bsqr20210630_10q.htm
0001054721 BSQUARE CORP /WA false --12-31 Q2 2021 50 50 0 0 10,000,000 10,000,000 0 0 0 0 0 37,500,000 37,500,000 13,479,220 13,479,220 13,235,038 13,235,038 1,584 0 0 0 0 0 0 25,000 5 5 7 4 2 0.75 1 1 00010547212021-01-012021-06-30 xbrli:shares 00010547212021-07-31 thunderdome:item iso4217:USD 00010547212021-06-30 00010547212020-12-31 iso4217:USDxbrli:shares 0001054721bsqr:PartnerSolutionsMember2021-04-012021-06-30 0001054721bsqr:PartnerSolutionsMember2020-04-012020-06-30 0001054721bsqr:PartnerSolutionsMember2021-01-012021-06-30 0001054721bsqr:PartnerSolutionsMember2020-01-012020-06-30 0001054721bsqr:EdgeToCloudMember2021-04-012021-06-30 0001054721bsqr:EdgeToCloudMember2020-04-012020-06-30 0001054721bsqr:EdgeToCloudMember2021-01-012021-06-30 0001054721bsqr:EdgeToCloudMember2020-01-012020-06-30 00010547212021-04-012021-06-30 00010547212020-04-012020-06-30 00010547212020-01-012020-06-30 00010547212019-12-31 00010547212020-06-30 0001054721us-gaap:PreferredStockMember2021-03-31 0001054721us-gaap:CommonStockMember2021-03-31 0001054721us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-03-31 0001054721us-gaap:RetainedEarningsMember2021-03-31 00010547212021-03-31 0001054721us-gaap:PreferredStockMember2021-04-012021-06-30 0001054721us-gaap:CommonStockMember2021-04-012021-06-30 0001054721us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-04-012021-06-30 0001054721us-gaap:RetainedEarningsMember2021-04-012021-06-30 0001054721us-gaap:PreferredStockMember2021-06-30 0001054721us-gaap:CommonStockMember2021-06-30 0001054721us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-06-30 0001054721us-gaap:RetainedEarningsMember2021-06-30 0001054721us-gaap:PreferredStockMember2020-12-31 0001054721us-gaap:CommonStockMember2020-12-31 0001054721us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-31 0001054721us-gaap:RetainedEarningsMember2020-12-31 0001054721us-gaap:PreferredStockMember2021-01-012021-06-30 0001054721us-gaap:CommonStockMember2021-01-012021-06-30 0001054721us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-06-30 0001054721us-gaap:RetainedEarningsMember2021-01-012021-06-30 0001054721us-gaap:EmployeeStockOptionMember2021-04-012021-06-30 0001054721us-gaap:EmployeeStockOptionMember2020-04-012020-06-30 0001054721us-gaap:EmployeeStockOptionMember2021-01-012021-06-30 0001054721us-gaap:EmployeeStockOptionMember2020-01-012020-06-30 0001054721us-gaap:RestrictedStockUnitsRSUMember2021-04-012021-06-30 0001054721us-gaap:RestrictedStockUnitsRSUMember2020-04-012020-06-30 0001054721us-gaap:RestrictedStockUnitsRSUMember2021-01-012021-06-30 0001054721us-gaap:RestrictedStockUnitsRSUMember2020-01-012020-06-30 0001054721bsqr:PartnerSolutionsMembersrt:NorthAmericaMember2021-04-012021-06-30 0001054721bsqr:EdgeToCloudMembersrt:NorthAmericaMember2021-04-012021-06-30 0001054721srt:NorthAmericaMember2021-04-012021-06-30 0001054721bsqr:PartnerSolutionsMembersrt:NorthAmericaMember2020-04-012020-06-30 0001054721bsqr:EdgeToCloudMembersrt:NorthAmericaMember2020-04-012020-06-30 0001054721srt:NorthAmericaMember2020-04-012020-06-30 0001054721bsqr:PartnerSolutionsMembersrt:EuropeMember2021-04-012021-06-30 0001054721bsqr:EdgeToCloudMembersrt:EuropeMember2021-04-012021-06-30 0001054721srt:EuropeMember2021-04-012021-06-30 0001054721bsqr:PartnerSolutionsMembersrt:EuropeMember2020-04-012020-06-30 0001054721bsqr:EdgeToCloudMembersrt:EuropeMember2020-04-012020-06-30 0001054721srt:EuropeMember2020-04-012020-06-30 0001054721bsqr:PartnerSolutionsMembersrt:AsiaMember2021-04-012021-06-30 0001054721bsqr:EdgeToCloudMembersrt:AsiaMember2021-04-012021-06-30 0001054721srt:AsiaMember2021-04-012021-06-30 0001054721bsqr:PartnerSolutionsMembersrt:AsiaMember2020-04-012020-06-30 0001054721bsqr:EdgeToCloudMembersrt:AsiaMember2020-04-012020-06-30 0001054721srt:AsiaMember2020-04-012020-06-30 0001054721bsqr:PartnerSolutionsMembersrt:NorthAmericaMember2021-01-012021-06-30 0001054721bsqr:EdgeToCloudMembersrt:NorthAmericaMember2021-01-012021-06-30 0001054721srt:NorthAmericaMember2021-01-012021-06-30 0001054721bsqr:PartnerSolutionsMembersrt:NorthAmericaMember2020-01-012020-06-30 0001054721bsqr:EdgeToCloudMembersrt:NorthAmericaMember2020-01-012020-06-30 0001054721srt:NorthAmericaMember2020-01-012020-06-30 0001054721bsqr:PartnerSolutionsMembersrt:EuropeMember2021-01-012021-06-30 0001054721bsqr:EdgeToCloudMembersrt:EuropeMember2021-01-012021-06-30 0001054721srt:EuropeMember2021-01-012021-06-30 0001054721bsqr:PartnerSolutionsMembersrt:EuropeMember2020-01-012020-06-30 0001054721bsqr:EdgeToCloudMembersrt:EuropeMember2020-01-012020-06-30 0001054721srt:EuropeMember2020-01-012020-06-30 0001054721bsqr:PartnerSolutionsMembersrt:AsiaMember2021-01-012021-06-30 0001054721bsqr:EdgeToCloudMembersrt:AsiaMember2021-01-012021-06-30 0001054721srt:AsiaMember2021-01-012021-06-30 0001054721bsqr:PartnerSolutionsMembersrt:AsiaMember2020-01-012020-06-30 0001054721bsqr:EdgeToCloudMembersrt:AsiaMember2020-01-012020-06-30 0001054721srt:AsiaMember2020-01-012020-06-30 00010547212021-07-01bsqr:EdgeToCloudMember2021-06-30 00010547212022-01-01bsqr:EdgeToCloudMember2021-06-30 00010547212023-01-01bsqr:EdgeToCloudMember2021-06-30 0001054721us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2021-06-30 0001054721us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2021-06-30 0001054721us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2021-06-30 0001054721us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-31 0001054721us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-31 0001054721us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-31 0001054721us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2021-06-30 0001054721us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2021-06-30 0001054721us-gaap:FairValueMeasurementsRecurringMember2021-06-30 0001054721us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-31 0001054721us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-31 0001054721us-gaap:FairValueMeasurementsRecurringMember2020-12-31 0001054721us-gaap:CustomerRelationshipsMember2021-06-30 0001054721us-gaap:CustomerRelationshipsMember2020-12-31 utr:M 0001054721bsqr:OfficeFacilityInTheUKMember2020-11-09 utr:Y 0001054721bsqr:OfficeFacilityInTheUKMember2020-11-092020-11-09 0001054721bsqr:OfficeFacilityInTheUKMember2020-12-31 0001054721srt:MinimumMember2021-06-30 0001054721srt:MaximumMember2021-06-30 xbrli:pure 0001054721us-gaap:EmployeeStockOptionMember2021-01-012021-06-30 0001054721us-gaap:EmployeeStockOptionMember2021-04-012021-06-30 0001054721us-gaap:EmployeeStockOptionMember2020-04-012020-06-30 0001054721us-gaap:EmployeeStockOptionMember2020-01-012020-06-30 0001054721us-gaap:CostOfSalesMemberbsqr:EdgeToCloudMember2021-04-012021-06-30 0001054721us-gaap:CostOfSalesMemberbsqr:EdgeToCloudMember2020-04-012020-06-30 0001054721us-gaap:CostOfSalesMemberbsqr:EdgeToCloudMember2021-01-012021-06-30 0001054721us-gaap:CostOfSalesMemberbsqr:EdgeToCloudMember2020-01-012020-06-30 0001054721us-gaap:SellingGeneralAndAdministrativeExpensesMember2021-04-012021-06-30 0001054721us-gaap:SellingGeneralAndAdministrativeExpensesMember2020-04-012020-06-30 0001054721us-gaap:SellingGeneralAndAdministrativeExpensesMember2021-01-012021-06-30 0001054721us-gaap:SellingGeneralAndAdministrativeExpensesMember2020-01-012020-06-30 0001054721us-gaap:ResearchAndDevelopmentExpenseMember2021-04-012021-06-30 0001054721us-gaap:ResearchAndDevelopmentExpenseMember2020-04-012020-06-30 0001054721us-gaap:ResearchAndDevelopmentExpenseMember2021-01-012021-06-30 0001054721us-gaap:ResearchAndDevelopmentExpenseMember2020-01-012020-06-30 00010547212020-01-012020-12-31 0001054721us-gaap:EmployeeStockOptionMember2021-06-30 0001054721us-gaap:RestrictedStockUnitsRSUMember2020-12-31 0001054721us-gaap:RestrictedStockUnitsRSUMember2021-01-012021-06-30 0001054721us-gaap:RestrictedStockUnitsRSUMember2021-06-30 0001054721bsqr:PerformanceStockUnitsMembersrt:ExecutiveOfficerMember2021-01-012021-01-31 0001054721bsqr:PerformanceStockUnitsMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2021-04-012021-06-30 0001054721bsqr:PerformanceStockUnitsMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2021-01-012021-06-30 00010547212021-06-012021-06-30 0001054721bsqr:RestrictedStockUnitsAndPerformanceStockUnitsMember2021-06-30 0001054721srt:NorthAmericaMember2021-06-30 0001054721srt:NorthAmericaMember2020-12-31 0001054721srt:EuropeMember2021-06-30 0001054721srt:EuropeMember2020-12-31 0001054721bsqr:GESSingaporePteTDMember2021-04-012021-06-30 0001054721us-gaap:RevenueFromContractWithCustomerMemberus-gaap:CustomerConcentrationRiskMemberbsqr:GESSingaporePteTDMember2021-04-012021-06-30 0001054721bsqr:PartechIncMember2021-04-012021-06-30 0001054721us-gaap:RevenueFromContractWithCustomerMemberus-gaap:CustomerConcentrationRiskMemberbsqr:PartechIncMember2021-04-012021-06-30 0001054721bsqr:CCintegrationIncMember2021-04-012021-06-30 0001054721us-gaap:RevenueFromContractWithCustomerMemberus-gaap:CustomerConcentrationRiskMemberbsqr:CCintegrationIncMember2021-04-012021-06-30 0001054721bsqr:GESSingaporePteTDMember2021-06-30 0001054721us-gaap:AccountsReceivableMemberus-gaap:CustomerConcentrationRiskMemberbsqr:GESSingaporePteTDMember2021-01-012021-06-30 0001054721bsqr:HoneywellInternationalIncMember2020-12-31 0001054721us-gaap:AccountsReceivableMemberus-gaap:CustomerConcentrationRiskMemberbsqr:HoneywellInternationalIncMember2020-01-012020-12-31 0001054721bsqr:KodakAlarisIncMember2020-12-31 0001054721us-gaap:AccountsReceivableMemberus-gaap:CustomerConcentrationRiskMemberbsqr:KodakAlarisIncMember2020-01-012020-12-31 0001054721us-gaap:CostOfSalesMember2021-04-012021-06-30 0001054721us-gaap:CostOfSalesMember2020-04-012020-06-30 0001054721us-gaap:CostOfSalesMember2021-01-012021-06-30 0001054721us-gaap:CostOfSalesMember2020-01-012020-06-30 0001054721us-gaap:SellingAndMarketingExpenseMember2021-04-012021-06-30 0001054721us-gaap:SellingAndMarketingExpenseMember2020-04-012020-06-30 0001054721us-gaap:SellingAndMarketingExpenseMember2021-01-012021-06-30 0001054721us-gaap:SellingAndMarketingExpenseMember2020-01-012020-06-30 0001054721bsqr:PaycheckProtectionProgramCaresActMember2020-04-072020-04-07 0001054721bsqr:PaycheckProtectionProgramCaresActMember2021-06-30 0001054721bsqr:PaycheckProtectionProgramCaresActMember2020-12-31 0001054721bsqr:ErrorRelatedToRecognitionOfCertainRevenuesInEdgeToCloudSegmentMembersrt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember2019-07-012019-09-30 0001054721srt:ScenarioPreviouslyReportedMember2019-12-31 0001054721srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember2019-12-31 0001054721srt:ScenarioPreviouslyReportedMember2020-12-31 0001054721srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember2020-12-31 0001054721srt:ScenarioPreviouslyReportedMember2019-01-012019-12-31 0001054721srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember2019-01-012019-12-31 00010547212019-01-012019-12-31 0001054721srt:ScenarioPreviouslyReportedMember2019-07-012019-09-30 0001054721srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember2019-07-012019-09-30 00010547212019-07-012019-09-30 0001054721srt:ScenarioPreviouslyReportedMember2019-09-30 0001054721srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember2019-09-30 00010547212019-09-30 0001054721srt:ScenarioPreviouslyReportedMember2019-01-012019-09-30 0001054721srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember2019-01-012019-09-30 00010547212019-01-012019-09-30 0001054721srt:ScenarioPreviouslyReportedMemberbsqr:EdgeToCloudMember2019-01-012019-12-31 0001054721srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMemberbsqr:EdgeToCloudMember2019-01-012019-12-31 0001054721bsqr:EdgeToCloudMember2019-01-012019-12-31 0001054721srt:ScenarioPreviouslyReportedMemberbsqr:EdgeToCloudMember2019-07-012019-09-30 0001054721srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMemberbsqr:EdgeToCloudMember2019-07-012019-09-30 0001054721bsqr:EdgeToCloudMember2019-07-012019-09-30 0001054721srt:ScenarioPreviouslyReportedMemberbsqr:EdgeToCloudMember2019-01-012019-09-30 0001054721srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMemberbsqr:EdgeToCloudMember2019-01-012019-09-30 0001054721bsqr:EdgeToCloudMember2019-01-012019-09-30 0001054721us-gaap:SubsequentEventMemberbsqr:AtTheMarketOfferingProgramMember2021-07-07 0001054721bsqr:AtTheMarketOfferingProgramMember2021-04-02 0001054721us-gaap:SubsequentEventMemberbsqr:AtTheMarketOfferingProgramMember2021-07-072021-07-07 0001054721us-gaap:SubsequentEventMemberbsqr:AtTheMarketOfferingProgramMember2021-07-012021-07-31 0001054721us-gaap:SubsequentEventMemberbsqr:AtTheMarketOfferingProgramMember2021-07-31
 

 

https://cdn.kscope.io/1797f69d52d008d5b79798c50fa2ab86-logo.jpg


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2021 

 

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                     

 

Commission File Number: 000-27687

 


BSQUARE CORPORATION

(Exact name of registrant as specified in its charter)

 


 

Washington

 

91-1650880

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

   

1415 Western Ave, Suite 700,

Seattle, WA

 

98101

(Address of principal executive offices)

 

(Zip Code)

 

(425519-5900

(Registrant’s telephone number, including area code)

 


 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common stock, no par value

 

BSQR

 

The NASDAQ Stock Market LLC

 

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

 

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

 

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

☒ 

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

 

The number of shares of common stock outstanding as of July 31, 2021: 20,327,917

 



 

 

https://cdn.kscope.io/1797f69d52d008d5b79798c50fa2ab86-logo.jpg

 

BSQUARE CORPORATION

FORM 10-Q

For the Quarterly Period Ended June 30, 2021

TABLE OF CONTENTS

 

 

 

Page

 

PART I. FINANCIAL INFORMATION

 

 

 

 

Item 1

Financial Statements

3

     

Item 2

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

18

     

Item 3

Quantitative and Qualitative Disclosures About Market Risk

21

     

Item 4

Controls and Procedures

21

     

 

PART II. OTHER INFORMATION

 

     

Item 1A

Risk Factors

22

     

Item 6

Exhibits

24

     

 

Signatures

25

 

 

https://cdn.kscope.io/1797f69d52d008d5b79798c50fa2ab86-logo.jpg

 

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

BSQUARE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

 

  

June 30, 2021

  

December 31, 2020

 
  

(Unaudited)

     

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $8,892  $12,623 

Restricted cash

  337   337 

Accounts receivable, net of allowance for doubtful accounts of $50 and $50 at June 30, 2021 and December 31, 2020, respectively

  6,318   6,177 

Contract assets

  46   456 

Prepaid expenses and other current assets

  743   409 

Total current assets

  16,336   20,002 

Property and equipment, net of accumulated depreciation

  654   322 

Deferred tax assets

  7   7 

Intangible assets, net of accumulated amortization

  22   71 

Right-of-use lease asset, net

  1,712   1,853 

Other non-current assets

  24   27 

Total assets

 $18,755  $22,282 

LIABILITIES AND SHAREHOLDERS' EQUITY

        

Current liabilities:

        

Third-party software fees payable

 $5,665  $6,458 

Accounts payable

  263   489 

Paycheck Protection Program loan

     950 

Accrued compensation

  567   717 

Other accrued expenses

  211   216 

Deferred revenue

  1,028   2,088 

Operating lease

  348   344 

Total current liabilities

  8,082   11,262 

Deferred revenue, long-term

  300   28 

Operating lease, long-term

  1,487   1,630 

Paycheck Protection Program loan, long-term

     634 
         

Shareholders' equity:

        

Preferred stock, no par: 10,000,000 shares authorized; no shares issued and outstanding

      

Common stock, no par: 37,500,000 shares authorized: 13,479,220 and 13,235,038 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

  140,494   139,726 

Accumulated other comprehensive loss

  (1,035)  (992)

Accumulated deficit

  (130,573)  (130,006)

Total shareholders' equity

  8,886   8,728 

Total liabilities and shareholders' equity

 $18,755  $22,282 

 

See notes to condensed consolidated financial statements.

 

https://cdn.kscope.io/1797f69d52d008d5b79798c50fa2ab86-logo.jpg

 

BSQUARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except per share amounts)

(Unaudited)

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2021

  

2020

  

2021

  

2020

 

Revenue:

                

Partner Solutions

 $9,960  $8,110  $18,755  $24,015 

Edge to Cloud

  711   814   1,888   1,638 

Total revenue

  10,671   8,924   20,643   25,653 

Cost of revenue:

                

Partner Solutions

  8,578   6,944   16,037   20,100 

Edge to Cloud

  901   934   1,821   1,922 

Total cost of revenue

  9,479   7,878   17,858   22,022 

Gross profit

  1,192   1,046   2,785   3,631 

Operating expenses:

                

Selling, general and administrative

  2,148   2,067   4,424   4,964 

Research and development

  365   54   533   181 

Total operating expenses

  2,513   2,121   4,957   5,145 

Loss from operations

  (1,321)  (1,075)  (2,172)  (1,514)

Other income (loss), net

  1,614   2   1,605   (33)

Income (loss) before income taxes

  293   (1,073)  (567)  (1,547)

Income taxes

            

Net income (loss)

 $293  $(1,073) $(567) $(1,547)

Basic earnings (loss) per share

 $0.02  $(0.08) $(0.04) $(0.12)

Diluted earnings (loss) per share

 $0.02  $(0.08) $(0.04) $(0.12)

Shares used in per share calculations:

                

Basic

  13,332   13,110   13,267   13,051 

Diluted

  13,881   13,110   13,267   13,051 
                 

Net income (loss)

 $293  $(1,073) $(567) $(1,547)

Other comprehensive loss

                

Foreign currency translation, net of tax

  (34)  (4)  (66)  (38)

Unrealized gain (loss) on investments, net of tax

           (1)

Total other comprehensive loss

  (34)  (4)  (66)  (39)

Comprehensive income (loss)

 $259  $(1,077) $(633) $(1,586)

 

See notes to condensed consolidated financial statements.

 

https://cdn.kscope.io/1797f69d52d008d5b79798c50fa2ab86-logo.jpg

 

BSQUARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

  

Six Months Ended June 30,

 
  

2021

  

2020

 

Cash flows from operating activities:

        

Net loss

 $(567) $(1,547)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

        

Depreciation and amortization

  297   360 

Stock-based compensation

  378   320 

Gain on extinguishment of PPP loan

  

(1,584)

   

 

Changes in operating assets and liabilities:

        

Accounts receivable, net

  (141)  2,973 

Contract assets

  (20)  (25)

Prepaid expenses and other assets

  (224)  (598)

Third-party software fees payable

  (793)  (1,026)

Accounts payable and accrued expenses

  (381)  (36)

Operating lease

  2   (46)

Deferred revenue

  (788)  301 

Net cash (used in) provided by operating activities

  (3,821)  676 

Cash flows from investing activities:

        

Additions to property and equipment

  (257)  (233)

Proceeds from maturities of short-term investments

     2,250 

Net cash (used in) provided by investing activities

  (257)  2,017 

Cash flows from financing activities:

        

Proceeds from Paycheck Protection Program loan

  

   

1,576

 

Proceeds from sale of common stock

  

360

   

 

Proceeds from exercise of stock options

  53    

Net cash provided by financing activities

  413   1,576 

Effect of exchange rate changes on cash and cash equivalents

  (66)  1 

Net (decrease) increase in cash and cash equivalents

  (3,731)  4,270 

Cash, restricted cash, and cash equivalents, beginning of period

  12,960   8,312 

Cash, restricted cash, and cash equivalents, end of period

 $9,229  $12,582 

 

See notes to condensed consolidated financial statements.

 

https://cdn.kscope.io/1797f69d52d008d5b79798c50fa2ab86-logo.jpg

 

BSQUARE CORPORATION

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(In thousands, except share amounts)

(Unaudited)

 

                  

Accumulated

         
                  

Other

      

Total

 
  

Preferred Stock

  

Common Stock

  

Comprehensive

  

Accumulated

  

Shareholders'

 

For the Three Months Ended June 30, 2021

 

Shares

  

Amount

  

Shares

  

Amount

  

Income (Loss)

  

Deficit

  

Equity

 

Balance as of March 31, 2021

    $   13,298,150  $139,907  $(1,001) $(130,866) $8,040 

Exercise of stock options

        72,191   17         17 

Sale of common stock

        108,879   360         360 

Share-based compensation, including issuance of restricted stock

           210         210 

Net income

                 293   293 

Foreign currency translation adjustment, net of tax

              (34)     (34)

Balance as of June 30, 2021

    $   13,479,220  $140,494  $(1,035) $(130,573) $8,886 

 

 

                  

Accumulated

         
                  

Other

      

Total

 
  

Preferred Stock

  

Common Stock

  

Comprehensive

  

Accumulated

  

Shareholders'

 

For the Six Months Ended June 30, 2021

 

Shares

  

Amount

  

Shares

  

Amount

  

Income (Loss)

  

Deficit

  

Equity

 

Balance as of December 31, 2020

    $   13,235,038  $139,726  $(992) $(130,006) $8,728 

Exercise of stock options

        135,303   53         53 

Sale of common stock

        108,879   360         360 

Share-based compensation, including issuance of restricted stock

           378         378 

Net loss

                 (567)  (567)

Foreign currency translation adjustment, net of tax

           (23)  (43)     (66)

Balance as of June 30, 2021

    $   13,479,220  $140,494  $(1,035) $(130,573) $8,886 

 

See notes to condensed consolidated financial statements

 

https://cdn.kscope.io/1797f69d52d008d5b79798c50fa2ab86-logo.jpg

BSQUARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1. Description of Business and Summary of Significant Accounting Policies

 

Description of Business

 

BSQUARE Corporation (“Bsquare,” “we,” “us” and “our”) builds technology that is powering the next generation of connected devices and intelligent systems. We help companies realize the promise of the Internet of Things ("IoT") through the development of devices and systems that are cloud-enabled, share data seamlessly, facilitate distributed learning and control, and operate securely at scale. We believe that IoT-enabled systems can not only deliver value to our customers but also help people make better use of the resources of our planet. Bsquare's suite of services and software components create new revenue streams and operating models for our customers while providing opportunities for lowering costs and improving operations.

 

Since our founding in 1994, Bsquare has been at the intersection of hardware and software. Today that intersection is the "edge" where cloud-enabled devices connect to create intelligent systems that share data, facilitate distributed control and machine learning, and operate securely at scale. We believe that our expertise, products, and services are applicable in customer projects and initiatives ranging from device hardware, to the operating system, to IoT software solutions, and cloud services that make intelligent systems possible.

 

Our business has largely been focused on providing software solutions (including reselling software from Microsoft) and related engineering services to businesses that develop, market and sell dedicated-purpose standalone intelligent systems. Examples of dedicated-purpose standalone intelligent systems include smart, connected computing devices such as point-of-sale terminals, kiosks, tablets and handheld devices, as well as smart vending machines, ATM machines, digital signs, smart phones, set-top boxes and in-vehicle telematics and entertainment devices.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of Bsquare have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting and include the accounts of Bsquare and our wholly owned subsidiaries. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In management’s opinion, the unaudited condensed consolidated financial statements include all material adjustments, all of which are of a normal and recurring nature, necessary to present fairly our financial position as of June 30, 2021 and our operating results and cash flows for the six months ended June 30, 2021 and 2020. The accompanying financial information as of December 31, 2020 is derived from our audited financial statements as of that date.

 

These unaudited condensed financial statements and related notes should be read in conjunction with our audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 18, 2021.

 

Basis of consolidation

 

The consolidated financial statements include the accounts of Bsquare and our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

 

Revision of prior period financial statements

 

In connection with the preparation of our condensed consolidated financial statements, we identified an immaterial error related to the recognition of certain revenues in our Edge to Cloud segment in the third quarter of 2019 that had a rollforward effect on consolidated equity and deferred revenue in all quarterly and annual periods through the first quarter of fiscal year 2021. In accordance with SEC Staff Accounting Bulletin ("SAB") No. 99, “Materiality,” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” we evaluated the error and determined that the related impact was not material to our financial statements for any prior annual or interim period, but that correcting the cumulative impact of the error would be material to our results of operations for the three months ended June 30, 2021. Accordingly, we have revised our consolidated balance sheets and statements of shareholder’s equity as of September 31, 2019, December 31, 2019, and December 31, 2020 and condensed consolidated statements of operations and comprehensive loss and cash flows for the year-ended December 31, 2019 and the three and nine months ended September 30, 2019. A summary of revisions to certain previously reported financial information presented herein for comparative purposes is included in Note 12 – Revision of Prior Period Financial Statements.

 

Use of estimates

 

Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Examples include provisions for bad debts and income taxes, estimates of progress on professional engineering service arrangements, bonus accruals, useful lives of intangible assets and property and equipment, fair values of stock-based awards, and assumptions used to determine the net present value of operating lease liabilities, among other estimates and assumptions. Actual results may differ from these estimates and assumptions.

 

Income (loss) per share

 

We compute basic income (loss) per share using the weighted average number of shares of common stock outstanding during the period. We consider restricted stock units as outstanding shares of common stock and include them in the computation of basic loss per share only when vested. We compute diluted loss per share using the weighted average number of shares of common stock outstanding and common stock equivalent shares outstanding during the period using the treasury stock method. We exclude common stock equivalent shares from the computation if their effect is anti-dilutive.

 

7

https://cdn.kscope.io/1797f69d52d008d5b79798c50fa2ab86-logo.jpg

The following potentially dilutive weighted shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented:

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2021

  

2020

  

2021

  

2020

 

Stock options

  406,960   1,922,935   299,743   1,748,717 

Restricted stock units

     39,152   84,527   57,806 

 

 

2. Revenue Recognition 

 

Disaggregation of revenue

 

The following table provides information about disaggregated revenue by primary geographical area and includes a reconciliation of the disaggregated revenue with reportable segments (in thousands):

 

  

Three Months Ended June 30, 2021

  

Three Months Ended June 30, 2020

 
  Partner  Edge to     Partner  Edge to    
  

Solutions

  

Cloud

  

Total

  

Solutions

  

Cloud

  

Total

 

Primary geographic area:

                        

North America

 $7,555  $666  $8,221  $7,114  $640  $7,754 

Europe

  93   45  $138   305   90   395 

Asia

  2,312     $2,312   691   84   775 

Total

 $9,960  $711  $10,671  $8,110  $814  $8,924 

 

  

Six Months Ended June 30, 2021

  

Six Months Ended June 30, 2020

 
  Partner  Edge to     Partner  Edge to    
  

Solutions

  

Cloud

  

Total

  

Solutions

  

Cloud

  

Total

 

Primary geographic area:

                        

North America

 $15,078  $1,731  $16,809  $20,285  $1,245  $21,530 

Europe

  202   157   359   731   303   1,034 

Asia

  3,475      3,475   2,999   90   3,089 

Total

 $18,755  $1,888  $20,643  $24,015  $1,638  $25,653 

 

Contract balances

 

We receive payments from customers based upon contractual billing schedules; accounts receivable is recorded when the right to consideration becomes unconditional. Contract assets include amounts related to our contractual right to consideration for completed performance obligations not yet invoiced. Contract liabilities, presented as deferred revenue on our condensed consolidated balance sheets, include payments received in advance of performance under the contract and are realized when the associated revenue is recognized. We had no asset impairment charges related to contract assets for each of the three and six months ended June 30, 2021 and 2020

 

Significant changes in the contract assets and the deferred revenue balances during the three and six months ended June 30, 2021 were as follows:

 

  

Three Months Ended June 30, 2021

  

Six Months Ended June 30, 2021

 
  

Contract

  

Contract

 
  

Assets

  

Assets

 

Transferred to receivables from contract assets outstanding at December 31, 2020

      

 

  

Three Months Ended June 30, 2021

  

Six Months Ended June 30, 2021

 
  

Deferred

  

Deferred

 
  

Revenue

  

Revenue

 

Revenue recognized that was included in deferred revenue at December 31, 2020

 $323,647  $1,079,243 

 

Contract acquisition costs

 

We capitalize contract acquisition costs for contracts with a life exceeding one year. Amortization of contract acquisition costs was $31,000 and $35,000 for the three months ended June 30, 2021 and 2020, respectively, and was $53,000 and $70,000 for the six months ended June 30, 2021 and 2020, respectively. There were no asset impairment charges for contract acquisition costs for any of the periods noted above. 

 

Transaction price allocated to the remaining performance obligations

 

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The estimated revenue does not include contracts with original durations of one year or less, amounts of variable consideration attributable to royalties, or contract renewals that were unexercised as of June 30, 2021:

 

  

Remainder of

         
  

2021

  

2022

  

After 2022

 

Edge to Cloud

  (862,052)  (1,374,163)  (451,537)

 

8

https://cdn.kscope.io/1797f69d52d008d5b79798c50fa2ab86-logo.jpg

Practical expedients and exemptions

 

We generally expense sales commissions when incurred because the amortization period would have been less than one year. We record these costs within selling, general and administrative expenses.

 

When applicable and appropriate, the Company utilizes the ‘as-invoiced’ practical expedient which permits revenue recognition upon invoicing.

 

 

3. Cash, Cash Equivalents and Restricted Cash

 

Cash, cash equivalents and restricted cash consisted of the following (in thousands):

 

  

June 30, 2021

  

December 31, 2020

 

Cash

 $2,778  $6,509 

Cash equivalents (see detail in Note 4)

  6,114   6,114 

Restricted cash

  337   337 

Total cash and cash equivalents

  9,229   12,960 

 

 

4. Fair Value Measurements

 

We measure our cash equivalents and restricted cash at fair value. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

 

 

Level 1:

Quoted prices in active markets for identical assets or liabilities.

 

Level 2:

Directly or indirectly observable market-based inputs or unobservable inputs used in models or other valuation methodologies.

 

Level 3:

Unobservable inputs that are not corroborated by market data. The inputs require significant management judgment or estimation.

 

We classify our cash equivalents and restricted cash within Level 1 or Level 2 because our cash equivalents and restricted cash are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs.

 

Assets measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020 are summarized below (in thousands):

 

  

June 30, 2021

  

December 31, 2020

 
  

Quoted Prices in

  

Direct or

      

Quoted Prices in

  

Direct or

     
  

Active Markets

  

Indirect

      

Active Markets

  

Indirect

     
  

for Identical

  

Observable

      

for Identical

  

Observable

     
  

Assets (Level 1)

  

Inputs (Level 2)

  

Total

  

Assets (Level 1)

  

Inputs (Level 2)

  

Total

 

Assets

                        

Cash equivalents:

                        

Money market funds

 $6,114  $  $6,114  $6,114  $  $6,114 

Total cash equivalents

  6,114      6,114   6,114      6,114 

Restricted cash:

                        

Money market funds

  337      337   337      337 

Total assets measured at fair value

 $6,451  $  $6,451  $6,451  $  $6,451 

 

 

5. Intangible Assets

 

Intangible assets relate to customer relationships that we acquired from TestQuest, Inc. in November 2008 and from the acquisition of Bsquare EMEA, Ltd. in September 2011 and were as follows (in thousands):

 

  

June 30, 2021

  

December 31, 2020

 
  

Gross

          

Gross

         
  

Carrying

  

Accumulated

  

Net Book

  

Carrying

  

Accumulated

  

Net Book

 
  

Amount

  

Amortization

  

Value

  

Amount

  

Amortization

  

Value

 

Customer relationships

 $982  $(960) $22  $982  $(911) $71 

 

Amortization expense was $25,000 for each of the three months ended June 30, 2021 and 2020. Amortization in future periods is expected to be as follows (in thousands):

 

Remainder of 2021

 $22 

Total

 $22 

 

9

https://cdn.kscope.io/1797f69d52d008d5b79798c50fa2ab86-logo.jpg
 

6. Leases

 

We determine if an arrangement is a lease at inception. On our balance sheet, our office leases are included in right-of-use (“ROU”) lease asset, net and related lease liabilities are included in operating lease and operating lease, long-term. We determined that we do not currently have any leases that we are required to classify as finance leases.

 

ROU assets represent our right to use the underlying assets for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease agreements. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the term of the lease. For leases that do not provide an implicit rate, we use an incremental borrowing rate based on information available at the commencement date to determine the present value of lease payments. We use the implicit rate in the lease when readily determinable. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

 

In November 2020, we renewed the lease for our office facility in the UK. The term of the lease is 120 months, with rent payments starting on November 30, 2020 and the lease term ending on November 8, 2030. The Company has an opportunity to break the lease at the five-year mark in November 2025. As it is reasonably certain that we will utilize this option, the accounting for this lease utilized November 2025 as the end date. The lease commencement date was November 9, 2020. As a result of entering into this lease agreement, we recorded additional ROU assets and net lease liabilities of $365,559 on our consolidated balance sheet as of December 31, 2020. There was no material impact to our statement of operations or statement of cash flows as a result of entering into this lease.

 

Our leases have remaining terms of five to seven years. The only leases that contain renewal options are for office space leases at our Seattle and Trowbridge locations. In the fourth quarter of 2019, we made the decision not to renew our Bellevue lease, which expired at the end of May 2020, and we made the decision not to renew our Taiwan lease, exiting that facility in February 2020. Because of changes in our business, we are not able to determine with reasonable certainty whether we will renew our Seattle lease. As a result, we have not considered renewal options when recording ROU assets, lease liabilities or lease expense.

 

The following tables present the components of our lease expense and supplemental cash flow information related to our leases for the six months ended June 30, 2021 (in thousands):

 

  

Six Months Ended

 

Total component lease expense was as follows:

 

June 30, 2021

 

Operating leases

 $206 

Supplemental cash flow information related to leases was as follows:

    

Cash paid for amounts included in the measurement of lease liabilities

 $206 

 

The following table presents supplemental balance sheet information related to our operating leases as of June 30, 2021 (dollars in thousands):

 

  

June 30, 2021

 

Right-of-use lease assets

 $1,712 
     

Current portion of operating lease liability

 $348 

Operating lease liability, net of current portion

  1,487 

Total operating lease liabilities

 $1,835 
     

Weighted average remaining lease term (years)

  5.7 

Weighted average discount rate

  8.5%

 

The following table presents the amounts we are obligated to pay, by maturity, under our operating leases liabilities as of June 30, 2021 (in thousands):

 

Years Ending December 31,

    

2021, remainder of year

 $156 

2022

  317 

2023

  324 

2024

  331 

2025

  326 

After 2025

  440 

Total minimum lease payments

  1,894 

Less: amount representing interest

  (59)

Present value of lease liabilities

 $1,835 

 

10

https://cdn.kscope.io/1797f69d52d008d5b79798c50fa2ab86-logo.jpg
 

7. Shareholders’ Equity

 

Equity Compensation Plans

 

We have a stock plan (the “Stock Plan”) and an inducement stock plan for newly hired employees (together with the Stock Plan, the “Plans”). Under the Plans, stock options to purchase shares of our common stock may be granted with a fixed exercise price that is equal to the fair market value of our common stock on the date of grant. These options have a term of up to 10 years and vest over a predetermined period, generally four years. Incentive stock options granted under the Stock Plan may only be granted to our employees. The Plans also allow for awards of non-qualified stock options, stock appreciation rights, restricted and unrestricted stock awards, and restricted stock units (“RSUs”).

 

 

Stock-Based Compensation

 

The estimated fair value of stock-based awards is recognized as compensation expense over the vesting period of the award, net of estimated forfeitures. We estimate forfeitures based on historical experience and expected future activities. The fair value of RSUs is determined based on the number of shares granted and the quoted price of our common stock on the date of grant. The fair value of stock option awards is estimated at the grant date based on the fair value of each vesting tranche as calculated by the Black-Scholes-Merton (“BSM”) option-pricing model. The BSM model requires various highly judgmental assumptions including expected volatility and option life. If any of the assumptions used in the BSM model change significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period. The fair values of our stock option grants and RSUs were estimated with the following weighted average assumptions:

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2021

  

2020

  

2021

  

2020

 

Dividend yield

  0%  0%  0%  0%

Expected life (years)

  4.8   4.9   4.8   4.9 

Expected volatility

  105%  63%  105%  63%

Risk-free interest rate

  0.6%  0.3%  0.5%  0.7%

 

The impact on our results of operations from stock-based compensation expense was as follows (in thousands):

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2021

  

2020

  

2021

  

2020

 

Cost of revenue — Edge to Cloud

 $9  $20  $24  $24 

Selling, general and administrative

  181   80   327   286 

Research and development

  20   5   27   10 

Total stock-based compensation expense

 $210  $105  $378  $320 

 

Stock Option Activity

 

The following table summarizes stock option activity under the Plans:

 

          

Weighted

     
          

Average

     
          

Remaining

     
      

Weighted

  

Contractual

     
  

Number of

  

Average

  

Life

  

Aggregate

 
  

Shares

  

Exercise Price

  

(in years)

  

Intrinsic Value

 

Balance at December 31, 2020

  1,786,891  $2.04   7.75  $330,831 

Granted

  160,000   2.89         

Exercised

  (24,255)  2.20         

Forfeited

  (43,450)  1.51         

Expired

  (62,200)  2.60         

Balance at June 30, 2021

  1,816,986   2.11   7.49   4,987,776 

Vested and expected to vest at June 30, 2021

  1,670,128   2.15   7.39   4,527,651 

Exercisable at June 30, 2021

  860,520  $2.67   6.36  $1,957,927 

 

11

https://cdn.kscope.io/1797f69d52d008d5b79798c50fa2ab86-logo.jpg

 

At June 30, 2021, total compensation cost related to stock options granted but not yet recognized, net of estimated forfeitures, was $373,173. This cost will be amortized on the straight-line method over a weighted-average period of approximately 1.3 years. The following table summarizes certain information about stock options:

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2021

  

2020

  

2021

  

2020

 

Weighted average grant-date fair value of options granted during the period

 $2.64  $1.66  $2.89  $1.02 

Options in-the-money (in shares)

  706,620   25,344   706,620   25,344 

Aggregate intrinsic value of options exercised during the period

 $1.02  $  $2.20  $ 

 

The aggregate intrinsic value represents the difference between the exercise price of the underlying options and the quoted price of our common stock for the number of options exercised during the periods indicated. We issue new shares of common stock upon exercise of stock options.

 

Restricted Stock Unit Activity

 

The following table summarizes RSU activity under the Plans:

 

  

Number of

  

Weighted Average

 
  

Shares

  

Award Price

 

Unvested at December 31, 2020

  164,697  $1.48 

Granted

  90,343   2.72 

Vested

  (109,798)  1.48 

Forfeited

  (21,115)  1.48 

Unvested at June 30, 2021

  124,127   2.38 

Expected to vest after June 30, 2021

  118,839  $2.37 

 

At June 30, 2021, total compensation cost not yet recognized related to granted RSUs was approximately $183,164, net of estimated forfeitures. This cost will be amortized on the straight-line method over a weighted-average period of approximately 0.3 years.

 

Performance Stock Units

 

In January 2021 we issued 500,000 performance stock units (PSUs) to our executives. The PSUs vest based on a combination of Bsquare's stock price performance and executive service (continued employment). The first vesting measurement date is January 5, 2022 and the final measurement date is July 5, 2025. We estimated the fair value of the awards utilizing Monte Carlo simulations. Based on the Monte Carlo model, expense of approximately $17,000 and $34,000 was recorded in the selling, general and administrative line of our statement of operations for the three and six months ended June 30, 2021, respectively. The PSUs had no impact on our cash flow statement. 

 

Award Modifications 

 

In June 2021, the outstanding RSU and non-qualified stock option awards of two Board members were modified. In accordance with ASC 718, we recorded incremental expense of $41,000 during the period related to the revaluation of these modified awards.

 

Common Stock Reserved for Future Issuance

 

The following table summarizes our shares of common stock reserved for future issuance under the Plans as of June 30, 2021:

 

  

June 30, 2021

 

Stock options outstanding

  1,816,986 

Restricted stock units and performance stock units outstanding

  624,127 

Stock options and restricted stock units available for future grant

  1,426,792 

Common stock reserved for future issuance

  3,867,905 

 

Common Stock Sales 

 

In the second quarter of 2021, we received net cash proceeds of approximately $349,000 from the sale of 108,879 shares of our common stock pursuant to a registration statement on Form S-3 under the Securities Act of 1933, as amended (the "Securities Act") filed in March 2021. The issued shares and total paid-in capital are reflected in the consolidated statement of shareholder’s equity for the three and six months ended June 30, 2021.

 

12

https://cdn.kscope.io/1797f69d52d008d5b79798c50fa2ab86-logo.jpg
 

8. Commitments and Contingencies

 

Lease and rent obligations

 

Our commitments include obligations outstanding under operating leases, which expire through 2027. We have lease commitments for office space in Seattle, Washington and Trowbridge, UK. See Note 6 - Leases.

 

Loss Contingencies

 

From time to time, we are subject to legal proceedings, claims, and litigation arising in the ordinary course of business including tax assessments. We defend ourselves vigorously against any such claims. When (i) it is probable that an asset has been impaired or a liability has been incurred and (ii) the amount of the loss can be reasonably estimated, we record the estimated loss. We provide disclosure in the notes to the consolidated financial statements for loss contingencies that do not meet both conditions if there is a reasonable possibility that a loss may have been incurred that would be material to the financial statements. Significant judgment is required to determine the probability that a liability has been incurred and whether such liability is reasonably estimable. We base accruals made on the best information available at the time, which can be highly subjective. As of June 30, 2021, we have not recorded any loss contingency accruals. 

 

 

9. Information about Geographic Areas and Operating Segments

 

Our chief operating decision-makers (i.e. our Chief Executive Officer and certain direct reports) review financial information presented on a consolidated basis, accompanied by disaggregated information for purposes of allocating resources and evaluating financial performance. There are no segment managers who are held accountable by our chief operating decision-makers, or anyone else, for operations, operating results, or planning for levels or components below the consolidated unit level. We operate within a single industry segment of computer software and services.

 

We have two major product lines, Partner Solutions and Edge to Cloud, each of which we consider to be operating and reportable segments. We do not allocate costs other than direct cost of goods sold to the segments or produce segment income statements, and we do not produce asset information by reportable segment. The following table sets forth profit and loss information about our segments (in thousands):

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2021

  

2020

  

2021

  

2020

 

Partner Solutions:

                

Revenue

 $9,960  $8,110  $18,755  $24,015 

Cost of revenue

  8,578   6,944   16,037   20,100 

Gross profit

  1,382   1,166   2,718   3,915 

Edge to Cloud:

                

Revenue

  711   814   1,888   1,638 

Cost of revenue

  901   934   1,821   1,922 

Gross profit

  (190)  (120)  67   (284)

Total gross profit

  1,192   1,046   2,785   3,631 

Operating expenses

  2,513   2,121   4,957   5,145 

Other income (expense), net

  1,614   2   1,605   (33)

Income tax benefit (expense)

            

Net income (loss)

 $293  $(1,073) $(567) $(1,547)

 

13

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              https://cdn.kscope.io/1797f69d52d008d5b79798c50fa2ab86-logo.jpg

Revenue by geographic area is based on the sales region of the customer. The following tables set forth total revenue and long-lived assets by geographic area (in thousands):

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2021

  

2020

  

2021

  

2020

 

Total revenue:

                

North America

 $8,221  $7,754  $16,809  $21,530 

Europe

  138   395   359   1,034 

Asia

  2,312   775   3,475   3,089 

Total revenue

 $10,671  $8,924  $20,643  $25,653 

 

  

June 30, 2021

  

December 31, 2020

 

Long-lived assets:

        

North America

 $1,666  $1,179 

Europe

  171   179 

Total long-lived assets

 $1,837  $1,358 

 

Long-lived assets increased due to additions of internally developed software during the quarter in North America.

 

 

10. Significant Risk Concentrations

 

Significant Customers

 

GES Singapore Pte, LTD accounted for $1.0 million or approximately 10% of our total revenue for the three months ended June 30, 2021. ParTech, Inc. accounted for $1.1 million or approximately 11% of our total revenue for the three months ended June 30, 2021. CCIntegration, Inc. accounted for $1.2 million or approximately 14% of our total revenue for the three months ended June 30, 2020.

 

No customers accounted for 10% or more of total revenue for each of the six months ended June 30, 2021 and 2020. 

 

GES Singapore Pte, LTD had accounts receivable balances of $801,000 or approximately 13% of our total accounts receivable at June 30, 2021. Honeywell International, Inc. and affiliated entities ("Honeywell") had accounts receivable balances of $680,000 or approximately 12% of our total accounts receivable at December 31, 2020. Kodak Alaris had accounts receivable balances of $866,000 or approximately 15% of our total accounts receivable at December 31, 2020.

 

Significant Supplier

 

We are authorized to sell Windows IoT operating systems in Canada, the United States, Argentina, Brazil, Chile, Mexico, Peru, Venezuela, Puerto Rico, Columbia, and several Caribbean countries. Our distribution agreement for sales of Windows IoT operating systems in the European Union (“E.U.”), the European Free Trade Association, Turkey and Africa, expired on June 30, 2019 and was not renewed thereafter. 

 

We have also entered into Original Equipment Manufacturer Distribution Agreements ("ODAs") with Microsoft pursuant to which we are licensed to sell Microsoft Windows Mobile operating systems to customers in North America, South America, Central America (excluding Cuba), Japan, Taiwan, Europe, the Middle East, and Africa. The ODAs to sell Windows Mobile operating systems are effective through April 30, 2022.

 

There is no automatic renewal provision in any of these agreements, and these agreements can be terminated unilaterally by Microsoft at any time.

 

The majority of our revenue continues to be derived from reselling Microsoft Windows Embedded and IoT operating system software to device makers. The sale of Microsoft operating systems has historically accounted for substantially all of our Partner Solutions revenue.

 

Microsoft currently offers a distributor incentives program through which we earn rebates pursuant to predefined objectives related to sales of Microsoft Windows IoT operating systems. In accordance with program rules, we allocate a portion of the incentive earnings to reduce cost of revenue with the remaining portion utilized to offset qualified marketing expenses in the period the expenditures are claimed and approved. During the second quarter of 2020 the program allocation was changed by Microsoft to a 50/50 split between the two components.

 

Under this rebate program, we recorded rebate credits as follows (in thousands):

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2021

  

2020

  

2021

  

2020

 

Reductions to cost of revenue

 $103  $41  $209  $154 

Reductions to marketing expense

  120   721   177   940 

 

14

https://cdn.kscope.io/1797f69d52d008d5b79798c50fa2ab86-logo.jpg

 

11. Paycheck Protection Program (PPP) loan

 

We obtained a $1.5 million loan (the "PPP Loan") from JPMorgan Chase Bank, N.A. (the “Lender”) under the Paycheck Protection Program ("PPP") on April 7, 2020 (the “Note”). The Note had a two-year term, bore interest at the rate of 0.98% per annum, and could be prepaid at any time without payment of any premium or penalty. The principal and accrued interest under the Note was forgivable after an eight- or 24-week period if we used the PPP Loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and otherwise comply with PPP requirements. In April 2021, we applied for forgiveness of this loan in accordance with the program, and in June 2021, we received confirmation that the loan principal (and related accrued interest) was forgiven in its entirety. The gain on loan forgiveness is included in other income (loss), net on the statement of operations for the three and six months ended June 30, 2021, and as a gain on extinguishment of debt in the statement of cash flows for the six months ended June 30, 2021.

 

At June 30, 2021 and December 31, 2020, the PPP Loan balance was as follows (in thousands):

 

  

June 30, 2021

  

December 31, 2020

 

PPP Loan, .98%, due April 2022:

        

Principal

 $-  $1,572 

Accrued interest

  -   12 
  $-  $1,584 
         

PPP Loan payable:

        

Current portion

 $-   950 

Long-term portion

  -   634 
  $-  $1,584 
 

 

 

12. Revision of Prior Period Financial Statements

 

We revised certain prior period financial statements due to a $77,000 error related to the recognition of certain revenues in our Edge to Cloud segment. The error occurred in the third quarter of 2019 and had a rollforward effect on consolidated equity and deferred revenue in all quarterly and annual periods through the first quarter of 2021. See Note 1 - Description of Business and Summary of Significant Accounting Policies. A summary of the revisions to our previously reported financial statements is presented below (in thousands).

 

 

Revised Consolidated Balance Sheets

 

  

As of December 31, 2019

 
  

As reported

  

Adjustment

  

As revised

 

Deferred revenue, current portion

 $1,559  $(77) $1,482 

Total current liabilities

  11,200   (77)  11,123 

Accumulated deficit

  (128,194)  77   (128,117)

Total shareholders' equity

  9,696   77   9,773 

 

  

As of December 31, 2020

 
  

As reported

  

Adjustment

  

As revised

 

Deferred revenue, current portion

 $2,165  $(77) $2,088 

Total current liabilities

  11,339   (77)  11,262 

Accumulated deficit

  (130,083)  77   (130,006)

Total shareholders' equity

  8,651   77   8,728 

 

15

https://cdn.kscope.io/1797f69d52d008d5b79798c50fa2ab86-logo.jpg

Revised Consolidated Statement of Shareholders Equity

 

  

Year Ended

 
  

December 31, 2019

 
  

As reported

  

Adjustment

  

As revised

 

Net loss

 $(9,181) $77  $(9,104)

Accumulated deficit

  (128,194)  77   (128,117)

 

  

Three Months Ended

 
  

September 30, 2019

 
  

As reported

  

Adjustment

  

As revised

 

Net loss

 $(1,107) $77  $(1,030)

Accumulated deficit

  (126,834)  77   (126,757)

 

  

Nine Months Ended

 
  

September 30, 2019

 
  

As reported

  

Adjustment

  

As revised

 

Net loss

 $(7,821) $77  $(7,744)

Accumulated deficit

  (126,834)  77   (126,757)

 

  

Year Ended

 
  

December 31, 2020

 
  

As reported

  

Adjustment

  

As revised

 

Accumulated deficit

 $(130,083) $77  $(130,006)

 

 

Revised Condensed Consolidated Statements of Operations and Comprehensive Loss

 

  

Year Ended

 
  

As of December 31, 2019

 
  

As reported

  

Adjustment

  

As revised

 

Edge to Cloud revenue

 $8,655  $77  $8,732 

Total revenue

  59,283   77   59,360 

Gross profit

  10,096   77   10,173 

Loss from operations

  (9,314)  77   (9,237)

Loss before income taxes

  (9,165)  77   (9,088)

Net loss

  (9,181)  77   (9,104)

Basic loss per share

  (0.71)  -   (0.71)

Diluted loss per share

  (0.71)  -   (0.71)

Comprehensive loss

  (9,242)  77   (9,165)

 

  

Three Months Ended

 
  

September 30, 2019

 
  

As reported

  

Adjustment

  

As revised

 

Edge to Cloud revenue

 $2,085  $77  $2,162 

Total revenue

  14,641   77   14,718 

Gross profit

  2,632   77   2,709 

Loss from operations

  (1,129)  77   (1,052)

Loss before income taxes

  (1,107)  77   (1,030)

Net loss

  (1,107)  77   (1,030)

Basic loss per share

  (0.09)  0.01   (0.08)

Diluted loss per share

  (0.09)  0.01   (0.08)

Comprehensive loss

  (1,111)  77   (1,034)

 

  

Nine Months Ended

 
  

September 30, 2019

 
  

As reported

  

Adjustment

  

As revised

 

Edge to Cloud revenue

 $6,576  $77  $6,653 

Total revenue

  43,917   77   43,994 

Gross profit

  7,446   77   7,523 

Loss from operations

  (7,937)  77   (7,860)

Loss before income taxes

  (7,821)  77   (7,744)

Net loss

  (7,821)  77   (7,744)

Basic loss per share

  (0.60)  -   (0.60)

Diluted loss per share

  (0.60)  -   (0.60)

Comprehensive loss

  (7,899)  77   (7,822)

 

16

https://cdn.kscope.io/1797f69d52d008d5b79798c50fa2ab86-logo.jpg

Revised Condensed Consolidated Statements of Cash Flows

 

We revised our condensed consolidated statements of cash flows for the year ended December 31, 2019 and the nine months ended  September 31, 2019 for this correction, which had no impact to net cash used by operating activities in each such period.

 

  

Year Ended

 
  

December 31, 2019

 
  

As reported

  

Adjustment

  

As revised

 

Cash flows from operating activities:

            

Net loss

 $(9,181) $77  $(9,104)

Deferred revenue

  (227)  (77)  (304)

Net cash used by operating activities

  (5,995)  -   (5,995)

 

  

Nine Months Ended

 
  

September 30, 2019

 
  

As reported

  

Adjustment

  

As revised

 

Cash flows from operating activities:

            

Net loss

 $(7,821) $77  $(7,744)

Deferred revenue

  (48)  (77)  (125)

Net cash used in operating activities

  (4,994)  -   (4,994)

 

Revised Segment Information

 

Edge to Cloud revenue and gross profit were impacted for each of the applicable prior periods by the same amount as consolidated revenue and gross profit for the respective periods.

 

 

13. Subsequent Events

 

In July 2021, we entered into a Side Letter (the “Side Letter”) with B. Riley Securities, Inc. (the “Agent”) in connection with the At-Market Issuance Sales Agreement dated April 2, 2021 (the “Sales Agreement”) between us and the Agent. The Side Letter confirmed the understanding of the parties that the Sales Agreement applies to the issuance and sale of shares (the “Shares”) of our common stock having an aggregate offering price of up to $50.0 million pursuant to our existing shelf registration statement on Form S-3 (File No. 333-254458) originally filed with the SEC on March 18, 2021 and which became effective on March 26, 2021 (the “Registration Statement”). All other terms and conditions of the Sales Agreement remain in full force and effect.

 

We previously filed a prospectus supplement dated April 2, 2021 relating to the offering of up to $25.0 million in Shares under the Sales Agreement (the “Prior Offering”). We also filed a prospectus supplement dated July 7, 2021 relating to the offering of up to an additional $25.0 million in Shares under the Sales Agreement (the “Current Offering”).

 

During July 2021, we received $31.8 million in net cash proceeds from the sale of 6,793,798 Shares, no par value under the terms of the Prior Offering and the Current Offering.

 

17

https://cdn.kscope.io/1797f69d52d008d5b79798c50fa2ab86-logo.jpg
 

Item 2.

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

 

The following discussion should be read in conjunction with our condensed consolidated financial statements and related notes. Some statements and information contained in this discussion are not historical facts but are forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, readers can identify forward- looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “forecast,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” or the negative of these terms or other comparable terminology, which when used are meant to signify the statement as forward-looking. These forward-looking statements include, but are not limited to, statements about our plans, objectives, expectations and intentions and other statements that are not historical facts. These forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and situations that are difficult to predict and that may cause our own, or our industry’s actual results, to be materially different from the future results that are expressed or implied by these statements. Accordingly, actual results may differ materially from those anticipated or expressed in such statements as a result of a variety of factors, including those discussed in the sections entitled “Risk Factors” in this Quarterly Report on Form 10-Q and in in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2020 as well as similar discussions contained in our periodic reports, and other documents or filings and documents that we may from time to time file or furnish with the SEC. Readers are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date made. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

 

Overview

 

Bsquare is a software and services company that designs, configures, and deploys technologies that solve difficult problems for manufacturers and operators of connected devices. Our customers choose Bsquare to help realize the promise of the Internet of Things (IoT) to transform their businesses. Our products include software that connects devices to create intelligent systems that are cloud-enabled, contribute critical data, and facilitate distributed control and decision making. Our services include 24/7 IoT operations that allow our customers to focus on their businesses while we take care of security, monitoring, and general technology updates. The opportunity to help companies explore and capture the value of IoT is attractive and growing. In the last two years alone, we helped hundreds of companies deploy and manage over two million devices. We operate large IoT systems for our customers with device fleets that range in size and complexity. We believe we offer a unique combination of expertise in device-level solutions, embedded operating systems, and IoT services and software that is valued by a global customer base, from start-ups to Fortune 100 companies, across a diverse set of industries.

 

In the first half of 2021, we continued our ongoing initiatives to strategically build our business and are pursuing business opportunities at the intersection of our two business segments. In the Partner Solutions segment, customers who have been purchasing Operating System (OS) software from us are recognizing that their products, essentially interconnected devices and associated software, cannot be sold, installed, and then forgotten. For these customers, we offer software-based solutions that address the operational headaches caused by this relatively new and increasingly complex business requirement.  In the Edge to Cloud segment, customers are relying on Bsquare for a complete solution, ranging from OS configuration to 24/7 support, dev/ops, and cloud management – the services that are critical when a customer puts an IoT solution into production. Experience with those customers has shown that Bsquare’s role can last well beyond the development phase and continue into their on-going operations. Our software and edge expertise combined with our position as a supply chain partner makes us uniquely suited to address these complex requirements, in both business segments.

 

Revenue

 

The COVID-19 pandemic, including its impact on the microchip supply chain, continues to affect our Partner Solutions customer ordering patterns and has caused ongoing disruptions and revenue variability in the Partner Solutions segment. Decreases in segment revenue that began in the second quarter of 2020 persisted through the first quarter of 2021. Second quarter 2021 revenue improved over first quarter 2021 as COVID-19 related supply chain issues eased for some of our Partner Solutions customers during the quarter. It is not clear that this is an indication of sustained recovery. Revenue in 2021 remains at levels lower than our pre-COVID-19 expectations. We believe our Partner Solutions revenue is also affected by other Microsoft distributors offering deep discounts on Windows IoT OS software as part of hardware / software bundles. We expect this market trend may continue in future quarters. We are working to retain and attract customers with superior service and technical support, pricing that rewards loyalty, and a path to IoT operations.

 

In our Edge to Cloud segment, investments we made to ensure we were meeting our operating commitments, while re-tooling and addressing issues with software previously delivered to some of our larger IoT customers, started to generate revenue for us in 2020. In the first quarter of 2021, we worked closely with Itron, Inc. to help them build their intelligent utility grid. We anticipate investments in our other large IoT customers will continue in 2021, but at lower levels than in 2020 as the bulk of the rework is now complete. Beyond gaining credibility as a reliable technology partner, we believe the experience we have gained serving Itron and our other large IoT customers positions us to improve our IoT software and services in 2021 and beyond.

 

Expenses

 

Our work in 2020 to reduce our operating expense structure has provided a foundation from which we are strategically building our business. Our operating expenses in the first half of 2021 were nearly $200,000 less than our operating expenses the first half of 2020. Our current cost structure fits our business model and our entrepreneurial leadership team acts on changing business circumstances and opportunities as they emerge. We believe this operating discipline demonstrates our ability to manage through adversity.

 

Cash and Liquidity

 

Our cash and cash equivalents decreased by $3.7 million in the first half of 2021. This cash use was driven by investment in strategic growth opportunities, operational results (primarily soft Partner Solutions revenue) and variations in working capital.

 

During the second quarter of 2021 we received net cash proceeds of $0.3 million from sales of Shares under the terms of the Prior Offering. After the quarter, in July 2021, we received net cash proceeds of $31.8 million from additional sales of Shares under the terms of the Prior Offering and the Current Offering.

 

https://cdn.kscope.io/1797f69d52d008d5b79798c50fa2ab86-logo.jpg

 

Critical Accounting Judgments

 

Our condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales, cost of sales and expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates on an on-going basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable in the circumstances, which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no significant changes to our critical accounting judgments, policies and estimates as described in our Annual Report on Form 10-K for the year ended December 31, 2020.

 

Results of Operations

 

The following table presents our summarized results of operations for the periods indicated. Our historical operating results are not necessarily indicative of the results for any future period.

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 

(In thousands, except percentages)

 

2021

   

2020

   

$ Change

   

% Change

   

2021

   

2020

   

$ Change

   

% Change

 

Total revenue

  $ 10,671     $ 8,924     $ 1,747       20 %   $ 20,643     $ 25,653     $ (5,010 )     (20 )%

Total cost of revenue

    9,479       7,878       1,601       20 %     17,858       22,022       (4,164 )     (19 )%

Gross profit

    1,192       1,046       146       14 %     2,785       3,631       (846 )     (23 )%

Operating expenses

    2,513       2,121       392       18 %     4,957       5,145       (188 )     (4 )%

Loss from operations

    (1,321 )     (1,075 )     (246 )     (23 )%     (2,172 )     (1,514 )     (658 )     (43 )%

Other income (loss), net

    1,614       2       1,612       80600 %     1,605