Bridgeline Digital, Inc. (Form: 10-Q, Received: 05/15/2014 17:12:42)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2014

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

For the transition period from ______________ to ______________

Commission File Number 333-139298

Bridgeline Digital, Inc.

(Exact name of registrant as specified in its charter)

Delaware	52-2263942
State or other jurisdiction of incorporation or organization	IRS Employer Identification No.

80 Blanchard Road
Burlington, Massachusetts	01803
(Address of Principal Executive Offices)	(Zip Code)

(781) 376-5555

(Registrant’s telephone number, including area code)

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

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

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

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

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

(Do not check if a smaller reporting company)

Smaller reporting company ☒

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

The number of shares of Common Stock par value $0.001 per share, outstanding as of May 12, 2014 was 21,829,176.

Bridgeline Digital, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period ended March, 2014

Index

		Page
Part I	Financial Information

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of March 31, 2014 (unaudited) and September 30, 2013	4

	Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended March 31, 2014 and 2013	5

	Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the three and six months ended March 31, 2014 and 2013	6

	Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended March 31, 2014 and 2013	7

	Notes to Interim Condensed Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Qualitative and Quantitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	32

Part II	Other Information

Item 1.	Legal Proceedings	33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

Item 6.	Exhibits	34


Signatures		35

Bridgeline Digital, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period ended March 31, 2014

Statements contained in this Report on Form 10-Q that are not based on historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of forward-looking terminology such as “should,” “could,” “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intends,” “continue,” or similar terms or variations of those terms or the negative of those terms. These statements appear in a number of places in this Form 10-Q and include statements regarding the intent, belief or current expectations of Bridgeline Digital, Inc. Forward-looking statements are merely our current predictions of future events. Investors are cautioned that any such forward-looking statements are inherently uncertain, are not guaranties of future performance and involve risks and uncertainties. Actual results may differ materially from our predictions. Important factors that could cause actual results to differ from our predictions include the impact of the weakness in the U.S. and international economies on our business, our inability to manage our future growth effectively or profitably, fluctuations in our revenue and quarterly results, our license renewal rate, the impact of competition and our ability to maintain margins or market share, the limited market for our common stock, the volatility of the market price of our common stock, the performance of our products, our ability to respond to rapidly evolving technology and customer requirements, our ability to protect our proprietary technology, the security of our software, our dependence on our management team and key personnel, our ability to hire and retain future key personnel, or our ability to maintain an effective system of internal controls. Although we have sought to identify the most significant risks to our business, we cannot predict whether, or to what extent, any of such risks may be realized, nor is there any assurance that we have identified all possible issues which we might face. We assume no obligation to update our forward-looking statements to reflect new information or developments. We urge readers to review carefully the risk factors described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2013 as well as in the other documents that we file with the Securities and Exchange Commission. You can read these documents at www.sec.gov.

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

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements.

BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per share data)

(unaudited)

ASSETS	March 31,			September 30,
	2014			2013
Current assets:
Cash and cash equivalents	$	3,455		$	2,830
Accounts receivable and unbilled receivables, net		3,438			3,194
Prepaid expenses and other current assets		846			963
Total current assets		7,739			6,987
Equipment and improvements, net		2,752			3,065
Intangible assets, net		1,887			1,517
Goodwill		23,141			23,777
Other assets		1,526			1,631
Total assets	$	37,045		$	36,977

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	1,500		$	1,746
Accrued liabilities		1,086			1,093
Accrued earnouts, current		668			561
Debt, current		12			1,165
Capital lease obligations, current		376			397
Deferred revenue		2,386			1,960
Total current liabilities		6,028			6,922

Accrued earnouts, net of current portion		554			950
Debt, net of current portion		6,194			4,725
Capital lease obligations, net of current portion		436			544
Other long term liabilities		1,092			1,088
Total liabilities	$	14,304		$	14,229

Commitments and contingencies

Stockholders’ equity:
Preferred stock - $0.001 par value; 1,000,000 shares authorized; none issued and outstanding		-			-
Common stock -$0.001 par value; 30,000,000 shares authorized; 21,825,510 at March 31, 2014 and 18,313,765 at September 30, 2013 shares issued and outstanding		22			18
Additional paid-in capital		47,411			44,206
Accumulated deficit		(24,405	)		(21,314	)
Accumulated other comprehensive loss		(287	)		(162	)
Total stockholders’ equity		22,741			22,748
Total liabilities and stockholders’ equity	$	37,045		$	36,977

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

BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except share and per share data)

(Unaudited)

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2014			2013			2014			2013
Revenue:
Digital engagement services	$	3,610		$	4,489		$	8,159		$	9,339
Subscription and perpetual licenses		1,307			1,024			2,884			1,811
Managed service hosting		385			491			772			1,047
Total revenue		5,302			6,004			11,815			12,197
Cost of revenue:
Digital engagement services		2,669			2,494			5,172			5,248
Subscription and perpetual licenses		452			247			849			415
Managed service hosting		68			76			152			148
Total cost of revenue		3,189			2,817			6,173			5,811
Gross profit		2,113			3,187			5,642			6,386
Operating expenses:
Sales and marketing		1,928			2,164			4,038			3,998
General and administrative		1,167			946			2,198			2,300
Research and development		579			247			1,102			379
Depreciation and amortization		551			390			1,005			814
Total operating expenses		4,225			3,747			8,343			7,491
Loss from operations		(2,112	)		(560	)		(2,701	)		(1,105	)
Interest expense, net		(167	)		(59	)		(334	)		(135	)
Loss before income taxes		(2,279	)		(619	)		(3,035	)		(1,240	)
Provision for income taxes		35			68			56			89
Net loss	$	(2,314	)	$	(687	)	$	(3,091	)	$	(1,329	)

Net loss per share:
Basic and diluted	$	(0.13	)	$	(0.05	)	$	(0.17	)	$	(0.09	)
Number of weighted average shares outstanding:
Basic and diluted		17,794,609			14,878,361			17,894,425			14,830,488

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

BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Dollars in thousands)

(Unaudited)

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2014			2013			2014			2013
Net Loss	$	(2,314	)	$	(687	)	$	(3,091	)	$	(1,329	)

Other comprehensive gain (loss): Net change in foreign currency translation adjustment		(93	)		12			(125	)		51
Comprehensive loss	$	(2,407	)	$	(675	)	$	(3,216	)	$	(1,278	)

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

BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	Six Months Ended
	March 31,
	2014			2013
Cash flows from operating activities:
Net loss	$	(3,091	)	$	(1,329	)
Adjustments to reconcile net loss to net cash (used in)/provided by operating activities:
Amortization of intangible assets		341			274
Depreciation		647			540
Other amortization		272			79
Stock-based compensation		167			279
Contingent earnout liability adjustment		-			(312	)
Changes in operating assets and liabilities:
Accounts receivable and unbilled receivables		(251	)		199
Prepaid expenses and other assets		446			(116	)
Accounts payable and accrued liabilities		(621	)		(410	)
Deferred revenue		426			1,828
Other liabilities		5			(52	)
Total adjustments		1,432			2,309
Net cash (used in)/provided by operating activities		(1,659	)		980
Cash flows from investing activities:
Equipment and improvements		(224	)		(239	)
Software development capitalization costs/other intangibles		(106	)		(670	)
Contingent acquisition payments		(284	)		(237	)
Net cash used in investing activities		(614	)		(1,146	)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs		2,753			-
Proceeds from issuance of convertible debt, net of issuance costs		913			-
Proceeds from exercise of employee stock options		185			67
Proceeds from employee stock purchase plan		13			46
Borrowings from bank line of credit		746			725
Payments on bank line of credit		(1,026	)		(610	)
Payments on bank term loan		(273	)		(183	)
Payments on subordinated promissory notes		(71	)		(112	)
Principal payments on capital leases		(217	)		(145	)
Net cash provided by/(used in) financing activities		3,023			(212	)
Effect of exchange rate changes on cash and cash equivalents		(125	)		51
Net increase/(decrease) in cash and cash equivalents		625			(327	)
Cash and cash equivalents at beginning of period		2,830			2,126
Cash and cash equivalents at end of period	$	3,455		$	1,799
Supplemental disclosures of cash flow information:
Cash paid for:
Interest	$	104		$	135
Income taxes	$	44		$	13
Non cash activities:
Equipment purchased under capital leases	$	89		$	123
Equipment and other assets included in accounts payable	$	22		$	-
Accrued contingent consideration (earnouts)	$	-		$	83

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

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

1. Description of Business

Overview

Bridgeline Digital, The Digital Engagement Company™, enables its customers to maximize the performance of their mission critical websites, intranets, and online stores. Bridgeline’s iAPPS® platform deeply integrates Web Content Management, eCommerce, eMarketing, Social Media management, and Web Analytics to help marketers deliver online experiences that attract, engage and convert their customers across all digital channels. Bridgeline’s iAPPS platform combined with its digital services assists customers in maximizing on-line revenue, improving customer service and loyalty, enhancing employee knowledge, and reducing operational costs.

In fiscal 2012, Bridgeline Digital announced the release of a new product, iAPPSds (“distributed subscription”), a platform that empowers franchise and large dealer networks with state-of-the-art web engagement management while providing superior oversight of corporate branding. iAPPSds deeply integrates content management, eCommerce, eMarketing and web analytics and is a self-service web platform that is offered to each authorized franchise or dealer for a monthly subscription fee. On August 1, 2013, we acquired franchise web developer ElementsLocal, expanding Bridgeline Digital’s presence in the franchise market place.

The iAPPS platform is delivered through a cloud-based SaaS (“Software as a Service”) multi-tenant business model, whose flexible architecture provides customers with state of the art deployment providing maintenance, daily technical operation and support; or via a traditional perpetual licensing business model, in which the iAPPS software resides on a dedicated server in either the customer’s facility or Bridgeline’s co-managed hosting facility.

iAPPS Content Manager and iAPPS Commerce were selected as finalists for the 2014, 2013, and 2012 CODiE Awards for Best Content Management Solution and Best Electronic Commerce Solution, globally. In 2014, Bridgeline Digital won ten Horizon Interactive Awards for outstanding development of web applications and websites and won fifteen Horizon Interactive Awards in 2013. Also in 2013 , the Web Marketing Association sponsored Internet Advertising Competition honored Bridgeline Digital with three awards for iAPPS customer websites and B2B Magazine selected Bridgeline Digital as one of the Top Interactive Technology companies in the United States . In 2013, KMWorld Magazine Editors selected Bridgeline Digital as one of the 100 Companies That Matter in Knowledge Management and also selected iAPPS as a Trend Setting Product in 2013 .

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

Locations

The Company’s corporate office is located in Burlington, Massachusetts. The Company maintains regional field offices serving the following geographical locations: Atlanta, GA; Baltimore, MD; Boston, MA; Chicago, IL; Dallas, TX; Denver, CO; New York, NY; San Diego, CA; San Luis Obispo, CA; and Tampa, FL. The Company has one wholly-owned subsidiary, Bridgeline Digital Pvt. Ltd. located in Bangalore, India.

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

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

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

Unaudited Interim Financial Information

The accompanying interim Condensed Consolidated Balance Sheet as of March 31, 2014 and September 30, 2013, and the interim Condensed Consolidated Statements of Operations, Comprehensive Loss, and Cash Flows for the three and six months ended March 31, 2014 and 2013 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and with the instructions to Form 10-Q and Regulation S-X, and in the opinion of the Company’s management have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended September 30, 2013. These interim condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments and accruals, necessary for the fair presentation of the Company’s financial position at March 31, 2014 and September 30, 2013 and the results of its operations and cash flows for the three and six months ended March 31, 2014 and 2013, respectively. The results for the six months ended March 31, 2014 are not necessarily indicative of the results to be expected for the year ending September 30, 2014. The accompanying September 30, 2013 Condensed Consolidated Balance Sheet has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by US GAAP for complete financial statements.

Subsequent Events

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

Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board issued Accounting Standards Update No. 2013-11: “Income Taxes (Topic 740): Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”. This guidance requires an unrecognized tax benefit related to a net operating loss carryforward, a similar tax loss or a tax credit carryforward to be presented as a reduction to a deferred tax asset, unless the tax benefit is not available at the reporting date to settle any additional income taxes under the tax law of the applicable tax jurisdiction. The guidance is effective for the fiscal years and interim periods beginning after December 15, 2013 with early adoption permitted. Management is in the process of evaluating the effects of this guidance but does not believe it will have a significant impact on our condensed consolidated financial statements.

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

3. Accounts Receivable and Unbilled Receivables

Accounts receivable and unbilled receivables consists of the following:

	As of			As of
	March 31, 2014			September 30, 2013
Accounts receivable	$	3,290		$	3,188
Unbilled receivables		244			111
Subtotal		3,534			3,299
Allowance for doubtful accounts		(96	)		(105	)
Accounts receivable and unbilled receivables, net	$	3,438		$	3,194

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

4. Intangible Assets

Changes in the carrying amount of intangible assets are as follows:

	As of		As of
	March 31, 2014		September 30, 2013
Domain and trade names	$	17	$	34
Customer related		1,547		1,182
Non-compete agreements		323		301
Balance at end of period	$	1,887	$	1,517

Total amortization expense related to intangible assets was $216 and $118 for the three months ended March 31, 2014 and 2013 and $341 and $274 for the six months ended March 31, 2014 and 2013, respectively. Amortization expenses are reflected in operating expenses on the Condensed Consolidated Statements of Operations.

5 . Goodwill

Changes in the carrying amount of goodwill are as follows:

	As of			As of
	March 31, 2014			September 30, 2013
Balance at beginning of period	$	23,777		$	21,545
Acquisitions		-			1,897
Contingent acquisition payments		-			83
Purchase price allocation adjustments		(636	)		252
Balance at end of period	$	23,141		$	23,777

6. Debt

Debt consists of the following:

	As of			As of
	March 31, 2014			September 30, 2013
Line of credit borrowings	$	3,223		$	3,504
Bank term loan		-			272
Subordinated convertible debt		3,000			2,000
Subordinated promissory notes		44			114
Other (debt warrants)		(61	)		-
Total debt	$	6,206		$	5,890
Less current portion	$	12		$	1,165
Long term debt, net of current portion	$	6,194		$	4,725

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

Line of Credit

In December 2013, the Company entered into a Loan and Security Agreement with BridgeBank (the “BridgeBank Loan Agreement”). The Loan Agreement has a 27 month term which expires on March 31, 2016. The Loan Agreement provides for up to $5 million of revolving credit advances which may be used for acquisitions and working capital purposes. Borrowings are limited to the lesser of (i) $5 million and (ii) 80% of eligible receivables as defined. The Company can borrow up to $1.0 million in out of formula borrowings for specified periods of time. Borrowings bear interest at BridgeBank’s prime plus 1.00%. The Company pays an annual commitment fee of 0.25%. Borrowings are secured by all of the Company’s assets and all of the Company’s intellectual property. The Company is also required to comply with certain financial covenants. The BridgeBank Loan Agreement replaced the Company’s prior credit facility with Silicon Valley Bank (“SVB”), which expired on December 31, 2013. As of March 31, 2014, the Company had an outstanding balance under the BridgeBank Loan Agreement of $3.2 million. There were no funds available for borrowing at March 31, 2014.

The Company had an Amended and Restated Loan and Security Agreement with SVB (the “Loan Agreement”). The Loan Agreement had a two year term which expired on March 31, 2012. The Loan Agreement provided for up to $5.0 million of revolving credit advances, of which $3.0 million may be used for acquisitions and up to $5.0 million may be used for working capital purposes. Borrowings were limited to the lesser of (i) $5.0 million and (ii) 80% of eligible receivables as defined. In the event that the borrowing base formula resulted in less than $5.0 million in available borrowing, the Company could have borrowed up to $2.0 million in out of formula borrowings (provided such amount does not exceed $5.0 million) for specified periods of time. Borrowings bore interest at SVB’s prime plus 1.00% or 1.25%, depending on the level of the adjusted EBITDA, as defined. The Company paid an annual commitment fee of 0.50% and an unused fee of 0.25%. Borrowings were secured by all of the Company’s assets and all of the Company’s intellectual property. The Company was also required to comply with certain financial and performance covenants.

In May 2011, the Company amended its loan arrangement (the “Amendment”) with SVB Under the terms of the existing agreement with SVB, the Company’s line of credit was limited to the lesser of (i) $5 million and (ii) 80% of eligible receivables as defined, and up to $2.0 million could be borrowed in out of formula borrowings for specified periods of time (provided the total amount outstanding does not exceed $5.0 million).

The Amendment: (i) extended the maturity date of the line of credit for one year to March 31, 2012; (ii) revised certain financial covenants; and (iii) amended the out of formula borrowings to be structured as a $2 million term loan and interest on the term loan will be at SVB’s prime rate plus 1.75%. Interest on the term loan was paid until April 1, 2012 and on and after April 2, 2012, principal and interest on the term loan was being paid over 36 months ending on April 1, 2015. In May 2012, we amended our loan agreement (the “2012 Amendment”) with SVB, extending the maturity date of the line of credit for one year to March 31, 2014. The 2012 Amendment also revised a financial covenant, increasing our minimum liquidity requirement. Minimum liquidity is defined as funds held with SVB plus borrowing availability on our line of credit.

In February 2013, the Company amended its loan agreement (the “February 2013 Amendment”) with SVB, extending the maturity date of the line of credit for one year to March 31, 2015. The 2013 Amendment also revised certain financial covenants. The Company would not have been in compliance with one of its covenants for the three months ended December 31, 2012 if the amendment was not completed. In July 2013, the Company amended its loan arrangement (the “July 2013 Amendment”) with SVB. The July 2013 Amendment increased the borrowing availability on accounts receivable, revised certain financial covenants, and increased the interest rate on the line of credit from prime plus 1.25% to prime plus 2.25% and increased the interest rate on the term loan from prime plus 1.75% to prime plus 2.75%In addition, the repayment schedule for the term loan was accelerated to end in April 2014. There was $611 remaining on the term loan as of June 30, 2013. The July 2013 Amendment also included a waiver by SVB of certain financial covenant defaults. The Company would not have been in compliance with certain of its financial covenants as of June 30, 2013 if the July 2013 Amendment had not been completed and the waiver had not been granted. In November 2013, the Company amended its loan agreement (“the November 2013 Amendment”) with SVB. The November 2013 Amendment accelerated the maturity date of the line of credit to December 31, 2013 at which time this line was replaced with the BridgeBank Loan Agreement and the term loan was paid in full.

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

Subordinated Convertible Debt

On September 30, 2013, Bridgeline Digital entered into a Note Purchase Agreement (the "Purchase Agreement") with accredited investors pursuant to which Bridgeline Digital sold an aggregate of $2.0 million of 10% secured subordinated convertible notes (the "Notes"). The gross proceeds to Bridgeline Digital at the closing of this private placement were $2.0 million. The Notes accrue interest at a rate of ten percent (10%) per annum and mature on September 30, 2016. Interest on the Notes is payable quarterly in cash. The Notes are convertible at the election of the holder into shares of common stock of Bridgeline Digital at a conversion price equal to $1.30 per share at any time prior to the maturity date, provided that no holder may convert the Notes if such conversion would result in the holder beneficially owning more than 4.99% of the number of shares of Bridgeline Digital common stock outstanding at the time of conversion.

On November 6, 2013, Bridgeline Digital entered into an amendment (the "Amendment") to the Purchase Agreement by and among Bridgeline Digital and the accredited investors’ party thereto. The Amendment increased the aggregate amount of 10% secured subordinated convertible notes (the "New Notes") able to be sold by Bridgeline Digital to $3.0 million. On November 6, 2013, Bridgeline Digital sold an additional $1.0 million of New Notes (the "Second Closing"). The gross proceeds to Bridgeline Digital at the Second Closing of this private placement were $1.0 million. The Notes accrue interest at a rate of ten percent (10%) per annum and mature on November 6, 2016. Interest on the Notes is payable quarterly in cash. The Notes are convertible at the election of the holder into shares of common stock of Bridgeline Digital at a conversion price equal to $1.30 per share at any time prior to the maturity date, provided that no holder may convert the Notes if such conversion would result in the holder beneficially owning more than 4.99% of the number of shares of Bridgeline Digital common stock outstanding at the time of conversion.

The Notes are secured by all of Bridgeline Digital's assets. The security interest granted to the holders of the Notes is subordinate to the security interest held by Bridgeline Digital's senior lender, BridgeBank. Bridgeline Digital may prepay any portion of the principal amount of the outstanding Notes at any time, provided that if Bridgeline Digital prepays any principal on or before September 30, 2014, Bridgeline Digital will pay a penalty equal to 10% of the principal amount being prepaid. Under certain circumstances Bridgeline Digital has the right to force conversion of the Notes into shares of Bridgeline Digital common stock in the event the Bridgeline Digital common stock trades in excess of $2.60 per share for 20 trading days out of any 30 trading day period.

The Notes contain customary events of default. Upon the occurrence of any event of default the interest rate under the Notes will increase. In addition, upon the occurrence of a payment default under the Notes, Bridgeline Digital must pay a premium equal to 20% of the outstanding principal amount of the Notes. In the event of a change in control of Bridgeline Digital while the Notes are outstanding, Bridgeline Digital will provide the holders of the Notes with the opportunity to convert the Notes immediately prior to the change in control. In the event the holders of the Notes do not elect to convert the Notes, Bridgeline Digital may prepay all outstanding principal and accrued interest under the Notes.

The placement agent for both transactions was Taglich Brothers, Inc. As compensation for the initial transaction on September 30 2013, Bridgeline Digital paid a fee of $160 and issued to Taglich Brothers, Inc., or its designees, five-year warrants to purchase an aggregate of 153,846 shares of common stock at an exercise price equal to $1.30 per share. The warrants are first exercisable on March 30, 2014, and provide the holders piggyback registration rights with respect to the shares of common stock underlying the warrants and contain a cashless exercise provision. As compensation for the Second Closing, Bridgeline Digital paid Taglich Brothers, Inc. a fee of $80 and issued to Taglich Brothers, Inc., or its designees, five-year warrants to purchase an aggregate of 76,923 shares of common stock at an exercise price equal to $1.30 per share. The warrants are first exercisable on May 6, 2014, provide the holders piggyback registration rights with respect to the shares of common stock underlying the warrants and contain a cashless exercise provision. Fair market value of the warrants are $61 and is included in current and non-current debt with the offsetting amount recorded to additional paid in capital in the Condensed Consolidated Balance Sheet. The fair market value of the warrants will be amortized on a straight-line basis over the estimated life of two years.

The shares of common stock issuable upon conversion of the Notes and upon exercise of the warrants are restricted securities and may be sold only pursuant to Rule 144 or in another transaction exempt from the registration requirements under the Securities Act of 1933. Pursuant to the terms of the Purchase Agreement, Bridgeline Digital has agreed to provide piggyback registration rights with respect to the shares of common stock issuable upon conversion of the Notes in the event Bridgeline Digital files a registration statement, with certain limited exceptions.

Subordinated Promissory Note

In May 2010, in connection with the acquisition of TMX, the Company issued a $500 subordinated promissory note (“the Note”) payable to TMX. The Note is subordinated to the Company’s primary lender and is payable in twelve quarterly installments of $42, plus interest at 1%, with the first payment due on January 15, 2011. The Note may be paid in whole or in part at any time without discount, premium, or penalty.

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

In May 2012, the Company assumed two Promissory Notes in connection with the acquisition of MarketNet, Inc. The first Promissory Note in the amount of $63 is payable in eight equal installments of $8, including interest accrued at 5%, and matures in May 2014. The first installment was paid in July 2012. The second Promissory Note in the amount of $80 is payable in twelve equal installments of $7, including interest accrued at 5%, and matures in May 2015. The first installment was paid in July 2012.

7. Fair Value Measurement and Fair Value of Financial Instruments

The Company follows ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”) for fair value measurements. ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The standard provides a consistent definition of fair value, which focuses on an exit price, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard also prioritizes, within the measurement of fair value, the use of market-based information over entity specific information and establishes a three-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date.

The hierarchy established under ASC 820 gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

Level 1 –Quoted prices in active markets for identical assets or liabilities;

Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s other financial instruments consist principally of accounts receivable, accounts payable, and debt. The company believes the recorded values for accounts receivable and accounts payable approximate current fair values as of March 31, 2014 and September 30, 2013 because of their nature and durations. The carrying value of debt instruments also approximate fair value as of March 31, 2014 and September 30, 2013 based on acceptable valuation methodologies which use market data of similarly sized and situated debt issues.

Assets and liabilities of the Company measured at fair values on a recurring basis as of March 31, 2014 and September 30, 2013 are as follows:

	March 31, 2014

	Level 1		Level 2		Level 3		Total
Financial Liabilities:
Contingent consideration related to acquisitions					$	1,222	$	1,222
Total Liabilities	$	-	$	-	$	1,222	$	1,222

	September 30, 2013

	Level 1		Level 2		Level 3		Total
Financial Liabilities:
Contingent consideration related to acquisitions					$	1,511	$	1,511
Total Liabilities	$	-	$	-	$	1,511	$	1,511

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

The Company determines the fair value of acquisition-related contingent consideration based on assessment of the probability that the Company would be required to make such future payments. Changes to the fair value of contingent consideration are recorded in general and administrative expenses. The following table provides a rollforward of the fair value, as determined by Level 3 inputs, of the contingent consideration.

	Contingent Consideration As of 3/31/2014

Balance at September 30, 2013	$	1,511
Payments		(284	)
Adjustments included in net earnings		(5	)
Balance at March 31, 2014	$	1,222

8 . Other Long Term Liabilities

Deferred Rent

In connection with leases for the Company’s headquarters in Burlington, Massachusetts and New York, the Company made investments in leasehold improvements at these locations of approximately $1.4 million, of which the respective landlords funded approximately $857. The capitalized leasehold improvements are being amortized over the life of each lease. The improvements funded by the landlords are treated as lease incentives. Accordingly, the funding received from the landlords was recorded as fixed asset additions and a deferred rent liability on the Condensed Consolidated Balance Sheet. As of March 31, 2014, $130 was reflected in Accrued Liabilities and $812 is reflected in Other Long Term Liabilities. The deferred rent liability is being amortized as a reduction of rent expense over the lives of the leases.

9. Shareholders’ Equity

Common Stock

In March 2014, the Company sold 3 ,200,000 shares of common stock at $0.95 per share for gross proceeds of $3 million in a private placement. Net proceeds to the Company after offering expenses were approximately $2.7 million. In addition, the Company issued the placement agent five year warrants to purchase an aggregate of 320,000 shares of Bridgeline’s common stock at a price equal to $1. 05 per share. There are no plans to register the common stock issued in this offering, however in the event the Company does register other Common stock, the Company agreed to provide piggyback registration rights with respect to the shares of common stock sold in the offering and underlying the warrants.

In January 2014, the Company issued 56,897 shares of common stock at $1.16 per share to four members of its Board of Directors in lieu of cash payments for their services as board members. The shares vest in equal installments on a monthly basis through the end of the service period of September 30, 2014. The aggregate fair value of the shares is $66 and will be expensed over the service period. A total of $19 was recorded as expense in the three months ended March 31, 2014.

In connection with the acquisition of ElementsLocal on August 1, 2013, the Company issued 526,438 shares to the sellers of ElementsLocal. In addition, contingent consideration not to exceed 338,461 shares of Bridgeline Digital common stock is contingently issuable to the sellers of ElementsLocal. The contingent consideration is payable quarterly over the 12 consecutive calendar quarters following the acquisition, contingent upon the acquired business achieving certain revenue targets. As of March 31, 2014, the stockholders of ElementsLocal earned 56,410 shares of common stock .

On June 19, 2013, the Company sold 2,300,000 shares of common stock at $1.00 per share for gross proceeds of $2.3 million in a private placement. Net proceeds to the Company after offering expenses were approximately $2.1 million. In addition, the Company issued the investors and placement agent and its affiliates five year warrants to purchase an aggregate of 460,000 and 230,000 shares, respectively, of Bridgeline’s common stock at a price equal to $1.25 per share. There are no plans to register the common stock issued in this offering, however in the event the Company does register other Common stock, the Company agreed to provide piggyback registration rights with respect to the shares of common stock sold in the offering and underlying the warrants.

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

In connection with the acquisition of MarketNet on May 31, 2012, contingent consideration of 204,331 shares of Bridgeline Digital common stock is contingently issuable to the sole stockholder of MarketNet. The contingent consideration is payable quarterly over the 12 consecutive calendar quarters following the acquisition, contingent upon the acquired business achieving certain operating and revenue targets. The common stock has been issued and is being held in escrow pending satisfaction of the applicable earnout targets. As of March 31, 2014, the sole stockholder of MarketNet earned 102,168 shares of common stock, with 17,028 shares issued during the three months ended March 31, 2014. In addition, MarketNet is also eligible to earn additional equity consideration of 200,000 shares of Bridgeline Digital common stock if a certain annual revenue threshold is met in any fiscal year during the next three years.

In connection with the acquisition of Magnetic Corporation on October 3, 2011, contingent consideration of 166,666 shares of Bridgeline Digital common stock is contingently issuable to the sole stockholder of Magnetic. The contingent consideration is payable quarterly over the 12 consecutive calendar quarters following the acquisition, contingent upon the acquired business achieving certain operating and revenue targets. The common stock has been issued and is being held in escrow pending satisfaction of the applicable earnout targets. As of March 31, 2014, the sole stockholder of Magnetic earned 138,882 shares of common stock, with 13,888 shares issued during the three months ended March 31, 2014.

In order to increase employee retention and employee morale, in October 2011, the Company offered its employees the opportunity to have certain outstanding options modified by (i) reducing the grant exercise price to $0.67, the fair market value of the common stock as of the modification date and (ii) starting a new three year vesting schedule. The aggregate fair value of the modified options of approximately $90 was calculated using the difference in value between the original terms and the new terms as of the modification date. The incremental cost of the modified option over the original option will be recognized as additional compensation expense over the new three year vesting period beginning on the date of modification. This opportunity was generally limited to options issued subsequent to the October 2008 repricing described in Note 11 to the Company’s Annual Report on Form 10-K for fiscal 2011. Options to purchase a total of 697,667 shares of common stock were exchanged for new grants in the October 28, 2011 repricing.

The Company has granted common stock, common stock warrants, and common stock option awards (the “Equity Awards”) to employees, consultants, advisors and debt holders of the Company and to former owners and employees of acquired companies that have become employees of the Company. At March 31, 2014, the Company maintained one stock option plan and one employee stock purchase plan.

Amended and Restated Stock Incentive Plan

Effective April 2013, the Company’s Amended and Restated Stock Incentive Plan (the “Plan”) provides for the issuance of up 3,900,000 million shares of common stock. The Plan authorizes the award of incentive stock options, non-statutory stock options, restricted stock, unrestricted stock, performance shares, stock appreciation rights and any combination thereof to employees, officers, directors, consultants, independent contractors and advisors of the Company. Options granted under the Plan may be granted with contractual lives of up to ten years. There were 3,568,923 options outstanding reserved under the Plan as of March 31, 2014 and 331,077 shares available for future issuance.

Employee Stock Purchase Plan

On April 12, 2012, the Company’s stockholders approved and adopted the Bridgeline Digital, Inc. 2012 Employee Stock Purchase Plan (the “ESPP”). Under the terms of the ESPP, the Company will grant eligible employees the right to purchase shares of Bridgeline common stock through payroll deductions at a price equal to 85% of the fair market value of Bridgeline common stock on the purchase termination date of defined offering or purchase periods. Each offering period is six months in duration. The ESPP permits the Company to offer up to 300,000 shares of common stock. The maximum number of shares of common stock that may be purchased by all participants in any purchase period may not exceed 150,000 shares .

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

Common Stock Warrants

On October 21, 2010, the Company issued 50,000 common stock warrants to purchase shares of the Company’s common stock to a non-employee consultant as compensation for services rendered. The warrants vested over a one year period and expire on October 15, 2015. Of the warrants issued, 25,000 are exercisable at an exercise price of $1.00 per share and 25,000 are exercisable at an exercise price of $2.00 per share.

On May 31, 2012, the Company issued five year warrants to the placement agent in the Company’s private placement. The warrants are exercisable to purchase 217,931 shares of the Company’s common stock at a price equal to $1.40 per share.

On June 19, 2013, the Company issued five year warrants to the investors and placement agent in the Company’s private placement. The warrants are exercisable to purchase 460,000 and 230,000 shares, respectively, of the Company’s common stock at a price equal to $1.25 per share.

On September 30, 2013, the Company issued five year warrants to the placement agent in the Company’s placement of subordinated convertible debt. The warrants are exercisable to purchase 153,846 of the Company’s common stock at a price equal to $1.30 per share. The warrants are first exercisable on March 30, 2014, provide the holders piggyback registration rights with respect to the shares of common stock underlying the warrants and contain a cashless exercise provision.

On November 1, 2013, the Company issued five year warrants to the placement agent in the Company’s placement of subordinated convertible debt. The warrants are exercisable to purchase 76,923 shares of the Company’s common stock at a price equal to $1.30 per share. The warrants are first exercisable on May 6, 2014, provide the holders piggyback registration rights with respect to the shares of common stock underlying the warrants and contain a cashless exercise provision.

On March 28, 2014, the Company issued five year warrants to the investors and placement agent in the Company’s private placement. The warrants are exercisable to purchase 320,000 shares of the Company’s common stock at a price equal to $1. 05 per share.

As of March 31, 2014: (i) placement agent warrants to purchase 217,931, 230,000 , 230,769, and 320,000 shares at an exercise price of $1.40, $1.25 , $1.30 and $1.05, respectively are outstanding; (ii) investor warrants to purchase 460,000 shares at an exercise price of $1.25, and (iii) warrants issued to a non-employee consultant to purchase 25,000 shares at an exercise price of $1.00 and 25,000 shares at an exercise price of $2.00 are outstanding.

Summary of Option and Warrant Activity and Outstanding Shares

	Stock Options					Stock Warrants
				Weighted				Weighted
				Average				Average
				Exercise				Exercise
	Options			Price		Warrants		Price

Outstanding, September 30, 2013		2,872,844		$	0.94		1,111,777	$	1.30
Granted		1,087,500		$	1.12		396,923	$	1.10
Exercised		(215,087	)	$	0.83		-		-
Forfeited or expired		(176,334	)	$	1.21		-		-
Outstanding, March 31, 2014		3,568,923		$	0.98		1,508,700	$	1.25

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

10. Accumulated Other Comprehensive Loss

The following table presents changes in accumulated other comprehensive loss for six months ended March 31, 2014:

	Cumulative
	Foreign Currency
	Translation
	Adjustment

Balance at September 30, 2013	$	(162	)
Foreign currency translation adjustment		(125	)
Balance at March 31, 2014	$	(287	)

11. Net Loss Per Share

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

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2014			2013			2014			2013
Net loss	$	(2,314	)	$	(687	)	$	(3,091	)	$	(1,329	)

Weighted average common shares outstanding - basic and diluted		17,795			14,878			17,894			14,830


Net loss per share - basic and diluted	$	(0.13	)	$	(0.05	)	$	(0.17	)	$	(0.09	)

Basic net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding. Diluted net income per share is computed using the weighted average number of common shares outstanding during the period plus the dilutive effect of outstanding stock options and warrants using the “treasury stock” method. The computation of diluted earnings per share does not include the effect of outstanding stock options and warrants that are anti-dilutive .

For the three and six months ended March 31, 2014, options to purchase shares of the Company’s common stock of 706,206 and 590,188 were excluded from the computation of diluted net loss per share as the effect was anti-dilutive to the Company’s net loss. Warrants to purchase 1,508,700 shares of common stock and contingent shares to be issued in connection with prior acquisitions of e.Magination, Marketnet, Magnetic, and ElementsLocal have also been excluded as they are anti-dilutive to the Company’s net loss.

12. Income Taxes

Income tax expense was $35 and $68 for the three months ended March 31, 2014 and 2013 and $56 and $89 for the six months ended March 31, 2014 and 2013, respectively. Income tax expense consists of the estimated liability for federal and state income taxes owed by the Company, including the alternative minimum tax. Net operating loss carry forwards are estimated to be sufficient to offset additional taxable income for all periods presented.

The Company does not provide for U.S. income taxes on the undistributed earnings of its Indian subsidiary, which the Company considers to be a permanent investment.

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

13. Related Party Transactions

As part of the Magnetic acquisition, the Company entered into an operating lease for the Bridgeline Tampa location with the previous owner of Magnetic who now serves as the Senior Vice President of Enterprise Development. The lease term is three years and rent is $85 thousand per year. In December 2013 our employee sold this property to an unrelated third party.

In October 2013, Michael Taglich joined the Board of Directors. Mr. Taglich is the Chairman and President of Taglich Brothers, Inc. a New York based securities firm. Taglich Brothers, Inc. was the agent for the past three private placements of Bridgeline Digital common stock which took place in 2012, 2013 and in March 2014. Taglich Brothers, Inc. was also the agent for Bridgeline’s convertible debt offerings of $2 million and $1 million in September and November 2013, respectively. Mr. Taglich personally owns 467,000 shares of Bridgeline. Other employees, affiliates and clients of Taglich Brothers, Inc. own approximately 6,200,000 shares of Bridgeline stock. The fees paid to Taglich Brothers, Inc. in connection with the 2012, 2013 and 2014 private placements of common stock were $651. Fees paid to Taglich Brothers, Inc. in connection with the 2013 convertible debt offerings were $240. The Company also has an annual service contract for $18 with Taglich Brothers, Inc. to perform market research.

14. Legal Proceedings

The Company is subject to ordinary routine litigation and claims incidental to its business. As of March, 2014, the Company was not engaged with any material legal proceedings.

Item 2.

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

This section contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a variety of factors and risks including risks described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2013 as well as in the other documents that we file with the Securities and Exchange Commission. You can read these documents at www.sec.gov.

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

Overview

In fiscal 2012, Bridgeline Digital announced the release of a new product, iAPPSds (“distributed subscription”), a platform that empowers franchise and large dealer networks with state-of-the-art web engagement management while providing superior oversight of corporate branding. iAPPSds deeply integrates content management, eCommerce, eMarketing and web analytics and is a self-service web platform that is offered to each authorized franchise or dealer for a monthly or annual subscription fee. On August 1, 2013, we acquired franchise web developer ElementsLocal, expanding Bridgeline Digital’s presence in the franchise market place.

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

Customer Information

We currently have over 2,500 customers, the majority of which are iAPPSds customers who pay a monthly subscription fee. For the three and six months ended March 31, 2014 and 2013 no customer represented 10% or more of total revenue.

Acquisitions

ElementsLocal

In the fourth quarter of fiscal 2013, we had one acquisition. On August 1, 2013, the Company completed the acquisition of Transformational Technologies, Inc. (“ElementsLocal”), a California based developer of an online SaaS platform for the franchise marketplace. The Company acquired all of the outstanding capital stock of ElementsLocal for consideration consisting of (i) $463 thousand in cash; (ii) $604 thousand in shares of Bridgeline Digital common stock (valued at $1.15 per share); (iii) assumption of $188 thousand of indebtedness; and (iv) contingent consideration of up to $904 thousand in cash and $396 thousand in shares of Bridgeline Digital common stock. The contingent consideration is payable quarterly over the 12 consecutive calendar quarters following the acquisition, contingent upon the acquired business achieving a certain quarterly revenue target during the period. The contingent common stock payable each earnout period is determined by dividing $33 thousand by the greater of: (i) the average closing price for Bridgeline Digital common stock for the 30 day trading period preceding the end of the earnout period; or (ii) $1.17. To the extent that a quarterly revenue target is not met in a particular quarter, the earn-out period will be extended for up to four additional quarters. The Company is required to assess the probability of the acquired business achieving the contingent cash and stock payments which requires management to make estimates and judgments based on forecasts of future performance. ElementsLocal’s operating results are reflected in the Company’s condensed consolidated financial statements as of the acquisition date.

There were no acquisitions during our first two fiscal quarters of 2014.

Results of Operations

Three and Six Months Ended March 31, 2014 compared to the Three and Six Months Ended March 31, 2013

Consolidated Revenue, Cost of Revenue, Gross Profit, and Gross Margin

	Three Months			Three Months									Six Months			Six Months
	Ended			Ended									Ended			Ended
	March 31,			March 31,						%			March 31,			March 31,						%
Revenue:	2014			2013			Change			Change			2014			2013			Change			Change
Digital engagement services
iAPPS digital engagement services	$	3,089		$	3,562			(473	)		(13%	)	$	7,001		$	6,975			26			0	%
% of total revenue		58	%		59	%								59	%		57	%
Other digital engagement services		521			927			(406	)		(44%	)		1,158			2,364			(1,206	)		(51%	)
% of total revenue		10	%		15	%								10	%		19	%
Subtotal digital engagement services		3,610			4,489			(879	)		(20%	)		8,159			9,339			(1,180	)		(13%	)
% of total revenue		68	%		75	%								69	%		77	%
Subscription and perpetual licenses		1,307			1,024			283			28	%		2,884			1,811			1,073			59	%
% of total revenue		25	%		17	%								24	%		15	%
Managed service hosting		385			491			(106	)		(22%	)		772			1,047			(275	)		(26%	)
% of total revenue		7	%		8	%								7	%		9	%
Total revenue	$	5,302		$	6,004		$	(702	)		(12%	)	$	11,815		$	12,197		$	(382	)		(3%	)
Cost of revenue:
Digital engagement services
iAPPS digital engagement services		2,365			1,911			454			24	%		4,480			3,690			790			21	%
% of iAPPS digital engagement services revenue		77	%		54	%								64	%		53	%
Other digital engagement costs		304			583			(279	)		(48%	)		692			1,558			(866	)		(56%	)
% of other digital engagement services revenue		58	%		63	%								60	%		66	%
Subtotal digital engagement services costs		2,669			2,494			175			7	%		5,172			5,248			(76	)		(1%	)
% of digital engagement services revenue		74	%		56	%								63	%		56	%
Subscription and perpetual licenses		452			247			205			83	%		849			415			434			105	%
% of subscription and perpetual revenue		35	%		24	%								29	%		23	%
Managed service hosting		68			76			(8	)		(11%	)		152			148			4			3	%
% of managed service hosting revenue		18	%		15	%								20	%		14	%
Total cost of revenue		3,189			2,817			372			13	%		6,173			5,811			362			6	%
Gross profit	$	2,113		$	3,187		$	(1,074	)		(34%	)	$	5,642		$	6,386		$	(744	)		(12%	)
Gross profit margin		40	%		53	%								48	%		52	%

Revenue

Our revenue is derived from three sources: (i) digital engagement services; (ii) subscription and perpetual licenses; and (iii) managed service hosting.

Digital Engagement Services

Digital engagement services revenue is comprised of iAPPS digital engagement related services and other digital engagement related services generated from non-iAPPS related engagements. In total, revenue from digital engagement services decreased $879 thousand, or 20%, to $3.6 million for the three months ended March 31, 2014 compared to the prior period. Revenue from iAPPS digital engagement services decreased $473 thousand, or 13% to $3.1 million compared to the three months ended March 31, 2013. The decrease in iAPPS digital engagements services is related to unfavorable timing of closing new contracts earlier in the quarter, therefore, delaying our commencement of the projects. Revenue from non-iAPPS digital engagement services decreased $406 thousand, or 44%, compared to the three months ended March 31, 2013. The decrease in non-iAPPS digital engagements services compared to the prior period is related to our focus on selling higher-margin iAPPS digital engagements to both new and existing customers.

Digital engagement services revenue as a percentage of total revenue decreased to 68% from 75% for the three months ended March 31, 2014 compared to the prior period. The decrease is attributable to the decrease in non-iAPPS digital engagement services revenue and the timing of recognizing revenue from new engagements.

Revenue from iAPPS digital engagement services increased $26 thousand to $7.0 million compared to the six months ended March 31, 2013. The increase in iAPPS digital engagements services is related to an increase in demand for our iAPPS product suite and an increase in iAPPS subscription and perpetual licenses sold. Revenue from non-iAPPS digital engagement services decreased $1.2 million, or 51%, compared to the six months ended March 31, 2013. In total, revenue from digital engagement services decreased $1.2 million, or 13%, to $8.2 million for the six months ended March 31, 2014. The decrease compared to the prior period is due to a decrease in non-iAPPS engagement services as we continue to concentrate on selling higher-margin iAPPS digital engagements to both new and existing customers.

Digital engagement services revenue as a percentage of total revenue decreased to 69% from 77% for the six months ended March 31, 2014 compared to the prior period. The decrease is attributable to the decrease in non-iAPPS digital engagement services revenue.

Subscription and Perpetual Licenses

Revenue from subscription and perpetual licenses increased $283 thousand, or 28%, to $1.3 million compared to the three months ended March 31, 2013. The increase is due to the increase in license revenues from our product for the franchise industry, iAPPSds, incremental SaaS licenses from our acquisition of ElementsLocal (acquired in the fourth quarter of fiscal 2013), and incremental iAPPS annual maintenance revenue.

Subscription and perpetual license revenue as a percentage of total revenue for the three months ended March 31, 2014 increased to 25% from 17% compared to the three months ended March 31, 2013.

Revenue from subscription and perpetual licenses increased $1 million, or 59%, to $2.9 million compared to the six months ended March 31, 2013. The increase is due to the increase in license revenues from our product for the franchise industry, iAPPSds, incremental SaaS licenses from our acquisition of ElementsLocal (acquired in the fourth quarter of fiscal 2013), and incremental iAPPS annual maintenance revenue.

Subscription and perpetual license revenue as a percentage of total revenue for the six months ended March 31, 2014 increased to 24% from 15% compared to the six months ended March 31, 2013.

Managed Service Hosting

Revenue from managed service hosting decreased $106 thousand, or 22%, to $385 thousand compared to the three months ended March 31, 2013. The decrease is due to our efforts to engage with customers that are aligned with our core competencies and proactively end our engagements with a number of smaller hosting customers obtained through acquisitions.

Managed services revenue as a percentage of total revenue decreased for the three months ended March 31, 2014 to 7% from 8% compared to the three months ended March 31, 2013.

Revenue from managed service hosting decreased $275 thousand, or 26%, to $772 thousand compared to the six months ended March 31, 2013. The decrease is due to our efforts to engage with customers that are aligned with our core competencies and proactively end our engagements with a number of smaller hosting customers obtained through acquisitions.

Managed services revenue as a percentage of total revenue decreased for the six months ended March 31, 2014 to 7% from 9% for six months ended March 31, 2013.

Costs of Revenue

Total cost of revenue increased $372 thousand, or 13%, to $3.2 million for the three months ended March 31, 2014 compared to the three months ended March 31, 2013. The increases are due to fixed costs to support revenue and increases in third party labor costs to deliver iAPPS digital engagement services combined with the decrease in revenues.

Total cost of revenue increased $362 thousand, or 6%, to $6.2 million for the six months ended March 31, 2014 compared to the six months ended March 31, 2013. The increases are due to fixed costs to support revenue and increases in third party labor costs to deliver iAPPS digital engagement services combined with the decrease in revenues.

Cost of Digital Engagement Services

Cost of digital engagement services increased $175 thousand, or 7%, to $2.7 million for the three months ended March 31, 2014 compared to the three months ended March 31, 2013. Costs associated with non-iAPPS related engagements decreased in line with non-iAPPS digital engagement services, however, our costs associated with iAPPS related engagements increased due to costs for third parties to assist with implementations.

Cost of digital engagement services decreased $76 thousand, or 1%, to $5.2 million for the six months ended March 31, 2014 compared to the six months ended March 31, 2013. Costs associated with non-iAPPS related engagements decreased in line with non-iAPPS digital engagement services, however, our costs associated with iAPPS related engagements increased in due to costs for third parties to assist with implementations.

Cost of Subscription and Perpetual License

Cost of subscription and perpetual licenses increased $205 thousand, or 83%, to $452 thousand compared to the three months ended March 31, 2013. This increase is attributable to amortization of software costs associated with the development of iAPPS compared to the prior quarter, as we released new versions of iAPPS that have commenced amortization over a three year period. In addition, the increases are due to incremental license costs related to ElementsLocal acquired in the fourth quarter of fiscal 2013 and costs to support our network operations center.

The cost of subscription and perpetual licenses as a percentage of subscription and perpetual license revenue increased to 35% from 24% compared to the three months ended March 31, 2013. This is due to amortization of software costs associated with the development of iAPPS and acquired non-iAPPS SaaS license costs which have a lower margin than iAPPS SaaS licenses.

Cost of subscription and perpetual licenses increased $434 thousand, or 105%, to $849 thousand compared to the six months ended March 31, 2013. This increase is due to amortization of software costs associated with the development of iAPPS, incremental license costs related to the acquisition of ElementsLocal, and costs to support our network operations center.

The cost of subscription and perpetual licenses as a percentage of subscription and perpetual license revenue increased to 29% from 23% compared to the six months ended March 31, 2013. This is due to amortization of software costs associated with the development of iAPPS and incremental license costs related to the acquisition of ElementsLocal.

Cost of Managed Service Hosting

Cost of managed service hosting decreased $8 thousand, or 11%, to $68 thousand for the three months ended March 31, 2014 compared to the three months ended March 31, 2013. The cost of managed services as a percentage of managed services revenue increased to 18% from 15% compared to the three months ended March 31, 2013. The percentage increase is attributable to fixed costs to support the network operations center.

Cost of managed service hosting increased $4 thousand, or 3%, to $152 thousand for the six months ended March 31, 2014 compared to the six months ended March 31, 2013. The cost of managed services as a percentage of managed services revenue increased to 20% from 14% compared to the six months ended March 31, 2013. The percentage increases are attributable to fixed costs to support the network operations center.

Operating Expenses

	Three Months			Three Months									Six Months			Six Months
	Ended			Ended									Ended			Ended
	March 31,			March 31,						%			March 31,			March 31,						%
Operating Expenses:	2014			2013			Change			Change			2014			2013			Change			Change
Sales and marketing	$	1,928		$	2,164		$	(236	)		(11%	)	$	4,038		$	3,998		$	40			1	%
% of total revenue		36	%		36	%								34	%		33	%
General and administrative		1,167			946			221			23	%		2,198			2,300			(102	)		(4%	)
% of total revenue		22	%		16	%								19	%		19	%

Research and development		579			247			332			134	%		1,102			379			723			191	%
% of total revenue		11	%		4	%								9	%		3	%

Depreciation and amortization		551			390			161			41	%		1,005			814			191			23	%
% of total revenue		10	%		6	%								9	%		7	%
Total operating expenses	$	4,225		$	3,747		$	478			13	%	$	8,343		$	7,491		$	852			11	%

Sales and Marketing Expenses

Sales and marketing expenses decreased $236 thousand, or 11%, to $1.9 million compared to the three months ended March 31, 2013 and increased $40 thousand, or 1%, to $4.0 million compared to the six months ended March 31, 2013. Sales and marketing expenses represented 36% for both the three months ended March 31, 2014 and 2013 and represented 34% and 33% of total revenue for the six months ended March 31, 2014 and 2013.

The decreases for the three months ended March 31, 2014 compared to the prior period is primarily attributable to a decrease in marketing and sales related compensation expense. The slight increase for the six months ended March 31, 2014 compared to the prior period is primarily attributable to incremental sales and marketing expenses from the acquisition of ElementsLocal in August 2013, offset by decreases in marketing expenses and sales related compensation expense.

General and Administrative Expenses

General and administrative expenses increased $221 thousand, or 23%, to $1.2 million compared to the three months ended March 31, 2013 and decreased $102 thousand, or 4%, to $2.2 million compared to the six months ended March 31, 2013. General and administrative expenses represented 22% and 16% of total revenue for the three months ended March 31, 2014 and 2013 and represented 19% for both the six months ended March 31 2014 and 2013. In the three months ended March 31, 2013, we recognized a favorable acquisition earnout adjustment of $312 thousand. Negating the effect of this adjustment would result in an overall decrease in general and administrative expenses quarter over quarter due to a decrease in general legal expenses and consolidation of administrative functions. The decrease in expense for the six months ended March 31, 2014 compared to the prior period was due to decreases in headcount and a decrease in general legal expenses, as well as the effect of the earnout adjustment mentioned above.

Research and Development

Research and development expense increased by $332 thousand, or 134%, to $579 thousand compared to the three months ended March 31, 2013 and increased $723 thousand, or 191%, to $1.0 million compared to the six months ended March 31, 2013. The increases in research and development expense for the three and six months ended March 31, 2014 compared to the prior quarter is due to the capitalization of software development costs related to enhancements to our iAPPS product platform, which decreases our overall research and development expenses. We capitalized $398 thousand in the three months ended March 31 2013 and only capitalized $15 thousand of software development costs in the current period. In the six months ended March 31, 2013, we capitalized $670 thousand in the three months ended March 31, 2013 and only capitalized $95 thousand of software development costs in the current six month period.

Depreciation and Amortization

Depreciation and amortization expense increased $161 thousand, or 41%, compared to the three months ended March 31, 2013 and increased $191 thousand, or 23%, compared to the six months ended March 31, 2013. The increases in depreciation and amortization for the three and six months ended March 31, 2014 are attributable to depreciation related to our network operation center and amortization of intangible assets acquired from acquisitions.

Depreciation and amortization expenses represented 10% and 6% of total revenue for the three months ended March 31, 2014 and 2013 and represented 9% and 7% of total revenue for the six months ended March 31, 2014 and 2013.

Non-Operating Expenses and Adjusted EBITDA

	Three Months			Three Months									Six Months			Six Months
	Ended			Ended									Ended			Ended
	March 31,			March 31,						%			March 31,			March 31,						%
Non-Operating and Other:	2014			2013			Change			Change			2014			2013			Change			Change
Loss from operations	$	(2,112	)	$	(560	)	$	(1,552	)		277	%	$	(2,701	)	$	(1,105	)	$	(1,596	)		144	%
Interest expense net		(167	)		(59	)		(108	)		183	%		(334	)		(135	)		(199	)		147	%
Loss before income taxes		(2,279	)		(619	)		(1,660	)		268	%		(3,035	)		(1,240	)		(1,795	)		145	%
Provision for income taxes		35			68			(33	)		(49%	)		56			89			(33	)		(37%	)
Net loss	$	(2,314	)	$	(687	)	$	(1,627	)		237	%	$	(3,091	)	$	(1,329	)	$	(1,762	)		133	%

Non-GAAP measure
Adjusted EBITDA	$	(1,294	)	$	17		$	(1,311	)		(7,712%	)	$	(1,274	)	$	67		$	(1,341	)		(2,001%	)

Loss from Operations

The loss from operations was ($2.1) million for three months ended March 31, 2014, compared to a loss of ($560) thousand in the prior period. The decline in income in the current quarter and year to date can be attributed to less revenue combined with fixed costs to support the overall revenue base. In addition, in comparison to the previous period which recognized an earnout adjustment of $312 thousand and capitalized software of $398 thousand, we had no earnout adjustments and only capitalized $95 thousand of software. In the current period we also recognized additional intangible amortization of $75 thousand from our acquisition of Elements during the last fiscal quarter of 2013. Depreciation and amortization expenses also increased as we continue to support the growth and expansion of the Company.

Income Taxes

The provision for income tax expense decreased $33 thousand, or 49%, compared to the three months ended March 31, 2013 and decreased $33 thousand or 37%, compared to the months ended March 31, 2013. The decreases are attributable to a reduction in taxes paid by our foreign subsidiary in India. Income tax expense represents the estimated liability for federal and state income taxes owed, including the alternative minimum tax. We have net operating loss carryforwards and other deferred tax benefits that are available to offset future taxable income.

Adjusted EBITDA

We also measure our performance based on a non-GAAP (“Generally Accepted Accounting Principles”) measurement of earnings before interest, taxes, depreciation, and amortization and before stock-based compensation expense and impairment of goodwill and intangible assets (“Adjusted EBITDA”).

We believe this non-GAAP financial measure of Adjusted EBITDA is useful to management and investors in evaluating our operating performance for the periods presented and provide a tool for evaluating our ongoing operations.

Adjusted EBITDA, however, is not a measure of operating performance under GAAP and should not be considered as an alternative or substitute for GAAP profitability measures such as (i) income from operations and net income, or (ii) cash flows from operating, investing and financing activities, both as determined in accordance with GAAP. Adjusted EBITDA as an operating performance measure has material limitations since it excludes the financial statement impact of income taxes, net interest expense, amortization of intangibles, depreciation, other amortization and stock-based compensation, and therefore does not represent an accurate measure of profitability. As a result, Adjusted EBITDA should be evaluated in conjunction with net income for a complete analysis of our profitability, as net income includes the financial statement impact of these items and is the most directly comparable GAAP operating performance measure to Adjusted EBITDA. Our definition of Adjusted EBITDA may also differ from and therefore may not be comparable with similarly titled measures used by other companies, thereby limiting its usefulness as a comparative measure. Because of the limitations that Adjusted EBITDA has as an analytical tool, investors should not consider it in isolation, or as a substitute for analysis of our operating results as reported under GAAP.

The following table reconciles net (loss) income (which is the most directly comparable GAAP operating performance measure) to EBITDA, and EBITDA to Adjusted EBITDA (in thousands):

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2014			2013			2014			2013
Net loss	$	(2,314	)	$	(687	)	$	(3,091	)	$	(1,329	)
Provision for income tax		35			68			56			89
Interest expense, net		167			59			334			135
Amortization of intangible assets		216			118			341			274
Depreciation		325			272			647			540
EBITDA		(1,571	)		(170	)		(1,713	)		(291	)
Other amortization		152			35			272			79
Stock based compensation		125			152			167			279
Adjusted EBITDA	$	(1,294	)	$	17		$	(1,274	)	$	67

The decrease in Adjusted EBITDA is primarily due to the decrease in iAPPS digital services revenues and increases in operating expenditures to support the growth of the Company.

Liquidity and Capital Resources

Cash Flows

Operating Activities

Cash used in operating activities was $1.7 million for the six months ended March 31, 2014 compared to cash provided by operating activities of $980 thousand for the six months ended March 31, 2013. This decrease compared to the prior period was due to higher net loss, adjusted for non-cash items such as amortization and depreciation for the period, an increase in accounts receivable and a decrease in accounts payable and other liabilities.

Investing Activities

Cash used by investing activities was $614 thousand for the six months ended March 31, 2013 compared to $1.1 million for the six months ended March 31, 2013. In the six months ended March 31, 2014, we purchased additional equipment to support our network operations center and made contingent earnout payments related to acquisitions.

Financing Activities

Cash provided by financing activities was $3.0 million for the six months ended March 31, 2014 compared to cash used by financing activities $212 thousand for the six months ended March 31, 2013. During the first six months of 2014, we generated net proceeds of $2.7 million from a private sale of common stock and $913 thousand from issuance of convertible debt, as well as $198 thousand generated from stock option exercises and the employee stock purchase plan. The proceeds generated were partially offset by payments of acquired debt and paydown of our discontinued line of credit with Silicon Valley Bank. We have a new line of credit with BridgeBank with a balance of $3.2 million as of March 31, 2014.

Capital Resources and Liquidity Outlook

We believe that cash generated from financing activities and operations and our bank line of credit will be sufficient to fund the company’s working capital and capital expenditure needs for at least the next twelve months.

In December 2013, the Company entered into a Loan and Security Agreement with BridgeBank (the “BridgeBank Loan Agreement”). The Loan Agreement has a 27 month term which expires on March 31, 2016. The Loan Agreement provides for up to $5 million of revolving credit advances which may be used for acquisitions and working capital purposes. Borrowings are limited to the lesser of (i) $5 million and (ii) 80% of eligible receivables as defined. The Company can borrow up to $1.0 million in out of formula borrowings for specified periods of time. Borrowings bear interest at BridgeBank’s prime plus 1.00%. The Company pays an annual commitment fee of 0.25%. Borrowings are secured by all of the Company’s assets and all of the Company’s intellectual property. The Company is also required to comply with certain financial covenants. The BridgeBank Loan Agreement replaced the Company’s prior credit facility with Silicon Valley Bank, which expired on December 31, 2013. As March 31, 2014, the Company had an outstanding balance under the BridgeBank Loan Agreement of $3.2 million.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, financings or other relationships with unconsolidated entities or other persons, other than our operating leases and contingent acquisition payments.

We currently do not have any variable interest entities. We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Therefore, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Commitments and Contingencies

As of March 31, 2014, we had an accrued contingent earnout liability of $1.2 million from acquisitions completed in prior fiscal years, which are scheduled to be paid out through fiscal 2016. Contingent earnout payments related to acquisitions are paid when and if certain revenue and earnings targets are achieved.

Critical Accounting Policies

These critical accounting policies and estimates by our management should be read in conjunction with Note 2 Summary of Significant Accounting Policies to the Consolidated Financial Statements that were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) that are included in our Annual Report on Form 10-K and filed with the Securities and Exchange Commission on December 20, 2013.

The preparation of financial statements in accordance US GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. We regularly make estimates and assumptions that affect the reported amounts of assets and liabilities. The most significant estimates included in our financial statements are the valuation of accounts receivable and long-term assets, including intangibles, goodwill and deferred tax assets, stock-based compensation, amounts of revenue to be recognized on service contracts in progress, unbilled receivables, and deferred revenue. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected.

We consider the following accounting policies to be both those most important to the portrayal of our financial condition and those that require the most subjective judgment:

●

Revenue recognition;

●

Allowance for doubtful accounts;

●

Accounting for cost of computer software to be sold, leased or otherwise marketed;

●

Accounting for goodwill and other intangible assets; and

●

Accounting for stock-based compensation.

Revenue Recognition

Overview

We enter into arrangements to sell digital engagement services (professional services), software licenses or combinations thereof. Revenue is categorized into (i) Digital Engagement Services (ii) Subscriptions and Perpetual Licenses and (iii) Managed Service Hosting.

We recognize revenue as required by the Revenue Recognition Topic of the Codification. Revenue is generally recognized when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) delivery has occurred or the services have been provided to the customer; (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of the fees is reasonably assured. Billings made or payments received in advance of providing services are deferred until the period these services are provided.

The Company maintains and continues to develop a reseller channel to supplement our direct sales force for our iAPPS product suite. Resellers are generally located in territories where we do not have a direct sales force. Customers generally sign a license agreement directly with us. Revenue from perpetual licenses sold through resellers is recognized upon delivery to the end user as long as evidence of an arrangement exists, collectability is probable, and the fee is fixed and determinable. Revenue for subscription licenses is recognized monthly as the services are delivered.

Digital Engagement Services

Digital engagement services include professional services primarily related to the Company’s web development solutions that address specific customer needs such as digital strategy, information architecture and usability engineering, .Net development, rich media development, back end integration, search engine optimization, quality assurance and project management.

Digital engagement services are contracted for on either a fixed price or time and materials basis. For its fixed price engagements, after assigning the relative selling price to the elements of the arrangement, the Company applies the proportional performance model (if not subject to contract accounting) to recognize revenue based on cost incurred in relation to total estimated cost at completion. The Company has determined that labor costs are the most appropriate measure to allocate revenue among reporting periods, as they are the primary input when providing application development services. Customers are invoiced monthly or upon the completion of milestones. For milestone based projects, since milestone pricing is based on expected hourly costs and the duration of such engagements is relatively short, this input approach principally mirrors an output approach under the proportional performance model for revenue recognition on such fixed priced engagements. For time and materials contracts, revenues are recognized as the services are provided.

Digital engagement services also include retained professional services contracted for on an “on call” basis or for a certain amount of hours each month. Such arrangements generally provide for a guaranteed availability of a number of professional services hours each month on a “use it or lose it” basis. For retained professional services sold on a stand-alone basis we recognize revenue as the services are delivered or over the term of the contractual retainer period. These arrangements do not require formal customer acceptance and do not grant any future right to labor hours contracted for but not used.

Subscriptions and Perpetual Licenses

The Company licenses its software on either a perpetual or subscription basis. Customers who license the software on a perpetual basis receive rights to use the software for an indefinite time period and an option to purchase post-customer support (“PCS”). For arrangements that consist of a perpetual license and PCS, as long as Vendor Specific Objective Evidence (“VSOE”) exists for the PCS, then PCS revenue is recognized ratably on a straight-line basis over the period of performance and the perpetual license is recognized on a residual basis. Under the residual method, the fair value of the undelivered elements are deferred and the remaining portion of the arrangement fee is allocated to the delivered elements and recognized as revenue, assuming all other revenue recognition criteria have been met.

Customers may also license the software on a subscription basis, which can be described as “Software as a Service” or “SaaS”. SaaS is a model of software deployment where an application is hosted as a service provided to customers across the Internet. Subscription agreements include access to the Company’s software application via an internet connection, the related hosting of the application, and PCS. Customers receive automatic updates and upgrades, and new releases of the products as soon as they become available. Customers cannot take possession of the software. Subscription agreements are either annual or month-to-month arrangements that provide for termination for convenience by either party upon 90 days notice. Revenue is recognized monthly as the services are delivered. Set up fees paid by customers in connection with subscription services are deferred and recognized ratably over the longer of the life of subscription period or the expected lives of customer relationships. We continue to evaluate the length of the amortization period of the set up fees as we gain more experience with customer contract renewals.

Managed Service Hosting

Managed service hosting includes hosting arrangements that provide for the use of certain hardware and infrastructure for those customers who do not wish to host our applications independently. Hosting agreements are either annual or month-to-month arrangements that provide for termination for convenience by either party generally upon 30-days notice. Revenue is recognized monthly as the hosting services are delivered. Set up fees paid by customers in connection with managed hosting services are deferred and recognized ratably over the longer of the life of the hosting period or the expected lives of customer relationships. We continue to evaluate the length of the amortization period of the set up fees as we gain more experience with customer contract renewals.

Multiple Element Arrangements

In accounting for multiple element arrangements, we follow either ASC Topic 605-985 Revenue Recognition Software or ASC Topic 605-25 Revenue Recognition Multiple Element Arrangements , as applicable.

In October 2009, the FASB issued Accounting Standards Update No. 2009-13, Revenue Recognition: Multiple-Deliverable Revenue Arrangements (“ASU 2009-13”). ASU 2009-13 provides amendments to certain paragraphs of previously issued ASC Subtopic 605-25 – Revenue Recognition: Multiple-Deliverable Revenue Arrangements . In accordance with ASU 2009-13, each deliverable within a multiple-deliverable revenue arrangement is accounted for as a separate unit of accounting if both of the following criteria are met (1) the delivered item has value to the customer on a standalone basis and (2) for an arrangement that includes a right of return relative to the delivered item, delivery or performance of the delivered item is considered probable and within our control. If the deliverables do not meet the criteria for being a separate unit of accounting then they are combined with a deliverable that does meet that criterion. The accounting guidance also requires that arrangement consideration be allocated at the inception of an arrangement to all deliverables using the relative selling price method. The accounting guidance also establishes a selling price hierarchy for determining the selling price of a deliverable. We determine selling price using VSOE, if it exists; otherwise, we use Third-party Evidence (“TPE”). If neither VSOE nor TPE of selling price exists for a unit of accounting, we use Estimated Selling Price (“ESP”).

VSOE is generally limited to the price at which we sell the element in a separate stand-alone transaction. TPE is determined based on the prices charged by our competitors for a similar deliverable when sold separately. It is difficult for us to obtain sufficient information on competitor pricing, so we may not be able to substantiate TPE. If we cannot establish selling price based on VSOE or TPE then we will use ESP. ESP is derived by considering the selling price for similar services and our ongoing pricing strategies. The selling prices used in our allocations of arrangement consideration are analyzed at minimum on an annual basis and more frequently if our business necessitates a more timely review. We have determined that we have VSOE on our SaaS offerings, certain application development services, managed hosting services, and PCS because we have evidence of these elements sold on a stand-alone basis.

When the Company licenses its software on a perpetual basis in a multiple element arrangement that arrangement typically includes PCS and digital engagement services, we follow the guidance of ASC Topic 605-985. In assessing the hierarchy of relative selling price for PCS, we have determined that VSOE is established for PCS. VSOE for PCS is based on the price of PCS when sold separately, which has been established via annual renewal rates. Similarly, when the Company licenses its software on a perpetual basis in a multiple element arrangement that also includes managed service hosting (“hosting”), we have determined that VSOE is established for hosting based on the price of the hosting when sold separately, which has been established based on renewal rates of the hosting contract. Revenue recognition for perpetual licenses sold with digital engagement services are considered on a case by case basis. The Company has not established VSOE for perpetual licenses or fixed price development services and therefore in accordance with ASC Topic 605-985, when perpetual licenses are sold in multiple element arrangements including digital engagement services where VSOE for the services has not been established, the license revenue is deferred and recognized using contract accounting. The Company has determined that services are not essential to the functionality of the software and it has the ability to make estimates necessary to apply percentage-of-completion accounting. In those cases where perpetual licenses are sold in a multiple element arrangement that includes application development services where VSOE for the services has been established, the license revenue is recognized under the residual method and the application services are recognized upon delivery.

In determining VSOE for the digital engagement services element, the separability of the services from the software license and the value of the services when sold on a standalone basis are considered. The Company also considers the categorization of the services, the timing of when the services contract was signed in relation to the signing of the perpetual license contract and delivery of the software, and whether the services can be performed by others. The Company has concluded that its digital engagement services are not required for the customer to use the product but, rather enhance the benefits that the software can bring to the customer. In addition, the services provided do not result in significant customization or modification of the software and are not essential to its functionality, and can also be performed by the customer or a third party. If a digital engagement services arrangement does qualify for separate accounting, the Company recognizes the perpetual license on a residual basis. If the digital engagement services arrangement does not qualify for separate accounting, the Company recognizes the perpetual license under the proportional performance model as described above.

When subscription arrangements are sold with digital engagement services, the Company uses its judgment as to whether the services qualify as a separate unit of accounting. When subscription service arrangements involve multiple elements that qualify as separate units of accounting, the Company allocates arrangement consideration in multiple-deliverable arrangements at the inception of an arrangement to all deliverables based on the relative selling price model in accordance with the selling price hierarchy, which includes: (i) VSOE when available; (ii) TPE if VSOE is not available; and (iii) ESP if neither VSOE or TPE is available. For those subscription arrangements sold with multiple elements whereby the digital engagement services do not qualify as a separate unit of accounting, the digital engagement services revenue is recognized ratably over the subscription period. Subscriptions also include a PCS component, and the Company has determined that the two elements cannot be separated and must be recognized as one unit over the applicable service period. Set up fees paid by customers in connection with subscription arrangements are deferred and recognized ratably over the longer of the life of the hosting period or the expected lives of customer relationships, which generally range from two to three years. We continue to evaluate the length of the amortization period of the set up fees as we gain more experience with customer contract renewals and our newer product offerings.

Customer Payment Terms

Payment terms with customers typically require payment 30 days from invoice date. Payment terms may vary by customer but generally do not exceed 45 days from invoice date. Invoicing for digital engagement services are either monthly or upon achievement of milestones and payment terms for such billings are within the standard terms described above. Invoicing for subscriptions and hosting are typically issued monthly and are generally due in the month of service.

Our agreements with customers do not provide for any refunds for services or products and therefore no specific reserve for such is maintained. In the infrequent instances where customers raise concerns over delivered products or services, we have endeavored to remedy the concern and all costs related to such matters have been insignificant in all periods presented.

Warranty

Certain arrangements include a warranty period which is generally 30 days from the completion of work. In hosting arrangements, we provide warranties of up-time reliability. We continue to monitor the conditions that are subject to the warranties to identify if a warranty claim may arise. If we determine that a warranty claim is probable, then any related cost to satisfy the warranty obligation is estimated and accrued. Warranty claims to date have been immaterial.

Reimbursable Expenses

In connection with certain arrangements, reimbursable expenses are incurred and billed to customers and such amounts are recognized as both revenue and cost of revenue.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts which represents estimated losses resulting from the inability, failure or refusal of our clients to make required payments.

We analyze historical percentages of uncollectible accounts and changes in payment history when evaluating the adequacy of the allowance for doubtful accounts. We use an internal collection effort, which may include our sales and services groups as we deem appropriate. Although we believe that our allowances are adequate, if the financial condition of our clients deteriorates, resulting in an impairment of their ability to make payments, or if we underestimate the allowances required, additional allowances may be necessary, resulting in increased expense in the period in which such determination is made.

Accounting for Cost of Computer Software to be Sold, Leased or Otherwise Marketed

We charge research and development expenditures for technology development to operations as incurred. However, in accordance with Codification 985-20 Costs of Software to be Sold Leased or Otherwise Marketed , we capitalize certain software development costs subsequent to the establishment of technological feasibility. Based on our product development process, technological feasibility is established upon completion of a working model. Certain costs incurred between completion of a working model and the point at which the product is ready for general release is capitalized if significant. Once the product is available for general release, the capitalized costs are amortized in cost of sales.

Accounting for Goodwill and Intangible Assets

Goodwill is tested for impairment annually during the fourth quarter of every year and more frequently if events and circumstances indicate that the asset might be impaired. In assessing goodwill for impairment, an entity has the option to assess qualitative factors to determine whether events or circumstances indicate that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount. We assess goodwill at the consolidated level as one reporting unit. If this is the case, then performing the quantitative two-step goodwill impairment test is unnecessary. An entity can choose not to perform a qualitative assessment for any or all of its reporting units, and proceed directly to the use of the two-step impairment test. In assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we assess relevant events and circumstances that may impact the fair value and the carrying amount of a reporting unit. The identification of relevant events and circumstances and how these may impact a reporting unit’s fair value or carrying amount involve significant judgments by management. These judgments include the consideration of macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, events which are specific to Bridgeline, and trends in the market price of our common stock. Each factor is assessed to determine whether it impacts the impairment test positively or negatively, and the magnitude of any such impact.

For fiscal 2013 , we performed the annual assessment of our goodwill during the fourth quarter of 2013, using the qualitative approach described above. Based on our qualitative assessment, we concluded that it was not more likely than not that the fair values of any of our reporting units were less than their carrying amounts, and therefore it was not necessary to perform the quantitative two-step impairment test. The key qualitative factors that led to our conclusion included the following: (i) our stock price of $1.10 as of September 30, 2013 did not materially change from the stock price of $1.20 of September 30, 2013; (ii) the successful launch of iAPPSds in 2013 with our first iAPPSds customer, a franchisor with over 4,000 locations, and our strategic acquisition of ElementsLocal in 2013, has improved predictability of our forecasts by increasing contractually recurring revenue; and (iii) inputs from recent transactions within the technology sector, such as revenue multiples used to value transactions, have either remained steady since the fiscal 2013 assessment .

The factors the Company considers important that could indicate impairment include its stock price, significant under performance relative to prior operating results, change in projections, significant changes in the manner of the Company’s use of assets or the strategy for the Company’s overall business, and significant negative industry or economic trends. To the extent there are unfavorable changes in assumptions used to determine the Company’s fair value there can be no assurance that the Company will not have an impairment charge in the future.

During the six months ended March 31, 2014 the carrying value of goodwill decreased by $636,000 due primarily to a reclassification to intangible assets as a result of a purchase price adjustment related to the acquisition of ElementsLocal completed in the prior fiscal year.

Accounting for Stock-Based Compensation

At March 31, 2014, we maintained one stock-based compensation plan and one employee stock purchase plan which are more fully described in Note 11 to the Consolidated Financial Statements of our Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 20, 2013.

The Company accounts for stock compensation awards in accordance with the Compensation-Stock Compensation Topic of the Codification. Share-based payments (to the extent they are compensatory) are recognized in our consolidated statements of operations based on their fair values.

We recognize stock-based compensation expense for share-based payments issued or assumed after October 1, 2006 that are expected to vest on a graded, accelerated basis over the service period of the award, which is generally three years. We recognize the fair value of the unvested portion of share-based payments granted prior to October 1, 2006 over the remaining service period, net of estimated forfeitures. In determining whether an award is expected to vest, we use an estimated, forward-looking forfeiture rate based upon our historical forfeiture rate and reduce the expense over the recognition period. Estimated forfeiture rates are updated for actual forfeitures quarterly. We also consider, each quarter, whether there have been any significant changes in facts and circumstances that would affect our forfeiture rate. Although we estimate forfeitures based on historical experience, actual forfeitures in the future may differ. In addition, to the extent our actual forfeitures are different than our estimates, we record a true-up for the difference in the period that the awards vest, and such true-ups could materially affect our operating results.

We estimate the fair value of employee stock options using the Black-Scholes-Merton option valuation model. The fair value of an award is affected by our stock price on the date of grant as well as other assumptions including the estimated volatility of our stock price over the term of the awards and the estimated period of time that we expect employees to hold their stock options. The risk-free interest rate assumption we use is based upon United States treasury interest rates appropriate for the expected life of the awards. We use the historical volatility of our publicly traded options in order to estimate future stock price trends. In order to determine the estimated period of time that we expect employees to hold their stock options, we use historical trends of employee turnovers. Our expected dividend rate is zero since we do not currently pay cash dividends on our common stock and do not anticipate doing so in the foreseeable future. The aforementioned inputs entered into the option valuation model we use to fair value our stock awards are subjective estimates and changes to these estimates will cause the fair value of our stock awards and related stock-based compensation expense we record to vary.

We record deferred tax assets for stock-based awards that result in deductions on our income tax returns, based on the amount of stock-based compensation recognized and the statutory tax rate in the jurisdiction in which we will receive a tax deduction.

Item 3.

Qualitative and Quantitative Disclosures About Market Risk.

Not required.

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 , as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our President and Chief Executive Officer (Principal Executive Officer) and our Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of March 31, 2014 we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in enabling us to record, process, summarize and report information required to be included in our periodic filings with the Securities and Exchange Commission within the required time period.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting that occurred during the quarter ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings.

From time to time we are subject to ordinary routine litigation and claims incidental to our business. We are not currently involved in any legal proceedings that we believe are material beyond those previously disclosed in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 20, 2013.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

The following summarizes all sales of our unregistered securities during the quarter ended March 31, 2014. The securities in the below-referenced transactions were (i) issued without registration and (ii) were subject to restrictions under the Securities Act and the securities laws of certain states, in reliance on the private offering exemptions contained in Sections 4(2), 4(6) and/or 3(b) of the Securities Act and on Regulation D promulgated there under, and in reliance on similar exemptions under applicable state laws as transactions not involving a public offering. Unless stated otherwise, no placement or underwriting fees were paid in connection with these transactions.

In January 2014, we issued 56,897 shares of common stock at $1.16 per share to four members of our Board of Directors in lieu of cash payments for their services as board members. The shares vest in equal installments on a monthly basis through the end of the service period of September 30, 2014. The aggregate fair value of the shares is $66 thousand and will be expensed over the service period. A total of $19 thousand was recorded as expense in the three months ended March 31, 2014.

In March 2014, we sold 3 ,200,000 shares of common stock at $0.95 per share for gross proceeds of $3 million in a private placement. Net proceeds to the Company after offering expenses were approximately $2.7 million. In addition, we issued the investors and placement agent and its affiliates five year warrants to purchase an aggregate of 320,000 shares of Bridgeline’s common stock at a price equal to $1. 05 per share. There are no plans to register the common stock issued in this offering, however in the event the Company does register other Common stock, we agreed to provide piggyback registration rights with respect to the shares of common stock sold in the offering and underlying the warrants.

During the fiscal quarter ended March 31, 2014, we granted 450,000 stock options under our Amended and Restated Stock Incentive Plan at a weighted average exercise price of $1.16 per share.

The securities were issued exclusively to our directors, executive officers, and employees. The issuance of options and the shares of common stock issuable upon the exercise of such options as described above were issued pursuant to written compensatory plans or arrangements with our employees, directors and consultants, in reliance on the exemptions from the registration provisions of the Securities Act set forth in Section 4(2) thereof relative to sales by an issuer not involving any public offering, to the extent an exemption from such registration was required.

Item 6.

Exhibits.

Exhibit No.		Description of Document

10.1		Employment Agreement with Brett Zucker dated February 28, 2014

10.2		Form of Restricted Stock Agreement by and between Bridgeline Digital, Inc. and certain Board of Directors dated February 24, 2014.

10.3		Securities Purchase Agreement between Bridgeline Digital, Inc and the investors named therein dated March 28, 2014.

10.4		Form of Common Stock Purchase Warrant issued to Placement Agent, dated March 28, 2014.

10.5		Employment Agreement with Michael Prinn dated April 4, 2014.

31.1		Certification required by Rule 13a-14(a) or Rule 15d-14(a).

31.2		Certification required by Rule 13a-14(a) or Rule 15d-14(a).

32.1		Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350).

32.2		Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350).

101.INS*		XBRL Instance

101.SCH*		XBRL Taxonomy Extension Schema

101.CAL*		XBRL Taxonomy Extension Calculation

101.DEF*		XBRL Taxonomy Extension Definition

101.LAB*		XBRL Taxonomy Extension Labels

101.PRE*		XBRL Taxonomy Extension Presentation

*XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 and 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Bridgeline Digital, Inc.
		(Registrant)

May 15, 2014		/s/ Thomas L. Massie
Date		Thomas L. Massie President and Chief Executive Officer (Principal Executive Officer)

May 15, 2014		/s/ Michael D. Prinn
Date		Michael D. Prinn Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

INDEX OF EXHIBITS

Exhibit No.

Description of Document

10.1

Employment Agreement with Brett Zucker dated February 28, 2014

10.2

Form of Restricted Stock Agreement by and between Bridgeline Digital, Inc. and certain Board of Directors dated February 24, 2014.

10.3 Securities Purchase Agreement between Bridgeline Digital, Inc and the investors named therein dated March 28, 2014.

10.4

Form of Common Stock Purchase Warrant issued to Placement Agent, dated March 28, 2014.

10.5
Employment Agreement with Michael Prinn dated April 4, 2014.

31.1 Certification required by Rule 13a-14(a) or Rule 15d-14(a).

31.2

Certification required by Rule 13a-14(a) or Rule 15d-14(a).

32.1

Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350).

32.2

Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350).

101.INS* XBRL Instance

101.SCH* XBRL Taxonomy Extension Schema

101.CAL* XBRL Taxonomy Extension Calculation

101.DEF* XBRL Taxonomy Extension Definition

101.LAB* XBRL Taxonomy Extension Labels

101.PRE* XBRL Taxonomy Extension Presentation

EXHIBIT 10.1

EMPLOYMENT AGREEMENT

Bridgeline Digital, Inc., a Delaware Corporation (the “ Employer ” or the “ Company ”) and Brett Zucker (the “ Employee ”), in consideration of the mutual promises made herein, agree as follows:

ARTICLE 1

TERM OF EMPLOYMENT

Section 1.1 Specified Period. Employer hereby employs Employee, and Employee hereby accepts employment with Employer for the term of one (1) year, with the period beginning on October 1, 2013 (the "Commencement Date"), and terminating on September 30, 2014 ("Initial Term").

Section 1.2 Succeeding Term. At the end of the Initial Term, or any succeeding one year term, this Employment Agreement shall renew for successive periods of one (1) year each (a "Succeeding Term") only if the Employer gives written notice of renewal to Employee not less than sixty (60) days prior to the end of the Initial Term. If such notice of renewal is not provided to the Employee by the Employer this Employment Agreement will terminate, except 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, all as is more specifically provided in Section 7.10. Once this Employment Agreement terminates then the Employee shall become an employee at will at the end of the Initial Term or Succeeding Term.

Section 1.3 Employment Term Defined. As used herein, the phrase "employment term" refers to the entire period of employment of Employee by Employer hereunder, whether such employment is during the Initial Term, Succeeding Term or, following the end of the Succeeding Term, as an employee at will.

ARTICLE 2

DUTIES AND OBLIGATIONS OF EMPLOYEE

Section 2.1 General Duties Employee shall serve as Executive Vice President & Chief Technology Officer for 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 his designee. Employee shall perform such services at 80 Blanchard Road, Burlington, Massachusetts or at such other location as may be designated by Employer. The Employee shall be available to make business trips within 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 reasonable terms, bearing in mind the position of the Employee.

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 Chief Executive Officer . 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 term of employment 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 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 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 or prospective 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, 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, 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 and for twelve (12) months after the termination of his employment for any reason whatsoever, Employee shall not, directly or indirectly, without the written 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 Company's DirectCompetitors ("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 the Competitive Services ("Competitive Services") defined as design and development for third parties of: Internet/Intranet/Extranet Web sites and Web applications, content management software, document management software, analytics software, eCommerce, eMarketing, or services such as Web consulting services or Web hosting 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 is planning to undertake in at the date of the termination of this Agreement. Notwithstanding any to the contrary contained in this Section 2.3, in the event your employment is terminated for reasons in which economic factors are considered (specifically, a layoff or closing of the office where you are employed), then the provisions of this Section 2.3 shall not apply. However, all other provisions of this Agreement shall remain in full force and effect, including without limitation sections 2.3(a), 2.3(c) through 2.3(f).

(c) During his employment and for twelve (12) months after the termination of such employment for any reason whatsoever, Employee shall not become employed by, associated with, or engaged by, in any capacity whatsoever, any customer, client or account (as defined below) of the Employer whereby Employee provides services to such customer, client or account similar to those provided by the Employer to the customer, client or account during Employee's employment. Employee acknowledges and understands that Employer's customers, clients and accounts have executed or will execute agreements pursuant to which the customer, client or account agrees not to hire Employer's employees.

(d) During his employment and for twelve (12) months after the termination of such employment for any reason whatsoever, 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/her 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, or prospective 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 Employee's employment; (ii) any person or entity that was a client, customer or account of the Employer at any time 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 presentation (or similar offering of services) within a period of 180 days preceding the date of the termination of Employee's employment.

(e) The covenants of this Section 2.3 shall be construed as separate covenants covering their subject matter in each of the separate counties and 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. 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.

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 irrevocably assigns to Employer without any additional compensation 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, relating to or concerning the business of the Employer, whether or not conceived, developed or reduced to practice: (i) during working hours, (ii) while on Employer premises, (iii) with use of Company equipment, materials or facilities, or (iv) while performing his duties under this Agreement ("Employer Intellectual Property").

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 or specific original works or 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. Employee hereby waives in favor of Employer and its assigns and licensees any and all artist's or moral rights Employee may have in respect of any Invention pursuant to any local, state or federal laws or statutes of the United States and all similar rights under the laws of all jurisdictions.

(b) The parties agree that the "business of the Employer" for the purposes of this Section 2.4 is acting as "a designer and developer for third parties of Internet/Intranet/Extranet Web sites and Web applications, content management software, document management software, analytics software, eCommerce, eMarketing, or services such as Web consulting services or Web hosting 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.

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. The 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.

ARTICLE 3

COMPENSATION OF EMPLOYEE

Section 3.1 Annual Salary. As compensation for his services hereunder, Employee shall be paid a salary at the rate of $12,916.66 semi-monthly (the equivalent of three hundred ten thousand 00/100 Dollars ($310,000) per year) ("Salary") from the Commencement Date. Salary shall be paid in equal installments not less frequently than twice each month.

Section 3.2 Quarterly Bonus. The Employee shall be eligible to be paid a quarterly bonus earned in accordance with the terms set forth on Exhibit 3.2.

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 Stock Options. The Employer may, at the Employer's sole discretion, issue stock options to the Employee. All stock options granted 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.

ARTICLE 4

EMPLOYEE BENEFITS

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 pre-approved by the Employer's Chief Executive Officer. Unused vacation shall not be carried over into the next year, and will not be paid in the form of cash.

Section 4.2 Benefits. Employee shall be eligible to participate in benefit plans provided by Employer, including health, and life insurance coverage should Employer elect to participate in any such plans.

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 Company's Chief Executive Officer or his designee, 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. Per the Company's policy's, expense reports must be submitted each month to ensure reimbursement.

ARTICLE 5

TERMINATION OF EMPLOYMENT

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 payment of base or bonus compensation 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 by the Chief Executive Officer, or his designee, 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, provided that the Company must provide Employee with written notice from the Company of such willful disregard of the rules or policies of the Company and Employee fails to cure (if curable) such willful disregard of the rules or policies of the Company within five business days of such notice; or (iii) the violation of any noncompetition or non-solicitation covenant with, or assignment of inventions obligation to, the Company; or (iv) the formal charge of the Employee of a felony; or (v) the commission of an act of embezzlement, fraud or breach of fiduciary duty against the Company (vi) engagement in a specific act 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, (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 after delivery to Employee of written notice from the Employer specifying in reasonable detail the nature of such failure. 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 here under 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, the term "Good Reason" shall mean the occurrence of any of the following events: (i) failure of the Employer to continue the Employee in the position of Executive Vice President and Chief Financial Officer of the Employer; (ii) material diminution in the nature or scope of the Employee's responsibilities, duties or authority; provided however, any diminution of the business of the Employer or any sale or transfer of any or all of the equity, property or other assets of the Employer shall not constitute "Good Reason"; (iii) material failure of the Employer to provide the Employee the compensation and benefits in accordance with the terms of this Agreement, excluding an inadvertent failure which is cured within ten (10) business days following notice from the Employee specifying in detail the nature of such failure; or (iv) the requirement by the Employer that Employee relocate his principal place of employment to a location more than thirty (30) miles from his current principal place of employment. The Employee is required to provide notice to the Employer of the existence of the Good Reason within 60 days of its initial existence and the Employer shall have 30 days within which to remedy the Good Reason condition.

Section 5.5 Expiration. Employee's employment hereunder shall be terminated upon expiration of the Term of Employment 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 his 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; (d) if the Employee's employment is terminated for any other reason, the date on which a Notice of Termination is given.

ARTICLE 6

PAYMENTS TO EMPLOYEE UPON TERMINATION

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. Neither Employer nor any affiliate shall have any further obligation to Employee under this Agreement or otherwise, except for payment to Employee of any and all accrued salary and bonuses, provision of the opportunity to elect COBRA health care continuation and otherwise as may be expressly required by law.

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 or otherwise, except for payment to Employee of any and all accrued salary and bonuses, provision of the opportunity to elect COBRA health care continuation and otherwise as may be expressly required by law.

Section 6.3 Termination Without Cause; Termination for Good Reason. Subject to other provisions in this Article 6 to the contrary and during the Initial Term and any Succeeding Annual Terms only, 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 salary, bonuses and vacation;

(b) 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 or liquidated damages, or both, a sum equal to (i) the monthly rate of Salary payable under this Agreement for a period of six (6) months, and (ii) an amount equal to the quarterly bonus paid to Employee for the preceding quarter immediately prior to Employee's termination; provided, however, in the event of a termination without Cause by Employer or Termination for Good Reason by Employee which occurs during the first twelve months after a Change in Control of the Company the Employer shall instead 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 or liquidated damages, or both, a sum equal to three times the annual base salary (currently $930,000) in one lump sum payment; Cause any stock options issued to Employee which have not lapsed and which are not otherwise exercisable to be accelerated so as to immediately exercisable by Employee; 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 for a period of six (6) months and thereafter provide Employee the opportunity to continue to elect 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 during this three month period will cease immediately in the event Employee becomes employed following termination. Employee agrees to notify Employer immediately regarding such new employment; and

Section 6.4 Definition. A "Change in Control" will be deemed to have occurred only if any of the following events occur:

(i) any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportion as their ownership of stock of the Company) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities;

(ii) individuals who constitute the Board (as of the date hereof, the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company' stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A under the Exchange Act) will be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or

the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, and such merger or consolidation is consummated, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than 50% of the combined voting power of the Company's then outstanding securities; or

(iii) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets.

ARTICLE 7

GENERAL PROVISIONS

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 Employer or Employee commences any action at law or in equity against arising out of or relating to this Agreement (other than any statutory cause of action relating to employment, including but not limited to claims under state and federal employment laws) and Employer prevails in such action, Employee shall reimburse Employer its reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which Employer 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, including without limitation, any prior Employment Agreement between Employer and Employee. 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 the Chief Executive 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.

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 Burlington, Massachusetts on this ___ ^th day of ____________, 2014.

Employer:		Employee:

Bridgeline Digital, Inc.


By:
	Thomas L. Massie	Brett Zucker
	President & CEO

EXHIBIT 2.4(b)

Employee's Personal Intellectual Property

EXHIBIT 3.2

Brett Zucker 2014 Incentive Bonus: You will have the opportunity to earn a quarterly incentive bonus of $50,000 based on the achievement of the Company’s FY 2014 metrics. . The bonus metrics set forth below are not dependent on each other and you have the opportunity to earn any or all applicable bonuses in a given quarter. If an acquisition is made by the Company in FY 2014 the stated goals below may be adjusted.

A)	R&D Launch of V5.1 : For FY 2014 you will be entitled to receive a $12,500 incentive bonus when the Company achieves the launch of iAPPS V5.1.

B)	R&D Launch of V5.2 : For FY 2014 you will be entitled to receive a $12,500 incentive bonus when the Company achieves the launch of iAPPS V5.2

C)	iAPPS Licenses Sold : For FY2014 you will be entitled to receive a quarterly incentive bonus of $3,125 (equal to $12,500 annually) for Bridgeline booking twenty (20) iAPPS Enterprise licenses in the quarter.

iAPPS Network Operation Center Uptime : For FY2014 you will be entitled to receive a quarterly incentive bonus of $3,125 (equal to $12,500 annually) when Bridgeline’s iAPPS Network Operation Center achieves an average of 99.9% uptime, or better for the entire quarter. The 99.9% uptime will be verified by Pingdom consolidated reports.

All bonuses will be paid on the second (30th/31st) payroll of the month following the quarter end. For purposes of all bonuses that are covered by this agreement, such amounts shall be considered “earned” only to the extent that you are employed by Bridgeline at the time payment is to be made. Otherwise, bonuses will not be considered to have been “earned”.

Employer:

Employee:

Bridgeline Digital, Inc.

By:

Thomas L. Massie
Brett Zucker

President & CEO

EXHIBIT 10.2

BRIDGELINE DIGITAL, INC.

AMENDED AND RESTATED STOCK INCENTIVE PLAN

Restricted Stock Agreement

Bridgeline Digital, Inc. (the “ Company ”) hereby awards to you (the “Stockholder”) shares of Common Stock of the Company as follows:

	Name of Stockholder:	_______________________

	Total Number of Shares Awarded:	_______________________

	Purchase Price per Share:	_______________________

	Award Date:	_______________________

	Vesting Commencement Date:	_______________________

	Number of Shares Subject to Vesting Schedule:	_______________________

	Vesting Schedule: Each Month Anniversary of Vesting Commencement Date: _____ Months from Grant Date:	_________ Shares Vest All Shares Vested

	Expiration Date:	_______________________

By your signature and the signature of the Company’s representative below, you and the Company agree that this Award is made under and governed by the terms of the Company’s Amended and Restated Stock Incentive Plan and this Restricted Stock Agreement (this “ Agreement ”), which includes the Incorporated Terms and Conditions attached to and made a part of this Agreement.

STOCKHOLDER:

___________________________

[Signature]

__ ____________

[Printed Name]

___________________________

[Address]

___________________________

BRIDGELINE DIGITAL, INC.

By: _______________________________

Title: ______________________________

BRIDGELINE DITIGAL, INC.

Restricted Stock Agreement

under the Amended And Restated Stock Incentive Plan

Incorporated Terms and Conditions

1. Issuance of Shares . On the terms and conditions set forth in this Agreement, Bridgeline Digital, Inc. (the “Company”) is issuing to the Stockholder on the Award Date, at the purchase price per share set forth on the signature page of this Agreement (the “ Purchase Price ”), the number of Shares of the Company’s Common Stock set forth on the signature page of this Agreement. The award of the Shares is made pursuant to and is governed by the Company’s Amended and Restated Stock Incentive Plan (the “ Plan ”), the terms of which are incorporated into this Agreement by this reference. Unless the context otherwise requires, capitalized terms used herein without definitions shall have the respective meanings assigned to them in the Plan. By signing this Agreement, the Stockholder acknowledges receipt of a copy of the Plan (which is contained in the Company’s Proxy Statement, Appendix C, on file at: http://www.sec.gov/Archives/edgar/data/1378590/000143774913000761/bridgline_def14a-042613.htm ).

2. Repurchase of Unvested Shares; Purpose and Waiver .

(a) Repurchase of Shares if Service Terminates . If the Stockholder’s Service to the Company terminates for any reason (including, without limitation, death, disability, termination or voluntary resignation), the Company shall have the right and option but not the obligation (the “ Purchase Option ”) to purchase any of the Shares which have not vested in accordance with this Section 2 (the “ Unvested Shares ”) as of the effective date of such termination (the “ Termination Date ”) at a price per Share equal to the Purchase Price. Through and including the Termination Date, the Shares shall vest on a cumulative basis as provided on the vesting schedule set forth on the signature page of this Agreement. Notwithstanding the foregoing, the Board or individual Stockholder may, in its discretion, accelerate the date on which any portion of the Shares become vested.

(b) Purpose and Waiver . The purpose of the Award of the Shares to the Stockholder is to encourage the Stockholder to enter into and/or maintain a continuing and long-term relationship with the Company. It is not a purpose of this Award to reward the Stockholder for the completion of any specific project or of any discrete period of Service which may fall between consecutive vesting periods. By signing this Agreement, the Stockholder hereby waives any claim to any Unvested Shares that are subject to repurchase upon the exercise of the Purchase Option.

3. Custody of Stock Certificates .

(a) Delivery . Upon the execution of this Agreement, the Stockholder shall deliver to the Company one or more stock transfer powers, satisfactory in form and substance to the Company and duly executed in blank by the Stockholder, sufficient to transfer the Unvested Shares to the Company in the event that the Company exercises the Purchase Option. As soon as practicable after receipt of such stock transfer powers, the Company shall deliver such stock transfer powers, together with the certificate or certificates representing the Shares, to the Treasurer of the Company, as custodian (the “ Custodian ”). The certificate or certificates so delivered to the Custodian shall be held by the Custodian for the benefit and in favor of the Stockholder, subject to the provisions of this Section 3. Notwithstanding the escrow, the Stockholder shall retain the right to vote and enjoy all other rights and incidents of ownership of the Shares represented by said certificates. The Custodian shall issue a receipt to the Stockholder evidencing the delivery of the stock certificates and transfer powers. The Custodian shall arrange to keep any stock certificates and stock transfer powers delivered to him or her under this Section 3 in a secure place and shall keep true and accurate records of all such certificates and powers.

(b) Concerning the Custodian . The Company shall indemnify and hold harmless the Custodian against any and all costs or expenses (including attorneys’ fees expenses), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any claim, action, suit, proceeding or investigation arising out of or pertaining to this Agreement. Any person succeeding to the office of Treasurer shall succeed to and assume the rights and obligations of Custodian hereunder.

(c) Release . Following the close of each vesting date, upon the written request of the Stockholder, the Custodian shall deliver to the Stockholder stock certificates and stock transfer powers executed by the Stockholder representing such number of Shares as have ceased to be Unvested Shares hereunder as of such vesting date. The Stockholder shall execute such additional stock transfer powers and take such additional action as the Custodian shall request to enable the Custodian to maintain possession of stock certificates and stock transfer powers duly executed by the Stockholder representing the remainder of the Shares. After all of the Shares have vested, or at such time as the Company may elect in writing to waive the Purchase Option, the Custodian shall deliver to the Stockholder any stock certificates and stock transfer powers executed by the Stockholder representing Shares remaining in the possession of the Custodian.

4. Exercise of Purchase Option and Closing .

(a) Exercise . The Company may exercise the Purchase Option by delivering or mailing to the Stockholder and to the Custodian, in accordance with Section 12(d), written notice of exercise within 90 days after the Termination Date. Such notice shall specify the number of Shares to be purchased. The Company may exercise the Purchase Option in whole or in part. If and to the extent the Purchase Option is not so exercised before the close of such 90-day period, the Purchase Option shall automatically expire and terminate effective upon the expiration of such 90-day period, and the Unvested Shares with respect to which the Purchase Option is not exercised shall immediately cease to be Unvested Shares for any purpose under this Agreement.

(b) Closing of the Repurchase . Within fifteen (15) days after the Company’s exercise of its Purchase Option pursuant to subsection (a) above, (i) the Custodian shall deliver to the Company the certificates and stock powers representing the Shares which the Company has elected to purchase under its Purchase Option; (ii) the Company shall mail or deliver to the Stockholder a check in the amount payable to the Stockholder hereunder for such Shares; and (iii) the Custodian shall mail or deliver to the Stockholder any certificates and stock transfer powers held by the Custodian representing Shares not purchased by the Company.

(c) Company as Owner . After the Company exercises its Purchase Option pursuant to subsection (a) above, the Company shall not pay any dividend to the Stockholder on account of the Shares purchased by the Company pursuant to the Purchase Option or permit the Stockholder to exercise any of the privileges or rights of a stockholder with respect to such Shares, but shall, insofar as permitted by law, treat the Company as the owner of such Shares.

(d) Cancellation of Indebtedness . Notwithstanding any provision of this Section 4 to the contrary, the amount payable to the Stockholder hereunder may be paid, at the option of the Company, in cancellation of all or a portion of any outstanding indebtedness of the Stockholder to the Company, in cash, by check or in combination of any of the foregoing.

(e) No Disclosure Duties . The Company shall have no duty or obligation to disclose to the Stockholder, and the Stockholder shall have no right to be advised of, any material information regarding the Company or any of its subsidiaries or Affiliates, at any time prior to, upon or in connection with the exercise of the Purchase Option by the Company.

(f) Purchase Option Assignable . The Company’s Purchase Option under this Section 4 shall be freely assignable in whole or in part.

5. Restrictions on Transfer .

(a) Unvested Shares Not Transferable . The Stockholder shall not sell, assign, transfer, pledge, hypothecate or otherwise dispose of, by operation of law or otherwise (collectively “ transfer ”), any of the Unvested Shares, or any interest therein, except in compliance with Section 5(b)(iv) below.

(b) Effect of Prohibited Transfer . Any transfer of Shares in violation of this Agreement shall be void. The Company shall not be required (i) to transfer on its books any of the Shares which shall have been transferred in violation of this Agreement or (ii) to treat as the owner of such Shares or pay dividends to any transferee to whom any such Shares shall have been so transferred.

6. Securities Law Restrictions on Resale .

(a) Stockholder’s Representations and Agreements . The Stockholder represents and agrees that (i) unless and until registered under Securities Act, the Shares will be of an illiquid nature and will be deemed to be “ restricted securities ” for purposes of the Securities Act; (ii) the Shares are being acquired for investment, and not with a view to the sale or distribution thereof; and (iii) such Shares may not be sold except in compliance with the registration requirements of the Securities Act or an exemption therefrom.

(b) Legends on Certificates . Unless the Shares have been registered under the Securities Act, each certificate evidencing any of the Shares shall bear a legend referring to the restrictions on transfer imposed by the Securities Act, and any applicable state securities laws, as well as the following legend:

The shares represented by this certificate have been issued pursuant to the terms of the Bridgeline Digital, Inc. Amended and Restated Stock Incentive Plan and may not be sold, pledged, transferred, assigned or otherwise encumbered in any manner except as is set forth in the terms of the Restricted Stock Agreement.

(c) Removal of Legends . If, in the opinion of counsel to the Company, any legend placed on a stock certificate representing Shares issued under this Agreement is no longer required, then the holder of such certificate shall be entitled to exchange such certificate for a certificate representing the same number of Shares but without such legend.

(d) Lock-up Agreement . The Stockholder agrees that, in the event that the Company effects any underwritten public offering of Common Stock registered under the Securities Act, neither the Shares nor any interest in the Shares may be sold, offered for sale, pledged or otherwise disposed of, directly or indirectly (including through the granting of options or any hedging transactions), without the prior written consent of the managing underwriter(s) of the offering, for the same period of time after the execution of an underwriting agreement in connection with such offering, and on the same terms, that all of the Company’s then directors and executive officers agree to be restricted.

7. No Retention Rights . Nothing in the Plan or this Agreement confers upon the Stockholder any right to continue in the Service of the Company for any period of specific duration or shall be construed to interfere with or otherwise restrict in any way the rights of the Company or of the Stockholder, which rights are expressly reserved by each, to terminate the Stockholder’s Service at any time and for any reason, with or without cause.

8. Taxes . As a condition to the issuance of any Shares hereunder, the Stockholder hereby agrees that, if the Company in its discretion determines that it is or could be obligated to withhold any tax in connection with the issuance, vesting or transfer of such Shares, the Company may, in its discretion, withhold the appropriate amount of tax (i) in cash from the Stockholder’s wages or other remuneration or (ii) in kind from the Shares or other property otherwise deliverable to the Stockholder. The Stockholder further agrees that, if the Company has not previously withheld an amount sufficient to satisfy the withholding obligation of the Company, the Stockholder will on demand make reimbursement in cash for the amount underwithheld or, if permitted by the Board, provide such cash or other security as the Board deems adequate to meet the liability or potential liability of the Company for the withholding of tax, and to augment such cash or other security from time to time in any amount reasonably deemed necessary by the Board to preserve the adequacy of such cash or other security. The Stockholder understands that any election under Section 83(b) of the Code with regard to the Restricted Stock must be made within thirty (30) days of the Award Date and that, in the event of such election, the Stockholder will so notify the Company in writing on or before such date .

9. Amendments . The Board may at any time or times amend the Plan or this Agreement for the purpose of satisfying the requirements of any changes in applicable laws or regulations or for any other purpose which at the time may be permitted by law. No termination or amendment of the Plan or amendment of this Agreement shall, without the Stockholder’s consent, materially adversely affect the Stockholder’s rights under this Agreement.

10. Adjustments for Stock Splits, Stock Dividends, Etc . If from time to time while this Agreement remains in force and effect there is any stock split-up, stock dividend, stock distribution or other reclassification of the Common Stock of the Company, (a) any and all new, substituted or additional securities to which the Stockholder is entitled by reason of his or her ownership of Shares shall be immediately subject to the restrictions on transfer and other provisions of this Agreement in the same manner and to the same extent as such Shares and (b) appropriate adjustment shall be made to the Purchase Price.

11. Consistency with Plan . If there is any inconsistency between the provisions of this Agreement and the provisions of the Plan, the latter shall control.

12. Miscellaneous .

(a) Severability; Governing Law . If any provisions of this Agreement shall be determined to be illegal or unenforceable by any court of law, the remaining provisions shall be severable and enforceable in accordance with their terms. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of Delaware, without giving effect to the principles of the conflicts of laws thereof.

(b) Injunctive Relief . It is acknowledged that it will be impossible to measure the damages that would be suffered by the Company if the Stockholder fails to comply with the provisions of this Agreement and that, in the event of any such failure, the Company will not have an adequate remedy at law. The Company shall, therefore, be entitled to obtain specific performance of each of the Stockholder’s obligations hereunder and to obtain immediate injunctive relief. The Stockholder shall not urge, as a defense to any proceeding for such specific performance or injunctive relief, that the Company has an adequate remedy at law.

(c) Binding Effect . This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, executors, administrators, successors and permitted assigns.

(d) Notices . All notices required or permitted hereunder shall be in writing and be effective upon personal delivery, upon deposit with the United States Post Office, by registered or certified mail, postage prepaid, or upon deposit with a recognized express overnight courier service, addressed, if to the Company, to its principal executive office at the time, Attention: President, and if to the Stockholder, to the address shown beneath his or her signature on the signature page of this Agreement, or at such other address or addresses as either party shall designate to the other in accordance with this Section 12(d).

(e) Entire Agreement . This Agreement, together with the Plan, constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings, whether oral or written, of the parties hereto concerning the subject matter hereof.

(f) Waivers . Any provision contained in this Agreement may be waived, either generally or in any particular instance, by the Board, but no such waiver shall operate to the detriment of the Stockholder without the Stockholder’s consent.

Exhibit 10.3

BriDGEline Digital, inc.

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT (this “ Agreement ”) is made and entered into as of March 28, 2014, by and between Bridgeline Digital, Inc. , a Delaware corporation (the “ Company ”), and the investors set forth on the signature pages affixed hereto (each, an “ Investor ” and, collectively, the “ Investors ”).

WHEREAS, the Investors wish to purchase from the Company, and the Company wishes to sell and issue to the Investors, upon the terms and conditions stated in this Agreement, an aggregate of up to 3,200,000 shares (the “ Shares ”) of the Company’s Common Stock, par value $0.001 per share (the “ Common Stock ”) at a purchase price of $0.95 per Share, upon the terms and conditions set forth in this Agreement; and

WHEREAS, in connection with the Investors’ purchase of the Shares, the Investors will receive certain rights to participate in public offerings of shares of the Company’s capital stock, and will be subject to certain restrictions on the transfer of the Shares, all as more fully set forth in this Agreement.

NOW, THEREFORE , in consideration of the mutual terms, conditions and other agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree to the sale and purchase of the Shares as set forth herein.

1.	Definitions .

For purposes of this Agreement, the terms set forth below shall have the corresponding meanings provided below.

“ Affiliate ” shall mean, with respect to any specified Person (as defined below), (i) if such Person is an individual, the spouse, heirs, executors, or legal representatives of such individual, or any trusts for the benefit of such individual or such individual’s spouse and/or lineal descendants, or (ii) otherwise, another Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the Person specified. As used in this definition, “control” shall mean the possession, directly or indirectly, of the sole and unilateral power to cause the direction of the management and policies of a Person, whether through the ownership of voting securities or by contract or other written instrument.

“ Blue Sky Application ” as defined in Section 5.3(a) hereof.

“ Business Day ” shall mean any day on which banks located in New York City are not required or authorized by law to remain closed.

“ Closing ” and “ Closing Date ” as defined in Section 2.2 (c) hereof.

“ Common Stock ” as defined in the recitals above.

“ Company ” as defined in the recitals above.

“ Company Financial Statements ” as defined in Section 4.5(a) hereof.

“ Company’s Knowledge ” means the actual knowledge of any executive officer (as defined in Rule 405 under the Securities Act) or director of the Company, or the knowledge of any fact or matter which any person would reasonably be expected to become aware of in the course of performing the duties and responsibilities as an executive officer or director of the Company.

“ Escrow Agreement ” means that certain agreement, dated March 21, 2014 by and among the Company, the Placement Agent and CSC Trust Company of Delaware .

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

“ First Closing ” and “ First Closing Date ” as defined in Section 2.2(a) hereof.

“ Investor ” as defined in the recitals above.

“ Liens ” means any mortgage, lien, title claim, assignment, encumbrance, security interest, adverse claim, contract of sale, restriction on use or transfer or other defect of title of any kind.

“ Material Adverse Effect ” means a material adverse effect on (i) the assets, liabilities, results of operations, condition (financial or otherwise), business, or prospects of the Company and its Subsidiaries taken as a whole, (ii) the transactions contemplated hereby or in any of the Transaction Documents or (iii) the ability of the Company to perform its obligations under the Transaction Documents (as defined below).

“ Person ” shall mean an individual, entity, corporation, partnership, association, limited liability company, limited liability partnership, joint-stock company, trust or unincorporated organization.

“ Piggyback Registration ” as defined in Section 5.1 hereof.

“ Placement Agency Agreement ” means that certain agreement, dated March 21, 2014 by and between the Placement Agent and the Company.

“ Placement Agent ” means Taglich Brothers, Inc.

“ Private Placement Memorandum ” means the Company’s Private Placement Memorandum dated March 21, 2014, and any amendments or supplements thereto.

“ Purchase Price ” shall mean up to $3,040,000.

“ Registrable Securities ” shall mean the Shares and any shares issuable upon exercise of any warrants issued to the Placement Agent and other registered broker-dealers and their affiliates as compensation in connection with the transactions contemplated hereby; provided , that a security shall cease to be a Registrable Security upon (A) sale pursuant to a Registration Statement or Rule 144 under the Securities Act, or (B) such security becoming eligible for sale by the Investors without any restriction pursuant to Rule 144 (including, without limitation, volume restrictions) and without the need for current public information required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable).

“ Registration Statement ” shall mean any registration statement of the Company filed under the Securities Act that covers the resale of any of the Registrable Securities pursuant to the provisions of this Agreement, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all material incorporated by reference in such Registration Statement.

“ Regulation D ” as defined in Section 3.7 hereof.

“ Regulation S ” as defined in Section 6.1(i)(E) hereof.

“ Rule 144 ” as defined in Section 6.1(i)(C) hereof.

“ SEC ” means the U.S. Securities and Exchange Commission.

“ SEC Documents ” as defined in Section 4.5 hereof.

“ Securities Act ” means the Securities Act of 1933, as amended.

“ Shares ” as defined in the recitals above.

“ Subsequent Closing ” and “ Subsequent Closing Date ” as defined in Section 2.2(b) hereof.

“ Subsidiaries ” shall mean any corporation or other entity or organization, whether incorporated or unincorporated, in which the Company owns, directly or indirectly, any equity or other ownership interest or otherwise controls through contract or otherwise.

“ Transaction Documents ” shall mean this Agreement, the Placement Agency Agreement and the Escrow Agreement.

“ Transfer ” shall mean any sale, transfer, assignment, conveyance, charge, pledge, mortgage, encumbrance, hypothecation, security interest or other disposition, or to make or effect any of the above.

“ Underwriter ” shall mean any entity engaged by the Company to serve as an underwriter in connection with a registration or offering of securities referred to in Section 5.

2.	Sale and Purchase of Shares .

2.1. Subscription for Shares by Investors . Subject to the terms and conditions of this Agreement, on the Closing Date (as hereinafter defined) each of the Investors shall severally, and not jointly, purchase, and the Company shall sell and issue to the Investors, the Shares, in the respective amounts set forth on the signature pages attached hereto in exchange for the Purchase Price.

2.2 Closings .

(a) First Closing . Subject to the terms and conditions set forth in this Agreement, the Company shall issue and sell to each Investor, and each Investor shall, severally and not jointly, purchase from the Company on the First Closing Date, such number of Shares set forth on the signature pages attached hereto, which will be reflected opposite such Investor’s name on Exhibit A-1 (the “ First Closing ”). The date of the First Closing is hereinafter referred to as the “ First Closing Date .”

(b) Subsequent Closing(s) . The Company agrees to issue and sell to each Investor listed on the Subsequent Closing Schedule of Investors, and each Investor agrees, severally and not jointly, to purchase from the Company on such Subsequent Closing Date such number of Shares set forth on the signature pages attached hereto, which will be reflected opposite such Investor’s name on Exhibit A-2 (a “ Subsequent Closing ”). There may be more than one Subsequent Closing; provided , however , that the final Subsequent Closing shall take place within the time periods set forth in the Private Placement Memorandum. The date of any Subsequent Closing is hereinafter referred to as a “ Subsequent Closing Date .” Notwithstanding the foregoing, the maximum number of Shares to be sold at the First Closing and all Subsequent Closings shall not exceed 3,200,000 in the aggregate.

(c) Closing. The First Closing and any applicable Subsequent Closings are each referred to in this Agreement as a “ Closing .” The First Closing Date and any Subsequent Closing Dates are sometimes referred to herein as a “ Closing Date .” All Closings shall occur within the time periods set forth in the Private Placement Memorandum at the offices of Sichenzia Ross Friedman Ference LLP, counsel to the Placement Agent, at 61 Broadway, 32 ^nd Floor, New York, New York 10006, or remotely via the exchange of documents and signatures.

2.3. Closing Deliveries . At each Closing, the Company shall deliver to the Investors, against delivery by the Investor of such Investor’s portion of the Purchase Price (as provided below), duly issued certificates representing the Shares registered in the name of the Investors. At each Closing, each Investor shall deliver or cause to be delivered to the Company the portion of the Purchase Price set forth in its counterpart signature page annexed hereto by paying United States dollars via bank, certified or personal check which has cleared prior to the applicable Closing Date or in immediately available funds, by wire transfer to the following escrow account:

PNC Bank

300 Delaware Avenue

Wilmington, DE 19801

Acct Name: CSC Trust Company of Delaware, Escrow Agent for Bridgeline Digital

ABA#: 031100089

A/C#: 5605012373

OBI: FFC: Bridgeline Digital Escrow; 79-2103

Ref: Investor Name

3.	Representations, Warranties and Acknowledgments of the Investors .

Each Investor, severally and not jointly, represents and warrants to the Company solely as to such Investor that:

3.1 Authorization . The execution, delivery and performance by such Investor of the Transaction Documents to which such Investor is a party have been duly authorized and will each constitute the valid and legally binding obligation of such Investor, enforceable against such Investor in accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability, relating to or affecting creditors’ rights generally.

3.2 Purchase Entirely for Own Account . The Shares to be received by such Investor hereunder will be acquired for such Investor’s own account, not as nominee or agent, and not with a view to the resale or distribution of any part thereof in violation of the Securities Act, and such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same in violation of the Securities Act, without prejudice, however, to such Investor’s right at all times to sell or otherwise dispose of all or any part of such Shares in compliance with applicable federal and state securities laws. Nothing contained herein shall be deemed a representation or warranty by such Investor to hold the Shares for any period of time. Such Investor is not a broker-dealer registered with the SEC under the Exchange Act or an entity engaged in a business that would require it to be so registered.

3.3. Investment Experience . Such Investor acknowledges that the purchase of the Shares is a highly speculative investment and that it can bear the economic risk and complete loss of its investment in the Shares and has such knowledge and experience in financial or business matters such that it is capable of evaluating the merits and risks of the investment contemplated hereby.

3.4 Disclosure of Information . Such Investor has had an opportunity to receive all information related to the Company and the Shares requested by it and to ask questions of and receive answers from the Company regarding the Company, its business and the terms and conditions of the offering of the Shares. Neither such inquiries nor any other due diligence investigation conducted by such Investor shall modify, amend or affect such Investor’s right to rely on the Company’s representations and warranties contained in this Agreement and the Private Placement Memorandum. Such Investor acknowledges that it has received and reviewed the Private Placement Memorandum describing the offering of the Shares, as well as copies of the Company’s SEC Filings since December 20, 2013.

3.5 Restricted Securities . Such Investor understands that the Shares are characterized as “restricted securities” under the U.S. federal securities laws since they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such Shares may be resold without registration under the Securities Act only in certain limited circumstances.

3.6 Legends . It is understood that, except as provided below, certificates evidencing the Shares may bear the following or any similar legend:

(a) “The securities represented hereby may not be transferred unless (i) such securities have been registered for sale pursuant to the Securities Act of 1933, as amended, (ii) such securities may be sold pursuant to an available exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, or (iii) the Company has received an opinion of counsel reasonably satisfactory to it that such transfer may lawfully be made without registration under the Securities Act of 1933 or qualification under applicable state securities laws.”

(b) If required by the authorities of any state in connection with the issuance of sale of the Shares, the legend required by such state authority.

3.7 Accredited Investor . Such Investor is an accredited investor as defined in Rule 501(a) of Regulation D, as amended, under the Securities Act (“ Regulation D ”).

3.8 No General Solicitation . Such Investor did not learn of the investment in the Shares as a result of any public advertising or general solicitation.

3.9 Brokers and Finders . No Investor will have, as a result of the transactions contemplated by the Transaction Documents, any valid right, interest or claim against or upon the Company, any Subsidiary or any other Investor, for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of such Investor.

4.	Representations and Warranties of the Company .

The Company represents, warrants and covenants to the Investors that:

4.1. Organization; Execution, Delivery and Performance .

(a) The Company and each of its Subsidiaries, if any, is a corporation or other entity duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated or organized, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted. The Company is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership or use of property or the nature of the business conducted by it makes such qualification necessary except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. The Company’s current Subsidiaries have no material assets and have had no more than de minimus revenues during the past 12 months, and to the Company’s knowledge, no Subsidiaries are expected to have material assets or revenues during the next three years.

(b) (i) The Company has all requisite corporate power and authority to enter into and perform the Transaction Documents and to consummate the transactions contemplated hereby and thereby and to issue the Shares, in accordance with the terms hereof and thereof, (ii) the execution and delivery of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Shares) have been duly authorized by the Company’s Board of Directors and no further consent or authorization of the Company, its Board of Directors, or its stockholders, is required, (iii) each of the Transaction Documents has been duly executed and delivered by the Company by its authorized representative, and such authorized representative is a true and official representative with authority to sign each such document and the other documents or certificates executed in connection herewith and bind the Company accordingly, and (iv) each of the Transaction Documents constitutes, and upon execution and delivery thereof by the Company will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except to the extent limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights and general principles of equity that restrict the availability of equitable or legal remedies.

4.2. Shares Duly Authorized . The Shares to be issued to each such Investor pursuant to this Agreement, when issued and delivered in accordance with the terms of this Agreement, will be duly and validly issued and will be fully paid and nonassessable and free from all taxes or Liens with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of stockholders of the Company. Subject to the accuracy of the representations and warranties of the Investors to this Agreement, the offer and issuance by the Company of the Shares is exempt from registration under the Securities Act.

4.3 No Conflicts . The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby will not: (i) conflict with or result in a violation of any provision of the Certificate of Incorporation or By-laws or (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both could become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture, patent, patent license or instrument to which the Company or any of its Subsidiaries is a party, except for possible violations, conflicts or defaults as would not, individually or in the aggregate, have a Material Adverse Effect, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the Company or its securities are subject) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected. Neither the Company nor any of its Subsidiaries is in violation of its Certificate of Incorporation, By-laws or other organizational documents. Neither the Company nor any of its Subsidiaries is in default (and no event has occurred which with notice or lapse of time or both could put the Company or any of its Subsidiaries in default) under, and neither the Company nor any of its Subsidiaries has taken any action or failed to take any action that would give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party or by which any property or assets of the Company or any of its Subsidiaries is bound or affected, or for possible defaults as would not, individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its Subsidiaries are not being conducted in violation of any law, rule ordinance or regulation of any governmental entity, except for possible violations which would not, individually or in the aggregate, have a Material Adverse Effect. Except as required under the Securities Act, the Exchange Act, the rules and regulations of the Nasdaq Stock Market and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency, regulatory agency, self regulatory organization or stock market or any third party in order for it to execute, deliver or perform any of its obligations under this Agreement or to issue and sell the Shares in accordance with the terms hereof. All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof.

4.4. Capitalization . As of March 19, 2014, the authorized capital stock of the Company consists of (i) 30,000,000 shares of Common Stock, of which 18,625,510 shares are issued and outstanding, 3,485,589 shares are reserved for issuance pursuant to stock options granted under the Company’s equity compensation plans, 229,658 shares are reserved for issuance pursuant to the Company’s employee stock purchase plan, 1,188,700 shares are reserved for issuance pursuant to warrants to purchase Common Stock, 2,307,693 shares are reserved for issuance pursuant to secured convertible notes and 338,461 shares are reserved for issuance pursuant to an earnout provision in connection with the acquisition of ElementsLocal , and (ii) 1,000,000 shares of preferred stock, par value $0.001 per share, of which no shares are issued and outstanding. Except as described above and in Schedule 4.4 hereto or in the Private Placement Memorandum, (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries, (ii) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of its or their securities under the Securities Act (except for the registration rights provisions contained herein) and (iii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of the Shares. All of such outstanding shares of capital stock are, or upon issuance will be, duly authorized, validly issued, fully paid and nonassessable. No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the stockholders of the Company or any Lien imposed through the actions or failure to act of the Company.

4.5. SEC Information .

(a) The Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Exchange Act (all of the foregoing and all other documents filed with the SEC prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being hereinafter referred to herein as the “ SEC Documents ”). The SEC Documents have been made available to the Investors via the SEC’s EDGAR system. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a 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. As of their respective dates, the financial statements of the Company included in the SEC Documents (“ Company Financial Statements ”) complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. The Company Financial Statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the Company Financial Statements, the Company has no liabilities, contingent or otherwise, other than: (i) liabilities incurred in the ordinary course of business subsequent to December 31, 2013 (the fiscal period end of the Company’s most recently-filed periodic report), and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such financial statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company.

(b) The shares of Common Stock are currently traded on the Nasdaq Capital Market. Except as set forth in the SEC Documents, the Company has not received notice (written or oral) from Nasdaq to the effect that the Company is not in compliance with the continued listing and maintenance requirements of such exchange. The Company is compliance with all such listing and maintenance requirements.

4.6 Permits; Compliance . The Company and each of its Subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the “ Company Permits ”), and there is no action pending or, to the knowledge of the Company, threatened regarding suspension or cancellation of any of the Company Permits. Neither the Company nor any of its Subsidiaries is in conflict with, or in default or violation of, any of the Company Permits, except for any such conflicts, defaults or violations which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Since December 31, 2013, neither the Company nor any of its Subsidiaries has received any notification with respect to possible conflicts, defaults or violations of applicable laws, except for notices relating to possible conflicts, defaults or violations, which conflicts, defaults or violations would not have a Material Adverse Effect.

4.7 Litigation . Except as set forth in the SEC Documents, there is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company or any of its Subsidiaries, or their respective businesses, properties or assets or their officers or directors in their capacity as such, that would have a Material Adverse Effect. The Company is unaware of any facts or circumstances which might give rise to any of the foregoing. There has not been, and to the Company’s Knowledge, there is not pending or contemplated, any investigation by the SEC involving the Company, any of its Subsidiaries or any current or former director or executive officer of the Company or any of its Subsidiaries.

4.8 No Material Changes .

(a) Since December 31, 2013, except as set forth in the SEC Documents, there has not been:

(i) Any material adverse change in the financial condition, operations or business of the Company from that shown on the Company Financial Statements, or any material transaction or commitment effected or entered into by the Company outside of the ordinary course of business;

(ii) Any effect, change or circumstance which has had, or could reasonably be expected to have, a Material Adverse Effect; or

(iii) Any incurrence of any material liability outside of the ordinary course of business.

4.9 No General Solicitation . Neither the Company nor any person participating on the Company’s behalf in the transactions contemplated hereby has conducted any “general solicitation,” as such term is defined in Regulation D promulgated under the Securities Act, with respect to any of the Shares being offered hereby.

4.10 No Integrated Offering . Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales in any security or solicited any offers to buy any security under circumstances that would require registration under the Securities Act of the issuance of the Shares to the Investors. The issuance of the Shares to the Investors will not be integrated with any other issuance of the Company’s securities (past, current or future) for purposes of any stockholder approval provisions applicable to the Company or its securities.

4.11 No Brokers . Except as set forth in Section 9.1, the Company has taken no action which would give rise to any claim by any person for brokerage commissions, transaction fees or similar payments relating to this Agreement or the transactions contemplated hereby.

4.12 Internal Controls . The Company is in material compliance with the provisions of the Sarbanes-Oxley Act of 2002 currently applicable to the Company. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and designed such disclosure controls and procedures to ensure that material information relating to the Company, including the Subsidiaries, is made known to the certifying officers by others within those entities, particularly during the period in which the Company’s most recently filed period report under the Exchange Act, as the case may be, is being prepared. The Company's certifying officers have evaluated the effectiveness of the Company's controls and procedures as of the end of the period covered by the most recently filed periodic report under the Exchange Act (such date, the “ Evaluation Date ”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no significant changes in the Company's internal controls (as such term is defined in Item 308 of Regulation S-K) or, to the Company's Knowledge, in other factors that could significantly affect the Company's internal controls. The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with GAAP and the applicable requirements of the Exchange Act.

4.13 Form D; Blue Sky Laws . The Company agrees to file a Form D with respect to the Shares as required under Regulation D and to provide a copy thereof to the Placement Agent promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Shares for sale to the Investors at the applicable Closing pursuant to this Agreement under applicable securities or “blue sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Placement Agent on or prior to the Closing Date.

4.14 Disclosure . The Company confirms that neither it nor any other Person acting on its behalf has provided any of the Investors or their agents or counsel with any information that constitutes or could reasonably be expected to constitute material, non-public information concerning the Company or any of its Subsidiaries, other than the existence of the transactions contemplated by this Agreement and the other Transaction Documents. The Company understands and confirms that each of the Investors will rely on the foregoing representations in effecting transactions in securities of the Company. All disclosure provided to the Investors regarding the Company and its Subsidiaries, their businesses and the transactions contemplated hereby, including the schedules to this Agreement, furnished by or on behalf of the Company or any of its Subsidiaries is true and correct in all material respects and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. Each press release issued by the Company or any of its Subsidiaries during the twelve (12) months preceding the date of this Agreement did not at the time of release contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. No event or circumstance has occurred or information exists with respect to the Company or any of its Subsidiaries or its or their business, properties, liabilities, results of operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure at or before the date hereof or announcement by the Company but which has not been so publicly disclosed. The Company acknowledges and agrees that no Investor makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.

4.15 Intellectual Property Rights . The Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, original works, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights and all applications and registrations therefor ( “ Intellectual Property Rights ” ) necessary to conduct their respective businesses as now conducted and as presently proposed to be conducted. None of the Company’s or its Subsidiaries’ Intellectual Property Rights have expired, terminated or been abandoned, or are expected to expire, terminate or be abandoned, within two (2) years from the date of this Agreement. The Company has no knowledge of any infringement by the Company or any of its Subsidiaries of Intellectual Property Rights of others. Except as set forth in the SEC Documents, there is no claim, action or proceeding being made or brought, or to the Company’s Knowledge, being threatened, against the Company or any of its Subsidiaries regarding their Intellectual Property Rights. The Company is not aware of any facts or circumstances which might give rise to any of the foregoing infringements or claims, actions or proceedings. The Company and each of its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their Intellectual Property Rights, except where failure to take such measures would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

4.16 Tax Status . Except for occurrences that would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, the Company and each of its Subsidiaries (i) has timely made or filed all foreign, federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has timely paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and (iii) has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company and its Subsidiaries know of no basis for any such claim. The Company is not operated in such a manner as to qualify as a passive foreign investment company, as defined in Section 1297 of the U.S. Internal Revenue Code of 1986, as amended.

4.17 Acknowledgement Regarding Investors’ Trading Activity . It is understood and acknowledged by the Company that (i) following the public disclosure of the transactions contemplated by the Transaction Documents in accordance with the terms thereof, none of the Investors have been asked by the Company or any of its Subsidiaries to agree, nor has any Investor agreed with the Company or any of its Subsidiaries, to desist from effecting any transactions in or with respect to (including, without limitation, purchasing or selling, long and/or short) any securities of the Company, or “derivative” securities based on securities issued by the Company or to hold any of the Shares for any specified term; (ii) any Investor, and counterparties in “derivative” transactions to which any such Investor is a party, directly or indirectly, presently may have a “short” position in the Common Stock which was established prior to such Investor’s knowledge of the transactions contemplated by the Transaction Documents; and (iii) each Investor shall not be deemed to have any affiliation with or control over any arm’s length counterparty in any “derivative” transaction. The Company further understands and acknowledges that following the public disclosure of the transactions contemplated by the Transaction Documents, one or more Investors may engage in hedging and/or trading activities at various times during the period that the Shares are outstanding, and such hedging and/or trading activities, if any, can reduce the value of the existing stockholders’ equity interest in the Company both at and after the time the hedging and/or trading activities are being conducted. The Company acknowledges that such aforementioned hedging and/or trading activities do not constitute a breach of this Agreement or any other Transaction Document or any of the documents executed in connection herewith or therewith.

4.18 Manipulation of Price . Neither the Company nor any of its Subsidiaries has, and, to the Company’s Knowledge, no Person acting on their behalf has, directly or indirectly, (i) taken any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company or any of its Subsidiaries to facilitate the sale or resale of any of the Shares, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Shares (other than the Placement Agent), or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company or any of its Subsidiaries (other than the Placement Agent).

4.19 Shell Company Status . The Company is not, and has never been, an issuer identified in, or subject to, Rule 144(i).

5. Registration Rights .

5.1. Participation in Registrations . Whenever the Company proposes to register any of its securities under the Securities Act, whether for its own account or for the account of another stockholder (except for the registration of securities (A) to be offered pursuant to an employee benefit plan on Form S-8 or (B) pursuant to a registration made on Form S-4, or any successor forms then in effect) at any time and the registration form to be used may be used for the registration of the Registrable Securities (a “ Piggyback Registration ”), it will so notify in writing all holders of Registrable Securities no later than the earlier to occur of (i) the tenth (10 ^th ) day following the Company’s receipt of notice of exercise of other demand registration rights, or (ii) thirty (30) days prior to the anticipated filing date. Subject to the provisions of this Agreement, the Company will include in the Piggyback Registration all Registrable Securities, on a pro rata basis based upon the total number of Registrable Securities with respect to which the Company has received written requests for inclusion within ten (10) business days after the applicable holder’s receipt of the Company’s notice.

5.2. Expenses . All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company, whether or not any Registrable Securities are sold pursuant to the Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the trading market on which the Common Stock is then listed for trading, and (B) in compliance with applicable state securities or Blue Sky laws, (ii) processing expenses of the Placement Agent, not to exceed $20,000 without the Company’s approval, including, but not limited to, printing expenses, messenger, telephone and delivery expenses and customary marketing expenses, (iii) fees and disbursements of counsel and independent public accountants for the Company, (iv) fees and disbursements of one counsel to the Placement Agent not to exceed $30,000, and (v) filing fees and counsel fees of the Placement Agent if a determination is made that a FINRA Rule 5110 filing is required to be made with respect to the Registration Statement.

5.3. Indemnification .

(a) Indemnification by the Company . The Company will indemnify and hold harmless each Investor and its officers, directors, members, shareholders, partners, representatives, employees and agents, successors and assigns, and each other person, if any, who controls such Investor within the meaning of the Securities Act, against any losses, obligations, claims, damages, liabilities, contingencies, judgments, fines, penalties, charges, costs (including, without limitation, court costs, reasonable attorneys’ fees and costs of defense and investigation), amounts paid in settlement or expenses, joint or several, (collectively, “Claims”) incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto, to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof; (ii) any blue sky application or other document executed by the Company specifically for that purpose or based upon written information furnished by the Company filed in any state or other jurisdiction in order to qualify any or all of the Registrable Securities under the securities laws thereof (any such application, document or information herein called a “ Blue Sky Application ”); (iii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; (iv) any violation by the Company or its agents of any rule or regulation promulgated under the Securities Act applicable to the Company or its agents and relating to action or inaction required of the Company in connection with such registration; or (v) any failure to register or qualify the Registrable Securities included in any such Registration Statement in any state where the Company or its agents has affirmatively undertaken or agreed in writing that the Company will undertake such registration or qualification on an Investor’s behalf and will reimburse such Investor, and each such officer, director or member and each such controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Claim or action; provided , however , that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by such Investor or any such controlling person in writing specifically for use in such Registration Statement or Prospectus.

(b) Indemnification by the Investors . Each Investor agrees, severally but not jointly, to indemnify and hold harmless, to the fullest extent permitted by law, the Company, its directors, officers, employees, stockholders, partner, representatives and each person who controls the Company (within the meaning of the Securities Act) against any Claims resulting from any untrue statement of a material fact or any omission of a material fact required to be stated in the Registration Statement or Prospectus or preliminary prospectus or amendment or supplement thereto or necessary to make the statements therein not misleading, to the extent, but only to the extent that such untrue statement or omission is contained in any information furnished in writing by such Investor to the Company specifically for inclusion in such Registration Statement or Prospectus or amendment or supplement thereto. In no event shall the liability of an Investor be greater in amount than the dollar amount of the proceeds (net of all expense paid by such Investor in connection with any claim relating to this Section 5.3 and the amount of any damages such Investor has otherwise been required to pay by reason of such untrue statement or omission) received by such Investor upon the sale of the Registrable Securities included in the Registration Statement giving rise to such indemnification obligation.

(c) Conduct of Indemnification Proceedings . Any person entitled to indemnification hereunder shall (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided that any person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such person unless (a) the indemnifying party has agreed to pay such fees or expenses, or (b) the indemnifying party shall have failed to assume the defense of such claim or employ counsel reasonably satisfactory to such person or (c) in the reasonable judgment of any such person, based upon written advice of its counsel, a conflict of interest exists between such person and the indemnifying party with respect to such claims (in which case, if the person notifies the indemnifying party in writing that such person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such person); and provided , further , that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations hereunder, except to the extent that such failure to give notice shall materially adversely affect the indemnifying party in the defense of any such claim or litigation. It is understood that the indemnifying party shall not, in connection with any proceeding in the same jurisdiction, be liable for fees or expenses of more than one separate firm of attorneys at any time for all such indemnified parties. No indemnifying party will, except with the consent of the indemnified party, which consent shall not be unreasonably withheld or delayed, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation.

(d) Contribution . If for any reason the indemnification provided for in the preceding paragraphs (a) and (b) is unavailable to an indemnified party or insufficient to hold it harmless, other than as expressly specified therein, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such Claim in such proportion as is appropriate to reflect the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations. No person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the Securities Act shall be entitled to contribution from any person not guilty of such fraudulent misrepresentation. In no event shall the contribution obligation of a holder of Registrable Securities be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such holder in connection with any claim relating to this Section 5.3 and the amount of any damages such holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission) received by it upon the sale of the Registrable Securities giving rise to such contribution obligation.

5.4. Cooperation by Investor . Each Investor shall furnish to the Company or the Underwriter, as applicable, such information regarding the Investor and the distribution proposed by it as the Company may reasonably request in connection with any registration or offering referred to in this Section 5. Each Investor shall cooperate as reasonably requested by the Company in connection with the preparation of the registration statement with respect to such registration, and for so long as the Company is obligated to file and keep effective such registration statement, shall provide to the Company, in writing, for use in the registration statement, all such information regarding the Investor and its plan of distribution of the Shares included in such registration as may be reasonably necessary to enable the Company to prepare such registration statement, to maintain the currency and effectiveness thereof and otherwise to comply with all applicable requirements of law in connection therewith.

6. Transfer Restrictions .

6.1. Transfer or Resale . Each Investor understands that:

(i) Except as provided in the registration rights provisions set forth above, the sale or resale of all or any portion of the Shares has not been and is not being registered under the Securities Act or any applicable state securities laws, and all or any portion of the Shares may not be transferred unless:

(A) the Shares are sold pursuant to an effective registration statement under the Securities Act;

(B) the Investor shall have delivered to the Company, at the cost of the Company, a customary opinion of counsel that shall be in form, substance and scope reasonably acceptable to the Company, to the effect that the Shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration;

(C) the Shares are sold or transferred to an “affiliate” (as defined in Rule 144 promulgated under the Securities Act (or a successor rule) (“ Rule 144 ”)) of the Investor who agrees to sell or otherwise transfer the Shares only in accordance with this Section 6.1 and who is an Accredited Investor;

(D) the Shares are sold pursuant to Rule 144; or

(E) the Shares are sold pursuant to Regulation S under the Securities Act (or a successor rule) (“ Regulation S ”);

and, in each case, the Investor shall have delivered to the Company, at the cost of the Company, a customary opinion of counsel, in form, substance and scope reasonably acceptable to the Company. Notwithstanding the foregoing or anything else contained herein to the contrary, the Shares may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.

6.2 Transfer Agent Instructions . If an Investor provides the Company with a customary opinion of counsel, that shall be in form, substance and scope reasonably acceptable to such counsel, to the effect that a public sale or transfer of such Shares may be made without registration under the Securities Act and such sale or transfer is effected, the Company shall permit the transfer and promptly instruct its transfer agent to issue one or more certificates, free from restrictive legend, in such name and in such denominations as specified by such Investor. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Investors, by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 6.2 may be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section, that the Investors shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate transfer, without the necessity of showing economic loss and without any bond or other security being required.

7. Conditions to Closing of the Investors .

The obligation of each Investor hereunder to purchase the Shares at the Closing is subject to the satisfaction, at or before the applicable Closing Date, of each of the following conditions, provided that these conditions are for each Investor’s sole benefit and may be waived by such Investor at any time in its sole discretion by providing the Company with prior written notice thereof:

7.1 Representations, Warranties and Covenants . The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of the Closing Date as though originally made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct in all material respects as of such date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required to be performed, satisfied or complied with by the Company at or prior to the Closing Date. Such Investor shall have received a certificate, executed by the Chief Executive Officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by such Investor in the form reasonably acceptable to such Investor.

7.2 Consents . The Company shall have obtained all governmental, regulatory or third party consents and approvals, if any, necessary for the sale of the Shares.

7.3 Delivery by Company . The Company shall have duly executed and delivered to such Investor (A) each of the other Transaction Documents and (B) an instruction letter to the Company’s transfer agent regarding the issuance of the Shares in the number as is set forth on the signature page hereby being purchased by such Investor at the Closing pursuant to this Agreement.

7.4 Legal Opinion . Such Investor shall have received the opinion of Morse, Barnes-Brown & Pendleton, P.C. , the Company’s counsel, dated as of the Closing Date, in the form reasonably acceptable to such Investor.

7.5 Listing of Shares . The Company shall have obtained approval of the NASDAQ Stock Market to list or designate for quotation (as the case may be) the Shares.

7.6 No Material Adverse Effect . Since the date of first execution of this Agreement, no event or series of events shall have occurred that reasonably would have or result in a Material Adverse Effect.

7.7 No Prohibition . No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents.

7.8 Other Documents . The Company shall have delivered to such Investor such other documents, instruments or certificates relating to the transactions contemplated by this Agreement as such Investor or its counsel may reasonably request.

8. Conditions to Closing of the Company .

The obligations of the Company to effect the transactions contemplated by this Agreement with each Investor are subject to the fulfillment at or prior to each Closing Date of the conditions listed below.

8.1. Representations and Warranties . The representations and warranties made by such Investor in Section 3 shall be true and correct in all material respects at the time of Closing as if made on and as of such date.

8.2. Corporate Proceedings . All corporate and other proceedings required to be undertaken by such Investor in connection with the transactions contemplated hereby shall have occurred and all documents and instruments incident to such proceedings shall be reasonably satisfactory in substance and form to the Company.

9. Miscellaneous .

9.1. Compensation of Placement Agent . The Investor acknowledges that it is aware that the Placement Agent will receive from the Company, in consideration for its services as financial advisor and placement agent in respect of the transactions contemplated hereby, (a) a commission success fee equal to eight percent (8%) of the Purchase Price of the Shares sold at each Closing, payable in cash, (b) an expense allowance, which shall include reimbursement of legal expenses incurred in connection with the transactions contemplated hereby, not to exceed $25,000 without the Company’s approval, payable in cash, and (c) five-year warrants to purchase such number of shares of the Company’s Common Stock equal to ten percent (10%) of the number of Shares sold in the Offering, at an exercise price per share equal to $1.05.

9.2. Notices . All notices, requests, demands and other communications provided in connection with this Agreement shall be in writing and shall be deemed to have been duly given at the time when hand delivered, delivered by express courier, or sent by facsimile (with receipt confirmed by the sender’s transmitting device) in accordance with the contact information provided below or such other contact information as the parties may have duly provided by notice.

The Company :

Bridgeline Digital, Inc.

80 Blanchard Road

Burlington, Massachusetts 01803

Telephone: (781) 376-5555

Facsimile: (781) 376-5033

Attention: Mr. Thomas L. Massie,
President and Chief Executive Officer

With a copy to:

Morse, Barnes-Brown & Pendleton, P.C.

CityPoint

230 Third Avenue, 4 ^th Floor

Waltham, Massachusetts 02451

Telephone: (781) 622-5930

Facsimile: (781) 622-5933

Attention: Joseph C. Marrow, Esq.

The Investors :

As per the contact information provided on the signature pages hereof.

Taglich Brothers, Inc. :

Taglich Brothers, Inc.

275 Madison Avenue, Suite 1618

New York, NY 10016

Telephone: (212) 661-6886

Facsimile: (212) 661-6824

Attention: Robert C. Schroeder

Vice President, Investment Banking

With a copy to:

Sichenzia Ross Friedman Ference LLP

61 Broadway, 32 ^nd Floor

New York, New York 10006

Telephone: (212) 930-9700

Facsimile: (212) 930-9725

Attention: Marc J. Ross, Esq.

9.3 Survival of Representations and Warranties . Each party hereto covenants and agrees that the representations and warranties of such party contained in this Agreement shall survive the Closing. Each Investor shall be responsible only for its own representations, warranties, agreements and covenants hereunder.

9.4 Indemnification .

(a) The Company agrees to indemnify and hold harmless each Investor and its Affiliates and their respective directors, officers, employees and agents from and against any and all losses, claims, damages, liabilities and expenses (including without limitation reasonable attorney fees and disbursements and other expenses incurred in connection with investigating, preparing or defending any action, claim or proceeding, pending or threatened and the costs of enforcement thereof) (collectively, “ Losses ”) to which such Person may become subject as a result of any breach of representation, warranty, covenant or agreement made by or to be performed on the part of the Company under the Transaction Documents, and will reimburse any such Person for all such amounts as they are incurred by such Person.

(b) Promptly after receipt by any Investor (the “ Indemnified Person ”) of notice of any demand, claim or circumstances which would or might give rise to a claim or the commencement of any action, proceeding or investigation in respect of which indemnity may be sought pursuant to Section 9.4, such Indemnified Person shall promptly notify the Company in writing and the Company shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Person, and shall assume the payment of all fees and expenses; provided , however , that the failure of any Indemnified Person so to notify the Company shall not relieve the Company of its obligations hereunder except to the extent that the Company is materially prejudiced by such failure to notify. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless: (i) the Company and the Indemnified Person shall have mutually agreed to the retention of such counsel; or (ii) in the reasonable judgment of counsel to such Indemnified Person representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The Company shall not be liable for any settlement of any proceeding effected without its written consent, which consent shall not be unreasonably withheld, but if settled with such consent, or if there be a final judgment for the plaintiff, the Company shall indemnify and hold harmless such Indemnified Person from and against any loss or liability (to the extent stated above) by reason of such settlement or judgment. Without the prior written consent of the Indemnified Person, which consent shall not be unreasonably withheld, the Company shall not effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Person from all liability arising out of such proceeding.

9.5. Entire Agreement . This Agreement contains the entire agreement between the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter contained herein.

9.6 Third Party Beneficiaries . This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and, except for the Placement Agent and other registered broker-dealers, if any, who are specifically agreed to be and acknowledged by each party as third party beneficiaries hereof, is not for the benefit of, nor may any provision hereof be enforced by, any other person.

9.7. Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. Neither the Company nor any Investor shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding the foregoing, but subject to the provisions of Section 6.1 hereof, any Investor may, without the consent of the Company, assign its rights hereunder to any person that purchases Shares in a private transaction from an Investor or to any of its “affiliates,” as that term is defined under the 1934 Act.

9.8. Public Disclosures . The Company shall (x) on or before 8:30 a.m., New York time, on the first (1 ^st ) Business Day after the date of this Agreement, (x) issue a press release (the “ Press Release ”) reasonably acceptable to the Investors disclosing all the material terms of the transactions contemplated by the Transaction Documents and (y) on or before 8:30 a.m., New York time, within three (3) Business Days after the date of this Agreement, file a Current Report on Form 8-K describing all the material terms of the transactions contemplated by the Transaction Documents in the form required by the 1934 Act and attaching all the material Transaction Documents (including, without limitation, this Agreement (and all schedules to this Agreement) (including all attachments, the “ 8-K Filing ”). From and after the issuance of the Press Release, the Company shall have disclosed all material, non-public information (if any) delivered to any of the Investors by the Company in connection with the transactions contemplated by the Transaction Documents. Neither the Company nor any Investor shall issue any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, the Company shall be entitled, without the prior approval of any Investor, to make the Press Release and any other press release or other public disclosure with respect to such transactions (i) in substantial conformity with the 8-K Filing and contemporaneously therewith and (ii) as is required by applicable law and regulations (provided that in the case of clause (i) each Investor shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release). Without the prior written consent of the applicable Investor (which may be granted or withheld in such Investor’s sole discretion), the Company shall not disclose the name of such Investor in any filing (other than the 8-K Filing, any Registration Statement registering the Shares and any other filing as is required by applicable law and regulations), announcement, release or otherwise.

9.9. Binding Effect; Benefits . This Agreement and all the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns; nothing in this Agreement, expressed or implied, is intended to confer on any persons other than the parties hereto or their respective successors and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement.

9.10. Amendment; Waivers . All modifications, amendments or waivers to this Agreement shall require the written consent of both the Company and a majority-in-interest of the Investors (based on the number of Shares purchased hereunder).

9.11. Applicable Law; Disputes . This Agreement shall be governed by and construed in accordance with the laws of the State of New York without giving effect to the conflict of law provisions thereof, and the parties hereto irrevocably submit to the exclusive jurisdiction of the United States District Court for the Southern District of New York, or, if jurisdiction in such court is lacking, the Supreme Court of the State of New York, New York County, in respect of any dispute or matter arising out of or connected with this Agreement.

9.12. Further Assurances . Each party hereto shall do and perform or cause to be done and performed all such further acts and shall execute and deliver all such other agreements, certificates, instruments and documents as any other party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

9.13. Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute one and the same instrument. This Agreement may also be executed via facsimile or by e-mail delivery of a “.pdf” format data file, which shall be deemed an original.

9.14 Independent Nature of Investors . The obligations of each Investor under this Agreement or other transaction document are several and not joint with the obligations of any other Investor, and no Investor shall be responsible in any way for the performance of the obligations of any other Investor under this Agreement or any other transaction document. Each Investor shall be responsible only for its own representations, warranties, agreements and covenants hereunder. The decision of each Investor to purchase Shares pursuant to this Agreement has been made by such Investor independently of any other Investor and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of the Company which may have been made or given by any other Investor or by any agent or employee of any other Investor, and no Investor or any of its agents or employees shall have any liability to any other Investor (or any other person) relating to or arising from any such information, materials, statements or opinions. Nothing contained herein or in any other transaction document, and no action taken by any Investor pursuant hereto or thereto, shall be deemed to constitute the Investors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Investors are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement. Except as otherwise provided in this Agreement or any other transaction document, each Investor shall be entitled to independently protect and enforce its rights arising out of this Agreement or out of the other transaction documents, and it shall not be necessary for any other Investor to be joined as an additional party in any proceeding for such purpose. Each Investor has been represented by its own separate legal counsel in connection with the transactions contemplated hereby and acknowledge and understand that Sichenzia Ross Friedman Ference LLP has served as counsel to the Placement Agent only.

[SIGNATURE PAGES IMMEDIATELY FOLLOW]

IN WITNESS WHEREOF , the undersigned Investors and the Company have caused this Securities Purchase Agreement to be duly executed as of the date first above written.


	BRIDGELINE DIGITAL, INC.


	By: /s/Michael D. Prinn Michael D. Prinn Executive Vice President and Chief Financial Officer


	INVESTORS: The Investors executing the Signature Page in the form attached hereto as Annex A and delivering the same to the Company or its agents shall be deemed to have executed this Agreement and agreed to the terms hereof.

Schedule 4.4

Capitalization

In connection with the acquisition of ElementsLocal on August 1, 2013, the Company issued 526,438 shares of Common Stock to the sellers of ElementsLocal. In addition, contingent consideration not to exceed 338,461 shares of Common Stock is contingently issuable to the sellers of ElementsLocal. The contingent consideration is payable quarterly over the 12 consecutive calendar quarters following the acquisition, contingent upon the acquired business achieving certain revenue targets.

Certain stockholders that acquired shares of the Company’s Common Stock in connection with the sale of their businesses to the Company were granted “piggyback” registration rights such that if the Company registers any securities for public sale for the benefit of any member of the Company’s management team or any stockholder that acquired their shares through the sale of their business to the Company, such stockholders will have the right to include their shares in a registration statement. In connection with that certain private placement dated October 29, 2010, the Company issued 1,000,000 shares of Common Stock to investors (the “October 2010 Private Placement”). In connection with the October 2010 Private Placement, the Company granted “piggyback” registration rights to investors in such October 2010 Private Placement. In connection with that certain private placement dated May 31, 2012, the Company issued 2,173,913 shares of Common Stock to investors (the “May 2012 Private Placement”). In connection with the May 2012 Private Placement, the Company granted “piggyback” registration rights to investors in such May 2012 Private Placement. In connection with that certain private placement dated June 19, 2013, the Company issued 2,300,000 shares of Common Stock and five-year warrants to purchase 460,000 shares of Common Stock to investors (the “June 2013 Private Placement”). The exercise price of the warrants issued in the June 2013 Private Placement is $1.25 per share. In connection with the June 2013 Private Placement, the Company granted “piggyback” registration rights to investors in such June 2013 Private Placement with respect to the shares of common stock sold in the offering and underlying the warrants .

In connection with that certain private placement which occurred between September 2013 and November 2013, the company sold an aggregate of $3,000,000 of 10% secured subordinated convertible notes (the "Notes"). The Notes accrue interest at a rate of ten percent (10%) per annum and mature on September 30, 2016. Interest on the Notes is payable quarterly in cash. The Notes are convertible at the election of the holder into shares of Common Stock at a conversion price equal to $1.30 per share at any time prior to the maturity date, provided that no holder may convert the Notes if such conversion would result in the holder beneficially owning more than 4.99% of the number of shares of Common Stock outstanding at the time of conversion. The Company granted “piggyback” registration rights to investors in such private placement with respect to the shares of common stock underlying the Notes .

On or about October 15, 2010, the Company issued Warrants to Purchase Common Stock exercisable for up to 50,000 shares of Common Stock. The Warrants to Purchase Common Stock terminate on or about October 15, 2015. As of the Closing, Warrants to Purchase Common Stock exercisable for 50,000 shares remain outstanding and unexercised. The Warrants to Purchase Common Stock were granted at exercise prices of $1.00 (25,000 shares) and $2.00 (25,000 shares) per share.

On or about May 31, 2012, the Company issued Warrants to Purchase Common Stock exercisable for up to 217,391 shares of Common Stock. The Warrants to Purchase Common Stock terminate on or about May 31, 2017. As of the Closing, Warrants to Purchase Common Stock exercisable for 217,931 shares remain outstanding and unexercised. The Warrants to Purchase Common Stock were granted at an exercise price of $1.40 per share. The Company granted “piggyback” registration rights to the holders of the warrants with respect to the shares of common stock underlying the warrants .

On or about June 19, 2013, the Company issued five-year Warrants to Purchase Common Stock exercisable for up to 230,000 shares of Common Stock. The Warrants to Purchase Common Stock terminate on or about June 19, 2018. As of the Closing, Warrants to Purchase Common Stock exercisable for 230,000 shares remain outstanding and unexercised. The Warrants to Purchase Common Stock were granted at an exercise price of $1.25 per share. The Company granted “piggyback” registration rights to the holders of the warrants with respect to the shares of common stock underlying the warrants.

On September 30, 2013, the Company issued five-year warrants to the placement agent in the Company’s placement of subordinated convertible debt. The warrants are exercisable to purchase 153,846 of the Company’s common stock at a price equal to $1.30 per share. The Company granted “piggyback” registration rights to the holders of the warrants with respect to the shares of common stock underlying the warrants.

On November 6, 2013, the Company issued five-year warrants to the placement agent in the Company’s placement of subordinated convertible debt. The warrants are exercisable to purchase 76,923 of the Company’s common stock at a price equal to $1.30 per share. The Company granted “piggyback” registration rights to the holders of the warrants with respect to the shares of common stock underlying the warrants .

Annex A

Securities Purchase Agreement

Investor Counterpart Signature Page

The undersigned, desiring to: (i) enter into this Securities Purchase Agreement dated as of March 28, 2014 (the “ Agreement ”), with the undersigned, Bridgeline Digital, Inc., a Delaware corporation (the “ Company ”), in or substantially in the form furnished to the undersigned and (ii) purchase the Shares as set forth below, hereby agrees to purchase such Shares from the Company as of the Closing and further agrees to join the Agreement as a party thereto, with all the rights and privileges appertaining thereto, and to be bound in all respects by the terms and conditions thereof. The undersigned specifically acknowledges having read the representations in the Agreement section entitled “Representations, Warranties and Acknowledgments of the Investors,” and hereby represents that the statements contained therein are complete and accurate with respect to the undersigned as an Investor.

	Name of Investor: If an entity: Print Name of Entity:



	By:
		Name:
		Title:

	If an individual:

	Print Name:

	Signature:

If joint individuals:

Print Name:

Signature:

All Investors:

Address:

Telephone No.:

Facsimile No.:

Email Address:

The Investor hereby elects to purchase ____________ Shares (to be completed by Investor) at a purchase price of $0.95 per Share under the Securities Purchase Agreement at a total Purchase Price of $__________ (to be completed by Investor) .

Exhibit A-1

First Closing held on March 28, 2014

Schedule of Investors

Investor	Shares purchased		Purchase Price
KYLE G BUCHAKJIAN		10,526	$	9,999.70
EBS Partners LP		315,789	$	299,999.55
ROBERT KOSKI		100,000	$	95,000.00
THE KOSKI FAMILY FOUNDATION		50,000	$	47,500.00
SHADOW CAPITAL LLC		162,895	$	154,750.25
PAMELA M WALSH BRIAN P WALSH JT TEN		42,104	$	39,998.80
THE SDM IRREVOCABLE TRUST FBO ANDREW SEID UAD 11/05/04 PAUL SEID TTEE		50,000	$	47,500.00
THE SDM IRREVOCABLE TRUST FBO LAUREN SEID UAD 11/05/04 PAUL SEID TTEE		50,000	$	47,500.00
ROBERT D VANROIJEN JR TRUST U A DTD 12-14-82 ROBERT D VANROIJEN TTEE		30,000	$	28,500.00
ALLISON BIBICOFF		21,052	$	19,999.40
PAT S MCCRORY		10,527	$	10,000.65
DAVID A RANDOM		52,631	$	49,999.45
DONALD B. MCCULLOCH TRUST U/A/DTD 3/16/77 DONALD B. MCCULLOCH AND JACQUELINE M MCCULLOCH COTRUSTEE		10,000	$	9,500.00
JAMES J MCENTEE		52,631	$	49,999.45
JOHN W CROW		36,842	$	34,999.90
GEORGE J WHITE & DEBRA A WHITE JT TEN WROS		16,315	$	15,499.25
WILLIAM P KAISER		19,473	$	18,499.35
KENNETH W CLEVELAND		50,008	$	47,507.60
DONALD V MOLINE		10,000	$	9,500.00
T. MINA SUPPLY INC		52,631	$	49,999.45
STERLING FAMILY INVESTMENT LLC		126,316	$	120,000.20

HARVEY BIBICOFF AND JACQUELINE BIBICOFF TRUSTEES OF THE BIBICOFF FAMILY TRUST DTD 5/16/00	31,579	$	30,000.05
ROBERT W ALLEN TRUST UAD 04/29/08 ROBERT W ALLEN TTEE	121,053	$	115,000.35
SUSAN M ALLEN TRUST UAD 04/29/08 SUSAN ALLEN TTEE	121,053	$	115,000.35
RICHARD BUCHAKJIAN	52,631	$	49,999.45
RONALD JOHNSON	57,895	$	55,000.25
JOHN R BERTSCH TRUST DTD 12/4/2004 JOHN R BERTSCH TRUSTEE	115,788	$	109,998.60
BRUCE NEWELL	40,000	$	38,000.00
ANDREW K LIGHT	78,947	$	74,999.65
DENIS FORTIN	103,683	$	98,498.85
ANN B OLDFATHER	31,579	$	30,000.05
DAVID FRANK RIOS & MARGARET JO RIOS 1999 TRUST DTD 6/22/99	73,684	$	69,999.80
LARRY S KAPLAN MARLA B KAPLAN JT/WROS	31,578	$	29,999.10
C MARK CASEY	5,263	$	4,999.85
DR THOMAS HEIRIGS	26,315	$	24,999.25
THE HILLARY BIBICOFF REVOCABLE TRUST DTD 4/19/07 HILLARY BIBICOFF TRUSTEE	10,527	$	10,000.65
EDWARD J COOK	30,000	$	28,500.00
LUCILLE SOLOMON	26,315	$	24,999.25
IRA FBO ANNETTE J HINKLE PERSHING LLC AS CUSTODIAN ROLLOVER ACCOUNT	10,527	$	10,000.65
IRA FBO P. KENNETH NITZ PERSHING LLC AS CUSTODIAN	31,579	$	30,000.05
IRA FBO ROBERT F TAGLICH PERSHING LLC AS CUSTODIAN ROLLOVER ACCOUNT	526,315	$	499,999.25
PAUL SEID	210,266	$	199,752.70
AUGUSTUS BALDINI	10,527	$	10,000.65
Kerry J kramer Allison Wilhelm	10,000	$	9,500.00
Taylor Wilhelm Shannon Wilhelm	10,000	$	9,500.00
NORPER INVESTMENTS	78,947	$	74,999.65
RAPHAEL E FERRIS	15,789	$	14,999.55
NUTIE DOWDLE	52,631	$	49,999.45
JEFFREY R WILLIAMS PATRICIA A WILLIAMS JTWROS	15,789	$	14,999.55
Total	3,200,000	$	3,040,000.00

Exhibit A-2

Subsequent Closing held on , 2014

Schedule of Investors


Investor	Shares	Purchase Price











SECOND CLOSING TOTAL

Exhibit 10.4

BRIDGELINE DIGITAL, INC.

Warrant No. PA-2014-__

WARRANT TO PURCHASE COMMON STOCK

VOID AFTER 5:00 P.M., EASTERN TIME,
ON THE EXPIRATION DATE

THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR WITHOUT DELIVERING AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

FOR VALUE RECEIVED, Bridgeline Digital, Inc. , a Delaware corporation (the “ Company ”), hereby agrees to sell upon the terms and on the conditions hereinafter set forth, at any time commencing on the date hereof but no later than 5:00 p.m., Eastern Time, on March 28, 2019 (the “ Expiration Date ”), to Taglich Brothers, Inc., or his, her or its registered assigns (the “ Holder ”), under the terms as hereinafter set forth, _____________________________ (_________) fully paid and non-assessable shares of the Company’s Common Stock, par value $0.001 per share ( the “ Common Stock ”), at a purchase price per share of $1.05 (the “ Warrant Price ”), pursuant to the terms and conditions set forth in this warrant (this “ Warrant ”). The number of shares of Common Stock issued upon exercise of this Warrant (“ Warrant Shares ”) and the Warrant Price are subject to adjustment in certain events as hereinafter set forth.

This Warrant is issued to the placement agent for services rendered in connection with the Company’s Private Placement Memorandum dated March 21, 2014, as the same may be amended from time to time.

1. Exercise of Warrant.

(a) The Holder may exercise this Warrant according to the terms and conditions set forth herein by delivering to the Company (whether via facsimile or otherwise) at any time prior to the Expiration Date (such date of exercise, the “ Exercise Date ”) (i) the Exercise Notice attached hereto as Exhibit A (the “ Exercise Notice ”) (having then been duly executed by the Holder), and (ii) unless the Warrant is being exercised pursuant to a Cashless Exercise (as defined below), cash, a certified check, a bank draft or wire transfer in payment of the purchase price, in lawful money of the United States of America, for the number of Warrant Shares specified in the Exercise Form. The Holder shall not be required to deliver the original of this Warrant in order to effect an exercise hereunder. Execution and delivery of an Exercise Form with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original of this Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares. Execution and delivery of an Exercise Form for all of the then-remaining Warrant Shares shall have the same effect as cancellation of the original of this Warrant after delivery of the Warrant Shares in accordance with the terms hereof.

(b) On or before the third (3 ^rd ) Trading Day following the later of (i) the date on which the Company has received an Exercise Notice or (ii) the date on which the Company receives payment of the exercise price (which shall not apply for cashless exercises), the Company shall transmit an acknowledgment of confirmation of receipt of such Exercise Notice to the Holder and the Company’s transfer agent (the “ Transfer Agent ”). On or before the fifth (5 ^th ) Trading Day following the later of (i) the date on which the Company has received such Exercise Notice or (ii) the date on which the Company receives the exercise price (such later date, the “ Delivery Date ”), the Company shall (X) provided that the Transfer Agent is participating in The Depository Trust Company (“ DTC ”) Fast Automated Securities Transfer Program, upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit/ Withdrawal at Custodian system, or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the Holder or, at the Holder’s instruction pursuant to the Exercise Notice, the Holder’s agent or designee, in each case, sent by reputable overnight courier to the address as specified in the applicable Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee (as indicated in the applicable Exercise Notice), for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise. Upon the later of (i) the date on which the Company has received the Exercise Notice or (ii) the date on which the Company receives the exercise price, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date such Warrant Shares are credited to the Holder’s DTC account or the date of delivery of the certificates evidencing such Warrant Shares (as the case may be). Notwithstanding the foregoing, if a Holder has not received certificates for all Warrant Shares prior to the tenth (10th) business day after the Delivery Date with respect to an exercise of any portion of this Warrant for any reason, then Holder shall have the right, but not the obligation, at any time thereafter until receipt of all the Warrant Shares relating to the Exercise Notice, to rescind the Exercise Notice by providing notice to the Company (the “Rescission Notice”). Upon delivery of a Rescission Notice to the Company, the Holder shall regain the rights of a Holder of this Warrant with respect to such unexercised portions of this Warrant and the Company shall, as soon as practicable, return such unexercised Warrant to the Holder or, if the Warrant has not been surrendered, adjust its records to reflect that such portion of this Warrant has not been exercised.

(c) This Warrant may be exercised in whole or in part so long as any exercise in part hereof would not involve the issuance of fractional Warrant Shares. If exercised in part, at the request of the Holder and upon delivery of the original Warrant, the Company shall deliver to the Holder a new Warrant, identical in form to this Warrant, in the name of the Holder, evidencing the right to purchase the number of Warrant Shares as to which this Warrant has not been exercised, which new Warrant shall be signed by the President or Chief Executive Officer of the Company. The term Warrant as used herein shall include any subsequent Warrant issued as provided herein.

(d) Notwithstanding any provisions herein to the contrary, in lieu of exercising this Warrant by cash payment in the manner set forth in Section 1(a), the Holder may, in its sole discretion, elect to exercise this Warrant, or a portion hereof, and to pay for the Warrant Stock by way of cashless exercise (a “ Cashless Exercise ”). If the Holder wishes to effect a cashless exercise, the Holder shall deliver the Exercise Notice duly executed by such Holder or by such Holder’s duly authorized attorney, at the principal office of the Company, or at such other office or agency as the Company may designate in writing prior to the date of such exercise, in which event the Company shall issue to the Registered Holder the number of Warrant Shares computed according to the following equation:

; where

X = the number of Warrant Shares to be issued to the Registered Holder.

Y = the Warrant Shares purchasable under this Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant Shares being exercised.

A = the Fair Market Value (defined below) of one share of Common Stock on the Exercise Date.

B = the Exercise Price (as adjusted pursuant to the provisions of this Warrant).

For purposes of this Section 1(d), the “Fair Market Value” of one share of Common Stock on the Exercise Date shall have one of the following meanings:

(1) if the Common Stock is traded on a national securities exchange registered with the Securities Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, the Fair Market Value shall be deemed to be the average of the Closing Prices over a five trading day period ending on the Exercise Date. For the purposes of this Warrant, “Closing Price” means the closing sale price of one share of Common Stock, as reported by Bloomberg; or

(2) if the Common Stock is not traded on a national securities exchange, the Fair Market Value shall be deemed to be the average of the closing bid prices price over the ten (10) trading day period ending on the Exercise Date; or

(3) if neither (1) nor (2) is applicable, the Fair Market Value shall be at the commercially reasonable price per share which the Company could obtain on the Exercise Date from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by the Company’s Board of Directors.

For illustration purposes only, if this Warrant entitles the Holder the right to purchase 100,000 Warrant Shares and the Holder were to exercise this Warrant for 50,000 Warrant Shares at a time when the Exercise Price per share was $1.00 and the Fair Market Value of each share of Common Stock was $2.00 on the Exercise Date, as applicable, the cashless exercise calculation would be as follows:

X = 50,000 ($2.00-$1.00)

2.00

X = 25,000

Therefore, the number of Warrant Shares to be issued to the Holder after giving effect to the cashless exercise would be 25,000 Warrant Shares and the Company would issue the Holder a new Warrant to purchase 50,000 Warrant Shares, reflecting the portion of this Warrant not exercised by the Holder. For purposes of Rule 144 promulgated under the Securities Act of 1933, as amended (the “ Securities Act ”), it is intended, understood and acknowledged that the Warrant Shares issued in the cashless exercise transaction described pursuant to Section 1(c) shall be deemed to have been acquired by the Holder, and the holding period for the shares of Warrant Shares shall be deemed to have commenced, on the date of the Holder’s acquisition of the Warrant.

(e) No fractional Warrant Shares or scrip representing fractional Warrant Shares shall be issued upon the exercise of this Warrant. The Company shall pay cash in lieu of such fractional Warrant Shares. The price of a fractional Warrant Share shall equal the product of (i) the closing price of the Common Stock on the exchange or market on which the Common Stock is then traded (if the Common Stock is not then publicly traded, then upon the Fair Market Value per share of the Common Stock (as determined by the Company’s Board of Directors)), and (ii) the applicable fraction.

(f) Except as provided in Section 4 hereof, the Company shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of Warrant Shares on exercise of this Warrant.

(g) The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

2. Disposition of Warrant Shares and Warrant.

(a) The Holder hereby acknowledges that: (i) this Warrant and any Warrant Shares purchased pursuant hereto are not being registered (A) under the Securities Act of 1933 (the “ Act ”) on the ground that the issuance of this Warrant is exempt from registration under Section 4(a)(2) of the Act as not involving any public offering, or (B) under any applicable state securities law because the issuance of this Warrant does not involve any public offering; and (ii) that the Company’s reliance on the registration exemption under Section 4(a)(2) of the Act and under applicable state securities laws is predicated in part on the representations hereby made to the Company by the Holder. The Holder represents and warrants that he, she or it is acquiring this Warrant and will acquire Warrant Shares for investment for his, her or its own account, with no present intention of dividing his, her or its participation with others or reselling or otherwise distributing this Warrant or Warrant Shares.

(b) The Holder hereby agrees that he, she or it will not sell, transfer, pledge or otherwise dispose of (collectively, “ Transfer ”) all or any part of this Warrant and/or Warrant Shares unless and until he, she or it shall have first obtained an opinion, reasonably satisfactory to counsel for the Company, of counsel (competent in securities matters, selected by the Holder and reasonably satisfactory to the Company) to the effect that the proposed Transfer may be made without registration under the Act and without registration or qualification under any state law.

(c) If, at the time of issuance of Warrant Shares, no registration statement is in effect with respect to such shares under applicable provisions of the Act and the Warrant Shares may not be sold pursuant to Rule 144 of the Act, the Company may, at its election, require that any stock certificate evidencing Warrant Shares shall bear legends reading substantially as follows:

“THE SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN THE WARRANT PURSUANT TO WHICH THESE SHARES WERE PURCHASED FROM THE COMPANY. COPIES OF SUCH RESTRICTIONS ARE ON FILE AT THE PRINCIPAL OFFICES OF THE COMPANY. NO TRANSFER OF SUCH SHARES OR OF THIS CERTIFICATE (OR OF ANY SHARES OR OTHER SECURITIES (OR CERTIFICATES THEREFOR) ISSUED IN EXCHANGE FOR OR IN RESPECT OF SUCH SHARES) SHALL BE EFFECTIVE UNLESS AND UNTIL THE TERMS AND CONDITIONS SET FORTH IN THE WARRANT HAVE BEEN COMPLIED WITH.”

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THIS CERTIFICATE THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.”

In addition, so long as the foregoing legend may remain on any stock certificate evidencing Warrant Shares, the Company may maintain appropriate “stop transfer” orders with respect to such certificates and the shares represented thereby on its books and records and with those to whom it may delegate registrar and transfer functions.

3. Reservation of Shares . The Company hereby agrees that conditioned upon the amendment of the Company’s certificate of incorporation to increase the authorized number of shares of the Company’s Common Stock, which amendment shall be subject to the approval of the Company’s stockholders (“ Stockholder Approval ”), the Company shall reserve for issuance upon the exercise of this Warrant such number of shares of the Common Stock as shall be required for issuance upon exercise of this Warrant. Notwithstanding the preceding sentence, Holder covenants and agrees that it shall not exercise this Warrant in whole or in part unless and until such Stockholder Approval has been obtained and the Company’s certificate of incorporation has been amended. The Company further agrees that all Warrant Shares will be duly authorized and will, upon issuance and payment of the exercise price therefor, be validly issued, fully paid and non-assessable, free from all taxes, liens, charges and encumbrances with respect to the issuance thereof, other than taxes, if any, in respect of any transfer occurring contemporaneously with such issuance and other than transfer restrictions imposed by federal and state securities laws.

Except and to the extent as waived or consented to in writing by the Holder, the Company shall not by any action, including, without limitation, amending its certificate or articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant.

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

4. Exchange, Transfer or Assignment of Warrant . Subject to Section 2, this Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other Warrants of the Company (“ Warrants ”) of different denominations, entitling the Holder or Holders thereof to purchase in the aggregate the same number of Warrant Shares purchasable hereunder. Subject to Section 2, upon surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the Assignment Form attached hereto as Exhibit B (the “ Assignment Form ”) duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in the Assignment Form and this Warrant shall promptly be canceled. Subject to Section 2, this Warrant may be divided or combined with other Warrants that carry the same rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof.

5. Capital Adjustments . This Warrant is subject to the following further provisions:

(a) Recapitalization, Reclassification and Succession . If any recapitalization of the Company or reclassification of its Common Stock or any merger or consolidation of the Company into or with a corporation or other business entity, or the sale or transfer of all or substantially all of the Company’s assets or of any successor corporation’s assets to any other corporation or business entity (any such corporation or other business entity being included within the meaning of the term “successor corporation”) shall be effected, at any time while this Warrant remains outstanding and unexpired, then, as a condition of such recapitalization, reclassification, merger, consolidation, sale or transfer, lawful and adequate provision shall be made whereby the Holder of this Warrant thereafter shall have the right to receive upon the exercise hereof as provided in Section 1 and in lieu of the Warrant Shares immediately theretofore issuable upon the exercise of this Warrant, such shares of capital stock, securities or other property as may be issued or payable with respect to or in exchange for the number of outstanding shares of Common Stock equal to the number of Warrant Shares immediately theretofore issuable upon the exercise of this Warrant had such recapitalization, reclassification, merger, consolidation, sale or transfer not taken place, and in each such case, the terms of this Warrant shall be applicable to the shares of stock or other securities or property receivable upon the exercise of this Warrant after such consummation.

(b) Subdivision or Combination of Shares . If the Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its Common Stock, the number of Warrant Shares purchasable upon exercise of this Warrant shall be proportionately adjusted.

(c) Stock Dividends and Distributions . If the Company at any time while this Warrant is outstanding and unexpired shall issue or pay the holders of its Common Stock, or take a record of the holders of its Common Stock for the purpose of entitling them to receive, a dividend payable in, or other distribution of, Common Stock, then the number of Warrant Shares purchasable upon exercise of this Warrant shall be adjusted to the number of shares of Common Stock that Holder would have owned immediately following such action had this Warrant been exercised immediately prior thereto.

(d) Price Adjustments . Whenever the number of Warrant Shares purchasable upon exercise of this Warrant is adjusted pursuant to Sections 5(a), 5(b) or 5(c), the then applicable Warrant Price shall be proportionately adjusted.

(e) Certain Shares Excluded . The number of shares of Common Stock outstanding at any given time for purposes of the adjustments set forth in this Section 5 shall exclude any shares then directly or indirectly held in the treasury of the Company.

(f) Deferral and Cumulation of De Minimis Adjustments . The Company shall not be required to make any adjustment pursuant to this Section 5 if the amount of such adjustment would be less than one percent (1%) of the Warrant Price in effect immediately before the event that would otherwise have given rise to such adjustment. In such case, however, any adjustment that would otherwise have been required to be made shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to not less than one percent (1%) of the Warrant Price in effect immediately before the event giving rise to such next subsequent adjustment. All calculations under this Section 5 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be, but in no event shall the Company be obligated to issue fractional Warrant Shares or fractional portions of any securities upon the exercise of the Warrant.

(g) Duration of Adjustment . Following each computation or readjustment as provided in this Section 5, the new adjusted Warrant Price and number of Warrant Shares purchasable upon exercise of this Warrant shall remain in effect until a further computation or readjustment thereof is required.

6. Notice to Holders .

(a) Notice of Record Date. In case:

(i) the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time receivable upon the exercise of this Warrant) for the purpose of entitling them to receive any dividend (other than a cash dividend payable out of earned surplus of the Company) or other distribution, or any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right;

(ii) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation with or merger of the Company into another corporation, or any conveyance of all or substantially all of the assets of the Company to another corporation; or

(iii) of any voluntary dissolution, liquidation or winding-up of the Company;

then, and in each such case, the Company will mail or cause to be mailed to the Holder hereof at the time outstanding a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the date on which such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding-up is to take place, and the time, if any, is to be fixed, as of which the holders of record of Common Stock (or such stock or securities at the time receivable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, dissolution or winding-up. Such notice shall be mailed at least ten (10) calendar days prior to the record date therein specified, or if no record date shall have been specified therein, at least ten (10) days prior to such specified date.

(b) Certificate of Adjustment . Whenever any adjustment shall be made pursuant to Section 5 hereof, the Company shall promptly provide the Holder with prompt written notice, signed and certified by its Chairman, Chief Executive Officer, President or a Vice President, setting forth in reasonable detail the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated and the Warrant Price and number of Warrant Shares purchasable upon exercise of this Warrant after giving effect to such adjustment.

7. Loss, Theft, Destruction or Mutilation . Upon receipt by the Company of evidence satisfactory to it, in the exercise of its reasonable discretion, of the ownership and the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, of indemnity reasonably satisfactory to the Company and, in the case of mutilation, upon surrender and cancellation thereof, the Company will execute and deliver in lieu thereof, without expense to the Holder, a new Warrant of like tenor dated the date hereof.

8. Warrant Holder Not a Stockholder . The Holder of this Warrant, as such, shall not be entitled by reason of this Warrant to any rights whatsoever as a stockholder of the Company, including but not limited to voting rights. No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

9. Registration Rights . The Holder shall have the registration rights with respect to its Warrant Shares pari passu to the purchasers of shares of Common Stock of the Company set forth in that certain Securities Purchase Agreement, dated as of March __, 2014, between such purchasers and the Company.

10. Notices . Any notice provided for in this Warrant must be in writing and must be either personally delivered, mailed by first class mail (postage prepaid and return receipt requested), or sent by reputable overnight courier service (charges prepaid) to the recipient at the address below indicated:

If to the Company:

Bridgeline Digital, Inc.
80 Blanchard Road
Burlington, Massachusetts 01803
Attention: Mr. Thomas L. Massie,
President and Chief Executive Officer

If to the Holder:

To the address of such Holder set forth on the books and records of the Company.

or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Warrant will be deemed to have been given (a) if personally delivered, upon such delivery, (b) if mailed, five days after deposit in the U.S. mail, or (c) if sent by reputable overnight courier service, one business day after such services acknowledges receipt of the notice.

11. Choice of Law . THIS WARRANT IS ISSUED UNDER AND SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAW RULES.

12. Submission to Jurisdiction . EACH OF THE HOLDER AND THE COMPANY SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN THE COUNTY OF NEW YORK, STATE OF NEW YORK, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS WARRANT AND AGREES THAT ALL CLAIMS IN RESPECT OF THE ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. EACH OF THE HOLDER AND THE COMPANY ALSO AGREE NOT TO BRING ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS WARRANT IN ANY OTHER COURT. EACH OF THE PARTIES WAIVES ANY DEFENSE OF INCONVENIENT FORUM TO THE MAINTENANCE OF ANY ACTION OR PROCEEDING SO BROUGHT AND WAIVES ANY BOND, SURETY, OR OTHER SECURITY THAT MIGHT BE REQUIRED OF ANY OTHER PARTY WITH RESPECT THERETO.

13. Warrant Register . The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “ Warrant Register ”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

14. Miscellaneous.

(a) Remedies . Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

(b) Successors and Assigns . Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Warrant Shares.

(c) Amendment . This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

(d) Severability . Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

[Remainder of page intentionally left blank]

IN WITNESS WHEREOF, the Company has duly caused this Warrant to be signed on its behalf, in its corporate name and by a duly authorized officer, as of this 28 ^th day of March 2014.

	BRIDGELINE DIGITAL, INC.


	By:
		Michael D. Prinn
		Executive Vice President and Chief Financial Officer

EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

Bridgeline Digital, Inc.

The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock (“ Warrant Shares ”) of Bridgeline Digital, Inc., a Delaware corporation (the “ Company ”), evidenced by Warrant to Purchase Common Stock No. _______ (the “ Warrant ”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

1. Form of Exercise Price . The Holder intends that payment of the Exercise Price shall be made as:

____________

a “ Cash Exercise ” with respect to _________________ Warrant Shares; and/or

____________

a “ Cashless Exercise ” with respect to _______________ Warrant Shares.

2. Payment of Exercise Price . In the event that the Holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the Holder shall pay the exercise price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.

3. Delivery of Warrant Shares . The Company shall deliver to Holder, or its designee or agent as specified below, __________ Warrant Shares in accordance with the terms of the Warrant. Delivery shall be made to Holder, or for its benefit, to the following address:

_______________________

4. Fractional Shares . In lieu of receipt of a fractional share of Common Stock, the undersigned will receive a check representing payment therefor.

Date: _______________ __, ______

Name of Registered Holder

By:

Name:

Title:

A-1

EXHIBIT B

ASSIGNMENT FORM

Bridgeline Digital, Inc.
80 Blanchard Road
Burlington, Massachusetts 01803
Attention: Mr. Thomas L. Massie,
President and Chief Executive Officer

FOR VALUE RECEIVED, hereby sells, assigns and transfers unto

(Please print assignee’s name, address and Social Security/Tax Identification Number)

________________________________________________

the right to purchase shares of common stock, par value $0.001 per share, of Bridgeline Digital, Inc., a Delaware corporation (the “ Company ” ), represented by this Warrant to the extent of shares as to which such right is exercisable and does hereby irrevocably constitute and appoint ____________________________, Attorney, to transfer the same on the books of the Company with full power of substitution in the premises.

Dated:	PRINT WARRANT HOLDER NAME

	Name: Title:

Witness:

B-1

EXHIBIT 10.5

EMPLOYMENT AGREEMENT

Bridgeline Digital, Inc., a Delaware Corporation (the “ Employer ” or the “ Company ”) and Michael D. Prinn (the “ Employee ”), in consideration of the mutual promises made herein, agree as follows:

ARTICLE 1

TERM OF EMPLOYMENT

ARTICLE 2

DUTIES AND OBLIGATIONS OF EMPLOYEE

Section 2.1 General Duties Employee shall serve as Executive Vice President & Chief Financial Officer for 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 his designee. Employee shall perform such services at 80 Blanchard Road, Burlington, Massachusetts or at such other location as may be designated by Employer. The Employee shall be available to make business trips within 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 reasonable terms, bearing in mind the position of the Employee.

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.

___________ __________

Employee Bridgeline

Section 2.3 Confidential Information; Tangible Property; Competitive Activities.

___________ __________

Employee Bridgeline

___________ __________

Employee Bridgeline

Section 2.4 Inventions and Original Works.

___________ __________

Employee Bridgeline

ARTICLE 3

COMPENSATION OF EMPLOYEE

Section 3.1 Annual Salary. As compensation for his services hereunder, Employee shall be paid a salary at the rate of $8,333 semi-monthly (the equivalent of two hundred thousand 00/100 Dollars ($200,000) per year) ("Salary") from the Commencement Date. Salary shall be paid in equal installments not less frequently than twice each month.

Section 3.2 Quarterly Bonus. The Employee shall be eligible to be paid a quarterly bonus earned in accordance with the terms set forth on Exhibit 3.2.

___________ __________

Employee Bridgeline

ARTICLE 4

EMPLOYEE BENEFITS

ARTICLE 5

TERMINATION OF EMPLOYMENT

Section 5.3 Termination for Cause. Employee's employment hereunder may be terminated for Cause. "Cause" is conduct, as determined by the Chief Executive Officer, or his designee, 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, provided that the Company must provide Employee with written notice from the Company of such willful disregard of the rules or policies of the Company and Employee fails to cure (if curable) such willful disregard of the rules or policies of the Company within five business days of such notice; or (iii) the violation of any noncompetition or on solicitation covenant with, or assignment of inventions obligation to, the Company; or (iv) the formal charge of the Employee of a felony; or (v) the commission of an act of embezzlement, fraud or breach of fiduciary duty against the Company (vi) engagement in a specific act 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, (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 after delivery to Employee of written notice from the Employer specifying in reasonable detail the nature of such failure. 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.

___________ __________

Employee Bridgeline

ARTICLE 6

PAYMENTS TO EMPLOYEE UPON TERMINATION

___________ __________

Employee Bridgeline

(a) Pay to Employee any and all accrued salary, bonuses and vacation;

(b) 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 or liquidated damages, or both, a sum equal to (i) the monthly rate of Salary payable under this Agreement for a period of six (6) months, and (ii) an amount equal to the quarterly bonus paid to Employee for the preceding quarter immediately prior to Employee's termination; provided, however, in the event of a termination without Cause by Employer or Termination for Good Reason by Employee which occurs during the first twelve months after a Change in Control of the Company the Employer shall instead 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 or liquidated damages, or both, a sum equal to three times the current annual base pay in one lump sum payment (currently $600,000) ; Cause any stock options issued to Employee which have not lapsed and which are not otherwise exercisable to be accelerated so as to immediately exercisable by Employee; 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 for a period of six (6) months and thereafter provide Employee the opportunity to continue to elect 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 during this three month period will cease immediately in the event Employee becomes employed following termination. Employee agrees to notify Employer immediately regarding such new employment; and

Section 6.4 Definition. A "Change in Control" will be deemed to have occurred only if any of the following events occur:

___________ __________

Employee Bridgeline

ARTICLE 7

GENERAL PROVISIONS

___________ __________

Employee Bridgeline

IN WITNESS WHEREOF, the parties have executed this Agreement by their duly authorized officers as an instrument under seal at Burlington, Massachusetts on this ___ ^th day of ____________, 2014.

Employer:		Employee:

Bridgeline Digital, Inc.


By:
	Thomas L. Massie	Michael D. Prinn
	President & CEO

___________ __________

Employee Bridgeline

EXHIBIT 2.4(b)

Employee's Personal Intellectual Property

___________ __________

Employee Bridgeline

EXHIBIT 3.2

Michael D. Prinn 2014 Incentive Bonus: You will have the opportunity to earn a quarterly incentive bonus of $12,500 based on the achievement certain goals listed below. If an acquisition is made by the Company in FY 2014 the stated goals below may be adjusted.

A)	Total Revenue : For FY 2014 you will be entitled to receive a $3,125 quarterly incentive bonus when the Company achieves the following Revenue objectives

Q1 14: Total Revenue - $7,000,000

Q2 14: Total Revenue - $7,150,000

Q3 14: Total Revenue - $7,600,000

Q4 14: Total Revenue - $8,400,000

B)	Adjusted EBITDA : For FY 2014 you will be entitled to receive a $3,125 quarterly incentive bonus when the Company achieves the following Adjusted EBITDA objectives

Q1 14: Total Adusted EBITDA - $228,000

Q2 14: Total Adjusted EBITDA - $194,000

Q3 14: Total Adjusted EBITDA - $263,000

Q4 14: Total Adjusted EBITDA - $811,000

C)	Timely SEC Reporting : For FY 2014 you will be entitled to receive a $3,125 quarterly incentive bonus when the Company meets all SEC required filings on a timely basis (10Q, 10K & 8K’s).

D)	DSO under 55 days: For FY2014 you will be entitled to earn a quarterly incentive bonus of $3,125 when the company’s Days Sales Outstanding are 55 days or less

Employer:		Employee:

Bridgeline Digital, Inc.


By:
	Thomas L. Massie	Michael D. Prinn
	President & CEO

___________ __________

Employee Bridgeline

EXHIBIT 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Thomas L. Massie, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Bridgeline Digital, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4.	The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d- 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)	Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)	Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: May 15, 2014

/s/ Thomas L. Massie

Name:

Thomas L. Massie

Title:

President and Chief Executive Officer

(Principal Executive Officer)

EXHIBIT 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael D. Prinn, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Bridgeline Digital, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4.	The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d- 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)	Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

	(d)	Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5.	The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: May 15, 2014

/s/ Michael D. Prinn

Name:

Michael D. Prinn

Title:

Executive President and Chief Financial Officer

(Principal Financial and Accounting Officer)

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Bridgeline Digital, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Thomas L. Massie, President and Chief Executive Officer of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: May 15, 2014

/s/ Thomas L. Massie

Name:

Thomas L. Massie

Title:

President and Chief Executive Officer

(Principal Executive Officer)

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Bridgeline Digital, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Michael D. Prinn, Executive Vice President Finance and Chief Accounting Officer of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: May 15, 2014

/s/ Michael D. Prinn

Name:

Michael D. Prinn

Title:

Executive Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

	All Investors:

	Address:

	Telephone No.:
	Facsimile No.:
	Email Address: