Bridgeline Digital, Inc. — Capital/Financing Update 2007

Apr 6, 2007

CORRESP 1 filename1.htm WWW.EXFILE.COM 888.775-4789

April 6, 2007

Ms. Maryse Mills-Apenting (Mail Stop 4561)

Division of Corporation Finance

United States Securities and Exchange Commission

100 F Street, NE

Washington, DC 20549

Re: Bridgeline Software, Inc.

Registration Statement on Form SB-2

Commission File No. 333-139298

Dear Ms. Mills-Apenting:

Pursuant to conversations between Mr. Marc Thomas of the Division of Corporation Finance and Daniele Ouellette Levy of my office, on behalf of Bridgeline Software, Inc. (the “Company”), I enclose for filing through EDGAR copies of each of the exhibits to my letter to you of April 2, 2007. That letter, a copy of which is also enclosed for your convenience, was originally submitted in connection with the filing of Amendment No. 2 to the Company’s registration statement on Form SB-2 (Commission File No. 333-139298).

The Company hereby acknowledges that:

· should the Commission or the Staff, acting pursuant to delegated authority, declare the filing effective, it does not foreclose the Commission from taking any action with respect to the filing;

· the action of the Commission or the Staff, acting pursuant to delegated authority, in declaring the filing effective, does not relieve the Company from its full responsibility for the adequacy and accuracy of the disclosure in the filing; and

· the Company may not assert this action as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.

April 6, 2007

Page 2

If you require additional information concerning the registration statement, please contact either the undersigned or Daniele Ouellette Levy of this firm at 781-622-5930.

Thank you very much.

Very truly yours,

/s/ Carl F. Barnes

Carl F. Barnes

Enclosures:

Exhibit A - Copies of the graphics referenced in Comment 2

Exhibit B - Dilution calculations referenced in Comment 20

Exhibit C - List of all investors, stock prices and funds raised in the private placements referenced in Comment 30

Exhibit D - Excerpts from the industry reports referenced in Comment 40

Exhibit E - Analysis of the Company’s products and services referenced in Comments 78 and 81

Exhibit F - Stock option grant and related information referenced in Comment 90

Exhibit G - Analysis of the fair value of the Company’s common stock referenced in Comment 91

Exhibit H - Computations and reconciliations of the fair value of the Company’s common stock referenced in Comment 92

cc: Mr. Marc D. Thomas

Mr. Thomas Massie

Mr. Gary Cebula

Joseph C. Marrow, Esq.

Daniele Ouellette Levy, Esq.

F. Alec Orudjev, Esq.

EXHIBIT A

EXHIBIT B

Bridgeline Software, Inc.

Dilution (Amounts in thousands except shares and per share data)

as of December 31, 2006

All dilution computions appearing on pages 12, 19, 25 and 26 of the Prospectus are illustrated and highlighted below in yellow.

| | (1) — Historical | Pro Forma Offering Adjustments | | As Adjusted for Offering | | Pro Forma OW Adjustments | | As Adjusted for Offering and OW | | Adjustments for Full OW Earn-Out | | As Adjusted for Offering, OW and Earn-Out | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Net tangible book value; | | | | | | | | | | | | | | | | Total stockholder's equity | $ 5,093 | $ | 13,850 | $ | 18,943 | $ | 2,700 | $ | 21,643 | $ | 800 | $ | 22,443 | | | Intangible assets, net | (271 | ) | — | | (271 | ) | | | (271 | ) | | | (271 | ) | | Goodwill, net | (6,409 | ) | — | | (6,409 | ) | (3,937 | ) | (10,346 | ) | (800 | ) | (11,146 | ) | | Tangible assets - acquisition | | | | | — | | | | — | | | | — | | | Deferred finaning fees | (151 | ) | 151 | | — | | | | — | | | | — | | | Deferred IPO Costs | (306 | ) | 306 | | — | | | | — | | | | — | | | Unamortized debt discount | (167 | ) | 167 | | — | | — | | — | | — | | — | | | Net tangible book value | (2,211 | ) | 14,474 | | 12,263 | | (1,237 | ) | 11,026 | | — | | 11,026 | | | | (A) | | (I | ) | (C | ) | | | (E | ) | | | (G | ) | | | PG 25 | | | | Pg 25 | | | | Pg 25 | | | | | | | Shares outstanding; | | | | | | | | | | | | | | | | Total shares | 4,273,833 | | 3,000,000 | | 7,273,833 | | 490,909 | | 7,764,742 | | 145,454 | | 7,910,196 | | | | | | | | (D | ) | | | (F | ) | | | (H | ) | | | (B) | | | | | | | | | | | | | | | Dilution; | | | | | | | | | | | | | | | | Assumed initial public offering price per share (AA) | | | | $ | 5.50 | | | $ | 5.50 | | | $ | 5.50 | | | Net tangible book value (deficit) per share of | | | | | | | | | | | | | | | | Common Stock before the offering (A / B), (Z) | | | (0.52 | ) | (0.52 | ) | (0.52 | ) | (0.52 | ) | | | (0.52 | ) | | Reduction in deficit in net tangible book value | | | (Z) = (A) / (B | ) | | | | | | | | | | | | per share of Common Stock attributable | | | PG 25 | | | | | | | | | | | | | to new investors (Y-Z) | | | 2.21 | | 2.21 | | 2.21 | | 2.21 | | | | 2.21 | | | Reduction (increase) \ in deficit in net tangible book value | | | (Y)

• (Z | ) | | | | | | | | | | | | per share of Common Stock attributable | | | | | | | | | | | | | | | | to the acquisition of OW | | | — | | — | | (0.27 | ) | (0.27 | ) | | | (0.27 | ) | | Pro forma net tangible book value per share | | | | | | | | | Pg 19 | | | | | | | of Common Stock after the offering (Y) | | | | | 1.69 | | | | 1.42 | | | | 1.39 | | | | | | | | (Y) = (C) / (D) Pg 25 | | | | (Y) = (E) / (F | ) | | | (Y) = (G) / (H | ) | | | | | | | | | | | Pg 25 | | | | | | | Dilution per share to new investors | | | | $ | 3.81 | | | $ | 4.08 | | | $ | 4.11 | Pg 12 | | | | | | | 69 | % | | | 74 | % | | | 75 | % | | | | | | | (AA)
• (Y) | | | | (AA)
• (Y | ) | | | (AA)
• (Y | ) | | | | | | | Pg 25 | | | | Pg 12, 25 | | | | | | | Additional Dilution resulting from Full Earn-Out Consideration | | | | | | | | | | | | | 0.03 | Pg 12 | | Increase in NTBV to Existing Shareholders | | | 3.39 | | | | | | | | | | | | | | | | (I) / (B) | | | | | | | | | | | | | Increase in NTBV to Existing Shareholders | | | Pg 25 | | | | | | 2.58 | | | | 2.58 | | | | | | | | | | | | (E) / (B) | | | | (G) / (B | ) | | | | | | | | | | | Pg 25 | | | | | |

Exhibit B - Page 1

Bridgeline Software, Inc.

Dilution (Amounts in thousands except shares and per share data)

as of December 31, 2006

All dilution computions appearing on pages 12, 19, 25 and 26 of the Prospectus are illustrated and highlighted below in yellow.

| Historical | (5) — Pro Forma Option / Warrant Adjustments | As Adjusted Option / Warrant | (2) — Pro Forma Offering Adjustments | As Adjusted for Offering | (6) — Pro Forma Overallotment Adjustments | As Adjusted for Overallotment | | --- | --- | --- | --- | --- | --- | --- |

| Net tangible book value; — Total

stockholder's equity	5,093 — (271	)	8,150 — -		13,243 — (271	)	13,850		27,093 — (271	)	2,222		29,315 — (271	)
Intangible
assets, net	(6,409	)	-		(6,409	)			(6,409	)	-		(6,409	)
Goodwill,
net	-				-				-				-
Tangible
assets - acquisition	(151	)	-		(151	)	151		-				-
Deferred
finaning fees	(306	)			(306	)	306		-				-
Deferred
IPO Costs	(167	)	-		(167	)	167		-		-		-
Unamortized
debt discount	(2,211	)	8,150		5,939		14,474		20,413		2,222		22,635
Net
tangible book value	(A	)	(J	)	(K	)	(L	)	(M	)	(N	)	(O	)
					Pg
26				Pg
26				Pg
26
Shares
outstanding;	4,273,833		1,481,875		5,755,708		3,000,000		8,755,708		450,000		9,205,708
Total
shares	(B	)			(P	)			(Q	)			(R	)
					1.03				2.33				2.46
Dilution;				$	5.50			$	5.50			$	5.50
Assumed
initial public offering price per share (AA)
Net
tangible book value (deficit) per share of			(0.52	)	(0.52	)	(0.52	)	(0.52	)	(0.52	)	(0.52	)
Common
Stock before the offering (A/B),(Z)			(A)/(B)=(Z	)
Reduction
in deficit in net tangible book value
per
share of Common Stock attributable			1.55		1.55		1.55		1.55		1.55		1.55
to
new investors (Y-Z)			(Y)

• (Z | ) | | | | | | | | | | | | Reduction (increase) \ in deficit in net tangible book value | | | | | | | | | | | | | | | | per share of Common Stock attributable | | | - | | - | | 1.30 | | 1.30 | | 1.43 | | 1.43 | | | to the acquisition of OW | | | | | | | | | | | | | | | | Pro forma net tangible book value per share | | | | | 1.03 | | | | 2.33 | | | | 2.46 | | | of Common Stock after the offering (Y) | | | | | (Y) = (K) / (N | ) | | | (Y) = (L) / (O | ) | | | (Y) = (M) / (P | ) | | | | | | | Pg 26 | | | | Pg 26 | | | | Pg 26 | | | | | | | $ | 4.47 | | | $ | 3.17 | | | $ | 3.04 | | | Dilution per share to new investors | | | | | 81 | % | | | 58 | % | | | 55 | % | | | | | | | (AA)
• (Y) | | | | (AA)
• (Y | ) | | | (AA)
• (Y | ) | | | | | | | | | | | Pg 26 | | | | Pg 26 | | | Additional Dilution resulting from Full Earn-Out Consideration | | | | | | | | | | | | | | | | | | | 1.91 | | | | 2.51 | | | | 0.25 | | | | | Increase in NTBV to Existing Shareholders | | | (J) / (B | ) | | | (L) / (P | ) | | | (N) / (Q | ) | | | | | | | | | 1.39 | | | | 4.78 | | | | 5.30 | | | Increase in NTBV to Existing Shareholders | | | | | (K) / (B | ) | | | (M) / (B | ) | | | (O) / (B | ) | | | | | | | | | | | Pg 26 | | | | Pg 26 | |

Exhibit B - Page 2

Bridgeline Software, Inc.

Dilution (Amounts in thousands except shares and per share data)

as of December 31, 2006

All dilution computions appearing on pages 12, 19, 25 and 26 of the Prospectus are illustrated and highlighted below in yellow.

NOTES
(1) Historical
information is per the Company's balance sheet as of December 31,
2006
(2) Pro
Forma Offering Adjustments
Common
Stock
Sale
of shares to the public	3,000,000
Underwriters's
over allotment	-
Issuance
of shares to aquire OW	-
Increase
in shares outstanding	3,000,000
Par
value	0.001
Par
value of common stock	3,000
Additional
paid-in capital
Shares
issued	3,000
Estimated
IPO price per share	5.50
Estimated
proceeds	16,500
Less:
Par value of common stock issued	(3	)
Underwriter's
fee	(1,774	)
Other
estimated expenses of issuance	(558	)i)
Other
Estimated
additional paid in capital	14,165
Accumulated
deficit
Deferred
finaning fees	(151	)
Unamortized
debt discount	(167	)
	(318	)
Common
Stock	3
Total
Proforma Adjustments	13,850

| i) Other

estimated expenses of issuance
Expenses
(from SB-2)
SEC	2,660
NASD	2,985
Nasdaq	35,000
BSE	10,000
Accounting Only
Accounting fees related to offering	125,000
Legal	200,000
Blue
Sky	20,000
Printing	50,000
Misc	113,000
	558,645

Exhibit B - Page 3

Bridgeline Software, Inc.

Dilution (Amounts in thousands except shares and per share data)

as of December 31, 2006

All dilution computions appearing on pages 12, 19, 25 and 26 of the Prospectus are illustrated and highlighted below in yellow.

| (3) Pro

Forma Adjustments for Objectware Acquisition
Stockholders'
Equity
Common
Stock
Shares			490,909
Share
Price			$ 5.50	2,700
FMV
of Asset Purchased
Gross
Assets				-
Less:
Goodwill				(3,937	)
Net
Tangible Assets				(3,937	)
Total
Adjustment				(1,237	)
(4) Pro
Forma Adjustments for Full Earn-Out on Objectware Acquisition
Total
Stock Value of Potential Earn Out			800,000
Share
Price			$ 5.50
Estimated
Shares				145,455
(5) Pro
Forma Adjustments for Value of Options and Warrants at IPO Price
12/31/2006	Options	903,606	$ 5.50	4,970
12/31/2006	Warrants	578,269	$ 5.50	3,180
Total
Value of Options at IPO Price				8,150
(6) Pro
Forma Adjustment for Over Allotment
Pro
Forma Equity Adjustment with Over Allotment				16,072
Pro
Forma Equity Adjustment without Over Allotment				13,850
Over
Allotment Adjustment				2,222

Exhibit B - Page 4

Bridgeline Software, Inc.

Dilution - With Over Allotment (Amounts in thousands except shares and per share data)

as of December 31, 2006

All dilution computions appearing on pages 12, 19, 25 and 26 of the Prospectus are illustrated and highlighted below in yellow.

	(1)		(2)			(3)			As	Adjustments		Adjusted
			Pro
Forma	As		Pro
Forma			Adjusted	for
Full		for
Offering,
			Offering	Adjusted		OW			for
Offering	OW		OW
	Historical		Adjustments	for
Offering		Adjustments			and
OW	Earn-Out		and
Earn-Out
Net
tangible book value;
Total
stockholder's equity	$ 5,093		$ 16,072	$	21,165	$	2,700		$ 23,865		800		24,665
Intangible
assets, net	(271	)	-		(271	)			(271	)			(271	)
Goodwill,
net	(6,409	)	-		(6,409	)	(3,937	)	(10,346	)	(800	)	(11,146	)
Tangible
assets - acquisition	-				-		-		-				-
Deferred
finaning fees	(151	)	151		-				-				-
Deferred
IPO Costs	(306	)	306		-				-				-
Unamortized
debt discount	(167	)	167		-		-		-				-
Net
tangible book value	$ (2,211	)	$ 16,696	$	14,485	$	(1,237	)	$ 13,248			$	13,248
	(A)		(I	)	(C	)			(E	)			(G	)
Shares
outstanding;
Total
shares	4,273,833		3,450,000		7,723,833		490,909		8,214,742		145,454		8,360,196
	(B)				(D	)			(F	)			(H	)
Dilution;
Assumed
initial public offering price per share (AA)				$	5.50				$ 5.50				5.50
Net
tangible book value (deficit) per share of
Common
Stock before the offering (A/B), (Z)			(0.52	)	(0.52	)	(0.52	)	(0.52	)			(0.52	)
Reduction
in deficit in net tangible book value			(Z)
= (A) / (B	)
per
share of Common Stock attributable
to
new investors (Y-Z)			2.39		2.39		2.39		2.39				2.39
Reduction
(increase) \ in deficit in net tangible book value
per
share of Common Stock attributable
to
the acquisition of OW			-		-		(0.26	)	(0.26	)			(0.26	)
Pro
forma net tangible book value per share									Pg
19
of
Common Stock after the offering (Y)					1.88				1.61				1.58
					(Y)
= (C) / (D)				(Y)
= (E) / (F	)			(Y)
= (G) / (H	)
Dilution
per share to new investors				$	3.62				$ 3.89			$	3.92
					66	%			71	%			71	%
					(AA)

• (Y) | | | | (AA)
• (Y | ) | | | (AA)
• (Y | ) | | | | | | | Pg 19, 25 | | | | Pg 12, 25 | | | | | | | Increase in NTBV to Existing Shareholders | | | 3.91 | | | | | | | | | | | | | | | | (i) / (B) | | | | | | | | | | | | | Increase in NTBV to Existing Shareholders | | | Pg 25 | | | | | | 3.10 | | | | 3.10 | | | | | | | | | | | | (E) / (B) | | | | (G) / (B | ) | | | | | | | | | | | Pg 25 | | | | | | | Change in Dilution With Shoe | | | | | (0.19 | ) | | | (0.19 | ) | | | (0.19 | ) |

Exhibit B - Page 5

Bridgeline Software, Inc.

Dilution - With Over Allotment (Amounts in thousands except shares and per share data)

as of December 31, 2006

All dilution computions appearing on pages 12, 19, 25 and 26 of the Prospectus are illustrated and highlighted below in yellow.

| (1) Historical information is per the Company's balance sheet as of December 31,

2006
(2) Pro
Forma Offering Adjustments
Common
Stock
Sale
of shares to the public	3,000,000
Underwriters's
over allotment	450,000
Issuance
of shares to aquire OW	-
Increase
in shares outstanding	3,450,000
Par
value	0.001
Par
value of common stock	3,450
Additional
paid-in capital
Shares
issued	3,450
Estimated
IPO price per share	5.50
Estimated
proceeds	18,975
Less:
Par value of common stock issued	(3	)
Underwriter's
fee	(2,040	)
Other
estimated expenses of issuance	(545	)i)
Other
Estimated
additional paid in capital	16,387
Accumulated
deficit
Deferred
finaning fees	(151	)
Unamortized
debt discount	(167	)
	(318	)
Common
Stock	3
Total
Proforma Adjustments	16,072

| i) Other

estimated expenses of issuance
Expenses
(from SB-2)
SEC	2,660
NASD	2,985
Nasdaq	35,000
BSE	10,000
Accounting	125,000
Legal	200,000
Blue
Sky	20,000
Printing	50,000
Misc	100,000
	545,645

Exhibit B - Page 6

Bridgeline Software, Inc.

Dilution - With Over Allotment (Amounts in thousands except shares and per share data)

as of December 31, 2006

All dilution computions appearing on pages 12, 19, 25 and 26 of the Prospectus are illustrated and highlighted below in yellow.

| (3) Pro

Forma Adjustments for Objectware Acquisition
Stockholders'
Equity
Common
Stock
Shares	490,909
Share
Price	$ 5.50	2,700
FMV
of Asset Purchased
Gross
Assets		-
Less:
Goodwill		(3,937	)
Net
Tangible Assets		(3,937	)
Total
Adjustment		(1,237	)
(4) Pro
Forma Adjustments for Full Earn-Out on Objectware Acquisition
Total
Stock Value of Potential Earn Out	800,000
Share
Price	$ 5.50
Estimated
Shares		145,455

Exhibit B - Page 7

EXHIBIT D

Excerpts From IDC Market Analysis: Worldwide Content Management Software ------------------------------------------------------------------------ 2006-2010 (IDC Report No. 201781) --------------------------------- of better integrating content into enterprise applications, so that business processes are content enabled, rather than managing content in separate silos. As the leading vendors continue to integrate the plethora of products and technologies they acquired during 2003 and 2004 (and even in 2005, though the fevered pace of acquisition relented last year), their integrated content, collaboration, and portal solutions will make attractive replacements for these aging in-house systems and for legacy or less feature-rich systems that are nearing the end of their useful lifespan. The concept of "enterprise content management" is still a new one: Content management systems have been (and very often still are) driven by a specific departmental or line-of-business need. We are a long way from the vision of enterprisewide adoption of a unified platform that combines content management, collaboration around document authoring, and content delivery to the myriad channels (and increasingly, devices) in demand today. And we are still a long way from streamlining the many transitions from digital to paper formats (and back again) that are still a very big part of everyday life within and between organizations. [The following supports data on page 52 of the prospectus.] Organizations are beginning to refresh or replace Web sites that were built four or five years ago as they seek to strengthen their brand identity, improve customer relationships, and enhance customer loyalty by providing new online services. More sophisticated Web content management capabilities are required to support rich interactive experiences that combine digital media, HTML, Web 2.0 user interfaces, and transactional/back-office services in a way that still enables nontechnical users to contribute and maintain content. [The following supports data on page 53 of the prospectus.] Finally, the need to support the digital media life cycle - from creation/authoring through storage and archival to transformation, reuse, and distribution - will increasingly drive adoption of content management systems that have specific support for rich media such as audio and video. Several leading content management vendors have already made DAM acquisitions, others are pursuing DAM opportunities with a unified content management offering, and we are starting to see alliances and integrations between pure-play Web content management vendors and DAM vendors. CONTENT MANAGEMENT SOFTWARE FORECAST, 2006-2010 Our research continues to show that the market is significantly underpenetrated. More than 36% of enterprises we surveyed in December still lack a content management system, and another 13% are using homegrown solutions that will be ripe for replacement over the next few years. We believe the market will experience double-digit growth for the next several years as enterprises continue to prioritize and tackle the new content-centric applications that offer the most compelling ROI. WORLDWIDE IDC's estimate of the growth of the content management software market through 2010 is presented in Table l. IDC predicts content management market growth will accelerate to 12.7% in 2006 and reach more than 13% per year for the rest of our forecast period. The content management software market will attain revenue of $3.6 billion in 2006 and $6 billion by 2010, almost double 2005 market revenue. Table 2 shows the key assumptions underlying this forecast. 3 [The following table supports data on page 53 of the prospectus.] ------------------------------------------------------------------------------------------------------------ TABLE 1 ------------------------------------------------------------------------------------------------------------ Worldwide Content Management Software Revenue by Region and Operating Environment, 2005-2010 ($M) ------------------------------------------------------------------------------------------------------------ 2005 2005-2010 2010 2005 2006 2007 2008 2009 2010 Share(%) CAGR(%) Share(%) ------------------------------------------------------------------------------------------------------------ GEOGRAPHIC REGION ------------------------------------------------------------------------------------------------------------ Americas 2,174 2,452 2,790 3,172 3,593 4,060 67.7 13.3 67.8 ------------------------------------------------------------------------------------------------------------ EMEA 839 945 1,068 1,208 1,369 1,552 26.1 13.1 25.9 ------------------------------------------------------------------------------------------------------------ Asia/Pacific 198 221 251 287 327 377 6.2 13.8 6.3 ------------------------------------------------------------------------------------------------------------ Total 3,211 3,619 4,108 4,666 5,289 5,990 100.0 13.3 100.0 ------------------------------------------------------------------------------------------------------------ OPERATING ENVIRONMENT ------------------------------------------------------------------------------------------------------------ Mainframe 245 262 282 312 344 378 7.6 9.0 6.3 ------------------------------------------------------------------------------------------------------------ i5 and OS/400 72 75 78 79 80 81 2.2 2.5 1.4 ------------------------------------------------------------------------------------------------------------ Unix 926 988 1,063 1,170 1,284 1,405 28.8 8.7 23.5 ------------------------------------------------------------------------------------------------------------ Linux/other open 56 78 106 127 152 181 1.7 26.6 3.0 source ------------------------------------------------------------------------------------------------------------ Other 39 42 44 43 42 41 1.2 0.8 0.7 host/server ------------------------------------------------------------------------------------------------------------ Windows 32 1,783 2,072 2,421 2,805 3,241 3,737 55.5 15.9 62.4 and 64 ------------------------------------------------------------------------------------------------------------ Embedded - - - - - - - NA - ------------------------------------------------------------------------------------------------------------ Other single user 90 101 114 130 148 167 2.8 13.2 2.8 ------------------------------------------------------------------------------------------------------------ Appliances - - - - - - - NA - ------------------------------------------------------------------------------------------------------------ Total 3,211 3,619 4,108 4,666 5,289 5,990 100.0 13.3 100.0 ------------------------------------------------------------------------------------------------------------ Growth (%) NA 12.7 13.5 13.6 13.4 13.2 ------------------------------------------------------------------------------------------------------------ Note: See Table 2 for key forecast assumptions. Source: IDC, May 2006 4 Excerpts From Market Analysis: Worldwide Web Services Software 2005-2009 FORECAST: Let the Races Begin [IDC Report No. 33418] -------------------------------------------------------------------------------- Sandra Rogers -------------------------------------------------------------------------------- IDC OPINION Interest in employing Web services remains steadfast as organizations seek to better integrate and extend their existing base of systems solutions for a variety of purposes. Service oriented architecture (SOA) strategies have emerged as the primary mechanism IT vendors have chosen to rally around, and mindshare in the marketplace around this computing construct continues to upsurge. However, for many organizations, Web services appear to be just one (albeit primary) mechanism enabling their planned SOA domains. Hybrid Web services and SOA implementations may exist for years to come, perhaps dampening some of their ultimate value but not necessarily hindering adoption. This added complexity is also inspiring vendors that specialize in Web services to embrace other variants and provide more holistic service-based solutions. Key findings include: [The following supports data on page 50 of the prospectus.] o Although overall IT spending and adoption during 2004 remained somewhat conservative, growth in Web services software (WSS) fared comparatively better. IDC estimates $2.33 billion in spending for the year, more than doubling from the year prior. o 2004 was a pivotal year in advancing critical standards, especially in the identity and security domain, where particular reservations have to date kept Web services implementations in check. However, the building complexity and volume of many quality-of-service (QoS) standards introduced have left significant room for pause. The marketplace depends on a key set of influential vendors to flesh out the relevant specifications and step up interoperability assurances. Meanwhile, with nominal expectations for the Sun/Microsoft (aka Java/.NET) detente to manifest any significant normalization between the two platforms, keen interest remains to bridge these environments. o For most, the journey until true expertise is amassed in creating service-oriented solutions will be a long-term one. Many variations and techniques remain under scrutiny, and true standards compliance is still more of an ideal than the norm. As volumes and use cases increase, so does awareness regarding the need to adhere to more layers of the SOA standards continuum and invest in technologies to support complex distributed architectural requirements. o The vendor community has shifted its primary attention from Web services CREATION to that of more robust consumption, with security, management, messaging and event processing, and the assembly of services into "composite" solutions as key focal points. With application vendors continuing to enable and introduce more native Web service solutions, and a market for hosted services unfolding, applications will represent a more significant growth area from 2005 on. Filing Information: May 2005. IDC #33418, Volume: 1 [The following supports data on page 50 of the prospectus.] WEB SERVICES SOFTWARE SPENDING IN 2004 IDC estimates that spending on all Web services software totaled $2.33 billion during 2004; this includes the many dimensions of applications, collaboration and groupware, development tools, integration and deployment software, information and data management, security, and systems management. Although there has been widespread mindshare and adoption of Web services in the marketplace, this has not necessarily correlated to tremendous amounts of spending for specialized technologies. Investments have primarily occurred within the largest organizations in North America or by Internet-fueled businesses like Amazon and eBay. And until mid-2004, many of these purchases were somewhat nominal, geared to support POCs and limited deployments. The tide is changing however, and as the scale and variation of use cases expand from being specific application or project based to more department- and enterprisewide initiatives, annual investments in Web services-based technologies are gradually increasing. FUTURE OUTLOOK -------------------------------------------------------------------------------- FORECAST AND ASSUMPTIONS WEB SERVICES SOFTWARE FORECAST [The following supports data on page 50 of the prospectus.] IDC's Web Services Total Opportunity Model version 19 estimates that companies worldwide will spend approximately $4.11 billion on WSS in 2005, nearly double what was spent the year prior. Because Web services is still an emerging market, growth rates appear high, but this volume represents only a mere 2% of the total worldwide software market in 2005. The model further forecasts that spending will increase at a 45% CAGR from 2004 to 2009 to reach $14.92 billion in 2009. Trends influencing the level of spending for Web services technology include the following: [The following supports data on page 51 of the prospectus.] o Many organizations will likely continue to experiment and expand their use of Web services by utilizing their existing base of technologies until volume and levels of complexity force review and investment, in particular for service-oriented management solutions. o A heavy influence on the volume and the timing of when organizations may leap to invest relates to the waves of major versions released by key vendors. Thus organizations may wait until Microsoft makes good on its Longhorn releases, and SAP customers may be propelled to invest as prior versions of software are retired from support. o A slow conversion of software pricing models from traditional license models to more subscription-oriented methods will influence the rate of growth and overall size of the market, especially in the context of hosted applications and services, levying a normalizing effect. 10 o Continued downward price pressure will result in high-end platform vendors offering more bundled solutions for net, less than what would have been supported by multiple technologies - each with its own license stream. This trend is exaggerated with continued software market consolidation imploding around top platform vendors such as IBM, Oracle, and, to some degree, Microsoft. o Adoption of Web services by "stealth" will occur toward the later portion of the forecast period as applications and systems automatically incorporate Web services and the user does not necessarily overtly decide to implement them. WEB SERVICES SOFTWARE MARKET OPPORTUNITY BY GEOGRAPHIC REGION Nearly two-thirds of the WSS market is currently concentrated in North America, primarily in the United States. Over the course of the forecast period, the market will shift to resemble more mature software markets, with North America expected to represent 54% of the market opportunity in 2009 (see Table 1 and Figure 3). TABLE 1 [The following supports data on page 52 of the prospectus.] Worldwide Web Services Software Revenue by Geographic Region, 2004-2009 ($M) 2004- 2004 2009 2009 2004 2005 2006 2007 2008 2009 Share(%) CAGR(%) Share(%) ------------------------------------------------------------------------------------------------------ North America 1,483 2,483 3,642 5,156 6,552 8,122 63.6 40.5 54.4 ------------------------------------------------------------------------------------------------------ Western Europe 561 1,133 1,811 2,628 3,486 4,464 24.1 51.4 29.9 ------------------------------------------------------------------------------------------------------ Asia/Pacific 287 500 784 1,168 1,678 2,337 12.3 52.1 15.7 (including Japan) Total 2,331 4,116 6,237 8,952 11,716 14,923 100.0 45.0 100.0 ----------------------------------------------------------------------------------------------------- Growth (%) NA 76.6 51.5 43.5 30.9 27.4 Notes: Worldwide figure is estimated fron North America, Western Europe, and Asia/Pacific (including Japan). See Table 4 for key forecast assumptions. Source: IDC's Web Services Total Opportunity Model Version 19, April 2005 11 One must consider much of this work has been done via development efforts with existing software and not necessarily via modern technologies. A "lag and then leapfrog" effect may well occur with organizations that had not previously invested in enterprise-level EAI and broker-based integration server software. As volume of services and complexity of these environments increase, demands will expand beyond the capabilities these organization can address, moving well beyond the use of more rudimentary manual and application server-centric runtime utilities currently being used by default. WEB SERVICES MARKET OPPORTUNITY BY PRIMARY SOFTWARE MARKETS The beginning stages of the Web services revolution for many large and leading organizations started with in-house initiatives. Then some products entered the market that made the task of creating services significantly easier, but the ever-pressing challenges of security and management remain. So the wave addressing more of the IT life cycle and governance for services continues to progress. And enterprises are looking to vendors now to solve such complex matters. WEB SERVICES APPLICATIONS Most key application vendors are onboard with the vision of Web services, SOA, and the expansion of modular, composite-based solutions. The first wave of activity was primarily focused at enabling the use of Web services interfaces versus solely that of proprietary APIs. Many vendors have also been actively attempting to reengineer and produce new code as native Web services. There appears to be less emphasis on discrete solution functionality to address specific requirements and more on flexible ways to leverage existing (and future) application code. A whole cadre of technologies have started offering tools of varied sophistication levels to enable Web service aggregation to facilitate the creation of composite service solutions; however, these have primarily been offered by development, integration, and business process automation purveyors. SAP AG has gone to additional lengths to move further into the application infrastructure and integration realm with its Enterprise Service Architecture (ESA) strategy, acknowledging that transition will take place moving from static application versions to more of a dynamic environment. Meanwhile, SAP and some vendors have chosen to add specific process or functional value by introducing "packaged composite solutions" to solve pressing requirements that cross-silos targeting holistic issues such as compliance or end-to-end processes such as order-to-bill and procure-to-pay. [The following supports data on page 51 of the prospectus.] One of the biggest trends, however, appears to be the resurrection of the ASP model, empowered and enhanced via Web services standards and technologies. Salesforce.com is the poster child for a new generation of vendors, and more important, a secondary channel for existing vendors as they reach to embrace (or fend off attrition from) the on-demand model. [The following supports data on page 51 of the prospectus.] The Web services applications marketplace is expected to show the most significant growth during this particular forecast period, originating from the least of the three primary software markets to reach $5.13 billion by 2009 (see Figure 4 and Table 2). In 2005, this represents less than 1% of the worldwide applications software market, yet by 2009, it increases to more than 5% of the worldwide applications software market. 13 [The following supports data on page 52 of the prospectus.] -------------------------------------------------------------------------------- FIGURE 4 -------------------------------------------------------------------------------- Worldwide Web Services Revenue by Primary Software Market, 2004-2009 2004 2005 2006 2007 2008 2009 GRAPHIC OMITTED |o| Applications software |O| Development, deployment, and information access software |X| Systems infrastructure software Note: Worldwide figure estimated from North America, Western Europe, and Asia/Pacific (including Japan). Source: IDC's Web Services Total Opportunity Model version 19, April 2005 14 Excerpts From IDC Market Analysis: Worldwide Web Analyttics Software Applications --------------------------------------------------------------------------------- 2006-2010 (IDC Report No. 201794) --------------------------------- Vendors may be finding reasons to switch, but much of the business is professionalizing and discarding in-house or entry-level purchased solutions in favor of more sophisticated analytics. Cumulatively, the top 5 vendors constituted 48.3% of the market in 2005, an increase of 3.7 percentage points from 2004. This increase does not change significantly for the top 10 or top 15 vendors, suggesting that second-tier players are still jockeying in a fluid market. -------------------------------------------------------------------------------- FIGURE 1. -------------------------------------------------------------------------------- Worldwide Web Analytics Cumulative Revenue Share for Named Vendors, 2003-2005 GRAPHIC OMITTED 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 (Cumulative rank of vendors) |o| 2003 |O| 2004 |X| 2005 Source: !DC, 2006 [The following supports data on page 53 of the prospectus.] SOFTWARE AS A SERVICE (SAAS) On-demand Web analytics continue to constitute an increasing proportion of new business among the top vendors. This trend is shown in Figure 2, where among major vendors, the percentage of on-demand revenue rose from 56.7% in 2004 to 64.9% in 2005. Clearly, Web analytics have proven an early, logical testing ground for the acceptance of SaaS. Even for hybrid vendors that sell both on-demand and on-premises solutions, the real growth has come in the on-demand arena. Although there are many examples of the use of on-demand Web analytics across virtually all industries, there are still limitations. In some cases, financial services organizations use on-demand for only certain types of information, without all types available for remote analysis. The trend toward on-demand is likely to continue, but it is unlikely that all Web analytics will become on-demand in the short run. 6 A recent significant event was Coremetrics' purchase of IBM's SurfAid business (April 3, 2006). This marks both the exit from the Web analytics business of IBM and an increase in Coremetrics revenue base. (For 2005, the companies have been represented separately in this document.) The Coremetrics logo currently appears on the IBM SurfAid Web site, marking an ongoing relationship that should push more business in Coremetrics' direction. FUTURE OUTLOOK -------------------------------------------------------------------------------- FORECAST AND ASSUMPTIONS As Table 2 shows, the Web analytics market is expected to reach $652.5 million by the end of 2010, a 15.5% compound annual growth rate (CAGR) for the period from 2005 through 2010. The assumptions used to build this forecast are explained in Table 3. Growth is expected to remain high, but to slowly decrease so that it will still be a respectable 11.2% in the final year of the forecast period. -------------------------------------------------------------------------------- TABLE 2 [The following supports data on page 54 of the prospectus.] -------------------------------------------------------------------------------- Worldwide Web Analytics Software Revenue, 2003-2010 -------------------------------------------------------------------------------- 2005-2010 2003 2004 2005 2006 2007 2008 2009 2010 CAGR(%) -------------------------------------------------------------------------------- Revenue($M) 229.8 263.5 318.0 380.4 447.7 517.4 586.6 652.5 15.5 -------------------------------------------------------------------------------- Growth(%) NA 14.6 20.7 19.6 17.7 15.6 13.4 11.2 -------------------------------------------------------------------------------- Note: See Table 3 for key forecast assumptions. Source: IDC, 2006 10 Excerpts From Forrester Research Report: ---------------------------------------- TRENDS Trends 2006: Web Content Management 3 Key factors driving new WCM deployments in 2006 include: o THE DRIVE TO ALIGN CONTENT WITH CUSTOMERS TO IMPROVE THEIR EXPERIENCE. Ownership of the Web customer experience is clearly a line-of-business function, not the responsibility of IT, but some IT organizations have been slow to get the news. Enterprises focused on improving the customer experience are now quickly identifying a need to more closely align content with targeted users through personas to avoid providing a one-size-fits-all site experience. These organizations want to empower content owners - those in marketing or customer service - to own not only the content, but also how it should be delivered to end users based on their profiles and segmentation. o The REALIZATION THAT IT'S A MULTICHANNEL WORLD, UNITED BY CONTENT. Enterprises that expect an increase in customer interactions across multiple channels face the daunting task of providing a consistent customer experience. Many have spent the last few years experimenting with treating each channel independently, compounded recently by the use of blogs, RSS, and wikis to both capture and publish content. This has led to duplication of content, inconsistent content usage, redundant processes, and frustrated employees. Providing a consistent customer experience across channels, and improving those processes, now pushes many organizations to manage their content centrally and deliver it through the right channel. o DEMANDS FOR IT TO INNOVATE ELSEWHERE. Organizations increasingly want to make the Web a business function, not an IT black box. Forrester clients often note that line-of-business users are best suited to drive site and content personalization, yet express frustration with their overdependence on IT to deliver site experiences. At the same time, improving the customer experience often requires IT to invest in new areas of innovation such as richer client support using Macromedia Flash or AJAX, and integration with business systems. Having IT maintain responsibility for the management and delivery of Web content eats into IT's - and the business' - capacity to innovate. 2006 WCM Trends To Watch Several new trends - and some newly rediscovered trends - will be visible in 2006: [The following supports data on page 52 of the prospectus.] o The REPLACEMENT MARKET FOR WCM WILL HEAT UP AS ENTERPRISES LOOK FOR INNOVATION. As organizations look to reinvest in their WCM initiatives, they will readily replace outdated systems, poor open source solutions, and custom applications that cannot meet customer experience and multichannel needs. Leading WCM vendors, such as Interwoven and Vignette, made dramatic architecture improvements in their products in 2002 and 2003. Some customers have concluded that the cost of migration will force them to seek alternatives, and many will do so in 2006 as vendor maintenance of these dated versions comes to an end. However, enterprises focused on customer experience will likely revisit decisions to seek low-cost, simple alternatives, as both vendors offer compelling solutions that support customer experience needs. [orrespondence fom Harte-Hanks supporting data on page 49 of the prospectus.] ---------------------------------------------------------------------------- FROM: Jeff Valade@harte-hanks.com [mailto:Jeff_Valade@harte-hanks.com] Sent: Thursday, March 30, 2006 12:14 PM TO: pwinslow@bridgelinesw.com SUBJECT: Harte Hanks follow up channels search results and pricing IMPORTANCE: High Good afternoon Pip, Always a pleasure to here from you. Here are your requested results. Best regards Jeff Search 1. No revenue requirement Your search results in 3,070 sites available for $10,711 Search 2. Two million or more in revenue Your search results in 1,866 sites available for $6,570 Search Criteria: Note; this is the same search we usually use except for differing revenues. Country is Canada, USA AND Web Applications/Development Software is Content Mgmt / Document Mgmt, Dont Know / Will Not Divulge, E-Commerce, E-MAIL, EDI, Internet / Intranet Administration & Mgmt, Internet / Intranet Authoring & Development, Internet / Intranet Firewalls / Encryption, Internet /Intranet Security, Other Web Application / Development Software, Web Server / Application Server Software AND ANNUAL REVENUE Annual Revenue ($mil est.) >= 2 OR ANNUAL ENTERPRISE REVENUE Annual Enterprise Revenue ($mil est.) >= 2 Jeffery R. Valade Regional Account Representative Harte-Hanks, Inc Market Intelligence www.hartehanksmi.com Phone: (586) 978-3060 ext. 616 Fax: (586) 978-3023

EXHIBIT C

| Bridgeline

Sotware
Equity
Capital Raised
PPM's
2000-2004
Dated
March 20, 2006

| Finance Round Date — A | Feb-01 | William Coldrick | 1.00 | | 50,000 | Cash Received — 50,000 | | --- | --- | --- | --- | --- | --- | --- | | | Feb-01 | John C. Cavalier Revocable Trust UDT | 1.00 | | 100,000 | 100,000 | | | Feb-01 | Amro International | 1.00 | | 125,000 | 125,000 | | | Feb-01 | Berg & Berg Enterprise, LLC | 1.00 | | 250,000 | 250,000 | | | Feb-01 | Michael D'Addio | 1.00 | | 50,000 | 50,000 | | | Feb-01 | Robert Blackman | 1.00 | | 50,000 | 50,000 | | | Feb-01 | Edward Culverwell | 1.00 | | 50,000 | 50,000 | | | Feb-01 | E. Scott Macomber | 1.00 | | 25,000 | 25,000 | | | Feb-01 | Fairjack, LP | 1.00 | | 35,000 | 35,000 | | | Feb-01 | Tech One Capital | 1.00 | | 50,000 | 50,000 | | | Mar-01 | Wakefield Materials Co | 1.00 | | 30,000 | 30,000 | | | Feb-01 | Richard C. Woodward Revocable Trust | 1.00 | | 25,000 | 25,000 | | | | Total Round A | (1 | ) | 840,000 | $ 840,000 | | B | | | | | | | | | Feb-02 | William Coldrick | 1.00 | | 25,000 | 25,000 | | | Feb-02 | John C. Cavalier Revocable Trust UDT | 1.00 | | 50,000 | 50,000 | | | Jan-02 | Amro International | 1.00 | | 150,000 | 150,000 | | | Feb-02 | Fin & Co. II | 1.00 | | 570,000 | 570,000 | | | Jan-02 | Richard O'Connell | 1.00 | | 50,000 | 50,000 | | | Feb-02 | Michael Toomey Emp PS PL J Williams& | 1.00 | | 25,000 | 25,000 | | | Jan-02 | John D. Williams Emp PS PL J Williams& | 1.00 | | 50,000 | 50,000 | | | Jan-02 | John D. Williams | 1.00 | | 50,000 | 50,000 | | | | Total Round B | (2 | ) | 970,000 | $ 970,000 | | C | | | | | | | | | Aug-02 | Frederick Ciampa | 1.00 | | 25,000 | 25,000 | | | Jul-02 | Susan R. Avery | 1.00 | | 50,000 | 50,000 | | | Sep-02 | John H. Carroll | 1.00 | | 25,000 | 25,000 | | | Jul-02 | G. David K. Hopper | 1.00 | | 25,000 | 25,000 | | | Jul-02 | Robert A. McLemore | 1.00 | | 25,000 | 25,000 | | | | Total Round C | (3 | ) | 150,000 | $ 150,000 | | D | | | | | | | | | Dec-02 | Berg & Berg Enterprise, LLC | 1.00 | | 100,000 | 100,000 | | | Dec-02 | Daniel F. Duquette | 1.00 | | 25,000 | 25,000 | | | Jan-03 | Marydee Cullen-McLemore | 1.00 | | 15,000 | 15,000 | | | Dec-02 | Mildred B. Perkins | 1.00 | | 25,000 | 25,000 | | | | Total Round D | (3 | ) | 165,000 | $ 165,000 | | E | | | | | | | | | Aug-03 | Ciampa Leasing Corporation | 1.00 | | 25,000 | 25,000 | | | Oct-03 | Fin & Co. II | 1.00 | | 173,000 | 173,000 | | | Oct-03 | FleetNatBnkPeterLWinslow&SearsCWins | 1.00 | | 50,000 | 50,000 | | | Oct-03 | Sears Condit Trust 40 Dated 3/15/1940 | 1.00 | | 25,000 | 25,000 | | | Aug-03 | Susan R. Avery | 1.00 | | 15,000 | 15,000 | | | Sep-03 | W. Thomas Beck | 1.00 | | 50,000 | 50,000 | | | Oct-03 | Michael A. Cikacz | 1.00 | | 25,000 | 25,000 | | | Jul-03 | Peter Krussell | 1.00 | | 30,000 | 30,000 | | | Jul-03 | Patrick J. Mcguire | 1.00 | | 15,000 | 15,000 | | | Aug-03 | Scafidi Family Partnership | 1.00 | | 50,000 | 50,000 | | | Sep-03 | Thomas E. Wikiera and Mary Ann | 1.00 | | 15,000 | 15,000 | | | Sep-03 | George O. Gregson | 1.00 | | 15,000 | 15,000 | | | Jul-03 | Karen L. L'Italien | 1.00 | | 25,000 | 25,000 | | | Oct-03 | Hugh J. McIsaac | 1.00 | | 25,000 | 25,000 | | | Aug-03 | Scafidi Family Partnership | 1.00 | | 20,000 | 20,000 | | | Oct-03 | Robert L. Clark | 1.00 | | 25,000 | 25,000 | | | | Total Round E | (3 | ) | 583,000 | $ 583,000 |

Exhibit C - Page 1

EXHIBIT C

| Bridgeline

Sotware
Equity
Capital Raised
PPM's
2000-2004
Dated
March 20, 2006

| Finance Round Date | | Investor | Stock Price | | Shares | Cash Received | | --- | --- | --- | --- | --- | --- | --- | | F | Aug-04 | Fin & Co. II | 1.25 | | 359,192 | 448,990 | | | Jul-04 | Jonathan T. Winslow Irrevocable Trust | 1.25 | | 20,000 | 25,000 | | | Sep-04 | W. Thomas Beck | 1.25 | | 12,000 | 15,000 | | | Jul-04 | Michael A. Cikacz | 1.25 | | 12,000 | 15,000 | | | Sep-04 | Daniel F. Duquette | 1.25 | | 25,000 | 31,250 | | | Aug-04 | G. David K. Hopper | 1.25 | | 20,000 | 25,000 | | | Jul-04 | Peter Krussell | 1.25 | | 40,000 | 50,000 | | | Jul-04 | Patrick J. Mcguire | 1.25 | | 28,000 | 35,000 | | | Jul-04 | Marydee Cullen-McLemore | 1.25 | | 16,000 | 20,000 | | | Jul-04 | Robert A. McLemore | 1.25 | | 20,000 | 25,000 | | | Jul-04 | Scafidi Family Partnership | 1.25 | | 16,000 | 20,000 | | | Jul-04 | Thomas E. Wikiera and Mary Ann | 1.25 | | 36,000 | 45,000 | | | Aug-04 | Anasazi Parners III Offshore, Ltd. | 1.25 | | 160,000 | 200,000 | | | Aug-04 | Anasazi Parners III LLC | 1.25 | | 160,000 | 200,000 | | | Aug-04 | Christopher Baker | 1.25 | | 80,000 | 100,000 | | | Aug-04 | Joseph Holmes | 1.25 | | 40,000 | 50,000 | | | Aug-04 | Daniel and Jo-Ann Jayson | 1.25 | | 20,000 | 25,000 | | | Aug-04 | Katharine McNevin | 1.25 | | 20,000 | 25,000 | | | Aug-04 | Joseph F. Mitchell and | 1.25 | | 20,000 | 25,000 | | | Aug-04 | Francis J. O'Connor | 1.25 | | 20,000 | 25,000 | | | Aug-04 | One & Co. | 1.25 | | 80,000 | 100,000 | | | Jul-04 | Conrad H. Paulino | 1.25 | | 12,000 | 15,000 | | | Aug-04 | RBC Dain Rauscher, Inc Custodian | 1.25 | | 20,000 | 25,000 | | | Aug-04 | Thompson L. Smalley | 1.25 | | 12,000 | 15,000 | | | Total Round F | | (4 | ) | 1,248,192 | $ 1,560,240 | | | Total Cash Raised | | | | | 4,268,240 |

| NOTES: ALL SHARES DISPLAYED ARE ON A PRE REVERSE SPLIT (3 TO 1)

BASIS
(1) Pro
Forma first year Revenue - Streamline	2,200,000
Estimated
Market Multiple	2
Estimated
Market Value	4,400,000
Shares
Outstanding Prior to Acquisition	2,800,000
Estimated
Shares to be issued w/Acquisition	1,000,000
Estimated
Shares to be issued w/PPM	800,000
Total
Estimated Shares Outstanding Post Acquisition	4,600,000
Estimated
Per Share Price - Round A	$ 0.96
(2) Bridgeline
Revenue 12 Mo. Ended 12/31/01	1,127,500
Estimated
Pro Forma first year Revenue - Lead Dog (NY)	3,500,000
Total
Pro Forma Revenue	4,627,500
Estimated
Market Multiple	2
Estimated
Market Value	9,255,000

Exhibit C - Page 2

EXHIBIT C

| Bridgeline

Sotware
Equity
Capital Raised
PPM's
2000-2004
Dated
March 20, 2006

| Shares

Outstanding Prior to Acquisition (12/31/01)
Estimated
Shares to be issued w/Acquisition	3,000,000
Estimated
Shares to be issued w/PPM	1,000,000
Total
Estimated Shares Outstanding Post Acquisition	8,890,000
Estimated
Per Share Price - Round B	$ 1.04
(3) Working
Capital Rounds
Bridgeline
Revenue 12 Mo. Ended 12/31/01	1,127,500
Estimated
Bridgeline Organic Revenue Increase 2003	112,750
Estimated
Pro Forma first year Revenue - Lead Dog (NY) 2002	3,500,000
Total
Pro Forma Revenue	4,740,250
Estimated
Market Multiple	2
Estimated
Market Value	9,480,500
Shares
Outstanding After NY Acquisition (02/27//02)	8,496,810
Estimated
Shares to be issued w/Acquisition	-
Estimated
Shares to be issued w/PPMs	1,000,000
Total
Estimated Shares Outstanding Post Acquisition	9,496,810
Estimated
Per Share Price - Rounds C, D & E	$ 1.00
(4) Bridgeline
Revenue 12 Mo. Ended 12/31/03	4,070,000
Estimated
Bridgeline Organic Revenue Increase 2003	407,000
Estimated
Pro Forma first year Revenue - iapps (DC)	2,500,000
Total
Pro Forma Revenue	6,977,000
Estimated
Market Multiple	2
Estimated
Market Value	13,954,000
Shares
Outstanding Prior to Acquisition (12/31/02)	8,368,650
Estimated
Shares to be issued w/Acquisition	1,400,000
Estimated
Shares to be issued w/PPM	1,200,000
Total
Estimated Shares Outstanding Post Acquisition	10,968,650
Estimated
Per Share Price - Round F	$ 1.27

Exhibit C - Page 1

EXHIBIT E

| Bridgeline

Software, Inc.
Analysis
of Revenues by Category
For
the Three Months Ended December 31, 2006
The
Company recognizes revenue under three different revenue streams:
Web
services (which include perpetual licenses), Managed services (which
includes hosting arrangements) and Subscription services. The Company's
revenue recognition policies for each of these arrangements is
noted below
and also more fully described in Note 2 to the Company's consolidated
financial statements.

| | | Web Services (2) | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Web Development by Type of Billing | | | | Managed Services (4) | | | | Customer (1) | Total Revenue Recognized First Quarter 2007 (1) | Milestone | Other Fixed | Time/ Materials | Perpetual License (3) | Prof Services | Hosting | Subscriptions (5) | | 48hourprint.com | 157,086.54 | 157,086.54 | - | - | - | - | - | - | | A.L.Mailman Family Foundation | 195.00 | - | - | - | - | - | - | 195.00 | | AIDS Housing of Washington | 1,394.40 | - | - | - | - | - | - | 1,394.40 | | Annenberg Foundation | 23,722.00 | - | - | 21,737.50 | - | - | - | 1,984.50 | | Annenberg Foundation Trust at Sunnyl | 14,486.48 | 14,486.48 | - | - | - | - | - | - | | Arbor Networks | 11,788.14 | 11,788.14 | - | - | - | - | - | - | | Archstone Foundation | 1,749.00 | - | - | - | - | - | - | 1,749.00 | | Argosy Foundation | 990.00 | - | - | - | - | - | - | 990.00 | | ArQule, Inc. | 3,901.15 | - | - | 712.50 | - | 3,188.65 | - | - | | Aspen Institute | 21,553.25 | 19,292.00 | - | 262.50 | - | - | - | 1,998.75 | | Assoc. of Baltimore Area Grantmakers | 1,185.00 | - | - | - | - | - | - | 1,185.00 | | Associated Press | 58,619.63 | - | 58,619.63 | - | - | - | - | - | | Astra Tech, Inc. | 3,825.00 | - | - | - | - | - | 3,825.00 | - | | Astraea Lesbian Found-n for Justice | 10,275.00 | - | - | - | - | 10,275.00 | - | - | | Automated Emblem Supplies, Inc. | 3,550.00 | 3,550.00 | - | - | - | - | - | - | | Barbara Lee Family Foundation | 885.00 | - | - | - | - | - | - | 885.00 | | Barr Foundation | 450.00 | - | - | - | - | - | - | 450.00 | | Blue Moon Fund | 11,475.94 | - | - | 10,515.94 | - | - | - | 960.00 | | Borderline Personality Disorder Res. | 297.00 | - | - | - | - | - | - | 297.00 | | Boston Public Library | 9,348.01 | 9,348.01 | - | - | - | - | - | - | | Brain Tumor Society | 675.00 | - | - | 675.00 | - | - | - | - | | Burness Communications | 375.00 | - | - | - | - | - | - | 375.00 | | Cadaret, Grant & Co. | 74,099.83 | - | 27,599.83 | - | - | 46,500.00 | - | - | | California Highway Patrol 11-99 Foun | 1,280.00 | 450.00 | - | - | - | - | - | 830.00 | | Capstone Partners LLC | 187.50 | 187.50 | - | - | - | - | - | - | | Center for Health Care Strategies | 2,756.25 | - | 56.25 | - | - | - | - | 2,700.00 | | Center for Nonprofit Advancement | 1,011.00 | - | - | - | - | - | - | 1,011.00 | | CFDataExchange

• Piper Fund | 1,200.00 | - | - | - | - | - | - | 1,200.00 | | Champion Mortgage | 4,800.00 | 4,800.00 | - | - | - | - | - | - | | Collins Center for Public Policy | 1,400.00 | 50.00 | - | - | - | - | - | 1,350.00 | | Community Giving Resource/Aspen Inst | 960.00 | - | - | - | - | - | - | 960.00 | | Community Health Charities | 3,525.00 | - | - | - | - | - | - | 3,525.00 | | Community Health Charities, NCA | 960.00 | - | - | - | - | - | - | 960.00 | | Community Partners HealthNet | 1,200.00 | - | - | - | - | - | - | 1,200.00 | | CRDF-U.S. Civilian Research & Devel | 12,444.46 | 3,974.71 | 5,568.75 | - | - | - | - | 2,901.00 | | Cultural Tourism DC | 3,946.00 | 1,000.00 | - | - | - | - | - | 2,946.00 | | Depository Trust & Clearing Corp | 92,089.87 | - | - | 47,089.87 | - | 45,000.00 | - | - | | Dyson Foundation | 3,483.50 | - | - | 2,337.50 | - | - | - | 1,146.00 | | EdTech Networks, Inc. | 4,275.00 | - | - | - | - | - | 4,275.00 | - | | Education Sector | 2,523.72 | 1,124.42 | 130.55 | - | - | - | - | 1,268.75 | | Emerging Practitioners in Philan | 1,200.00 | - | - | - | - | - | - | 1,200.00 | | Emerson Hospital | 1,687.50 | 1,687.50 | - | - | - | - | - | - | | Ensuring Solutions to Alcohol Prob. | 811.00 | - | - | - | - | - | - | 811.00 | | Enterprise Community Partners | 3,225.00 | - | - | - | - | - | - | 3,225.00 | | ESCR-Net | 9,114.48 | - | - | 9,114.48 | - | - | - | - |

Exhibit E - Page 1

| Bridgeline

Software, Inc.
Analysis
of Revenues by Category
For
the Three Months Ended December 31, 2006
The
Company recognizes revenue under three different revenue streams:
Web
services (which include perpetual licenses), Managed services (which
includes hosting arrangements) and Subscription services. The Company's
revenue recognition policies for each of these arrangements is
noted below
and also more fully described in Note 2 to the Company's consolidated
financial statements.

| | | Web Services (2) | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Web Development by Type of Billing | | | | Managed Services (4) | | | | Customer (1) | Total Revenue Recognized First Quarter 2007 (1) | Milestone | Other Fixed | Time/ Materials | Perpetual License (3) | Prof Services | Hosting | Subscriptions (5) |

| Fairlington

United Methodist Church	1,050.00		-	-	-		-	-		-	1,050.00
Faith
Moore and Associates	5,279.13		5,279.13	-	-		-	-		-	-
Federal
Mediation & Conciliation	16,167.02		-	18,900.00	-		-	(2,732.98	)	-	-
Foreign
Policy Association	6,194.72		269.72	-	1,500.00		-	-		-	4,425.00
Foundation
Financial Officers Group	3,642.00		-	-	-		-	-		-	3,642.00
Foundation
for Child Development	16,606.60		16,194.10	-	412.50		-	-		-	-
Foundation
for the Defense of Democr	1,830.00		-	-	-		-	-		-	1,830.00
FOX
Relocation Management Corp.	461.23		-	-	461.23		-	-		-	-
Free
to Grow	1,455.00		-	-	-		-	-		-	1,455.00
Funders'
Network for Smart Growth	3,150.00		-	-	-		-	-		-	3,150.00
GEO	13,306.68		7,188.43	-	1,912.50		-	1,800.00		-	2,405.75
Gill
Foundation	14,201.10		7,968.39	-	450.00		-	-		-	5,782.71
Grantmakers
for Children,Youth & Fam	2,090.00		-	-	650.00		-	-		-	1,440.00
Grantmakers
In Health	11,625.42		5,682.92	675.00	1,412.50		-	-		-	3,855.00
Grantmakers
in the Arts	885.00		-	-	-		-	-		-	885.00
Grants
Managers Network	1,200.00		-	-	-		-	-		-	1,200.00
Health
Privacy Project	951.00		-	-	-		-	-		-	951.00
HealthFunders	3,001.80		-	-	-		-	-		-	3,001.80
Howard
Hughes Medical Institute	2,400.00		-	-	-		-	-		-	2,400.00
Institute
for Medicine as a Pro	1,040.00		-	450.00	-		-	-		-	590.00
IntelliVid
Corporation	2,934.43		2,934.43	-	-		-	-		-	-
International
Securities Exchange	34,000.00		-	-	-		34,000.00	-		-	-
Int'l
Institute Modern Letter	450.00		-	-	-		-	-		-	450.00
IONA
Technologies	17,909.84	*	-	-	17,909.84		-	-		-	-
Janney
Montgomery Scott LLC	15,000.00		15,000.00	-	-		-	-		-	-
JB
Hanauer & Co.	666.68		-	666.68	-		-	-		-	-
John
Hancock	135,696.80	*	106,615.80	-	1,250.00		-	-		27,831.00	-
John
Hancock	8,010.03		8,010.03	-	-		-	-		-	-
JR
Katz	18,804.83		18,804.83	-	-		-	-		-	-
Lown
Cardiovascular Research	3,150.00		-	-	3,150.00		-	-		-	-
MBL
International Corporation	160.00		-	-	-		-	160.00		-	-
Meyer
Foundation (Eugene and Agnes)	1,467.00		-	-	-		-	-		-	1,467.00
MIT
Careers Office	85,268.40		85,268.40	-	-		-	-		-	-
MIT
LFM SDM	5,000.00		-	-	-		-	5,000.00		-	-
National
Academy of Social Insurance	1,554.73		-	-	(134.27	)	-	-		-	1,689.00
National
Architectural Accrediting	1,731.00		-	-	-		-	-		-	1,731.00
National
Children's Museum	2,871.00		-	-	1,866.00		-	-		-	1,005.00
National
Financial Partners	57,377.15		57,377.15	-	-		-	-		-	-
National
Fire Protection Association	220.00		220.00	-	-		-	-		-	-
National
Palliative Care Research	15,265.72		-	3,753.97	10,075.50		-	-		-	1,436.25
National
Press Foundation	4,142.50		-	-	2,687.50		-	-		-	1,455.00
NEC
Foundation of America	1,212.00		-	-	-		-	-		-	1,212.00
New
York - Presbyterian Hospital	15,000.00		-	15,000.00	-		-	1,657.30		-	-
New
York Regional Assoc. of Grantmak	3,625.50		-	-	1,012.50		-	-		-	2,613.00
Newton-Wellesley
Hospital	17,284.69	*	-	10,984.69	-		-	-		6,300.00	-

Exhibit E - Page 2

| Bridgeline

Software, Inc.
Analysis
of Revenues by Category
For
the Three Months Ended December 31, 2006
The
Company recognizes revenue under three different revenue streams:
Web
services (which include perpetual licenses), Managed services
(which
includes hosting arrangements) and Subscription services. The
Company's
revenue recognition policies for each of these arrangements is
noted below
and also more fully described in Note 2 to the Company's consolidated
financial statements.

| | | Web Services (2) | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Web Development by Type of Billing | | | | Managed Services (4) | | | | Customer (1) | Total Revenue Recognized First Quarter 2007 (1) | Milestone | Other Fixed | Time/ Materials | Perpetual License (3) | Prof Services | Hosting | Subscriptions (5) |

| Nomura

Securities International	481,022.32		-	1,994.82	359,027.50	-	120,000.00	-	-
Non
Profit Sector Research Fund	1,893.75	*	-	-	93.75	-	-	-	1,800.00
Northeast
Health System	49,999.25		-	49,999.25	-	-	-	-	-
Omgeo	2,492.07		2,492.07	-	-	-	-	-	-
Oxford
International Review	18,961.16		11,411.16	7,550.00	-	-	-	-	-
Packard
Foundation	12,862.18		-	-	12,862.18	-	-	-	-
Paperloop	1,500.00		1,500.00	-	-	-	-	-	-
Partners
Telemedicine	1,388.41		-	1,388.41	-	-	-	-	-
Partnership
for Public Service	2,745.00		-	-	-	-	-	-	2,745.00
Phase
Forward	6,525.00		6,525.00	-	-	-	-	-	-
Physicians'
Foundation	420.00		-	-	-	-	-	-	420.00
Pioneer
Credit	833.35		-	833.35	-	-	-	-	-
Princeton
University	2,139.00		-	-	-	-	-	-	2,139.00
Reed
Exhibitions	74,121.02		-	74,121.02	-	-	-	-	-
RISI	71,948.88		-	60,771.38	11,177.50	-	-	-	-
Rockefeller
Brothers Fund	28,624.69		24,649.69	-	3,975.00	-	-	-	-
Rolf
Hagen	65,307.92		65,307.92	-	-	-	-	-	-
RSA
Conference	103,468.72		-	103,468.72	-	-	-	-	-
RSA
Security, Inc.	20,090.00		20,090.00	-	-	-	-	-	-
Spotfire,
Inc.	7,770.93		4,795.93	-	-	-	2,975.00	-	-
Surdna
Foundation	1,235.00	*	-	-	350.00	-	-	-	885.00
SWIFT
National Group	1,050.00		-	-	-	-	-	1,050.00	-
The
Commonwealth Fund	49,181.96	*	21,716.96	7,725.00	11,490.00	-	-	-	8,250.00
The
Commonwealth Fund	22,825.00		-	-	-	-	22,825.00	-	-
The
German Marshall Fund of the US	2,325.00		-	-	-	-	2,325.00	-	-
Tides
Foundation	1,575.00		-	-	-	-	-	-	1,575.00
Transparency
International-USA	525.00		525.00	-	-	-	-	-	-
Trillium
Software	84,582.17		84,582.17	-	-	-	-	-	-
Truman
Scholarship Foundation	2,010.00		-	-	-	-	-	-	2,010.00
United
Hospital Fund	8,193.01	*	1,259.00	-	4,112.01	-	-	-	2,822.00
United
Way of Massachuesetts Bay	3,675.00		-	-	3,675.00	-	-	-	-
Wenner-Gren
Foundation	765.00		-	-	-	-	-	-	765.00
William
Penn Foundation	1,500.00		-	-	-	-	-	-	1,500.00
William
T. Grant Foundation	3,925.00	*	-	-	325.00	-	1,462.50	-	2,137.50
Women
& Philanthropy	225.00		-	-	-	-	-	-	225.00
Woodmen
of the World	4,080.00		-	-	-	-	-	4,080.00	-
Woodrow
Wilson Presidential Library	11,552.84	*	10,592.84	-	-	-	-	-	960.00
Yale
New Haven Healh Systems Serv	34,265.91		-	33,682.57	-	-	583.34	-	-
Grand
Total	2,308,950.19		821,086.37	483,939.87	544,149.03	34,000.00	261,018.81	47,361.00	119,052.41

Exhibit E - Page 3

| Bridgeline

Software, Inc.
Analysis
of Revenues by Category
For
the Three Months Ended December 31,
2006

The Company recognizes revenue under three different revenue streams: Web services (which include perpetual licenses), Managed services (which includes hosting arrangements) and Subscription services. The Company's revenue recognition policies for each of these arrangements is noted below and also more fully described in Note 2 to the Company's consolidated financial statements.

| (1) This amount represents the total revenue per customer which in certain instances is derived through multiple contracts with each

customer.
(2)
Web services include professional services primarily related to the
Company's Web development solutions. Web services are sold either
on a
stand alone basis or in multiple element arrangements with Managed
Services and/or the Company's licensed software products. Web services
revenue is invoiced based on contractually identified milestones
or
periodic progress billing based on services provided to date. Revenue
from
Web Services is recognized when the services are performed using
the
proportional performance model using a method based on cost incurred
in
relation to total estimated cost at completion. Labor costs are the
most
appropriate measure to allocate revenue among reporting periods,
as they
are the primary input to the provision of our Web Services. Fixed
fee
engagements are typically based on monthly deliverables or the completion
of milestones. For milestone based projects, since milestone pricing
is
based on hourly costs and the duration of such engagements is relatively
short, this approach principally mirrors an output approach under
the
proportional performance model for revenue recognition on such fixed
priced engagements.
(3)
Perpetual licenses refers to the Company's NetEditor software product
which is sold in multiple element arrangements with Web services.
The
revenue related to NetEditor (i.e. the delivered element) is recognized
upon achievement of all applicable criteria set forth in SOP 97-2.
The
Company recognizes revenue from perpetual software licenses upon
delivery
of the software because the related Web Services are not essential
to the
functionality of the software and do not involve significant modification
or customization of the software.
(4)
Managed services primarily include on-going retained professional
services
and may also include monthly hosting fees for the use of hardware
and
infrastructure, generally at the Company’s network operating center.
Managed Services are sold on a stand-alone basis or, as described
below,
in multiple element arrangements with Web Services and the Company’s
licensed software products. Stand-alone on-going retained professional
services are either 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. These arrangements do not require
formal customer acceptance and do not grant any future right to labor
hours contracted for but not used.
Revenue
from Hosting services is incidental to the Company’s Web Services
activities and, for all periods presented, the only customers under
contractual hosting arrangements have previously been Web Services
customers. The Company's hosting arrangements are typically short-term
in
nature and include a clause for termination by either party for
convenience upon 30 days' notice. Moreover, there are no significant
upfront fees associated with the Company's hosting arrangements.
Accordingly, the Company recognizes revenue on hosting arrangements
on a
monthly basis over the period to which the service is delivered.
Hosting
revenue has historically been insignificant to both the Company’s business
strategy and to total revenues and does not warrant separate
classification in the statement of operations.
(5)
Subscriptions include on-going access to features of the Company's
Orgitecture platform through a hosting arrangement. Subscriptions
are
initially sold as part of multi-element arrangements with the Company's
Web and/or Managed Services. After development and installation of
the
Company's web development solution, subscription revenues are recognized
monthly until such time as the Company or customer terminates the
arrangement. Subscriptions are accounted for as separate units of
accounting based on their respective value to the customer on a
stand-alone basis and are separately priced based on third party
evidence
of fair value when VSOE is not available. The Company's subscriptions
include a clause for termination by either party for convenience
upon 30
days' notice.
*
Represents a multiple element arrangement. The Company accounts for
multiple element arrangments under EITF 00-21, Accounting
For Revenue Arrangements with Multiple Deliverables. Accordingly,
the Company identifies separate units of accounting by concluding
that the
delivered elements have stand alone value and establishing VSOE of
fair
value or third party evidence of fair value when VSOE is unvailable
for
the undelivered elements in each arrangment, generally the hosting
services or subscriptions. Further, since the Company is unable to
attain
VSOE for the undelivered element, it relies on the standard in EITF
00-21
to ascertain evidence of third party fair value, as the Company's
pricing
for such hosting services and subscriptions is in accordance with
standard
price lists, and such prices are not discounted. Revenue is recognized
for
the delivered element(s) using the residual method, whereby the value
ascribed to the delivered element(s) is derived from the difference
between the total consideration in the arrangement less the VSOE
or third
part fair value of the undelivered elements.
The
Company's accounting policies for each element are described more
fully
above and in Note 2 to the Company's Consolidated Financial
Statements.

Exhibit E - Page 4

EXHIBIT E

| Bridgeline

Software, Inc.
Analysis
of Revenues by Category
For
the Three Months Ended December 31, 2005
The
Company recognizes revenue under three different revenue streams:
Web
services (which include perpetual licenses), Managed services (which
includes hosting arrangements) and Subscription services. The Company's
revenue recognition policies for each of these arrangements is
noted below
and also more fully described in Note 2 to the Company's consolidated
financial statements.

| | | Web Services (2) | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Web Development by Type of Billing | | | | Managed Services (4) | | | | Customer (1) | Total Revenue Recognized First Quarter 2006 (1) | Milestone | Other Fixed | Time/ Materials | Perpetual License (3) | Prof Services | Hosting | Subscriptions (5) |

| A.L.Mailman

Family Foundation	7,782.93		-	7,092.93		-	-	-	-
AIDS
Housing of Washington	2,244.40		-	850.00	-	-	-	-	1,394.40
Archstone
Foundation	1,749.00		-	-	-	-	-	-	1,749.00
Aspen
Institute	3,937.11	*	523.71	-	1,508.40	-	-	-	1,905.00
Assoc.
of Baltimore Area Grantmakers	1,185.00		-	-	-	-	-	-	1,185.00
Astra
Tech, Inc.	7,310.07	*	-	3,485.07	-	-	-	3,825.00	-
Automated
Emblem Supplies, Inc.	44,036.34		44,036.34	-	-	-	-	-	-
Bank
of New York	186,224.14		-	172,476.37	-	-	13,747.77	-	-
Barbara
Lee Family Foundation	1,710.00	*	825.00	-	-	-	-	-	885.00
Barr
Foundation	450.00		-	-	-	-	-	-	450.00
Blue
Moon Fund	1,308.33	*	348.33	-	-	-	-	-	960.00
Borderline
Personality Disorder Res.	2,519.94		-	-	-	-	2,222.94	-	297.00
Brain
Tumor Society	675.00		-	-	-	-	-	675.00	-
Burness
Communications	19,340.05		19,340.05	-	-	-	-	-	-
Cadaret,
Grant & Co.	19,853.20		-	-	-	-	7,853.20	12,000.00	-
California
Highway Patrol 11-99 Foun	8,440.00		-	-	6,440.00	2,000.00	-	-	-
Cambria
Consulting	(2,619.70	)	-	(2,619.70	)	-	-	-	-
Center
for Health Care Strategies	2,975.59	*	-	275.59	-	-	-	-	2,700.00
Center
for Nonprofit Advancement	1,011.00		-	-	-	-	-	-	1,011.00
CFDataExchange

• Piper Fund | 1,200.00 | | - | - | - | - | - | - | 1,200.00 | | | Collins Center for Public Policy | 1,350.00 | | - | - | - | - | - | - | 1,350.00 | | | Community Giving Resource/Aspen Inst | 960.00 | | - | - | - | - | - | - | 960.00 | | | Community Health Charities | 3,525.00 | | - | - | - | - | - | - | 3,525.00 | | | Community Health Charities, NCA | 1,373.99 | * | 413.99 | - | - | - | - | - | 960.00 | | | Community Partners HealthNet | 1,200.00 | | - | - | - | - | - | - | 1,200.00 | | | CRDF-U.S. Civilian Research & Devel | 14,152.74 | * | 8,366.74 | - | 3,650.00 | - | - | - | 2,136.00 | | | Cultural Tourism DC | 3,774.00 | * | 825.00 | - | - | - | - | - | 2,949.00 | | | Depository Trust & Clearing Corp | 82,575.00 | | - | - | 34,050.00 | - | 48,525.00 | - | - | | | Direct Selling Education Foundation | 1,068.00 | | - | - | - | - | - | - | 1,068.00 | | | Dyson Foundation | 1,182.00 | * | - | 36.00 | - | - | - | - | 1,146.00 | | | EdTech Networks, Inc. | 52,815.00 | * | - | 50,790.00 | - | - | - | 2,700.00 | - | | | Education Sector | 26,764.12 | | 12,364.12 | - | - | 14,400.00 | - | - | - | | | Emerging Practitioners in Philan | 1,200.00 | | - | - | - | - | - | - | 1,200.00 | | | Ensuring Solutions to Alcohol Prob. | 26,383.96 | | 26,708.95 | - | - | - | - | - | (324.99 | ) | | Enterprise Community Partners | 3,544.58 | * | - | - | 344.58 | - | - | - | 3,200.00 | | | EverBank | 18,200.00 | | 18,200.00 | - | - | - | - | - | - | | | Fairlington United Methodist Church | 1,050.00 | | - | - | - | - | - | - | 1,050.00 | | | Federal Mediation & Conciliation | 73,946.17 | | - | 68,349.29 | - | - | 5,596.88 | - | - | | | Folksamerica | 1,650.00 | | 1,650.00 | - | - | - | - | - | - | | | Foreign Policy Association | 14,111.12 | * | 4,625.33 | - | 5,060.79 | - | - | - | 4,425.00 | | | Forex Capital Markets | 16,301.55 | | 16,301.55 | - | - | - | - | - | - | | | Foundation Financial Officers Group | 5,044.50 | * | 1,500.00 | - | - | - | - | - | 3,544.50 | | | Foundation for the Defense of Democr | 10,563.04 | * | 8,103.04 | - | 630.00 | - | - | - | 1,830.00 | | | Free to Grow | 1,455.00 | | - | - | - | - | - | - | 1,455.00 | |

Exhibit E - Page 5

EXHIBIT E

| Bridgeline

Software, Inc.
Analysis
of Revenues by Category
For
the Three Months Ended December 31, 2005
The
Company recognizes revenue under three different revenue streams:
Web
services (which include perpetual licenses), Managed services
(which
includes hosting arrangements) and Subscription services. The
Company's
revenue recognition policies for each of these arrangements is
noted below
and also more fully described in Note 2 to the Company's consolidated
financial statements.

| | | Web Services (2) | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Web Development by Type of Billing | | | | Managed Services (4) | | | | Customer (1) | Total Revenue Recognized First Quarter 2006 (1) | Milestone | Other Fixed | Time/ Materials | Perpetual License (3) | Prof Services | Hosting | Subscriptions (5) |

| Funders'

Network for Smart Growth	3,150.00		-	-		-	-	-	-	3,150.00
GEO	5,207.00	*	545.00	-		1,800.00	-	-	-	2,862.00
Gill
Foundation	26,114.36	*	15,634.50	-		4,680.00	-	-	-	5,799.86
Grantmakers
for Children,Youth & Fam	21,827.65		16,827.65	-		-	5,000.00	-	-	-
Grantmakers
In Health	4,731.67	*	-	876.67		-	-	-	-	3,855.00
Grantmakers
in the Arts	1,810.00	*	-	925.00		-	-	-	-	885.00
Grants
Managers Network	1,200.00		-	-		-	-	-	-	1,200.00
Health
Privacy Project	951.00		-	-		-	-	-	-	951.00
HealthFunders	3,001.80		-	-		-	-	-	-	3,001.80
Howard
Hughes Medical Institute	2,400.00		-	-		-	-	-	-	2,400.00
Institute
for Defense Analyses	(4,021.32	)	-	(4,021.32	)	-	-	-	-	-
Institute
for Medicine as a Pro	12,177.52		-	12,177.52		-	-	-	-	-
Int'l
Institute Modern Letter	3,143.09	*	2,651.84	-		-	-	-	-	491.25
Janney
Montgomery Scott LLC	4,199.07		4,199.07	-		-	-	-	-	-
JB
Hanauer & Co.	5,000.00		-	5,000.00		-	-	-	-	-
Jewish
Funders Network	2,792.28	*	854.78	-		-	-	-	-	1,937.50
John
Hancock	124,850.59	*	99,325.59	-		4,375.00	-	-	21,150.00	-
John
Hancock Group Life	104,851.07		104,851.07	-		-	-	-	-	-
John
Hancock Investment Services	1,200.00		-	-		-	-	-	1,200.00	-
MBL
International Corporation	160.00		-	-		-	-	160.00	-	-
Meyer
Foundation (Eugene and Agnes)	1,717.00	*	250.00	-		-	-	-	-	1,467.00
Michael
& Susan Dell Foundation	2,912.56		-	-		2,912.56	-	-	-	-
National
Academy of Social Insurance	4,919.56	*	1,989.52	-		-	-	716.04	-	2,214.00
National
Architectural Accrediting	1,731.00		-	-		-	-	-	-	1,731.00
National
Children's Museum	1,394.65	*	389.65	-		-	-	-	-	1,005.00
National
Financial Partners	77,188.40		77,188.40	-		-	-	-	-	-
National
Fire Protection Association	859.75		-	-		859.75	-	-	-	-
National
Press Foundation	1,455.00		-	-		-	-	-	-	1,455.00
NEC
Foundation of America	1,212.00		-	-		-	-	-	-	1,212.00
New
York - Presbyterian Hospital	25,163.01		-	24,519.42		-	-	643.59	-	-
New
York Regional Assoc. of Grantmak	5,781.75	*	-	3,243.75		-	-	-	-	2,538.00
Newton-Wellesley
Hospital	42,863.23	*	-	36,563.23		-	-	-	6,300.00	-
Nomura
Securities International	343,120.06		-	129,266.33		99,853.73	-	114,000.00	-	-
Non
Profit Sector Research Fund	1,987.50	*	-	-		187.50	-	-	-	1,800.00
North
American Skull Base Society	1,103.75		-	-		-	-	-	-	1,103.75
Omgeo	29,341.24		29,341.24	-		-	-	-	-	-
Packard
Foundation	38,574.55		31,134.55	-		7,440.00	-	-	-	-
Partnership
for Public Service	2,813.75		-	-		-	-	-	-	2,813.75
Pfizer	1,733.83		1,733.83	-		-	-	-	-	-
Physicians'
Foundation	11,862.92	*	-	11,722.92		-	-	-	-	140.00
Princeton
University	4,139.00	*	2,000.00	-		-	-	-	-	2,139.00
Scripps
Foundation	1,537.50	*	-	-		337.50	-	-	-	1,200.00
Sound
Partners	2,082.68	*	732.68	-		-	-	-	-	1,350.00
Stuart
Foundation	885.00		-	-		-	-	-	-	885.00

Exhibit E - Page 6

EXHIBIT E

| Bridgeline

Software, Inc.
Analysis
of Revenues by Category
For
the Three Months Ended December 31, 2005
The
Company recognizes revenue under three different revenue streams:
Web
services (which include perpetual licenses), Managed services
(which
includes hosting arrangements) and Subscription services. The
Company's
revenue recognition policies for each of these arrangements is
noted below
and also more fully described in Note 2 to the Company's consolidated
financial statements.

| | | Web Services (2) | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Web Development by Type of Billing | | | | Managed Services (4) | | | | Customer (1) | Total Revenue Recognized First Quarter 2007 (1) | Milestone | Other Fixed | Time/ Materials | Perpetual License (3) | Prof Services | Hosting | Subscriptions (5) |

| Surdna

Foundation	10,617.03		10,617.03	-	-	-	-	-	-
SWIFT
National Group	1,050.00		-	-	-	-	-	1,050.00	-
The
Commonwealth Fund	32,776.79		-	-	11,908.75	-	20,868.04	-	-
The
Commonwealth Fund	13,680.84	*	-	-	5,087.09	-	-	-	8,593.75
Tides
Foundation	750.00		-	-	-	-	-	-	750.00
Transparency
International-USA	681.01		261.01	-	420.00	-	-	-	-
Truman
Scholarship Foundation	2,210.00	*	-	-	200.00	-	-	-	2,010.00
United
Hospital Fund	4,265.27	*	2,003.27	-	-	-	-	-	2,262.00
Wenner-Gren
Foundation	2,137.50		-	-	2,137.50	-	-	-	-
William
Penn Foundation	1,500.00		-	-	-	-	-	-	1,500.00
William
T. Grant Foundation	3,120.00	*	-	-	1,095.00	-	-	-	2,025.00
Women
& Philanthropy	1,384.50	*	-	-	202.50	-	-	-	1,182.00
Woodmen
of the World	4,080.00		-	-	-	-	-	4,080.00	-
Woodrow
Wilson Presidential Library	27,945.00	*	15,150.00	-	-	12,500.00	-	-	295.00
Grand	1,712,845.58		581,812.83	521,009.07	195,870.65	33,900.00	214,333.46	52,980.00	113,614.57

Exhibit E - Page 7

| (1) This amount represents the total revenue per customer which in certain instances is derived through multiple contracts with each

customer.
(2)
Web services include professional services primarily related to
the
Company's Web development solutions. Web services are sold either
on a
stand alone basis or in multiple element arrangements with Managed
Services and/or the Company's licensed software products. Web services
revenue is invoiced based on contractually identified milestones
or
periodic progress billing based on services provided to date. Revenue
from
Web Services is recognized when the services are performed using
the
proportional performance model using a method based on cost incurred
in
relation to total estimated cost at completion. Labor costs are
the most
appropriate measure to allocate revenue among reporting periods,
as they
are the primary input to the provision of our Web Services. Fixed
fee
engagements are typically based on monthly deliverables or the
completion
of milestones. For milestone based projects, since milestone pricing
is
based on hourly costs and the duration of such engagements is relatively
short, this approach principally mirrors an output approach under
the
proportional performance model for revenue recognition on such
fixed
priced engagements
(3)
Perpetual licenses refers to the Company's NetEditor software product
which is sold in multiple element arrangements with Web services.
The
revenue related to NetEditor (i.e. the delivered element) is recognized
upon achievement of all applicable criteria set forth in SOP 97-2.
The
Company recognizes revenue from perpetual software licenses upon
delivery
of the software because the related Web Services are not essential
to the
functionality of the software and do not involve significant modification
or customization of the software.
(4)
Managed services primarily include on-going retained professional
services
and may also include monthly hosting fees for the use of hardware
and
infrastructure, generally at the Company’s network operating center.
Managed Services are sold on a stand-alone basis or, as described
below,
in multiple element arrangements with Web Services and the Company’s
licensed software products. Stand-alone on-going retained professional
services are either 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. These arrangements do not require
formal customer acceptance and do not grant any future right to
labor
hours contracted for but not used.
Revenue
from Hosting services is incidental to the Company’s Web Services
activities and, for all periods presented, the only customers under
contractual hosting arrangements have previously been Web Services
customers. The Company's hosting arrangements are typically short-term
in
nature and include a clause for termination by either party for
convenience upon 30 days' notice. Moreover, there are no significant
upfront fees associated with the Company's hosting arrangements.
Accordingly, the Company recognizes revenue on hosting arrangements
on a
monthly basis over the period to which the service is delivered.
Hosting
revenue has historically been insignificant to both the Company’s business
strategy and to total revenues and does not warrant separate
classification in the statement of operations.
(5)
Subscriptions include on-going access to features of the Company's
Orgitecture platform through a hosting arrangement. Subscriptions
are
initially sold as part of multi-element arrangements with the Company's
Web and/or Managed Services. After development and installation
of the
Company's web development solution, subscription revenues are recognized
monthly until such time as the Company or customer terminates the
arrangement. Subscriptions are accounted for as separate units
of
accounting based on their respective value to the customer on a
stand-alone basis and are separately priced based on third party
evidence
of fair value when VSOE is not available. The Company's subscriptions
include a clause for termination by either party for convenience
upon 30
days' notice.
*
Represents a multiple element arrangement. The Company accounts
for
multiple element arrangments under EITF 00-21, Accounting
For Revenue Arrangements with Multiple Deliverables. Accordingly,
the Company identifies separate units of accounting by concluding
that the
delivered elements have stand alone value and establishing VSOE
of fair
value or third party evidence of fair value when VSOE is unvailable
for
the undelivered elements in each arrangment, generally the hosting
services or subscriptions. Further, since the Company is unable
to attain
VSOE for the undelivered element, it relies on the standard in
EITF 00-21
to ascertain evidence of third party fair value, as the Company's
pricing
for such hosting services and subscriptions is in accordance with
standard
price lists, and such prices are not discounted. Revenue is recognized
for
the delivered element(s) using the residual method, whereby the
value
ascribed to the delivered element(s) is derived from the difference
between the total consideration in the arrangement less the VSOE
or third
part fair value of the undelivered elements.
The
Company's accounting policies for each element are described more
fully
above and in Note 2 to the Company's Consolidated Financial
Statements.

Exhibit E - Page 8

EXHIBIT E

| Bridgeline

Software, Inc.
Analysis
of Revenues by Category
For
the Fiscal Year Ended September 30, 2006
The
Company recognizes revenue under three different revenue streams:
Web
services (which include perpetual licenses), Managed services (which
includes hosting arrangements) and Subscription services. The Company's
revenue recognition policies for each of these arrangements is
noted below
and also more fully described in Note 2 to the Company's consolidated
financial statements.

| | | Web Services (2) | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Web Development by Type of Billing | | | | Managed Services (4) | | | | Customer (1) | Total Revenue Recognized Fiscal Year 2006 (1) | Milestone | Other Fixed | Time/ Materials | Perpetual License (3) | Prof Services | Hosting | Subscriptions (5) |

48hourprint.com	21,478.41		21,478.41		-	-	-	-	-	-
A.L.Mailman
Family Foundation	15,439.99	*	15,139.99		-	-	-	-	-	300.00
AIDS
Housing of Washington	13,389.10	*	850.00		-	6,961.50	-	-	-	5,577.60
Annenberg
Foundation	5,495.00	*	1,087.50		-	-	-	-	-	4,407.50
Annenberg
Foundation Trust	18,598.77		17,098.77		-	-	1,500.00	-	-	-
Archstone
Foundation	7,052.25		-		-	-	-	-	-	7,052.25
Argosy
Foundation	51,984.36	*	35,725.00		-	6,439.36	9,000.00	-	-	820.00
Argosy
Foundation	1,350.00		1,350.00		-	-	-	-	-	-
ArQule,
Inc.	18,361.21		18,361.21		-	-	-	-	-	-
Aspen
Institute	25,345.75	*	17,382.00		-	-	-	-	-	7,963.75
Assoc.
of Baltimore Area Grantmakers	15,725.00	*	10,985.00		-	-	-	-	-	4,740.00
Associated
Press	105,329.64		105,329.64		-	-	-	-	-	-
Astra
Tech, Inc.	19,180.07	*	-		3,880.07	-	-	-	15,300.00	-
Automated
Emblem Supplies	96,074.33		96,074.33		-	-	-	-	-	-
Bank
of New York	582,696.38		-		277,273.98	281,366.40	-	24,056.00	-	-
Barbara
Lee Family Foundation	4,382.00	*	842.00		-	-	-	-	-	3,540.00
Barr
Foundation	11,612.50	*	7,500.00		-	1,312.50	1,000.00	-	-	1,800.00
BladeLogic	10,812.50		10,812.50		-	-	-	-	-	-
Blue
Moon Fund	6,975.83	*	348.33		-	2,662.50	-	-	-	3,965.00
Borderline
Personality Disorder	9,764.11		-		6,176.11	-	-	2,400.00	-	1,188.00
Boston
Public Library	39,372.54		39,372.54		-	-	-	-	-	-
Brain
Tumor Society	3,225.00	*	950.00		-	-	-	-	2,275.00	-
Brown
University - Adv Info Svcs	30,000.00		30,000.00		-	-	-	-	-	-
Burness
Communications	26,428.40	*	25,319.40		-	-	-	-	-	1,109.00
Cadaret,
Grant & Co.	103,187.30	*	55,187.30		-	-	-	-	48,000.00	-
Cadaret,
Grant & Co.	133,500.00		-		-	-	-	133,500.00	-	-
California
Highway Patrol	51,995.44		40,650.00		-	9,345.44	2,000.00	-	-	-
Cambria
Consulting	(2,619.70	)	(2,619.70	)	-	-	-	-	-	-
Carr
Foundation	15,000.00		15,000.00		-	-	-	-	-	-
Center
for Health Care Strategies	21,542.92	*	1,300.00		5,672.50	3,551.67	-	-	-	11,018.75
Center
for Nonprofit Advancement	6,138.00	*	-		-	2,094.00	-	-	-	4,044.00
CFDataExchange

• Piper Fund | 4,800.00 | | - | | - | - | - | - | - | 4,800.00 | | CloseUp Foundation | 14,978.00 | | - | | - | 14,978.00 | - | - | - | - | | Collins Center for Public Policy | 5,400.00 | | - | | - | - | - | - | - | 5,400.00 | | Community Giving Resource/Aspen Inst | 3,974.00 | * | 134.00 | | - | - | - | - | - | 3,840.00 | | Community Health Charities | 19,059.50 | * | 1,119.50 | | - | - | - | - | - | 17,940.00 | | Community Partners HealthNet | 4,800.00 | | - | | - | - | - | - | - | 4,800.00 | | Cornell Weill | 1,235.94 | | - | | 1,235.94 | - | - | - | - | - | | CRDF-U.S. Civilian Research | 39,764.04 | * | 20,617.54 | | 8,562.50 | - | - | - | - | 10,584.00 | | Cultural Tourism DC | 13,392.00 | * | 1,596.00 | | - | - | - | - | - | 11,796.00 | | Dana-Farber/Havard Cancer | 3,757.00 | | 3,757.00 | | - | - | - | - | - | - | | Depository Trust & Clearing | 469,303.71 | | 123,000.00 | | 103,678.71 | 34,050.00 | - | 208,575.00 | - | - | | Direct Selling Education | 4,425.00 | * | 165.50 | | - | - | - | - | - | 4,259.50 | | Dyson Foundation | 19,140.75 | * | 4,026.25 | | - | 10,530.50 | - | - | - | 4,584.00 |

Exhibit E - Page 9

EXHIBIT E

| Bridgeline

Software, Inc.
Analysis
of Revenues by Category
For
the Fiscal Year Ended September 30, 2006
The
Company recognizes revenue under three different revenue streams:
Web
services (which include perpetual licenses), Managed services
(which
includes hosting arrangements) and Subscription services. The
Company's
revenue recognition policies for each of these arrangements
is noted below
and also more fully described in Note 2 to the Company's consolidated
financial statements.

| | | Web Services (2) | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Web Development by Type of Billing | | | | Managed Services (4) | | | | Customer (1) | Total Revenue Recognized Fiscal Year 2006 (1) | Milestone | Other Fixed | Time/ Materials | Perpetual License (3) | Prof Services | Hosting | Subscriptions (5) |

| EdTech

Networks, Inc.	129,375.00	*	-	120,375.00	-	-	-	9,000.00		-
Education
Sector	79,348.05	*	45,940.03	-	16,383.02	14,400.00	-	-		2,625.00
Emerging
Practitioners in Philanthropy	4,800.00		-	-	-	-	-	-		4,800.00
Ensuring
Solutions to Alchol Problems	29,363.95	*	26,708.95	-	-	-	-	-		2,655.00
Enterprise
Community Partners	13,769.58	*	-	-	638.33	-	-	-		13,131.25
Entrepreneurs'
Organization	18,043.99		18,043.99	-	-	-	-	-		-
ESCR-Net	54,466.82		43,466.82	-	-	11,000.00	-	-		-
EverBank	18,200.00		18,200.00	-	-	-	-	-		-
Fairlington
United Method Church	4,200.00		-	-	-	-	-	-		4,200.00
Faith
Moore and Associates	9,720.87		9,720.87	-	-	-	-	-		-
Family
Mental Health Institute	9,359.75		-	-	9,359.75	-	-	-		-
Federal
Mediation & Concilation	273,907.09		-	251,407.09	-	-	22,500.00	-		-
Folksamerica	4,125.00		2,925.00	1,200.00	-	-	-	-		-
Foreign
Policy Association	70,640.78	*	36,318.28	-	16,622.50	-	-	-		17,700.00
Forex
Capital Markets	18,000.00		18,000.00	-	-	-	-	-		-
Foundation
Financial Officers Group	16,623.00	*	2,250.00	-	-	-	-	-		14,373.00
Foundation
for Child Development	18,074.90		6,672.57	-	11,402.33	-	-	-		-
Foundation
for the Defense of Democracy	14,138.80	*	11,108.79	-	630.00	-	-	(4,919.99	)	7,320.00
FOX
Relocation Management	1,267.70		-	1,267.70	-	-	-	-		-
Free
to Grow	5,820.00		-	-	-	-	-	-		5,820.00
Funders'
Network for Smart Growth	12,600.00		-	-	-	-	-	-		12,600.00
FundQuest	55,515.50		55,515.50	-	-	-	-	-		-
GEO	16,960.50	*	6,343.75	-	-	-	-	-		10,616.75
GEO	8,550.00		-	-	7,620.00	-	930.00	-		-
Gill
Foundation	77,308.76	*	39,133.61	-	15,200.00	-	-	-		22,975.15
Grantmakers
for Children, Youth Families	81,380.19	*	73,570.19	-	-	5,000.00	-	-		2,810.00
Grantmakers
In Health	23,177.92	*	7,757.92	-	-	-	-	-		15,420.00
Grantmakers
in the Arts	8,700.00	*	5,160.00	-	-	-	-	-		3,540.00
Grants
Managers Network	4,800.00		-	-	-	-	-	-		4,800.00
Health
Privacy Project	4,148.00	*	119.00	-	-	-	-	-		4,029.00
HealthFunders	12,868.45	*	861.25	-	-	-	-	-		12,007.20
HealthOne
Care System, Inc	1,000.00		-	1,000.00	-	-	-	-		-
Howard
Hughes Medical Institute	9,600.00		-	-	-	-	-	-		9,600.00
IBS
America, Inc.	5,750.00		5,750.00	-	-	-	-	-		-
Institute
for Medicine as a Profession	17,554.66	*	12,955.79	150.00	1,575.00	-	-	-		2,873.87
IntelliVid
Corporation	7,065.57		7,065.57	-	-	-	-	-		-
Int'l
Institute Modern Letter	14,897.59	*	13,637.59	-	491.25	-	-	-		768.75
IONA
Technologies	2,090.16		2,090.16	-	-	-	-	-		-
Janney
Montgomery Scott LLC	60,904.37		60,904.37	-	-	-	-	-		-
JB
Hanauer & Co.	5,000.00		-	5,000.00	-	-	-	-		-
Jeans
Cream	500.00		-	-	500.00	-	-	-		-
Jewish
Funders Network	2,792.28	*	854.78	-	-	-	-	-		1,937.50
John
Hancock	481,936.69	*	385,649.06	5,677.63	4,810.00	-	-	85,800.00		-
JR
Katz	7,695.17		7,695.17	-	-	-	-	-		-

Exhibit E - Page 10

EXHIBIT E

| Bridgeline

Software, Inc.
Analysis
of Revenues by Category
For
the Fiscal Year Ended September 30, 2006
The
Company recognizes revenue under three different revenue streams:
Web
services (which include perpetual licenses), Managed services
(which
includes hosting arrangements) and Subscription services. The
Company's
revenue recognition policies for each of these arrangements
is noted below
and also more fully described in Note 2 to the Company's consolidated
financial statements.

| | | Web Services (2) | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Web Development by Type of Billing | | | | Managed Services (4) | | | | Customer (1) | Total Revenue Recognized Fiscal Year 2006 (1) | Milestone | Other Fixed | Time/ Materials | Perpetual License (3) | Prof Services | Hosting | Subscriptions (5) |

| Mangia

57, Inc.	5,600.00	*	(5,600.00	-	-	-	-	11,200.00	-
Massachusetts
General Hospital	7,500.00		7,500.00	-	-	-	-	-	-
MBL
International Corporation	800.00		-	-	-	-	800.00	-	-
Meyer
Foundation (Eugene and Agnes)	19,013.00	*	1,362.50	-	11,832.50	-	-	-	5,818.00
Michael
& Susan Dell Foundation	9,570.00		9,570.00	-	-	-	-	-	-
MIT
Careers Office	95,127.55		95,127.55	-	-	-	-	-	-
National
Academy of Social Insurance	22,893.16	*	4,770.00	-	4,872.16	-	4,320.00	-	8,931.00
National
Architectural Accrediting	6,924.00		-	-	-	-	-	-	6,924.00
National
Children's Museum	13,862.67	*	-	2,252.67	7,590.00	-	-	-	4,020.00
National
Financial Partners	271,528.16		242,840.66	-	28,687.50	-	-	-	-
National
Fire Protection	20,970.50		2,975.00	-	17,995.50	-	-	-	-
National
Palliative Care	47,039.68		25,858.53	-	21,181.15	-	-	-	-
National
Press Foundation	6,895.00	*	1,075.00	-	-	-	-	-	5,820.00
NEC
Foundation of America	4,848.00		-	-	-	-	-	-	4,848.00
New
York - Presbyterian Hospital	113,213.78		-	82,437.08	25,686.93	-	5,089.77	-	-
New
York Regional Assoc. of Grantmakers	19,738.25	*	9,411.25	-	-	-	-	-	10,327.00
Newton-Wellesley
Hospital	99,548.20	*	330.00	74,018.20	-	-	-	25,200.00	-
Nomura
Securities International	1,815,800.17		171,586.69	610,019.48	566,194.00	-	468,000.00	-	-
Non
Profit Sector Research Fund	8,381.25	*	1,031.25	-	-	-	-	-	7,350.00
North
American Skull Base Society	1,103.75		-	-	-	-	-	-	1,103.75
Omgeo	140,122.25		140,122.25	-	-	-	-	-	-
Oprah's
Angel Network	22,470.36		-	-	22,470.36	-	-	-	-
Oxford
International Review	58,403.62		9,479.66	34,279.96	11,644.00	3,000.00	-	-	-
Packard
Foundation	105,009.32		37,891.18	53,365.64	13,752.50	-	-	-	-
Paperloop	3,300.00		-	3,300.00	-	-	-	-	-
Partnership
for Public Service	11,048.75		-	-	-	-	-	-	11,048.75
Pfizer	485,017.50		485,017.50	-	-	-	-	-	-
Phase
Forward	48,451.84		48,451.84	-	-	-	-	-	-
Phillips
Design Group	16,200.00		16,200.00	-	-	-	-	-	-
Physicians'
Foundation	13,197.92	*	-	11,797.92	-	-	-	-	1,400.00
Pioneer
Credit	2,333.34		-	2,333.34	-	-	-	-	-
Princeton
University	12,056.00	*	3,500.00	-	-	-	-	-	8,556.00
RISI	90,315.84		73,940.84	-	16,375.00	-	-	-	-
Rockefeller
Brothers Fund	14,932.50		14,932.50	-	-	-	-	-	-
RSA
Conference	147,204.30		147,204.30	-	-	-	-	-	-
Scripps
Foundation	2,371.50	*	371.50	-	-	-	-	-	2,000.00
Sepracor
Inc.	2,062.50		-	-	2,062.50	-	-	-	-
Sound
Partners	4,513.33	*	-	1,258.33	-	-	-	-	3,255.00
Spotfire,
Inc.	64,063.82		18,714.32	13,650.00	16,454.75	-	15,244.75	-	-
Stuart
Foundation	12,307.03	*	-	8,767.03	-	-	-	-	3,540.00
Surdna
Foundation	4,565.00	*	1,910.00	-	-	-	-	-	2,655.00
SWIFT
National Group	4,200.00		-	-	-	-	-	4,200.00	-
The
Callidon Group	12,661.54		-	12,661.54	-	-	-	-	-
The
Commonwealth Fund	105,929.61	*	-	16,879.00	55,706.86	-	-	-	33,343.75

Exhibit E - Page 11

EXHIBIT E

| Bridgeline

Software, Inc.
Analysis
of Revenues by Category
For
the Fiscal Year Ended September 30, 2006
The
Company recognizes revenue under three different revenue streams:
Web
services (which include perpetual licenses), Managed services
(which
includes hosting arrangements) and Subscription services. The
Company's
revenue recognition policies for each of these arrangements
is noted below
and also more fully described in Note 2 to the Company's consolidated
financial statements.

| | | Web Services (2) | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Web Development by Type of Billing | | | | Managed Services (4) | | | | Customer (1) | Total Revenue Recognized Fiscal Year 2006 (1) | Milestone | Other Fixed | Time/ Materials | Perpetual License (3) | Prof Services | Hosting | Subscriptions (5) |

| The

Commonwealth Fund	159,336.80		14,523.75	-	-	-	144,813.05	-	-
The
Skin Cancer Foundation	8,125.82		-	-	8,125.82	-	-	-	-
Tides
Foundation	3,000.00		-	-	-	-	-	-	3,000.00
Transparency
Internationational	7,842.06		5,449.56	-	2,392.50	-	-	-	-
Trillium
Software	20,897.55		-	20,897.55	-	-	-	-	-
Truman
Scholarship Foundation	20,751.67	*	9,200.00	2,306.67	1,205.00	-	-	-	8,040.00
United
Hospital Fund	70,703.00	*	26,077.50	4,380.00	30,095.00	-	-	-	10,150.50
Wenner-Gren
Foundation	63,704.93	*	40,650.00	-	20,353.93	2,000.00	-	-	701.00
William
Penn Foundation	6,000.00		-	-	-	-	-	-	6,000.00
William
T. Grant Foundation	13,550.42	*	-	5,244.17	-	-	-	-	8,306.25
Women
& Philanthropy	4,628.50	*	219.50		-	-	-	-	4,409.00
Woodmen
of the World	16,320.00		-	-	-	-	-	16,320.00	-
Woodrow
Wilson Presidential Library	78,155.83	*	56,562.50	-	5,968.33	12,500.00	-	-	3,125.00
Grand	8,234,999.70		3,362,616.15	1,752,405.81	1,349,170.34	61,400.00	1,030,228.57	212,375.01	466,803.82

Exhibit E - Page 12

| (1) This amount represents the total revenue per customer which in certain instances is derived through multiple contracts with each

customer.
(2)
Web services include professional services primarily related to
the
Company's Web development solutions. Web services are sold either
on a
stand alone basis or in multiple element arrangements with Managed
Services and/or the Company's licensed software products. Web services
revenue is invoiced based on contractually identified milestones
or
periodic progress billing based on services provided to date. Revenue
from
Web Services is recognized when the services are performed using
the
proportional performance model using a method based on cost incurred
in
relation to total estimated cost at completion. Labor costs are
the most
appropriate measure to allocate revenue among reporting periods,
as they
are the primary input to the provision of our Web Services. Fixed
fee
engagements are typically based on monthly deliverables or the
completion
of milestones. For milestone based projects, since milestone pricing
is
based on hourly costs and the duration of such engagements is relatively
short, this approach principally mirrors an output approach under
the
proportional performance model for revenue recognition on such
fixed
priced engagements.
(3)
Perpetual licenses refers to the Company's NetEditor software product
which is sold in multiple element arrangements with Web services.
The
revenue related to NetEditor (i.e. the delivered element) is recognized
upon achievement of all applicable criteria set forth in SOP 97-2.
The
Company recognizes revenue from perpetual software licenses upon
delivery
of the software because the related Web Services are not essential
to the
functionality of the software and do not involve significant modification
or customization of the software.
(4)
Managed services primarily include on-going retained professional
services
and may also include monthly hosting fees for the use of hardware
and
infrastructure, generally at the Company’s network operating center.
Managed Services are sold on a stand-alone basis or, as described
below,
in multiple element arrangements with Web Services and the Company’s
licensed software products. Stand-alone on-going retained professional
services are either 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. These arrangements do not require
formal customer acceptance and do not grant any future right to
labor
hours contracted for but not used.
Revenue
from Hosting services is incidental to the Company’s Web Services
activities and, for all periods presented, the only customers under
contractual hosting arrangements have previously been Web Services
customers. The Company's hosting arrangements are typically short-term
in
nature and include a clause for termination by either party for
convenience upon 30 days' notice. Moreover, there are no significant
upfront fees associated with the Company's hosting arrangements.
Accordingly, the Company recognizes revenue on hosting arrangements
on a
monthly basis over the period to which the service is delivered.
Hosting
revenue has historically been insignificant to both the Company’s business
strategy and to total revenues and does not warrant separate
classification in the statement of operations.
(5)
Subscriptions include on-going access to features of the Company's
Orgitecture platform through a hosting arrangement. Subscriptions
are
initially sold as part of multi-element arrangements with the Company's
Web and/or Managed Services. After development and installation
of the
Company's web development solution, subscription revenues are recognized
monthly until such time as the Company or customer terminates the
arrangement. Subscriptions are accounted for as separate units
of
accounting based on their respective value to the customer on a
stand-alone basis and are separately priced based on third party
evidence
of fair value when VSOE is not available. The Company's subscriptions
include a clause for termination by either party for convenience
upon 30
days' notice.
*
Represents a multiple element arrangement. The Company accounts
for
multiple element arrangments under EITF 00-21, Accounting
For Revenue Arrangements with Multiple Deliverables. Accordingly,
the Company identifies separate units of accounting by concluding
that the
delivered elements have stand alone value and establishing VSOE
of fair
value or third party evidence of fair value when VSOE is unvailable
for
the undelivered elements in each arrangment, generally the hosting
services or subscriptions. Further, since the Company is unable
to attain
VSOE for the undelivered element, it relies on the standard in
EITF 00-21
to ascertain evidence of third party fair value, as the Company's
pricing
for such hosting services and subscriptions is in accordance with
standard
price lists, and such prices are not discounted. Revenue is recognized
for
the delivered element(s) using the residual method, whereby the
value
ascribed to the delivered element(s) is derived from the difference
between the total consideration in the arrangement less the VSOE
or third
part fair value of the undelivered elements..
The
Company's accounting policies for each element are described more
fully
above and in Note 2 to the Company's Consolidated Financial
Statements.

Exhibit E - Page 13

EXHIBIT E

| Bridgeline

Software, Inc.
Analysis
of Revenues by Category
For
the Fiscal Year Ended September 30, 2005
The
Company recognizes revenue under three different revenue streams:
Web
services (which include perpetual licenses), Managed services (which
includes hosting arrangements) and Subscription services. The Company's
revenue recognition policies for each of these arrangements is noted
below
and also more fully described in Note 2 to the Company's consolidated
financial statements.

| | | Web Services (2) | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Web Development by Type of Billing | | | | Managed Services (4) | | | | Customer (1) | Total Revenue Recognized Fiscal Year 2005 (1) | Milestone | Other Fixed | Time/ Materials | Perpetual License (3) | Prof Services | Hosting | Subscriptions (5) |

| A.L.Mailman

Family Foundation	2,127.50		-	-		2,127.50	-	-	-	-
AIDS
Housing of Washington	7,683.20	*	3,500.00	-		-	-	-	-	4,183.20
American
Psychoanaly	1,055.00		1,055.00	-		-	-	-	-	-
Andrew
W. Mellon Foundation	3,710.00		3,710.00	-		-	-	-	-	-
Annenberg
Foundation	5,968.20		-	-		-	-	-	-	5,968.20
Appalachian
Regional Commission	850.00		-	-		-	-	-	-	850.00
Archstone
Foundation	5,247.00		-	-		-	-	-	-	5,247.00
Arden
Engineering	12,276.43		12,276.43	-		-	-	-	-	-
Aspen
Institute	12,823.50	*	4,300.00	-		2,521.00	-	-	-	6,002.50
Assoc.
of Baltimore Area Grantmakers	4,129.75	*	-	-		591.75	-	-	-	3,538.00
Astra
Tech, Inc.	89,879.18	*	-	78,729.18		-	-	-	11,150.00	-
Automated
Emblem Supplies	15,038.11		15,038.11	-		-	-	-	-	-
Bank
of New York	1,081,903.84		211,353.10	321,669.74		338,467.00	-	210,414.00	-	-
Barbara
Lee Family Foundation	2,298.00		-	-		-	-	-	-	2,298.00
Barr
Foundation	2,314.00	*	964.00	-		-	-	-	-	1,350.00
Benton
Foundation	1,848.25		-	-		-	-	-	-	1,848.25
Blue
Moon Fund	51,656.65	*	40,794.23	-		10,681.08	-	-	-	181.34
Bonjour
Paris	(17.00	)	-	(17.00	)	-	-	-	-	-
Boomtown
US / Mads Ehrhardt	450.00		450.00	-		-	-	-	-	-
Borderline
Personality	23,881.36	*	4,558.80	-		-	-	18,431.56	-	891.00
Brain
Tumor Society	2,900.00		-	-		-	-	-	2,900.00	-
BSN
Medical	9,000.00		9,000.00	-		-	-	-	-	-
Burness
Communications	1,923.85		1,923.85	-		-	-	-	-	-
Cadaret,
Grant & Co.	135,905.00	*	65,500.00	-		-	22,500.00	-	47,905.00	-
Cadaret,
Grant & Co.	120,145.48		-	-		-	-	120,145.48	-	-
California
Association Realtors	31,492.52		31,492.52	-		-	-	-	-	-
Cambria
Consulting	42,697.77		17,812.00	24,885.77		-	-	-	-	-
Catalyst
International	5,457.34		-	5,457.34		-	-	-	-	-
Center
for Health Care Strategies	21,178.67	*	13,128.67	2,125.00		-	-	-	-	5,925.00
Center
for Nonprofit Advancement	11,782.00	*	8,749.00	-		-	-	-	-	3,033.00
CFDataExchange

• Piper Fund | 3,600.00 | | - | - | | - | - | - | - | 3,600.00 | | Collins Center for Poblic Policy | 4,050.00 | | - | - | | - | - | - | - | 4,050.00 | | Community Giving Resource/Aspen | 2,674.00 | * | 44.00 | - | | - | - | - | - | 2,630.00 | | Community Health Charities | 44,331.55 | * | 28,496.55 | - | | 1,980.00 | - | - | - | 13,855.00 | | Community Partners Healthnet | 3,600.00 | | - | - | | - | - | - | - | 3,600.00 | | Cornell Weill | 2,570.34 | | - | - | | - | - | 2,570.34 | - | - | | CRDF-U.S. Civilian Research | 199,041.75 | * | 165,163.26 | 20,322.49 | | 12,844.00 | - | - | - | 712.00 | | Cultural Tourism DC | 13,986.50 | | 5,027.00 | - | | - | - | - | - | 8,959.50 | | Depository Trust & Clearing | 62,962.50 | | - | - | | 32,962.50 | - | 30,000.00 | - | - | | Direct Selling Education | 3,204.00 | | - | - | | - | - | - | - | 3,204.00 | | Dyson Foundation | 11,753.50 | * | 7,928.00 | - | | - | - | - | - | 3,825.50 | | EdTech Networks, Inc | 125,408.00 | * | - | 124,283.00 | | - | - | - | 1,125.00 | - | | Emerging Practitioners | 3,600.00 | | - | - | | - | - | - | - | 3,600.00 | | Ensuring Solutions to Alcohol Problems | 9,825.05 | | 4,991.05 | 4,834.00 | | - | - | - | - | - | | Enterprise Community Partners | 16,476.67 | * | 6,801.67 | - | | - | - | - | - | 9,675.00 |

Exhibit E - Page 14

EXHIBIT E

| Bridgeline

Software, Inc.
Analysis
of Revenues by Category
For
the Fiscal Year Ended September 30, 2005
The
Company recognizes revenue under three different revenue streams:
Web
services (which include perpetual licenses), Managed services
(which
includes hosting arrangements) and Subscription services. The
Company's
revenue recognition policies for each of these arrangements is
noted below
and also more fully described in Note 2 to the Company's consolidated
financial statements.

| | | Web Services (2) | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Web Development by Type of Billing | | | | Managed Services (4) | | | | Customer (1) | Total Revenue Recognized Fiscal Year 2005 (1) | Milestone | Other Fixed | Time/ Materials | Perpetual License (3) | Prof Services | Hosting | Subscriptions (5) |

| Environmental

Defense	9,500.00		9,500.00	-	-	-	-	-	-
Fairlington
United Methodist	3,150.00	*	700.00	-	-	-	-	-	2,450.00
Federal
Mediation &	543,844.18		-	515,665.18	-	-	28,179.00	-	-
Folksamerica	63,473.13		63,473.13	-	-	-	-	-	-
Ford
Foundation	23,059.55		23,059.55	-	-	-	-	-	-
Foreign
Policy Association	21,943.00	*	8,668.00	-	-	-	-	-	13,275.00
Foundation
Financial Officers	10,818.50	*	225.00	-	-	-	-	-	10,593.50
Foundation
for the Defense	5,004.21		-	5,004.21	-	-	-	-	-
Free
to Grow	6,405.00	*	993.00	-	-	-	-	-	5,412.00
Funders'
Network for Smart Growth	9,450.00		-	-	-	-	-	-	9,450.00
FundQuest	39,773.86		15,000.00	24,773.86	-	-	-	-	-
GEO	39,536.83	*	24,245.00	-	6,383.33	-	-	-	8,908.50
Gill
Foundation	27,850.50	*	9,270.00	-	610.00	-	-	-	17,970.50
Global
Center for Dispute	1,471.00	*	316.00	-	-	-	-	-	1,155.00
Global
Center for Dispute	2,365.62		-	-	2,365.62	-	-	-	-
Graduate
Management Admission	132,756.10		-	132,756.10	-	-	-	-	-
Grantmakers
for Children Youth Families	14,122.81		3,898.81	-	10,224.00	-	-	-	-
Grantmakers
In Health	27,281.92	*	14,725.00	3,144.00	1,702.92	-	-	-	7,710.00
Grantmakers
in the Arts	44,180.92	*	33,692.01	-	9,898.91	-	-	-	590.00
Grants
Managers Network	3,600.00		-	-	-	-	-	-	3,600.00
Health
Privacy Project	2,819.00		-	-	-	-	-	-	2,819.00
HealthFunders	9,180.40	*	175.00	-	-	-	-	-	9,005.40
Howard
Hughes Medical	7,200.00		7,200.00	-	-	-	-	-	-
Institute
for Defense Analysis	18,309.25		8,309.25	-	-	10,000.00	-	-	-
Institute
for Medicine as a Profession	52,245.41		41,925.41	-	10,320.00	-	-	-	-
Int'l
Institute Modern Letter	9,950.66		9,950.66	-	-	-	-	-	-
Janney
Montgomery Scott	132,422.13		72,422.13	-	-	60,000.00	-	-	-
JB
Hanauer & Co.	104,112.57		-	104,112.57	-	-	-	-	-
Jewish
Community Federation	9,706.71		-	9,706.71	-	-	-	-	-
Jewish
Funders Network	19,682.77	*	-	-	13,524.02	-	-	-	6,158.75
John
Hancock	505,126.91	*	378,776.43	-	2,000.00	35,000.00	-	89,350.48	-
Mangia
57, Inc.	10,000.00		-	-	-	-	-	10,000.00	-
MBL
International Corporation	640.00		640.00	-	-	-	-	-	-
Meyer
Foundation (Eugene and Agnes)	7,140.00	*	2,200.00	-	-	-	-	-	4,940.00
National
Academy of Social Insurance	39,500.00	*	25,586.34	-	6,646.66	-	-	-	7,267.00
National
Academy of Social Insurance	8,318.29		8,318.29	-	-	-	-	-	-
National
Architectural Accrediting	5,193.00		-	-	-	-	-	-	5,193.00
National
Children's Museum	23,257.58	*	3,461.33	-	-	-	-	-	19,796.25
National
Financial Partners	69,981.06		69,981.06	-	-	-	-	-	-
National
Fire Protec	15,000.00		11,500.00	-	-	3,500.00	-	-	-
National
Fire Protection	15,430.40		15,430.40	-	-	-	-	-	-
National
Press Foundation	10,187.50	*	5,575.00	-	-	-	-	-	4,612.50
NEC
Foundation of America	3,636.00		3,636.00	-	-	-	-	-	-
New
York - Presbyterian Hospital	33,235.06		-	-	-	-	33,235.06	-	-
New
York Regional Assoc of Grantmakers	14,308.83	*	-	-	6,457.33	-	-	-	7,851.50

Exhibit E - Page 15

EXHIBIT E

| Bridgeline

Software, Inc.
Analysis
of Revenues by Category
For
the Fiscal Year Ended September 30, 2005
The
Company recognizes revenue under three different revenue streams:
Web
services (which include perpetual licenses), Managed services
(which
includes hosting arrangements) and Subscription services. The
Company's
revenue recognition policies for each of these arrangements is
noted below
and also more fully described in Note 2 to the Company's consolidated
financial statements.

| | | Web Services (2) | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Web Development by Type of Billing | | | | Managed Services (4) | | | | Customer (1) | Total Revenue Recognized Fiscal Year 2005 (1) | Milestone | Other Fixed | Time/ Materials | Perpetual License (3) | Prof Services | Hosting | Subscriptions (5) |

| Newton-Wellesley

Hospital	73,878.03	*	-	38,678.03		-	10,000.00	-	25,200.00	-
Nomura
Securities International	172,314.00		34,992.00	137,322.00		-	-	-	-	-
Nomura
Securities International	542,892.00		-	-		-	-	542,892.00	-	-
Non
Profit Sector Research	6,478.75	*	-	-		531.25	-	-	-	5,947.50
North
American Skull Base Society	2,880.00		-	-		-	-	-	-	2,880.00
Omgeo	8,030.11		-	8,030.11		-	-	-	-	-
Packard
Foundation	55,827.03		-	-		20,827.03	35,000.00	-	-	-
Partnership
for Public Service	10,405.00	*	2,170.00	-		-	-	-	-	8,235.00
Pax
Deli	15,575.00	*	1,575.00	-		-	-	-	14,000.00	-
Physicians'
Foundation	10,507.08		8,227.08	-		2,280.00	-	-	-	-
Princeton
University	7,710.75	*	675.00	-		-	-	-	-	7,035.75
Rackspace	482.76		-	482.76		-	-	-	-	-
Scripps
Foundation	3,779.25	*	173.00	-		-	-	-	-	3,606.25
Selfhelp
Community Services	17,000.89		17,000.89	-		-	-	-	-	-
Sound
Partners	4,290.00	*	240.00	-		-	-	-	-	4,050.00
Stanford
Financial Group	37,100.00		-	-		37,100.00	-	-	-	-
Stuart
Foundation	19,588.00	*	18,113.00	-		-	-	-	-	1,475.00
Surdna
Foundation	25,088.29		18,256.53	-		6,831.76	-	-	-	-
SWIFT
National Group	2,450.00		-	-		-	-	-	2,450.00	-
Technology
Affinity	3,492.00	*	1,560.00	-		-	-	-	-	1,932.00
The
Commonwealth Fund	143,430.79	*	10,800.54	-		49,894.49	-	53,553.26	-	29,182.50
Thompson
Publishing	125.00		-	-		-	-	125.00	-	-
Tides
Foundation	2,250.00		2,250.00	-		-	-	-	-	-
Transparency
International	5,626.90		-	-		5,626.90	-	-	-	-
Triumvirate
Environmental	10,940.00		10,940.00	-		-	-	-	-	-
Truman
Scholarship Foundation	27,942.20	*	-	-		21,799.70	-	-	-	6,142.50
United
Hospital Fund	13,354.83	*	-	-		6,568.83	-	-	-	6,786.00
William
Penn Foundation	4,432.00		-	(68.00	)	-	-	-	-	4,500.00
William
T. Grant Foundation	16,134.76	*	3,700.00	-		4,574.76	-	-	-	7,860.00
Women
& Philanthropy	3,546.00		-	-		-	-	-	-	3,546.00
Women
in Film and Video	1,920.00		-	-		-	-	-	-	1,920.00
Woodmen
of the World	50,596.52		50,596.52	-		-	-	-	-	-
Woodrow
Wilson Presidential Library	4,234.00		4,234.00	-		-	-	-	-	-
Xybernaut
Corporation	6,294.10		6,294.10	-		-	-	-	-	-
Yale
New Haven Healh	87,212.08		-	52,212.08		-	35,000.00	-	-	-
Grand
Total	5,768,668.24		1,728,707.70	1,614,109.13		628,342.34	211,000.00	1,039,545.70	204,080.48	342,882.89

Exhibit E - Page 16

| (1) This amount represents the total revenue per customer which in certain instances is derived through multiple contracts with each

customer.
(2)
Web services include professional services primarily related to
the
Company's Web development solutions. Web services are sold either
on a
stand alone basis or in multiple element arrangements with Managed
Services and/or the Company's licensed software products. Web services
revenue is invoiced based on contractually identified milestones
or
periodic progress billing based on services provided to date. Revenue
from
Web Services is recognized when the services are performed using
the
proportional performance model using a method based on cost incurred
in
relation to total estimated cost at completion. Labor costs are
the most
appropriate measure to allocate revenue among reporting periods,
as they
are the primary input to the provision of our Web Services. Fixed
fee
engagements are typically based on monthly deliverables or the
completion
of milestones. For milestone based projects, since milestone pricing
is
based on hourly costs and the duration of such engagements is relatively
short, this approach principally mirrors an output approach under
the
proportional performance model for revenue recognition on such
fixed
priced engagements.
(3)
Perpetual licenses refers to the Company's NetEditor software product
which is sold in multiple element arrangements with Web services.
The
revenue related to NetEditor (i.e. the delivered element) is recognized
upon achievement of all applicable criteria set forth in SOP 97-2.
The
Company recognizes revenue from perpetual software licenses upon
delivery
of the software because the related Web Services are not essential
to the
functionality of the software and do not involve significant modification
or customization of the software.
(4)
Managed services primarily include on-going retained professional
services
and may also include monthly hosting fees for the use of hardware
and
infrastructure, generally at the Company’s network operating center.
Managed Services are sold on a stand-alone basis or, as described
below,
in multiple element arrangements with Web Services and the Company’s
licensed software products. Stand-alone on-going retained professional
services are either 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. These arrangements do not require
formal customer acceptance and do not grant any future right to
labor
hours contracted for but not used.
Revenue
from Hosting services is incidental to the Company’s Web Services
activities and, for all periods presented, the only customers under
contractual hosting arrangements have previously been Web Services
customers. The Company's hosting arrangements are typically short-term
in
nature and include a clause for termination by either party for
convenience upon 30 days' notice. Moreover, there are no significant
upfront fees associated with the Company's hosting arrangements.
Accordingly, the Company recognizes revenue on hosting arrangements
on a
monthly basis over the period to which the service is delivered.
Hosting
revenue has historically been insignificant to both the Company’s business
strategy and to total revenues and does not warrant separate
classification in the statement of operations.
(5)
Subscriptions include on-going access to features of the Company's
Orgitecture platform through a hosting arrangement. Subscriptions
are
initially sold as part of multi-element arrangements with the Company's
Web and/or Managed Services. After development and installation
of the
Company's web development solution, subscription revenues are recognized
monthly until such time as the Company or customer terminates the
arrangement. Subscriptions are accounted for as separate units
of
accounting based on their respective value to the customer on a
stand-alone basis and are separately priced based on third party
evidence
of fair value when VSOE is not available. The Company's subscriptions
include a clause for termination by either party for convenience
upon 30
days' notice.
*
Represents a multiple element arrangement. The Company accounts
for
multiple element arrangments under EITF 00-21, Accounting
For Revenue Arrangements with Multiple Deliverables. Accordingly,
the Company identifies separate units of accounting by concluding
that the
delivered elements have stand alone value and establishing VSOE
of fair
value or third party evidence of fair value when VSOE is unvailable
for
the undelivered elements in each arrangment, generally the hosting
services or subscriptions. Further, since the Company is unable
to attain
VSOE for the undelivered element, it relies on the standard in
EITF 00-21
to ascertain evidence of third party fair value, as the Company's
pricing
for such hosting services and subscriptions is in accordance with
standard
price lists, and such prices are not discounted. Revenue is recognized
for
the delivered element(s) using the residual method, whereby the
value
ascribed to the delivered element(s) is derived from the difference
between the total consideration in the arrangement less the VSOE
or third
part fair value of the undelivered elements.
The
Company's accounting policies for each element are described more
fully
above and in Note 2 to the Company's Consolidated Financial
Statements.

Exhibit E - Page 17

EXHIBIT F

| Bridgeline

Software, Inc.
Equity
Transactions-Common Stock
October
1, 2005 to March 31, 2007

| Date of Issuance — 04/24/06 | Tramontozzi, D. | Stock Consideration-New Tilt Merger | A | ) | 160,000 | Fair Value of Common Stock — $ 2.24 | Price Paid or Consideration Per Share — $ 2.240 | N/A | 358,400.00 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 04/24/06 | Chambers, M. | Stock Consideration-New Tilt Merger | A | ) | 160,000 | 2.24 | 2.240 | N/A | 358,400.00 | | 07/25/06 | Coldrick, W. | Warrant Conversion-PPM Debt | B | ) | 10,000 | 2.37 | 0.001 | 10.00 | | | 09/07/06 | Anderson, N. | Warrant Conversion-PPM Debt | B | ) | 30,000 | 2.46 | 0.001 | 30.00 | | | 09/28/06 | Baker, C. | Warrant Conversion-PPM Debt | B | ) | 10,000 | 2.46 | 0.001 | 10.00 | | | | | | | | 370,000 | | | 50.00 | 716,800.00 |

| A) Common Stock issued as part of purchase consideration of the New Tilt

acquisition on April 24, 2006.
B)
Exercise of investor debt warrants issued pursuant to private placement
debt offering dated April 7, 2006

Exhibit F - Page 1

EXHIBIT F

| Bridgeline

Software, Inc.
Equity
Transactions-Common Stock
October
1, 2005 to March 31, 2007

| Nature of Option | | | | | Exercise Price | Fair Value of Underlying Common Stock | | Amount of Expense Recognition | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Employee Options A) | | | | | | | | | | | | ISO | 12/31/05 | Scally | Incentive Stock Option | 16,667 | $ 3.75 | $ 2.07 | N/A | $ 17,029.38 | Dec 06 - Nov 09 | | | ISO | 01/21/06 | Subramanian | Incentive Stock Option | 16,667 | 3.75 | 2.17 | N/A | 18,013.89 | Sep 06 - Sep 09 | | | ISO | 02/01/06 | Guimond | Incentive Stock Option | 8,333 | 3.75 | 2.27 | N/A | 9,689.61 | Feb 06 - Feb 09 | | | ISO | 03/01/06 | Williams | Incentive Stock Option | 2,500 | 3.75 | 2.37 | N/A | 3,131.76 | Mar 06 - Mar 09 | | | ISO | 03/15/06 | Mohan | Incentive Stock Option | 8,333 | 3.75 | 2.37 | N/A | 10,236.92 | Mar 06 - Mar 09 | | | ISO | 04/24/06 | Bradley | Incentive Stock Option-New Tilt Merger | 9,227 | 3.75 | 2.24 | N/A | Fin 44 - Charged to Acquisition | $ 10,459 | 4/24/2006 | | ISO | 04/24/06 | Clarke | Incentive Stock Option-New Tilt Merger | 9,227 | 3.75 | 2.24 | N/A | Fin 44 - Charged to Acquisition | 10,459 | 4/24/2006 | | ISO | 04/24/06 | Friedman | Incentive Stock Option-New Tilt Merger | 4,613 | 3.75 | 2.24 | N/A | Fin 44 - Charged to Acquisition | 5,229 | 4/24/2006 | | ISO | 04/24/06 | Friedman | Incentive Stock Option-New Tilt Merger | 9,227 | 3.75 | 2.24 | N/A | Fin 44 - Charged to Acquisition | 10,459 | 4/24/2006 | | ISO | 04/24/06 | Mateos | Incentive Stock Option-New Tilt Merger | 2,307 | 3.75 | 2.24 | N/A | Fin 44 - Charged to Acquisition | 2,615 | 4/24/2006 | | ISO | 04/24/06 | Mateos | Incentive Stock Option-New Tilt Merger | 2,307 | 3.75 | 2.24 | N/A | Fin 44 - Charged to Acquisition | 2,615 | 4/24/2006 | | ISO | 04/24/06 | Meller | Incentive Stock Option-New Tilt Merger | 2,307 | 3.75 | 2.24 | N/A | Fin 44 - Charged to Acquisition | 2,615 | 4/24/2006 | | ISO | 04/24/06 | Meller | Incentive Stock Option-New Tilt Merger | 1,154 | 3.75 | 2.24 | N/A | Fin 44 - Charged to Acquisition | 1,308 | 4/24/2006 | | ISO | 04/24/06 | Meller | Incentive Stock Option-New Tilt Merger | 1,153 | 3.75 | 2.24 | N/A | Fin 44 - Charged to Acquisition | 1,307 | 4/24/2006 | | ISO | 04/24/06 | Morin | Incentive Stock Option-New Tilt Merger | 9,227 | 3.75 | 2.24 | N/A | Fin 44 - Charged to Acquisition | 10,459 | 4/24/2006 | | ISO | 04/24/06 | Moschini | Incentive Stock Option-New Tilt Merger | 2,307 | | | | Fin 44 - Charged to Acquisition | 2,615 | 4/24/2006 | | ISO | 04/24/06 | Moschini | Incentive Stock Option-New Tilt Merger | 2,307 | | | | Fin 44 - Charged to Acquisition | 2,615 | 4/24/2006 | | ISO | 04/24/06 | Pollock | Incentive Stock Option-New Tilt Merger | 461 | 3.75 | 2.24 | N/A | Fin 44 - Charged to Acquisition | 523 | 4/24/2006 | | ISO | 04/24/06 | Pollock | Incentive Stock Option-New Tilt Merger | 4,152 | 3.75 | 2.24 | N/A | Fin 44 - Charged to Acquisition | 4,706 | 4/24/2006 | | ISO | 04/24/06 | Quinn | Incentive Stock Option-New Tilt Merger | 9,227 | 3.75 | 2.24 | N/A | Fin 44 - Charged to Acquisition | 10,459 | 4/24/2006 | | ISO | 04/24/06 | Riley | Incentive Stock Option-New Tilt Merger | 4,613 | 3.75 | 2.24 | N/A | Fin 44 - Charged to Acquisition | 5,229 | 4/24/2006 | | ISO | 04/24/06 | Riley | Incentive Stock Option-New Tilt Merger | 923 | 3.75 | 2.24 | N/A | Fin 44 - Charged to Acquisition | 1,046 | 4/24/2006 | | ISO | 04/24/06 | Riley | Incentive Stock Option-New Tilt Merger | 2,076 | 3.75 | 2.24 | N/A | Fin 44 - Charged to Acquisition | 2,353 | 4/24/2006 | | ISO | 04/24/06 | Riley | Incentive Stock Option-New Tilt Merger | 2,076 | 3.75 | 2.24 | N/A | Fin 44 - Charged to Acquisition | 2,353 | 4/24/2006 | | ISO | 04/24/06 | Stevenson | Incentive Stock Option-New Tilt Merger | 9,227 | 3.75 | 2.24 | N/A | Fin 44 - Charged to Acquisition | 10,459 | 4/24/2006 | | ISO | 04/24/06 | Stevenson | Incentive Stock Option-New Tilt Merger | 2,307 | 3.75 | 2.24 | N/A | Fin 44 - Charged to Acquisition | 2,615 | 4/24/2006 | | ISO | 04/24/06 | Wiesner | Incentive Stock Option-New Tilt Merger | 2,307 | 3.75 | 2.24 | N/A | Fin 44 - Charged to Acquisition | 2,615 | 4/24/2006 | | ISO | 04/24/06 | Wiesner | Incentive Stock Option-New Tilt Merger | 461 | 3.75 | 2.24 | N/A | Fin 44 - Charged to Acquisition | 523 | 4/24/2006 | | ISO | 10/20/06 | Lynch | Incentive Stock Option | 12,752 | 3.75 | 2.50 | N/A | 16,732.28 | Oct 06 | | | ISO | 10/20/06 | Prizzi | Incentive Stock Option | 19,128 | 3.75 | 2.50 | N/A | 25,097.11 | Oct 06 | |

| Non-Employee Options B) — ISO | 04/24/06 | Capano | Incentive Stock Option-New Tilt Merger | 9,227 | 3.75 | 2.24 | N/A | Fin 44 - Charged to Acquisition | 15,035 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | ISO | 09/20/06 | Galaznik, Ken | Board Compensation | 25,000 | 3.75 | 2.46 | N/A | 39,429.26 | Sep 06 - Sep 09 | | ISO | 09/20/06 | Hegarty, Robert | Board Compensation | 25,000 | 3.75 | 2.46 | N/A | 39,429.26 | Sep 06 - Sep 09 | | Grand Totals | | | | 236,800 | | | | 178,789 | 120,667 |

| A) All stock options issued to employees during the period were incentive stock options. No options were issued to Company Officers during the eighteen month period of October 1, 2005 to March 31,

2007.
B)
Non-Employee Options issued during the period were issued to one
consultant (Capano) in exchange of New Tilt stock options pursuant
to the New Tilt Merger Agreement dated April 24, 2006 and one grant
each
of 25,000 to two member of Bridgeline's Board
of Directors as compensation.

Exhibit F - Page 2

EXHIBIT F

| Bridgeline

Software, Inc.
Equity
Transactions-Warrants
October
1, 2005 to March 31,
2007

| Date of Grant — 04/21/06 | Anderson, Neil T. | Investor Warrants-Private Debt Offering | 30,000 | A | ) | (30,000 | ) | Exercise Price — $ 0.001 | Fair Value of Underlying Common Stock — $ 2.24 | N/A | 56,904.00 | C | ) | May 06 - Apr 07 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 04/21/06 | Auersperg, Paul | Investor Warrants-Private Debt Offering | 5,000 | A | ) | | | 0.001 | 2.24 | N/A | 9,484.00 | C | ) | May 06 - Apr 07 | | 04/21/06 | Balfour Associates LP | Investor Warrants-Private Debt Offering | 20,000 | A | ) | | | 0.001 | 2.24 | N/A | 37,936.00 | C | ) | May 06 - Apr 07 | | 04/21/06 | Burg Family Trust (Harold Burg) | Investor Warrants-Private Debt Offering | 5,000 | A | ) | | | 0.001 | 2.24 | N/A | 9,484.00 | C | ) | May 06 - Apr 07 | | 04/21/06 | Callahan, Brian | Investor Warrants-Private Debt Offering | 10,000 | A | ) | | | 0.001 | 2.24 | N/A | 18,968.00 | C | ) | May 06 - Apr 07 | | 04/21/06 | Coldrick, William | Investor Warrants-Private Debt Offering | 10,000 | A | ) | (10,000 | ) | 0.001 | 2.24 | N/A | 18,968.00 | C | ) | May 06 - Apr 07 | | 04/21/06 | Davenport, Edward C. | Investor Warrants-Private Debt Offering | 5,000 | A | ) | | | 0.001 | 2.24 | N/A | 9,484.00 | C | ) | May 06 - Apr 07 | | 04/21/06 | Davis, James | Investor Warrants-Private Debt Offering | 20,000 | A | ) | | | 0.001 | 2.24 | N/A | 37,936.00 | C | ) | May 06 - Apr 07 | | 04/21/06 | Dupree, Thomas | Investor Warrants-Private Debt Offering | 5,000 | A | ) | | | 0.001 | 2.24 | N/A | 9,484.00 | C | ) | May 06 - Apr 07 | | 04/21/06 | Fortune Footwear (Paul Auersperg) | Investor Warrants-Private Debt Offering | 5,000 | A | ) | | | 0.001 | 2.24 | N/A | 9,484.00 | C | ) | May 06 - Apr 07 | | 04/21/06 | Freed, Albert | Investor Warrants-Private Debt Offering | 5,000 | A | ) | | | 0.001 | 2.24 | N/A | 9,484.00 | C | ) | May 06 - Apr 07 | | 04/21/06 | Herbert Wrabel Living Trust | Investor Warrants-Private Debt Offering | 5,000 | A | ) | | | 0.001 | 2.24 | N/A | 9,484.00 | C | ) | May 06 - Apr 07 | | 04/21/06 | High Capital Funding, LLC (Frank Hart) | Investor Warrants-Private Debt Offering | 10,000 | A | ) | | | 0.001 | 2.24 | N/A | 18,968.00 | C | ) | May 06 - Apr 07 | | 04/21/06 | Jia, Charles | Investor Warrants-Private Debt Offering | 5,000 | A | ) | | | 0.001 | 2.24 | N/A | 9,484.00 | C | ) | May 06 - Apr 07 | | 04/21/06 | Kotler, Elia | Investor Warrants-Private Debt Offering | 5,000 | A | ) | | | 0.001 | 2.24 | N/A | 9,484.00 | C | ) | May 06 - Apr 07 | | 04/21/06 | Landy, John | Investor Warrants-Private Debt Offering | 30,000 | A | ) | | | 0.001 | 2.24 | N/A | 56,904.00 | C | ) | May 06 - Apr 07 | | 04/21/06 | Lefebvre, Scott & Suzanne | Investor Warrants-Private Debt Offering | 5,000 | A | ) | | | 0.001 | 2.24 | N/A | 9,484.00 | C | ) | May 06 - Apr 07 | | 04/21/06 | Lowrance, Larry | Investor Warrants-Private Debt Offering | 10,000 | A | ) | | | 0.001 | 2.24 | N/A | 18,968.00 | C | ) | May 06 - Apr 07 | | 04/21/06 | Massie, Thomas & Theresa | Investor Warrants-Private Debt Offering | 10,000 | A | ) | | | 0.001 | 2.24 | N/A | 18,968.00 | C | ) | May 06 - Apr 07 | | 04/21/06 | McCoy, Robert S. | Investor Warrants-Private Debt Offering | 5,000 | A | ) | | | 0.001 | 2.24 | N/A | 9,484.00 | C | ) | May 06 - Apr 07 | | 04/21/06 | Panagolpolous, John & Betty | Investor Warrants-Private Debt Offering | 10,000 | A | ) | | | 0.001 | 2.24 | N/A | 18,968.00 | C | ) | May 06 - Apr 07 | | 04/21/06 | Rizos, George | Investor Warrants-Private Debt Offering | 5,000 | A | ) | | | 0.001 | 2.24 | N/A | 9,484.00 | C | ) | May 06 - Apr 07 | | 04/21/06 | Troutman, John | Investor Warrants-Private Debt Offering | 5,000 | A | ) | | | 0.001 | 2.24 | N/A | 9,484.00 | C | ) | May 06 - Apr 07 | | 04/27/06 | Baker, Christopher P. | Investor Warrants-Private Debt Offering | 10,000 | A | ) | (10,000 | ) | 0.001 | 2.24 | N/A | 18,968.00 | C | ) | May 06 - Apr 07 | | 04/27/06 | Davis, James | Investor Warrants-Private Debt Offering | 5,000 | A | ) | | | 0.001 | 2.24 | N/A | 9,484.00 | C | ) | May 06 - Apr 07 | | 04/27/06 | Dupree, Thomas | Investor Warrants-Private Debt Offering | 5,000 | A | ) | | | 0.001 | 2.24 | N/A | 9,484.00 | C | ) | May 06 - Apr 07 | | 04/27/06 | Heffernan, Ronald | Investor Warrants-Private Debt Offering | 10,000 | A | ) | | | 0.001 | 2.24 | N/A | 18,968.00 | C | ) | May 06 - Apr 07 | | 04/27/06 | Kersch, Mitchell & Allison | Investor Warrants-Private Debt Offering | 5,000 | A | ) | | | 0.001 | 2.24 | N/A | 9,484.00 | C | ) | May 06 - Apr 07 | | 04/27/06 | McLemore, Robert | Investor Warrants-Private Debt Offering | 5,000 | A | ) | | | 0.001 | 2.24 | N/A | 9,484.00 | C | ) | May 06 - Apr 07 | | 04/27/06 | Mead, Ian D. | Investor Warrants-Private Debt Offering | 10,000 | A | ) | | | 0.001 | 2.24 | N/A | 18,969.00 | C | ) | May 06 - Apr 07 | | 04/27/06 | Seeger, Robert & Kara | Investor Warrants-Private Debt Offering | 5,000 | A | ) | | | 0.001 | 2.24 | N/A | 9,485.00 | C | ) | May 06 - Apr 07 | | 04/27/06 | Alagna, J. | Underwriter Warrants-Private Debt Offering | 37,216 | B | ) | | | 5.500 | 2.24 | N/A | 38,092.00 | D | ) | May 06 - Apr 07 | | 04/27/06 | Duarte, J | Underwriter Warrants-Private Debt Offering | 16,363 | B | ) | | | 5.500 | 2.24 | N/A | 16,748.00 | D | ) | May 06 - Apr 07 | | 04/27/06 | Mondiello, M. | Underwriter Warrants-Private Debt Offering | 1,300 | B | ) | | | 5.500 | 2.24 | N/A | 1,331.00 | D | ) | May 06 - Apr 07 | | 04/27/06 | Pine, B. | Underwriter Warrants-Private Debt Offering | 1,750 | B | ) | | | 5.500 | 2.24 | N/A | 1,791.00 | D | ) | May 06 - Apr 07 | | 04/27/06 | Sica, A. | Underwriter Warrants-Private Debt Offering | 4,406 | B | ) | | | 5.500 | 2.24 | N/A | 4,510.00 | D | ) | May 06 - Apr 07 | | 04/27/06 | Stein, S. | Underwriter Warrants-Private Debt Offering | 34,015 | B | ) | | | 5.500 | 2.24 | N/A | 34,815.00 | D | ) | May 06 - Apr 07 | | 04/27/06 | Zalaznick, A. | Underwriter Warrants-Private Debt Offering | 2,000 | B | ) | | | 5.500 | 2.24 | N/A | 2,047.00 | D | ) | May 06 - Apr 07 | | 04/27/06 | Lobasso, N. | Underwriter Warrants-Private Debt Offering | 3,000 | B | ) | | | 5.500 | 2.24 | N/A | 3,071.00 | D | ) | May 06 - Apr 07 | | 04/27/06 | Saccaro, G. | Underwriter Warrants-Private Debt Offering | 3,000 | B | ) | | | 5.500 | 2.24 | N/A | 3,071.00 | D | ) | May 06 - Apr 07 | | 04/27/06 | Joseph Gunnar & Co., LLC | Underwriter Warrants-Private Debt Offering | 8,950 | B | ) | | | 5.500 | 2.24 | N/A | 9,161.00 | D | ) | May 06 - Apr 07 | | | | | 392,000 | | | (50,000 | ) | | | | 645,743 | | | |

Exhibit F - Page 3

| A) Pursuant to the April 2006 Private Placement Debt Offering, investors received 10,000 warrants for each unit of $100,0000 purchased. Each warrant grant has a five year term and is exercisable at $0.001. Warrant holders are subject to a six month lock up from the initial public offering prior to trading the underlining shares. A total of 280,000 warrants were granted as a result of this debt

offering.
B)
Pursuant to the April 2006 Private Placement Debt Offering, Joseph
Gunnar,
LLC received 4,000 warrants for each unit of $100,0000 placed in
the April 2006 Private Debt Offering. A total of 112,000 warrants
were
granted to Joseph Gunnar, LLC and affiliates pursuant to the debt offering.
Each grant has a five year term and is exercisable at the initial
public
offering price, and in absence of the IPO, at
$4.68.
C)
The fair value of the 280,000 investor warrants granted were estimated
using the Black-Scholes-Merton option valuation model. An estimated fair
value of $531,106 was recorded as a discount on the senior notes
payable
of $2,800,000 and is amortized as interest expense over the estimated
life of the senior notes (one year).
D)
The fair value of the 112,000 underwriter warrants granted were estimated
using the Black-Scholes-Merton option valuation model. An estimated
fair value of $114,637 was recorded as a deferred financing fees
and is
amortized as interest expense over the estimated life of the
notes (one year).

Exhibit F - Page 4

| Alagna,

J.	37,216	*	37,216	0	*
Duarte,
J	16,363	*	16,363	0	*
Mondiello,
M.	1,300	*	1,300	0	*
Pine,
B.	1,750	*	1,750	0	*
Sica,
A.	4,406	*	4,406	0	*
Stein,
S.	34,015	*	34,015	0	*
Zalaznick,
A.	2,000	*	2,000	0	*
Lobasso,
N.	3,000	*	3,000	0	*
Saccaro,
G.	3,000	*	3,000	0	*
Joseph
Gunnar & Co., LLC	10,950	2.90 %	218,950	0	*
	103,050
	114,000
	10,950

Exhibit F - Page 5

EXHIBIT G

| Bridgeline

Software, Inc.
For
the twelve months ended December 31, 2005
and
for the nine months ended September 30, 2006

Month — January	2007 — *			2006 — $ 2.17	(A	)	2005 — *		$	2004 — 3.00	(B	)	$ 3.00	(B	)	2002 — *			2001 — *			2000
February	*			2.27	(A	)	*			3.00	(B	)	3.00	(B	)	3.00	(B	)	3.00	(B	)
March	3.31	(A	)	2.37	(A	)	3.75	(B	)	3.00	(B	)	*			3.00	(B	)	3.00	(B	)
April	5.50	(C	)	2.24	(A	)	3.75	(B	)	3.00	(B	)	3.00	(B	)	*			3.00	(B	)
May				*			3.75	(B	)	3.00	(B	)	3.00	(B	)	*			3.00	(B	)
June				*			3.75	(B	)	3.00	(B	)	3.00	(B	)	*			*
July				2.37	(A	)	3.75	(B	)	3.75	(B	)	3.00	(B	)	3.00	(B	)	*
August				*			*			3.75	(B	)	3.00	(B	)	3.00	(B	)	*			3.00	(B	)
September				2.46	(A	)	*			3.75	(B	)	3.00	(B	)	3.00	(B	)	*			*
October				2.50	(A	)	*			3.75	(B	)	3.00	(B	)	*			3.00	(B	)	*
November				*			*			3.75	(B	)	3.00	(B	)	*			*			*
December				*			2.07	(A	)	3.75	(B	)	*			3.00	(B	)	*			3.00	(B	)
Post-Split
Values December		(D	)	$ 2.58		$	2.07		$	3.75			$ 3.00		$	3.00			*		$	3.00

| (A) | For periods subsequent to July 31, 2005, the fair value of common stock was determined by internal valuation analysis (see Exhibit H) | | --- | --- | | (B) | For periods prior to August 1, 2005, the fair value of common stock was determined by arms- length contemporaneous sales of Bridgeline common stock to unrelated third parties (see Exhibit C). | | (C) | Estimated mid-point range of intitial public offering price | | (D) | The shareholders of Bridgeline approved a reverse stock split of 3 for 1 effective April 7, 2006. | | * | Represents periods in which there were no equity transactions. |

Exhibit G - Page 1

EXHIBIT G

| Bridgeline

Software, Inc.
For
the twelve months ended December 31, 2005
and
for the nine months ended September 30, 2006
at
December 2005 & 2006
Amounts
in thousands ($000), except per share data

(Post-Split Basis)

			Includes
		For
the 12 Months Ended December 31,	BL
&
NT 12
Mos End
		2005	2006
Average
Valuation Multiples Compared to Revenue:
BL
revenue		$ 6,794	$	9,155
Minority
Enterprise Values
Revenue
Multiple	A)	1.5		1.5
Enterprise
value	B)	$ 10,380	$	14,007
Pro
forma effect of proceeds from exercisable warrants & options		112		112
Pro
forma enterprise value		$ 10,492	$	14,119
Less:
20% estimated discount for lack of marketability		(2,098	)	(2,824	)
Minority-held
value		$ 8,394	$	11,295
Equivalent
Common Shares Outstanding:
Common
Shares at 12-31-05		3,904		3,904
Impact
of NT shares outstanding as of 12-31-06				320
Exercisable
Warrants & Options "In-the-money"		147		147
Total
Equivelant Common Shares Outstanding		4,051		4,371
Minority-held
value per share (i.e. Fair Value per share)		$ 2.07	$	2.58

| A) | Comparables per anlaysis of peer group companies | | --- | --- | | | Assumes 10th percentile of public company comparable (1.5) for 2005 and 2006. | | B) | Enterprise value based on a multiple of revenue of peer group companies |

Exhibit G - Page 2

EXHIBIT G

| Bridgeline

Software, Inc.
Comparable
Market Analysis
For
the twelve months ended December 31, 2005
and
for the nine months ended September 30, 2006
Amounts
in thousands ($000), except per share
data

| | | | 2005 | 2006 | 2005 | 2006 | Multiple — on Sales | Multiple — on Sales | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Company | Ticker | End | Revenues | Revenues | Invested Capital | Invested Capital | 12/31/05 | 09/30/06 | | Filenet Corp | FILE | 31-Dec | 421.8 | 451.97 | 1,082.2 | 1,463.7 | 2.6 | 3.2 | | Interwoven, Inc. | IWOV | 31-Dec | 175.0 | 194.0 | 359.6 | 736.6 | 2.1 | 3.8 | | Kintera, Inc. | KNTA | 31-Dec | 40.9 | 44.3 | 107.9 | 61.6 | 2.6 | 1.4 | | Mobius Management Systems | MOBI | 30-Jun | 85.6 | 91.6 | 126.3 | 144.2 | 1.5 | 1.6 | | Perficient Inc. | PRFT | 31-Dec | 97.0 | 160.9 | 219.9 | 539.8 | | | | Sapient Corp | SAPE | 31-Dec | 333.0 | 421.8 | 702.9 | 845.0 | 2.1 | 2.0 | | Vignette Corp | VIGN | 31-Dec | 190.7 | 197.6 | 481.9 | 564.9 | 2.5 | 2.9 | | Webmethods, Inc. | WEBM | 31-Dec | 202.3 | 209.3 | 416.7 | 406.5 | 2.1 | 1.9 | | Website Pros | WSPI | 31-Dec | 37.8 | 52.0 | 143.9 | 156.6 | 3.8 | 3.0 | | Median Multiple | | | 1,584 | 1,823 | 3,641 | 4,919 | 2.3 | 2.4 | | Percentile 10 | | | | | | | 1.9 | 1.5 | | Percentile 25 | | | | | | | 2.1 | 1.9 | | Multiple Used | | | | | | | 1.5 | | | | | | | | | | A) | |

A) Reduced multiple used for 2005 as Website Pros is not considered representative as a result of brief operating history

Exhibit G - Page 3

EXHIBIT H

| Bridgeline

Software, Inc.
Reconciliation
of Estimated Fair Value of Common Stock
From
December 2006 to Date of IPO (Mid Point Value)
Amounts
in thousands ($000), except per share data

(Post-Split Basis)

| | Pro Forma — Includes | Includes | | | | --- | --- | --- | --- | --- | | | BL & NT | BL, NT & OW | | | | | 12 Mos End | 12 Mos End | | | | | Pro Forma | Pro Forma | | | | Average Valuation Multiples Compared to Revenue: | 2006 | 2007 | | | | BL revenue | $ 9,155 | $ | 14,034 | | | Minority Enterprise Values | | | | | | Revenue Multiple | 1.5 | | 1.9 | | | Enterprise value | $ 14,007 | $ | 26,665 | | | Pro forma effect of proceeds from exercisable warrants & options | 112 | | 346 | | | Pro forma enterprise value | $ 14,119 | $ | 27,011 | | | Less: 20% estimated discount for lack of marketability | (2,824 | ) | (5,402 | ) | | Minority-held value | $ 11,295 | $ | 21,609 | | | Equivalent Common Shares Outstanding: | | | | | | Common Shares | 3,904 | | 4,274 | | | Impact of NT shares outstanding for the year ended 9/30/06 | 320 | | | | | Impact of OW shares outstanding for the year ended 4/30/07 | | | 490 | | | Exercisable Warrants & Options "In-the-money" | 147 | | 147 | | | Total Equivelant Common Shares Outstanding | 4,371 | | 4,911 | | | Minority Value Per Equivalent Common Share Outstanding: | | | | | | Minority-held value per share (i.e. Fair Value per share) | $ 2.58 | $ | 4.40 | | | Gross Offiering Price Per Share - High | | $ | 6.00 | | | Marketabiltiy Discount (20%) | | | (1.20 | ) | | Net Offering Price - High | | $ | 4.80 | | | Gross Offiering Price Per Share - Mid | | $ | 5.50 | | | Marketabiltiy Discount (20%) | | | (1.10 | ) | | Net Offering Price - Mid | | $ | 4.40 | | | Gross Offiering Price Per Share - Low | | $ | 5.00 | | | Marketabiltiy Discount (20%) | | | (1.00 | ) | | Net Offering Price - Low | | $ | 4.00 | |

| A) | Comparables per anlaysis of peer group companies Assumes 10th percentile of public company comparable (1.5) for 2005 and 25th percentile (1.9) for 2006. | | --- | --- | | B) | Enterprise value based on a multiple of revenue of peer group companies |

Exhibit H - Page 1

MORSE Reservoir Place BARNES-BROWN 1601 Trapelo Road, Suite 205 PENDLETON Waltham, MA 02451 mbbp.com t - 781-622-5930 f - 781-622-5933 cbarnes@mbbp.com April 2, 2007 Ms. Maryse Mills-Apenting (Mail Stop 4561) Division of Corporation Finance United States Securities and Exchange Commission 100 F Street, NE Washington, DC 20549 Re: Bridgeline Software, Inc. Registration Statement on Form SB-2 Commission File No. 333-139298 ------------------------------ Dear Ms. Mills-Apenting: On behalf of Bridgeline Software, Inc. (the "Company"), I enclose for filing through EDGAR Amendment No. 2 (the "Amendment") to the Company's registration statement on Form SB-2 (Commission File No. 333-139298) (the "Registration Statement"). Set forth below on behalf of the Company are responses to the comments provided by the staff of the Division of Corporation Finance of the Securities and Exchange Commission (the "Staff") to Mr. Thomas Massie, President and Chief Executive Officer of the Company, in a letter dated March 9, 2007 (the "Letter") from Mark P. Shuman, Branch Chief - Legal. Such responses are based on information provided to us by the Company. The responses set forth below are keyed to the sequential numbering of the comments in the Letter and to the headings used in the Letter. Page numbers referred to in the responses are to the applicable pages of the preliminary initial public offering prospectus contained in the Amendment (the "IPO Prospectus"). Capitalized terms used and not defined in this letter have the meanings assigned to them in the Registration Statement. GENERAL ------- 1. WE NOTE THAT YOU INTEND THE REGISTRATION STATEMENT FOR USE IN THE INITIAL PUBLIC OFFERING AS WELL AS FOR USE BY SELLING SHAREHOLDERS AFTER COMPLETION OF THE INITIAL PUBLIC OFFERING. WE FURTHER NOTE THAT YOU INTEND FOR THE TWO PROSPECTUSES TO BE IDENTICAL IN ALL RESPECTS EXCEPT FOR THE ALTERNATIVE PAGES FOR THE SELLING SHAREHOLDER PROSPECTUS. PLEASE REVIEW EACH OF THE SECTIONS WITH CARE TO ENSURE THAT YOU DO NOT INCLUDE DISCLOSURE PERTINENT ONLY TO THE INITIAL PUBLIC OFFERING IN THE PROSPECTUS TO BE USED BY THE SELLING SHAREHOLDERS. April 2, 2007 Page 2 FOR INSTANCE, IT WOULD APPEAR THAT THE RISK FACTOR ON PAGE 16 THAT BEGINS "PURCHASERS IN THIS OFFERING WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION" WOULD BE INAPPLICABLE TO IN THE SELLING SHAREHOLDER PROSPECTUS UNLESS MODIFIED. HOWEVER, WE DID NOT FIND ALTERNATE PAGES RELATING TO THE RISK FACTORS. TO THE EXTENT YOU REFER TO "THIS OFFERING" IN THE PROSPECTS TO MEAN THE INITIAL PUBLIC OFFERING OR INCLUDE OTHER SUCH REFERENCES, PLEASE ENSURE THAT SUCH REFERENCES ARE APPROPRIATELY MODIFIED FOR USE IN THE SELLING SHAREHOLDER PROSPECTUS. Response -------- The Company has removed all references to the selling shareholders in the IPO Prospectus. In lieu of providing specific alternate pages, the Amendment contains an entirely separate and complete prospectus for use by selling shareholders (the "Selling Shareholder Prospectus"). The Selling Shareholder Prospectus is identical to the revised IPO Prospectus except as marked to indicate differences that are specifically related to the subsequent offering by the selling shareholders. 2. WE NOTE THAT YOU HAVE INCLUDED GRAPHICS ON THE INSIDE FRONT AND INSIDE BACK COVER PAGES AND IN THE BUSINESS SECTION ON PAGE 47 AS WELL AS A WORKFLOW CHART ON PAGE 48. PLEASE PROVIDE US WITH CLEAR COPIES OF THE GRAPHICS AND WORKFLOW CHART FOR OUR REVIEW. ALSO, SEE THE GUIDANCE PROVIDED ON THE USE OF GATEFOLD GRAPHICS IN OUR CORPORATION FINANCE CURRENT ISSUES OUTLINE, MARCH 2001, AVAILABLE ON OUR WEBSITE AT WWW.SEC.GOV. Response -------- Copies of the graphics referred to in the comment are enclosed as Exhibit A to this letter. COVER PAGE ---------- 3. PLEASE ENSURE THAT THE COVER PAGE RELATED TO THE UNDERWRITTEN PUBLIC OFFERING REFERS TO THE OFFERING OF 602,000 SHARES BY THE SELLING SHAREHOLDERS THAT IS TO BE COMMENCED SIX MONTHS AFTER THE EFFECTIVE DATE OF THE INITIAL PUBLIC OFFERING. Response -------- The above-referenced disclosure has been revised to address the Staff's comment. Please see the revised cover page of the IPO Prospectus. INSIDE COVER PAGE ----------------- 4. WE NOTE THAT YOU HAVE INCLUDED AN INFORMATIONAL PAGE THAT PRECEDES THE SUMMARY. THE INSIDE COVER PAGE SHOULD BE LIMITED TO THE MATTERS OUTLINED IN ITEM 502 OF REGULATION S- April 2, 2007 Page 3 B, WHICH INCLUDE THE TABLE OF CONTENTS AND DEALER PROSPECTUS DELIVERY OBLIGATION. WE NOTE, HOWEVER, THAT YOU HAVE INCLUDED THE TABLE OF CONTENTS ON THE OUTSIDE BACK COVER PAGE, CONSISTENT WITH ITEM 502. PLEASE RELOCATE THE INFORMATION PROVIDED IN THE SUMMARY SECTION OR IN ANOTHER APPROPRIATE LOCATION IN THE PROSPECTUS. Response -------- The above-referenced information has been removed from the inside front cover of the IPO Prospectus. In lieu thereof, the Company has provided brief self-explanatory captions to the graphics. The Company respectfully submits that these captions are consistent with the guidance provided on the use of gatefold graphics in Corporation Finance Current Issues Outline, March 2001. Please see the revised inside front cover of the IPO Prospectus. SUMMARY, PAGE 3 --------------- 5. PLEASE BE SPECIFIC BUT CONCISE IN DESCRIBING HOW YOU HELP CUSTOMERS INCREASE SALES, IMPROVE CUSTOMER SERVICE AND LOYALTY, ENHANCE EMPLOYEE COMMUNICATION AND TRAINING AND REDUCE ADMINISTRATIVE AND OPERATIONAL COSTS. Response -------- The above-referenced disclosure has been revised to address the Staff's comment. Please see revised page 3 of the IPO Prospectus. 6. PLEASE PROVIDE US WITH VERIFIABLE SUPPORT OR DOCUMENTATION FOR YOUR CLAIMS HERE AND IN THE BUSINESS SECTION THAT YOU "DEVELOP AWARD-WINNING WEB APPLICATIONS AND WEB SOFTWARE TOOLS." FOR EACH AWARD PROGRAM, PLEASE DESCRIBE THE CONSTITUENT BASE, CIRCULATION, REACH OR OTHER INFORMATION THAT CAN BE USED TO ASSESS THE SIGNIFICANCE OF THE AWARD. Response -------- With respect to each of the awards referred to in the Amendment, the Company advises the Staff that: o WEB AWARDS FOR THE WEB MARKETING ASSOCIATION - In 2006, more than 2,300 Web applications from 35 countries were considered by the Web Marketing Association in 96 industry categories in its Web Award competition. The Company won four awards for its development of Web applications for certain customers. In 2004, more than 1,300 entries from 19 countries were considered in the same competition. The Company won an award for its development of a Web application for one of its customers. April 2, 2007 Page 4 o MITX AWARDS FROM THE MASSACHUSETTS INNOVATION & TECHNOLOGY EXCHANGE - In 2005, the Massachusetts Innovation & Technology Exchange judged hundreds of entries in an initial round that resulted 78 finalists in 23 categories. In the final round of judging, the Company won an award for the development of a Web application for one of its customers. o AXIEM AWARD - In 2002, 26% of entries received the score required to receive silver awards. The Company received three silver awards for development of Web applications for its customers. o ONE SHOW INTERACTIVE AWARD - In 2003, in a field of more than 1,200 entries, the Company received one of the 21 Bronze Pencil Awards for development of a Web application for one of its customers. 7. AT PAGES 4, 10 AND ELSEWHERE, YOU REFER TO AN ESCROW ARRANGEMENT FOR THE OBJECTWARE TRANSACTION AND INDICATE THAT THE ESCROW ARRANGEMENT WILL CLOSE SHORTLY BEFORE THE COMPLETION OF THE UNDERWRITTEN OFFERING. ALTHOUGH WE NOTE THE REFERENCE TO AN ESCROW AGREEMENT IN ARTICLE IX(O) OF THE ACQUISITION AGREEMENT, WE ARE UNABLE TO LOCATE THAT AGREEMENT. PLEASE ADVISE. IN THE PROSPECTUS, CLARIFY THE NATURE AND TIMING OF THE PERFORMANCE UNDER THE ESCROW AGREEMENT AND THE RELATIONSHIP OF THOSE ACTIONS TO THE EFFECTIVE DATE. DESCRIBE CONCISELY THE ACTIONS EACH PARTY WOULD TAKE UNDER THE ESCROW AGREEMENT, AND EXPLAIN THE LEGAL SIGNIFICANCE OF "CLOSING IN ESCROW." CLEARLY EXPLAIN ANY MATERIAL RISK THAT THE OBJECTWARE ACQUISITION WILL NOT BE CONSUMMATED, NOTWITHSTANDING THE CLOSING IN ESCROW. IN THE SUMMARY AND ELSEWHERE, CLEARLY STATE WHETHER THE CLOSING OF THE ACQUISITION IS A CONDITION TO THE CLOSING OF THE PUBLIC OFFERING. SIMILARLY, WHEN YOU REFER TO UNCERTAIN EVENTS, SUCH AS "THE RELEASE OF ESCROWED MATERIALS" OR THE ISSUANCE OF BRIDGELINE SHARES TO THE CURRENT EQUITY OWNER OF OBJECTWARE, INDICATE CLEARLY THAT SUCH EVENTS WILL NOT OCCUR UNTIL CONDITIONS THAT YOU DESCRIBE IN REASONABLE DETAIL HAVE BEEN SATISFIED. Response -------- The Company advises the Staff that it expects that, shortly before the closing of the Objectware acquisition, the Company and the sole shareholder of Objectware will select a third party (i.e., an independent bank or trust company or the law firm representing either the Company or Objectware in the transaction) to serve as escrow agent in connection with the consummation of the acquisition. The Company further expects that the escrow agent will likely require the parties to use the agent's own form of escrow agreement. As the parties have not yet identified an escrow agent, the Company is unable to provide a form of agreement at this time. Upon the selection of an escrow agent, the Company intends to file the form of escrow agreement as an exhibit to a subsequent amendment to the Registration Statement. April 2, 2007 Page 5 The above-referenced disclosure has been revised to address the Staff's comment. Please see revised page 65 and the cross-reference to such disclosure on page 5 of the IPO Prospectus. 8. THE LIST OF EXCLUDED SHARES ON PAGE 6 REFERS TO 490,404 SHARES ISSUABLE UPON THE ACQUISITION OF OBJECTWARE. IT APPEARS THAT THIS AMOUNT DOES NOT INCLUDE CONTINGENT PAYOUT SHARES THAT MAY BE ISSUED UNDER THE TERMS OF THE ACQUISITION AGREEMENT. PLEASE REVISE TO DISCUSS THE POTENTIAL EFFECT OF THIS ARRANGEMENT. Response -------- The above-referenced disclosure has been revised to address the Staff's comment. Please see revised page 7 of the IPO Prospectus. 9. REGARDING YOUR ESTIMATE ON PAGE 4 THAT "COMPOUNDED ANNUAL GROWTH RATES OF AT LEAST 20% PER YEAR" MAY BE POSSIBLE FOR EACH ACQUIRED ENTITY, TELL US THE BASIS FOR THIS PROJECTION. TELL US WHETHER YOU HISTORICALLY ACHIEVED THIS GROWTH RATE WITH REGARD TO YOUR ACQUISITIONS OTHERWISE DESCRIBE THE REASONABLE BASIS FOR THE PROJECTION. WE ALSO NOTE YOUR DISCLOSURE ON PAGE 51 PROJECTING THAT YOUR "ORGANIC GROWTH ON AVERAGE WILL BE AT LEAST 20% PER YEAR IN OUR GEOGRAPHICAL REGIONS ONCE WE ARE ESTABLISHED IN EACH SUCH GEOGRAPHICAL REGION." PLEASE SPECIFY WHETHER YOU ARE REFERRING TO GROWTH IN REVENUES, MARKET SHARE OR SOME OTHER METRIC. DISCLOSE THE BASIS FOR THE PROJECTION, AND ANY MATERIAL UNCERTAINTIES THAT MAY EXIST WITH RESPECT TO YOUR ABILITY TO ACHIEVE SUCH A GROWTH RATE. PLEASE PROVIDE SPECIFIC SUPPORT AND APPROPRIATE DISCLOSURE REGARDING ANY PROJECTIONS YOU INCLUDE. Response -------- The Company advises the Staff that the statements to which the Staff referred in the comment are based on, and consistent with, the actual historical results of companies acquired by the Company. The disclosure referenced in the Staff's comment has been revised to clarify that the Company's organic growth projections relate to revenue growth and to provide the disclosure requested in the comment. Please see revised page 58 of the IPO Prospectus. SUMMARY FINANCIAL DATA TABLE PAGE 7 ----------------------------------- 10. WE NOTE YOUR DISCLOSURES OF THE NON-GAAP MEASURE "EBITDA" WITHIN THE SUMMARY FINANCIAL DATA TABLE. SINCE THE NON-GAAP MEASURE "EBITDA" APPEARS TO EXCLUDE ITEMS THAT MAY BE CONSIDERED RECURRING IN NATURE, YOU MUST MEET THE BURDEN OF April 2, 2007 Page 6 DEMONSTRATING THE USEFULNESS OF THE MEASURE AND CLEARLY DISCLOSE WHY THIS NON-GAAP MEASURE IS USEFUL WHEN THESE ITEMS ARE EXCLUDED. REVISE TO ADDRESS THE DISCLOSURES IN QUESTION 8 OF THE DIVISION OF CORPORATION FINANCE JUNE 13, 2003 "FREQUENTLY ASKED QUESTIONS REGARDING THE USE OF NON-GAAP FINANCIAL MEASURE" AND THE RELEVANT DISCLOSURE REQUIREMENTS UNDER PARAGRAPH 10(H) OF REGULATION S-B. Response -------- The above-referenced disclosures have been revised to address the Staff's comment. Please see revised pages 8 and 9 of the IPO Prospectus. 11. THE HEAD NOTE ON PAGE 7 OF THE SUMMARY FINANCIAL DATA DOES NOT NOTE OR EXPLAIN THE FOLLOWING PRO FORMA PRESENTATIONS. HERE AND THROUGHOUT THE FILING PRO FORMA INFORMATION SHOULD CONFORM TO THE CONTENT AND PREPARATION REQUIREMENTS OF ARTICLE 11 OF REGULATION S-X. PLEASE REVISE ACCORDINGLY AND THROUGHOUT THE FILING WHEREVER PRO FORMA INFORMATION IS PRESENTED. Response -------- The head notes in all areas of the Amendment have been revised to explain the pro forma presentations in accordance with Article 11 of Regulation S-X. Please see revised pages 7, 23 and 27 of the IPO Prospectus. RISK FACTORS, PAGE 9 12. PLEASE REVIEW YOUR RISK FACTOR SUBHEADINGS TO ENSURE THAT THEY DESCRIBE THE RISK FROM THE VIEWPOINT OF THE INVESTOR. FOR INSTANCE YOU STATE ON PAGE 10 THAT "WE MIGHT NOT BE ABLE TO COMPLETE THE ACQUISITION OF OBJECTWARE." IT IS UNCLEAR FROM THIS SUBHEADING WHAT THE IMPACT ON THE COMPANY AND ULTIMATELY TO THE INVESTOR MIGHT BE. SIMILARLY, THE RISK FACTOR ON PAGE 16 THAT READS "WE HAVE SUBSTANTIAL DISCRETION AS TO HOW TO USE THE OFFERING PROCEEDS" DOES NOT, ON ITS FACE, EXPLAIN HOW THIS FACT POSES A RISK TO INVESTORS. PLEASE REVIEW THE SUBHEADINGS AND REVISE AS APPROPRIATE SO THAT THE RISK ASSOCIATED WITH THE SET OF CIRCUMSTANCES YOU DESCRIBE IS RELEVANT. Response -------- The above-referenced disclosures have been revised to address the Staff's comment. Please see revised risk factors on pages 11, 12, 13 and 19 of the IPO Prospectus. April 2, 2007 Page 7 THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN. 13. PLEASE REVISE THIS RISK FACTOR TO CLARIFY WHETHER, UPON RECEIPT OF THE OFFERING PROCEEDS, YOU HAVE SUFFICIENT FUNDS TO FULFILL YOUR FINANCIAL OBLIGATIONS FOR THE NEXT 12 MONTHS. IF SO, CLARIFY WHETHER YOUR ABILITY TO MEET THIS OBLIGATION IS DEPENDENT ON THE PROCEEDS FROM THIS OFFERING. EXPAND THE LIQUIDITY AND CAPITAL RESOURCES SECTION IN A SIMILAR MANNER TO CLARIFY YOUR ABILITY TO MEET YOUR SHORT-TERM FINANCIAL OBLIGATIONS. Response -------- The above-referenced disclosures have been revised to address the Staff's comment. Please see the revised risk factor on page 10 and the expanded disclosure on page 43 of the IPO Prospectus. YOU WILL INCUR OWNERSHIP DILUTION AS A RESULT OF OUR PROPOSED ACQUISITION OF OBJECTWARE, PAGE 10. 14. PLEASE QUANTIFY THE POTENTIAL DILUTION SHAREHOLDERS WILL EXPERIENCE AS A RESULT OF THE ACQUISITION OF OBJECTWARE IN THE SUBHEADING AND IN THE TEXT OF THE RISK FACTOR. YOU MAY INCLUDE A PERCENTAGE AMOUNT OR PROVIDE A POSSIBLE RANGE, DEPENDING ON THE EARN-OUT SHARES THAT MAY BE ISSUED IN THE FUTURE. NOTE THAT ALL OF THE DISCLOSURE IN THE RISK FACTOR SECTION SHOULD BE QUANTIFIED TO THE EXTENT POSSIBLE. Response -------- The above-referenced disclosures have been revised to address the Staff's comment. Please see the revised risk factor on pages 12 and 19 of the IPO Prospectus. IF WE UNDERTAKE ADDITIONAL BUSINESS COMBINATIONS OR ACQUISITIONS, PAGE 11 ------------------------------------------------------------------------- 15. PLEASE DISCLOSE HERE WHETHER, IN ADDITION TO THE OBJECTWARE TRANSACTION, YOU HAVE ANY CURRENT COMMITMENTS, PROPOSALS OR ARRANGEMENTS TO ACQUIRE A BUSINESS. Response -------- The above-referenced disclosure has been revised to address the Staff's comment. Please see the revised risk factor on page 13 of the IPO Prospectus. April 2, 2007 Page 8 OUR AUDITORS IDENTIFIED MATERIAL WEAKNESSES IN OUR INTERNAL CONTROL OVER ------------------------------------------------------------------------ FINANCIAL REPORTING, PAGE 13. ----------------------------- 16. PLEASE DESCRIBE, TO THE EXTENT MATERIAL, THE COSTS ASSOCIATED WITH THE MEASURES YOU HAVE TAKEN AND EXPECT TO TAKE TO ADDRESS THE MATERIAL WEAKNESS. WE NOTE YOUR DISCLOSURE ON PAGE 36 REGARDING THE ESTIMATED COSTS OF THE ANTICIPATED POSITIONS AND THE "SIGNIFICANT" COSTS INCURRED TO BRING YOUR INTERNAL CONTROL DOCUMENTATION IN TO COMPLIANCE WITH SECTION 404. Response -------- The above-referenced disclosure has been revised to address the Staff's comment. Please see the revised risk factor on page 16 of the IPO Prospectus. USE OF PROCEEDS, PAGE 18 ------------------------ 17. PLEASE CLARIFY YOUR STATEMENT THAT YOU "HAVE NOT ALLOCATED FUNDS FOR [ACQUISITIONS OR OTHER SUCH] TRANSACTIONS IN OUR BUSINESS PLAN," SINCE IT APPEARS FROM YOUR DISCLOSURE REGARDING HOW YOU INTEND TO USE THE PROCEEDS FROM THE OFFERING THAT YOU HAVE ALLOCATED APPROXIMATELY $2 MILLION FOR POTENTIAL ACQUISITIONS. Response -------- The above-referenced disclosure has been revised to address the Staff's comment. Please see revised page 21 of the IPO Prospectus. CASH FLOW DATA, PAGE 21 ----------------------- 18. REVISE THE DATA TO INCLUDE COLUMN HEADINGS. WE MAY HAVE FURTHER COMMENTS UPON REVIEW OF THE REVISION. Response -------- The above-referenced disclosure has been revised to address the Staff's comment. Please see revised page 24 of the IPO Prospectus. DILUTION, PAGE 22 ----------------- 19. IN THE TABLE ON PAGE 23 YOU REFER TO CONSIDERATION OF $5.01 MILLION THAT AFFILIATED PARTIES PAID FOR THEIR SHARES AS WELL AS $6.31 MILLION THAT OTHER EXISTING INVESTORS PAID FOR THEIR SHARES. AS SUBSTANTIAL PORTIONS OF THE AMOUNTS PAID FOR THOSE SHARES APPEARS TO BE CONSIDERATION IN A FORM OTHER THAN CASH, PLEASE PROVIDE FOOTNOTE DISCLOSURE THAT MORE April 2, 2007 Page 9 PRECISELY DESCRIBES THE AMOUNT AND FORM OF THE PAYMENTS BY PRIOR STOCKHOLDERS FOR THEIR SHARES. Response -------- The above-referenced disclosure has been revised to address the Staff's comment. Please see revised page 26 of the IPO Prospectus. 20. AS OF SEPTEMBER 30, 2006 OR LATEST UPDATED PERIOD, PLEASE PROVIDE US WITH YOUR CALCULATION OF THE NET TANGIBLE BOOK VALUE PER COMMON SHARE BEFORE AND AFTER THE OFFERING AS WELL AS THE CALCULATION OF THE IMMEDIATE INCREASE IN THE NET ADJUSTED BOOK VALUE PER SHARE TO EXISTING COMMON STOCK HOLDERS AS WE CANNOT READILY RECONCILE THESE PER SHARE AMOUNTS DISCLOSED. SIMILARLY, PROVIDE US WITH EACH OF THE OTHER PER SHARE CALCULATIONS REFLECTIVE OF THE RELEASE OF THE CLOSING ESCROW RELATING TO THE ACQUISITION OF OBJECTWARE AND THE EXERCISE OF THE OVER-ALLOTMENT OPTION BY THE UNDERWRITERS. ENSURE THAT THESE AMOUNTS RECONCILE TO THE FINANCIAL INFORMATION DISCLOSED ELSEWHERE IN THE DOCUMENT. Response -------- The dilution calculations referred to in the comment are enclosed as Exhibit B to this letter. SELECTED PRO FORMA SELECTED FINANCIAL DATA, PAGE 25 --------------------------------------------------- 21. FOLLOWING RULE 11-02(B)(7) OF REGULATION S-X, PROVIDE ON THE FACE OF THE PRO FORMA INCOME STATEMENT DATE THE HISTORICAL NET LOSS PER SHARE BASED ON CONTINUING OPERATIONS FOR THE COMPANY AS WELL AS THE PRO FORMA NET INCOME PER SHARE DATA. ALSO ON THE FACE OF THE PRO FORMA INCOME STATEMENT DATA DISCLOSE THE NUMBER OF SHARES USED TO COMPUTE THE PER SHARE DATA. WHERE APPLICABLE REVISE OTHER PRESENTATIONS THROUGHOUT THE FILING. Response -------- The above-referenced disclosures have been revised to address the Staff's comment. Please see both the historical and pro forma income statement data in the Selected Pro Forma Financial Data section of the IPO Prospectus. MANAGEMENT'S DISCUSSION AND ANALYSIS, PAGES 26-38 ------------------------------------------------- 22. IN YOUR DISCUSSIONS OF THE RESULTS OF OPERATIONS, YOU SOMETIMES REFER TO TWO OR MORE SOURCES AS COMPONENTS THAT CONTRIBUTED TO A MATERIAL CHANGE. FOR EXAMPLE, ON PAGE 32 YOU ATTRIBUTE THE GROWTH IN REVENUE PRIMARILY TO ENGAGEMENTS WITH NEW CUSTOMERS AND NEW WORK WITH EXISTING CUSTOMERS. ON PAGE 34 YOU STATE THAT THE INCREASE IN G&A EXPENSES RESULTED PRIMARILY FROM AN INCREASE IN HEADCOUNT RESULTING FROM DIRECT HIRES AND April 2, 2007 Page 10 ACQUISITIONS AS WELL AS AN INCREASE IN COMPUTER MAINTENANCE PURCHASES AND INCREASED COMPENSATION LEVELS. QUANTIFY THE AMOUNT OF THE CHANGE THAT WAS CONTRIBUTED BY EACH OF THE FACTORS OR EVENTS THAT YOU IDENTIFY, INCLUDING ANY OFFSETTING FACTORS. REVISE THROUGHOUT. SEE SECTION III.D OF SEC RELEASE 33-6835. Response -------- The above-referenced disclosures in Management's Discussion and Analysis have been revised to address the Staff's comment. Please see revised pages 38 to 42 of the IPO Prospectus. 23. PLEASE REVIEW THE TEXT WITH CARE AND ENSURE THAT YOU DISCUSS THE UNDERLYING BUSINESS CONDITIONS FROM PERIOD TO PERIOD AND HOW THOSE CONDITIONS AFFECTED YOUR RESULTS. FOR EXAMPLE, YOU ATTRIBUTE THE GROWTH IN PRODUCT REVENUE, WHICH INCREASED 56% FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2006 AS COMPARED TO 2005, PRIMARILY TO INCREASED SALES AND TO RECENT ACQUISITIONS. WHAT FACTORS CONTRIBUTED TO YOUR ABILITY TO SIGNIFICANTLY INCREASE SALES IN A ONE-YEAR PERIOD? DISCUSS MATERIAL TRANSACTIONS OR DEVELOPMENTS THAT AFFECTED YOUR RESULTS IN SPECIFIC TERMS. YOU SHOULD PROVIDE A MEANINGFUL EXPLANATION OF HOW MANAGEMENT VIEWS THE COMPANY'S PERFORMANCE AND ITS RESULTS. Response -------- The above-referenced disclosures in Management's Discussion and Analysis have been revised to address the Staff's comment. Please see revised page 41 of the IPO Prospectus. 24. IN LIGHT OF THE SUBSTANTIAL DOUBT REGARDING YOUR ABILITY TO CONTINUE AS A GOING CONCERN, PLEASE ADDRESS THE STEPS MANAGEMENT HAS TAKEN TO DATE THAT ARE DISCUSSED IN NOTE 1 TO THE FINANCIAL STATEMENTS INTENDED TO "STREAMLINE ITS OPERATIONS OVER THE LAST SEVERAL YEARS." WE NOTE THAT WHILE STREAMLINING MEASURES INCLUDED REDUCING OR MAINTAINING HEADCOUNT AND LIMITING INFRASTRUCTURE, OPERATING AND CAPITAL EXPENDITURES, YOU HAVE EXPERIENCED AN INCREASE IN HEADCOUNT IN FISCAL YEAR 2006. PLEASE REVISE THE DISCLOSURE TO CLARIFY AND EXPLAIN THE SHIFT YOU HAVE EXPERIENCED FROM STREAMLINING TO SUBSTANTIAL GROWTH IN THE COMPANY'S ACTIVITIES. THIS SHIFT OR CHANGING TREND SHOULD BE CLEARLY IDENTIFIED AND QUANTIFIED IN MANAGEMENT'S DISCUSSION AND ANALYSIS AS WELL. Response -------- The above-referenced disclosures have been revised to address the Staff's comment. Please see revised page 43 of the IPO Prospectus. 25. PLEASE REVISE TO PROVIDE A MATERIALLY COMPLETE DISCUSSION OF THE CONTINGENT ACQUISITION PAYMENTS AND THE CONDITIONS THAT WILL TRIGGER CONTINGENT PAYOUT OBLIGATIONS. WE April 2, 2007 Page 11 NOTE YOUR DISCLOSURE IN THE SUMMARY SECTION ON PAGE 4 REGARDING THE OBJECTWARE ACQUISITION AND THE AMOUNT OF UP TO $1.8 MILLION PAYABLE IN CASH AND STOCK OVER A THREE-YEAR PERIOD. THE DISCLOSURE SHOULD SPECIFICALLY ADDRESS CASH VERSUS STOCK PAYMENTS IN QUANTIFIED TERMS AS WELL AS THE TERMS ON WHICH STOCK ISSUANCES WILL BE MADE. OTHER CONTINGENT ACQUISITION PAYMENTS RELATING TO YOUR PREVIOUS ACQUISITIONS, SUCH AS THOSE YOU DISCUSS ON PAGE 35 UNDER THE SUBHEADING INVESTING ACTIVITIES, SHOULD BE CLEARLY DESCRIBED AS WELL. TELL US WHAT CONSIDERATION YOU GAVE TO INCLUDING THE SIGNIFICANT CONTINGENCY PAYMENT INFORMATION IN THE CONTRACTUAL OBLIGATIONS TABLE AND RELATED DISCLOSURE ON PAGES 35-36. Response -------- The Company has revised the disclosure in the Liquidity and Capital Resources section to fully describe and detail contingent consideration payments to all acquired entities. Please see revised pages 43 and 44 of the IPO Prospectus CRITICAL ACCOUNTING POLICIES AND ESTIMATES, PAGE 28 --------------------------------------------------- WEB SERVICES, PAGE 28 --------------------- 26. PLEASE EXPLAIN TO US AND DISCLOSE THE BASIS FOR COMBINING SOFTWARE LICENSE, A PRODUCT WITH SERVICES IN A SINGLE LINE OF SERVICE REVENUES DENOTED AS "WEB SERVICES." Response -------- The Company advises the Staff that perpetual licenses are only sold in connection with Web Services engagements; therefore, we believe it is appropriate to include revenue from perpetual licenses with revenue from Web Services. For the three months ended December 31, 2006 and 2005 and for the years ended September 30, 2006 and 2005, the amount of such perpetual license revenue has been insignificant as compared to the total amount of Web Service revenue during those periods (i.e., an average of 3%) and as compared to total Company revenue (i.e., an average of 2%) for those periods. In the future, should perpetual license revenue become a significant component of total revenue, consideration would be given to breaking such revenue out into a separate category for presentation in the statement of operations. MANAGED SERVICES, PAGE 28 ------------------------- 27. IN YOUR DISCUSSION OF MANAGED SERVICE REVENUES FOR THE PERIODS PRESENTED, TELL US WHAT CONSIDERATION YOU HAVE GIVEN TO SEPARATELY QUANTIFYING AND DISCUSSING REVENUES RECOGNIZED FROM PROFESSIONAL SERVICES AND HOSTING FEES. PLEASE PROVIDE US WITH QUANTIFIED ANALYSIS OF THE SEPARATE AMOUNTS IN YOUR RESPONSE. April 2, 2007 Page 12 Response -------- The Company advises the Staff that its Managed Services revenue is comprised of retained services and hosting. The Company considers hosting an incidental part of its business and does not directly market this line of business. To date, the Company's only hosting arrangements have been with Web Services customers. As hosting revenue has historically been insignificant to both the Company's business strategy and its results of operations, the Company does not believe that separate classification in the statement of operations is warranted. Should hosting revenue become a significant component of total revenue, the Company would consider a separate classification. The following table presents hosting revenue as a percent of Managed Services Revenue and Total Revenue for each period presented (dollars in 000's): ($ in 000's) 3 Months Ended 3 Months Ended Fiscal Year Fiscal Year 12/31/06 12/31/05 Ended 9/30/06 Ended 9/30/05 Hosting $ 63 $ 52 $ 216 $ 204 Retained Services 245 215 1,027 1,040 Total Managed Services Revenue 308 267 1,243 1,244 Total Revenues $ 2,309 $ 1,713 $ 8,235 $ 5,769 Hosting as a % of Managed Services 20% 19% 17% 16% Hosting as a % of Total Revenue 3% 3% 3% 4% STOCK-BASED COMPENSATION, PAGES 30-31 ------------------------------------- 28. REVISE TO DISCLOSE HOW YOU ACCOUNTED FOR STOCK BASED COMPENSATION PRIOR TO YOUR ADOPTION OF SFAS NO. 123R ON OCTOBER 1, 2006. CLARIFY IN YOUR DISCLOSURE THAT YOU ACCOUNTED FOR STOCK-BASED COMPENSATION USING THE INTRINSIC VALUE METHOD OF ABP NO. 25 AND THE DISCLOSURE-ONLY PROVISIONS OF SFAS NO. 123 FOR PERIODS PRIOR TO OCTOBER 1, 2006. DISCLOSE WHY YOU ARE USING THE MODIFIED PROSPECTIVE APPLICATION METHOD UNDER PARAGRAPH 74 OF SFAS NO. 123R IN MD&A AND IN THE NOTES TO THE FINANCIAL STATEMENTS. IN THIS REGARD EXPLAIN TO US AND DISCLOSE HOW YOU DETERMINED THE $363,000 OF TOTAL UNRECOGNIZED COMPENSATION COST RELATED TO NON-VESTED SHARE-BASED COMPENSATION ARRANGEMENTS GRANTED UNDER YOUR PLANS. Response -------- The above-referenced disclosures have been revised to address the Staff's comment. Please see revised pages 36, 37, F-28 and F-29 of the IPO Prospectus. April 2, 2007 Page 13 The Company advises the Staff that it uses the modified prospective method because we used the fair-value-based method for disclosure under SFAS 123. The $363,000 of unrecognized compensation costs represents the unamortized portion of stock options and was valued utilizing the Black-Scholes-Merton option valuation model and the assumptions described in Note 1 to the financial statements. Please refer to the Stock Based Compensation disclosure in the Critical Accounting Policies on pages 36 and 37 of the IPO Prospectus. 29. SINCE YOU HAVE ADOPTED FAS 123R AS OF OCTOBER 1, 2006, UPON UPDATING YOUR FINANCIAL STATEMENTS AS REQUIRED UNDER ITEM 310(G) OF REGULATION S-B TELL US HOW YOU VALUED YOUR STOCK OPTIONS AND HOW YOU DETERMINED THE ASSUMPTIONS REGARDING EXPECTED VOLATILITY AND EXPECTED TERM OF THE OPTIONS. Response -------- The above-referenced disclosures have been revised to address the Staff's comment. Please see revised page 36 to 37, and Note 2 to the financial statements on pages F-27 to F-29 of the IPO Prospectus. 30. WE NOTE THE COMPANY EXECUTED SIX PRIVATE PLACEMENT TRANSACTIONS BETWEEN AUGUST OF 2000 AND DECEMBER OF 2004. IN ORDER THAT WE MAY UNDERSTAND YOUR ACCOUNTING FOR STOCK-BASED COMPENSATION DURING THIS TIMEFRAME, PROVIDE US WITH SUFFICIENT INFORMATION SUPPORTING THE COMMON STOCK FAIR VALUES FOR EACH OF THE DIFFERENT PRIVATE PLACEMENTS. THIS INFORMATION ALONG WITH ANY ADDITIONAL INFORMATION (E.G. INFORMATION PERTAINING TO BUSINESS COMBINATIONS) YOU MAY FEEL NECESSARY TO PROVIDE, WILL ALLOW US TO DETERMINE HOW YOU ARRIVED AT THE FAIR VALUES OF YOUR COMMON STOCK YOU USED IN THE GRANTING OF STOCK OPTIONS. IN YOUR RESPONSE ALSO ADDRESS THE REASONS FOR THE STOCK OPTION GRANTS (I.E. FOR GOODS OR SERVICES, OR TO EMPLOYEES, EXTINGUISHMENT OF DEBT, ETC.). SIMILAR INFORMATION SHOULD BE PROVIDED FOR STOCK OPTIONS GRANTED THROUGH JULY OF 2005 AS WELL. Response -------- A detailed list of all investors, stock prices and funds raised in the six above-referenced private placements is attached as Exhibit C to this letter. The primary purpose of each of these private placement transactions was to fund the Company's acquisitions. The values assigned to shares issued in all private placement transactions were determined by the Company using a management-developed calculation to ascertain the estimated fair value of the Company on a per share basis at the time of the private placement. The computation was principally based on a multiple of estimated revenues after considering both the accretive effect of the entity to be acquired and shares issued with the placement and the acquisition. The value assigned to the Company's common stock issued in each of these acquisitions was based on the corresponding and contemporaneous private placement and subject to direct arms-length negotiations between the Company and the respective sellers. Consideration was paid in combinations of cash, common stock and earn-out. April 2, 2007 Page 14 The Company further advises the Staff that it has issued incentive stock options to employees, and non-qualified options to Directors in consideration of their services as members of the Company's board of directors, from inception through December 31, 2006. All options were issued under the Company's 2000 Stock Incentive Plan, as restated and amended, except as otherwise noted below. Except as detailed below, all options have a term of 10 years, vest annually over a period of three years, and have exercise prices equal to the fair value of the underlying common stock at time of issuance. The Company also issued the following options for other business purposes with varied terms as detailed below: Exercise Year Recipient/Reason Shares Price Vesting ---- ---------------- ------ ----- ------- 2000 Founding BOD Member 50,000 $0.001 Upon Issuance 2000 Founding BOD Member 50,000 $0.001 Upon Issuance 2000 Founding Officer-CFO 200,000 $0.001 Upon Issuance 2002 Lead Dog Merger(A)(B) 98,731 $0.04-$0.12 0 to 2 Yrs 2002 Massie-Compensation 6,667 $0.001 Upon Issuance 2002 Cebula-Compensation 6,667 $0.001 Upon Issuance 2002 Matteo-Compensation 6,667 $0.001 Upon Issuance 2002 Seeger-Compensation 4,167 $0.001 Upon Issuance 2004 Iapps Merger(A) 50,949 $0.13 Upon Issuance 2006 New Tilt Merger(A) 102,420 $3.75 0 to 3 Yrs A) In connection with the acquisitions of Lead Dog Digital, iapps and New Tilt, the Company issued its own incentive stock options to employees of the acquired entities in consideration of the cancellation or termination of options previously granted by the acquired entities. The exercise price and vesting period of the Company's options was consistent with the exercise price and vesting period of the original options. B) In connection with its acquisition of Lead Dog Digital in February 2002, the Company assumed Lead Dog Digital's 2001 Stock Option Plan, and exchanged 98,731 options granted under that plan for the Company's own options as of the date of the acquisition. Those options are governed by the provisions of that plan, and no additional options have been granted under that plan after the completion of the acquisition. Please see pages 78 and F-42 of the IPO Prospectus. April 2, 2007 Page 15 31. WITH RESPECT TO THE GUIDANCE IN THE 2004 AICPA PRACTICE AID "VALUATION OF PRIVATELY-HELD-COMPANY EQUITY SECURITIES ISSUED AS COMPENSATION" (THE "PRACTICE AID"), PLEASE DISCLOSE IN MD&A THE INTRINSIC VALUE OF ALL OUTSTANDING VESTED AND UNVESTED OPTIONS BASED ON THE ESTIMATED INITIAL PUBLIC OFFERING PRICE AND THE OPTIONS OUTSTANDING AS OF THE MOST RECENT BALANCE SHEET DATE INCLUDED IN THE REGISTRATION STATEMENT. SEE PARAGRAPH 180 OF THE PRACTICE AID. Response -------- The above-referenced disclosures have been revised to address the Staff's comment. Please see revised page 37 of the IPO Prospectus. 32. SINCE YOU DID NOT OBTAIN CONTEMPORANEOUS VALUATIONS PERFORMED BY AN UNRELATED VALUATION SPECIALIST AS DEFINED BY THE PRACTICE AID PLEASE REVISE MD&A TO DISCLOSE THE FOLLOWING INFORMATION RELATED TO ISSUANCES OF EQUITY INSTRUMENTS (SEE PARAGRAPH 182 OF THE PRACTICE AID): o DISCUSS THE SIGNIFICANT FACTORS, ASSUMPTIONS, AND METHODOLOGIES USED IN DETERMINING THE FAIR VALUE OF THE UNDERLYING COMMON STOCK; o DISCUSS EACH SIGNIFICANT FACTOR CONTRIBUTING TO THE DIFFERENCE BETWEEN THE FAIR VALUE AS OF THE DATE OF EACH GRANT AND THE ESTIMATED IPO PRICE OR, IF APPLICABLE, THE FAIR VALUE AS DETERMINED BY A CONTEMPORANEOUS VALUATION BY AN UNRELATED VALUATION SPECIALIST OBTAINED SUBSEQUENT TO THE GRANTS BUT PRIOR TO THE IPO; AND o DISCLOSE THE VALUATION ALTERNATIVE SELECTED AND ANY FURTHER REASONS MANAGEMENT CHOSE NOT TO OBTAIN A CONTEMPORANEOUS VALUATION BY AN UNRELATED VALUATION SPECIALIST. Response -------- The above-referenced disclosures have been revised to address the Staff's comment. Please see revised page 36 and 37 of the IPO Prospectus. For periods prior to July 2005, the value assigned to shares issued in private placement transactions was determined by management using a calculation primarily based on a multiple of estimated revenues after considering both the accretive effect of the target entity and the dilutive effect of shares to be issued. The value assigned to the common stock issued in acquisitions was based on the corresponding private placements and subject to direct arms-length negotiations between the Company and the respective sellers. The Company did not seek an independent valuation for purposes of determining fair value of its common stock because it believed its approach was reasonable and no such valuations were requested by any parties involved with the transactions. For periods after July 2005, the Company estimated the fair value of its stock price on the date of grant after weighing a variety of quantitative and qualitative factors, principally April 2, 2007 Page 16 the status of its business development, its financial position, the composition and ability of its engineering, operations and management team, the economic climate in the marketplace, the illiquid nature of its common stock, contemporaneous and anticipated private sales of its common stock, the probability of a liquidation event such as an initial public offering or the sale of the Company, and its analysis of a peer group of comparable public company trading prices. The increase in the estimated offering price of $5.50 over the estimated value of the Company's common stock at September 30, 2006 of $2.46 primarily reflects the accretive effect of the proposed acquisition of Objectware and the expected internal Company growth from September 30, 2006 to the planned initial public offering date of April 2007. The Company also considered the impact the proceeds of the initial public offering would have on its working capital and its longer term cash position. Prior to July 2005, the value of the Company's common stock was derived from the private placements and business combinations described above was used to determine the value of equity instruments (i.e., warrants and options) issued contemporaneously. For equity instruments issued after July 2005, the methodology employed by management is described in the third paragraph under the subheading "Stock Based Compensation" on page 36 of the IPO Prospectus and in Note 2 to the financial statements. The Company believes the methodology applied is consistent with the methodology that would have been used by an independent valuation specialist in similar circumstances. 33. WE REFERENCE YOUR DISCLOSURES WITHIN MD&A ON PAGE 31 THAT YOU ENGAGED AN INVESTMENT BANKING FIRM IN OCTOBER OF 2005 TO PROVIDE STRATEGIC GROWTH AND FINANCING ADVICE REGARDING THE POTENTIAL VALUATION OF THE COMPANY AND ITS COMMON STOCK. IF ANY PORTION OR OPINION OF AN EXPERT OR COUNSEL IS QUOTED OR SUMMARIZED IN A REGISTRATION STATEMENT, THE NAME AND WRITTEN CONSENT OF THE EXPERT SHOULD BE FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT AND SHALL EXPRESSLY STATE THAT THE EXPERT OR COUNSEL CONSENTS TO SUCH QUOTATIONS OR SUMMARIZATION. WE REFER YOU TO RULE 436(A) UNDER THE SECURITIES ACT. PLEASE REVISE TO INCLUDE THE EXPERT'S NAME AND CONSENT. Response -------- The Company advises the Staff that it engaged Joseph Gunnar & Co., LLC, an independent investment bank and an NASD member in good standing ("JGUN"), in an advisory capacity in October 2005. JGUN has been principally involved in determining the estimated offering price of the Company's common stock in the proposed initial public offering in the normal course of the investment banking relationship; however, JGUN had no role in determining the valuation of the Company or its common stock at any other time or under any other circumstances. Accordingly, the Company respectfully submits that it believes that no reference to JGUN as an expert is required or appropriate. Nevertheless, to avoid any potential confusion in the IPO Prospectus, the Company has revised the above-referenced disclosures to remove such language. Please see pages 79 and F-41 of the IPO Prospectus. April 2, 2007 Page 17 RESULTS OF OPERATIONS, PAGES 31-34 ---------------------------------- REVENUE, COST OF REVENUE AND GROSS PROFIT, PAGE 32 -------------------------------------------------- 34. IN YOUR DISCUSSIONS OF THE RESULTS OF OPERATIONS, YOU SOMETIMES REFER TO TWO OR MORE SOURCES AS COMPONENTS THAT CONTRIBUTED TO A MATERIAL CHANGE. FOR EXAMPLE, ON PAGE 32 YOU ATTRIBUTE THE GROWTH IN REVENUE PRIMARILY TO ENGAGEMENTS WITH NEW CUSTOMERS AND NEW WORK WITH EXISTING CUSTOMERS. IN ADDITION, WE WOULD EXPECT FURTHER EXPLANATION AND QUANTIFICATION OF THE IMPACT ON YOUR OPERATIONS AND FINANCIAL POSITION CAUSED BY YOUR ACQUISITIONS WHICH YOU INDICATE HAVE BEEN AN IMPORTANT FACTOR IN YOUR GROWTH. REVISE TO DISCLOSE THROUGHOUT MD&A THE AMOUNT OF THE CHANGE THAT WAS CONTRIBUTED BY EACH OF THE FACTORS OR EVENTS THAT YOU IDENTIFY, INCLUDING ANY OFFSETTING FACTORS. SEE SECTION III.D OF SEC RELEASE 33-6835. Response -------- The above-referenced disclosures in Management's Discussion and Analysis have been revised to address the Staff's comment. Please see revised pages 37 to 42 of the IPO Prospectus. 35. IN YOUR DISCUSSION OF THE COST OF REVENUES FOR THE PERIODS PRESENTED, TELL US WHAT CONSIDERATION YOU HAVE GIVEN TO SEPARATELY DISCUSSING COST OF SALES FOR WEB SERVICES, MANAGED SERVICES AND SUBSCRIPTIONS SO THAT YOUR MD&A PRESENTATION CONFORMS WITH YOUR PRESENTATION WITHIN THE STATEMENT OF OPERATIONS. SEE ITEM 303(B)(1) OF REGULATION S-B. Response -------- The above-referenced disclosures in Management's Discussion and Analysis have been revised to address the Staff's comment. Please see revised pages 39 and 41 of the IPO Prospectus. SALES AND MARKETING EXPENSES, PAGES 32-34 ----------------------------------------- 36. IN YOUR DISCUSSION OF THE SALES AND MARKETING EXPENSES FOR THE PERIODS PRESENTED, TELL US WHAT CONSIDERATION YOU HAVE GIVEN TO DISCLOSING THE NUMBER OF ADDITIONAL PERSONNEL ACQUIRED IN CONJUNCTION WITH BOTH THE IAPPS AND NEW TILT ACQUISITIONS SO AS TO GIVE THE READER A BETTER UNDERSTANDING OF THE IMPACT OF THE ACQUISITIONS ON YOUR OPERATING EXPENSES WHEN COMPARING THE 2004 TO 2005 OPERATING PERIOD AND THE 2005 TO 2006 OPERATING PERIOD. April 2, 2007 Page 18 Response -------- The above-referenced disclosures in Management's Discussion and Analysis have been revised to address the Staff's comment. Please see revised pages 39 and 42 of the IPO Prospectus. LIQUIDITY AND CAPITAL RESOURCES ------------------------------- INVESTING ACTIVITIES, PAGE 35 ----------------------------- 37. WE NOTE THAT THE AMOUNTS INCLUDED IN THE AUDITED STATEMENT OF CASH FLOWS ON PAGE F-12, SPECIFICALLY, THE TOTAL OF "CASH USED IN OPERATING ACTIVITIES" AND THE TOTAL OF "CASH USED IN INVESTING ACTIVITIES" FOR THE PERIOD ENDED SEPTEMBER 30, 2006 DO NOT AGREE TO THE SAME INFORMATION AND AMOUNTS DISCLOSED ON PAGE 35. PLEASE REVISE TO CORRECT OR EXPLAIN THE DIFFERENCES. Response -------- The amount disclosed on the page 35 as referenced above was an error. The Company has revised and corrected its disclosure. Please see revised page 44 of the IPO Prospectus LIQUIDITY AND CAPITAL RESOURCES, PAGE 35 ---------------------------------------- INVESTING ACTIVITIES -------------------- 38. YOU INDICATE YOU EXPECT TO INCUR MORE COSTS FOR FUTURE ACQUISITIONS AND CAPITAL EXPENDITURES AS WELL AS CONTINGENT EARN-OUT PAYMENTS. REVISE YOUR LIQUIDITY DISCUSSION TO ADDRESS ANY REASONABLY LIKELY IMPACT OF THIS EXPECTATION ON SHORT OR LONG-TERM LIQUIDITY. SEE ITEM 303 (B)(1)(I) OF REGULATION S-B. Response -------- The above-referenced disclosures have been revised to address the Staff's comment. Please see revised page 44 of the IPO Prospectus. 39. WITHIN MD&A, ON PAGE 36, PLEASE DESCRIBE IN GREATER DETAIL THE NATURE AND FINANCIAL STATEMENT IMPACT OF THE MATERIAL WEAKNESS YOU IDENTIFIED IN YOUR RISK FACTOR DISCLOSURE ON PAGE 13. ADDRESS, WHEN THE MATERIAL WEAKNESS WAS IDENTIFIED, BY WHOM IT WAS IDENTIFIED AND WHEN THE MATERIAL WEAKNESS BEGAN. AS PART OF YOUR DISCLOSURES ADDRESS THE SPECIFIC STEPS YOU HAVE TAKEN TO DATE (OR PLAN TO TAKE) AND PROCEDURES YOU HAVE IMPLEMENTED (OR PLAN TO IMPLEMENT) TO CORRECT THE MATERIAL WEAKNESS. INDICATE WHEN EACH CORRECTIVE ACTION WAS COMPLETED OR IS EXPECTED TO BE COMPLETED. WHERE NEWLY CREATED April 2, 2007 Page 19 COMPANY POSITIONS HAVE NOT BEEN FILLED TO ADDRESS THE WEAKNESSES INDICATE HOW OTHER PROCEDURES OR PRACTICES ARE MITIGATING THE IMPACT OF THOSE UNFILLED POSITIONS. Response -------- The above-referenced disclosures have been revised to address the Staff's comment. Please see revised pages 45 and 46 of the IPO Prospectus. BUSINESS 40. SUPPLEMENTALLY PROVIDE US WITH MARKED COPIES OF THE DATA YOU CITE THAT YOU ATTRIBUTE TO HARTE-HANKS, INTERNATIONAL DATA CORPORATION, AND FORRESTER RESEARCH. TO EXPEDITE OUR REVIEW, CLEARLY MARK THE SOURCES TO HIGHLIGHT THE APPLICABLE PORTIONS OR SECTIONS CONTAINING THE STATISTICS AND CROSS-REFERENCE THEM TO THE APPROPRIATE LOCATION IN YOUR PROSPECTUS. TELL US WHETHER THE REPORTS YOU CITE ARE GENERALLY AVAILABLE TO THE PUBLIC AT NOMINAL OR NO PAYMENT. Response -------- Excerpts from the reports cited, each marked and cross-referenced as requested, are attached as Exhibit D to this letter. The Company believes that the reports are generally available to the public costs ranging from approximately $750 to approximately $3,000. 41. REGARDING THE FOUR ACQUISITIONS PRIOR TO THE PENDING ACQUISITION OF OBJECTWARE, PLEASE PROVIDE A BRIEF DISCUSSION OF HOW THESE ACQUISITIONS CONTRIBUTED TO YOUR BUSINESS STRATEGY AND IMPACTED YOUR BUSINESS OPERATIONS. WE NOTE YOUR BRIEF MENTION ON PAGE 53 THAT EACH OF THE BUSINESSES WAS A WEB APPLICATION DEVELOPMENT COMPANY; HOWEVER, IT IS UNCLEAR WHAT IMPACT THESE ACQUISITIONS HAD ON THIS OR OTHER ASPECT OF YOUR BUSINESS, AS DESCRIBED UNDER PRODUCTS AND SERVICES. BRIEFLY DESCRIBE THE EXPERIENCE OF INTEGRATING THE ACQUIRED BUSINESSES INTO YOUR EXISTING OPERATIONS. NOTE THAT THIS INFORMATION SHOULD BE DISCUSSED AS WELL, AND QUANTIFIED, IN MANAGEMENT'S DISCUSSION AND ANALYSIS. PLEASE REVISE ACCORDINGLY. Response -------- The above-referenced disclosures have been revised to address the Staff's comment. Please see revised pages 31, 49 and 62 of the IPO Prospectus, and under the Acquisition section of MD&A. 42. WE NOTE YOUR STATEMENTS ON PAGE 48 THAT YOUR SELLING PRICES AND USABILITY OR YOUR PRODUCTS COMPARE FAVORABLY WITH THOSE OF YOUR COMPETITORS. SPECIFICALLY WE NOTE YOUR STATEMENTS THAT SOLUTIONS SIMILAR TO YOURS "COST AS MUCH AS TWO TO TEN TIMES THE COST" OR April 2, 2007 Page 20 YOUR PRODUCT AND "TAKE TWO TO FOUR TIMES AS LONG TO IMPLEMENT." PROVIDE US WITH SUPPORT FOR THIS CLAIM AND SIMILAR CLAIMS SUCH AS THAT YOUR COMPETITORS' PRODUCTS "ARE COMPLEX AND ARE NOT AS EASILY IMPLEMENTED BY THE CUSTOMER'S TECHNOLOGY SUPPORT ORGANIZATION" AND THAT YOUR PRODUCT OFFERS CUSTOMERS "THE BEST POSSIBLE RETURN ON INVESTMENT AMONG THE LEADING CONTENT MANAGEMENT SOLUTIONS AVAILABLE IN THE MARKETPLACE." Response -------- The above-referenced disclosure has been revised to eliminate references to competitive pricing and competitive product features. Please see revised pages 48 to 54 of the IPO Prospectus. 43. TO THE EXTENT YOU RETAIN COMPARISONS CONCERNING THE PRICING OF YOUR PRODUCTS WITH THOSE OF YOUR COMPETITORS, PROVIDE DISCLOSURE REGARDING YOUR PRODUCT PRICING. Response -------- The above-referenced disclosure has been revised to eliminate references to competitive pricing. Please see revised pages 48 to 54 of the IPO Prospectus. 44. PLEASE EXPAND YOUR DISCUSSION OF CUSTOMERS TO DISCUSS YOUR DEPENDENCE ON NOMURA SECURITIES FOR 22% OF YOUR REVENUES. INCLUDE A DISCUSSION OF THE MATERIAL TERMS OF ANY RELATIONSHIP BETWEEN NOMURA SECURITIES AND YOU AND/OR YOUR SUBSIDIARY, BRIDGELINE SOFTWARE, PVT. LTD. Response -------- The above-referenced disclosures have been revised to address the Staff's comment. Please see revised page 61 of the IPO Prospectus. 45. DISCUSS THE ESTIMATED AMOUNT SPENT DURING EACH OF THE LAST TWO FISCAL YEARS ON RESEARCH AND DEVELOPMENT ACTIVITIES AND THE EXTENT TO WHICH THE COST OF SUCH ACTIVITIES ARE BORNE DIRECTLY BY CUSTOMERS. SEE ITEM 101(B)(10). Response -------- The above-referenced disclosure has been revised to address the Staff's comment. Please see revised page 59 of the IPO Prospectus. 46. WE NOTE THAT YOU INCLUDE AS ONE OF THE BENEFITS OF MERGING WITH YOUR COMPANY "IMPROVED INTERNAL CONTROLS AND REPORTING." BECAUSE YOU HAVE IDENTIFIED MATERIAL April 2, 2007 Page 21 WEAKNESSES IN YOUR INTERNAL CONTROL OVER FINANCIAL REPORTING, IT IS UNCLEAR WHY ACQUISITION TARGETS WOULD EXPECT THEIR INTERNAL CONTROLS AND REPORTING TO IMPROVE AS A RESULT OF MERGING WITH YOU. PLEASE EXPLAIN. Response -------- The above-referenced disclosure has been revised to eliminate references to improved internal controls and reporting. Please see revised page 62 of the IPO Prospectus. 47. PLEASE TELL US HOW THE LIST OF CUSTOMERS FOR OBJECTWARE WAS SELECTED. WERE THEY THE SEVEN TOP REVENUE-PRODUCING CUSTOMERS DURING A PARTICULAR PERIOD OR WERE THEY SELECTED ON SOME OTHER BASIS? PLEASE ADVISE. Response -------- The above-referenced disclosure has been revised to eliminate any references to Objectware's customer names. Please see revised page 63 of the IPO Prospectus. 48. PLEASE REVISE YOUR COMPETITION DISCUSSION ON PAGE 55 TO PROVIDE MORE SPECIFICITY REGARDING THE PRINCIPAL METHODS OF COMPETITION, FOR EXAMPLE, PRODUCT RANGE, PERFORMANCE, QUALITY, RELIABILITY, EXPERTISE, PRICE, ETC. FURTHER, TO THE EXTENT POSSIBLE, DISCUSS ANY POSITIVE OR NEGATIVE FACTORS KNOWN TO YOU PERTAINING TO YOUR COMPETITIVE POSITION WITH REGARD TO THE PRINCIPAL METHODS OF COMPETITION YOU IDENTIFY. DISCUSS WHICH COMPETITIVE FACTORS YOU BELIEVE YOUR PRODUCTS OUTPERFORM THOSE OF YOUR COMPETITORS (SUCH AS PRICING AND EASE OF USE, WHICH YOU DISCUSS IN THE BUSINESS SECTION). AS PRESENTLY DRAFTED, YOUR DISCUSSION OFFER LITTLE UNDERSTANDING OF YOUR COMPETITIVE POSITION WITHIN THE INDUSTRY. Response -------- The above-referenced disclosures have been revised to address the Staff's comment. Please see revised pages 65 and 66 of the IPO Prospectus. 49. DISCLOSE THE NUMBER OF EMPLOYEES IN THE WHOLLY OWNED SUBSIDIARY OF BRIDGELINE SOFTWARE, PVT. LTD. ALSO, CONSIDER WHETHER THERE ARE ANY MATERIAL RISKS ASSOCIATED WITH YOUR SOFTWARE DEVELOPMENT CENTER HEADQUARTERED IN INDIA THAT SHOULD BE DISCUSSED. April 2, 2007 Page 22 Response -------- The above-referenced disclosures have been revised to address the Staff's comment. Please see revised page 67, and the new risk factor included on page 15, of the IPO Prospectus. MANAGEMENT ---------- UNDERWRITING ------------ 50. WE NOTE THAT YOU REFER TO THE "UNDERWRITERS" AND "LEAD UNDERWRITER" WHEN JOSEPH GUNNAR & CO., LLC IS LISTED AS THE ONLY UNDERWRITER. PLEASE ADVISE OR REVISE. Response -------- As set forth in the opening paragraph of the Underwriting section of the IPO Prospectus, under the terms and subject to the conditions contained in an underwriting agreement, Joseph Gunnar & Co., LLC is acting as representative for certain underwriters, which have severally agreed to purchase certain numbers of shares of common stock offered in this offering. The term "underwriters" refers to all such underwriters, including Joseph Gunnar & Co., LLC, the lead underwriter of the underwriting syndicate. ALTERNATE PAGES FOR SELLING SHAREHOLDER PROSPECTUS -------------------------------------------------- COVER PAGE ---------- 51. PLEASE INCLUDE THE TOTAL NUMBER OF SHARES TO BE INCLUDED IN THE RESALE REGISTRATION STATEMENT. Response The above-referenced disclosure has been revised to address the Staff's comment. Please see the revised cover page of the Selling Shareholder Prospectus. 52. PLEASE ENSURE THAT YOU REFER TO THE INITIAL PUBLIC OFFERING OF 3 MILLION SHARES OF COMMON STOCK, WHICH IS EXPECTED TO BE COMPLETED PRIOR THE RESALE OF COMMON STOCK BY THE SELLING SHAREHOLDERS. Response -------- The above-referenced disclosure has been revised to address the Staff's comment. Please see the revised cover page of the Selling Shareholder Prospectus. April 2, 2007 Page 23 53. BECAUSE YOU INDICATE THAT THE RESALE OFFERING WILL NOT COMMENCE UNTIL THE EXPIRATION OF SIX MONTHS FROM THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT, IT APPEARS THE SECOND PARAGRAPH DISCUSSING THE MARKET FOR YOUR COMMON STOCK SHOULD BE REVISED TO REFLECT THE CIRCUMSTANCES THAT WOULD EXIST WHEN THE RESALE OFFERING COMMENCES. Response -------- The above-referenced disclosure has been revised to address the Staff's comment. Please see the revised cover page of the Selling Shareholder Prospectus. SELLING STOCKHOLDERS, PAGE ALT-4 -------------------------------- 54. PLEASE INDICATE THE DATE AS OF WHICH THE STOCKHOLDERS INFORMATION IS PROVIDED. Response -------- The above-referenced disclosure has been revised to address the Staff's comment. Please see revised page Alt. 79 of the Selling Shareholder Prospectus. 55. PLEASE IDENTIFY THE NATURAL PERSON OR PERSONS HAVING VOTING AND/OR INVESTMENT CONTROL OVER EACH OF THE SELLING STOCKHOLDER ENTITIES. SEE INTERPRETATION 4S OF THE REGULATION S-K PORTION OF THE MARCH 1999 SUPPLEMENT TO THE PUBLICLY AVAILABLE TELEPHONE INTERPRETATION MANUAL, AS WELL AS INTERPRETATION I.60 OF THE JULY 1997 VERSION OF THE TELEPHONE INTERPRETATION MANUAL. THIS INFORMATION CAN BE DISCLOSED IN FOOTNOTES TO THE SELLING SHAREHOLDER TABLE. Response -------- The above-referenced disclosures have been revised to address the Staff's comment. Please see revised page Alt. 80 of the Selling Shareholder Prospectus. 56. WE NOTE THAT JOSEPH GUNNAR IS LISTED AS A SELLING SHAREHOLDER AND IS A BROKER-DEALER. TELL US WHETHER ANY OF THE OTHER SELLING SHAREHOLDERS ARE BROKER-DEALERS OR AFFILIATES OF A REGISTERED BROKER-DEALER. FOR ALL BROKER-DEALERS, ADVISE US WHETHER THEIR SHARES WERE RECEIVED AS COMPENSATION FOR INVESTMENT BANKING SERVICES OR AS INVESTMENT SHARES. April 2, 2007 Page 24 Response -------- The Company advises the Staff that Joseph Gunnar & Co., LLC is a registered broker-dealer. The shares held by Joseph Gunnar & Co. were received as compensation for investment banking services. The Company further advises the Staff that, to its knowledge, the following selling shareholders are affiliated with a registered broker-dealer: o Christopher P. Baker, affiliated with C.P. Baker Securities, Inc. o Robert A. McLemore, affiliated with Winslow, Evans & Croker o Joseph A. Alagna, Joseph Duarte, Michael Mondiello, Bradford Pine, Anthony Sica, Stephan A. Stein, Abner Zalaznick, Nicholas Lobasso and Gary Saccaro are affiliated with Joseph Gunnar & Co. 57. TO THE EXTENT ANY OF THE SELLING SHAREHOLDERS ARE AFFILIATES OF BROKER-DEALERS, DISCLOSE WHETHER THE SELLERS PURCHASED THE SHARES IN THE ORDINARY COURSE OF BUSINESS AND AT THE TIME OF THE PURCHASE OF THE SECURITIES TO BE RESOLD, THE SELLERS HAD ANY AGREEMENTS OR UNDERSTANDINGS, DIRECTLY OR INDIRECTLY, WITH ANY PERSON TO DISTRIBUTE THE SECURITIES. Response -------- The Company advises the Staff that, to its knowledge, the selling shareholders referenced in the comment received the shares as compensation in the ordinary course of business and, to its knowledge, no such selling shareholders had any agreements or understandings, directly or indirectly, with any person to distribute such securities. 58. PLEASE INCLUDE THE SELLING SHAREHOLDER INFORMATION REQUIRED BY ITEM 507 OF REGULATION S-B. PROVIDE A DETAILED INTRODUCTORY DESCRIPTION OF THE TRANSACTION BY WHICH EACH OF THE SELLING SECURITY HOLDERS IN THE TABLE ACQUIRED THEIR SHARES AND INCLUDE A MATERIALLY COMPLETE DESCRIPTION OF THE WARRANTS. Response -------- The above-referenced disclosures have been revised to address the Staff's comment. Please see the revised pages Alt. 79 and 80 of the Selling Shareholder Prospectus. 59. WE NOTE YOUR DISCUSSION REGARDING SHORT SALES. PLEASE SUPPLEMENTALLY CONFIRM THAT YOU ARE AWARE OF CORPORATION FINANCE TELEPHONE INTERP. A. 65 (JULY 1997) ON THIS ISSUE, WHICH IS PUBLICLY AVAILABLE ON OUR WEBSITE. April 2, 2007 Page 25 Response -------- The Company confirms to the Staff that it is aware of Telephone Interp. A. 65 (July 1997). ACCOUNTING COMMENTS UNAUDITED COMBINED PRO FORMA CONDENSED FINANCIAL STATEMENTS, PAGES F-3 TO F-7 60. IN THE PREPARATION OF YOUR PRO FORMA FINANCIAL STATEMENTS, WE NOTE YOU HAVE INCLUDED EXPECTED CASH PROCEEDS TO BE RECEIVED IN THE OFFERING. IN ACCORDANCE WITH RULE 170, FINANCIAL STATEMENTS WHICH GIVE EFFECT TO THE RECEIPT AND APPLICATION OF ANY PART OF THE PROCEEDS FROM THE SALE OF SECURITIES FOR CASH SHALL NOT BE USED UNLESS SUCH SECURITIES ARE TO BE OFFERED THROUGH UNDERWRITERS AND THE UNDERWRITING ARRANGEMENTS ARE SUCH THAT THE UNDERWRITERS ARE OR WILL BE COMMITTED TO TAKE AND PAY FOR ALL OF THE SECURITIES, IF ANY ARE TAKEN, PRIOR TO OR WITHIN A REASONABLE TIME AFTER THE COMMENCEMENT OF THE PUBLIC OFFERING, OR IF THE SECURITIES ARE NOT SO TAKEN TO REFUND TO ALL SUBSCRIBERS THE FULL AMOUNT OF ALL SUBSCRIPTION PAYMENTS MADE FOR THE SECURITIES. THE CAPTION OF ANY SUCH FINANCIAL STATEMENT SHALL CLEARLY SET FORTH THE ASSUMPTIONS UPON WHICH SUCH STATEMENT IS BASED. THE CAPTION SHALL BE IN TYPE AT LEAST AS LARGE AS THAT USED GENERALLY IN THE BODY OF THE STATEMENT. PLEASE REVISE TO MAKE THE REQUIRED DISCLOSURES WITHIN YOUR PRO FORMA FINANCIAL STATEMENTS. Response -------- The above-referenced disclosures have been updated to address the Staff's comment. Please see the revised pro forma financial statements on pages F-3, F-7, F-9 and F-14 of the IPO Prospectus. 61. PLEASE UPDATE THE PRO FORMA FINANCIAL STATEMENTS PROVIDED THROUGH THE INTERIM PERIOD ENDED DECEMBER 31, 2006 AS REQUIRED UNDER ITEM 310(D) OF REGULATION S-B. Response -------- The above-referenced disclosures have been updated to address the Staff's comment. Please see the revised pro forma financial statements on pages F-4 to F-10 of the IPO Prospectus. 62. REVISE THE INTRODUCTORY PARAGRAPH WHICH DESCRIBES THE PRELIMINARY NATURE OF THE PURCHASE ACCOUNTING ADJUSTMENTS FOR THE OBJECTWARE, INC. ACQUISITION TO ADDRESS WHEN THE COMPANY EXPECTS THE ALLOCATION TO BE FINALIZED. FURTHER, DESCRIBE ANY CONTINGENCIES WHICH MAY POTENTIALLY IMPACT THE INFORMATION BEING PRESENTED. Response -------- April 2, 2007 Page 26 The above-referenced disclosures have been revised to address the Staff's comment. Please see the revised pro forma financial statements on pages F-4 to F-10 of the IPO Prospectus. UNAUDITED COMBINED PRO FORMA CONDENSED BALANCE SHEET, PAGE F-4 -------------------------------------------------------------- 63. WE NOTE THE INDIVIDUAL AMOUNTS WITHIN THE "PROBABLE ACQUISITION" COLUMN IN THE AGGREGATE DO NOT EQUAL TO THE $1.856 MILLION TOTAL ASSET AMOUNT DISCLOSED. PLEASE EXPLAIN AND REVISE. Response -------- The Company advises the Staff that the inconsistency noted was an inadvertent typographical error. The correct number at September 30, 2006 should have been $1.895 million. The Company also advises the Staff that the Unaudited Combined Pro Forma Condensed Balance Sheet as of September 30, 2006 has been superseded by the Unaudited Combined Pro Forma Condensed Balance Sheet as of December 31, 2006 in the IPO Prospectus. NOTES TO THE UNAUDITED COMBINED PRO FORMA CONDENSED BALANCE SHEET, PAGE F-5 --------------------------------------------------------------------------- 64. REVISE THE PRESENTATION TO PRESENT A SEPARATE COLUMN FOR THE ADJUSTMENTS RELATED TO THE PROCEEDS FROM THE OFFERING. THE CURRENT PRESENTATION NETTING AMOUNTS AND ADJUSTMENTS FROM THE ACQUISITION AND THE OFFERING AND USE OF PROCEEDS DOES NOT CLEARLY CONVEY TO A READER THE SEPARATE EFFECTS OF EACH OF THE OFFERING AND OBJECTWARE, INC. ACQUISITION. SEE RULE 11.02(4) OF REGULATION S-X. Response -------- The above-referenced disclosures have been revised to address the Staff's comment. Please see the revised pro forma financial statements on pages F-4, F-8 and F-11 of the IPO Prospectus. 65. REVISE TO INCLUDE A PRO FORMA NOTE WHICH GIVES EFFECT TO THE PROPOSED BUSINESS COMBINATION WITH OBJECTWARE, INC. BY DISCLOSING THE ALLOCATION OF THE PURCHASE PRICE ADJUSTING THE ASSETS AND LIABILITIES TO FAIR VALUE AND RECOGNITION OF INTANGIBLES AND IDENTIFYING THE RELATED USEFUL LIVES AND AMORTIZATION METHODS RELATED TO THE INTANGIBLES. FURTHER, PRO FORMA NOTE 3(A), NOTE TO THE PRO FORMA STATEMENT OF OPERATIONS SHOULD SHOW HOW THE CHANGES IN DEPRECIATION AND AMORTIZATION WERE DETERMINED. PROVIDE IN THE NOTE A SCHEDULE SHOWING THE CALCULATION OF THE ANTICIPATED PURCHASE PRICE INCLUDING NON-CASH CONSIDERATION. April 2, 2007 Page 27 Response -------- The above-referenced disclosures have been revised to address the Staff's comment. Please see the revised pro forma financial statement footnote on page F-5 of the IPO Prospectus. 66. EXPLAIN TO US THE AUTHORITATIVE ACCOUNTING BASIS, AND PROVIDE THE SUPPORTING COMPUTATION FOR THE DEFERRED REVENUE ADJUSTMENTS OF $60 IN NOTE 2(G) AND $312 IN NOTE 2(H). Response -------- The Company advises the Staff that the $60 and $312 represent the current and long-term component of revenue from services provided to a certain customer, which revenue is being deferred as a result of extended payment terms of approximately 4 years that were granted to that customer in 2005 and 2006. There are no services remaining to be delivered in connection with the revenue deferred. Accordingly, such deferred revenue of Objectware does not represent a legal performance obligation of the Company (as acquirer). The Company therefore respectfully submits that such deferred revenue should not be recognized as a liability consistent with paragraph 5 of EITF 01-3, "Accounting in a Business Combination for Deferred Revenue of an Acquiree". The Company has revised Note 2(e) and (f) to the Unaudited Combined Pro Forma Condensed Balance Sheet at December 31, 2006. Please see page F-6 of the IPO Prospectus. 67. EXPLAIN THE AUTHORITATIVE ACCOUNTING BASIS FOR THE COST AMORTIZATION AMOUNTS ADJUSTED THROUGH ACCUMULATED EARNINGS RESULTING FROM ADJUSTMENTS IN NOTES 2(C) AND (G). Response -------- The Company respectfully presumes that the Staff's comment refers to Notes 2(c) and (f), which have been re-sequenced to Notes 3(k) and (l). The Company has revised those notes to clarify the Company's accounting. Please see pages F-6 and F-7 of the IPO Prospectus. Because the pro forma presentation assumes the repayment of the Senior Notes prior to their contractual maturity, any unamortized deferred financing fees and or debt discount would be charged to earnings at that time. The Company respectfully submits that this treatment is consistent with APB 26, "Early Extinguishment of Debt". UNAUDITED COMBINED PRO FORMA STATEMENT OF OPERATIONS, PAGE F-6 -------------------------------------------------------------- 68. WE NOTE THE INDIVIDUAL REVENUE AMOUNTS IDENTIFIED IN THE "PROBABLE ACQUISITION" COLUMN DO NOT AGREE TO THE AUDITED FINANCIAL STATEMENTS FOR OBJECTWARE AS DISCLOSED ON PAGE F-41. Response -------- April 2, 2007 Page 28 The Company advises the Staff that the inconsistency noted was the result of an inadvertent typographical error, which has now been corrected. Please see pages F-8 and F-11 of the IPO Prospectus. The Company further advises the Staff that it has not separately categorized reimbursable expenses in the Unaudited Combined Pro Forma Condensed Statement of Operations because the amounts are insignificant. NOTES TO THE UNAUDITED COMBINED PRO FORMA STATEMENT OF OPERATIONS, PAGE F-7 --------------------------------------------------------------------------- 69. WITHIN PRO FORMA NOTE 1 YOU INDICATE THAT THE "CONSUMMATED ACQUISITION" INFORMATION PRESENTED FOR NEW TILT IS REFLECTIVE OF THE OPERATING RESULTS FOR THE PERIOD BEGINNING OCTOBER 1, 2005 THROUGH DECEMBER 31, 2005, AS DERIVED FROM THE AUDITED FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 2005, WITH THESE RESULTS COMBINED WITH THE AUDITED RESULTS OF OPERATIONS FROM JANUARY 1, 2006 THROUGH THE DATE OF ACQUISITION. AFTER REVIEWING THE AUDITED FINANCIAL STATEMENTS INCLUDED IN THE REGISTRATION STATEMENT FOR NEW TILT (I.E. BEGINNING ON PAGE F-55), TELL US HOW YOU WERE ABLE TO DERIVE THE OPERATING RESULTS FOR THE PERIOD BEGINNING OCTOBER 1, 2005 THROUGH THE DECEMBER 31, 2005 TIMEFRAME FROM THE AUDITED FINANCIAL STATEMENTS PRESENTED FOR THE FISCAL PERIOD ENDED DECEMBER 31, 2005. Response The Company advises the Staff that it has determined that the above-referenced disclosures require clarification to accurately reflect the process by which the Company derived the operating results for the period in question. The Company acquired New Tilt on April 24, 2006 and the pro forma amounts represent the historical pre-acquisition operating results of New Tilt for the period October 1, 2005 to December 31, 2005, which were derived from the accounting records of New Tilt for the period of October 1, 2005 to December 31, 2005. These results have been combined with New Tilt's audited results of operations from January 1, 2006 through the date of acquisition to provide the pro forma results. The disclosure has been updated on page F-12 of the IPO Prospectus. 70. REVISE TO INCLUDE A PRO FORMA NOTE WHICH DETAILS THE NEW TILT PURCHASE PRICE ALLOCATION RECORDED. THE ALLOCATION OF THE PURCHASE PRICE WOULD IDENTIFY HOW THE ASSETS AND LIABILITIES WERE ADJUSTED TO FAIR VALUE AND WOULD IDENTIFY THE INTANGIBLES RECORDED. YOU SHOULD ALSO DISCLOSE THE RELATED USEFUL LIVES OF THESE INTANGIBLES. FURTHER, PRO FORMA NOTE 3(A)(I) SHOULD SHOW HOW THE CHANGES IN DEPRECIATION AND AMORTIZATION WERE DETERMINED AS IT RELATES TO NEW TILT. THIS INFORMATION WOULD ENABLE THE READER TO MORE FULLY UNDERSTAND THE PRO FORMA ADJUSTMENTS BEING MADE AS THEY RELATE TO NEW TILT. April 2, 2007 Page 29 Response -------- The above-referenced disclosures have been revised to address the Staff's comment. Please see the revised page F-12 of the IPO Prospectus. 71. PROVIDE ANALYSIS OF EACH OF THE PRO FORMA ADJUSTMENTS IN NOTE 3 WHICH ADDRESS THE DIFFERENCES IN ACCOUNTING POLICIES AND RECLASSIFICATIONS BETWEEN NEW TILT, OBJECTWARE, INC. AND THE COMPANY AND HOW YOU ARE ACCOUNTING FOR THESE DIFFERENCES. EXPLAIN THE AUTHORITATIVE BASIS FOR THE ACCOUNTING AND RECLASSIFICATION DIFFERENCES AND WHETHER THEY REPRESENT APPROPRIATE ACCOUNTING TREATMENTS OF THE ACQUIRED COMPANIES OR ARE CORRECTION OF ERRORS OF THE ACQUIRED COMPANIES. Response -------- The Company advises the Staff that, in accordance with SFAS 123R, New Tilt recognized stock based compensation of $19,000. The Company accounts for stock based compensation in accordance with APB 25 and the disclosure only provisions of SFAS 123. Had New Tilt accounted for such costs in accordance with ABP 25, it would have recognized stock based compensation of $0 because there was no intrinsic value associated with any options issued. With regard to Note 3(a)(iii), we further advise the Staff that, in accordance with Objectware's accounting policy, cost of sales consists of direct labor and contract labor. The Company's cost of sales includes direct labor, contract labor and associated overhead costs. The Company intends to conform Objectware's accounting policy to the Company's upon closing of the acquisition. The Company believes that the usefulness of the pro forma financial statements is enhanced by the adjustments noted above. 72. REVISE NOTE 3(A)(III) TO EXPLAIN WHICH COMPANY EXPENSES ARE BEING RECLASSIFIED AND WHY. EXPLAIN THE AUTHORITATIVE BASIS FOR THE ACCOUNTING AND RECLASSIFICATION DIFFERENCES AND WHETHER THEY REPRESENT APPROPRIATE ACCOUNTING TREATMENTS OF THE ACQUIRED COMPANIES OR ARE CORRECTION OF ERRORS OF THE ACQUIRED COMPANIES. Response -------- The Company respectfully requests the Staff to please refer to its response to comment 71 above regarding the allocation of overhead. 73. NOTE 3(B) ADJUSTMENTS DO NOT LINE UP WITH THE DESCRIPTIONS. PLEASE REVISE. April 2, 2007 Page 30 Response -------- The above-referenced adjustments have been revised to correct the formatting. Please see pages F-6, F-7, F-9, F-13 and F-14 of the IPO Prospectus. 74. NOTES 3(B)(I) AND (V) REFLECTING A DECREASE IN SALARY FOR AN EXPECTED CONTRACTUAL RATE AFTER THE ACQUISITION AND DECREASE IN AUDIT FEES IS APPROPRIATE ONLY IF THE DECREASES WERE NEGOTIATED AS PART OF THE ACQUISITION, DIRECTLY ATTRIBUTABLE TO THE ACQUISITION, FACTUALLY SUPPORTABLE AND EXPECTED TO HAVE A CONTINUING IMPACT. PLEASE REMOVE THE ADJUSTMENTS OR TELL US WHY THEY ARE APPROPRIATE. SEE RULE 11-02(B)(6) OF REGULATION S-X. Response -------- The Company advises the Staff that for the fiscal year ended September 30, 2006, the owner of Objectware received compensation of $457,692. In accordance with the merger agreement, the owner will execute a negotiated employment agreement with a contractual annual compensation, including salary and bonus, aggregating to a maximum of $250,000. The Company further advises the Staff that the audit fees recorded in the year ended September 30, 2006 include costs associated with stand-alone audits of New Tilt and Objectware. The costs of the stand-alone audits were approximately $95,000 and $145,000 for New Tilt and Objectware, respectively. The pro forma adjustment reflects the fact that such stand alone audits will not be required in subsequent periods. 75. REVISE PRO FORMA NOTE 5 TO ADDRESS WHY THE DILUTED NUMBER OF WEIGHTED AVERAGE SHARES IS DIFFERENT FROM THE BASIC NUMBER OF WEIGHTED AVERAGE SHARES. PROVIDE US WITH THE COMPUTATIONS SUPPORTING THE PRO FORMA COMBINED PER SHARE AMOUNTS. Response -------- The Company advises the Staff that it has revised the footnote disclosure to fully explain the diluted effect of stock option and warrants under the treasury stock method. Please see revised page F-14 of the IPO Prospectus. The summary computation of the fully diluted shares outstanding are as follows: April 2, 2007 Page 31 Pro Forma September 30, 2006 ------------------ Basic shares outstanding 8,039,409 Dilutive effect of: Options 432,432 Warrants 166,546 --------- Fully diluted shares 8,638,387 ========= FINANCIAL STATEMENTS - BRIDGELINE SOFTWARE, INC. ------------------------------------------------ GENERAL ------- 76. PLEASE INCLUDE UPDATED INTERIM PERIOD FINANCIAL INFORMATION FOR THE MOST RECENT QUARTERLY PERIOD ENDED DECEMBER 31, 2006 AS REQUIRED BY ITEM 310(G) OF REGULATION S-B. Response -------- The above-referenced interim period financial information has been provided to address the Staff's comment. Please see revised pages F-16 to F-19 of the IPO Prospectus. NOTES TO THE FINANCIAL STATEMENTS --------------------------------- NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION, OPERATING MATTERS AND -------------------------------------------------------------------------------- GOING CONCERN, PAGE F-13 ------------------------ 77. REVISE TO DISCLOSE THE FINANCIAL DIFFICULTIES THAT HAVE GIVEN RISE TO THE UNCERTAINTY OF THE COMPANY AS A GOING CONCERN. DISCUSSION OF A VIABLE PLAN THAT HAS THE CAPABILITY OF REMOVING THE THREAT TO THE CONTINUATION OF THE BUSINESS SHOULD BE INCLUDED IN YOUR REVISED DISCLOSURES. DISCLOSE YOUR VIEW THAT THE PLAN SHOULD ENABLE THE COMPANY TO REMAIN VIABLE FOR AT LEAST THE 12 MONTHS FOLLOWING THE DATE OF THE FINANCIAL STATEMENTS BEING REPORTED ON. REVISED DISCLOSURE IN NOTE 1 AND MANAGEMENT'S DISCUSSION AND ANALYSIS SHOULD ADDRESS ALL THE RELEVANT DISCLOSURE REQUIREMENTS NOTED IN THE CODIFIED FINANCIAL REPORTING RELEASE 607.02. "UNCERTAINTY ABOUT AN ENTITY'S CONTINUED EXISTENCE." April 2, 2007 Page 32 Response The above-referenced disclosures have been revised to address the Staff's comment. Please see revised pages F-20 to F-21 of the IPO Prospectus. NOTE 2 REVENUE RECOGNITION, PAGE F-14 ------------------------------------- 78. FROM YOUR DESCRIPTION OF REVENUE ELEMENTS INCLUDED IN YOUR STATEMENT OF OPERATIONS WE NOTE THAT PERPETUAL SOFTWARE LICENSES ARE INCLUDED IN BOTH WEB SERVICES AND SOFTWARE LICENSES AND SUBSCRIPTIONS. WE ALSO NOTE YOU BELIEVE VSOE AND "THIRD PARTY EVIDENCE OF FAIR VALUE" ARE INTERCHANGEABLE ACCOUNTING MODELS BUT IT IS NOT CLEAR WHETHER YOU ARE DISCUSSING FAIR VALUE DETERMINATION FOR MULTIPLE-ELEMENT ARRANGEMENTS UNDER EITF 00-21, SAB 104 OR SOP 97-2. YOU ALSO DISCLOSE THE USE OF THE RESIDUAL METHOD BUT IT IS NOT CLEAR AGAIN WHETHER YOU ARE APPLYING THAT METHOD UNDER SAB 104, EITF 00-21 OR SOP 97-2. YOUR HEAD NOTE, "REVENUE RECOGNITION," DISCLOSES VARIOUS REVENUE RECOGNITION MODELS USED FOR YOUR PRODUCTS AND SERVICES HOWEVER THESE MODELS ARE NOT CLEARLY ASSOCIATED WITH THE CAPTION DESCRIPTIONS OF "WEB SERVICES," "MANAGED SERVICES," "SOFTWARE LICENSES AND SUBSCRIPTIONS" AND "MULTIPLE-ELEMENT ARRANGEMENTS" AND ELEMENTS INCLUDED IN THOSE CAPTIONS. IN ADDITION TO THE SPECIFIC COMMENTS THAT FOLLOW, PLEASE PROVIDE THE STAFF WITH A TABULAR ANALYSIS OF EACH OF YOUR PRODUCT AND SERVICE OFFERINGS WHEN SOLD SEPARATELY AND IN BUNDLED ARRANGEMENTS. THE ANALYSIS SHOULD EXPLAIN THE RELEVANT ACCOUNTING LITERATURE FOLLOWED, THE BASIS FOR CLASSIFICATION IN YOUR STATEMENT OF OPERATIONS AND INDICATE THE POINT IN TIME THAT REVENUE IS RECOGNIZED AND THE BASIS FOR ANY REVENUE DEFERRAL. Response -------- The Company respectfully submits that it does not believe that VSOE of fair value and third party evidence of fair value are interchangeable; rather, when accounting for multiple element arrangements under EITF 00-21, if the higher standard of VSOE of fair value is not attainable, the Company applies the fair value standard as allowed by EITF 00-21. The Company has revised the disclosures in Note 2 to the financial statements to clarify this point. Please see revised page F-23 of the IPO Prospectus. With respect to the use of the residual method, the Company respectfully submits that such method is only used in multiple element arrangements under the guidance of EITF 00-21, whereby VSOE of fair value or if VSOE of fair value is not readily attainable, third party evidence of fair value of the undelivered element is attained and the value ascribed to the delivered element (generally the Web Services) is recognized in accordance with the residual method resulting from the difference between the total consideration in the arrangement less the VSOE or third party evidence of fair value of the undelivered elements. April 2, 2007 Page 33 The Company invoices customers in accordance with negotiated terms. In instances in which the Company invoices in advance of delivering the applicable services pursuant to an arrangement (i.e., hosting and subscription arrangements or progress billings on Web Services arrangements), it accounts for such billings as deferred revenue. The Company only recognizes revenue when services have been delivered and where applicable, accepted, and the earning process is complete in accordance with its revenue recognition policies described in Note 2 to the financial statements. Attached as Exhibit E to this letter is a tabular analysis of the Company's products and services when sold separately and in bundled arrangements. 79. INCLUDE IN YOUR ANALYSIS HOW YOU HAVE YOU HAVE ESTABLISHED VSOE FOR EACH OF THE ELEMENTS INCLUDED IN MULTI-ELEMENT ARRANGEMENTS. IF YOU USE CONTRACT ACCOUNTING FOR SOFTWARE ARRANGEMENTS ADDRESS THE CRITERIA IN PARAGRAPHS 70 AND 71 OF SOP 97-2 TO SUPPORT USE OF CONTRACT ACCOUNTING FOR ARRANGEMENTS THAT REQUIRE SIGNIFICANT PRODUCTION, MODIFICATION AND CUSTOMIZATION OF SOFTWARE. Response -------- In accordance with EITF 00-21 the Company believes the burden is to establish third party evidence of fair value where VSOE of fair value is not attainable. In the Company's multiple element arrangements, the undelivered elements are generally the Company's Orgitecture subscriptions, hosting arrangements and Managed Services. The Company establishes third party evidence of fair value for these undelivered elements using standard price lists which are not discounted for any customer. The standard price lists provide a narrow range of pricing within the categories (i.e., resource category for billable labor, bandwidth, support desk) of the services to be delivered. When a multiple element arrangement includes a perpetual license product (i.e., netEditor) the revenue related to NetEditor (i.e., the delivered elements) is recognized upon achievement of all applicable criteria set forth in SOP 97-2. With regard to sales of its licensed products, the Company has revised its disclosure to eliminate any potential confusion since its Web Services never involve significant production, modification or customization of the licensed products. Please see pages F-22 to F-23 of the IPO Prospectus. Following EITF 00-21, the Company recognizes revenue from multiple elements using the residual method whereby the value ascribed to the delivered element (usually the Web Service) is equal to the total consideration less the VSOE of fair value or third party evidence of fair value of the undelivered element. April 2, 2007 Page 34 80. FOR ANY RIGHTS OF RETURNS TO YOUR CUSTOMERS OR END USERS TELL US HOW AND DISCLOSE HOW YOUR ACCOUNTING COMPLIES WITH SFAS 48. Response -------- The Company advises the Staff that, as is customary with industry practice, the Company does not provide a right of return for any product or services. In the rare instances in which customers raise concerns over delivered products or services, the Company attempts to remedy the concerns. All costs to date related to such instances have been insignificant and therefore the Company has established no reserve. 81. WE NOTE THAT YOU ACCOUNT FOR YOUR STAND-ALONE WEB SERVICES FIXED FEE ARRANGEMENTS UNDER A PROPORTIONAL PERFORMANCE MODEL USING AN INPUT METHOD BASED ON COSTS INCURRED IN RELATION TO TOTAL ESTIMATED COSTS AT COMPLETION. YOUR ACCOUNTING FOR THESE FIXED FEE CONTRACTS DOES NOT APPEAR TO COMPLY WITH THE GUIDANCE WITHIN SAB 104 REGARDING THE USE OF A PROPORTIONAL PERFORMANCE MODEL. AN OUTPUT-BASED APPROACH WOULD GENERALLY BE UTILIZED AS OPPOSED TO AN INPUT-BASED APPROACH WHICH UTILIZES A COST-TO-COST MODEL. WE REFERENCE THE CORPORATION FINANCE CURRENT ACCOUNTING AND DISCLOSURE ISSUES UPDATED ON NOVEMBER 30, 2006. TELL US THE AMOUNT OF REVENUES DERIVED FROM THESE FIXED FEE SERVICE ARRANGEMENTS DURING THE FISCAL AND INTERIM FINANCIAL PERIODS PRESENTED. Response -------- The Company respectfully submits that management believes that labor costs are the appropriate measure for the proportional performance model in measuring Web Services revenue, because projects are priced based upon estimated labor hours and labor rates. Although a portion of the Company's fixed fee Web Services projects reference milestones in statements of work, such references are considered as a billing criteria and not a valid basis for revenue recognition by management. The Company's fixed fee Web Services engagements are typically of short duration (averaging approximately 160 days or less) and therefore the period of time between milestones as an output approach would principally mirror the Company's input computations under the proportional performance model. In instances in which Web service arrangements are terminated by customers prior to completion of any or all milestones, the customer is contractually obligated to pay for services up to the day of termination. Attached as Exhibit E to this letter is an analysis separating the revenues derived from fixed fee service arrangements between typical Web services and arrangements that reference milestones during the fiscal and interim periods presented. 82. TELL US HOW YOU DETERMINE WHAT CONSTITUTES YOUR NORMAL CUSTOMARY PAYMENT TERM. PROVIDE AN ANALYSIS THAT SUPPORTS YOUR CONCLUSION. INDICATE IF YOUR PAYMENT TERMS VARY BY April 2, 2007 Page 35 CUSTOMER TYPE, ARRANGEMENT SIZE, AND PRODUCT MIX. IF SO, TELL US HOW YOU EVALUATED THOSE FACTORS IN DETERMINING YOUR NORMAL CUSTOMARY PAYMENT TERMS. DISCLOSE THE TYPICAL PAYMENT TERMS OF YOUR ARRANGEMENTS, THE AMOUNT OF ANY DOWN PAYMENT, ANY REFUND PROVISIONS OR WHETHER ANY PAYMENTS ARE SUBJECT TO SPECIFIC MILESTONES OR CUSTOMER ACCEPTANCE PROVISIONS. Response -------- The Company advises the Staff that it has revised its revenue recognition policy disclosure to include its customer payment terms. Please see page F-23 of the IPO Prospectus. The Company believes that these policies are consistent with industry practices. For hosting and subscriptions, invoices are issued monthly and are due upon invoice receipt. For Web Services, its standard payment terms are "due upon receipt" or "net 30 days", which are individually negotiated with customers. In all instances, the Company does not offer payment terms beyond 45 days from invoice date. For new Web Service projects, the Company typically invoices a project deposit of between 20% and 33% of total contract value, which deposit is due upon receipt. The deposit is recorded as deferred revenue and revenue is recognized as the services are performed, which is generally within 30 to 45 days. Thereafter, the Company invoices in accordance with negotiated terms in the individual statements of work which are billable monthly unless the contract specifies otherwise. In either instance, payment terms are negotiated and typically carry "net 30 day" payment terms. For Web Services projects, some contracts provide for customer acceptance and in those instances where customer acceptances apply, the time between delivery and acceptance is no more than 15 days, however the acceptance period does not extend the payment terms beyond the contractually established terms (E.G., 30 to 45 days). In no instance does the Company extend any payment terms during the acceptance period as terms remain due from invoice date. The Company's arrangements do not offer any refunds for services or products and no specific reserve therefor is maintained. 83. WE NOTE THAT YOU WEB SERVICES "TYPICALLY" DO NOT INVOLVE SIGNIFICANT PRODUCTION, MODIFICATION OR CUSTOMIZATION OF YOUR LICENSED SOFTWARE PRODUCTS. TELL US HOW YOU ACCOUNT FOR THESE MULTIPLE ELEMENT ARRANGEMENTS WHEN YOUR WEB SERVICES DO INVOLVE SIGNIFICANT PRODUCTION, MODIFICATION OR CUSTOMIZATION OF YOUR LICENSED SOFTWARE PRODUCTS. FURTHER, WHEN YOUR WEB SERVICES ARE DISCOUNTED FROM THE PRICE LIST, TELL US WHETHER THE DISCOUNTS ARE OTHER THAN SIGNIFICANT AND EXPLAIN THE SPECIFIC TERMS OF THESE DISCOUNTS. PLEASE TELL US HOW YOU HAVE CONSIDERED THE GUIDANCE WITHIN THE AICPA REVENUE RECOGNITION TECHNICAL QUESTIONS AND ANSWERS - REVENUE SECTIONS 5100.50 AND 5100.51 AND THE IMPACT OF THIS GUIDANCE IN ACCOUNTING FOR YOUR ARRANGEMENTS. Response -------- The Company's Web Services never involve significant production, modification or customization of its netEditor or Orgitecture licensed products. Neither netEditor nor Orgitecture software projects are critical to the functionality of any of its service deliverables. Accordingly, April 2, 2007 Page 36 the above-referenced disclosures have been revised to eliminate any potential confusion. Please see page F-23 of the IPO Prospectus. With regard to discounts, the Company advises the Staff that it negotiates pricing with customers from a pricing template that provides a narrow range of pricing by tasks that comprise the engagement. The range of negotiated pricing between the high and low end is not significant and the Company does not believe the range in pricing constitutes a discount under the normal business definition of that term in the industry Accordingly, based on its business model, its accounting policies and its pricing policies, the Company respectfully submits that it does not believe the guidance within AICPA Revenue Recognition Technical Questions and Answers - Revenue Sections 5100.50 and 5100.51 applies. 84. WE NOTE YOUR REFERENCE WITHIN YOUR DISCUSSION OF "MANAGED SERVICES" THAT YOU CONSIDER THE FEES FOR THE MONTHLY HOSTING SERVICES TO BE AKIN TO AN OPERATING LEASE ARRANGEMENT PURSUANT TO EITF 01-8. TELL US WHY YOU CONSIDER EITF 01-8 TO BE THE APPROPRIATE ACCOUNTING LITERATURE TO BE CONSIDERED WHEN DETERMINING HOW TO ACCOUNT FOR YOUR MONTHLY WEB HOSTING SERVICES PROVIDED. TELL US HOW THESE SERVICES ARE CONSIDERED IN DETERMINING YOUR DELIVERABLES WITHIN YOUR MANAGED SERVICES ELEMENT UNDER EITF 00-21. Response -------- The Company advises the Staff that in its multiple element arrangements that include hosting, the hosting is the undelivered element. Further, since the Company is unable to attain VSOE for the undelivered element, it relies on the standard in EITF 00-21 to ascertain third party evidence of fair value, as the Company's pricing for such hosting services is in accordance with standard price lists, and such prices are not discounted. The Company's hosting arrangements are typically short-term in nature and include a clause for termination by either party for convenience upon 30 days' notice. Accordingly, the Company recognizes revenue on hosting arrangements on a monthly basis over the period to which the service is delivered. The Company respectfully acknowledges the Staff's comment and concurs that the reference to EITF 01-8 with regard to its accounting for hosting arrangements is not directly pertinent to the disclosure. The Company has therefore revised its accounting policy disclosure accordingly. Please see page F-22 of the IPO Prospectus. GOODWILL, PAGE F-18 ------------------- 85. TELL US HOW ANY CASH PROJECTIONS USED IN DETERMINING YOUR GOING-CONCERN STATUS OR FAIR VALUE DETERMINATIONS RELATED TO YOUR STOCK-BASED COMPENSATION ARRANGEMENTS IMPACTED YOUR DISCOUNTED CASH FLOW PROJECTIONS IN EVALUATING GOODWILL IMPAIRMENT. April 2, 2007 Page 37 Response -------- The Company advises the Staff that the Company has determined the fair value of its common stock and has evaluated the potential impairment of goodwill after considering a number of factors, one of which is cash flow projections. The Company's evaluation of its ability to continue as a going concern also considered similar cash flow projections. However, the principal contributing factor to the determination of substantial doubt as to the Company's ability to continue as a going concern was the impending maturity of the Senior Notes Payable and the lack of certainty that such notes could be repaid, refinanced or extended. The Company's cash flow analyses for such are the same as those utilized in its fair value computations and indicate that, in the absence of the impending debt maturity, the Company could continue as a going concern through the period ending September 30, 2007 and that there would be no impairment of goodwill. NOTE 2. INCOME TAXES, PAGE F-22 ------------------------------- 86. TELL US AND DISCLOSE, IF MATERIAL, THE REASONABLY LIKELY IMPACT ON YOUR LIQUIDITY OF THE INDIAN SUBSIDIARY'S PERMANENT INVESTMENT OF UNDISTRIBUTED EARNINGS. Response -------- The Company advises the Staff that the gross amount of the estimated taxes on the undistributed earnings of its Indian subsidiary would be approximately $63,000 and $6,000 for the years ending September 30, 2006 and 2005, respectively. However, management believes the parent company has sufficient net operating loss carry forwards ($3,919,000 at September 30, 2006) to reduce the net impact of any such taxes to zero. NOTE 2. RECLASSIFICATION, PAGE F-22 ----------------------------------- 87. PLEASE EXPLAIN THE NATURE AND AMOUNTS OF THE RECLASSIFICATIONS INCLUDED IN THE FINANCIAL STATEMENTS FOR THE FISCAL PERIOD ENDED SEPTEMBER 30, 2005 IN ORDER TO CONFORM THE SEPTEMBER 30, 2006 PRESENTATION IN THE FORM SB-2. Response -------- The Company advises the Staff that the only conforming change from the Registration Statement filed on December 13, 2006 was a reclassification in Cost of Sales. In Amendment No. 1 to the Registration Statement filed on February 8, 2007, the Company reclassified cost of sales in the 2005 Statement of Operations to conform to the corresponding revenue categories, which is comparable to the presentation in the 2006 Statement of Operations. There were no other reclassifications. April 2, 2007 Page 38 NOTE 3. ACQUISITIONS, PAGE F-25 ------------------------------- 88. WE NOTE THE UNAUDITED PRO FORMA INFORMATION PRESENTED ON PAGE F-25 REFLECTING THE OPERATING RESULTS OF THE COMPANY AS THOUGH THE NEW TILT AND IAPPS ACQUISITIONS WERE COMPLETED IN THE FISCAL 2006 AND 2005 PERIODS RESPECTIVELY. WE ALSO NOTE THE PRO FORMA ADJUSTMENTS TO REDUCE DEPRECIATION AS A RESULT OF THE NEW ACCOUNTING BASIS AND THE REDUCTION IN STOCK COMPENSATION EXPENSE IN ORDER TO CONFORM TO THE COMPANY'S ACCOUNTING POLICY. CLARIFY FOR US THE NATURE OF AND REASONS FOR THESE ADJUSTMENTS. ADDRESS HOW NEW TILT'S AND IAPPS' ACCOUNTING POLICIES DIFFERED FROM THE COMPANY'S. Response The above-referenced disclosures have been revised to address the Staff's comment. Please see the revised Note 3 to the financial statements, beginning on page F-32 of the IPO Prospectus. OTHER COMMITMENTS, PAGE F-31 ---------------------------- 89. TELL US THE AMOUNT OF SUCCESS FEES YOU HAVE INCLUDED IN THE PURCHASE PRICE OF ACQUISITIONS AND HOW YOU ACCOUNTED FOR THE AMOUNTS. EXPLAIN HOW THE SUCCESS FEES ARE SEPARABLE FROM THE UNDERWRITER ARRANGEMENT WITH JOSEPH GUNNAR & CO. LLC AS NOTED ON PAGE F-37. Response -------- The Company advises the Staff that in connection with its acquisition of New Tilt, the Company paid Joseph Gunnar & Co., LLC a success fee of $150,000, which amount was accounted for as a component of the purchase price of the acquisition. No success fees were paid to Gunnar in connection with its acquisition of iapps, as the acquisition pre-dated the Company's agreement with Gunnar. The success fees are subject to an October 2005 business combination services agreement which is separate from the underwriting agreement. As set forth in the OTHER COMMITMENTS section of the notes to the financial statements on page F-41, under the terms and provisions of the business combination services agreement with Gunnar, Gunnar is to provide the Company with certain advisory services concerning potential acquisitions and transactions. As compensation for its services, the Company is obligated to pay Gunnar, at the closing of a business combination, a success fee equal to 6% of the total value of all cash, securities or other property paid in connection with the transaction. This success fee arrangement is entirely separate and apart from the compensation arrangement contemplated under the terms of the underwriting agreement by and between the parties. Further, the success fee earned and earnable is not in any way contingent on the capital raising services contemplated by the underwriting agreement. The underwriting compensation includes, without limitation, non-accountable expense allowance, underwriters' warrants, etc. as provided in the UNDERWRITING section of the IPO Prospectus. April 2, 2007 Page 39 NOTE 9. STOCKHOLDERS' EQUITY, PAGE F-32 --------------------------------------- 90. PLEASE PROVIDE US WITH THE FOLLOWING INFORMATION IN CHRONOLOGICAL ORDER FOR STOCK OPTION GRANTS AND OTHER EQUITY RELATED TRANSACTIONS FOR THE ONE YEAR PERIOD PRECEDING THE MOST RECENT BALANCE SHEET DATE AND THROUGH THE DATE OF YOUR RESPONSE: o THE NATURE AND TYPE OF STOCK OPTION OR OTHER EQUITY RELATED TRANSACTION; o THE DATE OF GRANT/ISSUANCE; o DESCRIPTION/NAME OF OPTION OR EQUITY HOLDER; o THE REASON FOR THE GRANT OR EQUITY RELATED ISSUANCE; o THE NUMBER OF OPTIONS OR EQUITY INSTRUMENTS GRANTED OR ISSUED; o THE EXERCISE PRICE OR CONVERSION PRICE; o THE FAIR VALUE OF UNDERLYING SHARES OF COMMON STOCK; o THE TOTAL AMOUNT OF DEFERRED COMPENSATION OR VALUE ASSIGNED TO BENEFICIAL CONVERSION FEATURE RECONCILED TO YOUR FINANCIAL STATEMENT DISCLOSURES; AND o THE AMOUNT AND TIMING OF EXPENSE RECOGNITION. CONTINUE TO PROVIDE US WITH UPDATES TO THE REQUESTED INFORMATION FOR ALL EQUITY RELATED TRANSACTIONS SUBSEQUENT TO THIS REQUEST THROUGH THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT. Response -------- The information requested by the Staff is attached as Exhibit F to this letter. The Company undertakes to provide updates to this schedule as requested. 91. PLEASE PROVIDE US WITH OBJECTIVE EVIDENCE THAT SUPPORTS YOUR DETERMINATION OF THE FAIR VALUE OF THE UNDERLYING SHARES OF COMMON STOCK AT EACH GRANT OR ISSUE DATE. THIS OBJECTIVE EVIDENCE COULD BE BASED ON VALUATION REPORTS THAT RELY ON METHODOLOGIES DISCUSSED IN THE PRACTICE AID OR ON CURRENT CASH SALES OF THE SAME OR A SIMILAR COMPANY SECURITY TO A WILLING UNRELATED PARTY OTHER THAN UNDER TERMS AND CONDITIONS ARISING FROM A PREVIOUS TRANSACTION. Response -------- The Company advises the Staff that the fair value of the shares of common stock at each grant or issue date was determined as follows: From inception (2000) to July 2005, the fair value of the Company's common stock was determined based on contemporaneous sales of its common stock to unrelated third parties in six private placement transactions. The Company respectfully refers the Staff to the detailed list of these sales provided in response to comment 30. The Company believes, under the guidance of April 2, 2007 Page 40 the AICPA Practice Alert 00-1, that contemporaneous sales are the best indicator of fair value for the period from inception (2000) to July 2005. For periods subsequent to August 1, 2005, the fair value of the common stock was determined by management through an internal valuation computation following the guidance of the Practice Alert. Additionally, the Company engaged the services of a financial consultant and an independent valuation firm to provide additional guidance to its valuation process. The Company's fair value analysis is provided as Exhibit G to this letter. The analysis considered a variety of quantitative and qualitative factors including, but not limited to, the Company's financial position, an evaluation of the Company's competition, the economic climate in the marketplace, the illiquid nature of the common stock and the Company's analysis of the trading prices of a peer group of comparable public companies. 92. RECONCILE AND EXPLAIN THE DIFFERENCES BETWEEN THE FAIR VALUES OF THE UNDERLYING COMMON STOCK AT EACH VALUATION DATE, INCLUDING THE DIFFERENCE BETWEEN THE MOST RECENT FAIR VALUE AND THE MIDPOINT OF YOUR IPO OFFERING RANGE. THIS RECONCILIATION SHOULD DESCRIBE SIGNIFICANT INTERVENING EVENTS WITHIN THE COMPANY AND CHANGES IN ASSUMPTIONS AS WELL AS WEIGHTING AND SELECTION OF VALUATION METHODOLOGIES EMPLOYED THAT EXPLAIN THE CHANGES IN THE FAIR VALUE OF YOUR COMMON STOCK UP TO THE FILING OF THE REGISTRATION STATEMENT. Response -------- Computations of the fair value of the Company's common stock at each valuation date and a reconciliation from the most recent valuation date to the estimated mid-point range of the offering price ($5.50) is provided in Exhibit H to this letter. The Company respectfully submits that this analysis substantiates the accretion in the fair value of its common stock from $2.58 at December 31, 2006 to the mid-point range of the offering ($5.50). The accretion results principally from the increase in revenues and operating profits to be derived from the acquisition of Objectware and the expected revenue growth of the Company from September 30, 2006 to the planned offering date of April 2007. The Company also considered the positive impact to working capital resulting from the net proceeds of the offering and the specific favorable impact to current assets (specifically cash) and the elimination of principally all debt resulting from the use of proceeds from the offering. 93. PLEASE REVISE THE NOTE TO INCLUDE THE DISCLOSURES IN PARAGRAPH 179 OF THE PRACTICE AID. AS APPLICABLE, REVISE TO INCLUDE THE FOLLOWING DISCLOSURES FOR OPTIONS GRANTED DURING THE 12 MONTHS PRIOR TO THE DATE OF THE MOST RECENT BALANCE SHEET INCLUDED IN THE FILING: o FOR EACH GRANT DATE, THE NUMBER OF OPTIONS OR SHARES GRANTED, THE EXERCISE PRICE, THE FAIR VALUE OF THE COMMON STOCK, AND THE INTRINSIC VALUE, IF ANY, PER OPTION (THE NUMBER OF OPTIONS MAY BE AGGREGATED BY MONTH OR QUARTER AND THE INFORMATION PRESENTED AS WEIGHTED-AVERAGE PER SHARE AMOUNTS); April 2, 2007 Page 41 o WHETHER THE VALUATION USED TO DETERMINE THE FAIR VALUE OF THE EQUITY INSTRUMENTS WAS CONTEMPORANEOUS OR RETROSPECTIVE; AND o WHETHER THE VALUATION WAS PERFORMED BY A RELATED PARTY. Response -------- The above-referenced disclosures have been revised to address the Staff's comment. Please see the revised page F-44 of the IPO Prospectus. NOTE 10. INCOME TAXES, PAGE F-35 -------------------------------- 94. PLEASE REVISE TO ADDRESS THE DISCLOSURE PROVISIONS UNDER SAB TOPIC 11 C. DISCLOSE THE AGGREGATE DOLLAR AND PER SHARE EFFECTS OF THE TAX HOLIDAY AND BRIEFLY DESCRIBE THE FACTUAL CIRCUMSTANCES INCLUDING THE DATE ON WHICH THE SPECIAL TAX STATUS WILL TERMINATE. Response -------- The Company advises the Staff that it estimates that the foreign taxes not incurred as a result of the tax holiday were approximately $45,000 and $20,000 for the years ended September 30, 2006 and 2005, respectively. The Company believes these costs are not significant enough to warrant separate disclosure. The above-referenced disclosures have been revised to address the Staff's comment. Please see the revised pages F-44 to F-45 of the IPO Prospectus. SUBSEQUENT EVENTS, PAGE F-37 ---------------------------- 95. WE NOTE YOU AMENDED THE TERMS OF THE DEBT WARRANTS IN NOVEMBER OF 2006. TELL US HOW YOU INITIALLY ACCOUNTED FOR THE DEBT WARRANTS AND HOW YOUR ACCOUNTING CHANGED AS A RESULT OF THE AMENDMENTS TO THE INITIAL TERMS. ADDRESS HOW YOU INITIALLY DETERMINED THE FAIR VALUE OF THE WARRANTS AND HOW THIS VALUE MAY HAVE BEEN IMPACTED BY THE SUBSEQUENT CHANGE IN TERMS. Response -------- The Company advises the Staff that, as originally issued, the above-referenced warrants contained a drafting error to include a provision that would have resulted in a contingent obligation of the Company to redeem the warrants in the event that an initial public offering of the Company's common stock does not occur prior to the expiration of the warrants in April 2011. That provision was not contained in the otherwise detailed letter of intent between the Company and the placement agent for these transactions. The Company accounted for these warrants as additional paid in capital and as a discount against the face value of the Senior Notes Payable. In accounting for the warrants, no consideration was given to the potential redemption feature described above because the warrants were never intended to have such a feature. April 2, 2007 Page 42 The discount was determined by using a relative fair value method and was computed by apportioning the present value of the warrants (computed using the Black-Scholes-Merton option-pricing model (the "Model") as detailed in Note 2 to the Company's financial statements under "VALUATION OF OPTIONS AND WARRANTS ISSUED TO NON-EMPLOYEES") to the total present value of the face value of the debt plus interest. In applying the Model, the Company used the same assumptions as it had in valuing the other equity instruments as described elsewhere in the financial statements (i.e., stock options and warrants). The redemption feature described above was given no consideration in the original determination of the fair value of the warrants. As the warrants were never intended by any party to contain a redempion feature, the amendment described in Note 11 was executed with the warrant holders, with no consideration offered or tendered to any parties. 96. TELL US AS TO WHETHER THESE DEBT WARRANTS HAVE ANY ASSOCIATED REGISTRATION RIGHTS OR ARE SUBJECT TO ANY PAYMENT PROVISIONS OF ANY TYPE WHICH MAY IMPACT YOUR ACCOUNTING FOR THESE WARRANTS. Response The Company advises the Staff that there are no other registration rights or features that would affect the accounting for these warrants. OBJECTWARE FINANCIAL STATEMENTS FILED FOR THE PERIOD ENDED SEPTEMBER 30, 2006, ------------------------------------------------------------------------------ PAGE F-39 --------- NOTE 2. REVENUE RECOGNITION, PAGE F-44 -------------------------------------- 97. DISCLOSE THE ACCOUNTING LITERATURE RELIED UPON THAT SUPPORTS THE RECOGNITION MODELS USED FOR YOUR "WEB SERVICES" AND "MANAGED SERVICES." Response -------- The Company advises the Staff that Objectware's revenues are comprised of principally two activities - Web Services and Managed Services (primarily hosting). These activities are sold separately and in multiple element arrangements, which Objectware accounts for separately as it satisfies the burden of third party evidence of fair value as defined in EITF 00-21 in those instances in which VSOE cannot be attained. For multiple element arrangements that include fixed-fee Web Services engagements, Objectware has established third party evidence of fair value for the undelivered element (i.e., hosting services) as it has sold many such arrangements priced using a standard price list that provides a narrow range of rates. Objectware recognizes revenue for Web services in accordance to the proportional performance model described in SAB 104, based on costs incurred in relation to total estimated costs at completion. Objectware's management believes that labor costs are the appropriate measure for the proportional performance model in measuring Web Services revenue, as projects are priced based upon estimated labor hours and labor rates. In the instances April 2, 2007 Page 43 in which Web service arrangements have been terminated by customers, the customer is responsible and has paid for services up to day of termination. Objectware believes this input approach under the proportional performance model mirrors an output approach for the services Objectware delivers. Managed Services revenue is comprised principally of contractual hosting. Although Objectware views hosting as a value-added service component to its business, it does not market this business line separately. Therefore, Objectware does not provide separate classification for hosting in its financial statements. Objectware has established third party evidence of fair value for hosting by offering it to customers as it prices such arrangements in accordance with a standard price list which it does not discount. Objectware's hosting contracts include a clause for termination by either party for convenience upon 30 days notice. In instances in which upfront fees are charged in connection with a hosting arrangement, the revenue associated with such fees is deferred and is amortized over the estimated life of the arrangement, which is generally two years. Otherwise, Objectware recognizes revenue on hosting arrangements on a monthly basis over the period to which the service is delivered. 98. DISCLOSE HOW YOU HAVE YOU HAVE ESTABLISHED VSOE FOR EACH OF THE ELEMENTS INCLUDED IN MULTI-ELEMENT ARRANGEMENTS. Response -------- In accordance with EITF 00-21, Objectware believes the burden is to establish third party evidence of fair value as VSOE of fair value cannot be attained. With respect to the undelivered element of Web Services projects which include hosting arrangements, Objectware has established fair value by offering hosting based on a standard price list which it does not discount. For the delivered element(s), revenue is recognized based upon the residual value, i.e., the total contract value less the fair value of the undelivered element. 99. FOR ANY RIGHTS OF RETURNS TO YOUR CUSTOMERS OR END USERS TELL US AND DISCLOSE HOW YOUR ACCOUNTING COMPLIES WITH SFAS 48. Response -------- The Company respectfully advises the Staff that, as is customary with industry practice, Objectware does not provide a right of return for any product or services. In the rare instances in which customers raise concerns over its delivered products or services, Objectware endeavors to remedy the concerns. All costs to date related to such instances have been insignificant and therefore no reserve has been established. April 2, 2007 Page 44 100. WE NOTE THAT YOU ACCOUNT FOR YOUR STAND-ALONE WEB SERVICES FIXED FEE ARRANGEMENTS UNDER A PROPORTIONAL PERFORMANCE MODEL USING AN INPUT METHOD BASED ON COSTS INCURRED IN RELATION TO TOTAL ESTIMATED COSTS AT COMPLETION. YOUR ACCOUNTING FOR THESE FIXED FEE CONTRACTS DOES NOT APPEAR TO COMPLY WITH THE GUIDANCE WITHIN SAB 104 REGARDING THE USE OF A PROPORTIONAL PERFORMANCE MODEL. AN OUTPUT-BASED APPROACH WOULD GENERALLY BE UTILIZED AS OPPOSED TO AN INPUT-BASED APPROACH WHICH UTILIZES A COST-TO-COST MODEL. WE REFERENCE THE CORPORATION FINANCE CURRENT ACCOUNTING AND DISCLOSURE ISSUES UPDATED ON NOVEMBER 30, 2006. TELL US THE AMOUNT OF REVENUES DERIVED FROM THESE FIXED FEE SERVICE ARRANGEMENTS DURING THE FISCAL AND INTERIM FINANCIAL PERIODS PRESENTED. Response -------- The Company advises the Staff that Objectware recognizes revenue on its fixed fee Web Services arrangements in accordance to the proportional performance model method described in SAB 104, based on costs incurred in relation to total estimated costs at completion. Objectware's management believes that labor costs are the appropriate measure for the proportional performance model in measuring Web Services revenue, as projects are priced based upon estimated labor hours and labor rates. Although a portion of the Objectware's fixed fee Web Services projects reference milestones in statements or work, such references are considered as a billing criteria and not a valid basis for revenue recognition by management. Objectware's fixed fee Web Services engagements are typically of short duration (averaging six months or less) and therefore the period of time between milestones as an output approach would principally mirror Objectware's input computations under the proportional performance model. In instances in which Web service arrangements are terminated by customers prior to completion of any or all milestones, the customer is contractually obligated to pay for services up to the day of termination. The table below sets forth the revenues derived from fixed fee engagements in response to the Staff's comment. Three Months Ended --------------------------- Fiscal Year Fiscal Year December 31, December 31, 2006 2005 2006 2005 ------------ ------------ ------------ ------------ Web Service Fixed Fee $ 2,214 $ 1,549 $ 680 $ 495 Web Service T & M 887 716 204 221 ------------ ------------ ------------ ------------ Total Web Service Revenue $ 3,101 $ 2,265 $ 884 $ 716 ============ ============ ============ ============ 101. TELL US HOW YOU DETERMINE WHAT CONSTITUTES YOUR NORMAL CUSTOMARY PAYMENT TERM. PROVIDE AN ANALYSIS THAT SUPPORTS YOUR CONCLUSION. INDICATE IF YOUR PAYMENT TERMS VARY BY CUSTOMER TYPE, ARRANGEMENT SIZE, AND PRODUCT MIX. IF SO, TELL US HOW YOU EVALUATED THOSE FACTORS IN DETERMINING YOUR NORMAL CUSTOMARY PAYMENT TERMS. DISCLOSE THE TYPICAL PAYMENT TERMS OF YOUR ARRANGEMENTS, THE AMOUNT OF ANY DOWN PAYMENT, ANY REFUND PROVISIONS OR WHETHER ANY PAYMENTS ARE SUBJECT TO SPECIFIC MILESTONES OR CUSTOMER ACCEPTANCE PROVISIONS Response -------- The Company advises the Staff that Objectware has revised its revenue recognition policy disclosure to include its customer payment terms. Please see page F-54 of the IPO Prospectus. April 2, 2007 Page 45 Objectware believes that these policies are consistent with industry practices. For hosting arrangements, invoices are generally issued monthly and are due upon invoice receipt. For Web Services, the standard payment terms are "due upon receipt" or "net 30 days", with such terms individually negotiated with customers. In all instances, except for one customer as detailed in Note 6 to the financial statements, Objectware does not offer payment terms beyond 45 days from invoice date. The one exception results from a Web Services arrangement in which services were delivered and the customer was unable to pay in accordance with Objectware's standard payment terms due to financial difficulties. Objectware converted the account receivable into an interest bearing long-term note receivable on which the customer has been making scheduled payments. Revenue related to the arrangement was recognized only as cash was received under the note receivable. For new Web Service projects, Objectware typically invoices a project deposit of between 20% and 33% of the total contract value. Deposits are recorded as deferred revenue and the revenue is recognized as the related work is performed, which is generally within 30 to 45 days. Thereafter, Objectware invoices in accordance with negotiated terms in the individual statements of work which typically are either billable monthly or upon achievement of milestones. In either instance, payment terms are negotiated individually and typically carry "net 30 day" payment terms. For Web Services projects, some contracts provide for customer acceptance and in those instances where customer acceptances apply, the window between delivery and acceptance is no more than 15 days. Objectware does not extend any payment terms during the acceptance period as terms are due from invoice date. Its arrangements do not offer any refunds for services or products and therefore no specific reserve for such is maintained. 102. TELL US AND DISCLOSE IF YOU CONSIDER EITF 01-8 TO BE THE APPROPRIATE ACCOUNTING LITERATURE IN ACCOUNTING FOR YOUR MONTHLY WEB HOSTING SERVICES DELIVERABLE WITHIN YOUR MANAGED SERVICES. Response -------- The Company respectfully advises the Staff that Objectware's revenue recognition policy for accounting for hosting arrangements is the same as the Company's policy. Accordingly, as more fully described in the response to Comment 84, the Company does not believe that reference to EITF 01-8 is pertinent to the disclosure. GENERAL ------- 103. PROVIDE UPDATED INTERIM PERIOD FINANCIAL STATEMENTS THROUGH DECEMBER 31, 2006 AS REQUIRED BY ITEM 310(G) OF REGULATION S-B. April 2, 2007 Page 46 Response -------- The above-referenced interim period financial information has been provided to address the Staff's comment. Please see revised pages F-49 to F-52 of the IPO Prospectus. NOTE 12 SUBSEQUENT EVENT, PAGE F-52 ----------------------------------- 104. WE NOTE THAT DISCLOSURE THAT THE SALE OF OBJECTWARE IS CONTINGENT ON BRIDGELINE'S SUCCESSFUL COMPLETION OF ANY IPO AND THE RECEIPT OF PROCEEDS FROM THE IPO OF AT LEAST $10 MILLION. WE NOTE NO SUCH DISCLOSURE ANYWHERE ELSE IN THE REGISTRATION STATEMENT. IF THIS IS A CONTINGENCY THEN PLEASE DISCLOSE THIS FACT THROUGHOUT THE DOCUMENT ACCORDINGLY. Response Where applicable, the Amendment has been revised to address the Staff's comment. Please see revised pages 5, 12 and 63 of the IPO Prospectus. NEW TILT FINANCIAL STATEMENTS, PAGES F-54 TO F-65 ------------------------------------------------- 105. PLEASE PROVIDE THE COMPARATIVE INTERIM PERIOD FINANCIAL STATEMENTS REQUIRED BY ITEM 310(C)(3) OF REGULATION S-B. Response -------- The Company respectfully advises the Staff that the audited financial statements provided for New Tilt represent the last full year of operations (for the year ended December 31, 2005) and for the operations from January 1, 2006 up to the date of its acquisition by the Company on April 24, 2006. The Company therefore respectfully submits that these financial statements satisfy the requirements of Item 310(c)(3) of Regulation S-B and that no interim financial statements are required to be updated for New Tilt. The Company hereby acknowledges that: o should the Commission or the Staff, acting pursuant to delegated authority, declare the filing effective, it does not foreclose the Commission from taking any action with respect to the filing; o the action of the Commission or the Staff, acting pursuant to delegated authority, in declaring the filing effective, does not relieve the Company from its full responsibility for the adequacy and accuracy of the disclosure in the filing; and o the Company may not assert this action as a defense in any proceeding initiated by the April 2, 2007 Page 47 Commission or any person under the federal securities laws of the United States. If you require additional information concerning the Registration Statement, please contact either the undersigned or Daniele Ouellette Levy of this firm at 781-622-5930. Thank you very much. Very truly yours, /s/ Carl F. Barnes Carl F. Barnes Exhibit A - Copies of the graphics referenced in Comment 2 Exhibit B - Dilution calculations referenced in Comment 20 Exhibit C - List of all investors, stock prices and funds raised in the private placements referenced in Comment 30 Exhibit D - Excerpts from the industry reports referenced in Comment 40 Exhibit E - Analysis of the Company's products and services referenced in Comments 78 and 81 Exhibit F - Stock option grant and related information referenced in Comment 90 Exhibit G - Analysis of the fair value of the Company's common stock referenced in Comment 91 Exhibit H - Computations and reconciliations of the fair value of the Company's common stock referenced in Comment 92 cc: Mr. Marc D. Thomas Mr. Thomas Massie Mr. Gary Cebula Joseph C. Marrow, Esq. Daniele Ouellette Levy, Esq. F. Alec Orudjev, Esq.