10.

Shareholder

’

Equity

Preferred

Stock

October

27,

2014,

the Company sold

200,000

shares of Series A convertible preferred stock (the “Preferred Stock”) at a purchase price of

$10.00

per share for gross proceeds of

$2.0

million in a private placement. Net proceeds to the Company after offering expenses were approximately

$1.8

million. The shares of Preferred Stock

may

be converted, at the option of the holder at any time, into such number of shares of common stock (“Conversion Shares”) equal (i) to the number of shares of Preferred Stock to be converted, multiplies by the stated value of

$10.00

(the “Stated Value”) and (ii) divided by the conversion price in effect at the time of conversion. The initial conversion price is

$0.65,

and is subject to adjustment in the event of stock splits or stock dividends. Any accrued but unpaid dividends on the shares of Preferred Stock to be converted shall also be converted in common stock at the conversion price. A mandatory provision also

may

provide that the Company will have the right to require the holders to convert shares of Preferred Stock into Conversion Shares if (i) the Company’s common stock has closed at or above

$1.30

per share for

ten

consecutive trading days and (ii) the Conversion Shares are (A) registered for resale on an effective registration statement or (B)

may

be resold pursuant to Rule

144.

In the event of any liquidation, dissolution, or winding up of the Company, the holders of shares of Preferred Stock will be entitled to receive in preference to the holders of common stock, the amount equal to the stated value per share of Series A Preferred Stock plus declared and unpaid dividends, if any. After such payment has been made, the remaining assets of the Company will be distributed ratably to the holders of common stock

Cumulative dividends are payable at a rate of

per year.

If, after

two

years, any Preferred Stock are outstanding the cash dividend rate will increase to

12.0%

per year, which will become effective for the Company on

January

2017.

If the Company does not pay the dividends in cash, then the Company

may

pay dividends in any quarter by delivery of additional shares of Preferred Stock (“PIK Election”).

If the Company shall make the PIK Election with respect to the dividend payable, it shall deliver a number of shares of Preferred Stock equal to (A) the aggregate dividend payable to such holder as of the end of the quarter

divided by

(B) the lesser of (x) the then effective Conversion Price or (y) the average VWAP for the

five

(5)

consecutive Trading Days prior to such dividend payment date. The Company shall have the right to force conversion of the Preferred Stock into shares of Common Stock at any time after the Common Stock trades in excess of

$1.30

per share. The Preferred Shares shall vote with the Common on an as converted basis.

As of

December

2016,

the Company has issued

24,458

preferred convertible shares (PIK shares) to the preferred shareholders of which

3,366

were issued in

October

2016.

The Company elected to declare a PIK dividend for the next quarterly payment due

January

2017.

The total PIK dividend declared for

January

2017

6,792

preferred stock shares at a dividend rate of

12%.

As of

December

31,

2016,

a total of

1,636

shares have been converted to

5,034

shares of common stock.

Common Stock

November

2016,

the Company entered into Securities Purchase Agreements

(“November

2016

Private Placement”) with certain institutional and accredited investors (the “Purchasers”) to sell an aggregate total of

2,135,362

shares of common stock for

$0.48

per share (the “Purchaser Shares”) for gross proceeds of

$1.0

million. The Company’s President and CEO (Roger Kahn) and

two

of the Company’s directors (Michael Taglich and Robert Taglich) purchased shares of common stock in this private offering. Roger Kahn purchased

86,000

common shares and Michael and Robert Taglich each purchased

153,846

common shares. Also, as additional consideration, the Company issued to the Purchasers, warrants to purchase an aggregate total of

1,067,681

shares common stock (the “Purchaser Warrant Shares”).

Registration Rights and

Piggyback Registration

The Company and the Purchasers also entered into a Registration Rights Agreement, wherein the Company agreed to file a registration statement (“Registration” or “Form S-

3”)

to register the Purchaser Shares and Purchaser Warrant Shares under the Securities Act of

1933,

as amended. The Registration was filed with the Securities and Exchange Commission on

November

14,

2016

and further amended on

December

23,

2016.

A total of

1,741,670

Purchaser Shares and

870,835

Purchaser Warrant Shares were registered with the Form S-

filing. Roger Kahn, Michael Taglich, and Robert Taglich did not participate in the Registration.

Also included in the Registration were other securities that had been purchased prior to the

November

2016

Private Placement, namely private placements of our common stock and warrants to purchase common stock. As a part of these private placement transactions, the Company had offered certain investors piggyback registration rights such that, in the event the Company filed a registration statement to register its securities under the Securities Act, the shares of common stock issued or issuable to those investors would be eligible to also be included in the registration statement to be registered under the Securities Act. Accordingly, in addition to the Purchaser Shares and Purchaser Warrants from the

November

2016

Private Placement,

3,082,661

common shares and warrants were included in the registration statement pursuant to these previously granted piggyback registration rights. In total, the Registration included

5,695,165

shares of common stock and warrants to purchase common stock. Net proceeds to the Company after the completion of the

November

2016

Private Placement and the Form S-

was

$891.

Contingent Consideration

In connection with the acquisition of ElementsLocal on

August

2013,

the Company issued

105,288

common shares to the sellers of ElementsLocal. In addition, contingent consideration not to exceed

67,693

shares of Bridgeline Digital common stock was contingently issuable to the sellers of ElementsLocal. The contingent consideration was payable quarterly over the

consecutive calendar quarters following the acquisition, contingent upon the acquired business achieving certain revenue targets.

As of

December

31,

2016,

the stockholders of ElementsLocal earned the full earnout of

67,693

shares of common stock, of which the final earnout shares totaling

5,642

were issued in

November

2016.

Stock Incentive Plans

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. On

April

29,

2016,

the stockholders approved a new stock incentive plan, The

2016

Stock Incentive Plan (the

“2016

Plan”). The

2016

Plan replaced an older plan that had expired in

August

2016.

The

2016

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. Initially, a total of

2,500,000

shares of the Company’s Common Stock will be reserved for issuance under this new plan. As of

December

31,

2016,

there are

1,495,170

shares available for future issuance.

Common Stock Warrants

The Company typically issues warrants to individual investors and placement agents to purchase shares of the Company’s common stock in connection with private placement fund raising activities. Warrants

may

also be issued to individuals or companies in exchange for services provided for the company. The warrants are typically exercisable

six

months after the issue date, expire in

five

years, and contain a cashless exercise provision and piggyback registration rights.

In connection with the

November

2016

Private Placement,

the Company issued to the Purchasers warrants to purchase an aggregate total of

1,067,681

shares common stock. Each Purchaser Warrant Share expires

five

and

one

-half years from the date of issuance and is exercisable for

$0.70

per share beginning

six

-months from the date of issuance, or

May

2017.

The warrants expire

May

2022.

Purchaser Warrant Shares were also issued to Roger Kahn

(43,000

shares) and Michael and Robert Taglich

(

76,923

shares each).

As of

December

31,

2016,

the total warrants outstanding were issued as follows:

1,181,724

warrants were issued to the placement agents in connection with private placements and

1,529,681

warrants were issued to individual investors in connection with private placements, debt issuances and bank guarantees. Included in the total warrants outstanding are warrants to purchase

43,000

shares of common stock issued to the Company’s CEO and President, Roger Kahn, in connection with the

November

2016

Private Placement, in which he purchased shares of common stock. Also included in the total warrants outstanding are warrants to purchase

734,056

shares of common stock issued to Michael Taglich. Michael Taglich is a member of the Board of Directors and a shareholder. Michael Taglich has been issued warrants in connection with his participation as an investor in private offerings and issuance of loans to the Company. He has also

guaranteed

$2.0

million in connection with the Company’s out of formula borrowings on its credit facility. Also included in the total warrants outstanding are warrants to purchase

320,274

shares of common stock issued to Robert Taglich. Robert Taglich is a member of the Board of Directors and a shareholder. Robert Taglich has been issued warrants in connection with his participation as an investor in private offerings of the Company. Michael Taglich and Robert Taglich are also the principals of Taglich Brothers, Inc who have been the placement agents for many of the Company’s private placements.

Total warrants outstanding as of

December

31,

2016

were as follows:

Description	Issue Date	Shares		Price		Expiration
Placement Agent	5/31/2012		43,479	$	7.00	5/31/2017
Investors	6/19/2013		92,000	$	6.25	6/19/2018
Placement Agent	6/19/2013		46,000	$	6.25	6/19/2018
Placement Agent	9/30/2013		30,770	$	6.50	9/30/2018
Placement Agent	11/6/2013		15,385	$	6.50	11/6/2018
Placement Agent	3/28/2014		64,000	$	5.25	3/28/2019
Placement Agent	10/28/2014		61,539	$	3.25	10/28/2019
Individual Director	12/31/2014		60,000	$	4.00	12/31/2019
Individual Director	2/12/2015		60,000	$	4.00	2/12/2020
Individual Director	5/12/2015		60,000	$	4.00	5/12/2020
Individual Director	7/21/2015		160,000	$	1.75	7/21/2018
Individual Director	12/31/2015		30,000	$	4.00	12/31/2020
Placement Agent	5/17/2016		433,883	$	0.73	5/17/2021
Placement Agent	5/11/2016		266,668	$	0.75	5/11/2021
Placement Agent	7/15/2016		220,000	$	0.92	7/15/2021
Investors	11/9/2016		1,067,681	$	0.70	5/9/2022
Total			2,711,405

Summary of Option and Warrant Activity and Outstanding Shares

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

Outstanding, September 30, 2016		2,242,919		$	1.51		1,643,724	$	2.34
Granted		10,000		$	0.51		1,067,681	$	0.70
Exercised		-		$	-		-		-
Forfeited or expired		(34,600	)	$	3.91		-		-
Outstanding, December 31, 2016		2,218,319		$	1.46		2,711,405	$	1.69