|
|
|
6,313,915
|
(2)
|
|
|
22.69
|
%
|
|
$
|
2.89
|
|
New
Investors
|
|
|
3,000,000
|
|
|
|
39.14
|
%
|
|
|
16,500,000
|
|
|
|
59.29
|
%
|
|
$
|
5.50
|
|
Total
|
|
|
7,664,124
|
|
|
|
100.00
|
%
|
|
$
|
27,828,520
|
|
|
|
100.00
|
%
|
|
$
|
3.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The
total consideration paid by officers, directors, promoters and affiliated
persons includes: (i) $2,467,082 received in the form of stock of
companies we acquired; (ii) $1,227,919 in cash consideration received
or
which may be received upon the exercise of options or warrants previously
exercised, currently exercisable or exercisable within 60 days after
February 1, 2007; (iii) $2,600 in cash consideration received in
return
for shares of common stock issued to our founder upon our organization;
and (iv) $1,317,003 in cash consideration received in several private
placements.
|
(2)
|
The
total consideration paid by all other existing shareholders includes:
(i)
$3,257,125 received in the form of stock of companies we acquired;
and
(ii) $3,056,790 in cash consideration received in several private
placements.
|
Unaudited
Six Months
Ended
March 31,
|
Year
Ended September 30,
|
|||||||||||||||
(in
thousands)
|
(in
thousands)
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
2007
(a)
|
2006
|
2006
|
2005
|
|||||||||||||
Income
Statement Data:
|
||||||||||||||||
Revenues
|
$
|
4,532
|
$
|
3,569
|
$
|
8,235
|
$
|
5,769
|
||||||||
Cost
of revenue
|
2,156
|
1,669
|
3,809
|
3,113
|
||||||||||||
Gross
profit
|
$ |
2,376
|
$ |
1,900
|
$ |
4,426
|
$ |
2,656
|
||||||||
Loss
from operations
|
$
|
(642
|
)
|
$
|
(68
|
)
|
$
|
(810
|
)
|
$
|
(461
|
)
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
$
|
(1,328
|
)
|
$
|
(120
|
)
|
$
|
(1,448
|
)
|
$
|
(517
|
)
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share:
|
||||||||||||||||
Basic
and diluted
|
$
|
(0.31
|
)
|
$
|
(0.03
|
)
|
$
|
(0.36
|
)
|
$
|
(0.14
|
)
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data:
|
||||||||||||||||
Current
assets
|
$
|
1,494
|
$
|
1,038
|
$
|
2,073
|
$
|
935
|
||||||||
Definite-lived
intangible assets, net
|
$
|
241
|
$
|
275
|
$
|
303
|
$
|
331
|
||||||||
Goodwill
|
$
|
6,496
|
$
|
5,139
|
$
|
6,346
|
$
|
5,097
|
||||||||
Total
assets
|
$
|
9,384
|
$
|
7,026
|
$
|
9,824
|
$
|
6,739
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
notes payable, net of discount
|
$
|
2,769
|
$
|
—
|
$
|
2,497
|
$
|
—
|
||||||||
Current
liabilities
|
$
|
4,818
|
$
|
1,378
|
$
|
4,093
|
$
|
1,114
|
Total
liabilities
|
$
|
4,891
|
$
|
1,552
|
$
|
4,192
|
$
|
1,147
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders’ equity
|
$
|
4,493
|
$
|
5,475
|
$
|
5,632
|
$
|
5,592
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
$
|
9,384
|
$
|
7,026
|
$
|
9,824
|
$
|
6,739
|
Actual
|
Pro
forma
|
|||||||||||
Unaudited
Six
|
Unaudited
Six
|
Unaudited
|
||||||||||
Months
Ended
|
Months
Ended
|
Year
Ended
|
||||||||||
March
31, 2007
|
March
31, 2007 (b)
|
September
30, 2006 (a)
|
||||||||||
Income
Statement Data:
|
||||||||||||
Revenues
|
$
|
4,532
|
$
|
7,156
|
$
|
13,056
|
||||||
Cost
of revenue
|
2,156
|
3,468
|
6,653
|
|||||||||
Gross
profit
|
2,376
|
3,688
|
6,403
|
|||||||||
Sales
and marketing expense
|
1,577
|
1,577
|
3,304
|
|||||||||
Technology
development
|
346
|
346
|
176
|
|||||||||
General
and administrative expense
|
1,095
|
1,731
|
3,109
|
|||||||||
Income (loss)
from operations
|
$
|
(642
|
)
|
$
|
34
|
$
|
(186
|
) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
$
|
(1,328
|
)
|
$
|
19
|
$
|
(192
|
) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
||||||||||||
Basic
|
$
|
(0.31
|
)
|
$
|
0.00
|
$
|
(0.03
|
) | ||||
Diluted
|
$
|
(0.31
|
)
|
$
|
0.00
|
$
|
(0.03
|
) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Shares:
|
||||||||||||
Basic
|
4,275,107
|
6,254,016
|
6,336,864
|
|||||||||
Diluted
|
4,275,107
|
7,692,703
|
6,336,864
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data:
|
||||||||||||
Current
assets
|
$
|
1,494
|
$
|
10,419
|
$
|
11,453
|
||||||
Definite-lived
intangible assets, net
|
$
|
241
|
$
|
650
|
$
|
712
|
||||||
Goodwill
|
$
|
6,496
|
$
|
11,345
|
$
|
10,386
|
||||||
Total
assets
|
$
|
9,384
|
$
|
23,434
|
$
|
23,729
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt, net of discount
|
$
|
2,769
|
$
|
—
|
$
|
—
|
||||||
Current
liabilities
|
$
|
4,818
|
$
|
2,176
|
$
|
1,948
|
||||||
Total
liabilities
|
$
|
4,891
|
$
|
2,258
|
$
|
2,056
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders’ equity
|
$
|
4,493
|
$
|
21,176
|
$
|
21,673
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
$
|
9,384
|
$
|
23,434
|
$
|
23,729
|
|
(a)
|
On
April 25, 2006, we acquired New Tilt. The operations of New Tilt
have been
included in our consolidated financial statements from the date of
acquisition.
|
|
(b)
|
Reflects
the probable acquisition of Objectware and the
offering.
|
|
|
Six
Months Ended March 31,
|
|
Years
Ended September 30,
|
||||
|
|
2007
|
|
2006
|
|
2006
|
|
2005
|
Web
Services
|
|
81.3%
|
|
77.3%
|
|
79.2%
|
|
72.5%
|
Managed
Services
|
|
13.2
|
|
16.2
|
|
15.1
|
|
21.6
|
Subscription
|
|
5.5
|
|
6.5
|
|
5.7
|
|
5.9
|
|
|
100.0%
|
|
100.0%
|
|
100.0%
|
|
100.0%
|
·
|
economic
conditions affecting the budget priorities of our
customers;
|
·
|
the
acquisition or cancellation of significant clients;
|
·
|
worldwide
acts of terrorism effecting U.S. markets; and
|
·
|
seasonality.
|
·
|
Allowance
for doubtful accounts;
|
·
|
Revenue
recognition;
|
·
|
Accounting
for goodwill and other intangible assets; and
|
·
|
Accounting
for stock-based compensation.
|
Date
of Grant
|
|
Number
of
Options
|
|
|
Option
Exercise
Price
|
|
|
Fair
Value
|
|
|
Intrinsic
Value
|
|
||||
December
2005
January
2006
February
2006
March
2006
April
2006
September
2006
October
2006
November
2006
December
2006
January
2007
February
2007
March
2007
|
|
|
16,667
16,667
8,333
10,833
102,420
50,000
31,880
—
—
—
—
—
|
|
|
$
|
3.75
3.75
3.75
3.75
3.75
3.75
3.75
—
—
—
—
—
|
|
|
$
|
2.07
2.16
2.28
2.37
2.24
2.46
2.50
—
—
—
—
—
|
|
|
$
|
—
—
—
—
—
—
—
—
—
—
—
—
|
|
|
|
|
236,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grants
made during
Quarter
Ended
|
Number
of
Options
Granted
|
Weighted-Average
Exercise
Price
|
Weighted-Average
Fair
Value per Share
|
Weighted-Average
Intrinsic
Value per Share
|
||||
June
30, 2006
|
102,420
|
$3.75
|
$2.24
|
—
|
||||
September
30, 2006
|
50,000
|
$3.75
|
$2.46
|
—
|
||||
December
31, 2006
|
31,880
|
$3.75
|
$2.50
|
—
|
||||
March
31, 2007
|
—
|
—
|
—
|
—
|
|
•
|
In
April 2006, we issued notes in the aggregate of $2.8 million through
a
private placement with attached warrants in order to finance our
initial
public offering, acquire New Tilt, Inc and fund on-going operations
(see
Note 7).
|
|
•
|
In
April 2006, we acquired the business and assets of New Tilt, Inc.
adding
12 employees and extending our product offering in the Boston market
into
the health and life sciences sector of the industry (see Note
3).
|
|
•
|
In
May 2006, we launched our research and development initiative in
Bangalore, India to redesign our on-demand software
platform. We hired an additional 25 software engineers over a
six month period to achieve an anticipated launch date by July
2007.
|
|
•
|
On
December 7, 2006, we signed a definitive merger agreement with Objectware,
Inc. The acquisition of Objectware, Inc. will add 25 employees and
allow
us to expand into the Atlanta market and significantly increase revenues
(see Note 11).
|
|
•
|
On
December 13, 2006, we filed our initial registration statement with
the
Securities and Exchange Commission (see Note 11).
|
||
•
|
In
April 2007, we extended the maturity date of the senior notes payable
described above to June 21, 2007 and on June 20, 2007, we further
extended
the maturity date to July 5, 2007 (see Note
11).
|
Nonvested Shares |
Shares
|
Weighted-
Average
Grant-Date
Fair
Value
|
||||||
Nonvested at September 30, 2006 |
379,131
|
$ |
2.11
|
|||||
Granted |
31,880
|
2.50
|
||||||
Vested | (32,647 | ) |
1.93
|
|||||
Forfeited | (69,227 | ) |
2.10
|
|||||
Nonvested at March 31, 2007 |
309,137
|
2.13
|
Weighted
Average Per Share
|
||||||||||||||||
Weighted
|
Estimated
|
Intrinsic
|
||||||||||||||
Average
|
Fair
Value of
|
Value
|
||||||||||||||
Options
|
Exercise
|
Common
Stock
|
at
Grant
|
|||||||||||||
Granted
|
Prices
|
at
Grant Date
|
Date
|
|||||||||||||
Six
Months Ended March 31, 2007
|
31,880
|
$ |
3.75
|
$ |
2.50
|
$ |
—
|
|||||||||
Year
Ended September 30, 2006
|
204,920
|
$ |
3.75
|
$ |
2.26
|
$ |
—
|
|||||||||
Year
Ended September 30, 2005
|
429,616
|
$ |
3.44
|
$ |
3.75
|
$ |
0.31
|
Six
Months Ended
|
Year
Ended September 30,
|
|||||||||||
March
31, 2006
|
2006
|
2005
|
||||||||||
Net
loss
|
$ | (120 | ) | $ | (1,448 | ) | $ | (517 | ) | |||
Deduct:
Stock based employee
|
||||||||||||
compensation
determined under
|
||||||||||||
the
fair value based method
|
||||||||||||
for
all awards, net of tax effect
|
(254 | ) | (507 | ) | (321 | ) | ||||||
Pro
forma net loss
|
$ | (374 | ) | $ | (1,955 | ) | $ | (838 | ) | |||
Pro
forma net loss per share:
|
||||||||||||
Basic
and diluted
|
$ | (0.08 | ) | $ | (0.48 | ) | $ | (0.22 | ) | |||
As
reported net loss per share:
|
||||||||||||
Basic
and diluted
|
$ | (0.03 | ) | $ | (0.36 | ) | $ | (0.14 | ) | |||
Weighted
average shares outstanding:
|
||||||||||||
Basic
and diluted
|
4,273,833
|
4,046,278
|
3,804,527
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
Expected
|
|
Option
|
|
|
|
of
Stock
|
|
Stock
|
|
Risk
Free
|
|
Dividend
|
|
Option
Life
|
|
Exercise
|
|
|
|
Prices
|
|
Volatility
|
|
Rate
of Return
|
|
Rate
|
|
in
Years
|
|
Prices
|
|
Year
Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
$
2.07 -
$2.46
|
|
70%
|
|
4.31%
-
4.70%
|
|
0%
|
|
6.5
- 10
|
|
$
3.75
|
|
2005
|
|
$
3.75
|
|
70%
- 90%
|
|
3.26%
-
4.13%
|
|
0%
|
|
6.5
|
|
$
3.00 - $
3.75
|
|
Year
Ended September 30,
|
||||||||
2006
|
2005
|
|||||||
Options
granted to non-employees
|
9,227
|
—
|
||||||
Warrants
granted to non-employees
|
392,000
|
75,727
|
||||||
Contractual
lives in years
|
5
-
10
|
5
|
||||||
Estimated
fair value of common stock
|
$ |
2.07
- 2.46
|
$ |
3.75
|
||||
Exercise
prices
|
$ |
0.001
- 4.68
|
$ |
4.68
|
||||
Estimated
stock volatility
|
70 | % | 70% - 90 | % | ||||
Risk
free rate of return
|
3.70%
to 4.93
|
% |
3.36%
to 3.48
|
% | ||||
Dividend
Rate
|
0 | % | 0 | % |
Six
Fiscal Months Ended
March
31,
|
||||||||
2007
|
2006
|
|||||||
Revenue
|
100
|
%
|
100
|
%
|
||||
Cost
of revenue
|
47
|
47
|
||||||
Gross
profit
|
53
|
53
|
||||||
Operating
expenses:
|
||||||||
Sales
and marketing
|
35
|
33
|
||||||
General
and administrative
|
24
|
21
|
||||||
Technology
development
|
8
|
1
|
||||||
Loss
from operations
|
(14
|
)
|
(2
|
)
|
||||
Interest
income (expense), net
|
(15
|
)
|
(1
|
)
|
||||
Net
loss
|
(29
|
%)
|
(3
|
%)
|
Net
change
2007
vs. 2006
|
||||||||||||||||
Fiscal
Six Months Ended March 31,
|
2007
|
2006
|
$
|
%
|
||||||||||||
Total
revenue
|
$
|
4,532,000
|
$
|
3,569,000
|
$
|
963,000
|
27
|
%
|
||||||||
Cost
of revenue
|
2,156,000
|
1,669,000
|
487,000
|
29
|
||||||||||||
Gross
profit
|
$
|
2,376,000
|
$
|
1,900,000
|
$
|
476,000
|
25
|
%
|
Net
change 2007 vs. 2006
|
||||||||||||||||
Fiscal
Six Months Ended March 31,
|
2007
|
2006
|
$
|
%
|
||||||||||||
Web
Services
|
$
|
3,684,000
|
$
|
2,760,000
|
$
|
924,000
|
33
|
%
|
||||||||
Managed
Services
|
597,000
|
578,000
|
19,000
|
3
|
||||||||||||
Subscription
|
251,000
|
231,000
|
20,000
|
9
|
||||||||||||
$
|
4,532,000
|
$
|
3,569,000
|
$
|
963,000
|
27
|
%
|
Net
change 2007 vs. 2006
|
||||||||||||||||
Fiscal
Six Months Ended March 31,
|
2007
|
2006
|
$
|
%
|
||||||||||||
Web
Services
|
$
|
1,995,000
|
$
|
1,486,000
|
$
|
509,000
|
34
|
%
|
||||||||
Managed
Services
|
146,000
|
153,000
|
(7,000
|
)
|
(5
|
)
|
||||||||||
Subscription
|
15,000
|
30,000
|
(15,000
|
)
|
(50
|
)
|
||||||||||
$
|
2,156,000
|
$
|
1,669,000
|
$
|
487,000
|
29
|
%
|
Net
change 2007 vs. 2006
|
||||||||||||||||
Fiscal
Six Months Ended March 31,
|
2007
|
2006
|
$
|
%
|
||||||||||||
Web
Services
|
$
|
1,689,000
|
$
|
1,274,000
|
$
|
415,000
|
33
|
%
|
||||||||
Managed
Services
|
451,000
|
425,000
|
26,000
|
6
|
||||||||||||
Subscription
|
236,000
|
201,000
|
35,000
|
17
|
||||||||||||
$
|
2,376,000
|
$
|
1,900,000
|
$
|
476,000
|
25
|
%
|
Fiscal
Years Ended
September
30,
|
||||||||
2006
|
2005
|
|||||||
Revenue
|
100
|
%
|
100
|
%
|
||||
Cost
of revenue
|
46
|
54
|
||||||
Gross
profit
|
54
|
46
|
||||||
Operating
expenses:
|
||||||||
Sales
and marketing
|
39
|
36
|
||||||
General
and administrative
|
23
|
17
|
||||||
Technology
development
|
2
|
1
|
||||||
Loss
from operations
|
(10
|
)
|
(8
|
)
|
||||
Interest
income (expense), net
|
(8
|
)
|
(1
|
)
|
||||
Net
loss
|
(18
|
%)
|
(9
|
%)
|
Net
change 2006 vs. 2005
|
||||||||||||||||
Fiscal
Years Ended September 30,
|
2006
|
2005
|
$
|
%
|
||||||||||||
Total
revenue
|
$
|
8,235,000
|
$
|
5,769,000
|
$
|
2,466,000
|
43
|
%
|
||||||||
Cost
of revenue
|
3,809,000
|
3,113,000
|
696,000
|
22
|
||||||||||||
Gross
profit
|
$
|
4,426,000
|
$
|
2,656,000
|
$
|
1,770,000
|
67
|
%
|
Net
change 2006 vs. 2005
|
||||||||||||||||
Fiscal
Years Ended September 30,
|
2006
|
2005
|
$
|
%
|
||||||||||||
Web
Services
|
$
|
6,525,000
|
$
|
4,182,000
|
$
|
2,343,000
|
56
|
%
|
||||||||
Managed
Services
|
1,243,000
|
1,244,000
|
(1,000
|
)
|
—
|
|||||||||||
Subscription
|
467,000
|
343,000
|
124,000
|
36
|
||||||||||||
$
|
8,235,000
|
$
|
5,769,000
|
$
|
2,466,000
|
43
|
%
|
Net
change 2006 vs. 2005
|
||||||||||||||||
Fiscal
Years Ended September 30,
|
2006
|
2005
|
$
|
%
|
||||||||||||
Web
Services
|
$
|
3,389,000
|
$
|
2,629,000
|
$
|
760,000
|
29
|
%
|
||||||||
Managed
Services
|
363,000
|
457,000
|
(94,000
|
)
|
(21
|
)
|
||||||||||
Subscription
|
57,000
|
27,000
|
30,000
|
111
|
||||||||||||
$
|
3,809,000
|
$
|
3,113,000
|
$
|
696,000
|
22
|
%
|
Net
change 2006 vs. 2005
|
||||||||||||||||
Fiscal
Years Ended September 30,
|
2006
|
2005
|
$
|
%
|
||||||||||||
Web
Services
|
$
|
3,136,000
|
$
|
1,553,000
|
$
|
1,583,000
|
102
|
%
|
||||||||
Managed
Services
|
880,000
|
787,000
|
93,000
|
12
|
%
|
|||||||||||
Subscription
|
410,000
|
316,000
|
94,000
|
30
|
%
|
|||||||||||
$
|
4,426,000
|
$
|
2,656,000
|
$
|
1,770,000
|
67
|
%
|
Payment
Obligations by Year
|
FY
07
|
FY
08
|
FY
09
|
FY
10
|
FY
11
|
Totals
|
||||||||||||||||||
Operating
leases (A)
|
$
|
225
|
$
|
197
|
$
|
192
|
$
|
230
|
$
|
—
|
$
|
844
|
||||||||||||
Capital
lease obligations
|
33
|
65
|
40
|
13
|
1
|
152
|
||||||||||||||||||
Contingent
acquisition payments (B)
|
175
|
325
|
240
|
—
|
740
|
|||||||||||||||||||
Short-term
debt (including interest)
|
2,928
|
—
|
—
|
—
|
—
|
2,928
|
||||||||||||||||||
Total
|
$
|
3,361
|
$
|
587
|
$
|
472
|
$
|
243
|
$
|
1
|
$
|
4,664
|
(A)
|
Amounts
shown are net of sublease income of $56, $112 and $47 in fiscal years
ended September 30, 2007, 2008 and 2009, respectively.
|
(B)
|
The
contingent acquisition payments are maximum potential earn-out
consideration payable to the former owners of iapps and New
Tilt. Amounts actually paid may be
less.
|
·
|
Content
Management
|
·
|
eCommerce
Management
|
·
|
Relationship
Management
|
·
|
eMarketing
Management
|
·
|
Grants
Management
|
·
|
User
experience development
|
·
|
Web
application development
|
·
|
Search
engine optimization
|
·
|
a
Standard of Excellence Award and Outstanding Website Awards in the
Web
Marking Association’s WebAward Competition, an annual competition that
names the best Web applications in 96
industries;
|
·
|
being
selected as a finalist for numerous MITX Awards from the Massachusetts
Innovation & Technology Exchange, which acknowledge the best creative
and technological accomplishments in interactive technology emerging
from
New England;
|
·
|
being
among the winners of several Axiem Awards, an international award
program
created to honor those who produce the best in all forms of interactive
technology; and
|
·
|
winning
Bronze and Merit Awards at the One Show Interactive Awards from The
One
Club for Art and Copy, Inc., which honor creativity and effectiveness
in
global communications in the area of interactive
technology.
|
·
|
the
complementary technical ability to market, sell and deliver Web-based
software tools in their particular metropolitan market
areas;
|
·
|
the
desire to improve their profit margins by licensing our web software
tools
to their customer base;
|
·
|
an
established base of customers with local market presence that can
potentially accelerate our time to market in geographic areas where
we do
not currently operate;
|
·
|
the
desire reduce development costs by leveraging our Bangalore, India
development center; and
|
·
|
the
desire to leverage certain centralized cost centers such as finance,
human
resources, legal, and marketing.
|
·
|
In
December 2000, we acquired Streamline Communications, a Boston,
Massachusetts-based company.
|
·
|
In
February 2002, we acquired Lead Dog Digital, Inc., a New York, New
York-based company.
|
·
|
In
December 2004, we acquired Interactive Applications, Inc., a Washington,
D.C.-based company.
|
·
|
In
April 2006, we acquired New Tilt, Inc., a Cambridge, Massachusetts-based
company.
|
·
|
Many
of the existing Web applications were developed from 1999 to 2003,
utilizing older Web development technologies such as HTML. The Web
applications developed were limited and
did
|
|
not
provide significant operational efficiencies. Since 1999, there
have been
technological advancements in dynamic Web logic, open source standards,
and broadband technologies. We believe these technological advancements
combined with resurgence in information technology spending will
fuel
strong investments towards redeveloping legacy Web
applications.
|
·
|
Many
organizations will likely continue to experiment and expand their
use of
Web services by utilizing their existing base of technologies until
volume
and levels of complexity force review and investment, in particular
for
service-oriented management
solutions.
|
·
|
A
heavy influence on the timing and amounts of when organizations may
determine to invest relates to the waves of major versions released
by key
vendors. For example, organizations may determine to wait until Microsoft
meets market commitments on its Longhorn releases, and SAP customers
may
be interested in investing as prior versions of software are retired
from
support.
|
·
|
The
conversion of software pricing models from traditional license models
to
more subscription-oriented methods will influence the rate of growth
and
overall size of the market, especially in the context of hosted
applications and service, creating a normalizing
effect.
|
·
|
Software
is built specifically for network delivery and is not deployed in-house;
and
|
·
|
Software
license and hosting revenue is combined such that the software license
and
hosting fees cannot be
differentiated.
|
·
|
Internet
sites
|
·
|
Intranet
sites
|
·
|
Extranet
sites
|
·
|
eCommerce
|
·
|
Database
development
|
·
|
Usability
audits
|
·
|
Information
architecture
|
·
|
Process
analysis and optimization
|
·
|
Interface
design
|
·
|
User
testing
|
·
|
Flexibility:
accessibility via Internet, intranet, or extranets
|
·
|
Savings:
reduced training costs and related
expenses
|
·
|
Convenience:
24/7 availability at the user’s discretion
|
·
|
Longevity:
post-learning usage of updatable
resources
|
·
|
Editors:
Have rights to contribute content in identified areas of the
site.
|
·
|
Approvers:
Responsible for reviewing and either approving or rejecting content
for
particular areas of the site.
|
·
|
Publishers:
Ultimately responsible for final review and publishing of content.
These
users can post content to the live
site.
|
·
|
Administrators:
Responsible for administration of the system. Administrators have
the
ability to add/modify/delete users, groups, permissions, content
sections,
site structure, and content
workflow.
|
·
|
iApps
®
Content
Manager
|
·
|
iApps
®
Web
Analytics
|
·
|
iApps
®
Marketier
|
·
|
iApps
®
Digital
Asset
Manager
|
·
|
iApps
®
Commerce
|
·
|
iApps
®
Grants
Manager
|
·
|
Financial
services
|
·
|
Life
sciences
|
·
|
High
technology
|
·
|
Foundations
and non profit organizations
|
·
|
Federal
and state government agencies
|
·
|
streamlines
our customer qualification process
|
·
|
strengthens
our relationship with our customer
|
·
|
ensures
our skill set and tools match the customer’s needs
|
·
|
results
in the submission of accurate
proposals
|
·
|
Differentiation
by marketing our content management software, netEDITOR
®
|
·
|
Differentiation
by marketing our on-demand Web tools from the Orgitecture
TM
platform
|
·
|
Improved
margins by selling and licensing our Web software tools mentioned
above
|
·
|
Improved
margins by utilizing our development center in Bangalore,
India
|
·
|
Improved
sales by being a part of a larger company
|
·
|
Improved
sales by adopting our 4-phase sales methodology
|
·
|
Improved
internal reporting and communications
|
·
|
Reduced
expense (centralized G&A, R&D, HR, legal, and
marketing)
|
·
|
Liquidity
for their shareholders
|
·
|
Handheld
medical applications that assist doctors in selecting necessary procedures
to comply with insurance carrier policies;
|
·
|
A
courier order processing system with proof-of-delivery software running
on
handheld devices;
|
·
|
Integrating
Palm’s Web Clipping technology into online billing software;
and
|
·
|
Web-based
software that delivers information from the Web to Web-compatible
phones.
|
·
|
Competitive
Analysis
- Performing searches to determine what Web sites in the
customer’s industry are in the top positions of search engines and
determining how to position its customer’s Web sites ahead of
them;
|
·
|
Website
Review
- Reviewing and restructuring its customer’s Web site’s
graphics, content and architecture
|
·
|
to
ensure proper configuration for search engines;
|
·
|
Keyword
Generation
- Developing keyword phrases based on information gathered
during client surveys and competitive analysis;
|
·
|
Proprietary
Leading Page Technology
- Employing proprietary techniques to improve
its customers’ visibility on the
Web;
|
·
|
Ongoing
Registration
- Performing initial registrations and routine
re-registrations with multiple search engines and
directories;
|
·
|
Monthly
Reports
- Providing customers with monthly reports detailing and
explaining their traffic and rankings with the major search engines;
and
|
·
|
Maintenance
and Monitoring
- Performing continual monthly reviews and adjustments
to keep customers’ Web sites at the top of the search
engines.
|
·
|
Product/service
range:
Most existing developers of Web software tools
offer their software tools without directly providing Web application
development services and conversely existing Web application
developers do
not provide internally developed Web software tools. To
distinguish ourselves from the competition, we offer both Web
application
development services and related Web software tools to enhance
the
likelihood of the customer receiving a functional, scalable,
expandable,
and integrated web application from one
source.
|
·
|
Expandability,
rather than individual point solutions:
Our Web software
tools share a single framework (common service layer), which
allows for
expansion of our Web software tools to include other software
modules. We believe that most of the competitive systems do not
provide this level of
expandability.
|
·
|
Ease
of use:
Our Web software tools provide advanced navigation
tools and a simple interface which allow our customers to use
our software
without substantial technical skills. We believe this ease of
use provides us with a competitive advantage in this competitive
environment.
|
·
|
Customization
flexibility:
Our Web software tools are customizable to
meet our customers’ specific application requirements. We
believe this customization flexibility distinguishes Bridgeline
from many
of our competitors.
|
·
|
Reliability:
Based
on our interactions with customers, we believe our Web software
tools
generally meet the reliability expectations of our
customers. We believe this history of reliability is comparable
with many of our competitors.
|
·
|
Low
cost of ownership:
We believe our Web software tools have a lower cost
of ownership than the solutions provided by most of our
competitors.
|
·
|
Established
developers of individual point solutions such as a content management
system, Web analytic systems, marketing management systems, or commerce
systems
.
|
·
|
Established
developers of other individual point solutions such as customer
relationship management systems who plan to expand their product
offering
into our space.
|
·
|
Large
internal IT teams that have the ability to internally develop their
own
custom applications.
|
·
|
Product/service
range:
Most existing developers of Web software tools
offer their software tools without directly providing Web application
development services and conversely existing Web application
developers do
not provide internally developed Web software tools. To
distinguish ourselves from the competition, we offer both Web
application
development services and related Web software tools to enhance
the
likelihood of the customer receiving a functional, scalable,
expandable,
and integrated web application from one
source.
|
·
|
Subject
matter expertise:
Our primary focus is serving clients in a small
number of vertical markets, including financial services, life
sciences,
foundations and non-profit organizations, and high
technology. This focus allows us to invest in the development
of in-house expertise in each of these subject matters. We
believe this in-house expertise allows us to better serve our
customers
and may provide a competitive
advantage.
|
·
|
Diversified
technical expertise:
Our employees have experience in interface
design, information architecture, .NET programming and project
management. Each of our geographic offices has professionals on
staff in these core roles. We believe this diversity of
technical expertise in each of our geographic locations assists
us in
serving our customers and may provide a competitive
advantage.
|
·
|
Reliability:
Based
on our interactions with customers, we believe our Web application
development services generally meet the reliability expectations
of our
customers. We believe this history of reliability is comparable
with many of our competitors.
|
·
|
Location
and accessibility:
We believe having multiple geographic locations
helps us to serve our clients located in those geographic locations
and
may provide us with a competitive advantage over competitors
with
centralized offices.
|
·
|
Low
cost of ownership:
In part due to our off-shore development facility
in Bangalore, India, we believe our Web application development
services
have a lower cost of ownership than the services provided by
most of our
competitors.
|
Location
|
|
Address
|
|
Size
|
Woburn,
Massachusetts
|
|
10
Sixth Road
Woburn,
Massachusetts 01801
|
|
9,335
square feet,
professional
office space
|
New
York, New York
|
|
104
West 40
th
Street
New
York, New York 10018
|
|
4,400
square feet,
professional
office space
|
Washington,
D.C.
|
|
2639
Connecticut Ave., NW
Washington,
D.C. 20008
|
|
9,383
square feet,
professional
office space
|
Bangalore,
India
|
|
71
Sona Towers, West Wing
Millers
Rd., Bangalore 560 052
|
|
7,800
square feet,
professional
office space
|
Norcross,
Georgia*
|
|
5555
Triangle Parkway
Norcross,
Georgia 30092
|
|
7,068
square feet,
professional
office space
|
Reston,
Virginia*
|
|
11440
Commerce Park Drive,
Suite
502, Reston, VA 20191
|
|
1,413
square feet,
professional
office space
|
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
Thomas
Massie
|
|
45
|
|
Chairman,
Chief Executive Officer and President
|
|
|
|
|
|
William
Coldrick
|
|
65
|
|
Director
(1)(2)(3)(4)
|
|
|
|
|
|
Kenneth
Galaznik
|
|
55
|
|
Director
(1)(3)(4)
|
|
|
|
|
|
Robert
Hegarty
|
|
44
|
|
Director(1)(2)(3)(4)
|
|
|
|
|
|
Gary
Cebula
|
|
48
|
|
Executive
Vice President, Treasurer, Corporate Secretary and Chief Financial
Officer
|
|
|
|
|
|
Brett
Zucker
|
|
35
|
|
Executive
Vice President and Chief Technical
Officer
|
(1)
|
Member
of the Audit Committee.
|
(2)
|
Member
of the Compensation Committee.
|
(3)
|
Member
of the Nominating and Governance Committee.
|
(4)
|
Independent
director.
|
Michael
Matteo
|
|
42
|
|
Executive
Vice President & General Manager, New York
|
|
|
|
|
|
Richard
Schwartz
|
|
59
|
|
Executive
Vice President and General Manager, New England
|
|
|
|
|
|
Vikram
Mudgal
|
|
38
|
|
Executive
Vice President and General Manager, Bridgeline India
|
|
|
|
|
|
Miles
Fawcett
|
|
37
|
|
Executive
Vice President and General Manager, Washington,
DC
|
|
|
|
|
|
Peter
“Pip” Winslow
|
|
47
|
|
Executive
Vice President of Human Resources
|
|
|
|
|
|
Donna
Tramontozzi
|
|
53
|
|
Executive
Vice President of Business Strategy
|
|
|
|
|
|
Robert
Seeger
|
|
33
|
|
Senior
Vice President of Business Development, New York
|
|
|
|
|
|
David
Goldsmith
|
|
45
|
|
Vice
President of Business Development,
iapps
|
|
|
|
|
|
Jenny
Quinn
|
|
43
|
|
Senior
Vice President of Business Development, New England
|
|
|
|
|
|
William
Matteson
|
|
61
|
|
Vice
President of Merger Integration
|
·
|
Honest
and ethical conduct, including the ethical handling of actual or
apparent
conflicts of interest between personal and professional
relationships;
|
·
|
Full,
fair, accurate, timely, and understandable disclosure in reports
and
documents that we file with, or submit to, the SEC and in other public
communications made by us;
|
·
|
Compliance
with applicable governmental laws, rules and
regulations;
|
·
|
The
prompt internal reporting of violations of the ethics code to an
appropriate person or persons identified in the
code; and
|
·
|
Accountability
for adherence to the Code of
Ethics.
|
·
|
as
a member of the compensation committee of another entity which has
had an
executive officer who has served on our compensation
committee;
|
·
|
as
a director of another entity which has had an executive officer who
has
served on our compensation committee; or
|
·
|
as
a member of the compensation committee of another entity which has
had an
executive officer who has served as one of our
directors.
|
·
|
any
breach of the director’s duty of loyalty to us or our
shareholders;
|
·
|
acts
or omissions not in good faith or which involve intentional misconduct
or
a knowing violation of law;
|
·
|
the
payment of dividends or the redemption or purchase of stock in violation
of Delaware law; or
|
·
|
any
transaction from which the director derived an improper personal
benefit.
|
|
|
|
|
Long
Term
Compensation
|
|
||||||||||||||||
|
Annual
Compensation
|
|
|
Awards
|
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
|
|
|
Securities
|
|
|||||
|
|
|
|
|
|
|
|
|
Other
Annual
|
|
|
Stock
|
|
|
Underlying
|
|
|||||
|
|
|
Salary
|
|
|
Bonus
|
|
|
Compensation
|
|
|
Award(s)
|
|
|
Options/SARs
|
|
|||||
Name
and Principal Position
|
Year
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Thomas
Massie
|
2006
|
|
|
150,000
|
|
|
|
50,000
|
|
|
|
20,272
|
(1)
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
150,000
|
|
|
|
76,333
|
|
|
|
24,242
|
(1)
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
123,167
|
|
|
|
15,000
|
|
|
|
12,121
|
(1)
|
|
|
|
|
|
|
|
|
Gary
Cebula
|
2006
|
|
|
122,083
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
120,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
2004
|
|
|
123,167
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brett
Zucker
|
2006
|
|
|
144,000
|
|
|
|
52,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
133,358
|
|
|
|
21,366
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
2004
|
|
|
125,716
|
|
|
|
69,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Seeger
|
2006
|
|
|
119,375
|
|
|
|
254,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
123,333
|
|
|
|
157,748
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
2004
|
|
|
101,375
|
|
|
|
212,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Represents life insurance premiums.
|
Name
|
Number
of
Securities
Underlying
Options/SARs
Granted
|
%
of Total
Options/SARs
Granted
to
Employees
in
Fiscal
Year
|
Exercise
or
Base
Price
($/Share)
|
Expiration
Date
|
||||||||||||
Thomas
Massie
|
—
|
—
|
—
|
—
|
||||||||||||
Gary
Cebula
|
100,000
|
24.4
|
$
|
3.75
|
06/01/15
|
|||||||||||
Brett
Zucker
|
100,000
|
24.4
|
$
|
3.75
|
06/01/15
|
|||||||||||
Robert
Seeger
|
50,000
|
12.2
|
$
|
3.75
|
06/01/15
|
Value
of Unexercised
|
||||||||||||||||
Number
of Securities Underlying
|
“in
the Money”
|
|||||||||||||||
Unexercised
Options at
|
Options
at
|
|||||||||||||||
September
30, 2006
|
September
30, 2006 (1)
|
|||||||||||||||
Exercisable
|
Unexercisable
|
Exercisable
|
Unexercisable
|
|||||||||||||
Thomas
Massie
|
40,000
|
—
|
$
|
119,981
|
$
|
-
0
-
|
||||||||||
Gary
Cebula
|
65,000
|
66,667
|
$
|
157,481
|
$
|
116,667
|
||||||||||
Brett
Zucker
|
82,283
|
66,667
|
$
|
225,410
|
$
|
116,667
|
||||||||||
Robert
Seeger
|
68,164
|
33,333
|
$
|
197,390
|
$
|
58,333
|
(1)
|
Options
are “in the money” if the market value of the shares covered thereby is
greater than the option exercise price. There was no public trading
market
for our common stock as of September 30, 2006. The value of unexercised
“in the money” options at September 30, 2006 are determined by multiplying
the number of shares underlying the options by the difference between
the
initial public offering price of $5.50 per share and the per share
option
exercise price.
|
Private
Placement
|
Cash
Fee
|
Number
of
Warrants
|
Exercise
Price
|
|||||||||
April
2006 Private Placement
|
$
|
280,000
|
(1)
|
112,000
|
$
|
(2)
|
(1)
|
Does
not include amounts paid by us to Gunnar as reimbursement for
out-of-pocket expenses in connection with the 2006 private placement
or
for fees of Gunnar’s counsel.
|
(2)
|
Exercise
price is equal to the offering price of our common stock in this
offering.
|
Number
of
Shares
|
Percentage
of
Outstanding
Shares Owned
|
||||||||||||
Name
and Address of
Beneficial
Owner
|
of
Common
Stock
Beneficially
Owned
|
Before
Offering
|
After
Offering
(1)
|
||||||||||
Thomas
Massie
|
916,667
|
(2)
|
21.2%
|
12.2%
|
|||||||||
William
Coldrick
|
57,223
|
(3)
|
1.3%
|
0.8%
|
|||||||||
Kenneth
Galaznik
|
0
|
—
|
—
|
||||||||||
Robert
Hegarty
|
0
|
—
|
—
|
||||||||||
Gary
Cebula
|
164,999
|
(4)
|
3.8%
|
2.2%
|
|||||||||
Brett
Zucker
|
164,786
|
(5)
|
3.8%
|
2.2%
|
|||||||||
Robert
Seeger
|
220,188
|
(6)
|
5.1%
|
2.9%
|
|||||||||
Miles
Fawcett
|
489,445
|
(7)
|
11.4%
|
6.5%
|
|||||||||
Peter
L. Winslow
|
472,297
|
(8)
|
10.8%
|
6.3%
|
|||||||||
Fin
Net, LLC
|
367,398
|
(9)
|
8.6%
|
4.8%
|
|||||||||
All
executive officers and directors as a group
(7 persons)
|
1,523,863
|
(10)
|
33.4%
|
19.6%
|
(1)
|
The
percentages assume the issuance of 150,000 shares of common stock
upon the
exercise of the Underwriters’ Warrants which would be issued upon the sale
of the shares in this offering.
|
(2)
|
Includes
options to purchase 6,667 shares of common stock at an exercise price
of
$0.003 per share and 33,333 shares of common stock at an exercise
price of
$3.00 per share. Includes a warrant
to
|
|
purchase
10,000 shares of common stock at an exercise price of $.001 per
share.
|
(3)
|
Includes
an option to purchase 5,556 shares of common stock at an exercise
price of
$3.75 per share.
|
(4)
|
Includes
options to purchase 6,667 shares of common stock at an exercise price
of
$0.003 per share, 25,000 shares of common stock at an exercise price
of
$3.00 per share and 33,333 shares of common stock at an exercise
price of
$3.75 per share.
|
(5)
|
Includes
options to purchase 1,820 shares of common stock at an exercise price
of
$0.3573 per share, 16,797 shares of common stock at an exercise price
of
$1.0797 per share, 33,333 shares of common stock at an exercise price
of
$3.00 per share, and 33,333 shares of common stock at an exercise
price of
$3.75 per share.
|
(6)
|
Includes
options to purchase 4,167 shares of common stock at an exercise price
of
$0.003 per share, 13,997 shares of common stock at an exercise price
of
$1.0716 per share, 33,333 shares of common stock at an exercise price
of
$3.00 per share and 16,667 shares of common stock at an exercise
price of
$3.75 per share. Includes a warrant to purchase 5,000 shares of common
stock at an exercise price of $.001 per
share.
|
(7)
|
Includes
options to purchase 12,778 shares of common stock at an exercise
price of
$3.75 per share.
|
(8)
|
Includes
warrants to purchase 104,899 shares of common stock at an exercise
price
of $3.75 per share (the vested portion of one warrant grant to purchase
31,667 shares) and $4.68 per share (the vested portion of two warrant
grants to purchase 73,232 shares). Includes 367,398 shares held by
Fin Net, LLC, as to which Mr. Winslow disclaims beneficial ownership.
Mr.
Winslow is Chairman and Managing Director of Fin Net,
LLC.
|
(9)
|
Fin
Net, LLC’s address is 33 Broad Street, Boston, MA
02114.
|
(10)
|
Includes
options to purchase 276,781 shares of common
stock.
|
·
|
prior
to that date our Board of Directors approved either the business
combination or the transaction that resulted in the shareholder becoming
an interested shareholder;
|
·
|
upon
completion of the transaction that resulted in the shareholder becoming
an
interested shareholder, the interested shareholder owned at least
85% of
the voting stock outstanding at the time the transaction
began; or
|
·
|
on
or following that date the business combination is approved by our
Board
of Directors and authorized at an annual or special meeting of
shareholders, by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the interested
shareholder.
|
·
|
any
merger or consolidation involving the corporation and the interested
shareholder;
|
·
|
any
sale, lease, exchange, mortgage, transfer, pledge, or other disposition
of
10% or more of the assets of the corporation involving the interested
shareholder;
|
·
|
subject
to some exceptions, any transaction that results in the issuance
or
transfer by the corporation or any of its direct or indirect subsidiaries
of any stock of the corporation or of any such subsidiary to the
interested shareholder;
|
·
|
any
transaction involving the corporation or any of its direct or indirect
subsidiaries that has the effect of increasing the proportionate
share of
the stock of any class or series of the corporation or of any such
subsidiary beneficially owned by the interested shareholder;
or
|
·
|
the
receipt by the interested shareholder of the benefit of any loans,
advances, guarantees, pledges, or other financial benefits provided
by or
through the corporation or any direct or indirect majority-owned
subsidiary.
|
·
|
provide
that special meetings of the shareholders may be called only by our
Chairman of the Board, our President or our Board of
Directors;
|
·
|
establish
procedures with respect to shareholder proposals and shareholder
nominations, including requiring that advance written notice of proposals
and nominations generally must be received at our principal executive
offices not less than 90 days nor more than 120 days prior to the
anniversary of the preceding annual meeting of
shareholders;
|
·
|
provide
that shareholders may not take actions by written consent in lieu
of an
annual or special meeting of shareholders;
|
·
|
do
not include a provision for cumulative voting in the election of
directors. Under cumulative voting, a minority shareholder holding
a
sufficient number of shares may be able to ensure the election of
one or
more directors. The absence of cumulative voting may have the effect
of
limiting the ability of minority shareholders to effect changes in
the
Board of Directors and, as a result, may have the effect of deterring
a
hostile takeover or delaying or preventing changes in control or
management of our company;
|
·
|
provide
that vacancies on our Board of Directors may be filled by a majority
of
directors in office, although less than a quorum, and not by the
shareholders;
|
·
|
provide
for staggered terms for the members of our Board of Directors. The
Board
of Directors is divided into three staggered classes, and each director
serves a term of three years. At each annual shareholders’ meeting only
those directors comprising one of the three classes will have completed
their term and stand for re-election or replacement. In addition,
our
Amended and Restated Certificate of Incorporation contains a supermajority
voting requirement for any amendments of the staggered Board
provisions;
|
·
|
require
an advance notice of any shareholder business before the annual meeting
of
our shareholders; and
|
·
|
allow
us to issue without shareholder approval up to 1,000,000 shares of
preferred stock that could adversely affect the rights and powers,
including voting rights, of the holders of common stock. In some
circumstances, this issuance could have the effect of decreasing
the
market price of the common stock as well as having the anti-takeover
effect discussed above.
|
Name
|
Number
of
Shares
|
|||
Joseph
Gunnar & Co., LLC
|
[ ]
|
|||
Security Research Associates, Inc. |
[ ]
|
|||
Total
|
$
|
3,000,000
|
·
|
Stabilizing
transactions consist of bids or purchases made by the representative
for
the purpose of preventing or slowing a decline in the market price
of our
securities while this offering is in progress.
|
·
|
Short
sales and over-allotments occur when the representative, on behalf
of the
underwriters, sells more of our shares than it purchases from us
in this
offering. In order to cover the resulting short position, the
representative may exercise the over-allotment option described above
or
may engage in syndicate covering transactions. There is no contractual
limit on the size of any syndicate covering transaction. The underwriters
will deliver a prospectus in connection with any such short sales.
Purchasers of shares sold short by the underwriters are entitled
to the
same remedies under the federal securities laws as any other purchaser
of
shares covered by the registration statement.
|
·
|
Syndicate
covering transactions are bids for or purchases of our securities
on the
open market by the representative on behalf of the underwriters in
order
to reduce a short position incurred by the representative on behalf
of the
underwriters.
|
·
|
A
penalty bid is an arrangement permitting the representative to reclaim
the
selling concession that would otherwise accrue to an underwriter
if the
common stock originally sold by the underwriter was later repurchased
by
the representative and therefore was not effectively sold to the
public by
such underwriter.
|
|
|
Page
|
UNAUDITED
COMBINED PRO FORMA CONDENSED FINANCIAL STATEMENTS OF BRIDGELINE
SOFTWARE,
INC., OBJECTWARE, INC. AND NEW TILT, INC.:
|
|
|
|
|
|
Introduction
to Unaudited Combined Pro Forma Condensed Financial
Statements
|
|
F
–
3
|
|
|
|
Unaudited
Combined Pro Forma Condensed Balance Sheet at March 31,
2007
|
|
F –
4
|
|
|
|
Unaudited
Combined Pro Forma Condensed Statement of Operations for the six
months
ended March 31, 2007
|
|
F –
8
|
|
|
|
Unaudited
Combined Pro Forma Condensed Statement of Operations for the year
ended
September 30, 2006
|
|
F
–
11
|
|
|
|
|
|
|
BRIDGELINE
SOFTWARE, INC.:
|
|
|
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F
–
17
|
|
|
|
|
Consolidated
Balance Sheets of Bridgeline Software, Inc. at March 31, 2007 and
September 30, 2006 and 2005
|
|
F
–
18
|
|
|
|
Consolidated
Statements of Operations for Bridgeline Software Inc. for the six
months
ended March 31, 2007 and 2006 and the years ended September 30,
2006 and
2005
|
|
F
–
19
|
|
|
|
Consolidated
Statements of Shareholder’s Equity for Bridgeline Software, Inc. for the
six months ended March 31, 2007 and the years ended September 30,
2006 and
2005
|
|
F
–
20
|
|
|
|
Consolidated
Statements of Cash Flows for Bridgeline Software, Inc. for the
six months
ended March 31, 2007 and 2006 and the years ended September 30,
2006 and
2005
|
|
F
–
21
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
F
–
22
|
OBJECTWARE,
INC.:
|
|
Page
|
|
|
|
REPORT
OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
|
F
–
57
|
|
|
|
|
Balance
Sheets for Objectware, Inc. at March 31, 2007 and September 30, 2006
and
2005
|
|
F
–
58
|
|
|
|
Statements
of Operations for Objectware, Inc. for the six months ended March
31, 2007
and 2006 and the years ended September 30, 2006 and 2005
|
|
F
–
59
|
|
|
|
Statements
of Shareholder’s Equity for Objectware, Inc. for the six months ended
March 31, 2007 and the years ended September 30, 2006 and
2005
|
|
F
–
60
|
|
|
|
Statements
of Cash Flows for Objectware, Inc. for the six months ended March
31, 2007
and 2006 and the years ended September 30, 2006 and 2005
|
|
F
–
61
|
|
|
|
Notes
to Financial Statements
|
|
F
–
62
|
|
|
|
|
|
|
|
|
|
NEW
TILT, INC.:
|
|
|
|
|
|
REPORT
OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
|
F
–
74
|
|
|
|
|
Balance
Sheets for New Tilt, Inc. at April 24, 2006 and at December 31,
2005
|
|
F
–
75
|
|
|
|
Statements
of Operations for New Tilt, Inc. for the period of January 1, 2006
to
April 24, 2006 and for the year ended December 31, 2005
|
|
F
–
76
|
|
|
|
Statements
of Shareholder’s Equity for New Tilt, Inc. for the period of January 1,
2006 to April 24, 2006 and for the year ended December 31,
2005
|
|
F
–
77
|
|
|
|
Statements
of Cash Flows for New Tilt, Inc. for the period of January 1, 2006
to
April 24, 2006 and for the year ended December 31, 2005
|
|
F
–
78
|
|
|
|
Notes
to Financial Statements
|
|
F
–
79
|
1.
|
The
offering of 3,000,000 shares of the Company’s common stock (the
“Offering”). The net proceeds will be used, in part, to repay short-term
Senior Notes Payable as described in “Use of Proceeds”;
|
2.
|
The
probable acquisition of Objectware, Inc. (“Objectware”), expected to be
consummated after the offering; and
|
3.
|
The
effect of the acquisition of New Tilt, Inc. (“New Tilt”) consummated on
April 24, 2006
|
1.
|
Probable
Acquisition of
Objectware
|
|
Historical
at
March
31,
2007
|
Estimated
Fair Value
on
Acquisition Date
|
||||||
Net
assets acquired:
|
|
|
||||||
Cash
|
$ |
422
|
$ |
200
|
||||
Other
current assets
|
529
|
450
|
||||||
Equipment
|
166
|
100
|
||||||
Other
assets
|
319
|
316
|
||||||
Intangible
assets
|
—
|
409
|
||||||
Goodwill
|
—
|
4,849
|
Total
assets
|
$ |
1,436
|
6,324
|
|||||
|
||||||||
Accrued
income taxes payable
|
$ |
94
|
—
|
|||||
Current
liabilities
|
67
|
67
|
||||||
Deferred
revenues, current
|
120
|
60
|
||||||
Deferred
revenues, long-term
|
240
|
—
|
||||||
Deferred
tax liabilities
|
12
|
9
|
||||||
Total
liabilities
|
533
|
136
|
||||||
|
||||||||
Total
equity
|
903
|
|||||||
|
||||||||
|
||||||||
Total
liabilities and equity
|
$ |
1,436
|
||||||
|
||||||||
Net
assets acquired
|
$ |
6,188
|
||||||
|
||||||||
Purchase
price:
|
||||||||
Cash
paid
|
$ |
2,580
|
||||||
Equity
exchanged
|
2,700
|
|||||||
Options
exchanged
|
183
|
|||||||
Closing
costs and fees
|
725
|
|||||||
Total
purchase price consideration
|
$ |
6,188
|
2.
|
Pro
Forma Acquisition
Adjustments
|
3.
|
Pro
Forma offering
Adjustments
|
·
Gross
proceeds
|
$ |
16,500
|
||
·
Underwriter
discount and fees
|
(1,650 | ) | ||
·
Legal,
accounting and other fees
|
(545 | ) | ||
·
Net
proceeds of the offering
|
14,305
|
|||
Repayment
of senior notes
|
(2,800 | ) | ||
Net
cash received
|
$ |
11,505
|
|
|
Probable
|
Pro
Forma
|
Pro
Forma
|
|
|||||||||||||||
|
Acquisition
|
Acquisition
|
Offering
|
|||||||||||||||||
|
Historical
|
Adjustments
|
Adjustments
|
Pro
Forma
|
||||||||||||||||
|
Historical
|
(Note
1)
|
(Note
2)
|
(Note
3)
|
Combined
|
|||||||||||||||
Revenue:
|
|
|
|
|
|
|||||||||||||||
Web
services
|
$ |
3,684
|
$ |
2,111
|
$ |
—
|
$ |
—
|
$ |
5,795
|
||||||||||
Managed
services
|
597
|
513
|
—
|
—
|
1,110
|
|||||||||||||||
Subscriptions
|
251
|
—
|
—
|
—
|
251
|
|||||||||||||||
Total
revenue
|
4,532
|
2,624
|
—
|
—
|
7,156
|
|||||||||||||||
Cost
of revenue
|
2,156
|
1,179
|
133
|
(a) |
—
|
3,468
|
||||||||||||||
Gross
profit
|
2,376
|
1,445
|
(133 | ) |
—
|
3,688
|
||||||||||||||
Operating
expenses:
|
||||||||||||||||||||
Sales
and marketing
|
1,577
|
—
|
—
|
—
|
1,577
|
|||||||||||||||
Technology
development
|
346
|
—
|
—
|
—
|
346
|
|||||||||||||||
General
and administrative expenses
|
1,095
|
1,508
|
(872 | )(b) |
—
|
1,731
|
||||||||||||||
Total
operating expenses
|
3,018
|
1,508
|
(872 | ) |
—
|
3,654
|
||||||||||||||
Income
(loss) from operations
|
(642 | ) | (63 | ) |
739
|
—
|
34
|
|||||||||||||
Other
income (expenses):
|
||||||||||||||||||||
Other
income (expense)
|
—
|
40
|
—
|
—
|
40
|
|||||||||||||||
Interest
expense
|
(686 | ) |
—
|
—
|
674
|
(c) | (12 | ) | ||||||||||||
Income
(loss) before income taxes
|
(1,328 | ) | (23 | ) |
739
|
674
|
62
|
|||||||||||||
Provision
(benefit) for income taxes (Note 4)
|
—
|
—
|
(43 | ) |
—
|
(43 | ) | |||||||||||||
Net
income (loss)
|
$ | (1,328 | ) | $ | (23 | ) | $ |
696
|
$ |
674
|
$ |
19
|
||||||||
Net
income (loss) per share:
|
||||||||||||||||||||
Basic
|
$ | (0.31 | ) | $ |
0.00
|
|||||||||||||||
Diluted
|
$ | (0.31 | ) | $ |
0.00
|
|||||||||||||||
Number
of weighted average shares (Note 5):
|
||||||||||||||||||||
Basic
|
4,275,107
|
1,978,909
|
(d) |
6,254,016
|
||||||||||||||||
Diluted
|
4,275,107
|
3,417,596
|
(e) |
7,692,703
|
|
(i)
|
$41
increase in amortization and depreciation expense resulting from
the
values assigned to intangible assets and property of Objectware upon
acquisition. In accordance with Note 1 to the Unaudited Combined
Pro Forma
Condensed Balance Sheet as of March 31, 2007, the Company estimates
that
$409 in purchase price will be allocated to intangible assets, which
will
be amortized over a five year period resulting in a Pro Forma effect
of
$41.
|
|
(ii)
|
$92
increase resulting from a reclassification of overhead expenses to
cost of
sales to conform to the Company’s accounting policy. In accordance with
Objectware’s accounting policy, cost of sales consists solely of direct
labor and contract labor. The Company’s cost of sales includes direct
labor, contract labor and associated overhead costs. The Company
intends
to conform Objectware’s accounting policy to the Company’s upon closing of
the acquisition and, accordingly, an adjustment for the applicable
overhead based on the Company’s policy has been reclassified from general
and administrative expenses to cost of sales (see (b)(iii)
below).
|
|
(i)
|
$761
decrease in salary for the owner of Objectware in order to reflect
the
salary at the expected contractual rate that will be in effect after
the
acquisition. Upon the closing of the Objectware acquisition, the
former
owner of Objectware will execute an employment agreement with a stated
compensation of $250, including bonus. The pro forma adjustment takes
into
account the difference between actual compensation paid for the six
months
ending March 31, 2007 ($886) and the pro forma contractual rate ($125)
for
the period.
|
|
(ii)
|
$19
decrease in depreciation expense resulting from the values assigned
to
property and equipment for Objectware. The pro forma adjustment reflects
the difference in actual depreciation expense for the six months
ending
March 31, 2007 ($34) and the pro forma depreciation expense computed
based
upon the estimated fair value assigned to property and equipment
at the
date of acquisition in accordance with Note 1 to the Unaudited Combined
Pro Forma Condensed Balance Sheet as of March 31,
2007.
|
|
(iii)
|
$92
decrease resulting from a reclassification of overhead expenses to
cost of
sales to conform to the Company’s accounting policy (see Note (a)(ii)
above).
|
|
● | Issuance of 509,091 shares from the offering to repay senior notes payable of $2,800,000. |
●
|
Issuance
of 421,636 shares from the offering to pay underwriter, accounting,
legal
and other fees totaling $2,319,000.
|
●
|
Issuance
of 557,273 shares from the offering as partial consideration representing
the cash portion and fees pursuant to the Objectware acquisition
totaling
$3,065,000.
|
●
|
Issuance
of 490,909 shares as partial consideration pursuant to the Objectware
acquisition totaling $2,700,000.
|
|
|
Consummated
|
|
Pro
Forma
|
|
|
||||||||||||||||||
|
Acquisition
|
Probable
|
Acquisition
|
Pro
Forma
|
|
|||||||||||||||||||
|
Historical
|
Acquisition
|
Adjustments
|
Adjustments
|
Pro
Forma
|
|||||||||||||||||||
|
Historical
|
(Note
1)
|
(Note
2)
|
(Note
3)
|
(Note
4)
|
Combined
|
||||||||||||||||||
Revenue:
|
|
|
|
|
|
|
||||||||||||||||||
Web
services
|
$ |
6,525
|
$ |
919
|
$ |
3,120
|
$ |
—
|
$ |
—
|
$ |
10,564
|
||||||||||||
Managed
services
|
1,243
|
—
|
782
|
—
|
—
|
2,025
|
||||||||||||||||||
Subscriptions
|
467
|
—
|
—
|
—
|
—
|
467
|
||||||||||||||||||
Total
revenue
|
8,235
|
919
|
3,902
|
—
|
—
|
13,056
|
||||||||||||||||||
Cost
of revenue
|
3,809
|
851
|
1,764
|
229
|
(a) |
—
|
6,653
|
|||||||||||||||||
Gross
profit
|
4,426
|
68
|
2,138
|
(229 | ) |
—
|
6,403
|
|||||||||||||||||
Operating
expenses:
|
||||||||||||||||||||||||
Sales
and marketing
|
3,227
|
77
|
—
|
—
|
—
|
3,304
|
||||||||||||||||||
Technology
development
|
176
|
—
|
—
|
—
|
—
|
176
|
||||||||||||||||||
General
and administrative expenses
|
1,833
|
301
|
1,400
|
(425 | )(b) |
3,109
|
||||||||||||||||||
Total
operating expenses
|
5,236
|
378
|
1,400
|
(425 | ) |
—
|
6,589
|
|||||||||||||||||
Income
(loss) from operations
|
(810 | ) | (310 | ) |
738
|
196
|
—
|
(186 | ) | |||||||||||||||
Other
income (expenses):
|
||||||||||||||||||||||||
Other
income (expense)
|
—
|
10
|
58
|
—
|
—
|
68
|
||||||||||||||||||
Interest
expense
|
(638 | ) | (2 | ) | (1 | ) |
—
|
624
|
(c)
|
(17 | ) | |||||||||||||
Income
(loss) before income taxes
|
(1,448 | ) | (302 | ) |
795
|
196
|
624
|
(135 | ) | |||||||||||||||
Provision
(benefit) for income taxes (Note 5)
|
—
|
—
|
309
|
—
|
(252 | ) |
57
|
|||||||||||||||||
Net
income (loss)
|
$ | (1,448 | ) | $ | (302 | ) | $ |
486
|
$ |
196
|
$ |
876
|
$ | (192 | ) | |||||||||
Net
income (loss) per share:
|
||||||||||||||||||||||||
Basic
|
$ | (0.36 | ) | $ | (0.03 | ) | ||||||||||||||||||
Diluted
|
$ | (0.36 | ) | $ | (0.03 | ) | ||||||||||||||||||
Number
of weighted average shares (Note 6):
|
||||||||||||||||||||||||
Basic
and Diluted
|
4,046,278
|
2,290,586
|
6,336,864
|
October
1, 2005
to
December
31, 2005
|
January
1, 2006
to
April
24, 2006
|
October
1, 2005
to
April
24, 2006
|
||||||||||
Revenue
|
$ |
515
|
$ |
404
|
$ |
919
|
||||||
Cost
of revenue
|
459
|
392
|
851
|
|||||||||
Gross
Margin
|
56
|
12
|
68
|
|||||||||
Sales
and marketing
|
36
|
41
|
77
|
|||||||||
General
and administrative expenses
|
131
|
170
|
301
|
|||||||||
Total
operating expenses
|
167
|
211
|
378
|
|||||||||
Loss
from operations
|
(111 | ) | (199 | ) | (310 | ) | ||||||
Other
income
|
—
|
10
|
10
|
|||||||||
Interest
expense
|
—
|
(2 | ) | (2 | ) | |||||||
Loss
before taxes
|
(111 | ) | (191 | ) | (302 | ) | ||||||
Provision
(benefit) for income taxes
|
—
|
—
|
—
|
|||||||||
Net
loss
|
$ | (111 | ) | $ | (191 | ) | $ | (302 | ) |
|
Historical
at
April
24, 2006
|
Fair
Value
on
Acquisition Date
|
||||||
Net
assets acquired:
|
|
|
||||||
Cash
|
$ |
159
|
$ |
159
|
||||
Other
current assets
|
181
|
181
|
||||||
Equipment
|
61
|
56
|
||||||
Other
assets
|
11
|
59
|
||||||
Intangible
assets
|
—
|
91
|
||||||
Goodwill
|
—
|
1,123
|
Total
assets
|
$ |
412
|
1,669
|
|||||
|
||||||||
Current
liabilities
|
$ |
98
|
70
|
|||||
Deferred
tax liabilities
|
—
|
49
|
||||||
Total
liabilities
|
98
|
119
|
||||||
|
||||||||
Total
equity
|
314
|
|||||||
|
||||||||
|
||||||||
Total
liabilities and equity
|
$ |
412
|
||||||
|
||||||||
Net
assets acquired
|
$ |
1,550
|
||||||
|
||||||||
Purchase
price:
|
||||||||
Cash
paid
|
$ |
550
|
||||||
Equity
exchanged
|
717
|
|||||||
Warrants
issued and options exchanged
|
121
|
|||||||
Closing
costs and fees
|
162
|
|||||||
Total
purchase price consideration
|
$ |
1,550
|
|
(i)
|
$93
increase in amortization expense resulting from the values assigned
to
intangible assets of New Tilt ($11) and Objectware ($82) upon acquisition.
In accordance with Note 1 to the Unaudited Combined Pro Forma Condensed
Statement of Operations for the year ended September 30, 2006, the
Company
has allocated $91 of the New Tilt purchase price to intangible assets,
which is amortized over a five year period resulting in a pro forma
effect
of $11. In accordance with Note 1 to the Unaudited Combined Pro Forma
Condensed Balance Sheet as of March 31, 2007, the Company estimates
that
$409 in purchase price for Objectware will be allocated to intangible
assets, which will be amortized over a five year period resulting
in a Pro
Forma effect of $82.
|
|
(ii)
|
$19
decrease in New Tilt’s stock-based compensation in order to conform to the
Company’s accounting policy; this pro forma adjustment is the result of
stock compensation expenses computed pursuant to New Tilt’s accounting
policy in accordance with SFAS 123R ($19) as compared to the stock
compensation expense that would have been recorded in accordance
with the
Company’s accounting policy under the intrinsic value method in accordance
with APB 25 ($0).
|
(iii)
|
$155
increase resulting from a reclassification of period expenses to
cost of
sales to conform to the Company’s accounting policy. In accordance with
Objectware’s accounting policy, cost of sales consists solely of direct
labor and contract labor. The Company’s cost of sales includes direct
labor, contract labor and associated overhead costs. The Company
intends
to conform Objectware’s accounting policy to the Company’s upon closing of
the acquisition and, accordingly, an adjustment for the applicable
overhead based on the Company’s policy has been reclassified from general
and administrative expenses to cost of sales (see Note (b)(iv)
below).
|
|
(i)
|
$208
decrease in salary for the owner of Objectware in order to reflect
the
salary at the expected contractual rate that will be in effect after
the
acquisition. Upon the closing of the Objectware acquisition, the
former
owner of Objectware will execute an employment agreement with a stated
compensation of $250, including bonus. The pro forma adjustment takes
into
account the difference between actual compensation paid for the year
ended
September 30, 2006 ($458) and the pro forma contractual rate ($250)
for
the period.
|
|
(ii)
|
$41
decrease in depreciation expense resulting from the values assigned
to
property and equipment for New Tilt $(12) and Objectware ($29). The
pro
forma adjustment reflects the difference in actual depreciation expense
for the year ended September 30, 2006 for New Tilt ($24) and Objectware
($59) and the pro forma depreciation expense computed based upon
the
estimated fair value assigned to property and equipment at the date
of
acquisition in accordance with Note 1 to the Unaudited Combined Pro
Forma
Condensed Balance Sheet as of March 31,
2007.
|
|
(iii)
|
$21
decrease in New Tilt’s stock-based compensation in order to conform to the
Company’s accounting policy; this pro forma adjustment is the result of
stock compensation expenses computed pursuant to New Tilt’s accounting
policy in accordance with SFAS 123R ($21) as compared to the stock
compensation expense that would have been recorded in accordance
with the
Company’s accounting policy under the intrinsic value method in accordance
with APB 25 ($0).
|
(iv)
|
$155
decrease resulting from a reclassification of period expenses to
cost of
sales to conform to the Company’s accounting policy (see Note (a)(iii)
above).
|
● | Issuance of 509,091 shares from the offering to repay senior notes payable of $2,800,000. |
●
|
Issuance
of 421,636 shares from the offering to pay underwriter, accounting,
legal
and other fees totaling $2,319,000.
|
●
|
Issuance
of 557,273 shares from the offering as partial consideration representing
the cash portion and fees pursuant to the Objectware acquisition
totaling
$3,065,000.
|
●
|
Issuance
of 490,909 shares as partial consideration pursuant to the Objectware
acquisition totaling $2,700,000.
|
●
|
Pro
Forma effect of issuing an additional 182,222 shares as partial
consideration pursuant to the New Tilt acquisition as if
the acquisition
had
occurred as of the beginning of the period on October 1,
2005.
|
●
|
Pro
Forma effect of issuing 129,455 shares from the offering as partial
consideration representing the cash portion and fees pursuant to
the New
Tilt acquisition totaling $712,000, as if the acquisition had occurred
as
of the period on October 1, 2005.
|
ASSETS
|
March
31,
|
September
30,
|
||||||||||
|
2007
|
2006
|
2005
|
|||||||||
Current
assets:
|
|
|
|
|||||||||
Cash
and cash equivalents
|
$ |
96
|
$ |
591
|
$ |
138
|
||||||
Accounts
receivable (less allowance for doubtful accounts of $52, $52 and $58,
respectively)
|
985
|
810
|
605
|
|||||||||
Unbilled
receivables
|
332
|
633
|
167
|
|||||||||
Prepaid
expenses and other current assets
|
81
|
39
|
25
|
|||||||||
Total
current assets
|
1,494
|
2,073
|
935
|
|||||||||
Equipment
and improvements, net
|
364
|
429
|
267
|
|||||||||
Definite-lived
intangible assets, net
|
241
|
303
|
331
|
|||||||||
Goodwill
|
6,496
|
6,346
|
5,097
|
|||||||||
Deferred
financing fees, net
|
32
|
273
|
—
|
|||||||||
Other
assets
|
757
|
400
|
109
|
|||||||||
Total
assets
|
$ |
9,384
|
$ |
9,824
|
$ |
6,739
|
||||||
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
||||||||||||
Current
liabilities:
|
||||||||||||
Senior notes payable
|
$ |
2,769
|
$ |
2,497
|
$ |
—
|
||||||
Financing agreement
|
—
|
—
|
292
|
|||||||||
Capital
lease obligations - current
|
49
|
45
|
11
|
|||||||||
Notes payable to shareholders - current
|
—
|
—
|
85
|
|||||||||
Accounts payable
|
856
|
581
|
272
|
|||||||||
Deferred revenue
|
401
|
264
|
183
|
|||||||||
Accrued liabilities
|
743
|
706
|
271
|
|||||||||
Total
current liabilities
|
4,818
|
4,093
|
1,114
|
|||||||||
Capital
lease obligations, less current portion
|
73
|
99
|
33
|
|||||||||
Total
liabilities
|
4,891
|
4,192
|
1,147
|
|||||||||
|
||||||||||||
Commitments
and contingencies
|
||||||||||||
|
||||||||||||
Shareholders’
equity:
|
||||||||||||
Preferred
stock — $0.001 par value; 1,000,000 shares authorized;
none issued
and outstanding
|
—
|
—
|
—
|
|||||||||
Common
stock — $0.001 par value; 20,000,000 shares authorized:
4,277,250;
4,273,833 and 3,903,833 shares issued and outstanding,
respectively
|
4
|
4
|
4
|
|||||||||
Additional
paid-in capital
|
9,980
|
9,791
|
8,303
|
|||||||||
Accumulated
deficit
|
(5,491 | ) | (4,163 | ) | (2,715 | ) | ||||||
Total
shareholders’ equity
|
4,493
|
5,632
|
5,592
|
|||||||||
Total
liabilities and shareholders’ equity
|
$ |
9,384
|
$ |
9,824
|
$ |
6,739
|
|
Six
Months Ended
March
31,
|
Year
Ended September 30,
|
||||||||||||||
|
2007
|
2006
|
2006
|
2005
|
||||||||||||
Revenue:
|
|
|
|
|
||||||||||||
Web
services
|
$ |
3,684
|
$ |
2,760
|
$ |
6,525
|
$ |
4,182
|
||||||||
Managed
services
|
597
|
578
|
1,243
|
1,244
|
||||||||||||
Subscription
|
251
|
231
|
467
|
343
|
||||||||||||
Total
revenue
|
4,532
|
3,569
|
8,235
|
5,769
|
||||||||||||
Cost
of revenue:
|
||||||||||||||||
Web
services
|
1,995
|
1,486
|
3,389
|
2,629
|
||||||||||||
Managed
services
|
146
|
153
|
363
|
457
|
||||||||||||
Subscription
|
15
|
30
|
57
|
27
|
||||||||||||
Total
cost of revenue
|
2,156
|
1,669
|
3,809
|
3,113
|
||||||||||||
Gross
profit
|
2,376
|
1,900
|
4,426
|
2,656
|
||||||||||||
Operating
expenses:
|
||||||||||||||||
Sales and marketing
|
1,577
|
1,163
|
3,227
|
2,060
|
||||||||||||
General and administrative
|
1,095
|
753
|
1,833
|
1,014
|
||||||||||||
Technology development
|
346
|
52
|
176
|
43
|
||||||||||||
Total
operating expenses
|
3,018
|
1,968
|
5,236
|
3,117
|
||||||||||||
Loss
from operations
|
(642 | ) | (68 | ) | (810 | ) | (461 | ) | ||||||||
Interest
expense
|
(686 | ) | (52 | ) | (638 | ) | (56 | ) | ||||||||
Loss
before income taxes
|
(1,328 | ) | (120 | ) | (1,448 | ) | (517 | ) | ||||||||
Income
taxes
|
—
|
—
|
—
|
—
|
||||||||||||
Net
loss
|
$ | (1,328 | ) | $ | (120 | ) | $ | (1,448 | ) | $ | (517 | ) | ||||
|
||||||||||||||||
Net
loss per share:
|
||||||||||||||||
Basic
and diluted
|
$ | (0.31 | ) | $ | (0.03 | ) | $ | (0.36 | ) | $ | (0.14 | ) | ||||
|
||||||||||||||||
Number
of weighted average shares:
|
||||||||||||||||
Basic
and diluted
|
4,275,107
|
3,903,833
|
4,046,278
|
3,804,527
|
|
|
|
Additional
|
|
Total
|
|||||||||||||||
|
Common
Stock
|
Paid-in
|
Accumulated
|
Shareholders’
|
||||||||||||||||
|
Shares
|
Par
Value
|
Capital
|
Deficit
|
Equity
|
|||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Balance,
September 30, 2004
|
3,427,166
|
$ |
3
|
$ |
6,069
|
$ | (2,198 | ) | $ |
3,874
|
||||||||||
|
||||||||||||||||||||
Issuance
of stock and warrants for acquisition
|
476,667
|
1
|
2,218
|
—
|
2,219
|
|||||||||||||||
Issuance
of common stock warrants in connection with financing
agreement
|
—
|
—
|
8
|
—
|
8
|
|||||||||||||||
Stock
based compensation
|
—
|
—
|
8
|
—
|
8
|
|||||||||||||||
Net
loss
|
—
|
—
|
—
|
(517 | ) | (517 | ) | |||||||||||||
Balance,
September 30, 2005
|
3,903,833
|
4
|
8,303
|
(2,715 | ) |
5,592
|
||||||||||||||
|
||||||||||||||||||||
Issuance
of stock for acquisition
|
320,000
|
—
|
838
|
—
|
838
|
|||||||||||||||
Exercise
of warrants
|
50,000
|
—
|
—
|
—
|
—
|
|||||||||||||||
Issuance
of common stock warrants in private placement
of debt
|
—
|
—
|
646
|
—
|
646
|
|||||||||||||||
Stock
based compensation
|
—
|
—
|
4
|
—
|
4
|
|||||||||||||||
Net
loss
|
—
|
—
|
—
|
(1,448 | ) | (1,448 | ) | |||||||||||||
Balance,
September 30, 2006
|
4,273,833
|
4
|
9,791
|
(4,163 | ) |
5,632
|
||||||||||||||
Stock
based compensation
|
—
|
—
|
176
|
—
|
176
|
|||||||||||||||
Exercise
of stock options
|
3,000
|
—
|
12
|
—
|
12
|
|||||||||||||||
Exercise
of stock warrants
|
417
|
—
|
1
|
—
|
1
|
|||||||||||||||
Net
loss
|
—
|
—
|
—
|
(1,328 | ) | (1,328 | ) | |||||||||||||
Balance,
March 31, 2007
|
4,277,250
|
$ |
4
|
$ |
9,980
|
$ | (5,491 | ) | $ |
4,493
|
|
Six
Months Ended
March
31,
|
Year
Ended
September
30,
|
||||||||||||||
Cash
flows from operating activities:
|
2007
|
2006
|
2006
|
2005
|
||||||||||||
Net
loss
|
$ | (1,328 | ) | $ | (120 | ) | $ | (1,448 | ) | $ | (517 | ) | ||||
Adjustments
to reconcile net loss to net cash
(used
in) provided by operating activities:
|
||||||||||||||||
Depreciation
|
105
|
62
|
186
|
106
|
||||||||||||
Amortization
of intangible assets
|
62
|
55
|
119
|
94
|
||||||||||||
Amortization
of debt discount and deferred
financing fees
|
513
|
—
|
436
|
7
|
||||||||||||
Stock
based compensation
|
176
|
2
|
4
|
8
|
||||||||||||
Gain
on sale of assets
|
(1 | ) |
—
|
—
|
—
|
|||||||||||
Changes
in operating assets and liabilities,
net of acquired assets and liabilities:
|
||||||||||||||||
Accounts
receivable and unbilled
receivables
|
126
|
(69 | ) | (498 | ) |
245
|
||||||||||
Other
assets
|
(399 | ) | (149 | ) | (287 | ) |
3
|
|||||||||
Accounts
payable and accrued liabilities
|
412
|
115
|
721
|
(136 | ) | |||||||||||
Deferred
revenue
|
37
|
234
|
34
|
(240 | ) | |||||||||||
Total
adjustments
|
1,031
|
250
|
715
|
87
|
||||||||||||
Net
cash provided by (used in) operating activities
|
(297 | ) |
130
|
(733 | ) | (430 | ) | |||||||||
|
||||||||||||||||
Cash
flows from investing activities:
|
||||||||||||||||
Acquisitions,
net of cash acquired
|
—
|
—
|
(553 | ) | (310 | ) | ||||||||||
Proceeds
from sale of assets
|
16
|
—
|
—
|
—
|
||||||||||||
Contingent acquisition payments
|
(150 | ) | (42 | ) | (126 | ) | (113 | ) | ||||||||
Equipment
and improvements expenditures
|
(55 | ) | (27 | ) | (163 | ) | (122 | ) | ||||||||
Net
cash used in investing activities
|
(189 | ) | (69 | ) | (842 | ) | (545 | ) | ||||||||
|
||||||||||||||||
Cash
flows from financing activities:
|
||||||||||||||||
Proceeds
from issuance of senior notes
payable,
net of deferred costs
|
—
|
—
|
2,434
|
—
|
||||||||||||
Proceeds
from / payments on financing
agreement, net
|
—
|
(24 | ) | (292 | ) |
292
|
||||||||||
Proceeds
from exercise stock
options and warrants
|
13
|
—
|
—
|
—
|
||||||||||||
Principal
payments on capital leases
|
(22 | ) | (1 | ) | (29 | ) | (49 | ) | ||||||||
Principal
payments on notes payable to
shareholders
|
—
|
(40 | ) | (85 | ) | (86 | ) | |||||||||
Net
cash provided by (used in)
financing
activities
|
(9 | ) | (65 | ) |
2,028
|
157
|
||||||||||
|
||||||||||||||||
Net
increase (decrease) in cash
|
(495 | ) | (4 | ) |
453
|
(818 | ) | |||||||||
Cash
and cash equivalents at beginning of period
|
591
|
138
|
138
|
956
|
||||||||||||
Cash
and cash equivalents at end of period
|
$ |
96
|
$ |
134
|
$ |
591
|
$ |
138
|
||||||||
|
||||||||||||||||
Supplemental
disclosures of cash flow information:
|
||||||||||||||||
Cash
paid for:
|
||||||||||||||||
Interest
|
$ |
177
|
$ |
52
|
$ |
133
|
$ |
50
|
||||||||
|
||||||||||||||||
Non
cash activities:
|
||||||||||||||||
Issuance of common stock for acquisitions
|
$ |
—
|
$ |
—
|
$ |
838
|
$ |
2,219
|
||||||||
Warrants
issued in connection with equity
and debt transactions
|
$ |
—
|
$ |
—
|
$ |
646
|
$ |
436
|
||||||||
Purchase
of capital equipment through
capital leases
|
$ |
—
|
$ |
121
|
$ |
129
|
$ |
39
|
|
Six
Months Ended March 31,
|
Year
Ended September 30,
|
||||||||||||||
|
2007
|
2006
|
2006
|
2005
|
||||||||||||
|
|
|
|
|
||||||||||||
Customer
#1
|
20%
|
21%
|
22%
|
12%
|
||||||||||||
Customer
#2
|
*
|
12%
|
*
|
19%
|
||||||||||||
|
||||||||||||||||
*
Represents less than 10%
|
|
September
30,
|
|||||||||||
|
March
31, 2007
|
2006
|
2005
|
|||||||||
|
|
|
|
|||||||||
Customer
#1
|
15%
|
17%
|
11%
|
|||||||||
Customer
#2
|
*
|
*
|
22%
|
|||||||||
Customer
#3
|
*
|
*
|
12%
|
|||||||||
|
||||||||||||
*
Represents less than 10%
|
Grants
made during
Quarter
Ended
|
Number
of
Options
Granted
|
Weighted-Average
Exercise
Price
|
Weighted-Average
Fair
Value per Share
|
Weighted-Average
Intrinsic
Value per Share
|
||||
June
30, 2006
|
102,420
|
$3.75
|
$2.24
|
—
|
||||
September
30, 2006
|
50,000
|
$3.75
|
$2.46
|
—
|
||||
December
31, 2006
|
31,880
|
$3.75
|
$2.50
|
—
|
||||
March
31, 2007
|
—
|
—
|
—
|
—
|
|
●
|
In
April 2006, the Company issued notes in the aggregate of $2.8 million
through a private placement with attached warrants in order to finance
its
initial public offering, acquire New Tilt, Inc and fund on-going
operations (see Note 7).
|
|
●
|
In
April 2006, the Company acquired the business and assets of New Tilt,
Inc.
adding 12 employees and extending its product offering in the Boston
market into the health and life sciences sector of the industry (see
Note
3).
|
●
|
In
May 2006, the Company launched its research and development initiative
in
Bangalore, India to redesign its on-demand software
platform. The Company hired an additional 25 software engineers
over a six month period to achieve an anticipated launch date by
July
2007.
|
|
●
|
On
December 7, 2006, the Company signed a definitive merger agreement
with
Objectware, Inc. The acquisition of Objectware, Inc. will add 25
employees and allow the Company to expand into the Atlanta market
and
significantly increase revenues (see Note 11).
|
|
●
|
On
December 13, 2006, the Company filed its initial registration statement
with the Securities and Exchange Commission (see Note
11).
|
|
●
|
In
April 2007, the Company extended the maturity date of the senior
notes payable described above to June 21, 2007 and on June 20,
2007, the
Company further extended the maturity date to July 5, 2007 (see
Note
11).
|
|
|
Weighted
Average Per Share
|
||||||||||||||
|
|
Weighted
|
Estimated
|
Intrinsic
|
||||||||||||
|
|
Average
|
Fair
Value of
|
Value
|
||||||||||||
|
Options
|
Exercise
|
Common
Stock
|
at
Grant
|
||||||||||||
|
Granted
|
Prices
|
at
Grant Date
|
Date
|
||||||||||||
|
|
|
|
|
||||||||||||
Six
Months Ended March 31, 2007
|
31,880
|
$ |
3.75
|
$ |
2.50
|
$ |
—
|
|||||||||
|
||||||||||||||||
Year
Ended September 30, 2006
|
204,920
|
$ |
3.75
|
$ |
2.26
|
$ |
—
|
|||||||||
|
||||||||||||||||
Year
Ended September 30, 2005
|
429,616
|
$ |
3.44
|
$ |
3.75
|
$ |
0.31
|
|
Six
Months Ended
|
Year
Ended September 30,
|
||||||||||
|
March
31, 2006
|
2006
|
2005
|
|||||||||
|
|
|
|
|||||||||
Net
loss
|
$ | (120 | ) | $ | (1,448 | ) | $ | (517 | ) | |||
Deduct:
Stock based employee
|
||||||||||||
compensation
determined under
|
||||||||||||
the
fair value based method
|
||||||||||||
for
all awards, net of tax effect
|
(254 | ) | (507 | ) | (321 | ) | ||||||
Pro
forma net loss
|
$ | (374 | ) | $ | (1,955 | ) | $ | (838 | ) | |||
|
||||||||||||
Pro
forma net loss per share:
|
||||||||||||
Basic
and diluted
|
$ | (0.08 | ) | $ | (0.48 | ) | $ | (0.22 | ) | |||
|
||||||||||||
As
reported net loss per share:
|
||||||||||||
Basic
and diluted
|
$ | (0.03 | ) | $ | (0.36 | ) | $ | (0.14 | ) | |||
|
||||||||||||
Weighted
average shares outstanding:
|
||||||||||||
Basic
and diluted
|
4,273,833
|
4,046,278
|
3,804,527
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
Expected
|
|
Option
|
|
|
|
of
Stock
|
|
Stock
|
|
Risk
Free
|
|
Dividend
|
|
Option
Life
|
|
Exercise
|
|
|
|
Prices
|
|
Volatility
|
|
Rate
of Return
|
|
Rate
|
|
in
Years
|
|
Prices
|
|
Year
Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
$
2.07 -
$2.46
|
|
70%
|
|
4.31%
-
4.70%
|
|
0%
|
|
6.5
- 10
|
|
$
3.75
|
|
2005
|
|
$
3.75
|
|
70%
- 90%
|
|
3.26%
-
4.13%
|
|
0%
|
|
6.5
|
|
$
3.00 - $
3.75
|
|
|
Year
Ended September 30,
|
|||||||
|
2006
|
2005
|
||||||
Options
granted to non-employees
|
9,227
|
—
|
||||||
Warrants
granted to non-employees
|
392,000
|
75,727
|
||||||
Contractual
lives in years
|
5
-
10
|
5
|
||||||
Estimated
fair value of common stock
|
$ |
2.07
- 2.46
|
$ |
3.75
|
||||
Exercise
prices
|
$ |
0.001
- 4.68
|
$ |
4.68
|
||||
Estimated
stock volatility
|
70% | 70% - 90% | ||||||
Risk
free rate of return
|
3.70%
to 4.93%
|
3.36%
to 3.48%
|
||||||
Dividend
Rate
|
0% | 0% |
|
Year
Ended September 30,
|
|||||||
|
2006
|
2005
|
||||||
Options
granted to non-employees
|
9,227
|
—
|
||||||
Warrants
granted to non-employees
|
392,000
|
75,727
|
||||||
Contractual
lives in years
|
5
-
10
|
5
|
||||||
Estimated
fair value of common stock
|
$ |
2.07
- 2.46
|
$ |
3.75
|
||||
Exercise
prices
|
$ |
0.001
- 4.68
|
$ |
4.68
|
||||
Estimated
stock volatility
|
70% | 70% - 90% | ||||||
Risk
free rate of return
|
3.70%
to 4.93%
|
3.36%
to 3.48%
|
||||||
Dividend
Rate
|
0% | 0% |
|
New
Tilt
|
Iapps
|
||||||
Net
assets acquired:
|
|
|
||||||
Cash
|
$ |
159
|
$ |
77
|
||||
Other
current assets
|
181
|
104
|
||||||
Equipment
|
56
|
54
|
||||||
Other
assets
|
59
|
202
|
||||||
Intangible
assets
|
91
|
353
|
||||||
Goodwill
|
1,123
|
2,244
|
Total
assets
|
1,669
|
3,034
|
||||||
Current
liabilities
|
70
|
246
|
||||||
Deferred
tax liabilities
|
49
|
182
|
||||||
Total
liabilities
|
119
|
428
|
||||||
Net
assets acquired
|
$ |
1,550
|
$ |
2,606
|
||||
|
||||||||
Purchase
price:
|
||||||||
Cash
paid
|
$ |
550
|
$ |
355
|
||||
Equity
exchanged
|
717
|
1,788
|
||||||
Warrants
issued and options exchanged
|
121
|
431
|
||||||
Closing
costs and fees
|
162
|
32
|
||||||
Total
purchase price
|
$ |
1,550
|
$ |
2,606
|
|
Pro
Forma (Unaudited)
|
|||||||
|
Years
Ended September 30,
|
|||||||
|
2006
|
2005
|
||||||
|
|
|
||||||
Revenue
|
$ |
9,154
|
$ |
8,349
|
||||
Net
loss
|
$ | (1,850 | ) | $ | (638 | ) | ||
Net
loss per share:
|
||||||||
Basic
and diluted
|
$ | (0.44 | ) | $ | (0.15 | ) | ||
Number
of weighted average shares:
|
||||||||
Basic
and diluted
|
4,228,499
|
4,223,833
|
·
|
Reduction
in depreciation of $12 and $23 resulting from the fair values assigned
to
property and equipment for New Tilt and iapps at the time of acquisition.
The pro forma adjustment reflects the difference in historical
depreciation expense for the years ended September 30, 2006 and 2005,
respectively, for New Tilt ($24) and iapps ($42) and the pro forma
depreciation expense computed based upon the estimated fair value
assigned
to property and equipment as described above.
|
·
|
Increases
of $11 and $18 in amortization expense resulting from the values
assigned
to intangible assets of New Tilt and iapps upon acquisition. As described
above, the Company has allocated $91 of the New Tilt purchase price
and
$353 of the iapps purchase price, to intangible assets, which are
amortized over a five year period resulting in a pro forma effect
of $11
and $18 for the years ended September 30, 2006 and 2005,
respectively.
|
·
|
Reduction
in stock-compensation expense of $40 and $72 for New Tilt for the
years
ended September 30, 2006 and 2005, respectively; this pro forma adjustment
is the result of stock compensation expenses computed pursuant New
Tilt’s
accounting policy in accordance with SFAS 123 of $40 and $72, as
compared
to the stock compensation expense that would have been recorded in
accordance with the Company’s accounting policy under the intrinsic method
in accordance with APB 25 of $0 and $0 for the years ended September
30,
2006 and 2005, respectively.
|
·
|
The
effect of additional interest expense $142 and $282 that would have
been
incurred to finance a portion of the purchase price for New Tilt
for the
years ended September 30, 2006 and 2005,
respectively.
|
|
As
of
|
As
of September 30
|
||||||||||
|
March
31, 2007
|
2006
|
2005
|
|||||||||
Furniture
and fixtures
|
$ |
134
|
$ |
136
|
$ |
111
|
||||||
Acquired
software
|
146
|
124
|
75
|
|||||||||
Computers
and peripherals
|
645
|
629
|
365
|
|||||||||
Leasehold
improvements
|
38
|
38
|
28
|
|||||||||
|
963
|
927
|
579
|
|||||||||
Less
accumulated depreciation
|
599
|
498
|
312
|
|||||||||
|
$ |
364
|
$ |
429
|
$ |
267
|
|
Useful
|
As
of March 31, 2007
|
||||||||||||||
|
Lives
in
|
Gross
|
Accumulated
|
Net
|
||||||||||||
|
Years
|
Asset
|
Amortization
|
Amount
|
||||||||||||
Intangible
assets;
|
|
|
|
|
||||||||||||
Domain
and trade names
|
10
|
$ |
29
|
$ | (14 | ) | $ |
15
|
||||||||
Customer
related
|
5
|
478
|
(274 | ) |
204
|
|||||||||||
Acquired
software
|
3
|
95
|
(73 | ) |
22
|
|||||||||||
Total
intangible assets
|
$ |
602
|
$ | (361 | ) | $ |
241
|
|||||||||
|
||||||||||||||||
Goodwill
|
$ |
6,496
|
$ |
—
|
$ |
6,496
|
|
As
of September 30, 2006
|
As
of September 30, 2005
|
||||||||||||||||||||||||||
|
|
Gross
|
Accumulated
|
Net
|
Gross
|
Accumulated
|
Net
|
|||||||||||||||||||||
|
Asset
|
Amortization
|
Amount
|
Asset
|
Amortization
|
Amount
|
||||||||||||||||||||||
Intangible
assets;
|
||||||||||||||||||||||||||||
Domain
and trade names
|
|
$ |
29
|
$ | (13 | ) | $ |
16
|
$ |
29
|
$ | (10 | ) | $ |
19
|
|||||||||||||
Customer
related
|
|
478
|
(229 | ) |
249
|
387
|
(145 | ) |
242
|
|||||||||||||||||||
Acquired
software
|
|
95
|
(57 | ) |
38
|
95
|
(25 | ) |
70
|
|||||||||||||||||||
Total
intangible assets
|
$ |
602
|
$ | (299 | ) | $ |
303
|
$ |
511
|
$ | (180 | ) | $ |
331
|
||||||||||||||
|
||||||||||||||||||||||||||||
Goodwill
|
$ |
6,346
|
$ |
—
|
$ |
6,346
|
$ |
5,097
|
$ |
—
|
$ |
5,097
|
|
Total
|
Expense
Charge To
|
||||||||||
|
Amortization
|
Cost
of
|
|
|||||||||
|
Expense
|
Revenue
|
Operations
|
|||||||||
|
|
|
|
|||||||||
Six
Months Ended March 31, 2007
|
$ |
62
|
$ |
61
|
$ |
1
|
||||||
Six
Months Ended March 31, 2006
|
$ |
55
|
$ |
54
|
$ |
1
|
||||||
|
||||||||||||
Year
Ended September 30, 2006
|
$ |
119
|
$ |
117
|
$ |
2
|
||||||
Year
Ended September 30, 2005
|
$ |
94
|
$ |
92
|
$ |
2
|
|
As
of
|
As
of September 30,
|
||||||||||
|
March
31, 2007
|
2006
|
2005
|
|||||||||
|
|
|
|
|||||||||
Compensation
and benefits
|
$ |
329
|
$ |
259
|
$ |
144
|
||||||
Subcontractors
|
108
|
58
|
31
|
|||||||||
Deferred
rent
|
65
|
59
|
44
|
|||||||||
Interest
|
84
|
70
|
—
|
|||||||||
Professional
fees
|
121
|
178
|
4
|
|||||||||
Other
|
36
|
82
|
48
|
|||||||||
|
$ |
743
|
$ |
706
|
$ |
271
|
|
As
of
|
As
of September 30,
|
||||||||||
|
March
31, 2007
|
2006
|
2005
|
|||||||||
|
|
|
|
|||||||||
Senior
notes payable
|
$ |
2,800
|
$ |
2,800
|
$ |
—
|
||||||
Discount
on senior notes payable attributable to warrants
|
(31 | ) | (303 | ) |
—
|
|||||||
|
$ |
2,769
|
$ |
2,497
|
$ |
—
|
|
As
of
|
As
of September 30,
|
||||||||||
|
March
31, 2007
|
2006
|
2005
|
|||||||||
|
|
|
|
|||||||||
Financing
agreement
|
$ |
—
|
$ |
—
|
$ |
292
|
|
As
of
|
As
of September 30,
|
||||||||||
|
March
31, 2007
|
2006
|
2005
|
|||||||||
|
|
|
|
|||||||||
Capital
lease obligations
|
$ |
122
|
$ |
144
|
$ |
44
|
Year
Ending September 30,
|
|
|
|
|
2007
|
|
$
|
67
|
|
2008
|
|
|
66
|
|
2009
|
|
|
40
|
|
2010
|
|
|
13
|
|
2011
|
|
|
1
|
|
Totals
|
|
|
187
|
|
Less
interest at a weighted average of 14.15%
|
|
|
43
|
|
Total
capital lease obligations
|
|
$
|
144
|
|
|
As
of
|
As
of September 30,
|
||||||||||
|
March
31, 2007
|
2006
|
2005
|
|||||||||
|
|
|
|
|||||||||
Notes
payable to shareholders
|
$ |
—
|
$ |
—
|
$ |
85
|
Year
Ending September 30,
|
|
|
|
|
2007
|
|
$
|
306
|
|
2008
|
|
|
338
|
|
2009
|
|
|
291
|
|
2010
|
|
|
239
|
|
2011
|
|
|
230
|
|
Total
|
|
$
|
1,404
|
|
|
Stock
Options
|
Stock
Warrants
|
||||||||||||||
|
|
Weighted
|
|
Weighted
|
||||||||||||
|
|
Average
|
|
Average
|
||||||||||||
|
|
Exercise
|
|
Exercise
|
||||||||||||
|
Options
|
Price
|
Warrants
|
Price
|
||||||||||||
|
|
|
|
|
||||||||||||
Outstanding,
September 30, 2004
|
575,055
|
$ |
2.553
|
160,542
|
$ |
4.081
|
||||||||||
Granted
(1)
|
429,616
|
$ |
3.439
|
75,727
|
$ |
4.680
|
||||||||||
Exercised
|
—
|
—
|
—
|
—
|
||||||||||||
Cancelled
or expired
|
(206,764 | ) | $ |
2.851
|
—
|
—
|
||||||||||
Outstanding,
September 30, 2005
|
797,907
|
$ |
2.953
|
236,269
|
$ |
4.273
|
||||||||||
Granted
(2)
|
204,920
|
$ |
3.750
|
392,000
|
$ |
1.533
|
||||||||||
Exercised
(3)
|
—
|
—
|
(50,000 | ) | $ |
0.001
|
||||||||||
Cancelled
or expired
|
(73,240 | ) | $ |
3.492
|
—
|
—
|
||||||||||
Outstanding,
September 30, 2006
|
929,587
|
3.086
|
578,269
|
$ |
2.653
|
|||||||||||
Granted
(4)
|
31,880
|
$ |
3.750
|
—
|
—
|
|||||||||||
Exercised
(3)
|
(3,000 | ) |
3.750
|
(417 | ) | $ |
4.680
|
|||||||||
Cancelled
or expired
|
(89,035 | ) | $ |
3.713
|
—
|
—
|
||||||||||
Outstanding,
March 31, 2007
|
869,432
|
$ |
3.152
|
577,852
|
$ |
2.810
|
|
Options
Outstanding
|
Options
Exercisable
|
||||||||||||||||||||
|
|
Weighted
|
|
|
|
|||||||||||||||||
|
|
Average
|
|
|
|
|||||||||||||||||
|
|
Remaining
|
Aggregate
|
Number
of
|
Aggregate
|
|||||||||||||||||
Exercise
|
Number
of
|
Contractual
|
Intrinsic
|
Options
|
Intrinsic
|
|||||||||||||||||
Price
|
Options
|
Life
in Years
|
Value
|
Exercisable
|
Value
|
|||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||
$
0.003
|
24,167
|
6.00
|
$ |
41,253
|
24,167
|
$ |
41,253
|
|||||||||||||||
$
0.357
|
15,397
|
6.30
|
$ |
21,454
|
15,397
|
$ |
21,454
|
|||||||||||||||
$
1.072
|
63,374
|
5.42
|
$ |
2,432
|
63,374
|
$ |
2,432
|
|||||||||||||||
$
1.200
|
43,764
|
8.21
|
$ |
14,444
|
43,764
|
$ |
14,444
|
|||||||||||||||
$
3.000
|
257,138
|
6.50
|
$ |
—
|
231,552
|
$ |
—
|
|||||||||||||||
$
3.750
|
525,747
|
8.85
|
$ |
—
|
172,202
|
$ |
—
|
|||||||||||||||
929,587
|
550,456
|
|
Options
Outstanding
|
Options
Exercisable
|
||||||||||||||||||||
|
|
Weighted
|
|
|
|
|||||||||||||||||
|
|
Average
|
|
|
|
|||||||||||||||||
|
|
Remaining
|
Aggregate
|
Number
of
|
Aggregate
|
|||||||||||||||||
Exercise
|
Number
of
|
Contractual
|
Intrinsic
|
Options
|
Intrinsic
|
|||||||||||||||||
Price
|
Options
|
Life
in Years
|
Value
|
Exercisable
|
Value
|
|||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||
$
0.003
|
24,167
|
5.50
|
$ |
41,253
|
24,167
|
$ |
41,253
|
|||||||||||||||
$
0.357
|
3,219
|
5.35
|
$ |
2,424
|
3,219
|
$ |
2,424
|
|||||||||||||||
$
1.072
|
43,672
|
4.92
|
$ |
1,676
|
43,672
|
$ |
1,676
|
|||||||||||||||
$
1.200
|
43,111
|
7.71
|
$ |
14,227
|
43,111
|
$ |
14,227
|
|||||||||||||||
$
3.000
|
254,974
|
5.99
|
$ |
—
|
242,551
|
$ |
—
|
|||||||||||||||
$
3.750
|
500,289
|
8.10
|
$ |
—
|
203,575
|
$ |
—
|
|||||||||||||||
869,432
|
560,295
|
Date
of Grant
|
Number
of
Options
|
Option
Exercise
Price
|
Fair
Value
|
Intrinsic
Value
|
||||||||||||
December
2005
January
2006
February
2006
March
2006
April
2006
September
2006
October
2006
November
2006
December
2006
January
2007
February
2007
March
2007
|
16,667
16,667
8,333
10,833
102,420
50,000
31,880
—
—
—
—
—
|
$ |
3.75
3.75
3.75
3.75
3.75
3.75
3.75
—
—
—
—
—
|
$ |
2.07
2.16
2.28
2.37
2.24
2.46
2.50
—
—
—
—
—
|
$ |
—
—
—
—
—
—
—
—
—
—
—
—
|
|||||||||
|
236,800
|
Nonvested Shares |
Shares
|
Weighted-
Average
Grant-Date
Fair
Value
|
||
Nonvested at September 30, 2006 |
379,131
|
$2.11
|
||
Granted |
31,880
|
2.50
|
||
Vested |
(32,647)
|
1.93
|
||
Forfeited |
(69,227)
|
2.10
|
||
Nonvested at March 31, 2007 |
309,137
|
2.13
|
|
Year
Ended September 30,
|
|||||||
|
2006
|
2005
|
||||||
Income
tax benefit at the federal statutory rate of 34%
|
$ | (538 | ) | $ | (175 | ) | ||
Permanent
differences, net
|
151
|
45
|
||||||
State
income benefit, net of federal benefit
|
(70 | ) | (20 | ) | ||||
Change
in valuation allowance attributable to operations
|
464
|
150
|
||||||
Other
|
(7 | ) |
—
|
|||||
$ |
—
|
$ |
—
|
|
As
of September 30,
|
|||||||
Deferred
tax assets:
|
2006
|
2005
|
||||||
Short-term:
|
|
|
||||||
Contract
loss reserve
|
$ |
59
|
$ |
—
|
||||
|
||||||||
Long-term
|
||||||||
Net
operating loss carry forwards
|
1,551
|
1,186
|
||||||
|
||||||||
Deferred
tax liabilities:
|
||||||||
Current:
|
||||||||
Other
|
23
|
(3 | ) | |||||
|
||||||||
Long-term:
|
||||||||
Intangibles
|
(122 | ) | (132 | ) | ||||
Depreciation
|
(38 | ) | (57 | ) | ||||
|
1,473
|
994
|
||||||
Valuation
allowance
|
1,473
|
994
|
||||||
|
$ |
-0-
|
$ |
-0-
|
Report
of Independent Certified Public Accountants
|
F-57
|
|
|
Balance
Sheets as of March 31, 2007 and September 30, 2006 and
2005
|
F-58
|
|
|
Statements
of Operations for the six months ended March 31, 2007 and 2006 and
the
years ended September 30, 2006 and 2005
|
F-59
|
|
|
Statements
of Shareholder’s Equity for the six months ended March 31, 2007 and the
years ended September 30, 2006 and 2006
|
F-60
|
|
|
Statements
of Cash Flows for the six months ended March 31, 2007 and 2006 and
the
years ended September 30, 2006 and 2005
|
F-61
|
|
|
Notes
to Financial Statements
|
F-62
|
|
March
31,
|
September
30,
|
||||||||||
ASSETS
|
2007
|
2006
|
2005
|
|||||||||
Current
assets:
|
|
|
|
|||||||||
Cash
and cash equivalents
|
$ |
422
|
$ |
976
|
$ |
530
|
||||||
Accounts
receivable, net
|
529
|
345
|
180
|
|||||||||
Current
portion of long-term receivable
|
60
|
60
|
37
|
|||||||||
Due
from shareholder
|
—
|
32
|
27
|
|||||||||
Deferred
tax asset
|
3
|
3
|
48
|
|||||||||
Other
current assets
|
15
|
14
|
19
|
|||||||||
Total
current assets
|
1,029
|
1,430
|
841
|
|||||||||
Equipment
and improvements, net
|
166
|
165
|
134
|
|||||||||
Long-term
receivable, net of current portion
|
229
|
288
|
226
|
|||||||||
Other
assets
|
12
|
12
|
11
|
|||||||||
Total
assets
|
$ |
1,436
|
$ |
1,895
|
$ |
1,212
|
||||||
|
||||||||||||
LIABILITIES
AND SHAREHOLDER’S EQUITY
|
||||||||||||
Current
liabilities:
|
||||||||||||
Accounts
payable
|
$ |
42
|
$ |
32
|
$ |
24
|
||||||
Income
taxes payable
|
94
|
236
|
184
|
|||||||||
Accrued
liabilities
|
25
|
87
|
81
|
|||||||||
Deferred
revenue
|
120
|
293
|
238
|
|||||||||
Total
current liabilities
|
281
|
648
|
527
|
|||||||||
Deferred tax liability
|
12
|
12
|
19
|
|||||||||
Long-term deferred revenue
|
240
|
309
|
226
|
|||||||||
Total
liabilities
|
533
|
969
|
772
|
|||||||||
|
||||||||||||
Commitments
(Note 9)
|
||||||||||||
|
||||||||||||
Shareholder’s
equity:
|
||||||||||||
Common
stock — $0.001 par value; 5,000,000 shares
authorized;
1,600,000 shares issued and outstanding
|
2
|
2
|
2
|
|||||||||
Retained
earnings
|
901
|
924
|
438
|
|||||||||
Total
shareholder’s equity
|
903
|
926
|
440
|
|||||||||
Total
liabilities and shareholder’s equity
|
$ |
1,436
|
$ |
1,895
|
$ |
1,212
|
|
For
the Six Months Ended
|
For
the Year Ended
|
||||||||||||||
|
March
31,
|
September
30,
|
||||||||||||||
|
2007
|
2006
|
2006
|
2005
|
||||||||||||
|
|
|
|
|
||||||||||||
Revenue:
|
|
|
|
|
||||||||||||
Web
services
|
$ |
2,071
|
$ |
1,591
|
$ |
3,101
|
$ |
2,265
|
||||||||
Managed
services
|
513
|
335
|
782
|
474
|
||||||||||||
Reimbursable
expense
|
40
|
17
|
19
|
23
|
||||||||||||
Total
revenue
|
2,624
|
1,943
|
3,902
|
2,762
|
||||||||||||
|
||||||||||||||||
Cost
of revenue:
|
||||||||||||||||
Web
services
|
1,113
|
813
|
1,661
|
1,395
|
||||||||||||
Managed
services
|
66
|
41
|
103
|
48
|
||||||||||||
Total
Cost of revenue
|
1,179
|
854
|
1,764
|
1,443
|
||||||||||||
|
||||||||||||||||
Gross
profit
|
1,445
|
1,089
|
2,138
|
1,319
|
||||||||||||
|
||||||||||||||||
Operating
expenses:
|
||||||||||||||||
Selling,
general and administrative
|
1,474
|
820
|
1,341
|
743
|
||||||||||||
Depreciation
|
34
|
29
|
59
|
41
|
||||||||||||
Total
operating expenses
|
1,508
|
849
|
1,400
|
784
|
||||||||||||
Income
(loss) from operations
|
(63 | ) |
240
|
738
|
535
|
|||||||||||
Gain
on sale of investments
|
—
|
—
|
12
|
—
|
||||||||||||
Other
income (expense), net
|
40
|
18
|
46
|
(2 | ) | |||||||||||
Interest
income (expense), net
|
—
|
—
|
(1 | ) | (5 | ) | ||||||||||
Income
(loss) before provision for income taxes
|
(23 | ) |
258
|
795
|
528
|
|||||||||||
Provision
for income taxes
|
—
|
98
|
309
|
156
|
||||||||||||
Net
income (loss)
|
$ | (23 | ) | $ |
160
|
$ |
486
|
$ |
372
|
|
Common
Stock
|
Retained
|
Total
Shareholder’s
|
|||||||||||||
|
Shares
|
Amount
|
Earnings
|
Equity
|
||||||||||||
Balance,
September 30, 2004
|
1,600,000
|
$ |
2
|
$ |
66
|
$ |
68
|
|||||||||
Net
income
|
—
|
—
|
372
|
372
|
||||||||||||
Balance,
September 30, 2005
|
1,600,000
|
2
|
438
|
440
|
||||||||||||
Net
income
|
—
|
—
|
486
|
486
|
||||||||||||
Balance,
September 30, 2006
|
1,600,000
|
2
|
924
|
926
|
||||||||||||
Net
loss
|
—
|
—
|
(23 | ) | (23 | ) | ||||||||||
Balance,
March 31, 2007
|
1,600,000
|
$ |
2
|
$ |
901
|
$ |
903
|
|
For
the Six Months Ended
|
For
the Year Ended
|
||||||||||||||
|
March
31,
|
September
30,
|
||||||||||||||
|
2007
|
2006
|
2006
|
2005
|
||||||||||||
Cash
flows from operating activities:
|
|
|
|
|
||||||||||||
Net
income (loss)
|
$ | (23 | ) | $ |
160
|
$ |
486
|
$ |
372
|
|||||||
Adjustments
to reconcile income (loss) from operations to net cash (used in)
provided by operating activities:
|
||||||||||||||||
Depreciation
|
34
|
29
|
59
|
40
|
||||||||||||
Loss
on disposal of fixed assets
|
—
|
—
|
—
|
2
|
||||||||||||
Gain
on sale of investments
|
—
|
—
|
(12 | ) |
—
|
|||||||||||
Deferred
tax expense (benefit)
|
—
|
(19 | ) |
38
|
(29 | ) | ||||||||||
Changes
in operating assets and liabilities:
|
||||||||||||||||
Accounts
receivable
|
(192 | ) | (74 | ) | (165 | ) | (42 | ) | ||||||||
Long
term receivable
|
59
|
(99 | ) | (85 | ) | (263 | ) | |||||||||
Prepaid
expenses
|
(1 | ) |
9
|
4
|
(12 | ) | ||||||||||
Accounts
payable
|
10
|
7
|
8
|
(6 | ) | |||||||||||
Income
taxes payable
|
(142 | ) |
64
|
52
|
179
|
|||||||||||
Accrued
liabilities
|
(62 | ) | (28 | ) |
6
|
26
|
||||||||||
Deferred
revenue
|
(242 | ) |
89
|
138
|
243
|
|||||||||||
Net
cash (used in) provided by operating activities
|
(559 | ) |
138
|
529
|
510
|
|||||||||||
Cash
flows from investing activities:
|
||||||||||||||||
Capital
expenditures
|
(27 | ) | (40 | ) | (90 | ) | (88 | ) | ||||||||
Purchases
of investments
|
—
|
—
|
(449 | ) |
—
|
|||||||||||
Proceeds
from the sale of investments
|
—
|
—
|
461
|
—
|
||||||||||||
Net
cash used in investing activities
|
(27 | ) | (40 | ) | (78 | ) | (88 | ) | ||||||||
Cash
flows from financing activities:
|
||||||||||||||||
Advances
(to) from shareholder, net
|
32
|
(5 | ) | (5 | ) | (103 | ) | |||||||||
Net
cash provided by (used in) financing activities
|
32
|
(5 | ) | (5 | ) | (103 | ) | |||||||||
Net
increase (decrease) in cash and cash equivalents
|
(554 | ) |
93
|
446
|
319
|
|||||||||||
Cash
and cash equivalents, beginning of period
|
976
|
530
|
530
|
211
|
||||||||||||
Cash
and cash equivalents, end of period
|
$ |
422
|
$ |
623
|
$ |
976
|
$ |
530
|
||||||||
|
||||||||||||||||
Supplemental
cash flow information:
|
||||||||||||||||
Cash
paid for interest
|
$ |
—
|
$ |
—
|
$ |
1
|
$ |
5
|
||||||||
Cash
paid for income taxes
|
$ |
142
|
$ |
4
|
$ |
219
|
$ |
6
|
1.
|
Business
Description:
|
2.
|
Summary
of Significant Accounting
Policies:
|
|
|
|
|
September
30,
|
||
|
|
March
31,
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Customer
#1
|
|
*
|
|
26%
|
|
*
|
Customer
#2
|
|
*
|
|
16%
|
|
25%
|
Customer
#3
|
|
*
|
|
*
|
|
24%
|
Customer
#4
|
|
*
|
|
*
|
|
11%
|
Customer
#5
|
|
25%
|
|
*
|
|
*
|
Customer
#6
|
|
19%
|
|
*
|
|
*
|
Customer
#7
|
|
11%
|
|
*
|
|
*
|
|
|
|
|
|
|
|
3.
|
Related-Party
Transactions:
|
4.
|
Accounts
Receivable:
|
|
|
September
30,
|
||||||||||
|
March
31, 2007
|
2006
|
2005
|
|||||||||
Accounts
receivable
|
$ |
522
|
$ |
307
|
$ |
195
|
||||||
Unbilled
accounts receivable
|
29
|
61
|
15
|
|||||||||
Allowance
for doubtful accounts
|
(22 | ) | (23 | ) | (30 | ) | ||||||
Accounts
receivable, net
|
$ |
529
|
$ |
345
|
$ |
180
|
5.
|
Equipment
and Improvements:
|
|
|
September
30,
|
||||||||||
|
March
31, 2007
|
2006
|
2005
|
|||||||||
Computers,
software and equipment
|
$ |
416
|
$ |
381
|
$ |
296
|
||||||
Furniture
and fixtures
|
38
|
38
|
34
|
|||||||||
Leasehold
improvements
|
20
|
20
|
20
|
|||||||||
|
474
|
439
|
350
|
|||||||||
Less:
Accumulated depreciation and amortization
|
308
|
274
|
216
|
|||||||||
Equipment
and improvements, net
|
$ |
166
|
$ |
165
|
$ |
134
|
6.
|
Long
Term Receivable:
|
7.
|
Accrued
Liabilities:
|
|
|
September
30,
|
||||||||||
|
March
31, 2007
|
2006
|
2005
|
|||||||||
Deferred
rent
|
$ |
12
|
$ |
23
|
$ |
44
|
||||||
Accrued
payroll
|
12
|
53
|
37
|
|||||||||
Other
accruals
|
1
|
11
|
—
|
|||||||||
Total
accrued liabilities
|
$ |
25
|
$ |
87
|
$ |
81
|
8.
|
Commitments:
|
Year
Ended September 30,:
|
|
|
|
|
2007
|
|
$
|
164
|
|
2008
|
|
|
35
|
|
9.
|
Shareholder’s
Equity:
|
|
Options
|
Weighted
Average
Exercise
Price
|
||||||
Options
outstanding at September 30, 2004
|
42,500
|
1.00
|
||||||
Granted
|
—
|
|||||||
Cancelled
|
—
|
|||||||
Exercised
|
—
|
|||||||
Options
outstanding at September 30, 2005
|
42,500
|
1.00
|
||||||
Granted
|
—
|
|||||||
Cancelled
|
—
|
|||||||
Exercised
|
—
|
|||||||
Options
outstanding at September 30, 2006
|
42,500
|
1.00
|
||||||
Granted
|
—
|
|||||||
Cancelled
|
—
|
|||||||
Exercised
|
—
|
|||||||
Options
outstanding at March 31, 2007
|
42,500
|
1.00
|
|
|
|
|
|
|
|
|
Exercisable
|
||
Range
of Exercise Prices
|
|
Number
of
Options
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
of
Options
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
|
$1.00
|
|
42,500
|
|
4.4
|
|
$1.00
|
|
42,500
|
|
4.4
|
10.
|
Retirement
Plan:
|
11.
|
Income
Taxes
:
|
|
September
30,
|
|||||||
|
2006
|
2005
|
||||||
Deferred
tax assets:
|
|
|
||||||
Deferred
revenues
|
$ |
81
|
$ |
77
|
||||
Accounts
payable and accrued liabilities
|
45
|
40
|
||||||
|
||||||||
Deferred
tax liabilities:
|
||||||||
Accounts
receivable, net
|
(115 | ) | (69 | ) | ||||
Tax
over book depreciation
|
(20 | ) | (19 | ) | ||||
Net
deferred taxes
|
$ | (9 | ) | $ |
29
|
|||
Recorded
in balance sheet as follows:
|
||||||||
Current assets
|
$ |
3
|
$ |
48
|
||||
Long-term
liabilities
|
$ | (12 | ) | $ | (19 | ) |
|
For
the Year Ended September 30,
|
|||||||
|
2006
|
2005
|
||||||
Federal
and state taxes:
|
|
|
||||||
Current:
|
|
|
||||||
Federal
|
$ |
230
|
$ |
158
|
||||
State
|
41
|
27
|
||||||
Deferred
|
38
|
(29 | ) | |||||
Provision
for income taxes
|
$ |
309
|
$ |
156
|
|
Fiscal
Year Ended September 30,
|
|||||||
|
2006
|
2005
|
||||||
|
|
|
||||||
Income
tax provision at the federal statutory rate of 34%
|
$ |
270
|
$ |
180
|
||||
State
income expense, net of federal benefit
|
31
|
21
|
||||||
Change
in valuation allowance
|
—
|
(58 | ) | |||||
Other
|
8
|
13
|
||||||
|
$ |
309
|
$ |
156
|
|
12.
|
Events
Subsequent to September 30,
2006:
|
Report
of Independent Certified Public Accountants
|
|
F-74
|
|
|
|
Balance
Sheets as of April 24, 2006 and December 31, 2005
|
|
F-75
|
|
|
|
Statements
of Operations for the period January 1, 2006 thru April 24, 2006
and the
year ended December 31, 2005
|
|
F-76
|
|
|
|
Statements
of Shareholders’ Equity for the period January 1, 2006 through April 24,
2006 and the year ended December 31, 2005
|
|
F-77
|
|
|
|
Statements
of Cash Flows for the period January 1, 2006 through April 24,
2006 and
the year ended December 31, 2005
|
|
F-78
|
|
|
|
Notes
to Financial Statements
|
|
F-79
|
ASSETS
|
|
April
24, 2006
|
|
December
31, 2005
|
|
||
Current
assets:
|
|
|
|
|
|
||
Cash
and cash equivalents
|
|
$
|
159
|
|
$
|
148
|
|
Accounts
receivable
|
|
|
173
|
|
|
465
|
|
Prepaid
expenses
|
|
|
8
|
|
|
13
|
|
Total
current assets
|
|
|
340
|
|
|
626
|
|
Equipment
and improvements, net
|
|
|
61
|
|
|
73
|
|
Other
assets
|
|
|
11
|
|
|
15
|
|
Total
assets
|
|
$
|
412
|
|
$
|
714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Line
of credit and other debt
|
|
$
|
—
|
|
$
|
54
|
|
Accounts
payable
|
|
|
19
|
|
|
23
|
|
Deferred
revenue
|
|
|
48
|
|
|
58
|
|
Accrued
liabilities
|
|
|
31
|
|
|
77
|
|
Total
current liabilities
|
|
|
98
|
|
|
212
|
|
Commitments
(Note 9)
|
|
|
—
|
|
|
—
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
Common
stock — $0.001 par value; 2,000,000 shares authorized; 1,200,000 shares
issued and outstanding
|
|
|
1
|
|
|
1
|
|
Additional
paid-in capital
|
|
|
182
|
|
|
160
|
|
Retained
earnings
|
|
|
131
|
|
|
341
|
|
Total
shareholders’ equity
|
|
|
314
|
|
|
502
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
412
|
|
$
|
714
|
|
|
|
Period
from
January
1, 2006
thru
April 24, 2006
|
|
For
the
Year
Ended
December
31, 2005
|
|
||
Revenue
|
|
$
|
404
|
|
$
|
2,304
|
|
Cost
of revenue
|
|
|
392
|
|
|
1,533
|
|
Gross
profit
|
|
|
12
|
|
|
771
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
199
|
|
|
593
|
|
Depreciation
|
|
|
12
|
|
|
42
|
|
Income
(loss) from operations
|
|
|
(199
|
)
|
|
136
|
|
Other
income (expenses):
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(2
|
)
|
|
(2
|
)
|
Miscellaneous
|
|
|
10
|
|
|
4
|
|
Net
income (loss)
|
|
$
|
(191
|
)
|
$
|
138
|
|
|
|
|
|
Additional
|
|
|
|
Total
|
|
|||||||
|
|
Common
Stock
|
|
Paid-in
|
|
Retained
|
|
Shareholders’
|
|
|||||||
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Earnings
|
|
Equity
|
|
|||||
Balance,
December 31, 2004
|
|
|
1,200,000
|
|
$
|
1
|
|
$
|
88
|
|
$
|
260
|
|
$
|
349
|
|
Distributions
to shareholders
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(57
|
)
|
|
(57
|
)
|
Stock
based compensation expense
|
|
|
—
|
|
|
—
|
|
|
72
|
|
|
—
|
|
|
72
|
|
Net
income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
138
|
|
|
138
|
|
Balance,
December 31, 2005
|
|
|
1,200,000
|
|
|
1
|
|
|
160
|
|
|
341
|
|
|
502
|
|
Distributions
to shareholders
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19
|
)
|
|
(19
|
)
|
Stock
based compensation expense
|
|
|
—
|
|
|
—
|
|
|
22
|
|
|
—
|
|
|
22
|
|
Net
loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(191
|
)
|
|
(191
|
)
|
Balance,
April 24, 2006
|
|
|
1,200,000
|
|
$
|
1
|
|
$
|
182
|
|
$
|
131
|
|
$
|
314
|
|
|
|
Period
from
January
1, 2006
thru
April 24, 2006
|
|
For
the Year Ended
December
31, 2005
|
|
||
Cash
flows from operating activities:
|
|
|
|
|
|
||
Net
income (loss)
|
|
$
|
(191
|
)
|
$
|
138
|
|
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
12
|
|
|
42
|
|
Stock
based compensation expense
|
|
|
22
|
|
|
72
|
|
Gain
on sale of assets
|
|
|
(9
|
)
|
|
—
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
292
|
|
|
(51
|
)
|
Prepaid
expenses
|
|
|
5
|
|
|
3
|
|
Other
assets
|
|
|
4
|
|
|
4
|
|
Accounts
payable
|
|
|
(4
|
)
|
|
(35
|
)
|
Deferred
revenue
|
|
|
(10
|
)
|
|
(38
|
)
|
Accrued
liabilities
|
|
|
(46
|
)
|
|
(7
|
)
|
Total
adjustments
|
|
|
266
|
|
|
(10
|
)
|
Net
cash provided by operating activities
|
|
|
75
|
|
|
128
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Proceeds
from sale of property
|
|
|
3
|
|
|
—
|
|
Equipment
and improvements expenditures
|
|
|
(3
|
)
|
|
(60
|
)
|
Net
cash provided by (used in) investing activities
|
|
|
—
|
|
|
(60
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from issuance of long term debt
|
|
|
—
|
|
|
50
|
|
Payments
on debt
|
|
|
(54
|
)
|
|
(5
|
)
|
Cash
distributions to shareholders
|
|
|
(10
|
)
|
|
(57
|
)
|
Net
cash used in financing activities
|
|
|
(64
|
)
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
11
|
|
|
56
|
|
Cash
and cash equivalents at beginning of period
|
|
|
148
|
|
|
92
|
|
Cash
and cash equivalents at end of period
|
|
$
|
159
|
|
$
|
148
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
2
|
|
$
|
2
|
|
Additional
distribution to shareholders (see Note 3)
|
|
$
|
9
|
|
$
|
—
|
|
|
|
Revenue
|
|
Accounts
Receivable
|
||||
|
|
For
the Period
January
1, 2006
thru
April 24, 2006
|
|
For
the Year Ended
December
31, 2005
|
|
April
24, 2006
|
|
December
31, 2005
|
Company
A
|
|
21%
|
|
27%
|
|
13%
|
|
35%
|
Company
B
|
|
7
|
|
*
|
|
19
|
|
*
|
Company
C
|
|
5
|
|
*
|
|
11
|
|
*
|
Company
D
|
|
5
|
|
*
|
|
10
|
|
*
|
Company
E
|
|
*
|
|
12
|
|
*
|
|
8
|
|
|
Options granted during
the
period January 1, 2006
thru
April 24, 2006
|
|
Options granted
Year
2005
|
Risk-free
rate
|
|
4.58%
- 4.92%
|
|
3.99%
- 4.38%
|
Projected
future dividend yield
|
|
0.00%
|
|
0.00%
|
Expected
life of the options
|
|
6.5
years
|
|
6.5
years
|
Volatility
|
|
70%
|
|
70%
|
|
|
April
24, 2006
|
|
December
31, 2005
|
|
||
Computers,
software and equipment
|
|
$
|
95
|
|
$
|
102
|
|
Furniture
and fixtures
|
|
|
36
|
|
|
36
|
|
Leasehold
improvements
|
|
|
9
|
|
|
9
|
|
Vehicle
|
|
|
—
|
|
|
24
|
|
|
|
|
140
|
|
|
171
|
|
Less
accumulated depreciation
|
|
|
79
|
|
|
98
|
|
Equipment
and improvements, net
|
|
$
|
61
|
|
$
|
73
|
|
|
|
April
24, 2006
|
|
December
31, 2005
|
|
||
Deferred
charges
|
|
$
|
—
|
|
$
|
1
|
|
Security
deposits
|
|
|
11
|
|
|
14
|
|
Total
|
|
$
|
11
|
|
$
|
15
|
|
|
|
April
24, 2006
|
|
December
31, 2005
|
|
||
Compensation
and benefits
|
|
$
|
—
|
|
$
|
58
|
|
Miscellaneous
|
|
|
31
|
|
|
19
|
|
Total
|
|
$
|
31
|
|
$
|
77
|
|
|
|
|
|
|
April
25, 2006 to December 31, 2006
|
|
$
|
63
|
|
Year
Ended December 31, 2007
|
|
|
98
|
|
Year
Ended December 31, 2008
|
|
|
107
|
|
Year
Ended December 31, 2009
|
|
|
18
|
|
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
||
Options
outstanding at January 1, 2005
|
|
|
212,000
|
|
$
|
1.15
|
|
Granted
|
|
|
145,000
|
|
|
2.00
|
|
Canceled
|
|
|
(130,000
|
)
|
|
0.80
|
|
Exercised
|
|
|
—
|
|
|
|
|
Options
outstanding at December 31, 2005
|
|
|
227,000
|
|
|
1.89
|
|
Granted
|
|
|
70,000
|
|
|
1.50
|
|
Canceled
|
|
|
(56,000
|
)
|
|
1.58
|
|
Exercised
|
|
|
—
|
|
|
|
|
Options
outstanding at April 24, 2006
|
|
|
241,000
|
|
|
1.85
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|||||||
Range
of Exercise Prices
|
|
Number
of
Options
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
of
Options
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|||||
$0.50
|
|
|
1,000
|
|
|
4.67
|
|
$
|
0.50
|
|
|
1,000
|
|
|
4.67
|
|
1.50
|
|
|
70,000
|
|
|
9.92
|
|
|
1.50
|
|
|
30,000
|
|
|
10.00
|
|
2.00
|
|
|
170,000
|
|
|
9.33
|
|
|
2.00
|
|
|
149,000
|
|
|
9.42
|
|
|
|
|
241,000
|
|
|
9.50
|
|
|
1.91
|
|
|
180,000
|
|
|
9.50
|
|
Public
offering Price
|
The
shares will sell at prevailing market prices or privately negotiated
prices if and when the shares are listed on the Nasdaq Capital
Market.
|
Commission
|
Customary
for the type of transaction
involved.
|
Proceeds
to Selling Stockholders
|
Market
price, from time to time, a price related to the market price or
negotiated price, net of customary commission for execution of the
type of
transaction.
|
|
||
eSurvey
|
eNewsletter
|
Relationship
Manager
|
·
|
To
increase sales by developing Web applications such as on-line ordering
systems and proactive integrated marketing tools with lead generation
capabilities.
|
·
|
To
improve customer service and customer loyalty by developing Web
applications that provide self-service portals that automate interactions
between the customers and their partners. These types of portals
reduce
their administrative and operational costs.
|
·
|
To
enhance employee communication and training by developing on-line
training
applications allowing our customers to create topic-based training
programs such as orientation training for new hires and new policy
rollout
training for current employees. These types of on-line training
applications reduce their administrative and operational
costs.
|
·
|
Content
Management
|
·
|
eCommerce
Management
|
·
|
Relationship
Management
|
·
|
eMarketing
Management
|
·
|
Grants
Management
|
·
|
the
complementary technical ability to market, sell and deliver Web-based
software tools in their particular metropolitan market
areas;
|
·
|
the
desire to improve their profit margins by licensing our web software
tools
to their customer base;
|
·
|
an
established base of customers with local market presence that can
potentially accelerate our time to market in geographic areas where
we do
not currently operate;
|
·
|
the
desire reduce development costs by leveraging our Bangalore, India
development center; and
|
·
|
the
desire to leverage certain centralized cost centers such as finance,
human
resources, legal, and
marketing.
|
·
|
In
December 2000, we acquired Streamline Communications, a Boston,
Massachusetts-based company.
|
·
|
In
February 2002, we acquired Lead Dog Digital, Inc., a New York, New
York-based company.
|
·
|
In
December 2004, we acquired Interactive Applications Group, Inc.
(“iapps”
®
),
a
Washington, D.C.-based company.
|
·
|
In
April 2006, we acquired New Tilt, Inc. (“New Tilt”), a Cambridge,
Massachusetts-based company.
|
·
|
In ,
2007, we acquired Objectware, Inc. (“Objectware”), an Atlanta, Georgia-
based company.
|
·
|
our
limited operating history on which to evaluate our
operations;
|
·
|
we
have suffered losses since inception which may recur in the future
as we
expand;
|
·
|
our
licenses are renewable on a monthly basis and a reduction in our
license
renewal rate could significantly reduce our revenues;
|
·
|
our
inability to manage our future growth efficiently or
profitably;
|
·
|
our
inability to efficiently integrate Objectware into our
operations;
|
·
|
if
our products fail to perform properly due to undetected errors or
similar
problems, our business
|
|
could
suffer, and we could face product liability exposure;
|
·
|
if
the security of our software, in particular the hosted Internet solutions
products we have developed, is breached, our business and reputation
could
suffer;
|
·
|
if
we undertake future business combinations and acquisitions, they
may be
difficult to integrate into our existing operations, may disrupt
our
business, dilute stockholder value or divert management’s
attention;
|
·
|
our
external auditors have identified material weaknesses in our internal
controls;
|
·
|
our
dependence on our management team and key personnel and the loss
or
inability to retain these individuals could harm our business;
and
|
·
|
intense
and growing competition, which could result in price reductions,
reduced
operating margins and loss of market
share.
|
Common
Stock Presently Outstanding:
|
7,764,742
shares
|
|
|
Common
Stock Issuable upon Exercise of Selling Stockholder
Warrants:
|
542,000 shares
|
|
|
Common
Stock to be Outstanding Immediately after Selling Stockholder
Offering:
|
8,306,742
shares
|
·
|
450,000
shares issuable if the over-allotment option is exercised in full
by the
underwriters of our initial public offering;
|
·
|
869,432
shares issuable upon the exercise of outstanding options at a weighted
average exercise price of $3.15 per share; and
|
·
|
727,852
shares issuable upon the exercise of outstanding
warrants.
|
|
Common
Stock Offered:
|
All
of the 542,000 shares offered by this prospectus are being sold by
the
selling stockholders who hold or have the right to acquire shares
of
common stock upon exercise of outstanding
warrants.
|
|
Use
of Proceeds:
|
We
will not receive any proceeds from the resale of the common stock
by the
selling stockholders, but we will receive the proceeds of their warrant
exercises. The proceeds to the selling stockholders of their resale
of the
common stock will depend on the market price at the time of
sale.
|
|
Risk
Factors:
|
You
should consider carefully all of the information set forth in this
prospectus, and, in particular, the specific factors set forth under
“Risk
Factors” beginning at page 10, before deciding whether or not to invest in
our shares.
|
|
Trading
Symbols:
|
Our
common stock is quoted on the Nasdaq Capital Market under the symbol
“BLSW”.
|
Unaudited
|
||||||||||||||||
Six
Months Ended March 31,
|
Year
Ended September 30,
|
|||||||||||||||
2007
|
2006
|
2006
|
2005
|
|||||||||||||
Historical
Statements of Operations Data:
|
||||||||||||||||
Revenue
|
$
|
4,532,000
|
$
|
3,569,000
|
$
|
8,235,000
|
$
|
5,769,000
|
||||||||
Cost
of revenue
|
2,156,000
|
1,169,000
|
3,809,000
|
3,113,000
|
||||||||||||
Gross
profit
|
2,376,000
|
1,900,000
|
4,426,000
|
2,656,000
|
||||||||||||
Operating
loss
|
(642,000
|
)
|
(68,000
|
)
|
(810,000
|
)
|
(461,000
|
)
|
Net
loss
|
(1,328,000
|
)
|
(120,000
|
)
|
(1,448,000
|
)
|
(517,000
|
)
|
||||||||
Basic
and diluted loss per share
|
$
|
(0.31
|
)
|
$
|
(0.03
|
)
|
$
|
(0.36
|
)
|
$
|
(0.14
|
)
|
||||
Weighted
average shares
|
4,275,107
|
3,903,833
|
4,046,278
|
3,804,527
|
Six
Months
Ended
March
31,
2007
|
Year
Ended
September
30,
2006
(a)
|
|||||||
Unaudited
Pro forma Statements of Operations Data:
|
||||||||
Revenue
|
$
|
7,156.000
|
$
|
13,056,000
|
||||
Cost
of revenue
|
3,468,000
|
6,653,000
|
||||||
Gross
profit
|
3,688,000
|
6,403,000
|
||||||
Operating
income (loss)
|
34,000
|
(186,000
|
)
|
|||||
Net
income (loss)
|
19,000
|
(192,000
|
)
|
|||||
Earnings
(loss) per share:
|
||||||||
Basic
|
$
|
0.00
|
$
|
(0.03
|
)
|
|||
Diluted
|
$
|
0.00
|
$
|
(0.03
|
)
|
|||
Weighted
average shares:
|
||||||||
Basic
|
6,254,016
|
6,336,864
|
||||||
Diluted
|
7,692,703
|
6,336,864
|
As
of March 31, 2007
|
||||||||
Historical
|
Pro
Forma (b)
|
|||||||
Balance
Sheet Data:
|
||||||||
Working
capital
|
$
|
(3,324,000
|
)
|
$
|
8,243,000
|
|||
Total
assets
|
$
|
9,384,000
|
$
|
23,434,000
|
||||
Total
liabilities
|
$
|
4,891,000
|
$
|
2,258,000
|
||||
Total
shareholders’ equity
|
$
|
4,493,000
|
$
|
21,176,000
|
·
|
it
does not reflect cash expenditures for capital asset
purchases
|
·
|
it
does not reflect the non-cash impact of stock compensation
expenses
|
·
|
it
does not reflect the cash impact of changes in deferred
revenues
|
·
|
it
does not reflect the cash impact of the changes in deferred assets
and
liabilities
|
Unaudited
|
||||||||||||||||
Six
Months Ended
March
31,
|
Year
Ended September 30,
|
|||||||||||||||
Other
Financial Data:
|
2007
|
2006
|
2006
|
2005
|
||||||||||||
Net loss
|
$
|
(1,328,000
|
)
|
$
|
(120,000
|
)
|
$
|
(1,448,000
|
)
|
$
|
(517,000
|
)
|
||||
Interest
expense
|
686,000
|
52,000
|
638,000
|
56
,000
|
||||||||||||
Depreciation
|
105,000
|
62,000
|
186,000
|
106,000
|
||||||||||||
Amortization
of intangibles
|
62,000
|
55,000
|
119,000
|
94
,000
|
||||||||||||
EBITDA
|
$
|
(475,000
|
)
|
$
|
49,000
|
$
|
(505,000
|
)
|
$
|
(261,000
|
)
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Unaudited Pro forma Financial Data:
|
Six
Months
Ended
March
31,
2007
(b)
|
Year
Ended
September
30,
2006
(a)
|
||||||
Net
income
|
$
|
19,000
|
$
|
(192,000
|
)
|
|||
Income
tax provision
|
43,000
|
57,000
|
||||||
Interest
expense
|
12,000
|
17,000
|
||||||
Depreciation
|
120,000
|
166,000
|
||||||
Amortization
of intangibles
|
103,000
|
212,000
|
||||||
EBITDA
|
$
|
297,000
|
$
|
260,000
|
(a)
|
On
April 24, 2006 and December 15, 2004 we acquired New Tilt and iapps
®
,
respectively. The results of operations of New Tilt and iapps are
included in our consolidated financial statements from the dates
of the
acquisitions. Subsequent to our initial public offering, we acquired
Objectware and retired indebtedness. The accompanying summary financial
data reflect the effect of these transactions as if they occurred
at the
beginning of the most recent fiscal year on October 1,
2005.
|
(b)
|
Subsequent
to our initial public offering, we acquired Objectware and
retired indebtedness. The accompanying summary financial data reflect
the
effect of these transactions as if they occurred at the beginning
of the
fiscal year on October 1, 2006.
|
·
|
harm
to our reputation;
|
·
|
lost
sales;
|
·
|
delays
in commercial release;
|
·
|
product
liability claims;
|
·
|
contractual
disputes;
|
·
|
negative
publicity;
|
·
|
delays
in or loss of market acceptance of our products;
|
·
|
license
terminations or renegotiations; or
|
·
|
unexpected
expenses and diversion of resources to remedy
errors.
|
·
|
be
expensive and time consuming to defend;
|
·
|
result
in negative publicity;
|
·
|
force
us to stop licensing our products that incorporate the challenged
intellectual property;
|
·
|
require
us to redesign our products;
|
·
|
divert
management’s attention and our other resources; or
|
·
|
require
us to enter into royalty or licensing agreements in order to obtain
the
right to use necessary technologies, which may not be available on
terms
acceptable to us, if at all.
|
·
|
user
privacy;
|
·
|
the
pricing and taxation of goods and services offered over the
Internet;
|
·
|
the
content of Websites;
|
·
|
copyrights;
|
·
|
consumer
protection, including the potential application of “do not call” registry
requirements on customers and consumer backlash in general to direct
marketing efforts of customers;
|
·
|
the
online distribution of specific material or content over the Internet;
or
|
·
|
the
characteristics and quality of products and services offered over
the
Internet.
|
·
|
variations
in our operating results;
|
·
|
changes
in the general economy and in the local economies in which we
operate;
|
·
|
the
departure of any of our key executive officers and
directors;
|
·
|
the
level and quality of securities analysts’ coverage for our common
stock;
|
·
|
announcements
by us or our competitors of significant acquisitions, strategic
partnerships, joint ventures or capital
commitments;
|
·
|
changes
in the federal, state, and local laws and regulations to which we
are
subject; and
|
·
|
future
sales of our common stock.
|
·
|
Our
inability to attract new customers at a steady or increasing
rate;
|
·
|
Our
inability to provide and maintain customer
satisfaction;
|
·
|
Price
competition or higher prices in the industry;
|
·
|
Higher
than expected costs of operating our
business;
|
·
|
The
amount and timing of operating costs and capital expenditures relating
to
the expansion of our business, operations and infrastructure are
greater
and higher than expected;
|
·
|
Technical,
legal and regulatory difficulties with respect to our business
occur; and
|
·
|
General
downturn in economic conditions that are specific to our market,
such as a
decline in information technology
spending.
|
·
|
authorizing
the issuance of preferred stock that can be created and issued by
our
Board of Directors without prior shareholder approval, commonly referred
to as “blank check” preferred stock, with rights senior to those of our
common stock;
|
·
|
limiting
the persons who can call special shareholder meetings;
|
·
|
establishing
advance notice requirements to nominate persons for election to our
Board
of Directors or to propose matters that can be acted on by shareholders
at
shareholder meetings;
|
·
|
the
lack of cumulative voting in the election of
directors;
|
·
|
requiring
an advance notice of any shareholder business before the annual meeting
of
our shareholders;
|
·
|
filling
vacancies on our Board of Directors by action of a majority of the
directors and not by the shareholders, and
|
·
|
the
division of our Board of Directors into three classes with each class of
directors elected for a staggered three year term. In addition, our
organizational documents will contain a supermajority voting requirement
for any amendments of the staggered board
provisions.
|
Common
Stock
|
||||||||
High
|
Low
|
|||||||
Quarter
Ended , 2007
|
$ | $ |
·
|
“Actual”
is based on our unaudited financial statements as of December 31,
2006.
|
·
|
“Adjustments”
gives the effect of the sale of 3,000,000 shares in our initial public
offering and the application of the net proceeds from that
offering and is further adjusted for issuances of shares and options
pursuant to the acquisition of Objectware.
|
·
|
“As
Adjusted” gives the net effect of the adjustments to actual for the sale
of 3,000,000 shares in our initial public offering and the application
of
the net proceeds from that offering and the effect for issuances
of shares
and options pursuant to the acquisition of
Objectware.
|
March
31, 2007
(Dollars
in thousands)
|
||||||||||||
Actual
|
Adjustments
(a)
|
As
Adjusted
|
||||||||||
Long-term
obligations, including current maturities
|
$
|
2,891
|
$
|
(2,769
|
)
|
$
|
122
|
|||||
Shareholders’
equity:
|
||||||||||||
Common
stock $.001 par value: 20,000,000 shares authorized, 4,273,833 shares
issued and outstanding (actual) and 7,768,159 shares issued and
outstanding (as adjusted)
|
4
|
3
|
7
|
|||||||||
Preferred
stock, $.001 par value: 1,000,000 shares authorized, no shares issued
and outstanding
|
—
|
—
|
—
|
|||||||||
Additional
paid-in capital
|
9,980
|
16,743
|
26,723
|
|||||||||
Accumulated
deficit
|
(5,491
|
)
|
(63
|
)(b)
|
(5,554
|
)
|
||||||
Total
equity
|
4,493
|
16,683
|
21,176
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capitalization
|
$
|
7,384
|
$
|
13,914
|
$
|
21,298
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Gives
effect to the sale of an aggregate 3,000,000 shares of common stock
in our
initial public offering resulting in net proceeds to us of $14,305,000
net
of underwriters discount and other expenses of the offering, and
issuance of an additional 490,909 shares of common stock upon
the acquisition of Objectware at a price of $5.50 per share combined
with $174,000 representing conversion of Objectware options to Bridgeline
options.
|
(b)
|
Includes
expensing the unamortized debt discount of $31,000 and unamortized
financing fees of $32,000.
|
Unaudited
Six Months Ended
|
Year
Ended September 30,
|
|||||||||||||||||||||||
March
31,
|
Unaudited
|
|||||||||||||||||||||||
Historical
|
Pro
Forma
|
Historical
|
Historical
|
Pro
Forma
|
Historical
|
|||||||||||||||||||
2007
|
2007
(b)
|
2006
|
2006
|
2006
(a)
|
2005
|
|||||||||||||||||||
Income
Statement Data:
|
||||||||||||||||||||||||
Revenues
|
$ |
4,532
|
$ |
7,156
|
$ |
3,569
|
$ |
8,235
|
$ |
13,056
|
$ |
5,769
|
||||||||||||
Cost
of revenue
|
2,156
|
3,468
|
1,669
|
3,809
|
6,653
|
3,113
|
||||||||||||||||||
Gross
profit
|
2,376
|
3,688
|
1,900
|
4,426
|
6,403
|
2,656
|
||||||||||||||||||
Income
(loss) from operations
|
$ | (642 | ) | $ |
34
|
$ | (68 | ) | $ | (810 | ) | $ |
(186
|
) | $ | (461 | ) | |||||||
Net
income (loss)
|
$ | (1,328 | ) | $ |
19
|
$ | (120 | ) | $ | (1,448 | ) | $ |
(192
|
) | $ | (517 | ) | |||||||
Net
income (loss) per share:
|
||||||||||||||||||||||||
Basic
|
$ | (0.31 | ) | $ |
0.00
|
$ | (0.03 | ) | $ | (0.36 | ) | $ |
(0.03
|
) | $ | (0.14 | ) | |||||||
Diluted
|
$ | (0.31 | ) | $ |
0.00
|
$ | (0.03 | ) | $ | (0.36 | ) | $ |
(0.03
|
) | $ | (0.14 | ) | |||||||
Number
of weighted average shares:
|
||||||||||||||||||||||||
Basic
|
4,275,107
|
6,254,016
|
3,903,833
|
4,046,278
|
6,336,864
|
3,804,527
|
||||||||||||||||||
Diluted
|
4,275,107
|
7,692,703
|
3,903,833
|
4,046,278
|
6,336,864
|
3,804,527
|
||||||||||||||||||
Balance
Sheet Data:
|
||||||||||||||||||||||||
Current
assets
|
$ |
1,494
|
$ |
10,419
|
$ |
1,038
|
$ |
2,073
|
$ |
11,453
|
$ |
935
|
||||||||||||
Total
assets
|
$ |
9,384
|
$ |
23,434
|
$ |
7,026
|
$ |
9,824
|
$ |
23,729
|
$ |
6,739
|
||||||||||||
Current
liabilities
|
$ |
4,818
|
$ |
2,176
|
$ |
1,378
|
$ |
4,093
|
$ |
1,948
|
$ |
1,114
|
||||||||||||
Total
liabilities
|
$ |
4,891
|
$ |
2,258
|
$ |
1,552
|
$ |
4,192
|
$ |
2,056
|
$ |
1,147
|
||||||||||||
Total
shareholders’ equity
|
$ |
4,493
|
$ |
21,176
|
$ |
5,475
|
$ |
5,632
|
$ |
21,673
|
$ |
5,592
|
||||||||||||
Total
liabilities and shareholders’ equity
|
$ |
9,384
|
$ |
23,434
|
$ |
7,026
|
$ |
9,824
|
$ |
23,729
|
$ |
6,739
|
|
|
Unaudited
Six Months Ended
March
31,
|
|
|
Year
Ended September 30,
|
|
||||||||||||||||||
|
|
Historical
|
|
|
|
|
Historical
|
|
|
Historical
|
|
|
|
|
|
Historical
|
|
|||||||
|
|
2007
|
|
|
|
|
|
2006
|
|
|
2006
|
|
|
|
|
|
2005
|
|||||||
Cash
Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used in) provided by operating activities
|
|
$
|
(297
|
)
|
|
|
|
|
|
$
|
130
|
|
|
$
|
(733
|
)
|
|
|
|
|
|
$
|
(430
|
)
|
Acquisitions,
net of cash acquired
|
|
$
|
—
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
(553
|
)
|
|
|
|
|
|
$
|
(310
|
)
|
Net
cash used in investing activities
|
|
$
|
(189
|
)
|
|
|
|
|
|
$
|
(69
|
)
|
|
$
|
(842
|
)
|
|
|
|
|
|
$
|
(545
|
)
|
Proceeds
from issuance of short-term debt
|
|
$
|
—
|
|
|
|
|
|
|
—
|
|
|
$
|
2,434
|
|
|
|
|
|
|
$
|
—
|
|
|
Net
increase (decrease) in cash for the period
|
|
$
|
(495
|
)
|
|
|
|
|
|
$
|
(4
|
)
|
|
$
|
453
|
|
|
|
|
|
|
$
|
(818
|
)
|
(a)
|
Reflects
the April 24, 2006 acquisition of New Tilt,
the
, 2007 acquisition of Objectware and our initial public
offering.
|
(b)
|
Reflects
the probable acquisition of Objectware and this
offering.
|
Unaudited
Six Months
Ended
March 31,
|
Year
Ended September 30,
|
|||||||||||||||
2007
(a)
|
2006
|
2006
|
2005
|
|||||||||||||
Income
Statement Data:
|
||||||||||||||||
Revenues
|
$
|
4,532
|
$
|
3,569
|
$
|
8,235
|
$
|
5,769
|
||||||||
Cost
of revenue
|
2,156
|
1,669
|
3,809
|
3,113
|
||||||||||||
Gross
profit
|
2,376
|
1,900
|
4,426
|
2,656
|
||||||||||||
Loss
from operations
|
$
|
(642
|
)
|
$
|
(68
|
)
|
$
|
(810
|
)
|
$
|
(461
|
)
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
$
|
(1,328
|
)
|
$
|
(120
|
)
|
$
|
(1,448
|
)
|
$
|
(517
|
)
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share:
|
||||||||||||||||
Basic
and diluted
|
$
|
(0.31
|
)
|
$
|
(0.03
|
)
|
$
|
(0.36
|
)
|
$
|
(0.14
|
)
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data:
|
||||||||||||||||
Current
assets
|
$
|
1,494
|
$
|
1,038
|
$
|
2,073
|
$
|
935
|
||||||||
Definite-lived
intangible assets, net
|
$
|
241
|
$
|
275
|
$
|
303
|
$
|
331
|
||||||||
Goodwill
|
$
|
6,496
|
$
|
5,139
|
$
|
6,346
|
$
|
5,097
|
||||||||
Total
assets
|
$
|
9,384
|
$
|
7,026
|
$
|
9,824
|
$
|
6,739
|
||||||||
Senior
notes payable, net of discount
|
$
|
2,769
|
$
|
—
|
$
|
2,497
|
$
|
—
|
||||||||
Current
liabilities
|
$
|
4,818
|
$
|
1,507
|
$
|
4,093
|
$
|
1,114
|
Total
liabilities
|
$
|
4,891
|
$
|
1,629
|
$
|
4,192
|
$
|
1,147
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders’ equity
|
$
|
4,493
|
$
|
5,397
|
$
|
5,632
|
$
|
5,592
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
$
|
9,384
|
$
|
7,026
|
$
|
9,824
|
$
|
6,739
|
Actual
|
Pro
forma
|
|||||||||||
Unaudited
Six
|
Unaudited
Six
|
Unaudited
|
||||||||||
Months
Ended
|
Months
Ended
|
Year
Ended
|
||||||||||
March
31, 2007
|
March
31, 2007 (b)
|
September
30, 2006 (c)
|
||||||||||
Income
Statement Data:
|
||||||||||||
Revenues
|
$ |
4,532
|
$ |
7,156
|
$ |
13,056
|
||||||
Cost
of revenue
|
2,156
|
3,468
|
6,653
|
|||||||||
Gross
profit
|
2,376
|
3,688
|
6,403
|
|||||||||
Sales
and marketing expense
|
1,577
|
1,577
|
3,304
|
|||||||||
Technology
development
|
346
|
346
|
176
|
|||||||||
General
and administrative expense
|
1,095
|
1,731
|
3,109
|
|||||||||
Income (loss)
from operations
|
$ | (642 | ) | $ |
34
|
$ |
(186
|
) | ||||
Net
income (loss)
|
$ | (1,328 | ) | $ |
19
|
$ |
(186
|
) |
Actual
|
Pro
forma
|
|||||||||||
Unaudited
Six
|
Unaudited
Six
|
Unaudited
|
||||||||||
Months
Ended
|
Months
Ended
|
Year
Ended
|
||||||||||
March
31, 2007
|
March
31, 2007 (b)
|
September
30, 2006 (c)
|
||||||||||
Net
income per share:
|
||||||||||||
Basic
|
$ | (0.31 | ) | $ |
0.00
|
$ |
(0.03
|
) | ||||
Diluted
|
$ | (0.31 | ) | $ |
0.00
|
$ |
(0.03
|
) | ||||
Weighted
Average Shares:
|
||||||||||||
Basic
|
4,275,107
|
6,254,016
|
6,336,864
|
|||||||||
Diluted
|
4,275,107
|
7,692,703
|
6,336,864
|
|||||||||
Balance
Sheet Data:
|
||||||||||||
Current
assets
|
$ |
1,494
|
$ |
10,419
|
$ |
11,453
|
||||||
Definite-lived
intangible assets, net
|
$ |
241
|
$ |
650
|
$ |
712
|
||||||
Goodwill
|
$ |
6,496
|
$ |
11,345
|
$ |
10,386
|
||||||
Total
assets
|
$ |
9,384
|
$ |
23,434
|
$ |
23,729
|
||||||
Short-term
debt, net of discount
|
$ |
2,769
|
$ |
—
|
$ |
—
|
||||||
Current
liabilities
|
$ |
4,818
|
$ |
2,176
|
$ |
1,948
|
||||||
Total
liabilities
|
$ |
4,891
|
$ |
2,258
|
$ |
2,056
|
||||||
Total
shareholders’ equity
|
$ |
4,493
|
$ |
21,176
|
$ |
21,673
|
||||||
Total
liabilities and shareholders’ equity
|
$ |
9,346
|
$ |
23,434
|
$ |
23,729
|
|
(a)
|
On
April 25, 2006, we acquired New Tilt. The operations of New Tilt
have been
included in our consolidated financial statements from the date of
acquisition.
|
|
(b)
|
Reflects
the
, 2007 acquisition of Objectware and our initial public
offering.
|
|
|
Six
Months Ended March 31,
|
|
Years
Ended September 30,
|
||||
|
|
2007
|
|
2006
|
|
2006
|
|
2005
|
Web
Services
|
|
81.3%
|
|
77.3%
|
|
79.2%
|
|
72.5%
|
Managed
Services
|
|
13.2
|
|
16.2
|
|
15.1
|
|
21.6
|
Subscription
|
|
5.5
|
|
6.5
|
|
5.7
|
|
5.9
|
|
|
100.0%
|
|
100.0%
|
|
100.0%
|
|
100.0%
|
·
|
economic
conditions affecting the budget priorities of our
customers;
|
·
|
the
acquisition or cancellation of significant clients;
|
·
|
worldwide
acts of terrorism effecting U.S. markets; and
|
·
|
seasonality.
|
·
|
Allowance
for doubtful accounts;
|
·
|
Revenue
recognition;
|
·
|
Accounting
for goodwill and other intangible assets; and
|
·
|
Accounting
for stock-based compensation.
|
Date
of Grant
|
|
Number
of
Options
|
|
|
Option
Exercise
Price
|
|
|
Fair
Value
|
|
|
Intrinsic
Value
|
|
||||
December
2005
January
2006
February
2006
March
2006
April
2006
September
2006
October
2006
November
2006
December
2006
January
2007
February
2007
March
2007
|
|
|
16,667
16,667
8,333
10,833
102,420
50,000
31,880
—
—
—
—
—
|
|
|
$
|
3.75
3.75
3.75
3.75
3.75
3.75
3.75
—
—
—
—
—
|
|
|
$
|
2.07
2.16
2.28
2.37
2.24
2.46
2.50
—
—
—
—
—
|
|
|
$
|
—
—
—
—
—
—
—
—
—
—
—
—
|
|
|
|
|
236,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grants
made during
Quarter
Ended
|
Number
of
Options
Granted
|
Weighted-Average
Exercise
Price
|
Weighted-Average
Fair
Value per Share
|
Weighted-Average
Intrinsic
Value per Share
|
||||
June
30, 2006
|
102,420
|
$3.75
|
$2.24
|
—
|
||||
September
30, 2006
|
50,000
|
$3.75
|
$2.46
|
—
|
||||
December
31, 2006
|
31,880
|
$3.75
|
$2.50
|
—
|
||||
March
31, 2007
|
—
|
—
|
—
|
—
|
|
•
|
In
April 2006, we issued notes in the aggregate of $2.8 million through
a
private placement with attached warrants in order to finance our
initial
public offering, acquire New Tilt, Inc and fund on-going operations
(see
Note 7).
|
|
||
|
•
|
In
April 2006, we acquired the business and assets of New Tilt, Inc.
adding
12 employees and extending our product offering in the Boston market
into
the health and life sciences sector of the industry (see Note
3).
|
• |
In
May 2006, we launched our research and development initiative in
Bangalore, India to redesign our on-demand software
platform. We hired an additional 25 software engineers over a
six month period to achieve an anticipated launch date by July
2007.
|
|
• |
On
December 7, 2006, we signed a definitive merger agreement with Objectware,
Inc. The acquisition of Objectware, Inc. will add 25 employees and
allow
us to expand into the Atlanta market and significantly increase revenues
(see Note 11).
|
|
• |
On
December 13, 2006, we filed our initial registration statement with
the
Securities and Exchange Commission (see Note 11).
|
|
• |
In
April 2007, we extended the maturity date of the senior notes payable
described above to June 21, 2007 and on June 20, 2007 we further
extended
the maturity dated to July 5, 2007 (see Note
11).
|
Nonvested Shares |
Shares
|
Weighted-
Average
Grant-Date
Fair
Value
|
||
Nonvested at September 30, 2006 |
379,131
|
$2.11
|
||
Granted |
31,880
|
2.50
|
||
Vested |
(32,647)
|
1.93
|
||
Forfeited |
(69,227)
|
2.10
|
||
Nonvested at March 31, 2007 |
309,137
|
2.13
|
Weighted
Average Per Share
|
||||||||||||||||
Weighted
|
Estimated
|
Intrinsic
|
||||||||||||||
Average
|
Fair
Value of
|
Value
|
||||||||||||||
Options
|
Exercise
|
Common
Stock
|
at
Grant
|
|||||||||||||
Granted
|
Prices
|
at
Grant Date
|
Date
|
|||||||||||||
Six
Months Ended March 31, 2007
|
31,880
|
$ |
3.75
|
$ |
2.50
|
$ |
—
|
|||||||||
Year
Ended September 30, 2006
|
204,920
|
$ |
3.75
|
$ |
2.26
|
$ |
—
|
|||||||||
Year
Ended September 30, 2005
|
429,616
|
$ |
3.44
|
$ |
3.75
|
$ |
0.31
|
Six
Months Ended
|
Year
Ended September 30,
|
|||||||||||
March
31, 2006
|
2006
|
2005
|
||||||||||
Net
loss
|
$ | (120 | ) | $ | (1,448 | ) | $ | (517 | ) | |||
Deduct:
Stock based employee
|
||||||||||||
compensation
determined under
|
||||||||||||
the
fair value based method
|
||||||||||||
for
all awards, net of tax effect
|
(254 | ) | (507 | ) | (321 | ) | ||||||
Pro
forma net loss
|
$ | (374 | ) | $ | (1,955 | ) | $ | (838 | ) | |||
Pro
forma net loss per share:
|
||||||||||||
Basic
and diluted
|
$ | (0.08 | ) | $ | (0.48 | ) | $ | (0.22 | ) | |||
As
reported net loss per share:
|
||||||||||||
Basic
and diluted
|
$ | (0.03 | ) | $ | (0.36 | ) | $ | (0.14 | ) | |||
Weighted
average shares outstanding:
|
||||||||||||
Basic
and diluted
|
4,273,833
|
4,046,278
|
3,804,527
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
Expected
|
|
Option
|
|
|
|
of
Stock
|
|
Stock
|
|
Risk
Free
|
|
Dividend
|
|
Option
Life
|
|
Exercise
|
|
|
|
Prices
|
|
Volatility
|
|
Rate
of Return
|
|
Rate
|
|
in
Years
|
|
Prices
|
|
Year
Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
$
2.07 -
$2.46
|
|
70%
|
|
4.31%
-
4.70%
|
|
0%
|
|
6.5
- 10
|
|
$
3.75
|
|
2005
|
|
$
3.75
|
|
70%
- 90%
|
|
3.26%
-
4.13%
|
|
0%
|
|
6.5
|
|
$
3.00 - $
3.75
|
|
Year
Ended September 30,
|
||||||||
2006
|
2005
|
|||||||
Options
granted to non-employees
|
9,227
|
—
|
||||||
Warrants
granted to non-employees
|
392,000
|
75,727
|
||||||
Contractual
lives in years
|
5
-
10
|
5
|
||||||
Estimated
fair value of common stock
|
$ |
2.07-2.46
|
$ |
3.75
|
||||
Exercise
prices
|
$ |
0.001
- 4.68
|
$ |
4.68
|
||||
Estimated
stock volatility
|
70 | % | 70%-90 | % | ||||
Risk
free rate of return
|
3.70%
to 4.93%
|
3.36%
to 3.48%
|
||||||
Dividend
Rate
|
0 | % | 0 | % |
Six
Fiscal Months Ended
March
31,
|
||||||||
2007
|
2006
|
|||||||
Revenue
|
100
|
%
|
100
|
%
|
||||
Cost
of revenue
|
47
|
47
|
||||||
Gross
profit
|
53
|
53
|
||||||
Operating
expenses:
|
||||||||
Sales
and marketing
|
35
|
33
|
||||||
General
and administrative
|
24
|
21
|
||||||
Technology
development
|
8
|
1
|
||||||
Loss
from operations
|
(14
|
)
|
(2
|
)
|
||||
Interest
income (expense), net
|
(15
|
)
|
(1
|
)
|
||||
Net
loss
|
(29
|
%)
|
(3
|
%)
|
Net
change
2007
vs. 2006
|
||||||||||||||||
Fiscal
Six Months Ended March 31,
|
2007
|
2006
|
|
$
|
%
|
|||||||||||
Total
revenue
|
$
|
4,532,000
|
$
|
3,569,000
|
$
|
963,000
|
27
|
%
|
||||||||
Cost
of revenue
|
2,156,000
|
1,669,000
|
487,000
|
29
|
||||||||||||
Gross
profit
|
$
|
2,376,000
|
$
|
1,900,000
|
$
|
476,000
|
25
|
%
|
Net
change 2007 vs. 2006
|
||||||||||||||||
Fiscal
Six Months Ended March 31,
|
2007
|
2006
|
|
$
|
%
|
|||||||||||
Web
Services
|
$
|
3,684,000
|
$
|
2,760,000
|
$
|
924,000
|
33
|
%
|
||||||||
Managed
Services
|
597,000
|
578,000
|
19,000
|
3
|
||||||||||||
Subscription
|
251,000
|
231,000
|
20,000
|
9
|
||||||||||||
$
|
4,532,000
|
$
|
3,569,000
|
$
|
963,000
|
27
|
%
|
Net
change 2007 vs. 2006
|
||||||||||||||||
Fiscal
Six Months Ended March 31,
|
2007
|
2006
|
|
$
|
%
|
|||||||||||
Web
Services
|
$
|
1,995,000
|
$
|
1,486,000
|
$
|
509,000
|
34
|
%
|
||||||||
Managed
Services
|
146,000
|
153,000
|
(7,000
|
)
|
(5
|
)
|
||||||||||
Subscription
|
15,000
|
30,000
|
(15,000
|
)
|
(50
|
)
|
||||||||||
$
|
2,156,000
|
$
|
1,669,000
|
$
|
487,000
|
29
|
%
|
Net
change 2007 vs. 2006
|
||||||||||||||||
Fiscal
Six Months Ended March 31,
|
2007
|
2006
|
|
$
|
%
|
|||||||||||
Web
Services
|
$
|
1,689,000
|
$
|
1,274,000
|
$
|
415,000
|
33
|
%
|
||||||||
Managed
Services
|
451,000
|
425,000
|
26,000
|
6
|
||||||||||||
Subscription
|
236,000
|
201,000
|
35,000
|
17
|
||||||||||||
$
|
2,376,000
|
$
|
1,900,000
|
$
|
476,000
|
25
|
%
|
|
|
Fiscal
Years Ended
September
30,
|
|
|||||
|
|
2006
|
|
|
2005
|
|
||
Revenue
|
|
|
100
|
%
|
|
|
100
|
%
|
Cost
of revenue
|
|
|
46
|
|
|
|
54
|
|
Gross
profit
|
|
|
54
|
|
|
|
46
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
|
39
|
|
|
|
36
|
|
General
and administrative
|
|
|
23
|
|
|
|
17
|
|
Technology
development
|
|
|
2
|
|
|
|
1
|
|
Loss
from operations
|
|
|
(10
|
)
|
|
|
(8
|
)
|
Interest
income (expense), net
|
|
|
(8
|
)
|
|
|
(1
|
)
|
Net
loss
|
|
|
(18
|
%)
|
|
|
(9
|
%)
|
Net
change 2006 vs. 2005
|
||||||||||||||||
Fiscal
Years Ended September 30,
|
2006
|
2005
|
|
$
|
%
|
|||||||||||
Total
revenue
|
$
|
8,235,000
|
$
|
5,769,000
|
$
|
2,466,000
|
43
|
%
|
||||||||
Cost
of revenue
|
3,809,000
|
3,113,000
|
696,000
|
22
|
||||||||||||
Gross
profit
|
$
|
4,426,000
|
$
|
2,656,000
|
$
|
1,770,000
|
67
|
%
|
Net
change 2006 vs. 2005
|
||||||||||||||||
Fiscal
Years Ended September 30,
|
2006
|
2005
|
|
$
|
%
|
|||||||||||
Web
Services
|
$
|
6,525,000
|
$
|
4,182,000
|
$
|
2,343,000
|
56
|
%
|
||||||||
Managed
Services
|
1,243,000
|
1,244,000
|
(1,000
|
)
|
—
|
|||||||||||
Subscription
|
467,000
|
343,000
|
124,000
|
36
|
||||||||||||
$
|
8,235,000
|
$
|
5,769,000
|
$
|
2,466,000
|
43
|
%
|
Net
change 2006 vs. 2005
|
||||||||||||||||
Fiscal
Years Ended September 30,
|
2006
|
2005
|
|
$
|
%
|
|||||||||||
Web
Services
|
$
|
3,389,000
|
$
|
2,629,000
|
$
|
760,000
|
29
|
%
|
||||||||
Managed
Services
|
363,000
|
457,000
|
(94,000
|
)
|
(21
|
)
|
||||||||||
Subscription
|
57,000
|
27,000
|
30,000
|
111
|
||||||||||||
$
|
3,809,000
|
$
|
3,113,000
|
$
|
696,000
|
22
|
%
|
Net
change 2006 vs. 2005
|
||||||||||||||||
Fiscal
Years Ended September 30,
|
2006
|
2005
|
|
$
|
%
|
|||||||||||
Web
Services
|
$
|
3,136,000
|
$
|
1,553,000
|
$
|
1,583,000
|
102
|
%
|
||||||||
Managed
Services
|
880,000
|
787,000
|
93,000
|
12
|
%
|
|||||||||||
Subscription
|
410,000
|
316,000
|
94,000
|
30
|
%
|
|||||||||||
$
|
4,426,000
|
$
|
2,656,000
|
$
|
1,770,000
|
67
|
%
|
(A)
|
Amounts
shown are net of sublease income of $56, $112 and $47 in fiscal years
ended September 30, 2007, 2008 and 2009, respectively.
|
(B)
|
The
contingent acquisition payments are maximum potential earn-out
consideration payable to the former owners of iapps and New Tilt.
Amounts
actually paid may be less.
|
·
|
Content
Management
|
·
|
eCommerce
Management
|
·
|
Relationship
Management
|
·
|
eMarketing
Management
|
·
|
Grants
Management
|
·
|
User
experience development
|
·
|
Web
application development
|
·
|
Search
engine optimization
|
·
|
a
Standard of Excellence Award and Outstanding Website Awards in the
Web
Marking Association’s WebAward Competition, an annual competition that
names the best Web applications in 96 industries;
|
·
|
being
selected as a finalist for numerous MITX Awards from the Massachusetts
Innovation & Technology Exchange, which acknowledge the best creative
and technological accomplishments in interactive technology emerging
from
New England;
|
·
|
being
among the winners of several Axiem Awards, an international award
program
created to honor those who produce the best in all forms of interactive
technology; and
|
·
|
winning
Bronze and Merit Awards at the One Show Interactive Awards from The
One
Club for Art and Copy, Inc., which honor creativity and effectiveness
in
global communications in the area of interactive
technology.
|
·
|
the
complementary technical ability to market, sell and deliver Web-based
software tools in their particular metropolitan market
areas;
|
·
|
the
desire to improve their profit margins by licensing our web software
tools
to their customer base;
|
·
|
an
established base of customers with local market presence that can
potentially accelerate our time to market in geographic areas where
we do
not currently operate;
|
·
|
the
desire reduce development costs by leveraging our Bangalore, India
development center; and
|
·
|
the
desire to leverage certain centralized cost centers such as finance,
human
resources, legal, and marketing.
|
·
|
In
December 2000, we acquired Streamline Communications, a Boston,
Massachusetts-based company.
|
·
|
In
February 2002, we acquired Lead Dog Digital, Inc., a New York, New
York-based company.
|
·
|
In
December 2004, we acquired Interactive Applications, Inc., a Washington,
D.C.-based company.
|
·
|
In
April 2006, we acquired New Tilt, Inc., a Cambridge, Massachusetts-based
company.
|
·
|
In ,
2007, we acquired Objectware, Inc., an Atlanta, Georgia-based
company.
|
·
|
Many
of the existing Web applications were developed from 1999 to 2003,
utilizing older Web development technologies such as HTML. The Web
applications developed were limited and did not provide significant
operational efficiencies. Since 1999, there have been technological
advancements in dynamic Web logic, open source standards, and broadband
technologies. We believe these technological advancements combined
with
resurgence in information technology spending will fuel strong investments
towards redeveloping legacy Web
applications.
|
·
|
Many
organizations will likely continue to experiment and expand their
use of
Web services by utilizing their existing base of technologies until
volume
and levels of complexity force review and investment, in particular
for
service-oriented management
solutions.
|
·
|
A
heavy influence on the timing and amounts of when organizations may
determine to invest relates to the waves of major versions released
by key
vendors. For example, organizations may determine to wait until Microsoft
meets market commitments on its Longhorn releases, and SAP customers
may
be interested in investing as prior versions of software are retired
from
support.
|
·
|
The
conversion of software pricing models from traditional license models
to
more subscription-oriented methods will influence the rate of growth
and
overall size of the market, especially in the context of hosted
applications and service, creating a normalizing
effect.
|
·
|
Software
is built specifically for network delivery and is not deployed in-house;
and
|
·
|
Software
license and hosting revenue is combined such that the software license
and
hosting fees cannot be
differentiated.
|
·
|
Internet
sites
|
·
|
Intranet
sites
|
·
|
Extranet
sites
|
·
|
eCommerce
|
·
|
Database
development
|
·
|
Usability
audits
|
·
|
Information
architecture
|
·
|
Process
analysis and optimization
|
·
|
Interface
design
|
·
|
User
testing
|
·
|
Flexibility:
accessibility via Internet, intranet, or extranets
|
·
|
Savings:
reduced training costs and related
expenses
|
·
|
Convenience:
24/7 availability at the user’s discretion
|
·
|
Longevity:
post-learning usage of updatable
resources
|
·
|
Editors:
Have rights to contribute content in identified areas of the
site.
|
·
|
Approvers:
Responsible for reviewing and either approving or rejecting content
for
particular areas of the site.
|
·
|
Publishers:
Ultimately responsible for final review and publishing of content.
These
users can post content to the live
site.
|
·
|
Administrators:
Responsible for administration of the system. Administrators have
the
ability to add/modify/delete users, groups, permissions, content
sections,
site structure, and content
workflow.
|
·
|
iApps
®
Content
Manager
|
·
|
iApps
®
Web
Analytics
|
·
|
iApps
®
Marketier
|
·
|
iApps
®
Digital
Asset
Manager
|
·
|
iApps
®
Commerce
|
·
|
iApps
®
Grants
Manager
|
·
|
Financial
services
|
·
|
Life
sciences
|
·
|
High
technology
|
·
|
Foundations
and non profit organizations
|
·
|
Federal
and state government agencies
|
·
|
streamlines
our customer qualification process
|
·
|
strengthens
our relationship with our customer
|
·
|
ensures
our skill set and tools match the customer’s needs
|
·
|
results
in the submission of accurate
proposals
|
·
|
Differentiation
by marketing our content management software, netEDITOR
®
|
·
|
Differentiation
by marketing our on-demand Web tools from the Orgitecture
TM
platform
|
·
|
Improved
margins by selling and licensing our Web software tools mentioned
above
|
·
|
Improved
margins by utilizing our development center in Bangalore,
India
|
·
|
Improved
sales by being a part of a larger company
|
·
|
Improved
sales by adopting our 4-phase sales methodology
|
·
|
Improved
internal reporting and communications
|
·
|
Reduced
expense (centralized G&A, R&D, HR, legal, and
marketing)
|
·
|
Liquidity
for their shareholders
|
·
|
Product/service
range:
Most existing developers of Web software tools
offer their software tools without directly providing Web application
development services and conversely existing Web application
developers do
not provide internally developed Web software tools. To
distinguish ourselves from the competition, we offer both Web
application
development services and related Web software tools to enhance
the
likelihood of the customer receiving a functional, scalable,
expandable,
and integrated web application from one
source.
|
·
|
Expandability,
rather than individual point solutions:
Our Web software
tools share a single framework (common service layer), which
allows for
expansion of our Web software tools to include other software
modules. We believe that most of the competitive systems do not
provide this level of
expandability.
|
·
|
Ease
of use:
Our Web software tools provide advanced navigation
tools and a simple interface which allow our customers to use
our software
without substantial technical skills. We believe this ease of
use provides us with a competitive advantage in this competitive
environment.
|
·
|
Customization
flexibility:
Our Web software tools are customizable to
meet our customers’ specific application requirements. We
believe this customization flexibility distinguishes Bridgeline
from many
of our competitors.
|
·
|
Reliability:
Based
on our interactions with customers, we believe our Web software
tools
generally meet the reliability expectations of our
customers. We believe this history of reliability is comparable
with many of our competitors.
|
·
|
Low
cost of ownership:
We believe our Web software tools have a lower cost
of ownership than the solutions provided by most of our
competitors.
|
·
|
Established
developers of individual point solutions such as a content management
system, Web analytic systems, marketing management systems, or commerce
systems
.
|
·
|
Established
developers of other individual point solutions such as customer
relationship management systems who plan to expand their product
offering
into our space.
|
·
|
Large
internal IT teams that have the ability to internally develop their
own
custom applications.
|
·
|
Product/service
range:
Most existing developers of Web software tools
offer their software tools without directly providing Web application
development services and conversely existing Web application
developers do
not provide internally developed Web software tools. To
distinguish ourselves from the competition, we offer both Web
application
development services and related Web software tools to enhance
the
likelihood of the customer receiving a functional, scalable,
expandable,
and integrated web application from one
source.
|
·
|
Subject
matter expertise:
Our primary focus is serving clients in a small
number of vertical markets, including financial services, life
sciences,
foundations and non-profit organizations, and high
technology. This focus allows us to invest in the development
of in-house expertise in each of these subject matters. We
believe this in-house expertise allows us to better serve our
customers
and may provide a competitive
advantage.
|
·
|
Diversified
technical expertise:
Our employees have experience in interface
design, information architecture, .NET programming and project
management. Each of our geographic offices has professionals on
staff in these core roles. We believe this diversity of
technical expertise in each of our geographic locations assists
us in
serving our customers and may provide a competitive
advantage.
|
·
|
Reliability:
Based
on our interactions with customers, we believe our Web application
development services generally meet the reliability expectations
of our
customers. We believe this history of reliability is comparable
with many of our competitors.
|
·
|
Location
and accessibility:
We believe having multiple geographic locations
helps us to serve our clients located in those geographic locations
and
may provide us with a competitive advantage over competitors
with
centralized offices.
|
·
|
Low
cost of ownership:
In part due to our off-shore development facility
in Bangalore, India, we believe our Web application development
services
have a lower cost of ownership than the services provided by
most of our
competitors.
|
Location
|
|
Address
|
|
Size
|
Woburn,
Massachusetts
|
|
10
Sixth Road
Woburn,
Massachusetts 01801
|
|
9,335
square feet,
professional
office space
|
New
York, New York
|
|
104
West 40
th
Street
New
York, New York 10018
|
|
4,400
square feet,
professional
office space
|
Washington,
D.C.
|
|
2639
Connecticut Ave., NW
Washington,
D.C. 20008
|
|
9,383
square feet,
professional
office space
|
Bangalore,
India
|
|
71
Sona Towers, West Wing
Millers
Rd., Bangalore 560 052
|
|
7,800
square feet,
professional
office space
|
Norcross,
Georgia
|
|
5555
Triangle Parkway
Norcross,
Georgia 30092
|
|
7,068
square feet,
professional
office space
|
Reston,
Virginia
|
|
11440
Commerce Park Drive,
Suite
502, Reston, VA 20191
|
|
1,413
square feet,
professional
office space
|
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
Thomas
Massie
|
|
45
|
|
Chairman,
Chief Executive Officer and President
|
|
|
|
|
|
William
Coldrick
|
|
65
|
|
Director
(1)(2)(3)(4)
|
|
|
|
|
|
Kenneth
Galaznik
|
|
55
|
|
Director
(1)(3)(4)
|
|
|
|
|
|
Robert
Hegarty
|
|
44
|
|
Director(1)(2)(3)(4)
|
|
|
|
|
|
Gary
Cebula
|
|
48
|
|
Executive
Vice President, Treasurer, Corporate Secretary and Chief Financial
Officer
|
|
|
|
|
|
Brett
Zucker
|
|
35
|
|
Executive
Vice President and Chief Technical
Officer
|
(1)
|
Member
of the Audit Committee.
|
(2)
|
Member
of the Compensation Committee.
|
(3)
|
Member
of the Nominating and Governance Committee.
|
(4)
|
Independent
director.
|
Michael
Matteo
|
|
42
|
|
Executive
Vice President & General Manager, New York
|
|
|
|
|
|
Richard
Schwartz
|
|
59
|
|
Executive
Vice President and General Manager, New England
|
|
|
|
|
|
Erez
Katz
|
|
XX
|
|
Executive
Vice President and General Manager, Atlanta
|
|
|
|
|
|
Vikram
Mudgal
|
|
38
|
|
Executive
Vice President and General Manager, Bridgeline India
|
|
|
|
|
|
Miles
Fawcett
|
|
37
|
|
Executive
Vice President and
General
Manager, Washington,
DC
|
|
|
|
|
|
Peter
“Pip” Winslow
|
|
47
|
|
Executive
Vice President of Human Resources
|
|
|
|
|
|
Donna
Tramontozzi
|
|
53
|
|
Executive
Vice President of Business Strategy
|
|
|
|
|
|
Robert
Seeger
|
|
33
|
|
Senior
Vice President of Business Development, New York
|
|
|
|
|
|
David
Goldsmith
|
|
45
|
|
Vice
President of Business Development, iapps
|
|
|
|
|
|
Jenny
Quinn
|
|
43
|
|
Senior
Vice President of Business Development, New England
|
|
|
|
|
|
William
Matteson
|
|
61
|
|
Vice
President of Merger Integration
|
·
|
Honest
and ethical conduct, including the ethical handling of actual or
apparent
conflicts of interest between personal and professional
relationships;
|
·
|
Full,
fair, accurate, timely, and understandable disclosure in reports
and
documents that we file with, or submit to, the SEC and in other public
communications made by us;
|
·
|
Compliance
with applicable governmental laws, rules and
regulations;
|
·
|
The
prompt internal reporting of violations of the ethics code to an
appropriate person or persons identified in the
code; and
|
·
|
Accountability
for adherence to the Code of
Ethics.
|
·
|
as
a member of the compensation committee of another entity which has
had an
executive officer who has served on our compensation
committee;
|
·
|
as
a director of another entity which has had an executive officer who
has
served on our compensation committee; or
|
·
|
as
a member of the compensation committee of another entity which has
had an
executive officer who has served as one of our
directors.
|
·
|
any
breach of the director’s duty of loyalty to us or our
shareholders;
|
·
|
acts
or omissions not in good faith or which involve intentional misconduct
or
a knowing violation of law;
|
·
|
the
payment of dividends or the redemption or purchase of stock in violation
of Delaware law; or
|
·
|
any
transaction from which the director derived an improper personal
benefit.
|
|
|
|
|
Long
Term
Compensation
|
|
|||||||||||||||||
|
Annual Compensation
|
|
|
Awards
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
|
|
|
Securities
|
|
||||||
|
|
|
|
|
|
|
|
|
Other
Annual
|
|
|
Stock
|
|
|
Underlying
|
|
||||||
|
|
|
Salary
|
|
|
Bonus
|
|
|
Compensation
|
|
|
Award(s)
|
|
|
Options/SARs
|
|
||||||
Name
and Principal Position
|
Year
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Thomas
Massie
|
2006
|
|
|
150,000
|
|
|
|
50,000
|
|
|
|
20,272
|
(1)
|
|
|
|
|
|
|
|
||
|
2005
|
|
|
150,000
|
|
|
|
76,333
|
|
|
|
24,242
|
(1)
|
|
|
|
|
|
|
|
||
|
2004
|
|
|
123,167
|
|
|
|
15,000
|
|
|
|
12,121
|
(1)
|
|
|
|
|
|
|
|
||
Gary
Cebula
|
2006
|
|
|
122,083
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
2005
|
|
|
120,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
2004
|
|
|
123,167
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brett
Zucker
|
2006
|
|
|
144,000
|
|
|
|
52,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
133,358
|
|
|
|
21,366
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
2004
|
|
|
125,716
|
|
|
|
69,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Seeger
|
2006
|
|
|
119,375
|
|
|
|
254,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
123,333
|
|
|
|
157,748
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
2004
|
|
|
101,375
|
|
|
|
212,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Represents life insurance premiums.
|
Name
|
Number
of
Securities
Underlying
Options/SARs
Granted
|
%
of Total
Options/SARs
Granted
to
Employees
in
Fiscal
Year
|
Exercise
or
Base
Price
($/Share)
|
Expiration
Date
|
||||||||||||
Thomas
Massie
|
—
|
—
|
—
|
—
|
||||||||||||
Gary
Cebula
|
100,000
|
24.4
|
$
|
3.75
|
06/01/15
|
|||||||||||
Brett
Zucker
|
100,000
|
24.4
|
$
|
3.75
|
06/01/15
|
|||||||||||
Robert
Seeger
|
50,000
|
12.2
|
$
|
3.75
|
06/01/15
|
Value
of Unexercised
|
||||||||||||||||
Number
of Securities Underlying
|
“in
the Money”
|
|||||||||||||||
Unexercised
Options at
|
Options
at
|
|||||||||||||||
September
30, 2006
|
September
30, 2006 (1)
|
|||||||||||||||
Exercisable
|
Unexercisable
|
Exercisable
|
Unexercisable
|
|||||||||||||
Thomas
Massie
|
40,000
|
—
|
$
|
119,981
|
$
|
-
0
-
|
||||||||||
Gary
Cebula
|
65,000
|
66,667
|
$
|
157,481
|
$
|
116,667
|
||||||||||
Brett
Zucker
|
82,283
|
66,667
|
$
|
225,410
|
$
|
116,667
|
||||||||||
Robert
Seeger
|
68,164
|
33,333
|
$
|
197,390
|
$
|
58,333
|
(1)
|
Options
are “in the money” if the market value of the shares covered thereby is
greater than the option exercise price. There was no public trading
market
for our common stock as of September 30, 2006. The value of unexercised
“in the money” options at September 30, 2006 are determined by multiplying
the number of shares underlying the options by the difference between
the
initial public offering price of $5.50 per share and the per share
option
exercise price.
|
Private
Placement
|
Cash
Fee
|
Number
of
Warrants
|
Exercise
Price
|
|||||||||
April
2006 Private Placement
|
$
|
280,000
|
(1)
|
112,000
|
$
|
(2)
|
(1)
|
Does
not include amounts paid by us to Gunnar as reimbursement for
out-of-pocket expenses in connection with the 2006 private placement
or
for fees of Gunnar’s counsel.
|
(2)
|
Exercise
price is equal to the offering price of our common stock in this
offering.
|
Number
of
Shares
|
Percentage
of
Outstanding
Shares Owned
|
||||||||||||
Name
and Address of
Beneficial
Owner
|
of
Common
Stock
Beneficially
Owned
|
Before
Offering
|
After
Offering
(1)
|
||||||||||
Thomas
Massie
|
916,667
|
(2)
|
21.2%
|
12.2%
|
|||||||||
William
Coldrick
|
57,223
|
(3)
|
1.3%
|
0.8%
|
|||||||||
Kenneth
Galaznik
|
0
|
—
|
—
|
||||||||||
Robert
Hegarty
|
0
|
—
|
—
|
||||||||||
Gary
Cebula
|
164,999
|
(4)
|
3.8%
|
2.2%
|
|||||||||
Brett
Zucker
|
164,786
|
(5)
|
3.8%
|
2.2%
|
|||||||||
Robert
Seeger
|
220,188
|
(6)
|
5.1%
|
2.9%
|
|||||||||
Miles
Fawcett
|
489,445
|
(7)
|
11.4%
|
6.5%
|
|||||||||
Peter
L. Winslow
|
472,297
|
(8)
|
10.8%
|
6.3%
|
|||||||||
Fin
Net, LLC
|
367,398
|
(9)
|
8.6%
|
4.8%
|
|||||||||
All
executive officers and directors as a group
(7 persons)
|
1,523,863
|
(10)
|
33.4%
|
19.6%
|
(1)
|
The
percentages assume the issuance of 150,000 shares of common stock
upon the
exercise of the Underwriters’ Warrants which would be issued upon the sale
of the shares in this offering.
|
(2)
|
Includes
options to purchase 6,667 shares of common stock at an exercise price
of
$0.003 per share and 33,333 shares of common stock at an exercise
price of
$3.00 per share. Includes a warrant to purchase 10,000 shares of
common
stock at an exercise price of $.001 per
share.
|
(3)
|
Includes
an option to purchase 5,556 shares of common stock at an exercise
price of
$3.75 per share.
|
(4)
|
Includes
options to purchase 6,667 shares of common stock at an exercise price
of
$0.003 per share, 25,000 shares of common stock at an exercise price
of
$3.00 per share and 33,333 shares of common stock at an exercise
price of
$3.75 per share.
|
(5)
|
Includes
options to purchase 1,820 shares of common stock at an exercise price
of
$0.3573 per share, 16,797 shares of common stock at an exercise price
of
$1.0797 per share, 33,333 shares of common stock at an exercise price
of
$3.00 per share, and 33,333 shares of common stock at an exercise
price of
$3.75 per share.
|
(6)
|
Includes
options to purchase 4,167 shares of common stock at an exercise price
of
$0.003 per share, 13,997 shares of common stock at an exercise price
of
$1.0716 per share, 33,333 shares of common stock at an exercise price
of
$3.00 per share and 16,667 shares of common stock at an exercise
price
|
|
of
$3.75 per share. Includes a warrant to purchase 5,000 shares of common
stock at an exercise price of $.001 per
share.
|
(7)
|
Includes
options to purchase 12,778 shares of common stock at an exercise
price of
$3.75 per share.
|
(8)
|
Includes
warrants to purchase 104,899 shares of common stock at an exercise
price
of $3.75 per share (the vested portion of one warrant grant to purchase
31,667 shares) and $4.68 per share (the vested portion of two warrant
grants to purchase 73,232 shares). Includes 367,398 shares held by
Fin Net, LLC, as to which Mr. Winslow disclaims beneficial ownership.
Mr.
Winslow is Chairman and Managing Director of Fin Net,
LLC.
|
(9)
|
Fin
Net, LLC’s address is 33 Broad Street, Boston, MA
02114.
|
(10)
|
Includes
options to purchase 276,781 shares of common
stock.
|
·
|
prior
to that date our Board of Directors approved either the business
combination or the transaction that resulted in the shareholder becoming
an interested shareholder;
|
·
|
upon
completion of the transaction that resulted in the shareholder becoming
an
interested shareholder, the interested shareholder owned at least
85% of
the voting stock outstanding at the time the transaction
began; or
|
·
|
on
or following that date the business combination is approved by our
Board
of Directors and authorized at an annual or special meeting of
shareholders, by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the interested
shareholder.
|
·
|
any
merger or consolidation involving the corporation and the interested
shareholder;
|
·
|
any
sale, lease, exchange, mortgage, transfer, pledge, or other disposition
of
10% or more of the assets of the corporation involving the interested
shareholder;
|
·
|
subject
to some exceptions, any transaction that results in the issuance
or
transfer by the corporation or any of its direct or indirect subsidiaries
of any stock of the corporation or of any such subsidiary to the
interested shareholder;
|
·
|
any
transaction involving the corporation or any of its direct or indirect
subsidiaries that has the effect of increasing the proportionate
share of
the stock of any class or series of the corporation or of any such
subsidiary beneficially owned by the interested shareholder;
or
|
·
|
the
receipt by the interested shareholder of the benefit of any loans,
advances, guarantees, pledges, or other financial benefits provided
by or
through the corporation or any direct or indirect majority-owned
subsidiary.
|
·
|
provide
that special meetings of the shareholders may be called only by our
Chairman of the Board, our President or our Board of
Directors;
|
·
|
establish
procedures with respect to shareholder proposals and shareholder
nominations, including requiring that advance written notice of proposals
and nominations generally must be received at our principal executive
offices not less than 90 days nor more than 120 days prior to the
anniversary of the preceding annual meeting of
shareholders;
|
·
|
provide
that shareholders may not take actions by written consent in lieu
of an
annual or special meeting of shareholders;
|
·
|
do
not include a provision for cumulative voting in the election of
directors. Under cumulative voting, a minority shareholder holding
a
sufficient number of shares may be able to ensure the election of
one or
more directors. The absence of cumulative voting may have the effect
of
limiting the ability of minority shareholders to effect changes in
the
Board of Directors and, as a result, may have the effect of deterring
a
hostile takeover or delaying or preventing changes in control or
management of our company;
|
·
|
provide
that vacancies on our Board of Directors may be filled by a majority
of
directors in office, although less than a quorum, and not by the
shareholders;
|
·
|
provide
for staggered terms for the members of our Board of Directors. The
Board
of Directors is divided into three staggered classes, and each director
serves a term of three years. At each annual shareholders’ meeting only
those directors comprising one of the three classes will have completed
their term and stand for re-election or replacement. In addition,
our
Amended and Restated Certificate of Incorporation contains a supermajority
voting requirement for any amendments of the staggered Board
provisions;
|
·
|
require
an advance notice of any shareholder business before the annual meeting
of
our shareholders; and
|
·
|
allow
us to issue without shareholder approval up to 1,000,000 shares of
preferred stock that could adversely affect the rights and powers,
including voting rights, of the holders of common stock. In some
circumstances, this issuance could have the effect of decreasing
the
market price of the common stock as well as having the anti-takeover
effect discussed above.
|
·
|
the
number of shares currently held;
|
·
|
the
number of shares issuable upon exercise of warrants;
and
|
·
|
the
number of shares offered by each selling
shareholder.
|
Shares
Owned at
Closing
of
Initial Public
Offering
(1)
|
Shares
Being
Offered
|
Shares
Owned after
Resale
of Warrant
Shares
(2)
|
||||||||||||||||||
Name
|
Number
|
Percentage
|
Number
|
Number
|
Percentage
|
|||||||||||||||
Neil
T. Anderson
|
30,000
|
*
|
30,000
|
0
|
*
|
|||||||||||||||
Paul
Auersperg
|
5,000
|
*
|
5,000
|
0
|
*
|
|||||||||||||||
Christopher
P. Baker (3)
|
36,667
|
*
|
10,000
|
26,667
|
*
|
|||||||||||||||
Balfour
Associates, L.P. (4)
|
20,000
|
*
|
20,000
|
0
|
*
|
Burg
Family Trust (5)
|
5,000
|
*
|
5,000
|
0
|
*
|
|||||||||||||||
Brian
Callahan
|
10,000
|
*
|
10,000
|
0
|
*
|
|||||||||||||||
William
B. Coldrick (6)
|
57,223
|
0.8 | % |
10,000
|
47,223
|
0.6 | % | |||||||||||||
Edward
C. Davenport
|
5,000
|
*
|
5,000
|
0
|
*
|
|||||||||||||||
James
R. Davis
|
25,000
|
*
|
25,000
|
0
|
*
|
|||||||||||||||
Thomas
B. Dupree, Jr.
|
10,000
|
*
|
10,000
|
0
|
*
|
|||||||||||||||
Fortune
Footwear, Inc. (7)
|
5,000
|
*
|
5,000
|
0
|
*
|
|||||||||||||||
Albert
Freed
|
5,000
|
*
|
5,000
|
0
|
*
|
|||||||||||||||
Ronald
Heffernan
|
65,231
|
*
|
10,000
|
55,231
|
*
|
|||||||||||||||
Herbert
Wrabel Living Trust (8)
|
5,000
|
*
|
5,000
|
0
|
*
|
|||||||||||||||
High
Capital Funding, LLC (9)
|
10,000
|
*
|
10,000
|
0
|
*
|
|||||||||||||||
Charles
Jia
|
5,000
|
*
|
5,000
|
0
|
*
|
|||||||||||||||
Mitchell
and Allison Kersch
|
5,000
|
*
|
5,000
|
0
|
*
|
|||||||||||||||
Elia
Kotler
|
5,000
|
*
|
5,000
|
0
|
*
|
|||||||||||||||
John
Landy
|
30,000
|
*
|
30,000
|
0
|
*
|
|||||||||||||||
Scott
J. and Suzanne Lefebvre
|
5,000
|
*
|
5,000
|
0
|
*
|
|||||||||||||||
Larry
Lowrance
|
10,000
|
*
|
10,000
|
0
|
*
|
|||||||||||||||
Thomas
L. and Theresa M. Massie (10)
|
916,667
|
12.5 | % |
10,000
|
906,667
|
11.3 | % | |||||||||||||
Robert
S. McCoy
|
5,000
|
*
|
5,000
|
0
|
*
|
|||||||||||||||
Robert
McLemore (11)
|
41,667
|
*
|
5,000
|
36,667
|
*
|
|||||||||||||||
Ian
D. Mead
|
10,000
|
*
|
10,000
|
0
|
*
|
|||||||||||||||
John
and Betty Panagolpolous
|
10,000
|
*
|
10,000
|
0
|
*
|
|||||||||||||||
George
Rizos
|
5,000
|
*
|
5,000
|
0
|
*
|
|||||||||||||||
Robert
and Kara Seeger (12)
|
220,188
|
3.0 | % |
5,000
|
215,188
|
2.7 | % | |||||||||||||
John
L. Troutman
|
5,000
|
*
|
5,000
|
0
|
*
|
|||||||||||||||
Joseph
A. Alagna (13)
|
37,216
|
*
|
37,216
|
0
|
*
|
|||||||||||||||
Joseph
Duarte (13)
|
16,363
|
*
|
16,363
|
0
|
*
|
|||||||||||||||
Michael
Mondiello (13)
|
1,300
|
*
|
1,300
|
0
|
*
|
|||||||||||||||
Bradford
Pine (13)
|
1,750
|
*
|
1,750
|
0
|
*
|
Anthony
Sica (13)
|
4,406
|
*
|
4,406
|
0
|
*
|
|||||||||||||||
Stephan
A. Stein (13)
|
34,015
|
*
|
34,015
|
0
|
*
|
|||||||||||||||
Abner
Zalaznick (13)
|
2,000
|
*
|
2,000
|
0
|
*
|
|||||||||||||||
Nicholas
Lobasso (13)
|
3,000
|
*
|
3,000
|
0
|
*
|
|||||||||||||||
Gary
Saccaro (13)
|
3,000
|
*
|
3,000
|
0
|
*
|
|||||||||||||||
Joseph
Gunnar & Co., LLC (14)
|
158,950
|
2.0 | % |
158,950
|
0
|
*
|
(1)
|
Based
on 7,273,833 shares outstanding immediately following the initial
public
offering, plus, for each person, such number of shares of common
stock
that the selling stockholder has the right to acquire beneficial
ownership
of within 60 days after February 1, 2007.
|
(2)
|
This
table assumes that each selling stockholder will sell all shares
offered
for sale by it under this registration statement. Stockholders are
not
required to sell their shares.
|
(3)
|
Mr.
Baker is an affiliate of C.P. Baker Securities, Inc., a registered
broker-dealer. Mr. Baker purchased the shares in the ordinary course
of
business and at the time of the purchase of the securities to be
resold,
Mr. Baker had no agreements or understandings, directly or indirectly,
with any person to distribute the securities.
|
(4)
|
James
Mintzer holds investment and voting control for Balfour
Associates
|
(5)
|
Harold
Burg holds investment and voting control for Burg Family
Trust.
|
(6)
|
Mr.
Coldrick is a Director of the company. Includes 5,556 shares subject
to
options that are exercisable within 60 days of February 1, 2007.
|
(7)
|
Paul
Ausperg holds investment and voting control for Fortune
Footwear.
|
(8)
|
Herbert
Wrabel holds investment and voting control for Herbert Wrabel Living
Trust.
|
(9)
|
Frank
Hart holds investment and voting control for High Capital Funding
LLC.
|
(10)
|
Mr.
Massie is President, Chief Executive Officer and a Director of the
company. Includes 40,000 shares subject to options that are exercisable
within 60 days of February 1, 2007.
|
(11)
|
Robert
A. McLemore is an affiliate of Winslow, Evans & Croker, a registered
broker-dealer. Mr. McLemore purchased the shares in the ordinary
course of
business and at the time of the purchase of the securities to be
resold,
Mr. McLemore had no agreements or understandings, directly or indirectly,
with any person to distribute the securities.
|
(12)
|
Mr.
Seeger is Senior Vice President of Business Development of the company.
Includes 68,164 shares subject to options that are exercisable within
60
days of February 1, 2007.
|
(13)
|
This
selling shareholder is an affiliate of Joseph Gunnar & Co. The selling
shareholder purchased the shares in the ordinary course of business
and at
the time of purchase of the securities to be resold, had no agreements
or
understandings, directly or indirectly, with any person to distribute
the
securities.
|
(14)
|
Joseph
Alagna holds investment and voting control for Joseph Gunnar & Co.
Joseph Gunnar & Co. is a registered broker-dealer. The shares held by
Joseph Gunnar & Co. were received as compensation for investment
banking services.
|
·
|
ordinary
brokerage transactions and transactions in which the broker dealer
solicits purchasers;
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and
|
resell a portion of the block as principal to facilitate the transaction; | |
·
|
purchases
by a broker-dealer as principal and resale by the broker dealer for
its
account;
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
·
|
privately
negotiated transactions;
|
·
|
settlement
of short sales;
|
·
|
broker-dealers
may agree with the stockholders to sell a specified number of such
shares
at a stipulated price per share;
|
·
|
a
combination of any such methods of sale; and
|
·
|
any
other method permitted pursuant to applicable
law.
|
|
|
|
|
|
SEC
Registration Fee
|
$
|
2,660
|
||
NASD
Filing Fee
|
2,985
|
|||
Nasdaq
Capital Market Listing Fee
|
35,000
|
|||
Accounting
Fees and Expenses
|
575,000
|
|||
Legal
Fees and Expenses
|
200,000
|
|||
Blue
Sky Fees and Expenses
|
20,000
|
|||
Printing
and Engraving Expenses
|
50,000
|
|||
Miscellaneous
|
100,000
|
|||
Total
|
$
|
995,645
|
Date
|
Number
|
Exercise
Price
|
||||||
October
21, 2003
|
11,667
|
$ |
3.00
|
|||||
November
17, 2003
|
16,666
|
$ |
3.00
|
|||||
January
15, 2004
|
11,000
|
$ |
3.00
|
|||||
February
9, 2004
|
8,333
|
$ |
3.00
|
|||||
March
22, 2004
|
1,000
|
$ |
3.00
|
|||||
April
1, 2004
|
3,333
|
$ |
3.00
|
|||||
April
9, 2004
|
6,667
|
$ |
3.00
|
|||||
May
4, 2004
|
18,066
|
$ |
3.00
|
|||||
June
14, 2004
|
3,333
|
$ |
3.00
|
|||||
June
21, 2004
|
667
|
$ |
3.00
|
|||||
July
1, 2004
|
2,667
|
$ |
3.00
|
|||||
July
1, 2004
|
667
|
$ |
3.00
|
|||||
July
16, 2004
|
16,667
|
$ |
3.75
|
|||||
October
14, 2004
|
1,667
|
$ |
3.75
|
|||||
October
20, 2004
|
3,333
|
$ |
3.75
|
|||||
December
15, 2004
|
50,949
|
$ |
1.20
|
|||||
December
15, 2004
|
36,167
|
$ |
3.75
|
|||||
March
1, 2005
|
1,000
|
$ |
3.75
|
|||||
March
1, 2005
|
5,000
|
$ |
3.00
|
|||||
April
1, 2005
|
4,833
|
$ |
3.75
|
|||||
May
1, 2005
|
3,333
|
$ |
3.75
|
|||||
June
1, 2005
|
316,667
|
$ |
3.75
|
|||||
July
1, 2005
|
6,666
|
$ |
3.75
|
|||||
December
31, 2005
|
16,667
|
$ |
3.75
|
|||||
January
21, 2006
|
16,667
|
$ |
3.75
|
|||||
February
1, 2006
|
8,333
|
$ |
3.75
|
|||||
March
1, 2006
|
2,500
|
$ |
3.75
|
|||||
March
15, 2006
|
8,333
|
$ |
3.75
|
|||||
April
24, 2006
|
102,420
|
$ |
3.75
|
|||||
September
20, 2006
|
50,000
|
$ |
3.75
|
|||||
October
20, 2006
|
31,880
|
$ |
3.75
|
|
Item
|
|
|
Title
|
|
|
1.1
|
|
|
Underwriting
Agreement
|
|
|
2.1†
|
|
|
New
Tilt, Inc. Acquisition Agreement**
|
|
|
2.2†
|
|
|
Interactive
Applications, Inc. Acquisition Agreement**
|
|
|
2.3††
|
|
|
Objectware,
Inc. Acquisition Agreement**
|
|
|
2.4†
|
|
|
Lead
Dog Digital, Inc. Acquisition Agreement**
|
|
|
2.5†
|
|
|
Streamline
Communications, Inc. Acquisition Agreement**
|
|
|
3.1(i)†
|
|
|
Certificate
of Incorporation, as amended to date
|
|
|
3.1(ii)†
|
|
|
Form
of Amended and Restated Certificate of Incorporation (to become
effective
shortly before the completion of the offering contemplated by this
registration statement)
|
|
|
3.1(iii)†
|
|
|
Amended
and Restated By-laws
|
|
|
4.1
|
|
|
Specimen
Common Stock Certificate
|
|
|
5.1
|
|
|
Opinion
of Morse, Barnes-Brown & Pendleton, P.C. regarding the legality of the
shares offered hereby
|
|
|
10.1†
|
|
|
Office
Building Lease between Sixth Road Woburn, LLC and Bridgeline Software,
Inc., dated May 5, 2005
|
|
|
10.2†
|
|
|
Office
Building Lease between 104 West 40
th
Street
Partners LLC and Bridgeline Software, Inc., dated November 26,
2003
|
|
|
10.3†
|
|
|
Office
Building Lease between Starwood Urban Retail I, LLC and Interactive
Applications Group, Inc., dated August 20, 1999
|
|
|
10.4†
|
|
|
First
Amendment to Office Building Lease between Starwood Urban Retail
I, LLC
and Interactive Applications Group, Inc., dated January 16,
2001
|
|
|
10.5††
|
|
|
Office
Building Lease between Valliappa Software Technological Park Pvt.
Ltd. and
Bridgeline Software Enterprises Pvt. Ltd. dated December 5,
2005
|
|
|
10.6†
|
|
|
Lease
between Cameron-Elmwood Realty, LLC and New Tilt, Inc. dated December
6,
2004
|
|
|
10.7†
|
|
|
Employment
Agreement with Thomas Massie, dated October 1, 2001*
|
|
|
10.8†
|
|
|
Employment
Agreement with Gary Cebula, dated January 1, 2006*
|
|
|
10.9†
|
|
|
Employment
Agreement with Brett Zucker, dated January 1, 2006*
|
|
|
10.10†
|
|
|
Employment
Agreement with Robert Seeger, dated January 1, 2006*
|
|
|
10.11
|
|
|
Form
of Employment Agreement with Erez M. Katz
|
|
|
10.12†
|
|
|
Business
Combination Services Agreement dated as of October 1, 2005 between
Bridgeline Software, Inc. and Joseph Gunnar & Co., LLC
|
|
|
10.13†
|
|
|
Memorandum
of Understanding between Fin Net, LLC and Bridgeline Software,
Inc. dated
January 5, 2004
|
|
|
10.14†
|
|
|
Financing
Agreement between Sand Hill Finance, LLC and Bridgeline Software,
Inc.
dated March 29, 2005
|
|
|
10.15†
|
|
|
First
Amendment to Financing Agreement between Sand Hill Finance, LLC
and
Bridgeline Software, Inc. dated September 12, 2005
|
|
|
10.16†
|
|
|
Convertible
Term Note issued by Bridgeline Software, Inc. to Thomas Massie
for the
principal sum of $200,000, dated September 3, 2002
|
|
|
10.17†
|
|
|
Convertible
Term Note issued by Bridgeline Software, Inc. to Thomas Massie
for the
principal sum of $112,000, dated September 3, 2002
|
|
|
10.18†
|
|
|
Security
Agreement between Bridgeline Software, Inc. and Thomas Massie dated
as of
September 3, 2002
|
|
10.19†
|
|
|
Placement
Agent Agreement by and between Bridgeline Software, Inc. and Joseph
Gunnar
& Co., LLC, dated as of April 10, 2006
|
|
10.20†
|
|
|
General
Security Agreement by and between Bridgeline Software, Inc. and the
investors named therein, dated as of April 21, 2006
|
|
|
10.21†
|
|
|
Form
of Subscription Agreement by and between Bridgeline Software, Inc.
and the
investors listed on Schedule A attached thereto
|
|
|
10.22†
|
|
|
Form
of Secured Promissory Note issued to the investors listed on Schedule
A
attached thereto
|
|
|
10.23†
|
|
|
Form
of Warrant to Purchase Common Stock of Bridgeline Software, Inc.
issued to
the investors listed on Schedule A attached thereto, as
amended
|
|
|
10.24†
|
|
|
Form
of Warrant to Purchase Common Stock of Bridgeline Software, Inc.
issued to
Placement Agent in April 2006 offering, as amended
|
|
|
10.25†
|
|
|
Form
of Warrant to Purchase Common Stock of Bridgeline Software, Inc.
issued to
Winslow, Evans & Crocker, Inc., and associates of Winslow, Evans &
Crocker, Inc., as compensation for services as placement gent in
2003 and
2004 equity offerings
|
|
|
10.26†
|
|
|
Form
of Warrant to Purchase Common Stock of Bridgeline Software, Inc.
issued to
Fin Net, LLC as compensation for investment banking
services
|
|
|
10.27†
|
|
|
Common
Stock Purchase Warrant of Bridgeline Software issued to Sand Hill
Finance,
LLC
|
|
|
10.28†
|
|
|
Data
Processing and Technical Services Agreement between The Bank of New
York
and Bridgeline Software, Inc. dated as of October 25, 2002
|
|
|
10.29†
|
|
|
Professional
Services Agreement between The Depository Trust & Clearing Corporation
and Bridgeline Software, Inc. dated as of January 2, 2006
|
|
|
10.30†
|
|
|
Statement
of Work for Web Maintenance Services between Nomura Securities, Inc.
and
Bridgeline Software, Inc. dated as of June 12, 2002
|
|
|
10.31†
|
|
|
Agreement
between Pfizer, Inc. and Bridgeline Software, Inc. dated as of December
16, 2005
|
|
|
10.32†
|
|
|
Master
Services Agreement between John Hancock Life Insurance Co. and Bridgeline
Software, Inc. dated as of July 1, 2004
|
|
|
10.33†
|
|
|
Amended
and Restated Stock Incentive Plan*
|
|
|
10.34†
|
|
|
Lead
Dog Digital, Inc. 2001 Stock Option Plan*
|
|
|
10.35†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Brett Zucker, dated
February
27, 2002*
|
|
|
10.36†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Brett Zucker, dated
February
27, 2002*
|
|
|
10.37†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Brett Zucker, dated
February
27, 2002*
|
|
|
10.38†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Brett Zucker, dated
June 1,
2003*
|
|
|
10.39†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Brett Zucker, dated
June 1,
2005*
|
|
|
10.40†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Robert Seeger, dated
February
27, 2002*
|
|
|
10.41†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Robert Seeger, dated
February
27, 2002*
|
|
|
10.42†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Robert Seeger, dated
September 30, 2002*
|
|
|
10.43†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Robert Seeger, dated
June 1,
2003*
|
|
|
10.44†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Robert Seeger, dated
June 1,
2005*
|
|
|
10.45†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Gary Cebula, dated August
31,
2000*
|
|
|
10.46†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Gary Cebula, dated September
30, 2002*
|
|
|
10.47†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Gary Cebula, dated June
1,
2003*
|
|
|
10.48†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Gary Cebula, dated June
1,
2005*
|
|
|
10.49†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to William Coldrick, dated
June
1, 2005*
|
|
|
10.50†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Thomas Massie, dated
September 3, 2002*
|
|
|
10.51†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Thomas Massie, dated
September 30, 2002*
|
|
10.52†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Robert Hegarty, dated
September 20, 2006*
|
|
|
10.53†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Kenneth Galaznik,
dated
September 20, 2006*
|
|
|
10.54†††
|
|
|
Amendment
No. 1 to Secured Promissory Note filed as Exhibit 10.22, dated
as of March
29, 2007
|
|
10.55†††
|
|
|
First
Amendment to Agreement and Plan of Merger filed as Exhibit 2.3,
dated as
of March 29, 2007
|
||
10.56††††
|
Form
of Escrow Agreement by and among Bridgeline Software, Inc., Erez
M. Katz,
and Arnall Golden Gregory
|
||||
10.57††††
|
Secured
Promissory Note issued by Bridgeline Software, Inc. to Thomas Massie
for
the principal sum of $100,000 dated April 3, 2007.
|
||||
10.58††††
|
Secured
Promissory Note issued by Bridgeline Software, Inc. to William
Coldrick
for the principal sum of $100,000 dated April 3, 2007.
|
||||
10.59††††
|
Amended
and Restated General security Agreement by and between Bridgeline
Software, Inc. and the investors named therein, dated April 3,
2007.
|
||||
10.60††††
|
Second Amendment to Financing Agreement between Sand Hill Finance, LLC and Bridgeline Software, Inc. dated April 26, 2007. | ||||
10.61††††
|
Agreement between Joseph Gunnar & Co., LLC, as agent for certain Noteholders and Bridgeline Software, Inc. dated May 15, 2007. | ||||
10.62††††
|
Subordination Agreement between Joseph Gunnar & Co., LLC, as agent for certain Noteholders and Bridgeline Software, Inc. dated May 15, 2007. | ||||
10.63
|
Second Amendment to Agreement and Plan of Merger filed as Exhibit 2.3, dated June 14, 2007. | ||||
10.64
|
Amendment No. 2 to Secured Promissory Note filed as Exhibit 10.22, dated as of June 20, 2007. | ||||
|
14.1†
|
|
|
Code
of Ethics
|
|
|
21.1†
|
|
|
Subsidiaries
of the Registrant
|
|
|
23.1
|
|
|
Consent
of Morse, Barnes-Brown & Pendleton, P.C. (incorporated into
exhibit 5.1)
|
|
|
23.2
|
|
|
Consent
of UHY LLP
|
|
|
24.1†
|
|
|
Power
of Attorney
|
|
|
99.1†
|
|
|
Audit
Committee Charter
|
|
|
99.2†
|
|
|
Compensation
Committee Charter
|
|
|
99.3†
|
|
|
Nominating
and Governance Charter
|
†
|
Filed
as an exhibit to the Registrant’s Registration Statement on Form SB-2 No.
333-139298 and incorporated herein by reference.
|
††
|
Filed
as an exhibit to Amendment No. 1 to the Registrant’s Registration
Statement on Form SB-2, No. 333-139298, and incorporated by
reference.
|
†††
|
Filed
as an exhibit to Amendment No. 2 to the Registrant’s Registration
Statement on Form SB-2, No. 333-139298, and incorporated by
reference.
|
††††
|
Filed
as an exhibit to Amendment No. 3 to the Registrant’s Registration
Statement on Form SB-2, No. 333-139298, and incorporated by
reference.
|
*
|
Management
contract or compensatory plan
|
**
|
Schedules
and attachments to this exhibit have been omitted in reliance on
Item
601(b)(2) of Regulation S-B. Such schedules and attachments are listed
in
the index to the exhibit and will be provided to the Commission upon
request.
|
(1)
|
File,
during any period in which offers or sales are being made, a
post-effective amendment to this registration statement
to:
|
(i)
|
Include
any prospectus required by Section 10(a)(3) of the Securities Act of
1933, as amended (the “Securities
Act”);
|
(ii)
|
Reflect
in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease
in
volume of securities offered (if the total dollar value of the securities
offered would not exceed that which was registered) and any deviation
from
the low or high end of the estimated maximum offering range may be
reflected in the form of a prospectus filed with the Commission pursuant
to Rule 424(b) under the Securities Act if, in the aggregate, the
changes in volume and price represent no more than a 20% change in
the
maximum aggregate offering price set forth in the “Calculation of
Registration Fee” table in the effective registration
statement, and
|
(iii)
|
Include
any additional or changed material information on the plan of
distribution.
|
(2)
|
For
determining liability under the Securities Act, treat each post-effective
amendment as a new registration statement of the securities offered,
and
the offering of the securities at that time to be the initial bona
fide
offering.
|
(3)
|
File
a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the
offering.
|
(4)
|
For
determining liability of the undersigned small business issuer under
the
Securities Act to any purchaser in the initial distribution of the
securities, the undersigned undertakes that in a primary offering
of
securities of the undersigned small business issuer pursuant to this
registration statement, regardless of the underwriting method used
to sell
the securities to the purchaser, if the securities are offered or
sold to
such purchaser by means of any of the following communications, the
undersigned small business issuer will be a seller to the purchaser
and
will be considered to offer or sell such securities to such
purchaser:
|
(i)
|
Any
preliminary prospectus or prospectus of the undersigned small business
issuer relating to the offering required to be filed pursuant to
Rule 424;
|
(ii)
|
Any
free writing prospectus relating to the offering prepared by or on
behalf
of the undersigned small business issuer or used or referred to by
the
undersigned small business issuer;
|
(iii)
|
The
portion of any other free writing prospectus relating to the offering
containing material information about the undersigned small business
issuer or its securities provided by or on behalf of the undersigned
small
business issuer; and
|
(iv)
|
Any
other communication that is an offer in the offering made by the
undersigned small business issuer to the
purchaser.
|
(5)
|
The
small business issuer hereby undertakes to provide to the underwriters,
at
the closing specified in the underwriting agreement, certificates
in such
denominations and registered in such names as required by the underwriters
to permit prompt delivery to each
purchaser.
|
(6)
|
Insofar
as indemnification for liabilities arising under the Securities Act
may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant
has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the
Securities Act and is, therefore,
unenforceable.
|
(7)
|
In
the event that a claim for indemnification against such liabilities
(other
than the payment by the registrant of expenses incurred or paid by
a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted
by such
director, officer or
|
|
controlling
person in connection with the securities being registered, the
registrant
will, unless in the opinion of its counsel the matter has been
settled by
controlling precedent, submit to a court of appropriate jurisdiction
the
question whether such indemnification by it is against public policy
as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
|
(8)
|
The
undersigned registrant hereby undertakes
that:
|
(i)
|
For
purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of
this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4), or 497(h) under the Securities Act shall be deemed to be
part of
this registration statement as of the time it was declared
effective
|
(ii)
|
For
the purpose of determining any liability under the Securities Act,
each
post-effective amendment that contains a form of prospectus shall
be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be
deemed to be the initial bona fide offering
thereof.
|
(9)
|
For
the purpose of determining liability under the Securities Act to
any
purchaser:
|
|
|
|
|
BRIDGELINE
SOFTWARE, INC.
|
|
|
a
Delaware corporation
|
|
|
|
|
|
By:
|
/s/ Thomas
Massie
Name:
Thomas Massie
|
|
Title: Chief
Executive Officer and Director
|
Signature
|
Title
|
Date
|
||
/s/
Thomas
Massie
|
Chief
Executive Officer and Director
|
June
21, 2007
|
||
Thomas
Massie
|
(Principal
Executive Officer)
|
|||
/s/
Gary
Cebula
|
Chief
Financial Officer (Principal
|
June
21, 2007
|
||
Gary
Cebula
|
Financial
Officer and Principal Accounting
|
|||
Officer)
|
||||
/s/
William
Coldrick*
|
Director
|
June
21, 2007
|
||
William
Coldrick
|
/s/
Kenneth
Galaznik*
|
Director
|
June
21, 2007
|
||
Kenneth
Galaznik
|
|
|||
/s/
Robert
Hegarty*
|
Director
|
June
21, 2007
|
||
Robert
Hegarty
|
|
|||
|
*
|
The
undersigned, by signing his name hereto, does hereby sign this
Amendment
No. 4 to Registration Statement on behalf of the above-indicated
officer or director of the Registrant pursuant to the Power of
Attorney
signed by such officer or director.
|
||||||||||
|
|
|
|
|
|
|
|||||
|
|
By:
|
|
/s/
Thomas Massie
|
|
|
|||||
|
|
Name:
|
|
Thomas
Massie
|
|
|
|||||
|
|
Title:
|
|
President
|
|
|
|
Item
|
|
|
Title
|
|
|
1.1
|
|
|
Underwriting
Agreement
|
|
|
2.1†
|
|
|
New
Tilt, Inc. Acquisition Agreement**
|
|
|
2.2†
|
|
|
Interactive
Applications, Inc. Acquisition Agreement**
|
|
|
2.3††
|
|
|
Objectware,
Inc. Acquisition Agreement**
|
|
|
2.4†
|
|
|
Lead
Dog Digital, Inc. Acquisition Agreement**
|
|
|
2.5†
|
|
|
Streamline
Communications, Inc. Acquisition Agreement**
|
|
|
3.1(i)†
|
|
|
Certificate
of Incorporation, as amended to date
|
|
|
3.1(ii)†
|
|
|
Form
of Amended and Restated Certificate of Incorporation (to become
effective
shortly before the completion of the offering contemplated by this
registration statement)
|
|
|
3.1(iii)†
|
|
|
Amended
and Restated By-laws
|
|
|
4.1
|
|
|
Specimen
Common Stock Certificate
|
|
|
5.1
|
|
|
Opinion
of Morse, Barnes-Brown & Pendleton, P.C. regarding the legality of the
shares offered hereby
|
|
|
10.1†
|
|
|
Office
Building Lease between Sixth Road Woburn, LLC and Bridgeline Software,
Inc., dated May 5, 2005
|
|
|
10.2†
|
|
|
Office
Building Lease between 104 West 40
th
Street
Partners LLC and Bridgeline Software, Inc., dated November 26,
2003
|
|
|
10.3†
|
|
|
Office
Building Lease between Starwood Urban Retail I, LLC and Interactive
Applications Group, Inc., dated August 20, 1999
|
|
|
10.4†
|
|
|
First
Amendment to Office Building Lease between Starwood Urban Retail
I, LLC
and Interactive Applications Group, Inc., dated January 16,
2001
|
|
|
10.5††
|
|
|
Office
Building Lease between Valliappa Software Technological Park Pvt.
Ltd. and
Bridgeline Software Enterprises Pvt. Ltd. dated December 5,
2005
|
|
|
10.6†
|
|
|
Lease
between Cameron-Elmwood Realty, LLC and New Tilt, Inc. dated December
6,
2004
|
|
|
10.7†
|
|
|
Employment
Agreement with Thomas Massie, dated October 1, 2001*
|
|
|
10.8†
|
|
|
Employment
Agreement with Gary Cebula, dated January 1, 2006*
|
|
|
10.9†
|
|
|
Employment
Agreement with Brett Zucker, dated January 1, 2006*
|
|
|
10.10†
|
|
|
Employment
Agreement with Robert Seeger, dated January 1, 2006*
|
|
|
10.11
|
|
|
Form
of Employment Agreement with Erez M. Katz
|
|
|
10.12†
|
|
|
Business
Combination Services Agreement dated as of October 1, 2005 between
Bridgeline Software, Inc. and Joseph Gunnar & Co., LLC
|
|
|
10.13†
|
|
|
Memorandum
of Understanding between Fin Net, LLC and Bridgeline Software,
Inc. dated
January 5, 2004
|
|
|
10.14†
|
|
|
Financing
Agreement between Sand Hill Finance, LLC and Bridgeline Software,
Inc.
dated March 29, 2005
|
|
|
10.15†
|
|
|
First
Amendment to Financing Agreement between Sand Hill Finance, LLC
and
Bridgeline Software, Inc. dated September 12, 2005
|
|
|
10.16†
|
|
|
Convertible
Term Note issued by Bridgeline Software, Inc. to Thomas Massie
for the
principal sum of $200,000, dated September 3, 2002
|
|
|
10.17†
|
|
|
Convertible
Term Note issued by Bridgeline Software, Inc. to Thomas Massie
for the
principal sum of $112,000, dated September 3, 2002
|
|
|
10.18†
|
|
|
Security
Agreement between Bridgeline Software, Inc. and Thomas Massie dated
as of
September 3, 2002
|
|
|
10.19†
|
|
|
Placement
Agent Agreement by and between Bridgeline Software, Inc. and Joseph
Gunnar
& Co., LLC, dated as of April 10, 2006
|
|
|
10.20†
|
|
|
General
Security Agreement by and between Bridgeline Software, Inc. and
the
investors named therein, dated as of April 21, 2006
|
|
|
10.21†
|
|
|
Form
of Subscription Agreement by and between Bridgeline Software, Inc.
and the
investors listed on Schedule A attached thereto
|
|
10.22†
|
|
|
Form
of Secured Promissory Note issued to the investors listed on Schedule
A
attached thereto
|
|
10.23†
|
|
|
Form
of Warrant to Purchase Common Stock of Bridgeline Software, Inc.
issued to
the investors listed on Schedule A attached thereto, as
amended
|
|
10.24†
|
|
|
Form
of Warrant to Purchase Common Stock of Bridgeline Software, Inc.
issued to
Placement Agent in April 2006 offering, as amended
|
|
10.25†
|
|
|
Form
of Warrant to Purchase Common Stock of Bridgeline Software, Inc.
issued to
Winslow, Evans & Crocker, Inc., and associates of Winslow, Evans &
Crocker, Inc., as compensation for services as placement gent in
2003 and
2004 equity offerings
|
|
10.26†
|
|
|
Form
of Warrant to Purchase Common Stock of Bridgeline Software, Inc.
issued to
Fin Net, LLC as compensation for investment banking
services
|
|
10.27†
|
|
|
Common
Stock Purchase Warrant of Bridgeline Software issued to Sand Hill
Finance,
LLC
|
|
10.28†
|
|
|
Data
Processing and Technical Services Agreement between The Bank of New
York
and Bridgeline Software, Inc. dated as of October 25,
2002
|
|
10.29†
|
|
|
Professional
Services Agreement between The Depository Trust & Clearing Corporation
and Bridgeline Software, Inc. dated as of January 2,
2006
|
|
10.30†
|
|
|
Statement
of Work for Web Maintenance Services between Nomura Securities, Inc.
and
Bridgeline Software, Inc. dated as of June 12, 2002
|
|
10.31†
|
|
|
Agreement
between Pfizer, Inc. and Bridgeline Software, Inc. dated as of December
16, 2005
|
|
10.32†
|
|
|
Master
Services Agreement between John Hancock Life Insurance Co. and Bridgeline
Software, Inc. dated as of July 1, 2004
|
|
10.33†
|
|
|
Amended
and Restated Stock Incentive Plan*
|
|
10.34†
|
|
|
Lead
Dog Digital, Inc. 2001 Stock Option Plan*
|
|
10.35†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Brett Zucker, dated
February
27, 2002*
|
|
10.36†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Brett Zucker, dated
February
27, 2002*
|
|
10.37†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Brett Zucker, dated
February
27, 2002*
|
|
10.38†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Brett Zucker, dated
June 1,
2003*
|
|
10.39†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Brett Zucker, dated
June 1,
2005*
|
|
10.40†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Robert Seeger, dated
February
27, 2002*
|
|
10.41†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Robert Seeger, dated
February
27, 2002*
|
|
10.42†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Robert Seeger, dated
September 30, 2002*
|
|
10.43†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Robert Seeger, dated
June 1,
2003*
|
|
10.44†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Robert Seeger, dated
June 1,
2005*
|
|
10.45†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Gary Cebula, dated August
31,
2000*
|
|
10.46†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Gary Cebula, dated September
30, 2002*
|
|
10.47†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Gary Cebula, dated June
1,
2003*
|
|
10.48†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Gary Cebula, dated June
1,
2005*
|
|
10.49†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to William Coldrick, dated
June
1, 2005*
|
|
10.50†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Thomas Massie, dated
September 3, 2002*
|
|
10.51†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Thomas Massie, dated
September 30, 2002*
|
|
10.52†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Robert Hegarty, dated
September 20, 2006*
|
|
10.53†
|
|
|
Stock
Option Grant by Bridgeline Software, Inc. to Kenneth Galaznik, dated
September 20, 2006*
|
|
10.54†††
|
|
|
Amendment
No. 1 to Secured Promissory Note filed as Exhibit 10.22, dated as
of March
29, 2007
|
10.55†††
|
|
|
First
Amendment to Agreement and Plan of Merger filed as Exhibit 2.3,
dated as
of March 29, 2007
|
|
10.56††††
|
Form
of Escrow Agreement by and among Bridgeline Software, Inc., Erez
M. Katz,
and Arnall Golden Gregory
|
|||
10.57††††
|
Secured
Promissory Note issued by Bridgeline Software, Inc. to Thomas Massie
for
the principal sum of $100,000 dated April 3, 2007.
|
|||
10.58††††
|
Secured
Promissory Note issued by Bridgeline Software, Inc. to William
Coldrick
for the principal sum of $100,000 dated April 3, 2007.
|
|||
10.59††††
|
Amended
and Restated General security Agreement by and between Bridgeline
Software, Inc. and the investors named therein, dated April 3,
2007.
|
|||
10.60††††
|
Second Amendment to Financing Agreement between Sand Hill Finance, LLC and Bridgeline Software, Inc. dated April 26, 2007. | |||
10.61††††
|
Agreement between Joseph Gunnar & Co., LLC, as agent for certain Noteholders and Bridgeline Software, Inc. dated May 15, 2007. | |||
10.62
††††
|
Subordination Agreement between Joseph Gunnar & Co., LLC, as agent for certain Noteholders and Bridgeline Software, Inc. dated May 15, 2007. | |||
10.63
|
Second Amendment to Agreement and Plan of Merger filed as Exhibit 2.3, dated June 14, 2007. | |||
10.64
|
Amendment No. 2 to Secured Promissory Note filed as Exhibit 10.22, dated as of June 20, 2007. | |||
|
14.1†
|
|
|
Code
of Ethics
|
|
21.1†
|
|
|
Subsidiaries
of the Registrant
|
|
23.1
|
|
|
Consent
of Morse, Barnes-Brown & Pendleton, P.C. (incorporated into
exhibit 5.1)
|
|
23.2
|
|
|
Consent
of UHY LLP
|
|
24.1†
|
|
|
Power
of Attorney
|
|
99.1†
|
|
|
Audit
Committee Charter
|
|
99.2†
|
|
|
Compensation
Committee Charter
|
|
99.3†
|
|
|
Nominating
and Governance Charter
|
†
|
Filed
as an exhibit to the Registrant’s Registration Statement on Form SB-2 No.
333-139298 and incorporated herein by reference.
|
††
|
Filed
as an exhibit to Amendment No. 1 to the Registrant’s Registration
Statement on Form SB-2, No. 333-139298, and incorporated by
reference
|
†††
|
Filed
as an exhibit to Amendment No. 2 to the Registrant’s Registration
Statement on Form SB-2, No. 333-139298, and incorporated by
reference.
|
††††
|
Filed
as an exhibit to Amendment No. 3 to the Registrant’s Registration
Statement on Form SB-2, No. 333-139298, and incorporated by
reference.
|
*
|
Management
contract or compensatory plan
|
**
|
Schedules
and attachments to this exhibit have been omitted in reliance on
Item
601(b)(2) of Regulation S-B. Such schedules and attachments are listed
in
the index to the exhibit and will be provided to the Commission upon
request.
|
Bridgeline Software, Inc.
Underwriting Agreement
___________ __, 2007
Joseph Gunnar & Co., LLC
As Representative of the several
Underwriters named in Schedule I hereto
Dear Sirs:
Bridgeline Software, Inc., a Delaware corporation (the "Company"), proposes, subject to the terms and conditions contained herein, to sell to you and the other underwriters named on Schedule I to this Agreement (the "Underwriters") for whom you are acting as Representative (the "Representative"), an aggregate of 3,000,000 shares of the Company's common stock, $0.001 par value per share (the "Common Stock") (the "Firm Shares"). The Firm Shares and the Option Shares (as defined below) are collectively called the "Shares".
The Company has prepared and filed in conformity with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), and the published rules and regulations thereunder (the "Rules") adopted by the Securities and Exchange Commission (the "Commission"), a Registration Statement (as hereinafter defined) on Form SB-2 (No. 333-139298), including a Preliminary Prospectus (as hereinafter defined) relating to the Shares, and such amendments thereof as may have been required to the date of this Underwriting Agreement (the "Agreement"). The Company has heretofore delivered copies of the Registration Statement (including all amendments thereto) and of the related Preliminary Prospectus to you. The term "Preliminary Prospectus" means any preliminary prospectus included at any time as a part of the Registration Statement or filed with the Commission by the Company pursuant to Rule 424(a) of the Rules. The term "Registration Statement" as used in this Agreement means the initial registration statement (including all exhibits, all financial schedules and all documents and information deemed to be a part of the Registration Statement through incorporation by reference or otherwise), as amended at the time and on the date it becomes effective (the "Effective Date"), including the information (if any) contained in the form of final Prospectus (as hereinafter defined) filed with the Commission pursuant to Rule 424(b) of the Rules and deemed to be part thereof at the time of effectiveness pursuant to Rule 430A of the Rules. If the Company has filed an abbreviated registration statement to register additional Shares (as hereinafter defined) pursuant to Rule 462(b) under the Rules (the "462(b) Registration Statement"), then any reference herein to the Registration Statement shall also be deemed to include such 462(b) Registration Statement. The term "Prospectus" as used in this Agreement means the Prospectus in the form included in the Registration Statement at the time of effectiveness or, if Rule 430A of the Regulations is relied on, the term Prospectus shall also include the final Prospectus filed with the Commission pursuant to Rule 424(b) of the Rules.
The Company understands that the Underwriters propose to make a public offering of the Shares, as set forth in and pursuant to the Prospectus (the "Offering"), as soon after the Effective Time and the date of this Agreement as the Representative deems advisable. The Company
hereby confirms that the Underwriters and dealers have been authorized to distribute or cause to be distributed each Preliminary Prospectus and are authorized to distribute the Prospectus (as from time to time amended or supplemented if the Company furnishes amendments or supplements thereto to the Underwriters).
1. Sale, Purchase, Delivery, and Payment for the Shares. On the basis of the representations, warranties and agreements contained in, and subject to the terms and conditions of, this Agreement:
(a) The Company agrees to issue and sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company, at a purchase price of $___ per Share (the "Initial Price"), the number of Shares set forth opposite the name of such Underwriter under the column "Number of Shares to be Purchased" on Schedule I to this Agreement, subject to adjustment in accordance with Section 6 hereof.
(b) For the sole purpose of covering any over-allotments in connection with the distribution and sale of the Firm Shares, the Company hereby grants to the Underwriters, severally and not jointly, an option to purchase up to an additional 450,000 Shares from the Company ("Over-allotment Option"). Such additional 450,000 Shares are hereinafter referred to as "Option Shares." The purchase price to be paid for the Option Shares will be the same price per Option Share as the price per Firm Share set forth in Section 1(a) hereof.
The Over-allotment Option granted pursuant to Section 1(b) hereof may be exercised by the Representative as to all (at any time) or any part (from time to time) of the Option Shares within forty-five (45) days after the Effective Date. The Underwriters will not be under any obligation to purchase any Option Shares prior to the exercise of the Over-allotment Option. The Over-allotment Option granted hereby may be exercised by the giving of oral notice to the Company by the Representative, which must be confirmed in writing by overnight mail or facsimile transmission setting forth the number of Option Shares to be purchased and the date and time for delivery of and payment for the Option Shares (the "Option Closing Date"), which will not be later than five (5) full business days nor earlier than two (2) full business days after the date of the notice or such other time as shall be agreed upon by the Company and the Representative, at the offices of the Representative or at such other place as shall be agreed upon by the Company and the Representative. Upon exercise of the Over-allotment Option, the Company will become obligated to convey to the Underwriters, and, subject to the terms and conditions set forth herein, the Underwriters will become obligated to purchase, the number of Option Shares specified in such notice.
(c) Payment of the purchase price for, and delivery of the certificates for, the Firm Shares shall be made at 10:00 A.M., Eastern time, on _____, or such other date, not later than the fifth (5th) business day thereafter, or at such earlier time as shall be agreed upon by the Representative and the Company at the offices of the Representative or at such other place as shall be agreed upon by the Representative and the Company. The hour and date of delivery and payment for the Firm Shares are called the "Closing Date." Payment for the Firm Shares shall be made on the Closing Date at the Representative's election by wire transfer in Federal (same day) funds or by certified or bank cashier's check(s) in New York Clearing House funds, paid to the order of the Company upon delivery to you of certificates (in form and substance satisfactory
to the Underwriters) representing the Firm Shares (or through the facilities of
the Depository Trust Company ("DTC")) for the account of the Underwriters. The
Firm Shares shall be registered in such name or names and in such authorized
denominations as the Representative may request in writing at least two (2) full
business days prior to the Closing Date. The Company will permit the
Representative to examine and package the Firm Shares for delivery at least one
(1) full business day prior to the Closing Date. The Company shall not be
obligated to sell or deliver the Firm Shares except upon tender of payment by
the Representative for all the Firm Shares.
In addition, in the event that any or all of the Option Shares are purchased by the Underwriters, payment of the purchase price for, and delivery of the certificates representing, the Option Shares shall be made on the Option Closing Date at the Representative's election by wire transfer in Federal (same day) funds or by certified or bank cashier's check(s) in New York Clearing House funds, payable to the Company at the offices of the Representative or at such other place as shall be agreed upon by the Representative and the Company upon delivery to you of certificates representing such securities (or through the facilities of DTC) for the account of the Underwriters. The certificates representing the Option Shares to be delivered will be in such denominations and registered in such names as the Representative request not less than two (2) full business days prior to the Option Closing Date, and will be made available to the Representative for inspection, checking and packaging at the aforesaid office of the Company's transfer agent or correspondent not less than one (1) full business day prior to the Option Closing Date.
(d) On the Closing Date, the Company shall sell and issue to the Representative (and/or its designees) for a total purchase price of $ _____, options entitling the Representative or its assigns to purchase up to 150,000 Shares at a price of $_____ per Share, which is equal to 150% of the public offering price of the Shares (the "Representative's Warrants"). The terms of the Representative's Warrants, including exercise period, anti-dilution provisions, exercise price, exercise provisions, transferability, and registration rights, shall be in the form filed as an exhibit to the Registration Statement of the Company.
The Representative's Warrants shall be exercisable, in whole or in part, commencing one hundred eighty (180) days from the Effective Date and expiring on the five-year anniversary of the Effective Date. The Representative's Warrants may not be may not be sold, transferred, assigned, pledged or hypothecated until 180 days after the Effective Date, except that they may be transferred, in whole or in part, (i) to one or more officers or partners of the Representative (or the officers or partners of any such partner); (ii) to a member of the underwriting syndicate and/or its officers or partners; or (iii) by reason of reorganization.
Payment of the purchase price of, and delivery of the certificates for, the Representative's Warrants shall be made on the Closing Date. The Company shall deliver to the Representative, upon payment therefor, certificates for the Representative's Warrants in the name or names and in such authorized denominations as the Representative may request. The Representative's Warrants and the Common Stock underlying the Representative's Warrants are referred to herein as the "Representative's Securities."
2. Representations and Warranties of the Company. For your own independent business reasons, you have required the Company to make the following representations and warranties as a condition to agreeing to execute this Agreement. You understand, and anyone reviewing this Agreement should understand, that disclosure regarding the Company and its business is contained in the Prospectus or Registration Statement, and that no representation, warranty, covenant or agreement contained in this Agreement is intended or construed to modify the disclosure about the Company and its business contained in the Prospectus or the Registration Statement. The Company represents and warrants to each Underwriter, as of the date hereof, as of the Closing Date and as of each Option Closing Date (if any), as follows:
(a) At the time the Registration Statement became effective and at all times subsequent thereto up to the Closing Date and the Option Closing Date, if any, the Registration Statement and the Prospectus will contain all material statements that are required to be stated therein in accordance with the Securities Act and the Rules, and will in all material respects conform to the requirements of the Securities Act and the Rules; neither the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, on such dates, will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. When any Preliminary Prospectus was first filed with the Commission (whether filed as part of the Registration Statement for the registration of the Shares or any amendment thereto or pursuant to Rule 424(a) of the Rules) and when any amendment thereof or supplement thereto was first filed with the Commission, such Preliminary Prospectus and any amendments thereof and supplements thereto complied or will comply in all material respects with the applicable provisions of the Securities Act and the Rules and did not and will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing, none of the representations and warranties made in this Section 2(a) shall apply to statements made or statements omitted from the Registration Statement, Prospectus or any Preliminary Prospectus (or any amendments or supplements thereto) in reliance upon and in conformity with written information furnished to the Company with respect to the Underwriters by the Representative expressly for use in the Registration Statement, Prospectus or any Preliminary Prospectus (or any amendment thereof or supplement thereto).
(b) The Company has filed with the Commission a Form 8-A registration statement providing for the registration of the Shares under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which registration statement complies in all material respects with the Exchange Act. The registration of the Shares under the Exchange Act has been declared effective by the Commission on the date hereof. Neither the Commission nor, to the best of the Company's knowledge, any state regulatory authority has issued any order or threatened to issue any order preventing or suspending the use of any Preliminary Prospectus or has instituted or, to the best of the Company's knowledge, threatened to institute any proceedings with respect to such an order.
(c) The agreements and documents described in the Registration Statement and the Prospectus conform to the descriptions thereof contained therein and there are no agreements or other documents required to be described in the Registration Statement or the
Prospectus or to be filed with the Commission as exhibits to the Registration
Statement that have not been so described or filed. With respect to each
agreement or other instrument (however characterized or described) to which the
Company is a party or by which its property or business is bound or affected and
(i) that is referred to in the Prospectus, or (ii) is material to the Company's
business, has been duly and validly executed by the Company, is in full force
and effect and is enforceable against the Company and, to the Company's
knowledge, the other parties thereto, in accordance with its terms, except (x)
as such enforceability may be limited by bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally, (y) as enforceability of
any indemnification or contribution provision may be limited under the federal
and state securities laws, and (z) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to the equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought; and none of such agreements or instruments has been assigned by
the Company, and neither the Company nor, to the best of the Company's
knowledge, any other party is in breach or default thereunder and, to the best
of the Company's knowledge, no event has occurred that, with the lapse of time
or the giving of notice, or both, would constitute a breach or default
thereunder. To the best of the Company's knowledge, performance by the Company
of the material provisions of such agreements or instruments will not result in
a violation of any existing applicable law, rule, regulation, judgment, order or
decree of any governmental agency or court, domestic or foreign, having
jurisdiction over the Company or any of its assets or businesses, including,
without limitation, those relating to environmental laws and regulations. The
statistical and related data included in the Registration Statement are based on
or derived from sources that the Company believes to be reliable and accurate.
(d) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise specifically stated therein, (i) there has been no material adverse change in the condition, financial or otherwise, or business of the Company; (ii) there have been no material transactions entered into by the Company, other than as contemplated pursuant to this Agreement; and (iii) no member of the Company's senior management has resigned from any position with the Company.
(e) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money; or (ii) declared or paid any dividend or made
any other distribution on or in respect to its equity securities.
(f) UHY, LLP ("UHY"), whose report is filed with the Commission as part of the Registration Statement, are independent accountants as required by the Securities Act and the Rules, and such accountants, to the best of the Company's knowledge, in the performance of their work for the Company, are not in violation of the auditor independence requirements of the Sarbanes-Oxley Act of 2002.
(g) The financial statements, including the notes thereto and supporting schedules included in the Registration Statement and Prospectus, fairly present in all material respects the financial position, the results of operations and the cash flows of the Company at the dates and for the periods to which they apply; such financial statements have been prepared in
conformity with generally accepted accounting principles, consistently applied throughout the periods involved. The Registration Statement discloses all material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the Company with unconsolidated entities or other persons that could reasonably be expected to have a material current or, to the Company's knowledge, a material future effect on the Company's financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues or expenses. The summary financial data included in the Registration Statement and Prospectus present fairly the information shown therein as at the respective dates and for the respective periods specified and have been presented on a basis consistent with the consolidated financial statements set forth in the Registration Statement and the Prospectus and other financial information.
(h) The Company had at the date or dates indicated in the Prospectus the duly authorized, issued and outstanding capitalization as set forth in the Registration Statement and the Prospectus. Based on the assumptions stated in the Registration Statement and the Prospectus, the Company will have on the Closing Date the adjusted stock capitalization set forth therein. Except as set forth in, or contemplated by, the Registration Statement and the Prospectus, on the Effective Date and on the Closing Date, there will be no options, warrants, or other rights to purchase or otherwise acquire any authorized but unissued shares of Common Stock of the Company or any security convertible into shares of Common Stock of the Company, or any contracts or commitments to issue or sell shares of Common Stock or any such options, warrants, rights or convertible securities.
(i) All issued and outstanding securities of the Company have been duly authorized and validly issued and are fully paid and non-assessable; except as described in or expressly contemplated by the Registration Statement, there are no outstanding rights (including, without limitation, pre-emptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest in the Company, or any contract, commitment, agreement, understanding or arrangement of any kind relating to the issuance of any capital stock of the Company, any such convertible or exchangeable securities or any such rights, warrants or options. The authorized Common Stock conforms in all material respects to all statements relating thereto contained in the Registration Statement and the Prospectus. The offers and sales of the outstanding Common Stock were at all relevant times either registered under the Securities Act and the applicable state securities or Blue Sky laws or, based in part on the representations and warranties of the purchasers of such shares of Common Stock, exempt from such registration requirements.
(j) The Shares have been duly authorized and, when issued and paid for, will be validly issued, fully paid and non-assessable; the holders thereof are not and will not be subject to personal liability by reason of being such holders; the Shares are not and will not be subject to the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company; and all corporate action required to be taken for the authorization, issuance and sale of the Shares has been duly and validly taken. The Shares conform in all material respects to all statements with respect thereto contained in the Registration Statement.
(k) Except as set forth in the Prospectus, no holders of any securities of the Company or any rights exercisable for or convertible or exchangeable into securities of the Company have the right to require the Company to register any such securities of the Company under the Securities Act or to include any such securities in a registration statement to be filed by the Company.
(l) Each of this Agreement and the Representative's Securities has been duly and validly authorized by the Company and constitutes (or will constitute when issued) the valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (ii) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws; and (iii) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.
(m) The execution, delivery, and performance by the Company of this Agreement and the Representative's Securities, the consummation by the Company of the transactions herein and therein contemplated and the compliance by the Company with the terms hereof and thereof do not and will not, with or without the giving of notice or the lapse of time or both (i) result in a breach of, or conflict with any of the terms and provisions of, or constitute a default under, or result in the creation, modification, termination or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to the terms of any agreement or instrument to which the Company is a party; (ii) result in any violation of the provisions of the Amended and Restated Certificate of Incorporation (the "Certificate of Incorporation") or the Bylaws of the Company, each as amended to date; or (iii) violate any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court, domestic or foreign, having jurisdiction over the Company or any of its properties or business.
(n) Except as would not have reasonably be expected to have a material adverse effect on the Company, the Company is not in default in the due performance and observance of any term, covenant or condition of any material license, contract, indenture, mortgage, deed of trust, note, loan or credit agreement, or any other agreement or instrument evidencing an obligation for borrowed money, or any other material agreement or instrument to which the Company is a party or by which the Company is bound or to which any of the properties or assets of the Company is subject. The Company is not in violation of any term or provision of the Certificate of Incorporation or Bylaws. Except as would not have reasonably be expected to have a material adverse effect on the Company, the Company is not in violation of any material franchise, license, permit, applicable law, rule, regulation, judgment or decree of any governmental agency or court, domestic or foreign, having jurisdiction over the Company or any of its properties or businesses.
(o) Except as disclosed in the Prospectus, the Company has all requisite corporate power and authority and has all necessary authorizations, approvals, orders, licenses, certificates and permits of and from all governmental regulatory officials and bodies that it needs as of the date hereof to conduct its business as described in the Prospectus.
(p) The Company has all corporate power and authority to enter into this Agreement and to carry out the provisions and conditions hereof, and all consents, authorizations, approvals and orders required in connection therewith have been obtained. No consent, authorization or order of, and no filing with, any court, government agency or other body is required for the valid issuance, sale and delivery, of the Shares and the Representative's Warrants and the consummation of the transactions and agreements contemplated by this Agreement, and the Prospectus, except with respect to applicable federal and state securities laws and the rules of the National Association of Securities Dealers, Inc. (the "NASD") and the Nasdaq National Market.
(q) To the best of the Company's knowledge, all information contained in the questionnaires ("Questionnaires") completed by each of the Company's officers, directors, and 5% or greater stockholders ("Initial Stockholders") and provided to the Underwriters is true and correct in all material respects, and the Company has not become aware of any information which would cause the information disclosed in the Questionnaires completed by each Initial Stockholder to become inaccurate and incorrect in all material respects.
(r) There is no action, suit, proceeding, inquiry, arbitration, investigation, litigation or governmental proceeding pending or involving the Company which is required to be described in the Registration Statement or the Prospectus and which is not described therein or which, if determined adversely to the Company, would reasonably be expected to have a material adverse effect on the Company or would prevent or adversely affect the ability of the Company to perform its obligations under this Agreement; and to the best of the Company's knowledge, no such action, suit, proceeding, inquiry, arbitration, investigation, litigation or governmental proceeding is threatened against the Company.
(s) The Company has been duly organized and is validly existing as a corporation and is in good standing under the laws of its state of incorporation, and is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which its ownership or lease of property or the conduct of business requires such qualification, except where the failure to qualify would not have a material adverse effect on the Company.
(t) The Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus or Prospectus or any part thereof.
(u) Except as described in the Prospectus, there are no claims, payments, arrangements, agreements or understandings relating to the payment of a finder's, consulting or origination fee by the Company with respect to the sale of the Shares hereunder or any other arrangements, agreements or understandings of the Company or, to the best of the Company's knowledge, any Initial Stockholder that may affect the Underwriters' compensation, as determined by the NASD.
(v) The Company has not made any direct or indirect payments (in cash, securities or otherwise) (i) to any person, as a finder's fee, consulting fee or otherwise, in consideration of such person raising capital for the Company or introducing to the Company persons who raised or provided capital to the Company; (ii) to any NASD member; or (iii) to any person or entity that has any direct or indirect affiliation or association with any NASD member,
within the twelve (12) months prior to the date on which the Registration Statement was filed with the Commission or thereafter, other than as disclosed in the Prospectus.
(w) Except for the repayment of indebtedness as disclosed in the Registration Statement, the Company will not pay any of the net proceeds of the Offering to any participating NASD member or its affiliates.
(x) Based on the Questionnaires, and except as set forth in the Prospectus, no officer, director or any beneficial owner of the Company's unregistered securities has any direct or indirect affiliation or association with any NASD member. The Company will advise the Representative and its counsel if it learns that any officer, director, or owner of at least 5% of the Company's outstanding Common Shares is or becomes an affiliate or associated person of an NASD member participating in the Offering.
(y) Neither the Company nor, to the Company's knowledge, any of the Initial Stockholders or any other person acting on behalf of the Company has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or official or employee of any governmental agency or instrumentality of any government (domestic or foreign) or any political party or candidate for office (domestic or foreign) or any political party or candidate for office (domestic or foreign) or other person who was, is, or may be in a position to help or hinder the business of the Company (or assist it in connection with any actual or proposed transaction) that (i) might subject the Company to any damage or penalty in any civil, criminal or governmental litigation or proceeding; (ii) if not given in the past, might have had a material adverse effect on the assets, business or operations of the Company as reflected in any of the financial statements contained in the Prospectus; or (iii) if not continued in the future, might adversely affect the assets, business, operations or prospects of the Company. The Company's internal accounting controls and procedures are sufficient to cause the Company to comply with the Foreign Corrupt Practices Act of 1977, as amended.
(z) To the best of the Company's knowledge, no employee, officer, or director of the Company is subject to any non-competition agreement or non-solicitation agreement with any employer or prior employer that could materially adversely affect his ability to be an employee, officer and/or director of the Company.
(aa) The Company does not own an interest in any corporation, partnership, limited liability company, joint venture, trust, or other business entity which is required to be described in the Registration Statement or the Prospectus and which is not described therein.
(bb) There are no business relationships or related party transactions involving the Company or any other person required to be described in the Prospectus that have not been described as required.
(cc) Except as may have been otherwise agreed in writing by the Representative, the Company has obtained the agreement (the "Lock-up Agreements") from all persons who are on the date of such agreements officers, directors and holders of any outstanding
securities of the Company that he will not, without the prior written consent of the Representative, during the twelve (12) month period (or six (6) month period in the case of the holders of certain warrants) after the date of the Prospectus, offer, sell, contract to sell, make short sales of, loan, grant any option or contract to purchase, or otherwise dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, whether these shares or any such securities are then owned by the person or are thereafter acquired, directly from the Company; provided, however, that such persons may sell, convey or transfer all or any portion of such securities to the Corporation.
(dd) Except as would not have reasonably be expected to have a
material adverse effect on the Company, (i) The Company is in compliance in all
material respects with all rules, laws and regulations relating to the use,
treatment, storage and disposal of toxic substances and protection of health or
the environment ("Environmental Laws") which are applicable to its business;
(ii) the Company has not received any notice from any governmental authority or
third party of an asserted claim under Environmental Laws; (iii) the Company has
received all permits, licenses or other approvals required of it under
applicable Environmental Laws to conduct its business and is in compliance with
all terms and conditions of any such permit, license or approval; (iv) to the
Company's knowledge, no facts currently exist that will require the Company to
make future material capital expenditures to comply with Environmental Laws; and
(v) to the Company's knowledge, no property which is or has been owned, leased
or occupied by the Company has been designated as a Superfund site pursuant to
the Comprehensive Environmental Response, Compensation of Liability Act of 1980,
as amended (42 U.S.C. Section 9601, et. seq.) ("CERCLA") or otherwise designated
as a contaminated site under applicable state or local law. To the Company's
knowledge, the Company has not been named as a "potentially responsible party"
under CERCLA.
(ee) The Company is not and, after giving effect to the offering and sale of the Shares and the application of proceeds thereof as described in the Prospectus, will not be required to register as an "investment company" as such term is defined in the Investment Company Act of 1940, as amended.
(ff) At the time of filing of the Registration Statement and at the date hereof, the Company was not and is not an "ineligible issuer," as defined in Rule 405 under the Securities Act.
(gg) As of ______ A.M. on the date hereof (the "Applicable Time"), the Issuer Free Writing Prospectus(es) (as listed on Schedule IV to this Agreement) and the Preliminary Prospectus, considered together (collectively, the "General Disclosure Package"), did not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The preceding sentence does not apply to statements in or omissions from the Preliminary Prospectus or any Issuer Free Writing Prospectus based upon and in conformity with written information furnished to the Company by the Representative on behalf of the several Underwriters specifically for use therein. As used in this paragraph and elsewhere in this Agreement, "Issuer Free Writing Prospectus" means any "issuer free writing prospectus" as defined in Rule 433, relating to the Shares, that (A) is required to be filed with the Commission by the Company, (B) is a "road show that is a written communication" within the meaning of
Rule 433(d)(8)(i), whether or not required to be filed with the Commission, or
(C) is exempt from filing pursuant to Rule 433(d)(5)(i) because it contains a
description of the Shares or of the offering of the Shares pursuant to this
Agreement.
(hh) Each Issuer Free Writing Prospectus listed on Schedule IV to this Agreement, as of its issue date and at all subsequent times through each Closing Date, did not, does not and will not include any information that conflicted, conflicts or will conflict with the information contained in the Registration Statement. If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in light of the circumstances, not misleading, the Company has notified or will notify promptly the Representative so that any use of such Issuer Free Writing Prospectus may cease until it is amended or supplemented. The foregoing two sentences do not apply to statements in or omissions from any Issuer Free Writing Prospectus based upon and in conformity with written information furnished to the Company by the Representative on behalf of the several Underwriters specifically for use therein.
(ii) Unless the Company obtains the prior consent of the Representative, it has not made and will not make any offer relating to the Shares that would constitute an "issuer free writing prospectus" as defined in Rule 433, or that would otherwise constitute a "free writing prospectus" as defined in Rule 405, required to be filed with the Commission. The Company has complied and will comply with the requirements of Rule 433 applicable to any Issuer Free Writing Prospectus, including timely filing with the Commission where required, legending and recordkeeping. The Company has satisfied and will satisfy the conditions of Rule 433 to avoid a requirement to file with the Commission any electronic road show.
(jj) Except as disclosed in the Prospectus, the Company does not, directly or indirectly, including through any subsidiary, have any outstanding personal loans or other credit extended to or for any director or executive officer.
(kk) The operations of the Company are and have been conducted at all times in material compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the USA Patriot Act, the money laundering statutes of all jurisdictions to which the Company is subject, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the "Money Laundering Laws") and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company with respect to the Money Laundering Laws is pending, or to the knowledge of the Company, threatened.
(ll) Neither the Company nor, to the knowledge of the Company, any director, officer, agent, employee or affiliate of the Company is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department ("OFAC"); and the Company will not directly or indirectly use the proceeds of the Offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture
partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC.
(mm) Except as described in the Prospectus, the Company has not sold or issued any securities during the six-month period preceding the date of the Prospectus, including any sales pursuant to Rule 144A under, or Regulations D or S of, the Securities Act.
(nn) The Company has fulfilled its obligations, if any, under the minimum funding standards of Section 302 of the U.S. Employee Retirement Income Security Act of 1974 ("ERISA") and the regulations and published interpretations thereunder with respect to each "plan" as defined in Section 3(3) of ERISA and such regulations and published interpretations in which its employees are eligible to participate and each such plan is in compliance in all material respects with the presently applicable provisions of ERISA and such regulations and published interpretations. No "Reportable Event" (as defined in ERISA) has occurred with respect to any "Pension Plan" (as defined in ERISA) for which the Company could have any material liability.
(oo) The Company has not incurred any liability for a fee, commission, or other compensation on account of the employment of a broker or finder in connection with the transactions contemplated by this Agreement other than as contemplated hereby.
Each of the Company, its directors and officers has not distributed and will not distribute prior to the later of (i) the Closing Date or the Option Shares Closing Date, if any, and (ii) completion of the distribution of the Shares, any offering material in connection with the offering and sale of the Shares other than any Preliminary Prospectus, the Prospectus, the Registration Statement and other materials, if any, permitted by the Securities Act.
3. Covenants of the Company. The Company covenants and agrees as follows:
(a) The Company will use its best efforts to cause the Registration Statement, if not effective at the time of execution of this Agreement, and any amendments thereto, to become effective as promptly as possible. The Company shall prepare the Prospectus in a form approved by the Representative and file such Prospectus pursuant to Rule 424(b) under the Securities Act no later than the Commission's close of business on the second (2nd) business day following the execution and delivery of this Agreement, or, if applicable, such earlier time as may be required by the Regulations.
(b) The Company shall promptly advise the Representative in writing
(i) when any post-effective amendment to the Registration Statement shall have
become effective; (ii) of any request by the Commission for any amendment of the
Registration Statement or the Prospectus or for any additional information;
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing or
suspending the use of any Preliminary Prospectus or the institution or
threatening of any proceeding for that purchase; (iv) of the receipt by the
Company of any notification with respect to the suspension of the qualification
of the Shares for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose; and (v) of the happening of any event during
the period described in Section 3(c) hereof that, in the judgment of the
Company, makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or that
requires the making of any changes in the Registration Statement or the Prospectus in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company shall not file any amendment of the Registration Statement or supplement to the Prospectus or any document incorporated by reference in the Registration Statement unless the Company has furnished the Representative a copy for review prior to filing and shall not file any such proposed amendment or supplement to which the Representative reasonably and timely objects. The Company shall use its best efforts to prevent the issuance of any such stop order and, if issued, to obtain as soon as possible the withdrawal thereof.
(c) During the time when a Prospectus is required to be delivered under the Securities Act, the Company will use all reasonable efforts to comply with all requirements imposed upon it by the Securities Act, the Rules and the Exchange Act and by the regulations under the Exchange Act, as from time to time in force, so far as necessary to permit the continuance of sales of or dealings in the Shares in accordance with the provisions hereof and the Prospectus. If at any time when a Prospectus relating to the Shares is required to be delivered under the Securities Act, or the Exchange Act, any event shall have occurred as a result of which, in the opinion of counsel for the Company or counsel for the Underwriters, the Prospectus, as then amended or supplemented, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Prospectus to comply with the Securities Act, the Company will notify the Representative promptly and prepare and file with the Commission, subject to Section 3(b) hereof, an appropriate amendment or supplement in accordance with Section 10 of the Securities Act.
(d) Until the earlier of (i) five (5) years from the Effective Date or
(ii) such earlier time when the Common Stock is no longer listed or traded on
Nasdaq, a national securities exchange or other over-the-counter market, the
Company will use its best efforts to maintain the registration of the Common
Stock under the provisions of the Exchange Act.
(e) The Company will endeavor in good faith, in cooperation with the Representative, at or prior to the time the Registration Statement becomes effective, to qualify the Shares for offering and sale under the securities laws of such jurisdictions as the Representative may reasonably designate within the United States, provided that no such qualification shall be required in any jurisdiction where, as a result thereof, the Company would be subject to service of general process or to taxation as a foreign corporation doing business in such jurisdiction. In each jurisdiction where such qualification shall be effected, the Company will, unless the Representative agrees that such action is not at the time necessary or advisable, use all reasonable efforts to file and make such statements or reports at such times as are or may be required by the laws of such jurisdiction.
(f) The Company will deliver to each of the several Underwriters, without charge, from time to time during the period when the Prospectus is required to be delivered under the Securities Act or the Exchange Act, such number of copies of each Preliminary Prospectus and the Prospectus as such Underwriters may reasonably request and, as soon as the Registration Statement or any amendment or supplement thereto becomes effective, deliver to you two original executed Registration Statements, including exhibits, and all post-effective
amendments thereto and copies of all exhibits filed therewith or incorporated therein by reference and all original executed consents of certified experts.
(g) The Company will apply to be included in Standard & Poor's Daily News and Corporation Records Corporate Descriptions for a period of five years from the Effective Date. The Company shall also take such other action as may be reasonably requested by the Representative to obtain a secondary market trading exemption in such other states as may be requested by the Representative.
(h) For a period of five (5) years following the Effective Date or until such earlier time at which the Company is liquidated, the Company shall retain a transfer agent reasonably acceptable to the Representative ("Transfer Agent") and will furnish to the Representative at the Company's sole cost and expense such transfer sheets of the Company's securities as the Representative may request, including the daily and monthly consolidated transfer sheets of the Transfer Agent and DTC.
(i) During such time, if at all, as the Shares are quoted on the OTC Bulletin Board (or any successor trading market) or the Pink Sheets, LLC (or similar publisher of quotations) and no other automated quotation system, the Company shall provide to the Representative, at its expense, such reports published by the NASD or the Pink Sheets, LLC relating to price trading of the Shares as the Representative shall reasonably request.
(j) The Company hereby agrees to pay on each of the Closing Date and the Option Closing Date, if any, to the extent not paid at the Closing Date, all expenses incident to the performance of the obligations of the Company under this Agreement, including, without limitation, the following: (i) the preparation, printing, filing and mailing (including the payment of postage with respect to such mailing) of the Registration Statement and exhibits thereto, the Preliminary and Final Prospectuses and the printing and mailing of this Agreement and related documents, including the cost of all copies thereof and any amendments thereof or supplements thereto supplied to the Underwriters in quantities as may be required by the Underwriters; (ii) the printing, engraving, issuance and delivery of the Shares and the Representative's Securities, including any transfer or other taxes payable thereon; (iii) the qualification of the Shares under state or foreign securities or Blue Sky laws, including the costs of printing and mailing the Preliminary and Final Blue Sky Memoranda and all amendments and supplements thereto; and the fees and disbursements of its counsel retained for such purpose, provided, however, the Company shall not be responsible for the Representative's Blue Sky laws related expenses (including legal counsel fees and expenses) in excess of $25,000 or the Representative's non-Blue Sky laws related expenses (including legal counsel fees and expenses) in excess of $100,000, both in connection with the Offering, without the Company's prior approval; (iv) filing fees, costs and expenses incurred in registering the Offering with the NASD; (v) costs of placing "tombstone" advertisements in The Wall Street Journal, The New York Times and a third publication to be selected by the Representative not to exceed $10,000 in the aggregate; (vi) fees and disbursements of the Transfer Agent; (vii) all expenses incurred in connection with any road shows and any "due diligence" meetings arranged by the Representative, including a videotape or PowerPoint presentation; (viii) the preparation, binding and delivery of up to four sets of transaction closing books, in form and style reasonably satisfactory to the Representative and transaction lucite cubes or similar commemorative items in a style and quantity as reasonably
requested by the Representative; and (ix) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section 3(j) in an aggregate amount not to exceed $50,000. Upon a written notice given to the Company at least two (2) days prior to such deduction, the Representative may deduct from the net proceeds of the Offering payable to the Company on the Closing Date, or the Option Closing Date, if any, the expenses set forth herein to be paid by the Company to the Representative and others. If the Offering contemplated by this Agreement is not consummated for any reason whatsoever for reasons not attributable to the Underwriters, then the Company shall reimburse the Underwriters in full for their out of pocket expenses, including, without limitation, its legal fees and disbursements and "road show" and due diligence expenses. The Representative shall retain such part of the non-accountable expense allowance (described below in Section 3(k) previously paid as shall equal its actual out-of-pocket expenses and refund the balance. If the amount previously paid is insufficient to cover such actual out-of-pocket expenses, the Company shall remain liable for and promptly pay any other actual out-of-pocket expenses.
(k) The Company further agrees that, in addition to the expenses payable by it pursuant to Section 3(j), on the Closing Date it will pay to the Representative a non-accountable expense allowance equal to two percent (2%) of the gross proceeds received by the Company from the Offering (less any amounts previously paid), including any proceeds derived from the sale of the Over-allotment Option. The Representative acknowledges the prior receipt of a $25,000 expense retainer, which amount shall be applied against the amount due to the Representative under this Section 3(k).
(l) The Company will apply the net proceeds from the Offering received by it in a manner consistent with the application described under the caption "Use of Proceeds" in the Prospectus.
(m) The Company will make generally available to its security holders as soon as practicable, but in any event not later than sixteen (16) months after the effective date of the Registration Statement, an earnings statement (which need not be certified by independent public or independent certified public accountants unless required by the Securities Act or the Rules, but which shall satisfy the provisions of Rule 158(a) under Section 11(a) of the Securities Act) covering a period of at least 12 consecutive months beginning after the Effective Date.
(n) Neither the Company nor, to its knowledge, any of its employees, directors or stockholders (without the consent of the Representative) has taken or will take, directly or indirectly, any action designed to or that has constituted or that might reasonably be expected to cause or result in, under the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares.
(o) The Company will maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary in order to permit preparation of financial statements in accordance with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
(p) For a period of three (3) years from the Effective Date, the Company shall retain UHY or other independent public accountants reasonably acceptable to the Representative.
(q) The Company shall immediately advise the Representative if it becomes aware that any 5% or greater stockholder of the Company becomes an affiliate or associated person of an NASD member participating in the distribution of the Shares.
(r) All corporate proceedings and other legal matters necessary to carry out the provisions of this Agreement and the transactions contemplated hereby shall have been done to the reasonable satisfaction of counsel for the Underwriters.
(s) Intentionally deleted.
(t) The Company will reserve and keep available the maximum number of its authorized but unissued shares of Common Stock that are issuable upon exercise of the Representative's Warrants outstanding from time to time.
(u) The Company shall not take any action or omit to take any action that would cause the Company to be in breach or violation of its Certificate of Incorporation or Bylaws.
(v) The Company agrees that it will use its best efforts to prevent the Company from becoming subject to Rule 419 under the Securities Act, including, without limitation, to using its best efforts to prevent any of the Company's outstanding securities from being deemed to be a "penny stock," as defined in Rule 3a5l-1 under the Exchange Act, during such period.
4. Conditions of Underwriters' Obligations. The obligations of the several Underwriters to purchase and pay for the Shares, as provided herein, shall be subject to the continuing accuracy of the representations and warranties of the Company as of the date hereof and as of each of the Closing Date and the Option Closing Date, if any, to the accuracy of the statements of the Company made pursuant to the provisions hereof and to the performance by the Company of its obligations hereunder and to the following conditions:
(a) The Registration Statement has been declared effective on the date of this Agreement, and, at each of the Closing Date and the Option Closing Date, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for such purpose shall have been instituted or shall be pending or contemplated by the Commission and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of counsel to the Underwriters.
(b) By the Effective Date, the Representative shall have received clearance from the NASD as to the amount of compensation allowable or payable to the Underwriters as described in the Registration Statement.
(c) No order suspending the sale of the Shares in any jurisdiction designated by you pursuant to Section 3(e) hereof shall have been issued on or before either the Closing Date or the Option Closing Date, and no proceedings for that purpose shall have been instituted or, to the best of the Company's knowledge, shall be contemplated.
(d) On the Effective Date and the Option Closing Date, if any, the Representative shall have received the favorable opinion of Morse, Barnes-Brown & Pendleton, P.C., counsel to the Company, dated the Effective Date, addressed to the Representative and in previously agreed upon form and substance reasonably satisfactory to counsel to the Underwriters.
(e) At the time this Agreement is executed, and at each of the Closing Date and the Option Closing Date, if any, you shall have received a letter, addressed to the Representative and in form and substance satisfactory in all respects (including the non-material nature of the changes or decreases, if any, referred to in clause (iii) below) to you and to counsel to the Underwriters from UHY dated, respectively, as of the date of this Agreement and as of the Closing Date and the Option Closing Date, if any:
(i) Confirming that they are independent accountants with respect to the Company within the meaning of the Securities Act and the applicable Regulations and that they have not, during the periods covered by the financial statements included in the Prospectus, provided to the Company any non-audit services, as such term is used in Section 10A(g) of the Exchange Act;
(ii) Stating that in their opinion the financial statements of the Company included in the Registration Statement and Prospectus comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the published Regulations thereunder;
(iii) Stating that, on the basis of a limited review which included a reading of the latest available unaudited interim financial statements of the Company (with an indication of the date of the latest available unaudited interim financial statements), a reading of the latest available minutes of the stockholders and board of directors and the various committees of the board of directors, consultations with officers and other employees of the Company responsible for financial and accounting matters and other specified procedures and inquiries, nothing has come to their attention which would lead them to believe that (a) the unaudited financial statements of the Company included in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the Regulations or are not fairly presented in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements of the Company included in the Registration Statement; (b) at a date not later than five days prior to the Effective Date, Closing Date or Option Closing Date, as the case may be, there was any change in the capital stock or long-term debt of the Company, or any decrease in the stockholders' equity of the Company as compared with amounts shown in the ___________, 2006, balance sheet included in the Registration Statement, other than as set forth in or contemplated by the Registration Statement, or, if there was any decrease, setting forth the amount of such decrease; and (c) during the period from __________, 2006, to a specified date
not later than five days prior to the Effective Date, Closing Date or Option Closing Date, as the case may be, there was any decrease in revenues, net earnings or net earnings per share of Common Stock, in each case as compared with the corresponding period in the immediately preceding year and as compared with the corresponding period in the immediately preceding quarter, other than as set forth in or contemplated by the Registration Statement or, if there was any such decrease, setting forth the amount of such decrease;
(iv) Setting forth, at a date not later than five days prior to the Effective Date, the amount of liabilities of the Company (including a break-down of commercial papers and notes payable to banks);
(v) Stating that they have compared specific dollar amounts, numbers of shares, percentages of revenues and earnings, statements and other financial information pertaining to the Company set forth in the Prospectus in each case to the extent that such amounts, numbers, percentages, statements and information may be derived from the general accounting records, including work sheets, of the Company and excluding any questions requiring an interpretation by legal counsel, with the results obtained from the application of specified readings, inquiries and other appropriate procedures (which procedures do not constitute an examination in accordance with generally accepted auditing standards) set forth in the letter and found them to be in agreement;
(vi) Stating that they have not during the immediately preceding five year period brought to the attention of the Company's management any reportable condition related to internal structure, design or operation, as defined in the Statement on Auditing Standards No. 60 "Communication of Internal Control Structure Related Matters Noted in an Audit," in the Company's internal controls; and
(vii) Statements as to such other matters incident to the transaction contemplated hereby as you may reasonably request.
(f) At each of the Effective Date, the Closing Date and the Option
Closing Date, if any, the Representative shall have received a certificate of
the Company signed by the President and the Secretary or Assistant Secretary of
the Company, dated the Effective Date, the Closing Date or the Option Closing
Date, as the case may be, respectively, certifying on behalf of the Company (and
not individually) that (i) the Company has performed all covenants and
agreements and complied with all conditions required by this Agreement to be
performed or complied with by the Company prior to and as of the Effective Date,
the Closing Date, or the Option Closing Date, as the case may be; (ii) the
conditions set forth in Section 4(g) hereof have been satisfied as of such date;
(iii) as of Effective Date, the Closing Date and the Option Closing Date, as the
case may be, the representations and warranties of the Company set forth in
Section 2 hereof are true and correct; (iv) they have carefully examined the
Registration Statement and the Prospectus and, in their opinion, (A) as of the
Effective Date, the Registration Statement and Prospectus did not include any
untrue statement of a material fact and did not omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and (B)
since the Effective Date no event has occurred which should have been set forth
in a supplement or otherwise required an amendment to the Registration Statement
or the Prospectus; and (iv) no stop order suspending
the effectiveness of the Registration Statement has been issued and, to their knowledge, no proceedings for that purpose have been instituted or are pending under the Securities Act. In addition, the Representative will have received such other and further certificates of officers of the Company as the Representative may reasonably request.
(g) At each of the Closing Date and the Option Closing Date, if any, the Representative shall have received a certificate of the Company signed by the Secretary or Assistant Secretary of the Company, dated the Closing Date or the Option Date, as the case may be, respectively, certifying on behalf of the Company (and not individually) (i) that the copies of the Bylaws and Certificate of Incorporation of the Company attached thereto are true and complete, have not been modified and are in full force and effect; (ii) that the resolutions relating to the Offering are in full force and effect and have not been modified; (iii) all correspondence between the Company or its counsel and the Commission; and (iv) as to the incumbency of the officers of the Company. The documents referred to in such certificate shall be attached to such certificate.
(h) Prior to and on each of the Closing Date and the Option Closing Date, if any, (i) there shall have been no material adverse change or development involving a prospective material adverse change in the condition or the business activities, financial or otherwise, of the Company from the latest dates as of which such condition is set forth in the Registration Statement and Prospectus; (ii) no action suit or proceeding, at law or in equity, shall have been pending or threatened against the Company before or by any court or federal or state commission, board or other administrative agency wherein an unfavorable decision, ruling or finding may materially adversely affect the business, operations or financial condition or income of the Company, except as set forth in the Registration Statement and Prospectus; (iii) no stop order shall have been issued under the Securities Act and no proceedings therefor shall have been initiated or threatened by the Commission; and (iv) the Registration Statement and the Prospectus and any amendments or supplements thereto shall contain all material statements which are required to be stated therein in accordance with the Securities Act and the Regulations and shall conform in all material respects to the requirements of the Securities Act and the Regulations, and neither the Registration Statement nor the Prospectus nor any amendment or supplement thereto shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
(i) On the Closing Date, the Company shall have delivered to the Representative executed copies of the Representative's Warrants.
(j) All proceedings taken in connection with the authorization, issuance or sale of the Shares as herein contemplated shall be reasonably satisfactory in form and substance to you and to counsel to the Underwriters.
(k) The Company shall have delivered to the Representative the Lock-up Agreements referred to in Section 2(dd).
(l) The Company shall have received notice that the Shares are eligible to be listed on the Nasdaq Capital Market as of the Effective Date.
5. Indemnification.
(a) Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless each of the Underwriters, and each of their
respective directors, officers and employees and each person, if any, who
controls any such Underwriter ("controlling person") within the meaning of
Section 15 of the Securities Act or Section 20(a) of the Exchange Act, against
any and all loss, liability, claim, damage and expense whatsoever (including,
without limitation, any and all legal or other expenses reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, whether arising out of any action between
any of the Underwriters and the Company or between any of the Underwriters and
any third party or otherwise) to which they or any of them may become subject
under the Securities Act, the Exchange Act or any other statute or at common law
or otherwise or under the laws of foreign countries, arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
contained in (i) any Preliminary Prospectus, the Registration Statement or the
Prospectus (as from time to time each may be amended and supplemented); or (ii)
in any post-effective amendment or amendments or any new registration statement
and prospectus in which is included securities of the Company issued or issuable
upon exercise of the Representative's Warrants; or the omission or alleged
omission therefrom of a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, unless such statement or omission was made in
reliance upon and in conformity with written information furnished to the
Company with respect to an Underwriter by or on behalf of such Underwriter
expressly for use in any Preliminary Prospectus, the Registration Statement or
Prospectus, or any amendment or supplement thereof, as the case may be. With
respect to any untrue statement or omission or alleged untrue statement or
omission made in the Preliminary Prospectus, the indemnity agreement contained
in this paragraph shall not inure to the benefit of any Underwriter to the
extent that any loss, liability, claim, damage or expense of such Underwriter
results from the fact that a copy of the Prospectus was not given or sent to the
person asserting any such loss, liability, claim or damage at or prior to the
written confirmation of sale of the Shares to such person as required by the
Securities Act and the Regulations, and if the untrue statement or omission has
been corrected in the Prospectus, unless such failure to deliver the Prospectus
was a result of non-compliance by the Company with its obligations under Section
3(f) hereof. The Company agrees promptly to notify the Representative of the
commencement of any litigation or proceedings against the Company or any of its
officers, directors, or controlling persons in connection with the issue and
sale of the Shares or in connection with the Registration Statement or
Prospectus.
(b) If any action is brought against an Underwriter or a controlling person in respect of which indemnity may be sought against the Company pursuant to Section 5(a), such Underwriter shall promptly notify the Company in writing of the institution of such action, and the Company shall assume the defense of such action, including the employment and fees of counsel (subject to the reasonable approval of such Underwriter) and payment of actual expenses. Such Underwriter or controlling person shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such Underwriter or controlling person unless (i) the employment of such counsel at the expense of the Company shall have been authorized in writing by the Company in connection with the defense of such action; (ii) the Company shall not have employed counsel to have charge of the
defense of such action; or (iii) such indemnified party or parties shall have been advised by its or their counsel that there may be one or more material defenses available to it or them which are different from or additional to those available to the Company (in which case the Company shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events the reasonable fees and expenses of not more than one additional firm of attorneys selected by the Underwriter and/or controlling person shall be borne by the Company. Notwithstanding anything to the contrary contained herein, if the Underwriter or controlling person shall assume the defense of such action as provided above, the Company shall have the right to approve the terms of any settlement on behalf of the Company of such action, which approval shall not be unreasonably withheld.
(c) Each Underwriter, severally and not jointly, agrees to indemnify and hold harmless the Company, its directors, officers and employees and agents who control the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any and all loss, liability, claim, damage and expense described in the foregoing indemnity from the Company to the several Underwriters, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions made in any Preliminary Prospectus, the Registration Statement or Prospectus or any amendment or supplement thereto, in reliance upon, and in strict conformity with, written information furnished to the Company with respect to such Underwriter by or on behalf of the Underwriter expressly for use in such Preliminary Prospectus, the Registration Statement or Prospectus or any amendment or supplement thereto. In case any action shall be brought against the Company or any other person so indemnified based on any Preliminary Prospectus, the Registration Statement or Prospectus or any amendment or supplement thereto, and in respect of which indemnity may be sought against any Underwriter, such Underwriter shall have the rights and duties given to the Company, and the Company and each other person so indemnified shall have the rights and duties given to the several Underwriters, by the provisions of Section 5(b).
(d) In order to provide for just and equitable contribution under the Securities Act in any case in which (i) any person entitled to indemnification under this Section 5 makes claim for indemnification pursuant hereto but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 5 provides for indemnification in such case; or (ii) contribution under the Securities Act, the Exchange Act or otherwise may be required on the part of any such person in circumstances for which indemnification is provided under this Section 5, then, and in each such case, the Company and the Underwriters shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by said indemnity agreement incurred by the Company and the Underwriters, as incurred, in such proportions that the Underwriters are responsible for that portion represented by the percentage that the underwriting discount appearing on the cover page of the Prospectus bears to the initial offering price appearing thereon and the Company is responsible for the balance; provided that no person guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Notwithstanding the provisions of this Section 5(d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the
amount of any damages that such Underwriter has otherwise been required to pay in respect of such losses, liabilities, claims, damages and expenses. For purposes of this Section 5(d), each director, officer, and employee of an Underwriter or the Company, as applicable, and each person, if any, who controls an Underwriter or the Company, as applicable, within the meaning of Section 15 of the Securities Act shall have the same rights to contribution as the Underwriters or the Company, as applicable.
(e) Within fifteen (15) days after receipt by any party to this Agreement (or its representative) of notice of the commencement of any action, suit or proceeding, such party will, if a claim for contribution in respect thereof is to be made against another party ("contributing party"), notify the contributing party of the commencement thereof, but the omission to so notify the contributing party will not relieve it from any liability which it may have to any other party other than for contribution hereunder. In case any such action, suit, or proceeding is brought against any party, and such party notifies a contributing party or its representative of the commencement thereof within the aforesaid fifteen days, the contributing party will be entitled to participate therein with the notifying party and any other contributing party similarly notified. Any such contributing party shall not be liable to any party seeking contribution on account of any settlement of any claim, action or proceeding effected by such party seeking contribution on account of any settlement of any claim, action or proceeding effected by such party seeking contribution without the written consent of such contributing party. The contribution provisions contained in this Section 5(e) are intended to supersede, to the extent permitted by law, any right to contribution under the Securities Act, the Exchange Act or otherwise available. The Underwriters' obligations to contribute pursuant to this Section 5(e) are several and not joint.
6. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default in its or their obligations to purchase the Firm Shares or the Option Shares, if the Over-allotment Option is exercised, hereunder, and if the number of the Firm Shares or Option Shares with respect to which such default relates does not exceed in the aggregate ten percent (10%) of the number of Firm Shares or Option Shares that all Underwriters have agreed to purchase hereunder, then such Firm Shares or Option Shares to which the default relates shall be purchased by the non-defaulting Underwriters in proportion to their respective commitments hereunder.
(b) In the event that the default addressed in Section 6(a) above
relates to more than ten percent (10%) of the Firm Shares or Option Shares, you
may in your discretion arrange for yourself or for another party or parties to
purchase such Firm Shares or Option Shares to which such default relates on the
terms contained herein. If within one business day after such default relating
to more than 10% of the Firm Shares or Option Shares you do not arrange for the
purchase of such Firm Shares or Option Shares, then the Company shall be
entitled to a further period of one business day within which to procure another
party or parties satisfactory to you to purchase said Firm Shares or Option
Shares on such terms. In the event that neither you nor the Company arranges for
the purchase of the Firm Shares or Option Shares to which a default relates as
provided in this Section 6, this Agreement may be terminated by you or the
Company without liability on the part of the Company (except as provided in
Section 5 hereof) or the several Underwriters (except as provided in Section 5
hereof); provided, however, that if such default occurs with respect to the
Option Shares, this Agreement will not terminate as
to the Firm Shares; and provided further that nothing herein shall relieve a defaulting Underwriter of its liability, if any, to the other several Underwriters and to the Company for damages occasioned by its default hereunder.
(c) In the event that the Firm Shares or Option Shares to which the default relates are to be purchased by the non-defaulting Underwriters, or are to be purchased by another party or parties as aforesaid, you or the Company shall have the right to postpone the Closing Date or Option Closing Date for a reasonable period, but not in any event exceeding five business days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus or in any other documents and arrangements, and the Company agrees to file promptly any amendment to the Registration Statement or the Prospectus that in the opinion of counsel for the Underwriters may thereby be made necessary. The term "Underwriter" as used in this Agreement shall include any party substituted under this Section 6 with like effect as if it had originally been a party to this Agreement with respect to such Shares.
7. Representations and Agreements to Survive Delivery. Except as the context otherwise requires, all representations, warranties and agreements contained in this Agreement shall be deemed to be representations, warranties and agreements at the Closing Dates, and such representations, warranties and agreements of the Underwriters and Company, including the indemnity agreements contained in Section 5 hereof, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Underwriter, the Company or any controlling person, and shall survive the issuance and delivery of the Shares to the several Underwriters until the earlier of the expiration of any applicable statute of limitations and the seventh anniversary of the later of the Closing Date or the Option Closing Date, if any, at which time the representations, warranties and agreements shall terminate and be of no further force and effect.
8. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective on the Effective Date at the time the Registration Statement is declared effective by the Commission.
(b) You shall have the right to terminate this Agreement at any time prior to any Closing Date (i) if any domestic or international event or act or occurrence has or will in your opinion in the immediate future materially disrupt the general securities markets in the United States; (ii) if trading on the New York Stock Exchange, the American Stock Exchange, the Boston Stock Exchange or The Nasdaq Stock Market (or successor trading market) or the over-the-counter market shall have been suspended by the Commission or any other government authority having jurisdiction or minimum or maximum prices shall have been established on such exchange or quotation system or a material disruption in securities settlement payment of clearance services in the United States shall have occurred; (iii) if the United States shall have become materially involved in a new war or an increase in major hostilities; (iv) if a banking moratorium has been declared by a New York State or federal authority; (v) if any of the Company's representations, warranties or covenants hereunder is breached, and if not otherwise cured or qualified by materiality, there is a material adverse effect; (vi) the Company shall have sustained a loss by reason of explosion, fire, flood, accident or other calamity, which, in the opinion of the Representative, substantially affects the value of the properties of the Company or
which materially interferes with the operation of the business of the Company regardless of whether such loss shall have been insured; there shall have been a material adverse change (including, without limitation, a change in management (other than the appointment of a chief executive officer, a chief operating officer, or both, of the Company who are reasonably acceptable to the Representative) or control of the Company), in the business or operations of the Company, except in each case as described in or contemplated by the Prospectus (exclusive of any amendment or supplement thereto); or (vi) if there shall have occurred an outbreak of hostilities between the Unites States and any foreign power (or in the case of any ongoing hostilities, a material escalation thereof), or an outbreak of any other insurrection or armed conflict involving the United States, or a terrorist attack in the United States or a change in the financial markets or any calamity or crisis after the date hereof, as in the Representative's judgment, is material and adverse and such change, calamity or crisis, singly or together with any other event, would make it impracticable or inadvisable to proceed with the Offering, sale and/or delivery of the Shares or to enforce contracts made by the Underwriters for the sale of the Shares.
(c) In the event that this Agreement shall not be carried out for any reason whatsoever, within the time specified herein or any extensions thereof pursuant to the terms herein, the obligations of the Company to pay the out of pocket expenses related to the transactions contemplated herein shall be governed by Section 3(k) hereof.
(d) Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement, and
whether or not this Agreement is otherwise carried out, the provisions of
Section 5 shall not be in any way effected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
9. Miscellaneous.
(a) All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and shall be mailed, delivered or
telecopied and confirmed to the parties at the addresses and/or telefax numbers
set forth below (or to such other addresses and/or telefax numbers as either
party may specify in a notice provided to the other party pursuant to this
Section 9(a)) and shall be deemed given when so delivered or telecopied and
confirmed or if mailed, two days after such mailing.
If to the Representative:
JOSEPH GUNNAR & CO., LLC
Thirty Broad Street
New York, New York 10004
Fax: (212) 440-9668
Attn: Stephan A. Stein, Chief Operating Officer
With copy to (which shall not constitute notice to the Representative):
COZEN O'CONNOR
The Army and Navy Building
1627 I Street, NW, Suite 1100
Washington, DC 20006
Fax: (202) 912-4830
Attn: Ralph V. De Martino, Esq.
If to the Company:
BRIDGELINE SOFTWARE, INC.
10 Sixth Rd.
Woburn, MA 01801
Fax: (781) 376-5033
Attn: Thomas Massie, President and CEO
Copy to (which shall not constitute notice to the Company):
MORSE, BARNES-BROWN & PENDLETON, P.C.
Reservoir Place
1601 Trapelo Road
Waltham, MA 02451
Fax: (781) 622-5933
Attn: Carl F. Barnes, Esq.
(b) The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Agreement.
(c) This Agreement may only be amended by a written instrument executed by each of the parties hereto.
(d) This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and thereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.
(e) This Agreement shall inure solely to the benefit of and shall be binding upon the Representative, the Underwriters, the Company and the controlling persons, directors and officers referred to in Section 5 hereof, and their respective successors, legal representatives and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provisions herein contained.
(f) This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York without regard to conflicts of law principles. Any action hereunder shall be brought exclusively in the courts sitting in the City, County and State of New York. The party prevailing in any proceeding shall be entitled to recover its reasonable legal fees and expenses from the parties not prevailing.
(g) This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original,
but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto.
(h) The failure of any of the parties hereto to at any time enforce any of the provisions of this Agreement shall not be deemed or construed to be a waiver of any such provision, nor to in any way effect the validity of this Agreement or any provision hereof or the right of any of the parties hereto to thereafter enforce each and every provision of this Agreement. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Agreement shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.
(i) The invalidity or unenforceability of any Section, paragraph or provision of this Agreement shall not affect the validity or enforceability of any other Section, paragraph or provision hereof. If any Section, paragraph or provision of this Agreement is for any reason determined to be invalid or unenforceable, there shall be deemed to be made such minor changes (and only such minor changes) as are necessary to make it valid and enforceable.
[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]
SIGNATURE PAGE
If the foregoing correctly sets forth the understanding between the Underwriters and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between us.
Very truly yours,
BRIDGELINE SOFTWARE, INC.
Accepted on the date first above written.
JOSEPH GUNNAR & CO., LLC
Acting severally on behalf of itself and as
the Representative of the several Underwriters
named in Schedule I annexed hereto
SCHEDULE I
BRIDGELINE SOFTWARE, INC.
3,000,000 Shares NUMBER OF FIRM SHARES UNDERWRITER TO BE PURCHASED Joseph Gunnar & Co., LLC [_______] Security Research Associates, Inc. [_______] TOTAL: [_______] |
COMMON STOCK
BSI
COMMON STOCK
[LOGO]
Bridgeline Software, Inc.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 10807Q 20 5
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK,
$0.001 PAR VALUE PER SHARE, OF
BRIDGELINE SOFTWARE, INC.
transferable on the books of the Corporation by the holder hereof in person or
by a duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
[SIGNATURE]
TREASURER
[SIGNATURE]
PRESIDENT
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, NY)
TRANSFER AGENT
AND REGISTRAR
BY:
AUTHORIZED SIGNATURE
[REVERSE OF CERTIFICATE]
BRIDGELINE SOFTWARE, INC.
The Corporation is authorized to issue more than one class of stock. The Corporation will furnish without charge to each stockholder who so requests a statement of the powers, designations, preferences, and relative, participating, optional or other special rights of each class of stock or series thereof of the Corporation, and qualifications, limitations or restrictions of such preferences and/or rights.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations.
TEN COM -- as tenants in common TEN ENT -- as tenants by the entireties JT TEN -- as joint tenants with rights of survivorship and not as tenants in common
UNIF GIFT MIN ACT -- _______________Custodian________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act________________________
(State)
UNIF TRF MIN ACT --__________________Custodian_______________
(Cust) (Minor)
under Uniform Transfers to Minors
Act_____________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ___________________hereby sell(s), assign(s), and transfer(s) unto
(PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE)
(PLEASE PRINT NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
Shares of the common stock represented by the within Certificate, and do(es) hereby irrevocably constitute and appoint
Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.
Dated:
(Signature(s) must conform in all respects to the name of Registered Holder as specified on the face of this Certificate in every particular, without alteration or any change whatsoever, and the signature must be guaranteed in the usual manner.)
Signature(s) Guaranteed:
The signature(s) must be guaranteed by an eligible institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature medallion program), pursuant to S.E.C. Rule 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
MORSE Reservoir Place
BARNES-BROWN & 1601 Trapelo Road, Suite 205
PENDLETON PC Waltham, MA 02451
mbbp.com
t - 781-622-5930
f - 781-622-5933
cbarnes@mbbp.com
June 20, 2007
Bridgeline Software, Inc.
10 Sixth Road
Woburn, MA 01801
Re: Registration Statement on Form SB-2
Ladies and Gentlemen:
We have acted as counsel to Bridgeline Software, Inc., a Delaware corporation (the "Company"), in connection with the registration under the Securities Act of 1933, as amended, of an aggregate of 3,992,000 shares of common stock, par value $0.001 per share (the "Common Stock"), of the Company (the "Shares"), pursuant to a Registration Statement on Form SB-2 (File No. 333-139298) (as amended, the "Registration Statement"), initially filed with the Securities and Exchange Commission on December 13, 2006, of which (i) up to 3,450,000 shares are issuable by the Company, including 450,000 shares in order to cover over-allotments, (ii) 150,000 shares are issuable to the underwriters in connection with the public offering upon the exercise of certain warrants (the "Underwriters' Warrants"), (iii) 342,000 shares are issuable to the selling stockholders upon the exercise of outstanding warrants (the "Selling Stockholders' Warrants," and together with the Underwriters' Warrants, the "Warrants") and (iv) 50,000 outstanding shares of Common Stock have been issued to the certain selling stockholders upon the exercise of previously outstanding warrants (the "Selling Stockholders' Warrant Shares").
We have reviewed the corporate proceedings of the Company with respect to the authorization of the issuance of the Shares. We have also examined and relied upon originals or copies, certified or otherwise identified or authenticated to our satisfaction, of such corporate records, instruments, agreements or other documents of the Company, and certificates of officers of the Company as to certain factual matters, and have made such investigation of law and have discussed with officers and representatives of the Company such questions of fact, as we have deemed necessary or appropriate as a basis for the opinions hereinafter expressed. In our examination, we have assumed the genuineness of all signatures, the conformity to the originals of all documents reviewed by us as copies, the authenticity and completeness of all original documents reviewed by us in original or copy form and the legal competence of each individual executing any document. We have further assumed with respect to the Warrants that a sufficient number of duly authorized and unissued shares of the Company's Common Stock will be available for issuance at the time any Warrants are exercised; and that the consideration received by the Company in respect of each Share will be no less than the exercise price set forth in the applicable Warrant and no less than the par value of the Common Stock at the time.
We have also assumed that an Underwriting Agreement substantially in the form of Exhibit 1.1 to the Registration Statement, by and among the Company and the underwriters named therein (the "Underwriting Agreement "), will have been duly executed and delivered pursuant to the authorizing resolutions of the Board of Directors of the Company and that the Shares will be sold and transferred only upon the payment therefor as provided in the Underwriting Agreement.
Based upon and subject to the foregoing, we are of the opinion that:
1. The 3,450,000 shares of the Company's Common Stock issuable by the Company in connection with the public offering have been duly authorized and will, upon such issuance in accordance with the terms of the Underwriting Agreement and upon payment of the consideration therefore, be validly issued, fully paid and non-assessable shares of Common Stock;
2. The 150,000 shares of the Company's Common Stock issuable upon the exercise of the Underwriters' Warrants in accordance with their terms have been duly authorized and will, upon such issuance pursuant to such exercise, be validly issued, fully paid and non-assessable shares of Common Stock;
3. The 342,000 shares of the Company's Common Stock issuable upon the exercise of the Selling Stockholders' Warrants in accordance with their terms have been duly authorized and will, upon such issuance pursuant to such exercise, be validly issued, fully paid and non-assessable shares of Common Stock; and
4. The Selling Stockholders' Warrant Shares were at the time of issuance duly authorized and are validly issued, fully paid and non-assessable shares of Common Stock.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to this firm under the heading "Legal Matters" in the Registration Statement.
We are qualified as lawyers only in the Commonwealth of Massachusetts. Our opinions expressed in this letter are limited to matters governed by the federal laws of the United States of America, the laws of the Commonwealth of Massachusetts, and the statutory provisions of the General Corporation Law of the State of Delaware (as opposed to decisions of the courts interpreting such statutes).
We assume no obligation to advise you of any changes in facts or law relevant to our opinions that may come to our attention subsequent to the delivery of this opinion letter. This opinion letter has been prepared solely for your use in connection with the filing of the Registration Statement and should not be quoted or used for any other purpose without our prior written consent.
Very truly yours,
MORSE, BARNES-BROWN & PENDLETON, P.C.
By: /s/Carl F. Barnes ---------------------------- Carl F. Barnes |
Bridgeline Software, Inc., a Delaware corporation (the "EMPLOYER" or the "COMPANY") and Erez M. Katz (the "EMPLOYEE"), in consideration of the mutual promises made herein, agree as follows:
SECTION 1.1 SPECIFIED PERIOD. Employer hereby employs Employee, and Employee hereby accepts employment with Employer for the term beginning the date executed hereunder (the "COMMENCEMENT DATE"), and continuing for one year from the Commencement Date, which term shall automatically renew for successive periods of one (1) year each unless either party gives written notice to the other party of its intention not to renew this Agreement not less than sixty (60) days prior to the end of the applicable year. The provisions of Sections 2.3, 2.4, 2.5 and 2.6 of this Agreement shall continue in force so long as the Employee remains employed by the Employer or any Affiliate of the Employer, whether under this Agreement or not, and whether as a consultant or not, and shall survive any termination of employment under this Agreement for the periods specified therein, all as is more specifically provided in Section 7.10. Once this Employment Agreement terminates then, if the Employee continues employment, the Employee shall become an employee at will.
SECTION 1.2 EMPLOYMENT TERM DEFINED. As used herein, the phrase "employment term" refers to the entire period of employment of Employee by Employer hereunder.
SECTION 2.1 GENERAL DUTIES. Employee shall serve as Executive Vice President and General Manager for the Atlanta Business Unit (as defined below) of the Employer and shall report directly to an executive officer of the Employer. In such capacity, Employee shall do and perform all services, acts or things consistent within the scope of his employment and with the Employee's skill and expertise in accordance with the instructions of and policies set by Employer's Chief Executive Officer, or the Board of Directors. Employee shall perform such services at 5555 Triangle Parkway, Suite 250, Norcross, Georgia 30092 and at 11440 Commerce Park Drive, Suite 102, Reston, Virgina 20191 or at such other location within thirty (30) miles of either of said addresses as may be designated by Employer. The Employee shall be available to make business trips both within and outside the United States for the purpose of meeting with and consulting with other members of the Employer's management, as well as with present and proposed customers and parties with whom the Employer does business, all on such reasonable terms, bearing in mind the position of the Employee. For purposes hereof, "Atlanta Business Unit" shall mean the business operations formerly of the Seller based in Atlanta, Georgia and Reston, Virginia, which includes revenues generated from the sale and licensing of software solutions, web application development and hosting services that are developed and delivered by the Atlanta Business Unit.
SECTION 2.2 DEVOTION TO EMPLOYER'S BUSINESS.
(a) Employee shall devote his best efforts and entire productive time, ability and attention to diligently promote and improve the business of Employer during the Term.
(b) Employee shall not engage in any other business duties or pursuits whatsoever, or directly or indirectly render any services of a business, commercial or professional nature to any other person or organization, whether for compensation or otherwise, without the prior written consent of the Employer's President & CEO. This Agreement shall not be interpreted to prohibit Employee from making passive personal investments or conducting private business affairs if those private business affairs do not materially interfere with the services required under this Agreement.
SECTION 2.3 CONFIDENTIAL INFORMATION; TANGIBLE PROPERTY; COMPETITIVE ACTIVITIES.
(a) Employee shall hold in confidence and not use or disclose to any person or entity without the express written authorization of Employer, either during the employment term or any time thereafter, secret or confidential information of Employer, as well as secret or confidential information and materials received in confidence from third parties with whom Employer has a business relationship by Employee or Employer. If any confidential information described below is sought by legal process, Employee will promptly notify Employer and will cooperate with Employer in preserving its confidentiality in connection with any legal proceeding.
The parties hereto hereby stipulate that, to the extent it is not known publicly, the information described in this Section (herein referred to as "Confidential Information") is important, material and has independent economic value (actual or potential) from not being generally known to others who could obtain economic value from its disclosure or use and that any breach of any terms of this Section 2.3 is a material breach of this Agreement: (i) the names, buying habits and practices of Employer's customers; (ii) Employer's sales and marketing strategy and methods and related data; (iii) the names of Employer's vendors and suppliers; (iv) cost of materials/services; (v) the prices Employer obtains or has obtained or for which it sells or has sold its products or services; (vi) development costs; (vii) compensation paid to employees or other terms of employment; (viii) Employer's past and projected sales volumes; (ix) confidential information relating to actual products, proposed products or enhancements of existing products, including, but not limited to, source code, programming instructions, engineering methods and techniques relating to such actual or proposed products (or enhancements thereof), logic diagrams, algorithms, development environment, software methodologies, and technical specifications for the Employer's web design and content management software. Confidential Information shall also include all information which the Employee should reasonably understand is secret or confidential information, provided the same is clearly designated as confidential by marking or stamping "Confidential" or similar words on the cover of such information, or by orally communicating such confidentiality and confirming such confidentiality in a later written communication. Confidential Information shall also include all information which the Employee should reasonably understand is secret or confidential information, if the Employee has participated in or otherwise been involved with the development, analysis, invention or origination of such Confidential Information belonging to the Employer, including, without
limitation, methods, know-how, formula, customer and supplier lists, personnel and financial data, business plans, as well as product information, product plans and product strategies. Notwithstanding the foregoing, "Confidential Information" does not include any information which (A) is now available to the public or which becomes available to the public, (B) is or becomes available to the Employee from a source other than the Employer and such disclosure is not a breach of a confidentiality agreement with the Employer, or (C) is required to be disclosed by any government agency or in connection with a court proceeding.
All Confidential Information, as well as all software code, methodologies, models, samples, tools, machinery, equipment, notes, books, correspondence, drawings and other written, graphical or electromagnetic records relating to any of the products of Employer or relating to any of the Confidential Information of Employer which Employee shall prepare, use, construct, observe, possess, or control shall be and shall remain the sole property of Employer and shall be returned by Employee upon termination of employment.
(b) During his employment hereunder and for twelve (12) months thereafter, Employee shall not, directly or indirectly, without the consent of the Employer: (i) invest (except for the ownership of less than 3% of the capital stock of a publicly held company), or hold a directorship or other position of authority in any of the Employer's Direct Competitors ("DIRECT COMPETITORS" defined as: any person or entity, or a department or division of an entity, whereby more than 25% of the person's or entity's total revenues are derived from Competitive Services ("COMPETITIVE SERVICES" being defined as design and development for third parties of: Internet, Intranet and Extranet web applications, content management or document management software, flash or rich media development, usability engineering, e-commerce and e-learning applications, search engine optimization solutions and Web hosting and managed services), (ii) undertake preparation of or planning for an organization or offering of Competitive Services, (iii) combine or collaborate with other employees or representatives of the Employer or any third party for the purpose of organizing, engaging in, or offering Competitive Services, or (iv) be employed by, serve as a consultant to or otherwise provide services to (whether as principal, partner, shareholder, member, officer, director, stockholder, agent, joint venturer, creditor, investor or in any other capacity), or participate in the management of a Direct Competitor or participate in any other business that the Employer may be engaged or has fixed, written plans to undertake at the date of the termination of this Agreement.
(c) During his employment hereunder and for twelve (12) months thereafter, Employee shall not, directly or indirectly, without the consent of the Employer: contact, recruit, solicit, induce or employ, or attempt to contact, recruit, solicit, induce or employ, any employee, consultant, agent, director or officer of the Employer to terminate his employment with, or otherwise cease any relationship with, the Employer; or contact, solicit, divert, take away or accept business from, or attempt to contact, solicit, divert or take away, any clients, customers or accounts of the Employer, or any of the Employer's business with such clients, customers or accounts which were, directly or indirectly, contacted, solicited or served by Employee, or were directly or indirectly under his responsibility, while Employee was employed by the Company, or the identity of which Employee became aware during the term of his employment.
As used in this agreement the term "client," "customer," or "accounts" shall include: (i) any person or entity that is a client, customer or account of the Employer on the date hereof or
becomes a client, customer or account of the Employer during the covered period;
(ii) any person or entity that was a client, customer or account of the Employer
at anytime during the two-year period preceding the date of Employee's
termination; and (iii) any prospective client, customer or account to whom the
Employer has made a client-specific bona fide proposal or presentation (or
similar offering of services) within a period of 180 days preceding the date of
the termination of Employee's employment.
(d) The covenants of this Section 2.3 shall be construed as separate covenants covering their subject matter in each of the separate states in the United States in which Employer (or its Affiliates) transacts its business. If at any time the foregoing provisions shall be deemed to be invalid or unenforceable or are prohibited by the laws of the state or place where they are to be enforced, by reason of being vague or unreasonable as to duration or place of performance, this Section shall be considered divisible and shall become and be immediately amended to include only such time and such area as shall be determined to be reasonable and enforceable by the court or other body having jurisdiction over this Agreement; and the Employer and the Employee expressly agree that this Section, as so amended, shall be valid and binding as though any invalid or unenforceable provision had not been included herein.
(e) The Employee represents and warrants that Employee is free to enter into this Agreement and to perform each of the terms and covenants contained herein, and that doing so will not violate the terms or conditions of any agreement between Employee and any third party.
(f) Nothing in this Section 2.3 shall restrict the Employee from providing Competitive Services to any organization, including but not limited to a Direct Competitor, as an employee of or consultant to such organization in the event Employee's employment by Employer is terminated without cause or for good reason in accordance with the terms of Section 5.4 hereof.
SECTION 2.4 INVENTIONS AND ORIGINAL WORKS.
(a) Subject to Section 2.4(b) below, the Employee agrees that he will promptly make full written disclosure to Employer, will hold in trust for the sole right and benefit of Employer, and hereby assigns to Employer all of his right, title and interest in and to any and all inventions (and patent rights with respect thereto), original works of authorship (including all copyrights with respect thereto), developments, improvements or trade secrets which Employee may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, while performing his duties under this Agreement.
Employee acknowledges that all original works of authorship relating to the business of Employer which are made by him (solely or jointly with others) within the scope of his duties under this Agreement and which are protectable by copyrights are "works made for hire" as that term is defined in the United States Copyright Act (17 U.S.C.A., Section 101), and that Employee is an employee as defined under that Act. Employee further agrees from time to time to execute written transfers to Employer of ownership of specific original works of authorship (and all copyrights therein) made by Employee (solely or jointly with others) which
may, despite the preceding sentence, be deemed by a court of law not to be "works made for hire" in such form as is acceptable to Employer in its reasonable discretion.
(b) The parties agree that the "business of the Employer" for the purposes of this Section 2.4 is the business of INTERNET, INTRANET AND EXTRANET WEB APPLICATIONS, CONTENT MANAGEMENT OR DOCUMENT MANAGEMENT SOFTWARE, FLASH OR RICH MEDIA DEVELOPMENT, USABILITY ENGINEERING, E-COMMERCE AND E-LEARNING APPLICATIONS, SEARCH ENGINE OPTIMIZATION SOLUTIONS AND WEB HOSTING AND MANAGED SERVICES. Employee shall provide to Employer, and attach hereto as Exhibit 2.4(b), a list identifying and describing in reasonable detail all inventions (and patent rights with respect thereto), original works of authorship (including all copyrights with respect thereto), developments, improvements, concepts or trade secrets which Employee has solely or jointly conceived or developed or reduced to practice, or caused to be conceived or developed or reduced to practice to date, and other intellectual property of the Employee. For the avoidance of doubt, Employee will identify on Exhibit 2.4(b) with sufficient detail any intellectual property belonging to the Employee prior to the date hereof, including that related to the business of the Employer (collectively the "Employee's Personal Intellectual Property"). Employer acknowledges and agrees that the provisions of Section 2.4(a) shall not apply to Employee's Personal Intellectual Property or to any inventions (and patent rights with respect thereto), original works of authorship (including all copyrights with respect thereto), developments, improvements, concepts or trade secrets conceived of or developed by Employee during the term of this Agreement that is not Employer Intellectual Property (as defined in Section 4.15 of the Agreement and Plan of Merger among Employer, Employee and Objectware (the "Merger Agreement").
SECTION 2.5 MAINTENANCE OF RECORDS. Except with respect to the Intellectual Property for which the Employer has no rights, Employee agrees to keep and maintain reasonable written records of all inventions, original works of authorship, trade secrets developed or made by him (solely or jointly with others) during the employment term. Employee also agrees to make and maintain adequate and reasonable written records customarily maintained by corporate managers, including, without limitation, lists and telephone numbers of persons and companies he has contacted during his engagement by the Employer. Immediately upon the Employer's request and promptly upon termination of the Employee's engagement with the Employer, the Employee shall deliver to the Employer all written records as described in this Section, together with all memoranda, notes, records, reports, photographs, drawings, plans, papers, computer storage media, Confidential Information or other documents made or compiled by the Employee or made available to the Employee during the course of his engagement by the Employer, and any copies or abstracts thereof, whether or not of a secret or confidential nature, and all of such records, memoranda or other documents shall, during and after the engagement of the Employee by the Employer, be and shall be deemed to be the property of the Employer.
SECTION 2.6 OBTAINING LETTERS PATENT AND COPYRIGHT REGISTRATION. During the employment term hereunder, Employee agrees to assist Employer, at Employer's expense, to obtain United States or foreign letters patent, and copyright registrations (as well as any transfers of ownership thereof) covering inventions and original works of authorship assigned hereunder to Employer. Such obligation shall continue beyond the termination of this Agreement for a reasonable period of time not to exceed one (1) year subject to Employer's obligation to compensate Employee at such rates as may be mutually agreed upon by the Employer and Employee at the time, but not exceeding the annualized rate provided for in Section 4.1 of this Agreement, and reimbursement
to Employee of all expenses incurred.
If Employer is unable for any reason whatsoever, including Employee's mental or physical incapacity to secure Employee's signature to apply for or to pursue any application for any United States of foreign letters, patent or copyright registrations (or any document transferring ownership thereof) covering inventions or original works or authorship assigned to Employer under this Agreement, Employee hereby irrevocably designates and appoints Employer and its duly authorized officers and agents as Employee's agent and attorney-in-fact to act for and in his behalf and stead to execute and file any such applications and documents and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent or copyright registrations or transfers thereof with the same legal force and effect as if executed by Employee. This appointment is coupled with an interest in and to the inventions and works of authorship and shall survive Employee's death or disability. Employee hereby waives and quitclaims to Employer any and all claims of any nature whatsoever which Employee now or may hereafter have against third parties for infringement of any patents or copyrights resulting from or relating to any such application for letters, patent or copyright registrations assigned hereunder to Employer.
SECTION 3.1 ANNUAL SALARY. As compensation for his services hereunder, Employee shall be paid a salary at the rate of One Hundred Fifty Thousand and 00/100 Dollars ($150,000.00) per year from the Commencement Date ("Base Salary"). Base Salary shall be paid in equal installments not less frequently than twice each month.
SECTION 3.2 ANNUAL BONUS. The Employee shall be eligible to be paid an annual bonus (the "Bonus") of up to $100,000, earned and payable quarterly in accordance with the terms set forth on Exhibit 3.2 attached hereto. Exhibit 3.2 shall be amended on an annual basis by mutual agreement of the Employer and the Employee based on the Atlanta Business Unit's annual operating plan as approved by Employer's Chief Executive Officer. Notwithstanding anything in this Section 3.2 or Exhibit 3.2 to the contrary, Employer shall pay the two quarterly Bonus payments of $25,000 each for the first two completed calendar quarters after the Commencement Date irrespective of whether the operating objectives set forth on Exhibit 3.2 are achieved for such quarters. In addition to the Bonus payments set forth in Exhibit 3.2, the Employer agrees to pay to the Employee the pro rated portion of $8,333 per month beginning on the Commencement Date for the months of November and December 2006. The Base Salary and Bonus of Employee shall be reviewed annually and may be increased from time to time by Employer to reflect the Employee's performance.
SECTION 3.3 TAX WITHHOLDING. Employer shall have the right to deduct or withhold from the compensation due to Employee hereunder any and all sums required for federal income and social security taxes and all state or local taxes now applicable or that may be enacted and become applicable in the future, for which withholding is required by law.
SECTION 3.4 INCENTIVE STOCK OPTIONS. The Employer may, at the Employer's sole discretion, issue Incentive Stock Options to the Employee. All stock options granted to the Employee shall
be subject to a stock option agreement, a stock option plan and such other restrictions as are generally applicable to stock options issued to employees of the Employer, as each may be amended from time to time.
SECTION 4.1 ANNUAL VACATION. Employee shall be entitled to twenty (20) business days of paid vacation during each year of this Agreement. Employee may be absent from his employment for vacation at such times as are reasonably approved by the Employer's President and CEO. Unused vacation shall not be carried over into the next year.
SECTION 4.2 BENEFITS. Employee shall be eligible to participate in any and all benefit plans provided by Employer, including health, disability and life insurance coverage, as are provided to other Executive Vice Presidents and General Managers of Employer.
SECTION 4.3 BUSINESS EXPENSES. Employer shall reimburse Employee for all appropriate expenses for travel and entertainment by Employee for legitimate business purposes, provided that they are approved in writing by the person to whom the Employee reports, and provided that Employee furnishes to Employer adequate records and documentary evidence for the substantiation of each such expenditure, as required by the Internal Revenue Code of 1986, as amended.
SECTION 5.1 TERMINATION. Employee's employment hereunder may be terminated by Employee or Employer as herein provided, without further obligation or liability, except as expressly provided in this Agreement.
SECTION 5.2 RESIGNATION, RETIREMENT, DEATH OR DISABILITY. Employee's employment hereunder shall be terminated at any time by Employee's resignation, or by Employee's retirement, death, or his inability to perform the essential functions of his position under this Agreement, with or without reasonable accommodation, for a total of ninety (90) days or more in any continuous two hundred (200) day period because of a substantial physical or mental impairment ("Disability"). Employer shall not be liable for the payment of Base Salary or Bonus (other than for accrued Base Salary or Bonus payments) during any period of Disability, though benefits shall continue to accrue.
SECTION 5.3 TERMINATION FOR CAUSE. Employee's employment hereunder may be terminated for Cause. "Cause" is conduct, as determined in good faith by the Chief Executive Officer or the Board of Directors of Employer involving one or more of the following: (i) gross misconduct by the Employee; or (ii) the willful disregard of the rules or policies of the Company; or (iii) the material violation of any noncompetition or nonsolicitation covenant with, or assignment of inventions obligation to, the Company; or (iv) the conviction of the Employee of a felony; or (v) the commission of an act of embezzlement, fraud or breach of fiduciary duty which results in loss, damage or injury to the Company; or (vi) engaging in an act, omission or pattern of behavior which, in the reasonable opinion of the Company, impugns the reputation of the
Company or which creates an environment materially non-conducive to the growth
and development of the Company, provided the Company provides written notice to
the Employee that such act, omission or pattern of behavior may be the basis for
termination and the Employee engages in similar acts, omissions or behavior
after receipt of such notice, or (vi) the generation of net operating losses (as
defined in accordance with generally accepted accounting principles) by the
Atlanta Business Unit for three (3) consecutive quarters and the
underperformance of the Atlanta Business Unit to a majority of Employer's other
business units (as measured by operating income) during such consecutive three
(3) quarter period; or (vii) the failure of the Employee to perform in a
material respect his employment obligations as set forth in this Agreement
without proper cause and the continuation thereof during a period of 30 days
within which Employee is given an opportunity to commence rehabilitation with
respect thereto, after delivery to Employee of written notice from the Employer
specifying in reasonable detail the nature of such failure. In making such
determination, the Chief Executive Officer or the Board of Directors shall act
in good faith. For purposes of this Section, no act, or failure to act, on the
Employee's part shall be considered "willful" unless done, or omitted to be
done, by him not in good faith and without reasonable belief that his action or
omission was in the best interest of the Employer.
SECTION 5.4 TERMINATION WITHOUT CAUSE; TERMINATION FOR GOOD REASON. Employee's employment hereunder may be terminated without Cause upon ten (10) business days' notice for any reason. Employee's employment may be terminated by Employee at any time for Good Reason.
For purposes of this Agreement, "Good Reason" shall mean:
(a) failure of the Employer to continue Employee in the position of Executive Vice President and General Manager for the Atlanta Business Unit of the Employer; (b) material diminution in the nature or scope of the Employee's responsibilities, duties or authority (provided, however, any general diminution of the business of the Employer shall not constitute "Good Reason"); (c) material failure of the Employer to provide the Employee the compensation and benefits in accordance with the terms of Articles 3 and 4 hereof; (d) change in reporting structure such that Employee reports to any person other than an executive officer of Employer; or (e) the requirement by the Employer that Employee relocate his principal place of employment to a location more than thirty (30) miles from Norcross, Georgia.
SECTION 5.5 EXPIRATION. Employee's employment hereunder shall be terminated upon expiration of the Initial Term or any Succeeding Term as provided in Sections 1.1 and 1.2, unless the parties agree that the Employee's employment shall become "at will."
SECTION 5.6 NOTICE OF TERMINATION. Any termination of the Employee's employment by the Employer or by the Employee (other than termination by reason of resignation, retirement, or death), shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall include the specific termination provision in this Agreement relied upon, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provision so indicated.
SECTION 5.7 DATE OF TERMINATION. The "Date of Termination" shall be: (a) if the Employee's
employment is terminated by his death, the date of her death; (b) if the
Employee's employment is terminated by reason of Employee's disability, thirty
(30) days after Notice of Termination is given; (c) if the Employee's employment
is terminated for Cause, the date the Notice of Termination is given or after if
so specified in such Notice of Termination (including but not limited to the end
of any cure period as specified in Section 5.3(vii) hereof); (d) if the
Employee's employment is terminated for any other reason, the date on which a
Notice of Termination is given.
SECTION 6.1 DEATH, DISABILITY OR RETIREMENT. In the event of Employee's retirement, death or Disability, all benefits generally available to Employer's employees as of the date of such an event shall be payable to Employee or Employee's estate, in accordance with the terms of any plan, contract, understanding or arrangement forming the basis for such payment, and in any case specifically including any and all accrued Base Salary and Bonus. Employee shall be entitled to such other payments as might arise from any other plan, contract, understanding or arrangement between Employee or Employer at the time of any such event.
SECTION 6.2 TERMINATION FOR CAUSE OR RESIGNATION. In the event Employee is terminated by Employer for Cause or Employee resigns (other than a Termination by Employee for Good Reason), neither Employer nor any affiliate shall have any further obligation to Employee under this Agreement, except for payment to Employee of any and all accrued Base Salary and Bonus, provision of COBRA health care continuation and otherwise as may be expressly required by law. No such termination of Employee's employment for Cause or upon Employee's resignation shall affect Employee's right to receive earn-out payments pursuant to the Merger Agreement.
SECTION 6.3 TERMINATION WITHOUT CAUSE; TERMINATION FOR GOOD REASON. Subject to other provisions in this Article 6 to the contrary, upon the occurrence of a termination without Cause by Employer or a Termination for Good Reason by Employee, Employer shall:
(a) Pay to Employee any and all accrued Base Salary, vacation and Bonus (and, for removal of doubt, any such Bonus for a fiscal quarter that has been completed at the time of Employee's termination of employment shall be deemed to be accrued for purposes of all sections of this Article 6, regardless of whether the amount of such Bonus has been determined or payment been made as of the date of termination of employment);
(b)(i) In the event such termination occurs at any time prior to the completion of three years following the Commencement Date, pay to Employee, or in the event of Employee's subsequent death, to Employee's surviving spouse, or if none, to Employee's estate, as severance pay, $750,000; or (ii) in the event such termination occurs at any time after the completion of three years following the Commencement Date, pay to Employee, or in the event of Employee's subsequent death, to Employee's surviving spouse, or if none, to Employee's estate, as severance pay, the monthly rate of Base Salary payable under this Agreement for a period of one year plus an amount equal to the aggregate quarterly Bonus payments paid to Employee during the four (4) calendar quarters prior to the Date of Termination;
(c) Cause any stock options issued to Employee which have not lapsed and which are not otherwise exercisable to be accelerated so as to immediately be exercisable by Employee, and if not otherwise provided in the applicable option grant, extend the exercise period with respect to such options to a date that is ninety (90) days following the Date of Termination;
(d)Pay the Employer's portion of the COBRA health insurance continuation premium in the same amount Employer contributed for Employee's health insurance as of the date of Employee's termination through the remaining period of months of the Initial Term or Succeeding Term but in no event fewer than six (6) months and thereafter provide COBRA health care continuation at Employee's cost (provided that the Employee makes the required premium contributions); provided, however, that Employer's obligation to contribute its portion of the COBRA insurance premium will cease immediately in the event Employee becomes employed following termination. Employee agrees to notify Employer immediately regarding such new employment; and
(e)Provide to Employee such other payments or benefits as may be expressly required by law.
SECTION 7.1 NOTICES. Any notices to be given hereunder by either party to the other shall be in writing and may be transmitted by personal delivery or by mail, first class, postage prepaid, or by electronic facsimile or email transmission (with verification of receipt). Mailed notices shall be addressed to the parties at their respective addresses set forth herein. Each party may change that address by written notice in accordance with this section. Notices delivered personally shall be deemed communicated as of the date of actual receipt. Mailed notices shall be deemed communicated as of one day after the date of mailing.
SECTION 7.2 GOVERNING LAW; JURISDICTION. This Agreement shall be governed by, construed and interpreted in accordance with the laws of the Commonwealth of Massachusetts, without regard to its principles of conflicts of laws. Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement or any of the transactions contemplated hereby, shall be brought against any of the parties in the courts of the Commonwealth of Massachusetts, and each of the parties irrevocably submits to the exclusive jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding, waives any objection to venue laid therein, agrees that all claims in respect of any action or proceeding shall be heard and determined only in any such court and agrees not to bring any action or proceeding arising out of or relating to this Agreement or any transaction contemplated hereby in any other court. Process in any action or proceeding referred to in the preceding sentence may be served on any party anywhere in the world.
SECTION 7.3 ATTORNEY'S FEES AND COSTS. If either party commences any action at law or in equity against the other to enforce the terms of this Agreement and prevails in such action, the losing party shall reimburse the prevailing party its reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such prevailing party may be entitled. This provision shall be construed as applicable to the entire contract.
SECTION 7.4 ENTIRE AGREEMENT. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the subject matter contained herein and contains all of the covenants and agreements between the parties with respect to that subject matter. Each party to this Agreement acknowledges that no representations, inducements, promises or agreements, orally or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein, and that no other agreement, statement or promise not contained in this Agreement shall be valid or binding on either party.
SECTION 7.5 MODIFICATION. Any modification of this Agreement will be effective only if it is in writing and signed by the Employee and properly authorized by Employer's Board of Directors and signed by an officer of Employer.
SECTION 7.6 EFFECT OF WAIVER. The failure of either party to insist on strict compliance with any of the terms, covenants or conditions of this Agreement by the other party shall not be deemed a waiver of that term, covenant or condition, nor shall any waiver or relinquishment of any right or power at any one time or times be deemed a waiver or relinquishment of that right or power for all or any other times.
SECTION 7.7 PARTIAL INVALIDITY. If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions shall nevertheless continue in full force without being impaired or invalidated in any way.
SECTION 7.8 ASSIGNMENT. The rights and obligations of the parties hereto shall inure to the benefit of, and shall be binding upon, the successors and assigns of each of them; provided, however, that the Employee shall not, during the continuance of this Agreement, assign this Agreement without the previous written consent of the Employer, and provided, further, that nothing contained in this Agreement shall restrict or limit the Employer in any manner whatsoever from assigning any or all of its rights, benefits or obligations under this Agreement to any successor corporation or entity or to any affiliate of the Employer without the necessity of obtaining the consent of the Employee. "Affiliate" as used throughout this Agreement means any person or entity which directly or indirectly controls, or is controlled by, or is under common control with, the Employer.
SECTION 7.9 SPECIFIC PERFORMANCE. If there is any violation of the Employee's obligations herein contained, the Employer, or any of its Affiliates, shall have the right to specific performance in addition to any other remedy which may be available at law or at equity.
SECTION 7.10 SURVIVAL OF SECTIONS. The provisions of Sections 2.3, 2.4, 2.5 and 2.6 shall continue in force so long as the Employee remains employed by the Employer or any Affiliate of the Employer, whether under this Agreement or not, and whether as a consultant or not, and shall survive any termination of employment under this Agreement for the periods specified therein. Notwithstanding the foregoing, the provision of Sections 2.5 shall survive for only three years following any termination of employment under this Agreement.
SECTION 7.11 INJUNCTIVE RELIEF/ACKNOWLEDGEMENT. Employee understands and acknowledges that the Employer's proprietary information, inventions and good will are of a special, unique, unusual, extraordinary character which gives them a peculiar value, the loss of which cannot be reasonably compensated by damages in an action at law. Employee understands and acknowledges that, in
addition to any and all other rights or remedies that the Employer may possess, Employer shall be entitled to injunctive and other equitable relief, without posting a bond, to prevent a breach or threatened breach of this Agreement (and/or any provision thereof) by Employee. In the event that a court of appropriate jurisdiction awards the Company injunctive or other equitable relief due to Employee's breach of the terms of this Agreement, Employee agrees that the time periods provided in Article 2.3 of this Agreement shall be tolled for the period during which Employee is in breach of the Agreement, and shall resume once Employee complies with such injunctive or other equitable relief.
IN WITNESS WHEREOF, the parties have executed this Agreement by their duly authorized officers as an instrument under seal at Norcross, Georgia on this __ day of ______, 2007.
EMPLOYER: EMPLOYEE:
BRIDGELINE SOFTWARE, INC.
By: _______________________________ _______________________________ Thomas L. Massie Erez M. Katz President & CEO Address: ______________________ Address: ______________________ _______________________________ _______________________________ |
Employee's Personal Intellectual Property
None.
EREZ KATZ, INCENTIVE BONUS COMPUTATION
1. ONE-HALF ($12,500) OF THE BONUS SHALL BE BASED UPON THE ACHIEVEMENT OF QUARTERLY GROSS PROFIT OBJECTIVES SET FORTH BELOW:
-------------------------- ----------------------------------------------------- QUARTER ENDING GROSS PROFIT OBJECTIVES FOR ATLANTA BUSINESS UNIT -------------------------- ----------------------------------------------------- MARCH 31, 2007 $560,000* -------------------------- ----------------------------------------------------- JUNE 30, 2007 $570,000* -------------------------- ----------------------------------------------------- SEPTEMBER 30, 2007 $580,000 -------------------------- ----------------------------------------------------- DECEMBER 31, 2007 $590,000 -------------------------- ----------------------------------------------------- |
2. ONE-HALF ($12,500) OF THE BONUS SHALL BE BASED UPON THE ACHIEVEMENT OF QUARTERLY OPERATING INCOME OBJECTIVES SET FORTH BELOW:
-------------------------- ----------------------------------------------------- QUARTER ENDING OPERATING INCOME OBJECTIVES FOR ATLANTA BUSINESS UNIT -------------------------- ----------------------------------------------------- MARCH 31, 2007 $250,000* -------------------------- ----------------------------------------------------- JUNE 30, 2007 $260,000* -------------------------- ----------------------------------------------------- SEPTEMBER 30, 2007 $270,000 -------------------------- ----------------------------------------------------- DECEMBER 31, 2007 $280,000 -------------------------- ----------------------------------------------------- |
* BONUS TO BE PAID IRRESPECTIVE OF WHETHER OBJECTIVES HAVE BEEN SATISFIED.
"GROSS PROFIT" SHALL BE CALCULATED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES CONSISTENTLY APPLIED ("GAAP").
"OPERATING INCOME" SHALL BE CALCULATED IN ACCORDANCE WITH GAAP, HAVING TAKEN INTO ACCOUNT DEDUCTIONS FOR CORPORATE, GENERAL, ADMINISTRATIVE AND MARKETING EXPENSES ALLOCATED TO THE ATLANTA BUSINESS UNIT ON THE SAME BASIS AS ALL OTHER OPERATING UNITS OF THE EMPLOYER; PROVIDED, HOWEVER, THAT SUCH EXPENSES CANNOT EXCEED TWELVE PERCENT (12%) OF THE ATLANTA BUSINESS UNIT'S GROSS REVENUES.
3. ALL BONUS PAYMENTS SHALL BE MADE ON OR BEFORE THE 45TH DAY AFTER THE END OF EACH FISCAL QUARTER DURING THE TERM OF THIS AGREEMENT.
SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This Second Amendment to Agreement and Plan of Merger ("First Amendment") is dated as of the 14th day of June, 2007 by and among Bridgeline Software, Inc., a Delaware corporation ("Bridgeline"), Objectware, Inc., a Georgia corporation (the "Seller"), and Erez M. Katz (the "Shareholder").
WHEREAS, Bridgeline, Seller and Shareholder entered into that certain Agreement and Plan of Merger dated as of December 7, 2006, as amended by that certain First Amendment to Agreement and Plan of Merger, dated as of March 29, 2007 (the "Merger Agreement") pursuant to which the parties agreed that Seller would merge with and into Bridgeline as provided therein;
WHEREAS, terms used herein and not otherwise defined shall have the meaning ascribed to such terms in the Merger Agreement; and
WHEREAS, the parties hereto desire to amend the Merger Agreement on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt, adequacy and sufficiency at which are hereby acknowledged, the parties hereby agree as follows:
1. The Merger Agreement is hereby amended in the following respects:
(a) The "Target Amount" (as defined in the first line of Section 1.2(b)), is hereby changed from "$750,000" to "$650,000."
(b) Section 10.3(a) is deleted in its entirety and replaced with the following:
"(a) All fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such fees and expenses, whether or not the Merger is consummated; provided, however, that if the Merger is consummated, Bridgeline shall pay up to an aggregate of $350,000 for the expenses of financial and/or mergers and acquisition advisors to the Seller, reasonable legal expenses of counsel to the Seller and accounting expenses incurred in connection with the Merger including the accounting fees for the audit of Seller's fiscal years ending September 30, 2004, September 30, 2005 and September 30, 2006, it being acknowledged and agreed to by the parties that the Shareholder shall be personally responsible for any such expenses of Seller exceeding this limit."
(c) Section 10.3(b)(ix) is deleted in its entirety and replaced with the following:
"(ix) by Seller, at any time following July 15, 2007."
(d) Section 10.3(c)(vii) is deleted in its entirety and replaced with the following:
"(vii) by Bridgeline, at any time following July 15, 2007."
2. Except as amended hereby, the Merger Agreement remains in full force and effect.
3. This Second Amendment may be executed in multiple counterparts, each of which shall be deemed an original and all of which taken together shall constitute one and the same agreement.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment as of the day and year first above written.
BRIDGELINE:
Bridgeline Software, Inc.
By: /s/Gary Cebula ---------------------------------------- Name: Gary Cebula Title: Treasurer and Secretary |
SELLER:
Objectware, Inc.
By: /s/ Erez M. Katz ---------------------------------------- Name: Erez M. Katz Title: President and Chief Executive Officer |
SHAREHOLDER:
By: /s/Erez M. Katz ---------------------------------------- Erez M. Katz |
AMENDMENT NO. 2
TO
SECURED PROMISSORY NOTE
OF
BRIDGELINE SOFTWARE, INC.
This agreement (the "AGREEMENT") is made by and between Bridgeline Software, Inc., a Delaware corporation (the "COMPANY") and the holders of certain secured promissory notes (as defined below) of the Company, and modifies the terms of such notes in exchange for certain retroactive application of the interest rate under such notes as set forth below.
W I T N E S S E T H :
WHEREAS, the Company has issued $2,800,000 of secured promissory notes in its April 2006 private financing (such secured promissory notes are collectively hereby referred to as the "NOTES"); and,
WHEREAS, as amended by that certain Amendment No. 1 to Secured Promissory Note of Bridgeline Software, Inc., dated March 29, 2007, the Notes issued in the April 2006 private financing will mature on June 21, 2007; and,
WHEREAS, each of the holders of the Notes have executed a Noteholder Agency Agreement (the "AGENCY AGREEMENT") with Joseph Gunnar & Co., LLC ("JGUN" or the "NOTEHOLDER AGENT"), wherein JGUN has been authorized by the Note holders to act in the place of such Note holders with respect to the Notes, including the exercise of all rights thereunder and the modification thereof; and,
WHEREAS, the Company and the Noteholder Agent have agreed to further extend the Maturity Date (as defined in the Notes) of the Notes and to defer the payment of interest on such Notes as set forth below; and,
NOW, THEREFORE, in consideration of and for the mutual promises and covenants contained herein, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company and the Noteholder Agent mutually agree and intend to be legally bound to the terms of this Agreement as follows:
1. EXTENSION OF MATURITY DATE; NO PENALTY FOR EXTENSION. The Maturity
Date (as defined in each of the Notes) is hereby extended to the earlier of July
5, 2007 or the date the Company closes a firm underwritten initial public
offering ("IPO") of its common stock, par value $0.001 per share (the "EXTENDED
MATURITY DATE"). The parties hereto further agree that the provisions of Section
5.C. of the Notes otherwise effective at the Maturity Date, shall, instead refer
to and be effective upon the Extended Maturity Date.
2. INTEREST RATE ADJUSTMENTS. The rate of interest on the Notes shall be as follows: (a) prior to the original Maturity Date of the Notes, the interest rate shall not be adjusted and shall remain as set forth in the Notes and all subsequent interest payments shall be deferred until
the Extended Maturity Date; and (b) during the period of time between June 21, 2007 and the Extended Maturity Date, the Notes shall bear interest at the rate of 18% per annum and all subsequent interest payments due and payable under the Notes shall be deferred at the same interest rate until the Extended Maturity Date (the "INCREASED INTEREST RATE"). In the event the Note is not repaid on the Extended Maturity Date in accordance with its terms and the terms set forth hereunder, the Notes will bear interest at the rate of 18% per annum, subject to the terms and provisions of the Notes. All interest on the Principal outstanding from and after January 1, 2007 (the date of the last scheduled quarterly interest payment time), including payment of 25% of the Principal, shall be accrued and payable on the Extended Maturity Date.
3. All other provisions of the Notes not amended or modified herein shall continue to have their full force and effect.
4. This Agreement may not be amended except in a written agreement executed by the Company and by the Note holders (or by the Noteholder Agent pursuant to the Agency Agreement).
5. This Agreement shall be construed and interpreted in accordance with the internal laws of the State of New York without giving effect to the conflict of laws principles thereof.
6. This Agreement may be executed in counterparts, which when so executed shall constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of June 20, 2007.
BRIDGELINE SOFTWARE, INC.
By: /s/ Gary Cebula -------------------------- Gary Cebula, Treasurer & Secretary |
JOSEPH GUNNAR & CO., LLC ON BEHALF OF THE NOTE HOLDERS
By: /s/ Stephan A. Stein -------------------------- Stephan A. Stein, Chief Operating Officer |
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Registration Statement on Form SB-2 (Commission File No. 333-139298) of our report dated February 5, 2007, except for the fifth paragraph of Note 11 to which the date is June 20, 2007, relating to the consolidated financial statements of Bridgeline Software, Inc. (which report includes an explanatory paragraph regarding substantial doubt about the ability of Bridgeline Software, Inc. to continue as a going concern), our report dated February 5, 2007, relating to the financial statements of Objectware, Inc. and our report dated December 11, 2006, relating to the financial statements of New Tilt, Inc., all appearing in the Prospectus which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such Prospectus.
/s/ UHY LLP ----------------------------------- Boston, Massachusetts June 20, 2007 |