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Bridgeline Digital, Inc Rating: Speculative Buy Howard Halpern BLIN $0.59 — (NasdaqCM) May 31, 2017 2014 A 2015 A 2016 A 2017 E 2018 E Fiscal year net sales (in millions) $23.7 $19.2 $15.9 $16.1 $17.0 Earnings (loss) per share ($1.58) ($1.36)* ($0.84) ($0.08) ($0.04) 52-Week range $3.47 - $0.43 Fiscal year ends: September Shares outstanding a/o 5/10/17 21.0 Million Revenue/shares (ttm) $1.07 Approximate float 14.2 Million Price/Sales (ttm) 0.6X Market Capitalization $12.4 million Price/Sales (2018) E 0.7X Tangible Book value/shr ($0.05) Price/Earnings (ttm) NMF Price/Book NMF Price/Earnings (2018) E NMF *Excludes ($2.52) per share for impairment and restructuring charges of $11 million. All per share amounts in this report have been adjusted for the 1-for-5 reverse stock split on 5/8/15 Bridgeline Digital Inc., assists customers in maximizing the performance of their digital experience - from websites and intranets, to online stores and marketing campaigns. Key Investment Considerations:

Maintaining Speculative Buy. We are reducing our 12-month price target to $1.05 per share from $1.15 due to 2018 multiple compression. BLIN aims to achieve sustainable recurring revenue growth and cash earnings in FY17 with the launch of its iAPPS Pro software series that integrates with a customers existing Website. iAPPS Pro has shortened the sales cycle, reduced the initial customer investment, and increased BLIN’s future stream of recurring revenue. In 2Q17, BLIN maintained its realignment of costs with revenue in the context of a direct sales team of nine and an inside sales team of five. In FY17, the sales cycle will be less than four months (prior its was over nine months), which has reduced the cost to acquire a customer and initial investment required by the customer. The company’s iAPPS offerings – Pro, Marketing Automation, and Enterprise are gaining customer acceptance. BLIN has annual recurring revenue in excess of $7 million due in part to 16 new customer contracts signed in FY16 and the first eight months of FY17. In 2Q17, (reported 5/15/17) sales decreased 5.6% to $4 million due to a 10% decrease in digital engagement services, partly offset by subscription/license revenue that increased 4.1% to $1.6 million. The EPS loss per share was ($0.03) versus ($0.20) in the year-ago period. We projected a loss of ($0.03) on sales of $3.9 million. Our FY17 EPS loss projection narrowed to ($0.08) per share from ($0.09) on sales of $16.1 million (up $159,000 from our prior forecast – reflecting 2Q17 results). Our sales and loss projections reflect a $523,000 increase in subscription/license revenue, partly offset by a $265,000 reduction in managed service hosting revenue. The alignment of costs with service sales should widen gross margin to 58.5% from 54.2% in FY16. Our FY18 forecasts remain unchanged at ($0.04) per share on sales growth of 5.9% to $17 million. Our sales projection reflects 9.9% growth in subscription/license revenue, while the narrowing EPS loss reflects gross margin improvement to 60.4% from 58.5%.

Bridgeline Digital, Inc.

Taglich Brothers, Inc. 2

Recommendation Maintaining Speculative Buy rating based on upside revenue potential of the company’s new product launches (iAPPS Pro product line that includes a marketing automation application called Marketier) in 2H16, operating leverage created by the FY15 restructuring program, the establishment of a dedicated sales team of nine direct sales professional and five in-house sales professionals. At full productivity, each sales professional should produce $2 million in annual contracts, the recurring revenue portion (approximately two-thirds) of which will be recognized over a 36-month period. We are reducing our 12-month price target to $1.05 from $1.15 per share due to 2018 multiple compression. The company’s current trailing-twelve month and 2018 price-to-sales multiples are 0.6X and 0.7X, respectively (prior 2018 multiple was 0.9X). The peer groups trailing and forward price-to-sales multiples are 3.4X and 2.8X. We believe investors, based on the company’s achievement of year-over-year revenue growth by 3Q17 and the generation of cash earnings in FY18, could value BLIN’s shares at 1.3X (prior was 1.4X) our FY18 sales per share forecast of $0.83, implying year-ahead stock price appreciation could approach 70% to $1.05 per share. Bridgeline Digital’s valuation is likely to remain at a significant discount relative to its peers (chart above) due to lack of profits, inconsistent growth in quarterly revenue, and cash burn. Valuation improvement is likely to be gradual, and contingent upon consistent quarterly revenue growth, expense leverage, cash earnings, and eventually, profitability. We believe sequential revenue growth that began in 4Q16 should accelerate through FY18. We forecast the company will produce cash earnings of $625,000 in FY18, up from cash burn of $68,000 in FY17 and $2.1 million in FY16. Due to the potential period-to-period variability in iAPPS enterprise platform deployments, as well as the need for customers to accept its FY16 launch of its iAPPS Pro product line including Marketier, its market automation offering, we believe Bridgeline’s shares are suitable primarily for high-risk tolerant investors. Overview The Company Bridgeline Digital Inc., headquartered in Burlington, Massachusetts assists customers in achieving a full digital experience from - Websites and intranets, to online stores and marketing campaigns. The iAPPS platform Bridgeline offers integrates the following technology modules – Web Content Management, eCommerce, eMarketing, Social Media management, and Web Analytics. The iAPPS platform combined with its digital services assists customers in maximizing on-line revenue, improving customer service and loyalty, enhancing employee knowledge, and reducing customers’ operational costs. While the company’s iAPPS annual recurring revenue has increased through FY16 (see chart right), overall sales have diminished due mainly to discontinuance of non-iAPPS sales. We project 3Q17 will show the company’s first ever year-over-year sales growth since new leadership was established in 2015. The sales growth reflects a dedicated direct and in-house sales force and the launch of its iAPPS Pro and Marketing Automation software offering, which has achieved customer acceptance with over 16 new customer contracts signed in FY16 and the first eight months of FY17.

Name SymbolPrice

05-30-17

Market Cap in

$Mil

Trailing 12-Mos.

P/S2018

P/S Est.2018

P/E Est.American Software AMSWA 10.70 315 2.9 2.7 33.4ARI Network Services, Inc. ARIS 5.36 94 1.9 1.6 38.3Box, Inc. BOX 18.57 2466 6.2 4.0 NMFeGain Corporation EGAN 1.55 42 0.7 0.7 NMFBottomline Technologies, Inc. EPAY 24.84 1006 2.9 2.7 23.4Hubspot Inc. HUBS 71.10 2599 8.8 5.8 NMFMarin Software Incorporated MRIN 1.30 51 0.6 NMF NMFSharSpring Inc. SHSP 4.51 38 3.2 2.2 NMF

Average 3.4 2.8 31.7

Company FY18

Bridgeline Digital, Inc. BLIN 0.59 12.4 0.6 0.7 NMFSource: Taglich Brothers estimates, Thomson Reuters - EIKON and Yahoo Finance



Growth Strategy The company has shortened its sales and implementation cycles. The chart below demonstrates the evolution (since 2H15) of the company’s strategy to transform itself into a company that sells software that will generate recurring license revenues (software-as-a-service) and have a shorter sales and implementation cycle. This was accomplished through the introduction of its marketing automation (Marketeir) and iAPPS Pro-Series products. The former has a license to service ratio of approximately 88% with the later at 57%, which is still well above the 30% for the company iAPPS Enterprise suite. By the end of FY16, the company had reduced its sales cycle to below four months from nine months at the end of FY15. In FY17, the company aims to continue building on its digital experience platform (iAPPS) to provide customers a path from marketing automation to enterprise-level iAPPS integrated software technology – content manager, commerce, analyzer, and social. With that strategic tone set, the company since FY15 had created templates around those two offerings in order to reduce customer acquisition costs and time to implementation. The company aims to increase recurring software-as-a-service revenue through its Marketing Automation and iAPPS Pro product lines. We anticipate customer acceptance as those offerings reduce a customer’s first year services cost to less than $100,000. The lower service costs (approximately one-third of the contract) and higher license fees (approximately two-thirds of the contract) reflect the products ability to use a customer’s existing software platform (no rebuild required); thus the offerings are an out of the box solution that enables an accelerated implementation process with lower initial service costs. BLIN added to the Pro product line with the reintroduction of its marketing automation platform called Marketier (an online marketing management solution assisting marketers in driving qualified traffic to their sites), which was redesigned so it can be implemented on a customer’s existing Website instead of a complete Website redesign. This new more flexible version of Marketier will increase the potential customer base but also offers BLIN’s sales team the opportunity to build relationships with companies using competitive web content management systems. In FY17, the company intends to increase its sales force. In FY15, the company had four sales people and ended 2Q17 with nine direct sales professionals and more than doubled its inside sale professionals to five. The company anticipates ending FY17 with a direct sale force of 12 and inside sales force of at least six. Once a direct sales professional is trained (approximately nine months), their production requirement is to generate at least $2 million in customer sales. If all nine of BLIN’s sales staff were trained by the start of FY17, annual service revenue could approximate $6 million with backlog increasing by approximately $12 million before reduction of completed agreements. At March 31, 2017 the 36-month backlog was in excess of $21 million. Projections Basis of Forecast The iAPP’s technology platforms that form the basis for the company’s revenue generating products include - experience manager, content manager, commerce, marketier, analyzer, and social media. All of these components enabled the company to create its iAPPSds, Enterprise, marketing automation, and Pro series products. New customer contracts will support revenue growth. In FY16 and 1H17, five new enterprise customers engaged BLIN as their digital experience provider.

Source: Company Presentation



In 4Q16 and 1H17, the company won business from three new customers who purchased SaaS licenses. These customers include a $4 billion Water Treatment company with more than 30 brands, a $3 billion industrial services company with two of its brands utilizing BLIN’s SaaS software, and a $50 billion logistics company using Bridgeline for one of its intranets. In 1Q17, the company won a $1.5 million engagement with a $6 billion subsidiary of a large manufacturing company. Large customers start with an initial engagement that should expand over time. These new contracts should support growing customer acceptance of the new product offerings (iAPPS Pro series and marketing automation offering Marketier), which should build the company’s 36-month backlog to at least $27 million by September 30, 2017. In FY18, we project recurring revenues should account for at least 49% of total sales, up from 43% in FY16 and an estimated 47% in FY17. In 2H15, the company began the process of aligning labor costs with expected revenues, as well as reducing the office space and overhead costs. The successful management of costs resulted in gross margin improvement to 54.2% in FY16 from 42.6% in FY15. We project gross margin will continue to improve in FY18 to 60.4% from our FY17 estimate of 58.5%, due to additional reductions in office space and overhead costs, as well as lower customer acquisition costs. Lower customer acquisition costs are a function of the company’s sales team engaging in discussions with customers and winning their business more consistently then in prior periods, as well as the new Pro product line reducing the sales and implementation cycles to four months (prior was over nine-months). The company now bids on services to time and materials from a fixed fee approach that supports an expedited sales cycle, reducing project management cost and margin risk, enabling service margins to exceed 40%. We anticipate any recorded income taxes payments through our forecast horizon will be non-cash. At March 31, 2017, we estimate the company had over $26 million in federal net operating loss carryforwards, that expire on various dates through 2036. Economic and Industry Factors In April 2017, the International Monetary Fund left unchanged its 2017 and 2018 US GDP growth forecasts of 2.3% and 2.5%, respectively, from its January 2017 forecast. As of May 30, 2017, the Federal Reserve Bank of Atlanta anticipates US GDP to rebound in 2Q17 to 3.8%. Consulting firm Gartner (January 2017) predicts enterprise software sales will increase 7% to $380 billion in 2018 from $355 million, primarily due to the widespread adoption of the cloud-based Software as a Service model. Gartner anticipates the adoption of the Software as a Service model reflects companies spending on modernizing, expanding, and/or substituting long-standing business and office applications. In November 2016 (latest available), ResearchandMarkets (a research report publisher) published a report on the global marketing automation market. The report forecasts the global marketing automation software market to reach $6.6 billion in 2022 from $3.9 billion in 2016 for an annualized growth rate of 9.3%. The primary growth drivers are to optimize income on marketing campaign investments, as well as the integration of cloud computing. The latter reflects access cost effectiveness, scalability, flexibility and large storage options. According to a number of analysts, 87% of Websites do not have a Marketing Automation capability. In July 2016 (latest available), research firm MarketsandMarkets projects the Web Content Management market to reach $8.3 billion in 2021 from $3.9 billion in 2016 for annual growth of 16.2%. Future growth will be driven by company’s that need to modernize their Websites in order to have effective mobile capabilities. In 2016, approximately 91% of small business Websites needed to be rebuilt in order to have effective mobile capabilities. Operations For FY17, we project revenue growth of 1.2% to $16.1 million (prior was $15.9 million) with recurring subscription (SaaS)/perpetual licenses and hosting sales accounting for 47%, up from 46.4% in FY16. The increase in recurring revenue should be supported by 1H17 annual recurring backlog in excess of $7 million, sixteen new contracts signed in FY16 and 1H17 (combined), and the established sales team of nine direct and five in-house professionals. Recurring revenue gains will be restrained by a 20.5% decrease in managed service hosting reflecting the elimination of lower margin customers and transition from a co-managed facility to a cloud-based model with Amazon Web



Services, as well as a 1% decline in digital engagement services due to harder comparisons with the 1H16, when the company was still in the process of reducing non-iAPPS customers. We project gross margin improvement to 58.5% from 54.2% in FY16 due to growth in recurring subscription revenue and a change in the bidding process (starting in 4Q16) for services from a purely fixed fee approach to primarily a time and materials approach. The change in the bidding process should shorten the sales cycle (less than four months vs. a prior minimum of nine months) and provide a reduction in project management cost that should mitigate margin risk. Gross profit should increase 9.2% to $9.4 million due to higher sales and gross margin. We project total operating expense margin of 65.2%, down from 76.5% (including a $879,000 restructuring charge) in FY16. We project a $986,000 decrease in operating expenses to $10.2 million, excluding the $200,000 and $879,000 restructuring charges in 1FY17 and FY16, respectively. The decrease in operating expenses is due to a $237,000 decrease in G&A expense to $3.2 million and a $733,000 decrease in research and development and deprecation and amortization expenses to $2.2 million. We anticipate selling and marketing expenses flat at $4.9 million. We project the operating loss to narrow to $1.1 million compared to a loss of $3.5 million in FY16. The improvement in the operating loss reflects sales growth, an increase in gross profit, and better leveraging of operating expenses. We project interest expense of $283,000 reflecting a $2.3 million outstanding balance on the BLIN’s credit facility. For FY17, we project a net loss to common shareholders of $1.7 million or ($0.08) per share (prior was an ($0.08) per share loss), which includes preferred dividends of $276,000. Our EPS loss forecast is based on 20.6 million average shares, up from 9.5 million due to the conversion of debt into equity in FY16 and issuance of common stock in 1Q17. For FY18, we project revenue growth of 5.9% to $17 million with recurring subscription (SaaS)/perpetual licenses and hosting sales accounting for 49%, up from 47% in FY17. An established sales team of twelve direct and six in-house professionals (up from nine and five in FY17) should support the increase in annualized recurring revenue to $9 million from $7.8 million in FY17. We project gross margin improvement to 60.4% from 58.5% in FY17 due to growth in recurring subscription revenue. Gross profit should increase 9.4% to $10.3 million due to higher sales and gross margin. We project total operating expense margin of 62%, down from 65.2% projected for FY17. We project a $69,000 increase in operating expenses to $10.6 million. The increase in operating expenses is due primarily to higher SG&A expenses, partly offset by lower R&D and depreciation and amortization expense. We forecast SG&A expense to increase 4.2% to $8.5 million. We project the operating loss to narrow to $270,000 compared to a loss of $1.1 million in FY17. The improvement in the operating loss reflects sales growth, an increase in gross profit, and leveraging of operating expenses. We project interest expense of $360,000 reflecting a $2.4 million outstanding balance on the company credit facility. For FY18, we project a net loss of $910,000 or ($0.04) per share, which includes preferred dividends of $280,000. We previously projected a net loss of $930,000 or ($0.04) per share, which included preferred dividends of $280,000. Finances For FY17, we project cash burn of $68,000 and a decrease in working capital of $368,000 due to increases in deferred revenue, accruals and payables, partly offset by an increase in receivables. Cash of $300,000 from operations and $891,000 net proceeds from the November 2016 issuance of common stock will cover capital expenditures, capital lease payments, and contingent liabilities, increasing cash by $1.1 million to $1.7 million at September 30, 2017.



For FY18, we project cash earnings of $625,000 and a decrease in working capital of $242,000 due to an increase in deferred revenue. Cash of from operations of $867,000 should cover capital expenditures and capital lease payments, increasing cash by $113,000 to $1.9 million at September 30, 2018.

2Q17 and 1H17 Results 2Q17, revenue decreased 5.6% to $4 million due to a 10% reduction in digital engagement services to $2.2 million due primarily to decreases in new iAPPS engagements and non-iAPPS digital engagement services. Managed service hosting revenue decreased $59,000 to $261,000 due to ending engagements with smaller hosting customers obtained through previous acquisitions combined with a majority of new software as a service (SaaS) engagements not requiring a managed hosting component. The revenue decline was partly offset by a $60,000 increase in subscription/license revenue to $1.6 million due primarily to new iAPPS subscription and perpetual licenses. Gross profit increased 1.6% to $2.3 million due strictly to gross margin improvement to 57% from 53% in the year-ago period. Gross margin improvement stems from reductions in facilities and overhead costs combined with an increase in utilization from a more efficient billable services team. Digital engagement services gross margin improved to 46.8% from 39.9% due to elimination of fixed fee overhead projects. However, subscription/perpetual license gross margin was 68.5%, down from 68.9% in the year-ago period reflecting transition costs to move away from a co-managed network operations center to a cloud-based model with Amazon Web Services, partly offset by lower amortization costs related to the capitalization of software. Managed service hosting gross margin decrease to 72% from 75.3% due primarily to costs not decreasing as fast as non-iAPPS customers left the hosting service. In 2Q17, the company recorded a restructuring charge of $169,000 compared to $194,000 in the year-ago period. The restructuring charges in each year to reflect the implementation of cost reductions to align costs with the expected decrease in revenue. The current periods charge reflects a plan to shut down its operations in India. In 2Q16 the charge reflected the renegotiation of office leases and entering into sub-leases for the original space and moving to new less expensive leases or vacating the office space entirely, as well as work-force reductions including severance and termination benefit costs. Operating expenses (excluding restructuring charges) decreased $170,000 to $2.6 million due to lower sales and marketing expenses, and D&A costs, partly offset by increases in G&A and R&D expenses. Sales and marketing expense decreased $73,000 to $1.2 million due to lower sales commissions and marketing expenses. Depreciation and amortization expense decreased $181,000 to $157,000 due primarily to retirement of fixed assets in relation to a reduction of office space and a reduction in capital expenditures. R&D expense increased $45,000 to $422,000 due to an increase in personnel expenses. G&A expenses increased $39,000 to $803,000 due to higher professional fees. In 2Q17, the operating loss (excluding charges) was $278,000 compared to a loss of $473,000 resulting in net operating expense margin of 64% versus 64.4%. The decrease in net operating expense margin was due to expenses decreasing at a faster pace then sales. Including all charges, the operating loss narrowed to $447,000 from $677,000 in the year-ago period. Other expense in each period consisted of interest expense of $82,000 and $296,000, respectively. The reduction reflects a reduction in outstanding debt to $2.2 million from $8.2 million in the year-ago period. In 2Q17, the company lost $598,000 or ($0.03) per share compared to a loss of $1 million or ($0.20) per share. We estimated a net loss of ($0.03) per share on sales of $3.9 million. 1H17 revenue (see chart on next page) decreased 5.8% to $8 million due to a 12.3% reduction in digital engagement services to $4.2 million and a 24.9% decrease in managed service hosting sales to $501,000. Partly offsetting the decrease was an 8.6% increase in subscription/perpetual license revenue to $3.3 million. Gross profit increased 4% to $4.6 million due to improved gross margin of 57.3% from 41.9% in the year-ago period, partly offset by lower sales. In 1H17, operating expenses decreased 12.2% to $5.4 million due to lower D&A and G&A expenses, partly offset by increases in sales and marketing expenses, and R&D expenses. In 1H17, operating



expenses included $200,000 of restructuring charges compared to $780,000 in the year-ago period. The restructuring charges includes closing international offices, renegotiating offices leases and relocation to a smaller space, as well as sub-leases for the company’s original space, and restructuring of its workforce including severance costs. The operating loss decreased to $812,000 from $1.7 million resulting in net operating expense margin decreasing to 67.5% from 72.4% due to the expense rationalization plan implemented in 2016. Interest and other expense was $113,000 compared to $579,000 due to lower debt balances. In 1H17, the company lost $1.1 million or ($0.05) per share compared to a loss of $2.4 million or ($0.46) per share. We estimate the company lost ($0.04) per share compared to ($0.31) per share, excluding the restructuring charges. Finances In 1H17, cash burn was $246,000. Working capital decreased by $91,000 due to an increase in deferred revenue and a decrease in receivables, partly offset by decreases in accruals and payables. Cash used in operations of $155,000, capital expenditures, and repayment of debt obligations was covered by borrowings and a common stock offering increasing cash by $670,000 to $1.3 million at March 31, 2017. In 2Q17, cash burn was $159,000. Working capital decreased by $297,000 due to an increase in deferred revenue and decrease in receivables, partly offset by a decrease in accruals. Cash used in operations of $138,000, capital expenditures, and repayment of debt obligations was not covered by borrowings, decreasing cash by $97,000 to $1.3 million at March 31, 2017. Capital Structure At March 31, 2017, the company had $2.2 million of long-term debt outstanding. The long-term debt consists of a line of credit (interest rate of 5.5% at March 31, 2017) that matures in June 2018. In June 2016, the company signed a new credit agreement with Heritage Bank of Commerce. The new line of credit allows Bridgeline to borrow the lesser of $3 million or 75% of eligible receivables. The line of credit is secured by all of the company’s assets including its intellectual property. The first amendment to the agreement includes a decrease in the revolving line of credit to $2.5 million, a minimum cash requirement of $500 in its accounts at Heritage, and a revision for the adjusted EBITDA metric for 4Q16. In December 2016, a second amendment to the credit agreement was executed to include a minimum cash requirement of $250,000 in its accounts at Heritage Bank and certain Adjusted EBITDA metrics for FY17. In 2Q17 the company met all financial covenants. Competition Content management is a highly competitive and fragmented segment of the information technology industry. Bridgeline provides more than content management, as it integrates additional components into its iAAPS technology. Large existing companies that add components use acquisitions as their primary tool, so integration of a particular component tends to lack cohesion with its existing technology. In addition, Bridgeline’s targeted market of organizations with sales of $25 million to $250 million tends to be underserved by the larger technology companies, which can only offer one or two aspects of what iAPPS can provide. An industry standard of software delivery is typically in either a cloud/SaaS environment or in a dedicated server environment. Brideline developed and designed the iAPPS architecture to be flexible, enabling deployment in either a cloud/SaaS or dedicated server environment.



Large public competitors in content management include Adobe, International Business Machines Corporation, EMC Corporation, Autonomy plc, Oracle, Microsoft, Symantec, and Hewlett-Packard. There are many smaller software vendors competing within individual software product areas. Competition also is from systems integrators that configure hardware and software into customized systems. The most significant attributes in the industry include platform availability, scalability, integration with other enterprise applications, and support services. Risks In our view, these are the principal risks underlying the stock: Losses The company’s operations have yet to turn profitable. In FY16, the company’s accumulated deficit reached $52.4 million. While we project losses to continue through FY18, they should diminish to $910,000 from $1.7 million in FY17. Economy An economic slowdown could reduce customer demand and confidence in technology investments. Also, if interest rates rise throughout 2017, economic growth could diminish in 2018. Competition Content management, web stores and analytics are a highly competitive and fragmented segment of the information technology industry. Software Renewal Rate Subscription licenses are renewed annually. If the renewal rate were to fall substantially, revenue could decrease. Infringement Claims of infringement are becoming commonplace within the software industry. While the company does not believe it infringes on the rights of third parties, a third party may assert Bridgeline’s technology violates their intellectual property rights. Shareholder Control Officers and directors collectively own nearly 34% of the outstanding voting stock (as of May 2017). This group could potentially greatly influence the outcome of matters requiring stockholder approval. These decisions may or may not be in the best interests of the other shareholders. Delisting On August 19, 2016, Bridgeline Digital, Inc. received an initial notification letter from The NASDAQ OMX Group indicating that its common stock bid price for the last thirty consecutive business days had closed below the $1.00 per share required for continued listing under Rule 5550(a)(2). The company had until February 15, 2017, to regain compliance by achieving a closing bid price of at least $1.00 per share for a minimum of 10 consecutive business days. This did not occur so the company should be granted a second appeal and receive an additional 180 calendar days, or until August 2017 to regain compliance. Miscellaneous Risk The company’s financial results and equity values are subject to other risks and uncertainties, including competition, operations, financial markets, regulatory risk, and/or other events. These risks may cause actual results to differ from expected results. Trading Volume Based on our calculations, the average daily-volume in calendar 2015 was 12,783 shares traded a day, which increased to 199,457 in calendar 2016. During the last three months to May 30, 2017 volume decreased to 244,000. The company has a float of 14.2 million shares and shares outstanding of 21 million.

Bridgeline Digital, Inc. Consolidated Balance Sheets

FY14 – FY18E (in thousands)


Source: Company reports and Taglich Brothers estimates

Bridgeline Digital, Inc. Annual Income Statement – Ending September 30,




Bridgeline Digital, Inc. Income Statement Model Quarters FY16A – 2018E

(in thousands)



Bridgeline Digital, Inc. Cash Flow Statement, Ending September 30,






Price Chart

Taglich Brothers Current Ratings Distribution

Investment Banking Services for Companies Covered in the Past 12 Months Rating # % Buy 3 13 Hold 2 50 Sell Not Rated



Important Disclosures As of May 30, 2017, Taglich Brothers, Inc. and/or its affiliates, own more than 1% of BLIN common stock. Michael Taglich, President of Taglich Brothers, Inc. and appointed to BLIN’s Board of Directors on November 1, 2013, owns or has a controlling interest in 3,843,150 restricted common shares, 412,988 restricted warrants, 62,000 shares of BLIN common stock, and 3,526 shares of restricted series A preferred stock. Robert Taglich, Managing Director of Taglich Brothers, Inc., owns or has a controlling interest in 990,146 shares of restricted common shares and 398,988 restricted warrants, 11,300 shares of BLIN common stock, and 58,673 restricted series A preferred stock. Richard Oh, Managing Director of Taglich Brothers, Inc., owns 5,000 shares of BLIN restricted common stock and 59,577 restricted warrants. Doug Hailey, Director of Investment Banking at Taglich Brothers, Inc., owns 10,000 shares of BLIN common stock and 124,000 restricted warrants. Robert Schroeder, Vice President of Investment Banking at Taglich Brothers, Inc. owns or has a controlling interest in 66,667 shares of BLIN common stock and 238,201 restricted warrants. Other employees at Taglich Brothers, Inc., also own or have a controlling interest in 365,192 restricted warrants and 6,000 restricted series A preferred stock. Taglich Brothers, Inc will be granted Placement Agent warrants to purchase 433,883 shares of common stock at a price of $0.75 per share. At September 30, 2016 placement agent warrants were outstanding to purchase 353,173 shares of BLIN common stock stock. BLIN has an annual service contract for $18,000 with Taglich Brothers, Inc. to perform market research. Taglich Brothers, Inc. had and may have in the future an Investment Banking relationship with the company mentioned in this report. In May 2012, June 2012, March 2014, October 2014, and May 2016 Taglich Brothers, Inc. acted as the exclusive placement agent for common stock and preferred offerings. All research issued by Taglich Brothers, Inc. is based on public information. In January 2012, the company paid Taglich Brothers a monetary fee of $4,500 (USD) representing payment for the creation and dissemination of research reports for three months. Beginning in June 2012 and ending in February 2016, the company paid Taglich Brothers a monthly monetary fee of $1,500 (USD) for the creation and dissemination of research reports.

General Disclosures The information and statistical data contained herein have been obtained from sources, which we believe to be reliable but in no way are warranted by us as to accuracy or completeness. We do not undertake to advise you as to changes in figures or our views. This is not a solicitation of any order to buy or sell. Taglich Brothers, Inc. is fully disclosed with its clearing firm, Pershing, LLC, is not a market maker and does not sell to or buy from customers on a principal basis. The above statement is the opinion of Taglich Brothers, Inc. and is not a guarantee that the target price for the stock will be met or that predicted business results for the company will occur. There may be instances when fundamental, technical and quantitative opinions contained in this report are not in concert. We, our affiliates, any officer, director or stockholder or any member of their families may from time to time purchase or sell any of the above-mentioned or related securities. Analysts and members of the Research Department are prohibited from buying or selling securities issued by the companies that Taglich Brothers, Inc. has a research relationship with, except if ownership of such securities was prior to the start of such relationship, then an Analyst or member of the Research Department may sell such securities after obtaining expressed written permission from Compliance.

Analyst Certification I, Howard Halpern, the research analyst of this report, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities and issuers; and that no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report.



Public Companies mentioned in this report: Adobe Systems (NASDAQ: ADBE) EMC Corporation (NYSE: EMC) Hewlett Packard (NYSE: HPQ) Oracle Corporation (NASDAQ: ORCL) IBM (NYSE: IBM) Microsoft (NASDAQ: MSFT) Symantec Corporation (NASDAQ: SYMC) Constant Contact (NASDAQ: CTST) American Software (NASDAQ: AMSWA) Digital River (NASDAQ: DRIV) Inuvo, Inc. (NASDAQ: INUV) PFSweb Inc. (NASDAQ: PFSW)

Meaning of Ratings Buy – The growth prospects, degree of investment risk, and valuation make the stock attractive relative to the general market or comparable stocks. Speculative Buy – Long-term prospects of the company are promising but investment risk is significantly higher than it is in our BUY-rated stocks. Risk-reward considerations justify purchase mainly by high risk-tolerant accounts. In the short run, the stock may be subject to high volatility and could continue to trade at a discount to its market. Neutral – Based on our outlook the stock is adequately valued. If investment risks are within acceptable parameters, this equity could remain a holding if already owned. Sell – Based on our outlook the stock is significantly overvalued. A weak company or sector outlook and a high degree of investment risk make it likely that the stock will underperform relative to the general market.

Dropping Coverage – Research coverage discontinued due to the acquisition of the company, termination of research services, non-payment for such services, diminished investor interest, or departure of the analyst. Some notable Risks within the Microcap Market Stocks in the Microcap segment of the market have many risks that are not as prevalent in Large-cap, Blue Chips or even Small-cap stocks. Often it is these risks that cause Microcap stocks to trade at discounts to their peers. The most common of these risks is liquidity risk, which is typically caused by small trading floats and very low trading volume which can lead to large spreads and high volatility in stock price. In addition, Microcaps tend to have significant company-specific risks that contribute to lower valuations. Investors need to be aware of the higher probability of financial default and higher degree of financial distress inherent in the microcap segment of the market. From time to time our analysts may choose to withhold or suspend a rating on a company. We continue to publish informational reports on such companies; however, they have no ratings or price targets. In general, we will not rate any company that has too much business or financial uncertainty for our analysts to form an investment conclusion, or that is currently in the process of being acquired.

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