10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2013

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.)
110 110th Avenue NE, Suite 200, Bellevue WA	98004
(Address of principal executive offices)	(Zip Code)

(425) 519-5900

(Registrant’s telephone number, including area code)

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  x    No  ¨

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

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

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	x

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

The number of shares of common stock outstanding as of October 31, 2013: 11,233,580

BSQUARE CORPORATION

FORM 10-Q

For the Quarterly Period Ended September 30, 2013

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		15
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		22

2

PART I. FINANCIAL INFORMATION

Item  1. Financial Statements

BSQUARE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

	September 30, 2013			December 31, 2012
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	13,236		$	9,903
Short-term investments		8,053			9,826
Accounts receivable, net of allowance for doubtful accounts of $263 at September 30, 2013 and $200 at December 31, 2012		12,811			16,095
Deferred tax assets		160			296
Prepaid expenses and other current assets		1,300			858
Total current assets		35,560			36,978
Equipment, furniture and leasehold improvements, net		561			759
Restricted cash		250			875
Deferred tax asset		210			2,255
Intangible assets, net		897			1,069
Goodwill		3,738			3,738
Other non-current assets		93			117
Total assets	$	41,309		$	45,791
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Third-party software fees payable	$	11,055		$	11,099
Accounts payable		778			553
Accrued compensation		1,986			2,205
Other accrued expenses		1,332			1,732
Deferred revenue		1,074			837
Total current liabilities		16,225			16,426
Deferred tax liability		206			206
Deferred rent		422			154
Shareholders’ equity:
Preferred stock, no par value: 10,000,000 shares authorized; no shares issued and outstanding		—			—
Common stock, no par value: 37,500,000 shares authorized; 11,203,707 shares issued and outstanding at September 30, 2013 and 11,065,217 shares issued and outstanding at December 31, 2012		129,215			128,474
Accumulated other comprehensive loss		(791	)		(733	)
Accumulated deficit		(103,968	)		(98,736	)
Total shareholders’ equity		24,456			29,005
Total liabilities and shareholders’ equity	$	41,309		$	45,791

See notes to condensed consolidated financial statements.

3

BSQUARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except per share amounts) (Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Revenue:
Software	$	18,456		$	19,635		$	51,818		$	55,645
Service		5,116			5,850			14,461			19,893
Total revenue		23,572			25,485			66,279			75,538
Cost of revenue:
Software		15,965			15,730			43,087			45,094
Service		4,238			4,913			12,683			16,410
Total cost of revenue		20,203			20,643			55,770			61,504
Gross profit		3,369			4,842			10,509			14,034
Operating expenses:
Selling, general and administrative		3,960			2,866			11,432			10,557
Research and development		804			861			2,205			2,909
Total operating expenses		4,764			3,727			13,637			13,466
Income (loss) from operations		(1,395	)		1,115			(3,128	)		568
Other income (expense), net		(15	)		28			100			122
Income (loss) before income taxes		(1,410	)		1,143			(3,028	)		690
Income tax expense		(2,157	)		(533	)		(2,206	)		(470	)
Net income (loss)	$	(3,567	)	$	610		$	(5,234	)	$	220
Basic income (loss) per share	$	(0.32	)	$	0.06		$	(0.47	)	$	0.02
Diluted income (loss) per share	$	(0.32	)	$	0.05		$	(0.47	)	$	0.02
Shares used in calculation of income (loss) per share:
Basic		11,194			10,943			11,150			10,935
Diluted		11,194			11,474			11,150			11,450
Comprehensive income (loss):
Net income (loss)	$	(3,567	)	$	610		$	(5,234	)	$	220
Other comprehensive income (expense):
Foreign currency translation, net of tax		56			(65	)		(35	)		(75	)
Change in unrealized gains on investments, net of tax		1			6			(2	)		18
Total other comprehensive income (expense)		57			(59	)		(37	)		(57	)
Comprehensive income (loss)	$	(3,510	)	$	551		$	(5,271	)	$	163

See notes to condensed consolidated financial statements.

4

BSQUARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

	Nine Months Ended September 30,
	2013			2012
Cash flows from operating activities:
Net loss	$	(5,234	)	$	220
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		586			758
Stock-based compensation		726			685
Deferred income taxes		2,181			415
Changes in operating assets and liabilities:
Accounts receivable, net		3,284			(3,176	)
Prepaid expenses and other assets		(418	)		367
Third-party software fees payable		(44	)		2,303
Accounts payable and accrued expenses		(394	)		(1,076	)
Deferred revenue		237			331
Deferred rent		268			(13	)
Net cash provided by operating activities		1,192			814
Cash flows from investing activities:
Purchases of equipment and furniture		(216	)		(336	)
Proceeds from maturities of short-term investments		8,932			8,400
Purchases of short-term investments		(7,163	)		(10,535	)
Reduction of restricted cash		625			—
Net cash provided by (used in) investing activities		2,178			(2,471	)
Cash flows provided by financing activities—proceeds from exercise of stock options		12			193
Effect of exchange rate changes on cash		(49	)		(144	)
Net increase (decrease) in cash and cash equivalents		3,333			(1,608	)
Cash and cash equivalents, beginning of period		9,903			8,505
Cash and cash equivalents, end of period	$	13,236		$	6,897

See notes to condensed consolidated financial statements.

5

BSQUARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

(Unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of BSQUARE Corporation (“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 our 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 September 30, 2013 and our operating results and cash flows for the three and nine months ended September 30, 2013 and 2012. The accompanying financial information as of December 31, 2012 is derived from audited financial statements. Preparing financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Examples include provisions for bad debts and income taxes, estimates of progress on professional engineering service arrangements and bonus accruals. Actual results may differ from these estimates. Interim results are not necessarily indicative of results for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2012. All intercompany balances have been eliminated.

Recently Issued Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update (“ASU”) No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” Under ASU 2013-02, an entity is required to provide information about the amounts reclassified out of Accumulated Other Comprehensive Income (“AOCI”) by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in the financial statements. Our adoption of ASU 2013-02 effective January 1, 2013 did not have any effect on our financial position, results of operations or cash flows.

Income (Loss) Per Share

Basic income or loss per share is computed using the weighted average number of common shares outstanding during the period, and excludes any dilutive effects of common stock equivalent shares, such as options, restricted stock awards and restricted stock units. Restricted stock awards (“RSAs”) are considered outstanding and included in the computation of basic income or loss per share when underlying restrictions expire and the awards are no longer forfeitable. Restricted stock units (“RSUs”) are considered outstanding and included in the computation of basic income or loss per share only when vested. Diluted income per share is computed using the weighted average number of common shares outstanding and common stock equivalent shares outstanding during the period using the treasury stock method.

Common stock equivalent shares of 940,812 and 837,812 and 993,687 and 904,637 were excluded from the computations of basic and diluted income per share for the three and nine months ended September 30, 2013 and 2012, respectively,, because their effect was anti-dilutive. Unvested but outstanding RSUs and RSAs which are forfeitable are included in the diluted income per share calculation. In a period where we are in a net loss position, the diluted loss per share is computed using the basic share count.

6

2. Cash and Investments

Cash, cash equivalents, short-term investments, and restricted cash consisted of the following at September 30, 2013 and December 31, 2012 (in thousands):

	September 30, 2013		December 31, 2012
Cash	$	3,297	$	2,590
Cash equivalents—money market fund		9,939		7,313
Total cash and cash equivalents		13,236		9,903
Short-term investments:
Municipal securities		—		356
Corporate commercial paper		1,250		4,374
Foreign government bonds		1,001		999
Corporate debt securities		5,802		4,097
Total short-term investments		8,053		9,826
Restricted cash—money market fund		250		875
Total cash, cash equivalents, short-term investments and restricted cash	$	21,539	$	20,604

Gross unrealized gains and losses on our short-term investments were not material as of September 30, 2013 and December 31, 2012. Our restricted cash balance at September 30, 2013 and December 31, 2012 relates to a letter of credit which secures our corporate headquarters lease.

3. Fair Value Measurements

We measure our cash equivalents and short-term investments 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 short-term investments within Level 1 or Level 2 because our cash equivalents and short-term investments are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs.

7

Assets and liabilities measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012 are summarized below (in thousands):

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Direct or Indirect Observable Inputs (Level 2)		Total
Assets:
Cash equivalents—money market fund	$	9,939	$	—	$	9,939
Short-term investments:
Corporate commercial paper		—		1,250		1,250
Foreign government bonds		—		1,001		1,001
Corporate debt securities		—		5,802		5,802
Total short-term investments		—		8,053		8,053
Restricted cash—money market fund		250		—		250
Total assets measured at fair value	$	10,189	$	8,053	$	18,242

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Direct or Indirect Observable Inputs (Level 2)		Total
Assets:
Cash equivalents—money market fund	$	7,313	$	—	$	7,313
Short-term investments:
Municipal securities		—		356		356
Corporate commercial paper		—		4,374		4,374
Foreign government bonds		—		999		999
Corporate debt securities		—		4,097		4,097
Total short-term investments		—		9,826		9,826
Restricted cash—money market fund		875		—		875
Total assets measured at fair value	$	8,188	$	9,826	$	18,014

4. Goodwill and Intangible Assets

Goodwill relates to the September 2011 acquisition of MPC Data, Ltd. (“MPC”), a United Kingdom based provider of embedded software engineering services. The excess of the acquisition consideration over the fair value of net assets acquired was recorded as goodwill. There was no change in the carrying amount of goodwill during the nine months ended September 30, 2013.

Intangible assets relate to developed technology, trade names and trademarks, customer relationships, and non-compete agreements that we acquired from TestQuest Inc. in November 2008 and from the acquisition of MPC in September 2011.

8

Information regarding our intangible assets as of September 30, 2013 and December 31, 2012 is as follows (in thousands):

	September 30, 2013
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
Customer relationships	$	1,275	$	(378	)	$	897
Non-compete agreements		196		(196	)		0
Total	$	1,471	$	(574	)	$	897

	December 31, 2012
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
Customer relationships	$	1,275	$	(276	)	$	999
Non-compete agreements		196		(126	)		70
Total	$	1,471	$	(402	)	$	1,069

Amortization expense was $56,000 and $172,000 for the three and nine months ended September 30, 2013, respectively, and $85,000 and $261,000 for the three and nine months ended September 30, 2012, respectively. Amortization in future periods is expected to be as follows (in thousands):

Remainder of 2013	$	34
2014		135
2015		135
2016		130
2017		98
Thereafter		365
Total	$	897

5. Shareholders’ Equity

Stock Options

We have a stock plan (the “Stock Plan”) and an inducement stock plan for newly hired employees (the “Inducement Plan”) (collectively, the “Plans”). Under the Plans, stock options may be granted with a fixed exercise price that is equivalent to fair market value 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, RSAs and unrestricted stock awards, and RSUs. The Inducement Plan was established in connection with the MPC acquisition. Initially, 250,000 shares were allocated for award under the Inducement Plan. As of September 30, 2013, there were 46,750 shares available for grant under the Inducement Plan. The number of shares available for award under the Inducement Plan may be modified by our Board of Directors, subject to SEC and NASDAQ limitations.

9

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 of stock-based awards based on historical experience and expected future activity. The fair value of RSAs and 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 were estimated with the following weighted average assumptions:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Dividend yield		0	%		0	%		0	%		0	%
Expected life		4 years			4 years			4 years			4 years
Expected volatility		58	%		73	%		62	%		73	%
Risk-free interest rate		1.1	%		0.5	%		0.8	%		0.6	%

The impact on our results of operations of recording stock-based compensation expense for the three and nine months ended September 30, 2013 and 2012 was as follows (in thousands, except per share amounts):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013		2012			2013		2012
Cost of revenue — service	$	48	$	34		$	184	$	242
Selling, general and administrative		145		(267	)		456		355
Research and development		27		26			86		89
Total stock-based compensation expense	$	220	$	(207	)	$	726	$	686
Per diluted share	$	0.02	$	(0.02	)	$	0.07	$	0.06

Stock Option Activity

The following table summarizes stock option activity under the Plans for the nine months ended September 30, 2013:

Stock Options	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Balance at January 1, 2013		1,539,618		$	3.55
Granted at fair value		270,080			2.98
Exercised		(3,000	)		2.67
Forfeited		(39,808	)		3.50
Expired		(150,127	)		4.24
Balance at September 30, 2013		1,616,763		$	3.40		4.00	$	257,000
Vested and expected to vest at September 30, 2013		1,557,509		$	3.40		3.91	$	257,000
Exercisable at September 30, 2013		1,156,660		$	3.41		2.89	$	254,000

At September 30, 2013, total compensation cost related to stock options granted but not yet recognized was $281,000, net of estimated forfeitures. This cost will be amortized on the straight-line method over a weighted-average period of approximately 1.4 years. The following table summarizes certain information about stock options for the three and nine months ended September 30, 2013 and 2012:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Weighted-average grant-date fair value of option grants for the period	$	—	$	—	$	1.07		2.23
Options in-the-money at period end		541,000		616,350		541,000		616,350
Aggregate intrinsic value of options exercised	$	0	$	34,000	$	1,000	$	67,000

10

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 that were in-the-money at period end or that were exercised during the period. We issue new shares of common stock upon exercise of stock options.

Restricted Stock Unit Activity

The following table summarizes RSU activity for the nine months ended September 30, 2013:

	Number of Shares			Weighted Average Grant Date Fair Value
Unvested at January 1, 2013		236,513		$	4.95
Granted		128,838			2.75
Vested		(131,777	)		3.97
Forfeited		(5,275	)		6.75
Unvested at September 30, 2013		228,299		$	4.23
Expected to vest after September 30, 2013		216,377		$	4.05

At September 30, 2013, total compensation cost related to RSUs granted but not yet recognized was $656,000, net of estimated forfeitures. This cost will be amortized on the straight-line method over a period of approximately 1.4 years.

Common Stock Reserved for Future Issuance

The following table summarizes our shares of common stock reserved for future issuance under the Plans at September 30, 2013:

	September 30, 2013
Stock options outstanding		1,616,763
Restricted stock units outstanding		228,299
Stock options available for future grant		952,724
Common stock reserved for future issuance		2,797,786

6. Commitments and Contingencies

Lease and rent obligations

Our commitments include obligations outstanding under operating leases, which expire through 2020. We have lease commitments for office space in Bellevue, Washington; San Diego, California; Chandler, Arizona: Boston, Massachusetts: Taipei, Taiwan; Beijing, China; Seoul, Korea; Tokyo, Japan; Munich, Germany; and Trowbridge, UK. We also lease office space on a month-to-month basis in Akron, Ohio. Subsequent to September 30, 2013, we gave notice to terminate the Beijing, China and Munich Germany leases. See Note 10 for additional information.

In August 2013, we amended the lease agreement for our Bellevue, WA headquarters and extended the term of the original lease that was scheduled to expire in August 2014 to May 2020.

Rent expense was $402,000 and $1,156,000 for the three and nine months ended September 30, 2013, respectively, and $445,000 and $1,400,000 for the three and nine months ended September 30, 2012, respectively. As of September 30, 2013, we had $250,000 pledged as collateral for a bank letter of credit under the terms of our headquarters facility lease. The pledged cash supporting the outstanding letter of credit is classified as restricted cash.

11

Future operating lease commitments as of September 30, 2013 are as follows by calendar year (in thousands):*

Remainder of 2013	$	132
2014		1,135
2015		1,256
2016		1,281
2017		1,169
Thereafter		2,656
Total commitments	$	7,629

* As discussed above, subsequent to September 30, 2013, we gave notice to terminate the Beijing, China and Munich, Germany leases. The amounts disclosed above are as of September 30, 2013 and thus include amounts that would have been owed under the terminated leases.

Volume Pricing Agreements

In conjunction with our activities under our OEM Distribution Agreements (“ODAs”) with Microsoft Corporation (“Microsoft”), as further described in Note 8, we enter into OEM Volume Royalty Pricing (“OVRP”) commitments with Microsoft. Under these OVRPs, we are provided with volume pricing on a customer-by-customer basis assuming certain minimum unit volumes are met. The OVRP terms are 12 months. In the event we don’t meet the committed minimum unit volumes, we are obligated to pay the difference between the committed per-unit volume rate and the actual per-unit rate we achieved based upon actual units purchased. The OVRP arrangements do not equate to a minimum purchase commitment but rather, the arrangements are a volume pricing arrangement based upon actual volume purchased. In substantially all instances, we have reciprocal agreements with our customers such that we will receive per-unit price adjustments, similar to the amounts we would subsequently owe to Microsoft if such OVRP volumes are not met. However, in the event a customer is unwilling or unable to pay us, we would be negatively impacted. Based upon the credit-worthiness of our customers, our historical OVRP experience with our customers and OVRP arrangements in general, we do not believe we will incur any material liability in future periods and therefore no provision or reserve has been recorded as of September 30, 2013.

7. Information about Geographic Areas

Our chief operating decision-makers (i.e., 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. Accordingly, we consider ourselves to be in a single reporting segment and operating unit structure.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Total revenue:
North America	$	20,875	$	20,102	$	59,714	$	60,528
Asia		1,379		4,127		3,129		11,269
Europe		1,318		1,256		3,436		3,741
Total revenue	$	23,572	$	25,485	$	66,279	$	75,538

	September 30, 2013		December 31, 2012
Long-lived assets:
North America	$	782	$	3,663
Asia		410		447
Europe		4,543		4,703
Total long-lived assets	$	5,735	$	8,813

12

8. Significant Risk Concentrations

Significant Customer

No customer accounted for 10% or more of total revenue for the three or nine months ended September 30, 2013 or September 30, 2012.

No customer had an accounts receivable balance which was 10% or more of the total accounts receivable at September 30, 2013. Bluebird Soft, Inc., a designer and manufacturer of handheld mobile devices, had an accounts receivable balance of $2.1 million, or 13% of total accounts receivable, as of December 31, 2012, all of which was subsequently collected. No other customer accounted for 10% or more of total accounts receivable at December 31, 2012.

Significant Supplier

We have ODAs with Microsoft which enable us to sell Microsoft Windows Embedded operating systems to our customers in the United States, Canada, the Caribbean (excluding Cuba), Mexico, the European Union and the European Free Trade Association, which expire on September 30, 2014. We also have ODAs with Microsoft which allow us to sell Microsoft Windows Mobile operating systems in the Americas, Japan, Taiwan, Europe, the Middle East, and Africa. Our current distribution agreements related to Windows Mobile expire in September 2014. Our rights to distribute Windows Mobile operating systems in Korea ended on October 31, 2012. We sold $1.2 million and $2.9 million of Windows Mobile operating systems in Korea during the three and nine months ended September 30, 2012.

Software sales under these agreements constitute a significant portion of our software revenue and total revenue. These agreements are typically renewed annually or semi-annually; however, there is no automatic renewal provision in any of these agreements. Further, these agreements can be terminated unilaterally by Microsoft at any time. Microsoft currently offers a rebate program to sell Microsoft Windows Embedded operating systems pursuant to which we earn money for achieving certain predefined objectives. Prior to the third quarter of 2013, the earned rebate amount was treated as a reduction in software cost of sales in the quarter earned. Beginning in the third quarter of 2013, as a result of program modifications, we began treating a portion of the rebate as market development funds which will be accounted for as a reduction in marketing expense as qualified program spend occurs in the future.

Under this rebate program, we earned $89,000 and $658,000 during the three and nine months ended September 30, 2013, respectively, and $196,000 and $609,000 during the three and nine months ended September 30 2012, respectively, which was treated as a reduction in cost of sales. Additionally, during the three months ended September 30, 2013 we earned $208,000 which will be accounted for as a reduction in marketing expense in the future as qualified program expenditures are made.

9. Income Taxes

We determine our provision for income taxes for interim periods using an estimate of our annual effective rate. We record any changes to the estimated annual rate in the interim period in which the change occurs, including discrete tax items. Our effective tax rate was (153.7%) and 50.6% for the three months ended September 30, 2013 and 2012, and (72.8%) and 127.2% for the nine months ended September 30, 2013 and 2012. The change in the effective tax rate for the three months and nine months ended September 30, 2013, as compared to the same periods in 2012, was due to the recording of a valuation allowance related to United States deferred tax assets.

In the third quarter of 2013, we determined that it was not more likely than not that we would generate sufficient future taxable income to utilize the US deferred tax assets. As a result, we recorded a valuation allowance of $2.2 million. Deferred tax assets relative to our foreign jurisdictions were not affected.

The factors we considered in recording a full valuation allowance on our US deferred tax assets included, among other things, our recent history of losses over the last approximately three years.

13

10. Subsequent Event

On October 10, 2013, we effected a restructuring that included a workforce reduction and the closure of our offices in Beijing, China and Munich, Germany. The restructuring was approved by our Board of Directors on October 9, 2013. The workforce reduction impacted approximately 50 headcount worldwide, including full-time employees and consultants, which represented approximately 20% of the Company’s headcount pre-reduction.

We currently anticipate incurring pre-tax restructuring charges of approximately $625,000 in the fourth quarter of 2013, with $500,000 representing one-time employee termination benefits and $125,000 representing facilities-related costs, primarily remaining lease obligations in China and Germany. Our current estimate of cash outlays related to the one-time employee termination benefits, vacation and other obligations is $850,000, the vast majority of which will occur in the fourth quarter of 2013. Additionally, we expect to recognize a $50,000 asset impairment charge in the fourth quarter of 2013 related to China and Germany.

We expect the staff reductions and office closures will be substantially completed by the end of the fourth quarter of 2013 with some activities, including legal entity closures, continuing into 2014.

14

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

As used in this Quarterly Report on Form 10-Q, “we,” “us,” “our” and “the Company” refer to BSQUARE Corporation, a Washington corporation, and its subsidiaries.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our condensed consolidated financial statements and related notes. Some statements and information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are not historical facts but are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (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 Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2012 entitled “Risk Factors,” similar discussions in subsequently filed Quarterly Reports on Form 10-Q as applicable, and those contained from time to time in our other filings with the Securities and Exchange Commission. 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

We provide software solutions to companies that develop smart, connected systems. A smart, connected system is a dedicated purpose computing device that typically has a display, runs an operating system (e.g., Microsoft^® Windows^® CE or Google Android) and is usually connected to a network or data cloud via a wired or wireless connection. Examples of smart, connected systems include set-top boxes, home gateways, point-of-sale terminals, kiosks, voting machines, gaming platforms, tablets, handheld data collection devices, personal media players, smart phones and in-vehicle telematics and entertainment devices. We focus on smart, connected systems that utilize various Microsoft Windows Embedded and Windows Mobile operating systems, specifically Windows Embedded Compact, Windows Embedded Standard 7 and 8, Windows Mobile™, Windows Phone 8 and Windows Embedded 8 Handheld as well as devices running other popular operating systems such as Android, Linux, and QNX.

We have been providing software solutions to the smart, connected systems marketplace since our inception. Our customers include world class original equipment manufacturers (“OEMs”), original design manufacturers (“ODMs”) and enterprises, as well as silicon vendors and peripheral vendors which purchase our software solutions for purposes of facilitating processor and peripheral sales to the aforementioned customer categories. In the case of enterprises, our customers include those who develop, market and distribute smart devices on their own behalf as well as those that purchase devices from OEMs or ODMs and require additional device software or testing. The software solutions we provide are utilized and deployed throughout various phases of our customers’ device life cycle, including design, development, customization, quality assurance and deployment.

Critical Accounting Judgments

Management’s discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. 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 are believed to be reasonable under the circumstances, the results of 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, 2012, except for our valuation allowance for deferred tax assets.

15

Taxes

As part of the process of preparing our consolidated financial statements, we are required to estimate income taxes in each of the countries and other jurisdictions in which we operate. This process involves estimating our current tax expense together with assessing temporary differences resulting from the differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. Net operating losses and tax credits, to the extent not already utilized to offset taxable income or income taxes, also give rise to deferred tax assets. We must then assess the likelihood that any deferred tax assets will be realized from future taxable income, and, to the extent we believe that recovery is not likely, we must establish a valuation allowance. Significant judgment is required in determining our provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets. We estimate the valuation allowance related to our deferred tax assets on a quarterly basis.

In the third quarter of 2013, we determined that it was not more likely than not that we would generate sufficient future taxable income to utilize the US deferred tax assets. As a result, we recorded a valuation allowance of $2.2 million. Deferred tax assets relative to our foreign jurisdictions were not affected.

The factors we considered in recording a full valuation allowance on our US deferred tax assets included, among other things, our recent history of losses over the last approximately three years.

Results of Operations

The following table presents certain financial data as a percentage of total revenue for the periods indicated. Our historical operating results are not necessarily indicative of the results for any future period.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	(unaudited)						(unaudited)
Revenue:
Software		78	%		77	%		78	%		74	%
Service		22			23			22			26
Total revenue		100			100			100			100
Cost of revenue:
Software		68			62			65			59
Service		18			19			19			22
Total cost of revenue		86			81			84			81
Gross profit		14			19			16			19
Operating expenses:
Selling, general and administrative		17			11			18			14
Research and development		3			4			3			4
Total operating expenses		20			15			21			18
Income (loss) from operations		(6	)		4			(5	)		0
Other income (expense), net		0			0			0			0
Income (loss) before income taxes		(6	)		4			(5	)		0
Income expense		(9	)		(2	)		(3	)		0
Net income (loss)		(15	)%		2	%		(8	)%		0	%

Revenue

Our revenue is generated from the sale of software, both our own proprietary software and software of third parties that we resell, and the sale of engineering services. Total revenue decreased $1.9 million, or 8%, to $23.6 million for the three months ended September 30, 2013, from $25.5 million in the year-ago period. Total revenue decreased $9.3 million, or 12%, to $66.3 million for the nine months ended September 30, 2013, from $75.5 million in the year-ago period. These decreases were driven by lower service revenue and lower sales of Microsoft Windows Mobile operating systems.

Revenue from our customers outside of North America decreased $2.7 million, or 50%, to $2.7 million or 11% of total revenue, for the three months ended September 30, 2013 compared to $5.4 million or 21% of total revenue in the year-ago period. Revenue from our customers outside of North America decreased $8.4 million, or 56%, to $6.6 million or 10% of total revenue for the nine months ended September 30, 2013 compared to $15 million or 20% of total revenue in the year-ago period. These decreases were

16

primarily driven by lower sales of Windows Mobile operating systems, lower service revenue in Japan and in Europe, Middle East and Asia (“EMEA”) region and lower proprietary software sales in EMEA. A portion of the Window Mobile sales decline resulted from the expiration of our Korea distribution rights on October 31, 2012. Korea contributed $1.2 million and $2.9 million of Windows Mobile operating system sales for the three and nine months ended September 30, 2012, respectively.

Software revenue

Software revenue consists of sales of third-party software and revenue realized from our own proprietary software products, which include software license sales, royalties from our software products, and support and maintenance revenue. Software revenue for the three and nine months ended September 30, 2013 and 2012 was as follows (dollars in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	(unaudited)						(unaudited)
Software revenue:
Third-party software	$	18,004		$	18,339		$	49,749		$	52,424
Proprietary software		452			1,296			2,069			3,221
Total software revenue	$	18,456		$	19,635		$	51,818		$	55,645
Software revenue as a percentage of total revenue		78	%		77	%		78	%		74	%
Third-party software revenue as a percentage of total software revenue		98	%		93	%		96	%		94	%

The vast majority of our third-party software revenue is comprised of sales of Microsoft Windows Embedded and Windows Mobile operating systems.

Third-party software revenue decreased $335,000, or 2%, for the three months ended September 30, 2013, from the year-ago period. The decrease was driven by a $3.4 million decline in sales of Windows Mobile operating systems, $1.8 million of which occurred internationally, while the rest of the decline occurred in North America. Of the international decline, $1.2 million related to the expiration of our Korea distribution rights, while the remainder and the North American decline were driven by declining demand from existing customers. The Windows Mobile decline was offset by a $3.2 million increase in sales of Windows Embedded operating systems which was driven by higher demand at a few of our larger customers and several large sales to new customers.

Third-party software revenue decreased $2.7 million, or 5%, for the nine months ended September 30, 2013, compared to the year-ago period. The decrease was driven by a $7.0 million decline in sales of Windows Mobile operating systems, $4.5 million of which occurred internationally, while the rest of the decline occurred in North America. Of the international decline, $2.9 million relates to the expiration of our Korea distribution rights, while the remainder of the international decline and the North American decline were driven by declining demand from existing customers. The Windows Mobile decline was offset by a $4.3 million increase in sales of Windows Embedded operating systems. This increase was due to the same factors noted above.

Proprietary software revenue decreased $844,000, or 65%, to $452,000 for the three months ended September 30, 2013, from $1.3 million in the year-ago period driven primarily by a significant amount of HTML5 revenue in Japan in 2012 and a decline in Handset Certification Platform revenue from our customers in China who did not to renew their subscription contracts.

Proprietary software revenue decreased $1.2 million, or 36%, for the nine months ended September 30, 2013, compared to the year-ago period, driven primarily by the same factors which accounted for the three-month decrease.

Service revenue

Service revenue for the three and nine months ended September 30, 2013 and 2012 was as follows (dollars in thousands):

	Three Months ended September 30,						Nine Months ended September 30,
	2013			2012			2013			2012
	(unaudited)						(unaudited)
Service revenue	$	5,116		$	5,850		$	14,461		$	19,893
Service revenue as a percentage of total revenue		22	%		23	%		22	%		26	%

17

Service revenue decreased $734,000, or 13%, for the three months ended September 30, 2013, from the year-ago period. This decrease was due to a $293,000 decline in North America driven primarily by the MyFord Touch program. We also experienced a $202,000 decrease in EMEA and a $172,000 decrease in Japan due to declines in activity from large customers.

Service revenue decreased $5.4 million, or 27%, for the nine months ended September 30, 2013, compared to the year-ago period. The decrease was the result of a $2.6 million decline in North America driven by a $1.4 million decrease associated with the MyFord Touch program and a decline at two other significant customers with whom we currently have no active programs. We also experienced a $1.7 million decline in Japan and an $864,000 decline in EMEA, as previously noted.

Microsoft Corporation (“Microsoft”) became our largest engineering services customer during the first quarter of 2012, replacing Ford Motor Company (“Ford”), as Microsoft replaced Ford as the invoiced customer on the MyFord Touch program. We continue to work on the MyFord Touch, a project we began with Ford during the second quarter of 2008; however, we now conduct these services through an agreement with Microsoft. During the initial project with Ford, we provided hardware design and implementation, platform level software development, application level software development, quality assurance services and systems integration services. The project has transitioned since the initial project such that we are now primarily focused on developing and integrating new user applications for the MyFord Touch, enhancing existing applications and customizing the MyFord Touch platform for additional vehicle models. Service revenue from the MyFord Touch program declined $441,000 to $1.2 million, or 24% of total service revenue, for the three months ended September 30, 2013, compared to $1.7 million, or 28% of total service revenue, in the year-ago period. Service revenue from the MyFord Touch program declined $1.4 million to $3.7 million, or 26% of total service revenue, for the nine months ended September 30, 2013, compared to $5.1 million, or 26% of total service revenue, in the year-ago period. The decline is primarily attributable to a reduction in the number of engineers working on the MyFord Touch project.

Gross profit and gross margin

Cost of software revenue consists primarily of the cost of third-party software products payable to third-party vendors and support costs associated with our proprietary software products. Cost of service revenue consists primarily of salaries and benefits, contractor costs and re-billable expenses, related facilities and depreciation costs, and amortization of certain intangible assets related to acquisitions. Gross profit on the sale of third-party software products is also positively affected by rebate credits we receive from Microsoft for the sale of Windows Embedded operating systems earned through the achievement of defined objectives. Prior to the third quarter of 2013, the earned rebate amount was treated as a reduction in software cost of sales in the quarter earned. Beginning in the third quarter of 2013, as a result of program modifications, we began treating a portion of the rebate as market development funds which will be accounted for as a reduction in marketing expense as qualified program expenditures are made.

Under this rebate program, we earned $89,000 and $658,000 during the three and nine months ended September 30, 2013, respectively, and $196,000 and $609,000 during the three and nine months ended September 30 2012, respectively, which was treated as a reduction in cost of sales. Additionally, during the three months ended September 30, 2013 we earned $208,000 which will be accounted for as a reduction in marketing expense in the future as qualified program expenditures are made.

Gross profit and related gross margin for the three and nine months ended September 30, 2013 and 2012 were as follows (dollars in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	(unaudited)						(unaudited)
Software gross profit	$	2,491		$	3,905		$	8,731		$	10,551
Software gross margin		13	%		20	%		17	%		19	%
Service gross profit	$	878		$	937		$	1,778		$	3,483
Service gross margin		17	%		16	%		12	%		18	%
Total gross profit	$	3,369		$	4,842		$	10,509		$	14,034
Total gross margin		14	%		19	%		16	%		19	%

Software gross profit and gross margin

Software gross profit decreased by $1.4 million, or 36%, for the three months ended September 30, 2013, from the year-ago period, while software gross margin decreased by six percentage points. The decrease in gross profit was primarily the result of decreased high-margin proprietary software sales and Microsoft Windows Mobile operating system sales. Third-party software gross margin was 13% for the three months ended September 30, 2013, and 16% in the year-ago period. The decrease in gross margin was driven by the higher margin Window Mobile revenue decline and the change in how rebates from the sale of Windows Embedded

18

operating systems are treated. Prior to the third quarter of 2013, the earned rebate amount was treated as a reduction in software cost of sales in the quarter earned. Beginning in the third quarter of 2013, as a result of program modifications, we began treating a portion of the rebate as market development funds which will be accounted for as a reduction in marketing expense as qualified program expenditures are made. Proprietary software gross margin was 42% for the three months ended September 30, 2013, compared to 80% in the year-ago period, driven by the revenue decline compared to a relatively fixed cost of sales base.

Software gross profit decreased by $1.8 million, or 17%, for the nine months ended September 30, 2013, from the year-ago period, while software gross margin decreased by two percentage points. The decrease in software gross profit and gross margin was driven by the same factors as the current quarter. Third-party software margin was 15% and 16% for the nine months ended September 30, 2013 and 2012, respectively with the decline attributable to the same factors as the current quarter. Proprietary software margin was 68% for the nine months ended September 30, 2013, compared to 75% in the year-ago period. This decrease was due to the same factors as the current quarter.

Service gross profit and gross margin

Service gross profit decreased $59,000, or 6%, for the three months ended September 30, 2013, from the year-ago period. Service gross margin increased by one percentage point to 17% for the three months ended September 30, 2013, compared to the year-ago period.

Service gross profit decreased $1.7 million, or 49%, for the nine months ended September 30, 2013, from the year-ago period driven by a $5.4 million decline in service revenue without a commensurate decline in service cost of sales. Service gross margin was 12% for the nine months ended September 30, 2013, a six percentage point decrease from 18% in the year-ago period. The margin decline was driven by a 10% increase in our cost per billable hour due to lower utilization and wage increases.

Operating expenses

Selling, general and administrative

Selling, general and administrative expenses consist primarily of salaries and related benefits, commissions for our sales teams, marketing and administrative personnel and related facilities and depreciation costs, as well as professional services fees (e.g., consulting, legal, tax and audit). Selling, general and administrative expenses increased $1.1 million, or 38%, to $4.0 million for the three months ended September 30, 2013, from $2.9 million in the year-ago period. The increase was driven primarily by an increase in sales compensation and travel expenses, of which $531,000 related to a non-recurring reduction in stock-based compensation expense during the three months ended September 30, 2012 in connection with the departure of our former Vice-President of Sales. The increase is also attributable to $167,000 of severance expense related to the departure of our former Chief Executive Officer in September 2013. Selling, general and administrative expenses represented 17% of our total revenue for the three months ended September 30, 2013 and 11% in the year-ago period.

Selling, general and administrative expenses increased $875,000, or 8%, to $11.4 million for the nine months ended September 30, 2013, from $10.6 million in the year-ago period, driven by the same factors noted above. Selling, general and administrative expenses represented 17% of our total revenue for the nine months ended September 30, 2013 and 14% for the year-ago period.

Research and development

Research and development expenses consist primarily of salaries and benefits for software development and quality assurance personnel, contractor and consultant costs and related facilities and depreciation costs. Research and development expenses decreased $57,000, or 7%, to $804,000 for the three months ended September 30, 2013, from $861,000 in the year-ago period due primarily to headcount reductions and an office closure which took place in the third quarter of 2012. Research and development expenses represented 3% of our total revenue for the three months ended September 30, 2013 and 3% in the year-ago period.

Research and development expenses decreased $704,000, or 24%, to $2.2 million for the nine months ended September 30, 2013, from $2.9 million in the year-ago period, driven by the same factors noted above. Research and development expenses represented 3% of our total revenue for the nine months ended September 30, 2013 and 4% for the year-ago period.

Other income (expense), net

Other income or expense consists of interest income on our cash, cash equivalents and investments, gains and/or losses recognized on our investments, as well as gains or losses on foreign exchange transactions. Other expense increased $41,000 to $13,000 for the three months ended September 30, 2013, from income of $28,000 in the year-ago period due to higher foreign currency losses.

19

Other income decreased $20,000, or 16%, to $102,000 for the nine months ended September 30, 2013, from $122,000 in the year-ago period.

Income tax expense

Income tax expense was $2.2 million for the three months ended September 30, 2013, compared to $533,000 in the year-ago period, a change of $1.6 million.

In the third quarter of 2013, we determined that it was not more likely than not that we would generate sufficient future taxable income to utilize the US deferred tax assets. As a result, we recorded a valuation allowance of $2.2 million. Deferred tax assets relative to our foreign jurisdictions were not affected.

The factors we considered in recording a full valuation allowance on our US deferred tax assets included, among other things, our recent history of losses over the last approximately three years.

Subsequent Event

On October 10, 2013, we effected a restructuring that included a workforce reduction and the closure of our offices in Beijing, China and Munich, Germany. The restructuring was approved by our Board of Directors on October 9, 2013. The workforce reduction impacted approximately 50 headcount worldwide, including full-time employees and consultants, which represented approximately 20% of the Company’s headcount pre-reduction.

We currently anticipate incurring pre-tax restructuring charges of approximately $625,000 in the fourth quarter of 2013, with $500,000 representing one-time employee termination benefits and $125,000 representing facilities-related costs, primarily remaining lease obligations in China and Germany. Our current estimate of cash outlays related to the one-time employee termination benefits, vacation and other obligations is $850,000, the vast majority of which will occur in the fourth quarter of 2013. Additionally, we expect to recognize a $50,000 asset impairment charge in the fourth quarter of 2013 related to China and Germany.

We expect the staff reductions and office closures will be substantially completed by the end of the fourth quarter of 2013 with some activities, including legal entity closures, continuing into 2014.

Liquidity and Capital Resources

As of September 30, 2013, we had $21.5 million of cash, cash equivalents, short-term and long-term investments and restricted cash, compared to $20.6 million at December 31, 2012. Of these amounts, $13.2 million and $9.9 million were classified as cash and cash equivalents at September 30, 2013 and December 31, 2012, respectively, and $250,000 and $875,000 were classified as long-term at September 30, 2013 and December 31, 2012, respectively.

Net cash provided by operating activities was $1.2 million for the nine months ended September 30, 2013, driven by positive net working capital changes of $2.9 million and non-cash expenses of $3.5 million, which were offset substantially by our net loss of $5.4 million. Net cash provided by operating activities was $814,000 for the nine months ended September 30, 2012, driven by non-cash expenses of $1.9 million offset in part by $1.3 million in net negative working capital changes.

Investing activities provided cash of $2.2 million for the nine months ended September 30, 2013, due primarily to net proceeds of short-term investments of $1.8 million and a $625,000 reduction in restricted cash under the terms of our corporate headquarters lease amendment executed in August 2013. Investing activities used cash of $2.5 million for the nine months ended September 30, 2012, primarily due to net purchases of short-term investments of $2.1 million and $336,000 in equipment purchases.

Financing activities generated $12,000 during the nine months ended September 30, 2013, and $193,000 during the nine months ended September 30, 2012, as a result of the exercise of stock options.

We believe that our existing cash, cash equivalents and investments will be sufficient to meet our needs for working capital and capital expenditures for at least the next 12 months.

Cash Commitments

We have the following future or potential cash commitments:

• Minimum rents payable under operating leases total $132,000 for the remainder of 2013, $1.1 million in 2014, $1.3 million in 2015 and 2016, $1.2 million in 2017 and $2.7 million thereafter. The increase in minimum rents payable since December 31, 2012 relates to extending the term of our Bellevue, WA headquarters office lease which was originally scheduled to expire in August 2014 to May 2020; and

20

• In conjunction with our activities under our ODAs with Microsoft, we enter OVRP commitments with Microsoft. Under these OVRPs, we are provided with volume pricing on a customer-by-customer basis assuming certain minimum unit volumes are met. The OVRP terms are 12 months. In the event we don’t meet the committed minimum unit volumes, we are obligated to pay the difference between the committed per-unit volume rate and the actual per-unit rate we achieved based upon actual units purchased. The OVRP arrangements do not equate to a minimum purchase commitment but rather, the arrangements are a volume pricing arrangement based upon actual volume purchased. In substantially all instances, we have reciprocal agreements with our customers such that we will receive per-unit price adjustments, similar to the amounts we would subsequently owe to Microsoft if such OVRP volumes are not met. However, in the event a customer is unwilling or unable to pay us, we would be negatively impacted. Based upon the credit-worthiness of our customers, our historical OVRP experience with our customers and OVRP arrangements in general, we do not believe we will incur any material liability in the current or future periods.

Recently Issued Accounting Standards

See Note 1, “Summary of Significant Accounting Policies” in the Notes to Condensed Consolidated Financial Statements in Item 1.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our interim Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our management carried out an evaluation, under the supervision and with the participation of our interim Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

There were no changes to our disclosure controls during the three months ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

21

PART II. OTHER INFORMATION

Item 1A. Risk Factors

There has been no material change in the risk factors set forth in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012, other than below.

Expected operating efficiencies from our restructuring plans may not be realized as anticipated.

In October 2013, we effected a restructuring that included a workforce reduction and the closure of our offices in Beijing, China and Munich, Germany. The restructuring is intended to reduce expenses, both service and proprietary software cost of sales and all areas of operating expenses, by approximately $4 million annually and better align our organizational structure with our strategic focus. Factors which may affect the potential operating efficiencies we expect to realize from our restructuring plans include the adverse impact of job eliminations and office closings, uncertainties associated with loss of customer and vendor confidence, potential negative impact on sales and customer service as well as factors outside of our control such as changes in the economic environment. We cannot be certain that the anticipated benefits will be realized under our restructuring plans, which could result in further restructuring efforts. If our restructuring plans are not successful, our business and results of operations may be negatively impacted.

Item 6. Exhibits

The exhibits listed in the accompanying Index to Exhibits are filed or incorporated by reference as part of this Quarterly Report on Form 10-Q.

22

SIGNATURES

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

	BSQUARE CORPORATION (Registrant)
Date: November 12, 2013	By:	/S/    JERRY CHASE
		Jerry Chase Interim Chief Executive Officer
Date: November 12, 2013	By:	/S/    SCOTT C. MAHAN
		Scott C. Mahan Senior Vice President, Operations and Chief Financial Officer

23

BSQUARE CORPORATION

INDEX TO EXHIBITS

Exhibit Number

Description

Filed Here with

Incorporated by Reference

Form

Filing Date

Exhibit

File No.

3.1

Amended and Restated Articles of Incorporation

S-1

8/17/1999

3.1

(a)

333-85351

3.1(a)

Articles of Amendment to Amended and Restated Articles of Incorporation

10-Q

8/7/2000

3.1

000-27687

3.1(b)

Articles of Amendment to Amended and Restated Articles of Incorporation

8-K

10/11/2005

3.1

000-27687

3.2

Bylaws and all amendments thereto

10-K

3/19/2003

3.2

000-27687

10.5(a)

First Amendment to Office Lease by and between the Company and Talon Portfolio Services, LLC, dated August 26, 2013 and effective as of June 1, 2013

8-K

8/30/2013

10.1

000-27687

10.7(b)(1)

Letter Agreement dated August 7, 2013 to Scott Mahan amending Employment Letter Agreement

X

10.8(b)(1)

Separation and Release Agreement by and between the Company and Brian Crowley dated September 23, 2013

X

10.8(c)(1)

Individual Contractor Services Agreement by and between the Company and Brian Crowley dated September 23, 2013

X

10.13(1)

Employment Letter Agreement by and between the Company and Mark D. Whiteside dated effective May 1, 2011

X

10.13(a)(1)

First Amendment to Employment Letter Agreement by and between the Company and Mark D. Whiteside dated December 19, 2012

X

10.13(b)(1)

Letter Agreement dated August 7, 2013 to Mark D. Whiteside amending Employment Letter

X

10.14(1)

Individual Contractor Services Agreement by and between the Company and Jerry Chase dated September 23, 2013

X

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934

X

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934

X

32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X

32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X

101.INS

XBRL Instance Document

X

101.SCH

XBRL Taxonomy Extension Schema

X

101.CAL

XBRL Taxonomy Extension Calculation Linkbase

X

101.DEF

XBRL Taxonomy Extension Definition Linkbase

X

24

Exhibit Number	Description	Filed Here with		Incorporated by Reference
				Form	Filing Date	Exhibit	File No.
101.LAB	XBRL Taxonomy Extension Label Linkbase		X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase		X

25

EX-10.7(B)(1)

Exhibit 10.7(b)(1)

August 7, 2013

Scott Mahan

Senior Vice President, Operations and CFO

Dear Scott:

This letter is to notify you that the Board of Directors has approved a change to the severance component of your employment agreement with the company. Previously, your agreement stated: “If BSQUARE Corporation gives you at least a full month’s advance notice of termination, however, the severance payments shall be reduced by one month’s salary for each full month of advance termination notice given”.

The Board approved the following change in your employment agreement:

AMENDMENT TO EMPLOYMENT LETTER AGREEMENTS

RESOLVED, that the Committee hereby approves an amendment to the Employment Letter Agreement for each of the Company’s executive officers to delete the requirement that such executive officer’s severance payments be reduced by one month’s salary for each full month of advance termination notice given to such executive officer; and

RESOLVED FURTHER, the Committee hereby recommends that the Board approve the foregoing amendment to the Employment Letter Agreement for each of the Company’s executive officers.

Please let me know if you have any questions. I hope that you will be pleased with this change.

Regards,

/s/ Brian Crowley

Brian Crowley

President and CEO

110 110th Ave. NE., Suite 200, Bellevue, Washington 98004 Toll Free: 888.820.4500 Main: +1 425.519.5900 Fax: +1 425.519.5999

EX-10.8(B)(1)

Exhibit 10.8 (b)(1)

SEPARATION AND RELEASE AGREEMENT

THIS SEPARATION AND RELEASE AGREEMENT (“Agreement”) is made between Brian Crowley (“Employee”) and BSQUARE CORPORATION (“Employer”), and is in consideration of their mutual undertakings as set forth in this Agreement.

Employer no longer has a need for Employee’s services effective September 30, 2013 (“Termination Date”). In Employee’s offer letter dated July 24, 2003, as subsequently amended, Employee is entitled to certain post-termination benefits provided that Employee enter into a seperatation and release agreement that is satisfactory to Employer. Further, in order to assist Employee in Employee’s transition to new employment and to mitigate financial hardship, Employer is offering Employee financial assistance to which Employee is not otherwise entitled in the aforementioned offer letter. Therefore, the parties agree as follows:

1. Nonadmission of Liability: This Agreement shall not be construed as an admission by Employer that it acted wrongfully with respect to Employee. Additionally, this Agreement shall not be construed as an admission by Employee of any misconduct.

2. Pay; Bonus and Benefits through Termination Date:

2.1 Severance: Employee will be paid Employee’s regular salary, including payment for all company holidays (excluding floating holidays), for six (6) months following the Termination Date per Employer’s normal bi-weekly payroll cycle, less applicable taxes and withholdings. For clarity, Employee will be paid Employee’s regular salary through March 31, 2014.

2.2 PTO Pay: Any accrued Employee Paid Time Off (“PTO”) remaining as of the Termination Date will be paid on the October 11, 2013 payroll, less applicable taxes and withholdings.

2.3 Bonus: Employee won’t be entitled to any bonus amounts under Employer’s Annual Executive Bonus Plan as Employee’s Termination Date precedes the December 31 employment requirement.

2.4 Benefits. Employee will continue to accrue PTO through the Termination Date. Employee will be paid the balance of Employee’s accrued PTO per Section 2.2 above. Employee will continue to be entitled to other fringe benefits that he or she is currently entitled to through the Termination Date. Employee’s company-paid medical benefits, if any, will continue in full through the end of the month of the Termination Date. Employee’s stock options and other stock awards will continue to vest for six (6) months after Employee’s Termination Date. For clarity, Employee will continue to vest through March 31, 2014. After the cessation of vesting on March 31, 2014, Employee will have three (3) months to exercise any vested stock awards. For clarity, Employee will have through June 30, 2014 to exercise any vested stock awards.

3. Post-Termination Benefits Continuation: Effective October 1, 2013, Employee and/or Employee’s covered spouse and dependents may elect a temporary extension of medical, dental and vision plan coverage at group rates (called “COBRA continuation coverage”). Employee and/or Employee’s covered spouse must pay all applicable premiums for that COBRA continuation coverage. Employer will provide Employee and Employee’s covered spouse with a separate notice summarizing their COBRA continuation coverage rights and obligations, as well as an election form. So long as Employee continues to elect COBRA, Employer will subsidize Employee’s monthly COBRA cost to the same extent Employer subsidizes other employees of Employer with similar benefit elections provided that: a) Employer’s subsidization shall cease effective April 1, 2014; and b) Employer’s subsidization may change effective January 1, 2014 in conjunction with the annual benefits renewal cycle.

4. No Other Compensation: Employee acknowledges that he or she has been paid all other compensation or benefits which he or she might have been owed by Employer, and that Employer is not obligated in any event to pay or provide Employee with any further compensation or benefits of any nature.

5. Unemployment Compensation: If Employee files for unemployment compensation benefits, Employer will not contest Employee’s eligibility for unemployment compensation.

6. Confidentiality: Employee agrees not to disclose the terms of this Agreement to anyone or to acknowledge its existence to anyone. Employee may disclose the terms of this Agreement only to Employee’s immediate family, Employee’s attorney (if any), and Employee’s accountant or other similar advisor, and Employee shall direct each such person to maintain the confidentiality of the Agreement.

Page 1

6.1 In recognition of the significant value that BSQUARE places on its Confidential Information, BSQUARE had Employee sign a Proprietary Rights Agreement (“PRA”) when Employee began employment with BSQUARE. In that Agreement, Employee made some important promises which remain in effect even after Employee’s departure from BSQUARE:

• Employee agreed to preserve the confidentiality of BSQUARE’s “Confidential Information” and to use it only for BSQUARE’s benefit. Confidential Information includes information related to any aspect of BSQUARE’s business (business, technical or otherwise) that is either proprietary (meaning that BSQUARE developed it and owns it) or that is not known by actual or potential competitors. (See Paragraph 1 and sub-parts of the PRA, “Confidentiality Obligations”).

• Employee agreed not to disclose BSQUARE’s Confidential Information, without permission, and to protect it even from “inadvertent disclosure.” (See Paragraph 1.1 of the PRA, “Safeguard of Confidential Information”).

• Employee agreed that, during Employee’s employment and for a period of one year from the separation of Employee’s employment, Employee would not directly or indirectly attempt to induce customers or employees of BSQUARE to cease their relationship with BSQUARE. (See Paragraph 5 of the PRA, “Nonsolicitation”).

6.2 If it comes to BSQUARE’s attention that Employee has disclosed Confidential Information, violated Employee’s non-solicitation obligation, etc., there are legal claims that BSQUARE could assert against Employee. The scope of relief could include a temporary restraining order/permanent injunction preventing Employee from disclosing information, money damages, and reimbursement for our attorneys’ fees and costs. Those claims include:

• Breach of the Proprietary Rights Agreement.

• Tortious interference with a business expectancy.

• Violation of the Uniform Trade Secrets Act.

BSQUARE fully reserves its rights under the contractual arrangements between Employee and BSQUARE as well as any and all common law protections that may be available to BSQUARE.

7. Release of Claims: In exchange for the consideration and other benefits contained in this Agreement, which Employee is not otherwise entitled to receive, Employee and Employee’s successors and assigns forever release and discharge Employer, any of Employer’s parent, subsidiary or related companies, any Employer-sponsored employee benefit plans in which Employee participates, and all of their respective officers, directors, trustees, shareholders, agents, employees, employees’ spouses, and all of their successors and assigns (collectively “Releasees”) from any and all claims, actions, causes of action, rights, or damages related in any way to Employee’s employment by Employer or the termination of such employment, including costs and attorneys’ fees (collectively “Claims”) whether known, unknown, or later discovered, arising from any acts or omissions that occurred prior to the date Employee signs this Agreement.

This release includes but is not limited to: (i) any Claims under any local, state, or federal laws regulating employment, including without limitation, the Age Discrimination in Employment Act, the Civil Rights Acts, the Americans with Disabilities Act, and the Washington Law Against Discrimination (RCW 49.60 et seq.); (ii) Claims under the Employee Retirement Income Security Act; (iii) Claims under any local, state, or federal wage and hour laws; (iv) Claims alleging any legal restriction on Employer’s right to terminate its employees; (v) Claims under express or implied contracts; or (vi) Claims alleging personal injury, including without limitation defamation, tortious interference with business expectancy, black listing, or infliction of emotional distress.

8. No Claims: Employee represents that he or she has not filed any Claim with any court or agency against Employer or Releasees concerning Claims released in this Agreement; provided, however, that this will not limit Employee from filing an action to enforce the terms of this Agreement. Employee further represents that he or she has not transferred or assigned, or purported to assign, to any person or entity any claim, or any portion thereof or interest therein, related in any way to Employer, its officers, employees, or agents Employee waives any right he or she may have to recover any damages or any other relief in any claim or suit brought by the Equal Employment Opportunity Commission or anyone else.

Page 2

9. No Representations: Employee warrants that, except as expressly set forth herein, no representations of any kind or character have been made to Employee by Employer or by any of their agents, representatives, or attorneys to induce the execution of this Agreement.

10. Voluntary Agreement: Employee understands and acknowledges the significance and consequences of this Agreement, that it is voluntary, that it has not been given as a result of any coercion or duress, and expressly confirms that it is to be given full force and effect according to all of its terms, including those relating to unknown Claims. Employee acknowledges that Employer advised Employee to consult with legal counsel regarding any and all aspects of this Agreement, and that he or she has availed himself or herself of that opportunity to the extent desired. Employee acknowledges that Employee has carefully read and fully understands all of the provisions of this Agreement and has signed this Agreement only after full reflection and analysis.

11. Employer Property Utilized or Held by Employee: At Employee’s option, Employee may take Employee’s personal work equipment consisting of laptop, docking station and monitors (“Personal Equipment”). Notwithstanding the foregoing, Employee acknowledges that on or before Employee’s Termination Date Employee will return to Employer (to Scott Mahan at BSQUARE’s Bellevue office) all company and customer owned property in Employee’s possession, specifically including all keys and keycard badges, all company and customer-owned equipment (including laptop and desktop computers, customer devices etc.), and all company and customer documents, including computer-stored or transmitted information, specifically including all trade secrets, and/or confidential company and customer information other than the Personal Equipment.

12. Non-Disparagement: Employee agrees to refrain from any disparagement, defamation, libel, or slander of any of the Releasees, and agrees to refrain from any tortious interference with the contracts and relationships of any of the Releasees. Employer agrees that all management-level employees shall refrain from any disparagement, defamation, libel or slander of Employee, and agrees to refrain from any tortious interference with the contracts and relationships of Employee. This paragraph shall not in any way prohibit either party from making truthful statements in a legal or administrative proceeding, or as otherwise required by law or legal process.

13. Section 409A: The parties acknowledge and agree that the termination of Employee’s employment contemplated hereunder constitutes a “separation from service” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). If Employer determines that any cash severance benefits, health continuation coverage, or additional benefits provided under this Agreement shall fail to satisfy the distribution requirement of Section 409A(a)(2)(A) of the Code as a result of Section 409A(a)(2)(B)(i) of the Code, the payment of such benefit shall be accelerated to the minimum extent necessary so that the benefit is not subject to the provisions of Section 409(a)(1) of the Code. It is the intention of the preceding sentence to apply the short-term deferral provisions of Section 409A of the Code, and the regulations and other guidance thereunder, to such payments, and the payment schedule as revised after the application of the preceding sentence shall be referred to as the “Revised Payment Schedule.” However, if there is no Revised Payment Schedule that would avoid the application of Section 409A(a)(1) of the Code, the payment of such benefits shall not be paid pursuant to a Revised Payment Schedule and instead shall be delayed to the minimum extent necessary so that such benefits are not subject to the provisions of section 409A(a)(1) of the Code. Employer may attach conditions to or adjust the amounts paid pursuant to this paragraph to preserve, as closely as possible, the economic consequences that would have applied in the absence of this paragraph; provided, however, that no such condition or adjustment shall result in the payments being subject to Section 409A(a)(1) of the Code.

14. Consideration Period: Employee acknowledges that he or she was advised that he or she has the right to have an attorney review this agreement before signing it and that he or she has been given 21 calendar days in which to consider this Agreement and was given the option to sign the Agreement in fewer than 21 calendar days if he or she desired.

15. Revocation Period: Employee understands that this Agreement will not be effective for 7 calendar days after it is signed by Employer and Employee, and that he/she can revoke this Agreement at any time during that 7 calendar-day period. Employer shall make no payments under this Agreement prior to expiration of this 7 calendar-day period.

16. Entire Agreement. This Agreement contains the entire understanding between the Employer and Employee regarding Employee’s separation of employment. This Agreement may not be modified except through another written agreement signed by Employee and Employer.

Page 3

17. Miscellaneous: If any of the provisions of this Agreement are held to be invalid or unenforceable, the remaining provisions will nevertheless continue to be valid and enforceable.

17.1 This Agreement sets forth the entire understanding between the parties in connection with its subject matter and supersedes all prior written or oral agreements or understandings concerning the subject matter of this Agreement. This Agreement shall not supercede or limit the PRA previously executed by Employee, the terms of which shall remain in full force and effect. Employee acknowledges that in signing this Agreement, he or she has not relied upon any representation or statement not set forth in this Agreement made by Employer or any of its representatives.

17.2 This Agreement is made and shall be construed and performed under the laws of the State of Washington. Language of this Agreement shall in all cases be construed as a whole, according to its fair meaning, and not strictly for or against either party.

17.3 This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

PLEASE READ CAREFULLY. THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.

BSQUARE Corporation	Brian Crowley
/s/ Scott Mahan	/s/ Brian Crowley
Scott Mahan Its Chief Financial Officer
Dated: 9/23/13	Dated: 9/23/13

Page 4

EX-10.8(C)(1)

Exhibit 10.8 (c)(1)

This Individual Contractor Services Agreement (“Agreement”) is made between BSQUARE Corporation (“BSQUARE”), with offices at 110 110^th Avenue NE, Suite 200, Bellevue, Washington 98004; and

Contractor Name:	Brian Crowley (“Contractor”)
Contractor Address:
Contractor Email:
Mobile Phone:

BSQUARE wants Contractor to provide certain services as more fully described in Exhibit A, attached and incorporated herein by this reference (“Services”), and Contractor is willing to provide such Services, all in accordance with the following terms:

1. Services. Contractor will perform the Services in a professional, workmanlike and skillful manner. Contractor may not assign Contractor’s duties under this Agreement, or any right or interest in this Agreement.

2. Fees. BSQUARE agrees to pay Contractor for the Services performed under this Agreement as described in Exhibit A, attached hereto and incorporated herein by this reference. Promptly after the end of each calendar month during the Term, Contractor will submit a written invoice for the Services performed during the applicable month. Each invoice will detail each of the factors taken into account in the determination of amounts invoiced and will be supported by such documentation, receipts and information as BSQUARE may reasonably request to verify the invoice. Contractor’s invoices will be due and payable thirty (30) days after receipt.

3. Reimbursement—Maximum Obligation of BSQUARE. BSQUARE agrees to reimburse Contractor for travel or other business expenses required in the performance of this Agreement, provided that BSQUARE has approved all such expenses in writing in advance and that all such expenses comply with BSQUARE’s travel policies.

4. Independent Contractor. Contractor is an independent contractor, not an employee or agent of BSQUARE. Contractor is fully responsible for the performance of all Services under this Agreement. Without limitation of the foregoing, Contractor will be solely responsible for: all federal income tax and any other applicable withholding; paying social security, unemployment and any other applicable taxes; and performing any applicable reporting, recordkeeping, administrative and similar requirements. Contractor will not be treated as an employee of BSQUARE (e.g., for federal tax, workers’ compensation or any other purpose) on account of Contractor’s performance of any Services. Contractor will not be entitled to any pension, deferred compensation, welfare, insurance or other employee benefits afforded by BSQUARE.

5. Term and Termination.

5.1. Term. The term of this Agreement (the “Term”) shall run from the Effective Date and terminate upon completion of the project set forth in Section 1 of Exhibit A (the “Project”). The term may be extended from time to time upon written agreement of the parties (email is acceptable).

5.2. Termination by BSQUARE. BSQUARE may terminate this Agreement by written notice (email is acceptable notice for purposes of this provision) upon material breach by Contractor which shall include, but not be limited to, the following:

5.2.1. Failure to provide the Services described in Exhibit A provided that Contractor has five (5) business days to cure such breach upon written notice from BSQUARE;

5.2.2. Breach of Section 7 of this Agreement, including but not limited to any breach of the Proprietary Rights Agreement signed between Contractor and BSQUARE while Contractor was an employee of BSQUARE, and any such breach Contractor explicitly acknowledges and agrees is non-curable; and

INDIVIDUAL CONTRACTOR SERVICES AGREEMENT

5.2.3. Breach of the Separation and Release Agreement signed between BSQUARE and Contractor in connection with the termination of Contractor’s employment with BSQUARE, and any such breach Contractor explicitly acknowledges and agrees is non-curable.

5.3. Termination by Contractor. Contractor may terminate this Agreement by providing BSQUARE with 30 business days written notice of its intent to do so.

5.4. Effect of Termination. Upon the effective date of Contractor’s termination (per Sections 5.2 or 5.3 above), Contractor shall stop work hereunder to the extent and on the date specified in such notice, and deliver to BSQUARE all designs, computations, drawings, specifications and other material and information prepared and developed hereunder in connection with the work terminated. Except as otherwise provided herein, in the event of any termination pursuant to this clause, Contractor shall be entitled to be paid as provided herein for direct labor hours expended and reimbursable costs incurred prior to the termination, and for such additional hours and reimbursable costs associated with concluding the work terminated that are requested and approved in writing by BSQUARE. Contractor shall not be entitled to any anticipated profit on Services not performed. Notwithstanding the foregoing, in the event Contractor’s termination pertains to Sections 5.2.2 or 5.2.3, Contractor will not be entitled to be paid as described elsewhere in this Section 5.4. Except as provided in this paragraph, any such termination shall not alter or affect the rights and obligations under this Agreement. Failure by BSQUARE to exercise its termination rights resulting from an identified breach shall not preclude BSQUARE from exercising its rights with respect to any future breaches.

6. Ownership.

6.1. Ownership of Inventions. All inventions, ideas, designs, circuits, schematics, formulas, algorithms, trade secrets, works of authorship, mask works, developments, processes, techniques, improvements, and related know-how which result from work performed by Contractor, alone or with others, on behalf of BSQUARE or from access to Confidential Information or property whether or not patentable, copyrightable, or qualified for mask work protection (collectively “Inventions”), shall be the property of BSQUARE, and, to the extent permitted by law, shall be “Works Made For Hire.” Contractor hereby assigns and agrees to assign to BSQUARE or its designee, without further consideration, Contractor’s entire right, title and interest in and to all Inventions, other than the Excluded Inventions described in Section 4 of this Agreement, including all rights to obtain, register, perfect, and enforce patents, copyrights, mask work rights, and other intellectual property protection for Inventions. Contractor will disclose promptly and in writing to the individual designated by BSQUARE or to Contractor’s immediate supervisor, if no such designee has been made, all Inventions which Contractor has made or reduced to practice. During the Term of this Agreement and for one year thereafter, Contractor will assist BSQUARE (at BSQUARE’s expense) as requested to obtain and enforce patents, copyrights, mask work rights, and other forms of intellectual property protection on Inventions, including without limitation, the execution of additional instruments of conveyance and assisting BSQUARE with applications for patents or copyright or other registrations, including the execution of such applications. Contractor will be compensated at an agreed hourly rate for such assistance post-termination, with payment for such assistance occurring 30 days after receipt of a reasonably detailed time report showing time spent by Contractor with appropriate explanation for the services and assistance rendered.

6.2. Excluded Inventions. Attached hereto as Exhibit B is a list of all inventions, improvements, and original works of authorship that Contractor desires to exclude from this Agreement, each of which has been made or reduced to practice by Contractor prior to the Term of this Agreement (the “Excluded Inventions”). To the extent Contractor incorporates any Excluded Inventions listed in Exhibit B into any works of authorship or other Inventions that result from work performed by Contractor for BSQUARE, Contractor hereby grants BSQUARE a non-exclusive, royalty-free, perpetual, irrevocable, worldwide license (with right to sublicense) to make, use, sell, copy, modify, distribute and otherwise to practice and exploit such Excluded Inventions in source and object code formats. If there is no such list attached to this Agreement, there are no inventions to be excluded at the time of signing of this Agreement. Contractor is not required to assign or offer to assign to BSQUARE any of his or her rights in an invention for which no equipment, supplies, facilities, or Confidential information was used and which was developed entirely on Contractor’s own time unless (a) the invention relates (i) directly to the business of BSQUARE or its customers for which Contractor was engaged to perform work, or (ii) to BSQUARE’s actual or demonstrably anticipated research or development, or (b) the invention results from any work performed by Contractor for BSQUARE. However, Contractor shall notify BSQUARE of inventions that may not be required to be assigned pursuant to this Agreement and may add these inventions to Exhibit B at Contractor’s request.

Confidential

2

INDIVIDUAL CONTRACTOR SERVICES AGREEMENT

6.3. Third Party IP. During the provision of Services, Contractor shall not use or disclose the intellectual property of any third party unless Contractor has obtained all necessary rights to do so, and has obtained BSQUARE’s prior written consent. Contractor shall hold BSQUARE harmless from Contractor’s failure to secure any rights necessary for Contractor to use or disclose any third party intellectual property.

7. Confidentiality; Nonsolicitation; Non-Compete.

7.1. Confidentiality.

7.1.1. Contractor shall retain in confidence all information transmitted to it by BSQUARE pursuant to or in connection with this Agreement that BSQUARE identifies as being proprietary and/or confidential or that, by the nature of the circumstances surrounding the disclosure, ought in good faith to be treated as proprietary and/or confidential (“Confidential Information”), and will make no use of such Confidential Information except under the terms and during the term of this Agreement. Information disclosed by BSQUARE (or its customers), in any form, including without limitation, information regarding products, pre-release products, software, marketing and business plans and financial information, BSQUARE’s customers’ information and passwords provided to Contractor by BSQUARE, shall be BSQUARE Confidential Information. Contractor shall treat the terms and conditions of this Agreement as confidential; however, Contractor may disclose such information in confidence to its immediate legal and accounting advisers who are bound by obligations of confidence to Contractor with respect to the Confidential Information, as required in the ordinary course of Contractor’s business.

7.1.2. Confidential Information shall not include information that Contractor can establish: (i) has entered the public domain without the Contractor’s breach of any obligation owed to the disclosing party; (ii) is rightfully received by Contractor from a third party without confidentiality restrictions; (iii) is known to Contractor without any restriction as to use or disclosure prior to first receipt by Contractor from the disclosing party hereunder; or (iv) is independently developed by Contractor without reference to any of BSQUARE’s or its customer’s Confidential Information.

7.2. Continuation of Certain Obligations. Contractor explicitly acknowledges that he remains bound by the Proprietary Rights Agreement signed previously between Contractor and BSQUARE including, but not limited to, restrictions on competition and solicitation of personnel.

7.3. Contractor agrees that during the Term, Contractor will promptly and fully disclose to BSQUARE any business opportunity coming to Contractor attention, or conceived or developed in whole or in part by Contractor, which relates to BSQUARE’s business, or anticipated business. Contractor will not at any time exploit such business opportunities for Contractor’s own gain or that of any person or entity other than BSQUARE.

7.4. During the Term and for a period after that equal to the length of the term of Services rendered to BSQUARE (not to exceed one year), Contractor will not perform any work or services for any of BSQUARE’s customers other than work performed on behalf of BSQUARE pursuant to this Agreement.

7.5. Contractor understands that in cases where this Section 7 does not apply, Contractor is still subject to all other obligations he or she has to BSQUARE, including the obligations related to BSQUARE’s Confidential Information.

7.6. Nothing herein shall limit BSQUARE’s or Contractor’s rights to pursue any legal remedies available to BSQUARE or Contractor, including, but not limited to, remedies available under common law and statutory remedies.

8. Limited Warranties.

8.1. Contractor’s Warranty. Contractor represents and warrants that he or she has disclosed all facts, if any, pertaining to restrictions on Contractor’s ability to enter into this Agreement. Contractor further represents and warrants that he or she is not bound by any agreements with third parties that would prevent

Confidential

2

INDIVIDUAL CONTRACTOR SERVICES AGREEMENT

Contractor from lawfully performing services provided by Contractor to BSQUARE. Contractor understands that it is BSQUARE’s policy not to improperly obtain or use confidential, proprietary or trade secret information that belongs to third parties, and Contractor agrees not to use such third-party confidential, proprietary or trade secret information for BSQUARE’s benefit.

8.2. Professionalism. Contractor represents and warrants that Contractor and anyone assigned to the Services is properly licensed and otherwise qualified to perform the Services and that the Services will be performed in a good, professional manner, consistent with industry standards.

8.3. Compliance with Law. Contractor warrants that: (i) Contractor is a United States citizen or has notified BSQUARE that Contractor is not a U.S. Citizen and is otherwise eligible and qualified to work in the United States and where any visas or other requirements apply, Contractor shall be fully responsible for all fees and expenses that may be incurred as a result; (ii) Contractor will perform all of its obligations under and arising out of this Agreement in compliance with all applicable federal, state, and local laws, regulations, rules and ordinances.

9. Contractor Indemnification. Contractor agrees to defend, protect, indemnify and hold BSQUARE harmless from and against all claims, suits, actions, liability, loss, damage, and expenses arising from any misrepresentation under or breach of this Agreement, and any willful or negligent act or willful or negligent omission of Contractor under this Agreement or of any of Contractor’s agents in or in any way connected with the performance of this Agreement.

10. Governing Law/Dispute Resolution. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Washington. Any dispute arising under this Agreement shall be settled by binding arbitration before a single arbitrator pursuant to the rules of the American Arbitration Association. The arbitration of any disputes under this Agreement shall be subject to such of the State of Washington’s statutes of limitation as would have been applicable had such disputed matter been litigated in a court of law. Contractor recognizes and agrees that the remedy at law for certain breaches of this Agreement, including, but not limited to the disclosure of BSQUARE’s Confidential Information, will be inadequate, and hence, Contractor agrees that BSQUARE shall be entitled to seek equitable or injunctive relief (without limitation of any other rights or remedies otherwise available) to obtain an injunction from a court of competent jurisdiction prohibiting the continuance or recurrence of any breach of this Agreement. The parties to this Agreement hereby submit to the exclusive jurisdiction and venue of the courts of the State of Washington and agree that service in any such action or proceeding may be made by first class mail (certified or registered), confirmed facsimile transmission or nationally recognized courier delivery service to the address set forth above or such other address as either party may designate. If any proceeding is brought by either party to enforce or interpret any term or provision of this Agreement, the substantially prevailing party in such proceeding shall be entitled to recover, in addition to all other relief arising out of this Agreement, such party’s reasonable attorneys’ and other experts’ (including without limitation accountants) fees and expenses.

11. Miscellaneous.

11.1. Records and Audit. Contractor agrees to maintain sufficient and accurate records and books of account, including detailed time records, showing all direct labor hours expended and all reimbursable costs incurred and the same shall be subject to inspection and audit by BSQUARE at BSQUARE’s sole cost and expense at all reasonable times. All such records and books of account pertaining to any work performed hereunder shall be retained for a period of not less than three (3) years from the date of payment for such work.

11.2. Equipment. Contractor shall be responsible for providing all equipment necessary to provide services to BSQUARE as provided for in this Agreement, including but not limited to computer hardware and software. BSQUARE shall not provide any equipment to Contractor unless otherwise agreed in writing by both parties.

11.3. Waiver. No waiver of or with respect to any provision of this Agreement, nor consent by a party to the breach of or departure from any provision of this Agreement, shall in any event be binding on or effective against such party unless it be in writing and signed by such party, and then such waiver shall be effective only in the specific instance and for the purpose for which given.

Confidential

3

INDIVIDUAL CONTRACTOR SERVICES AGREEMENT

11.4. Severability; Invalidity. If any provision of this Agreement is held to be invalid, such invalidity shall not render invalid the remainder of this Agreement or the remainder of which such invalid provision is a part. If any provision of this Agreement is so broad as to be held unenforceable, such provision shall be interpreted to be only so broad as is enforceable.

11.5. Release. Contractor releases BSQUARE and its directors, officers, employees, subsidiaries, affiliates and representatives, from any and all claims arising out of Contractor’s services or connected to performance of Contractor’s services, including any property damage or personal injury (including, without limitation, any damage or injury suffered by Contractor or anyone else performing any Services).

11.6. Notices. Any notice or other communication under this Agreement given by either party to the other party shall be deemed to be properly given if given in writing and delivered (i) by facsimile transmission (receipt confirmed) or (ii) by nationally recognized private courier, (e.g., Federal Express) properly addressed and prepaid, to the recipient at the address identified on the first page of this Agreement. Either party may from time to time change its address by giving the other party notice of the change in accordance with this Section.

11.7. Survival. Sections 6, 7, 8, 9, 10 and 11 shall survive the expiration or termination of this Agreement.

11.8. Entire Agreement; Amendments. This Agreement constitutes and embodies the entire agreement and understanding between the parties with respect to the subject matter hereof and supersedes all prior or contemporaneous written, electronic or oral communications, representations, agreements or understandings between the parties with respect thereto. This Agreement may not be modified or amended except by a written instrument executed by both parties. In the event of any conflict between the provisions of this Agreement and the terms of any form of purchase order or invoice, the provisions of this Agreement shall prevail.

11.9. Publicity. Contractor shall not advertise, market or, except to the extent (if any) required by law, otherwise disclose to others any information relating to the making of this Agreement. Contractor shall not commercially use BSQUARE’s name, trademarks, service marks or logos, without BSQUARE’s prior written consent.

11.10. Counterparts. This Agreement and any amendments hereto may be executed in one or more counterparts, which taken together shall constitute a single agreement between the parties.

EXECUTED as of the date below BSQUARE’s signature (the “Effective Date”):

BSQUARE Corporation		Contractor
By:	/s/ Scott C. Mahan	By:	/s/ Brian Crowley
Name:	Scott C. Mahan	Name:	Brian Crowley
Its:	Senior Vice-President, Operations and Chief Financial Officer	Its:
Date:	9/23/13	Date:	9/23/13

Confidential

4

INDIVIDUAL CONTRACTOR SERVICES AGREEMENT

EXHIBIT A

SERVICES, FEES AND PAYMENT TERMS

1. Services: Contractor will provide the following Services to BSQUARE during the Project:

1.1 Assist the interim Chief Executive Officer (CEO) and any successor CEO in discharging their duties for BSQUARE. This may include, but is not limited to: transitioning customer, supplier and partner relationships; assessing existing and proposed contractual relationships; technology analysis.

1.2 Assist the interim CEO, any successor CEO and/or the Compensation Committee of the Board in evaluating individual executive performance for the purpose of awarding annual incentive bonuses.

2. Project Duration: October 1, 2013 to March 31, 2014. The term of the Project may be extended.

3. Fees: BSQUARE will pay the following fees to Contractor:

Monthly rate: USD $24,583.33

4. Payment Terms: Contractor will invoice BSQUARE monthly. BSQUARE will pay Contractor within 30 days of receipt of each invoice, with payments sent to:

Confidential

5

INDIVIDUAL CONTRACTOR SERVICES AGREEMENT

EXHIBIT B

EXCLUDED INVENTIONS, IMPROVEMENTS, AND ORIGINAL WORKS OF AUTHORSHIP

TITLE DATE IDENTIFYING NUMBER OR BRIEF DESCRIPTION

Confidential

6

EX-10.13(1)

Exhibit 10.13(1)

April 28, 2011

Mark Whiteside

10710 NE 60th St.

Kirkland WA 98033

Dear Mark,

BSQUARE CORPORATION is pleased to extend to you an offer for employment as our Vice President of Professional Services. You will be paid bi-weekly at a rate equivalent to an annual salary of $200,000.

In addition to the base salary, you will be eligible to participate in BSQUARE’s Annual Executive Bonus Program (AEBP). Your annual bonus potential will be up to 40% of your base salary. Your bonus for 2011 will be pro-rated based on how many months you are actually employed by BSQUARE in 2011. In 2012 and beyond you will have full participation in the executive bonus program. BSQUARE’s executive bonus plan is structured such that no bonuses are paid until the company achieves certain profitability targets and you achieve individual objectives that you and I will agree upon when you start work. Bonuses are paid yearly, in the first quarter following the close of our fiscal year (Q1-2012 will be our next potential executive bonus payout). Our AEBP is fully described in our Proxy Statement (which you can find online at http://www.sec.gov/edgar.shtml)

Bonus payout is at the sole discretion of the CEO and Compensation Committee of our Board of Directors. You must be employed by BSQUARE at the end of the calendar year to be eligible to receive any bonus payout.

Your job classification is Executive. You will be hired as an exempt employee and will not be entitled to overtime. You will be a Section 16 Executive, subject to certain BSQUARE stock trading restrictions and SEC reporting requirements.

BSQUARE CORPORATION extends the following benefits:

• a medical, dental, vision, life and disability plan

• a 401(k) retirement plan, with company matching contributions

• 10 paid holidays and 15 days of paid time off

• Options to purchase 50,000 shares of company common stock. Such shares shall be Incentive Stock Options (ISOs), which vest 25% annually over four years in four equal installments. The strike price shall be the closing price of BSQUARE stock on your first day of employment. Stock options shall expire after 10 years.

• Because we anticipate that you will be a heavy wireless user in the course of conducting BSQUARE business, you will be given a $150 per month stipend to be used for wireless equipment and plan of your choice. You will be responsible for managing your own wireless plan, equipment and expenses. Any wireless expenses above $150/month may be reimbursed with appropriate receipts and business justification.

Additionally, if after 90 days of employment in good-standing with BSQUARE, your employment with BSQUARE is terminated when neither “cause” nor “long term disability” exists, and provided that you release BSQUARE Corporation and its agents from any and all employment-related claims in a signed, written release satisfactory in form and substance to BSQUARE Corporation, BSQUARE Corporation shall pay you a consideration payment as follows:

BSQUARE Corporation shall pay to you severance equal to four months of your then annual base salary from your termination date. If BSQUARE Corporation gives you at least a full month’s advance notice of termination, however, the severance payments shall be reduced by one month’s salary for each full month of advance termination notice given. These severance payments shall be paid out at the rate of your final base salary on regular payroll days post termination, subject to legally required and any individually agreed upon payroll deductions. During the period subsequent to your termination date in which you are being paid the severance

110 110th Ave. NE., Suite 200

Bellevue, Washington 98004

TOLL FREE: 888.820.4500

MAIN: 425.519.5900

FAX: 425.519.5999

www.bsquare.com

amounts defined previously, you would not be considered an employee and would therefore receive no Paid Time Off accrual, nor would you be entitled to benefits under BSQUARE’s health and welfare plans or retirement savings plan as an active employee. Your stock options will continue to vest until 120 calendar days from our termination date. You will then have ninety days in which to exercise any vested options, and any non-vested options would terminate.

For purposes of the severance provision indicated above, “cause” is defined on attachment A hereto, and “long term disability” is defined in our sponsored Long Term Disability group insurance plan.

BSQUARE CORPORATION is an established company with an outstanding outlook. Your meaningful participation will greatly enhance our ability to retain our current business relationships and, will enable BSQUARE CORPORATION to pursue and secure business in the future. YOUR EMPLOYMENT IS AT-WILL AND ACCORDINGLY, YOU OR BSQUARE CORPORATION MAY TERMINATE THIS EMPLOYMENT RELATIONSHIP AT ANY TIME WITH OR WITHOUT NOTICE OR CAUSE.

This offer is contingent upon compliance with the Immigration Reform and Control Act of 1986. The Act requires you to establish your identity and employment eligibility. To do so, on your start date you will be required to complete Section I of the Employment Eligibility Verification Form, I-9. This offer is also contingent on your acceptance and return of the BSQUARE Proprietary Rights Agreement provided herewith.

Please signify your acceptance of this offer by signing a copy of this letter and the attached Proprietary Rights Agreement and returning both by April 29, 2011. Your start date will be mutually agreed upon.

On behalf of BSQUARE CORPORATION, I am very excited to have you on board! If you have any questions or concerns, please feel free to contact me.

Sincerely,		Accepted By:
/s/ Brian Crowley	4-28-2011	/s/ Mark Whiteside	May 1, 2011
Brian Crowley Chief Executive Officer BSQUARE Corporation	Date	Mark Whiteside	Date

EX-10.13(A)(1)

Exhibit 10.13(a)(1)

AMENDMENT TO EMPLOYMENT LETTER AGREEMENT

This AMENDMENT TO EMPLOYMENT LETTER AGREEMENT (this “Amendment”) is made and entered into effective as of December 19, 2012 by and between BSQUARE CORPORATION, a Washington corporation (the “Company”), and MARK WHITESIDE (“Employee”).

RECITALS

WHEREAS, the Company and Employee entered into an employment letter agreement dated effective May 1, 2011 (the “Agreement”); and

WHEREAS, the Company and Employee wish to amend the Agreement as provided herein.

AGREEMENT

NOW, THEREFORE, in consideration of the premises, the mutual covenants of the parties hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree to amend the Agreement to add the following:

“No severance shall be payable hereunder unless the release described herein has been signed and become effective within sixty (60) days from the date of termination (the “Release Deadline”). Upon the release becoming effective, any severance payable hereunder will be payable commencing on or as soon as administratively practicable after the Release Deadline. In the event the termination occurs at a time during the calendar year when the release could become effective in the calendar year following the calendar year in which your termination occurs, then any payments hereunder that would be considered deferred compensation under Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder will be paid commencing on the first payroll date to occur during the calendar year following the calendar year in which such termination occurs, or, if later, the Release Deadline.”

IN WITNESS WHEREOF, the parties hereto have executed this Amendment effective as of the day and year first above written.

BSQUARE CORPORATION		EMPLOYEE:
By:	/s/ Brian Crowley	/s/ Mark Whiteside
Its:	President & CEO	Mark Whiteside

110 110th Ave. NE., Suite 200, Bellevue, Washington 98004 Toll Free: 888.820.4500 Main: +1 425.519.5900 Fax: +1 425.519.5999

1

EX-10.13(B)(1)

Exhibit 10.13(b)(1)

August 7, 2013

Mark Whiteside

Senior Vice President, Professional Services

Dear Mark:

This letter is to notify you that the Board of Directors has approved a change to the severance component of your employment agreement with the company. Previously, your agreement stated: “If BSQUARE Corporation gives you at least a full month’s advance notice of termination, however, the severance payments shall be reduced by one month’s salary for each full month of advance termination notice given”.

The Board approved the following change in your employment agreement:

AMENDMENT TO EMPLOYMENT LETTER AGREEMENTS

RESOLVED, that the Committee hereby approves an amendment to the Employment Letter Agreement for each of the Company’s executive officers to delete the requirement that such executive officer’s severance payments be reduced by one month’s salary for each full month of advance termination notice given to such executive officer; and

RESOLVED FURTHER, the Committee hereby recommends that the Board approve the foregoing amendment to the Employment Letter Agreement for each of the Company’s executive officers.

Please let me know if you have any questions. I hope that you will be pleased with this change.

Regards,

/s/ Brian Crowley

Brian Crowley

President and CEO

110 110th Ave. NE., Suite 200, Bellevue, Washington 98004 Toll Free: 888.820.4500 Main: +1 425.519.5900 Fax: +1 425.519.5999

EX-10.14(1)

Exhibit 10.14 (1)

This Individual Contractor Services Agreement (“Agreement”) is made between BSQUARE Corporation (“BSQUARE”), with offices at 110 110^th Avenue NE, Suite 200, Bellevue, Washington 98004; and

Contractor Name:	Jerry Chase (“Contractor”)
Contractor Address:
Contractor Email:
Mobile Phone:

BSQUARE wants Contractor to provide certain services as more fully described in Exhibit A, attached and incorporated herein by this reference (“Services”), and Contractor is willing to provide such Services, all in accordance with the following terms:

1. Services. Contractor will perform the Services in a professional, workmanlike and skillful manner. Contractor may not assign Contractor’s duties under this Agreement, or any right or interest in this Agreement.

2. Fees. BSQUARE agrees to pay Contractor for the Services performed under this Agreement as described in Exhibit A, attached hereto and incorporated herein by this reference. Promptly after the end of each calendar month during the Term, Contractor will submit a written invoice for the Services performed during the applicable month. Each invoice will detail each of the factors taken into account in the determination of amounts invoiced and will be supported by such documentation, receipts and information as BSQUARE may reasonably request to verify the invoice. Contractor’s invoices will be due and payable thirty (30) days after receipt.

3. Reimbursement—Maximum Obligation of BSQUARE. BSQUARE agrees to reimburse Contractor for travel or other business expenses required in the performance of this Agreement, provided that BSQUARE has approved all such expenses in writing in advance and that all such expenses comply with BSQUARE’s travel policies.

4. Independent Contractor. Contractor is an independent contractor, not an employee or agent of BSQUARE. Contractor is fully responsible for the performance of all Services under this Agreement. Without limitation of the foregoing, Contractor will be solely responsible for: all federal income tax and any other applicable withholding; paying social security, unemployment and any other applicable taxes; and performing any applicable reporting, recordkeeping, administrative and similar requirements. Contractor will not be treated as an employee of BSQUARE (e.g., for federal tax, workers’ compensation or any other purpose) on account of Contractor’s performance of any Services. Contractor will not be entitled to any pension, deferred compensation, welfare, insurance or other employee benefits afforded by BSQUARE.

5. Term and Termination.

5.1. Term. The term of this Agreement (the “Term”) shall run from the Effective Date and terminate upon completion or early termination of the project set forth in Section 1 of Exhibit A (the “Project”). The term may be extended from time to time upon written agreement of the parties (email is acceptable).

5.2. Termination by BSQUARE. Contractor agrees that performance of any Services under this Agreement may be terminated in whole or in part at any time by BSQUARE giving Contractor written notice of such termination specifying the extent and effective date thereof.

5.3. Termination by Contractor. Contractor may terminate this Agreement by providing BSQUARE with 30 business day’s written notice of its intent to do so.

5.4. Effect of Termination. After receipt of any notice of termination from BSQUARE (per Section 5.2 above) or upon the effective date of Contractor’s termination (per Section 5.3 above), Contractor shall stop work hereunder to the extent and on the date specified in such notice, and deliver to BSQUARE all designs, computations, drawings, specifications and other material and information prepared and developed hereunder in connection with the work terminated. In the event of any termination pursuant to this clause, Contractor shall be entitled to be paid as provided herein for direct labor hours expended and reimbursable

INDIVIDUAL CONTRACTOR SERVICES AGREEMENT

costs incurred prior to the termination, and for such additional hours and reimbursable costs associated with concluding the work terminated that are requested and approved in writing by BSQUARE. Contractor shall not be entitled to any anticipated profit on Services not performed. Except as provided in this paragraph, any such termination shall not alter or affect the rights and obligations under this Agreement.

6. Ownership.

6.1. Ownership of Inventions. All inventions, ideas, designs, circuits, schematics, formulas, algorithms, trade secrets, works of authorship, mask works, developments, processes, techniques, improvements, and related know-how which result from work performed by Contractor, alone or with others, on behalf of BSQUARE or from access to Confidential Information or property whether or not patentable, copyrightable, or qualified for mask work protection (collectively “Inventions”), shall be the property of BSQUARE, and, to the extent permitted by law, shall be “Works Made For Hire.” Contractor hereby assigns and agrees to assign to BSQUARE or its designee, without further consideration, Contractor’s entire right, title and interest in and to all Inventions, other than the Excluded Inventions described in Section 4 of this Agreement, including all rights to obtain, register, perfect, and enforce patents, copyrights, mask work rights, and other intellectual property protection for Inventions. Contractor will disclose promptly and in writing to the individual designated by BSQUARE or to Contractor’s immediate supervisor, if no such designee has been made, all Inventions which Contractor has made or reduced to practice. During the Term of this Agreement and for one year thereafter, Contractor will assist BSQUARE (at BSQUARE’s expense) as requested to obtain and enforce patents, copyrights, mask work rights, and other forms of intellectual property protection on Inventions, including without limitation, the execution of additional instruments of conveyance and assisting BSQUARE with applications for patents or copyright or other registrations, including the execution of such applications. Contractor will be compensated at an agreed hourly rate for such assistance post-termination, with payment for such assistance occurring 30 days after receipt of a reasonably detailed time report showing time spent by Contractor with appropriate explanation for the services and assistance rendered.

6.2. Excluded Inventions. Attached hereto as Exhibit B is a list of all inventions, improvements, and original works of authorship that Contractor desires to exclude from this Agreement, each of which has been made or reduced to practice by Contractor prior to the Term of this Agreement (the “Excluded Inventions”). To the extent Contractor incorporates any Excluded Inventions listed in Exhibit B into any works of authorship or other Inventions that result from work performed by Contractor for BSQUARE, Contractor hereby grants BSQUARE a non-exclusive, royalty-free, perpetual, irrevocable, worldwide license (with right to sublicense) to make, use, sell, copy, modify, distribute and otherwise to practice and exploit such Excluded Inventions in source and object code formats. If there is no such list attached to this Agreement, there are no inventions to be excluded at the time of signing of this Agreement. Contractor is not required to assign or offer to assign to BSQUARE any of his or her rights in an invention for which no equipment, supplies, facilities, or Confidential information was used and which was developed entirely on Contractor’s own time unless (a) the invention relates (i) directly to the business of BSQUARE or its customers for which Contractor was engaged to perform work, or (ii) to BSQUARE’s actual or demonstrably anticipated research or development, or (b) the invention results from any work performed by Contractor for BSQUARE. However, Contractor shall notify BSQUARE of inventions that may not be required to be assigned pursuant to this Agreement and may add these inventions to Exhibit B at Contractor’s request.

6.3. Third Party IP. During the provision of Services, Contractor shall not use or disclose the intellectual property of any third party unless Contractor has obtained all necessary rights to do so, and has obtained BSQUARE’s prior written consent. Contractor shall hold BSQUARE harmless from Contractor’s failure to secure any rights necessary for Contractor to use or disclose any third party intellectual property.

7. Confidentiality; Nonsolicitation; Non-Compete.

7.1. Confidentiality.

7.1.1. Contractor shall retain in confidence all information transmitted to it by BSQUARE pursuant to or in connection with this Agreement that BSQUARE identifies as being proprietary and/or confidential or that, by the nature of the circumstances surrounding the disclosure, ought in good faith to be treated as proprietary and/or confidential (“Confidential Information”), and will make no use of such Confidential Information except under the terms and during the term of this Agreement. Information disclosed by BSQUARE (or its customers), in any form, including without

Confidential

1

INDIVIDUAL CONTRACTOR SERVICES AGREEMENT

limitation, information regarding products, pre-release products, software, marketing and business plans and financial information, BSQUARE’s customers’ information and passwords provided to Contractor by BSQUARE, shall be BSQUARE Confidential Information. Contractor shall treat the terms and conditions of this Agreement as confidential; however, Contractor may disclose such information in confidence to its immediate legal and accounting advisers who are bound by obligations of confidence to Contractor with respect to the Confidential Information, as required in the ordinary course of Contractor’s business.

7.1.2. Confidential Information shall not include information that Contractor can establish: (i) has entered the public domain without the Contractor’s breach of any obligation owed to the disclosing party; (ii) is rightfully received by Contractor from a third party without confidentiality restrictions; (iii) is known to Contractor without any restriction as to use or disclosure prior to first receipt by Contractor from the disclosing party hereunder; or (iv) is independently developed by Contractor without reference to any of BSQUARE’s or its customer’s Confidential Information.

7.2. Nonsolicitation of Personnel and Customers. During the term of this Agreement, and for a period of one (1) year thereafter, Contractor shall not, without the prior written consent of BSQUARE, directly or indirectly (i) solicit any Contractor or other individual independent contractor of BSQUARE to become a contractor or individual independent contractor of Contractor or any other entity; (ii) engage in an employee or contractor relationship with, or otherwise perform work for any customer of BSQUARE, unless such work is performed pursuant to this Agreement.

7.3. Noncompetition. Contractor acknowledges that BSQUARE has a genuine interest in, and considers valuable, its Confidential Information, specifically including but not limited to its trade secrets. In order to protect BSQUARE’s legitimate interest in its Confidential Information and in consideration for BSQUARE’s entering into this Agreement, Contractor agrees that during the Term and for a period after that is the greater of either a) one month or b) the length of the term of Services rendered to BSQUARE (not to exceed one year), Contractor will not directly or indirectly be employed by, own, manage, operate, join, benefit from or be connected to a business activity that is competitive with BSQUARE’s business.

7.3.1. A business activity that is competitive with BSQUARE’s business is defined as one that:

a. provides hardware and/or software engineering and consulting services to third parties where such services are related to: (i) Microsoft Windows embedded operating systems, including, but not limited to, Windows CE, Windows XP Embedded (and successor MSFT operating systems), Smartphone and Pocket PC (“Microsoft Embedded Operating Systems”); or (ii) Adobe Flash software for mobile and embedded devices; or (iii) test automation tools for embedded and mobile devices; or (iv) Android operating systems.

b. Resells Microsoft Windows embedded operating systems or Android operating systems to enterprises, including OEMs, ODMs, etc., in the North American marketplace; or

c. develops, sells or distributes any product in the worldwide marketplace that provides functionality similar to that of any of BSQUARE’s products, including, but not limited to, BSQUARE’s SDIO Technology, BSQUARE’s Media Player product, BSQUARE’s Schema product, any TestQuest related product, including without limitation TestQuest Pro and Countdown, and any subsequent versions or iterations of these products, or any new products that may be developed. However, development of any such products with functionality similar to that of BSQUARE’s products for “internal use” (meaning the product is developed and distributed by a company in its own proprietary embedded device) would not constitute a business activity which is competitive with BSQUARE’s business.

7.3.2. Contractor will be deemed to be connected with a business entity that is competitive with BSQUARE if his/her involvement with such entity is represented by:

a. a limited or general partnership role in a competitive entity;

Confidential

2

INDIVIDUAL CONTRACTOR SERVICES AGREEMENT

b. a greater than 5% ownership stake in the competitive entity; or

c. Contractor’s role as an officer or director, Contractor, consultant, agent, member, advisor or other representative of the competitive entity.

For purposes of this Agreement, an entity that is competitive with BSQUARE includes any “affiliates”, which are defined as any person, partnership, joint venture, corporation or other form of enterprise, domestic or foreign, including subsidiaries, that directly or indirectly control, are controlled by or are under common control with the competitive entity. However, to the extent that a business entity is considered competitive with BSQUARE, Contractor may work for an affiliate, division or operating unit of such entity if Contractor does not engage in business activities that are considered to be competitive with BSQUARE as described in Section 7.3.1 above.

7.4. Contractor agrees that during the Term, Contractor will promptly and fully disclose to BSQUARE any business opportunity coming to Contractor attention, or conceived or developed in whole or in part by Contractor, which relates to BSQUARE’s business, or anticipated business. Contractor will not at any time exploit such business opportunities for Contractor’s own gain or that of any person or entity other than BSQUARE.

7.5. During the Term and for a period after that is the greater of either a) one month, or b) the length of the term of Services rendered to BSQUARE (not to exceed one year), Contractor will not perform any work or services for any of BSQUARE’s customers other than work performed on behalf of BSQUARE pursuant to this Agreement.

7.6. Contractor understands that in cases where this Section 7 does not apply, Contractor is still subject to all other obligations he or she has to BSQUARE, including the obligations related to BSQUARE’s Confidential Information.

7.7. Nothing herein shall limit BSQUARE’s or Contractor’s rights to pursue any legal remedies available to BSQUARE or Contractor, including, but not limited to, remedies available under common law and statutory remedies.

8. Limited Warranties.

8.1. Contractor’s Warranty. Contractor represents and warrants that he or she has disclosed all facts, if any, pertaining to restrictions on Contractor’s ability to enter into this Agreement. Contractor further represents and warrants that he or she is not bound by any agreements with third parties that would prevent Contractor from lawfully performing services provided by Contractor to BSQUARE. Contractor understands that it is BSQUARE’s policy not to improperly obtain or use confidential, proprietary or trade secret information that belongs to third parties, and Contractor agrees not to use such third-party confidential, proprietary or trade secret information for BSQUARE’s benefit.

8.2. Professionalism. Contractor represents and warrants that Contractor and anyone assigned to the Services is properly licensed and otherwise qualified to perform the Services and that the Services will be performed in a good, professional manner, consistent with industry standards.

8.3. Compliance with Law. Contractor warrants that: (i) Contractor is a United States citizen or has notified BSQUARE that Contractor is not a U.S. Citizen and is otherwise eligible and qualified to work in the United States and where any visas or other requirements apply, Contractor shall be fully responsible for all fees and expenses that may be incurred as a result; (ii) Contractor will perform all of its obligations under and arising out of this Agreement in compliance with all applicable federal, state, and local laws, regulations, rules and ordinances.

9. Contractor Indemnification. Contractor agrees to defend, protect, indemnify and hold BSQUARE harmless from and against all claims, suits, actions, liability, loss, damage, and expenses arising from any misrepresentation under or breach of this Agreement, and any willful or negligent act or willful or negligent omission of Contractor under this Agreement or of any of Contractor’s agents in or in any way connected with the performance of this Agreement.

Confidential

3

INDIVIDUAL CONTRACTOR SERVICES AGREEMENT

10. Governing Law/Dispute Resolution. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Washington. Any dispute arising under this Agreement shall be settled by binding arbitration before a single arbitrator pursuant to the rules of the American Arbitration Association. The arbitration of any disputes under this Agreement shall be subject to such of the State of Washington’s statutes of limitation as would have been applicable had such disputed matter been litigated in a court of law. Contractor recognizes and agrees that the remedy at law for certain breaches of this Agreement, including, but not limited to the disclosure of BSQUARE’s Confidential Information, will be inadequate, and hence, Contractor agrees that BSQUARE shall be entitled to seek equitable or injunctive relief (without limitation of any other rights or remedies otherwise available) to obtain an injunction from a court of competent jurisdiction prohibiting the continuance or recurrence of any breach of this Agreement. The parties to this Agreement hereby submit to the exclusive jurisdiction and venue of the courts of the State of Washington and agree that service in any such action or proceeding may be made by first class mail (certified or registered), confirmed facsimile transmission or nationally recognized courier delivery service to the address set forth above or such other address as either party may designate. If any proceeding is brought by either party to enforce or interpret any term or provision of this Agreement, the substantially prevailing party in such proceeding shall be entitled to recover, in addition to all other relief arising out of this Agreement, such party’s reasonable attorneys’ and other experts’ (including without limitation accountants) fees and expenses.

11. Miscellaneous.

11.1. Records and Audit. Contractor agrees to maintain sufficient and accurate records and books of account, including detailed time records, showing all direct labor hours expended and all reimbursable costs incurred and the same shall be subject to inspection and audit by BSQUARE at BSQUARE’s sole cost and expense at all reasonable times. All such records and books of account pertaining to any work performed hereunder shall be retained for a period of not less than three (3) years from the date of payment for such work.

11.2. Equipment. Contractor shall be responsible for providing all equipment necessary to provide services to BSQUARE as provided for in this Agreement, including but not limited to computer hardware and software. BSQUARE shall not provide any equipment to Contractor unless otherwise agreed in writing by both parties.

11.3. Waiver. No waiver of or with respect to any provision of this Agreement, nor consent by a party to the breach of or departure from any provision of this Agreement, shall in any event be binding on or effective against such party unless it be in writing and signed by such party, and then such waiver shall be effective only in the specific instance and for the purpose for which given.

11.4. Severability; Invalidity. If any provision of this Agreement is held to be invalid, such invalidity shall not render invalid the remainder of this Agreement or the remainder of which such invalid provision is a part. If any provision of this Agreement is so broad as to be held unenforceable, such provision shall be interpreted to be only so broad as is enforceable.

11.5. Release. Contractor releases BSQUARE and its directors, officers, employees, subsidiaries, affiliates and representatives, from any and all claims arising out of Contractor’s services or connected to performance of Contractor’s services, including any property damage or personal injury (including, without limitation, any damage or injury suffered by Contractor or anyone else performing any Services).

11.6. Notices. Any notice or other communication under this Agreement given by either party to the other party shall be deemed to be properly given if given in writing and delivered (i) by facsimile transmission (receipt confirmed) or (ii) by nationally recognized private courier, (e.g., Federal Express) properly addressed and prepaid, to the recipient at the address identified on the first page of this Agreement. Either party may from time to time change its address by giving the other party notice of the change in accordance with this Section.

11.7. Survival. Sections 6, 7, 8, 9, 10 and 11 shall survive the expiration or termination of this Agreement.

Confidential

4

INDIVIDUAL CONTRACTOR SERVICES AGREEMENT

11.8. Entire Agreement; Amendments. This Agreement constitutes and embodies the entire agreement and understanding between the parties with respect to the subject matter hereof and supersedes all prior or contemporaneous written, electronic or oral communications, representations, agreements or understandings between the parties with respect thereto. This Agreement may not be modified or amended except by a written instrument executed by both parties. In the event of any conflict between the provisions of this Agreement and the terms of any form of purchase order or invoice, the provisions of this Agreement shall prevail.

11.9. Publicity. Contractor shall not advertise, market or, except to the extent (if any) required by law, otherwise disclose to others any information relating to the making of this Agreement. Contractor shall not commercially use BSQUARE’s name, trademarks, service marks or logos, without BSQUARE’s prior written consent.

11.10. Counterparts. This Agreement and any amendments hereto may be executed in one or more counterparts, which taken together shall constitute a single agreement between the parties.

EXECUTED as of the date below BSQUARE’s signature (the “Effective Date”):

BSQUARE Corporation		Contractor
By:	/s/ Scott C. Mahan	By:	/s/ Jerry Chase
Name:	Scott C. Mahan	Name:	Jerry Chase
Its:	Senior Vice-President, Operations and Chief Financial Officer	Its:
Date:	9/23/13	Date:	9/23/13

Confidential

5

INDIVIDUAL CONTRACTOR SERVICES AGREEMENT

EXHIBIT A

SERVICES, FEES AND PAYMENT TERMS

1. Services. Contractor will provide the following Services to BSQUARE:

Description:

Project: Contractor will serve as the interim Chief Executive Officer of BSQUARE for a period of three (3) months and perform any and all duties required by a chief executive officer and as stipulated by the Board of Directors of Bsquare. The term of the Project may be extended.

2. Fees. BSQUARE will pay the following fees to Contractor:

Daily labor rate: USD $1,180

3. Payment Terms. Contractor will invoice BSQUARE monthly. BSQUARE will pay Contractor within 30 days of receipt of each invoice, with payments sent to:

Confidential

6

INDIVIDUAL CONTRACTOR SERVICES AGREEMENT

EXHIBIT B

EXCLUDED INVENTIONS, IMPROVEMENTS, AND ORIGINAL WORKS OF AUTHORSHIP

TITLE DATE IDENTIFYING NUMBER OR BRIEF DESCRIPTION

Confidential

7

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

RULE 13(a)-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934

I, Jerry Chase, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of BSQUARE Corporation;

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

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

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

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

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

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

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

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

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

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

Dated: November 12, 2013	/s/ Jerry Chase
	Jerry Chase Interim Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO

RULE 13(a)-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934

I, Scott C. Mahan, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of BSQUARE Corporation;

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

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

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

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

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

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

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

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

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

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

Dated: November 12, 2013	/s/ Scott C. Mahan
	Scott C. Mahan Senior Vice President, Operations and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,

I, Jerry Chase, Interim Chief Executive Officer, certify that:

1. To my knowledge, this report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. To my knowledge, the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of BSQUARE Corporation.

Dated: November 12, 2013	/s/ Jerry Chase
	Jerry Chase Interim Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,

I, Scott C. Mahan, Senior Vice President, Operations and Chief Financial Officer, certify that:

1. To my knowledge, this report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. To my knowledge, the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of BSQUARE Corporation.

Dated: November 12, 2013	/s/ Scott C. Mahan
	Scott C. Mahan Senior Vice President, Operations and Chief Financial Officer

XML

Cash and Investments (Tables)

9 Months Ended

Sep. 30, 2013

Cash And Cash Equivalents [Abstract]

Cash, Cash Equivalents, Short-Term Investments, and Restricted Cash

Cash, cash equivalents, short-term investments, and restricted cash consisted of the following at September 30, 2013 and December 31, 2012 (in thousands):  

	September 30, 2013		December 31, 2012
Cash	$	3,297	$	2,590
Cash equivalents—money market fund		9,939		7,313
Total cash and cash equivalents		13,236		9,903
Short-term investments:
Municipal securities		—		356
Corporate commercial paper		1,250		4,374
Foreign government bonds		1,001		999
Corporate debt securities		5,802		4,097
Total short-term investments		8,053		9,826
Restricted cash—money market fund		250		875
Total cash, cash equivalents, short-term investments and restricted cash	$	21,539	$	20,604

XML

Condensed Consolidated Statements of Operations and Comprehensive Loss (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Revenue:
Software	$ 18,456	$ 19,635	$ 51,818	$ 55,645
Service	5,116	5,850	14,461	19,893
Total revenue	23,572	25,485	66,279	75,538
Cost of revenue:
Software	15,965	15,730	43,087	45,094
Service	4,238	4,913	12,683	16,410
Total cost of revenue	20,203	20,643	55,770	61,504
Gross profit	3,369	4,842	10,509	14,034
Operating expenses:
Selling, general and administrative	3,960	2,866	11,432	10,557
Research and development	804	861	2,205	2,909
Total operating expenses	4,764	3,727	13,637	13,466
Income (loss) from operations	(1,395)	1,115	(3,128)	568
Other income (expense), net	(15)	28	100	122
Income (loss) before income taxes	(1,410)	1,143	(3,028)	690
Income tax expense	(2,157)	(533)	(2,206)	(470)
Net income (loss)	(3,567)	610	(5,234)	220
Basic income (loss) per share	$ (0.32)	$ 0.06	$ (0.47)	$ 0.02
Diluted income (loss) per share	$ (0.32)	$ 0.05	$ (0.47)	$ 0.02
Shares used in calculation of income (loss) per share:
Basic	11,194	10,943	11,150	10,935
Diluted	11,194	11,474	11,150	11,450
Comprehensive income (loss):
Net income (loss)	(3,567)	610	(5,234)	220
Other comprehensive income (expense):
Foreign currency translation, net of tax	56	(65)	(35)	(75)
Change in unrealized gains on investments, net of tax	1	6	(2)	18
Total other comprehensive income (expense)	57	(59)	(37)	(57)
Comprehensive income (loss)	$ (3,510)	$ 551	$ (5,271)	$ 163

XML

Shareholders' Equity

9 Months Ended

Sep. 30, 2013

Equity [Abstract]

Shareholders' Equity

. Shareholders’ Equity

Stock Options

We have a stock plan (the “Stock Plan”) and an inducement stock plan for newly hired employees (the “Inducement Plan”) (collectively, the “Plans”). Under the Plans, stock options may be granted with a fixed exercise price that is equivalent to fair market value 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, RSAs and unrestricted stock awards, and RSUs. The Inducement Plan was established in connection with the MPC acquisition. Initially, 250,000 shares were allocated for award under the Inducement Plan. As of September 30, 2013, there were 46,750 shares available for grant under the Inducement Plan. The number of shares available for award under the Inducement Plan may be modified by our Board of Directors, subject to SEC and NASDAQ limitations.

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 of stock-based awards based on historical experience and expected future activity. The fair value of RSAs and 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 were estimated with the following weighted average assumptions:  

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Dividend yield		0	%		0	%		0	%		0	%
Expected life		4 years			4 years			4 years			4 years
Expected volatility		58	%		73	%		62	%		73	%
Risk-free interest rate		1.1	%		0.5	%		0.8	%		0.6	%

The impact on our results of operations of recording stock-based compensation expense for the three and nine months ended September 30, 2013 and 2012 was as follows (in thousands, except per share amounts):  

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013		2012			2013		2012
Cost of revenue — service	$	48	$	34		$	184	$	242
Selling, general and administrative		145		(267	)		456		355
Research and development		27		26			86		89
Total stock-based compensation expense	$	220	$	(207	)	$	726	$	686
Per diluted share	$	0.02	$	(0.02	)	$	0.07	$	0.06

Stock Option Activity

The following table summarizes stock option activity under the Plans for the nine months ended September 30, 2013:  

Stock Options	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Balance at January 1, 2013		1,539,618		$	3.55
Granted at fair value		270,080			2.98
Exercised		(3,000	)		2.67
Forfeited		(39,808	)		3.50
Expired		(150,127	)		4.24
Balance at September 30, 2013		1,616,763		$	3.40		4.00	$	257,000
Vested and expected to vest at September 30, 2013		1,557,509		$	3.40		3.91	$	257,000
Exercisable at September 30, 2013		1,156,660		$	3.41		2.89	$	254,000

At September 30, 2013, total compensation cost related to stock options granted but not yet recognized was $281,000, net of estimated forfeitures. This cost will be amortized on the straight-line method over a weighted-average period of approximately 1.4 years. The following table summarizes certain information about stock options for the three and nine months ended September 30, 2013 and 2012:  

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Weighted-average grant-date fair value of option grants for the period	$	—	$	—	$	1.07		2.23
Options in-the-money at period end		541,000		616,350		541,000		616,350
Aggregate intrinsic value of options exercised	$	0	$	34,000	$	1,000	$	67,000

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 that were in-the-money at period end or that were exercised during the period. We issue new shares of common stock upon exercise of stock options.

Restricted Stock Unit Activity

The following table summarizes RSU activity for the nine months ended September 30, 2013:  

	Number of Shares			Weighted Average Grant Date Fair Value
Unvested at January 1, 2013		236,513		$	4.95
Granted		128,838			2.75
Vested		(131,777	)		3.97
Forfeited		(5,275	)		6.75
Unvested at September 30, 2013		228,299		$	4.23
Expected to vest after September 30, 2013		216,377		$	4.05

At September 30, 2013, total compensation cost related to RSUs granted but not yet recognized was $656,000, net of estimated forfeitures. This cost will be amortized on the straight-line method over a period of approximately 1.4 years.

Common Stock Reserved for Future Issuance

The following table summarizes our shares of common stock reserved for future issuance under the Plans at September 30, 2013:  

	September 30, 2013
Stock options outstanding		1,616,763
Restricted stock units outstanding		228,299
Stock options available for future grant		952,724
Common stock reserved for future issuance		2,797,786

XML

Cash and Investments - Cash, Cash Equivalents, Short-Term Investments, and Restricted Cash (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012	Sep. 30, 2012	Dec. 31, 2011
Schedule of Investments [Abstract]
Cash	$ 3,297	$ 2,590
Total cash and cash equivalents	13,236	9,903	6,897	8,505
Short-term investments:
Total short-term investments	8,053	9,826
Restricted cash-money market fund	250	875
Total cash, cash equivalents, short-term investments and restricted cash	21,539	20,604
Municipal securities [Member]
Short-term investments:
Total short-term investments		356
Corporate commercial paper [Member]
Short-term investments:
Total short-term investments	1,250	4,374
Foreign government bonds [Member]
Short-term investments:
Total short-term investments	1,001	999
Corporate debt securities [Member]
Short-term investments:
Total short-term investments	5,802	4,097
Cash equivalents-money market fund [Member]
Schedule of Investments [Abstract]
Cash equivalents-money market fund	$ 9,939	$ 7,313

XML

Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2013

Fair Value Disclosures [Abstract]

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012 are summarized below (in thousands):  

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Direct or Indirect Observable Inputs (Level 2)		Total
Assets:
Cash equivalents—money market fund	$	9,939	$	—	$	9,939
Short-term investments:
Corporate commercial paper		—		1,250		1,250
Foreign government bonds		—		1,001		1,001
Corporate debt securities		—		5,802		5,802
Total short-term investments		—		8,053		8,053
Restricted cash—money market fund		250		—		250
Total assets measured at fair value	$	10,189	$	8,053	$	18,242

 

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Direct or Indirect Observable Inputs (Level 2)		Total
Assets:
Cash equivalents—money market fund	$	7,313	$	—	$	7,313
Short-term investments:
Municipal securities		—		356		356
Corporate commercial paper		—		4,374		4,374
Foreign government bonds		—		999		999
Corporate debt securities		—		4,097		4,097
Total short-term investments		—		9,826		9,826
Restricted cash—money market fund		875		—		875
Total assets measured at fair value	$	8,188	$	9,826	$	18,014

XML

Information about Geographic Areas - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2013 Segment
Segment Reporting [Abstract]
Number of reportable segment	1
Number of operating segment	1

XML

Goodwill and Intangible Assets - Summary of Acquisition-Related Intangible Assets (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Acquired Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 1,471	$ 1,471
Accumulated Amortization	(574)	(402)
Total / Net Carrying Value	897	1,069
Customer relationships [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	1,275	1,275
Accumulated Amortization	(378)	(276)
Total / Net Carrying Value	897	999
Non-compete agreements [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	196	196
Accumulated Amortization	(196)	(126)
Total / Net Carrying Value	$ 0	$ 70

XML

Goodwill and Intangible Assets - Additional Information (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Goodwill And Intangible Assets Disclosure [Abstract]
Changes in the carrying amount of goodwill			$ 0
Amortization expense	$ 56,000	$ 85,000	$ 172,000	$ 261,000

XML

Shareholders' Equity - Summary of Restricted Stock Unit Activity (Detail) (Restricted Stock Units [Member], USD $)	9 Months Ended
	Sep. 30, 2013
Restricted Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Unvested, Number of Shares, Beginning Balance	236,513
Granted, Number of Shares	128,838
Vested, Number of Shares	(131,777)
Forfeited, Number of Shares	(5,275)
Unvested, Number of Shares, Ending Balance	228,299
Expected to vest, Number of Shares, Ending Balance	216,377
Unvested, Weighted Average Grant Date Fair Value, Beginning Balance	$ 4.95
Granted, Weighted Average Grant Date Fair Value	$ 2.75
Vested, Weighted Average Grant Date Fair Value	$ 3.97
Forfeited, Weighted Average Grant Date Fair Value	$ 6.75
Unvested, Weighted Average Grant Date Fair Value	$ 4.23
Expected to vest, Weighted Average Grant Date Fair Value	$ 4.05

XML

Significant Risk Concentrations - Additional Information (Detail) (USD $)	3 Months Ended		9 Months Ended			9 Months Ended	3 Months Ended	9 Months Ended	3 Months Ended		9 Months Ended		3 Months Ended			9 Months Ended			12 Months Ended	9 Months Ended		12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012	Sep. 30, 2013 Korea [Member]	Sep. 30, 2012 Windows Mobile Operating Systems [Member] Korea [Member]	Sep. 30, 2012 Windows Mobile Operating Systems [Member] Korea [Member]	Sep. 30, 2013 Cost of revenue - service [Member]	Sep. 30, 2012 Cost of revenue - service [Member]	Sep. 30, 2013 Cost of revenue - service [Member]	Sep. 30, 2012 Cost of revenue - service [Member]	Sep. 30, 2013 Reduction in marketing expense in the future [Member]	Sep. 30, 2013 Other customer [Member] Revenue [Member] Customer	Sep. 30, 2012 Other customer [Member] Revenue [Member] Customer	Sep. 30, 2013 Other customer [Member] Revenue [Member] Customer	Sep. 30, 2012 Other customer [Member] Revenue [Member] Customer	Sep. 30, 2013 Other customer [Member] Accounts receivable [Member] Customer	Dec. 31, 2012 Other customer [Member] Accounts receivable [Member] Customer	Sep. 30, 2013 Bluebird Soft, Inc.[Member]	Dec. 31, 2012 Bluebird Soft, Inc.[Member]	Dec. 31, 2012 Bluebird Soft, Inc.[Member] Accounts receivable [Member]
Concentration Risk [Line Items]
Number of other customer account as major customer														0	0	0	0	0	0
Accounts receivable	$ 12,811,000		$ 12,811,000		$ 16,095,000																$ 2,100,000
Concentration risk, percentage																						13.00%
Accounts receivable collected																				2,100,000
Expiration date one of OEM Distribution agreements for embedded operating systems			Sep. 30, 2014
Expiration date of OEM Distribution agreements for mobile operating systems, non-EMEA			Sep. 30, 2014
Rights expired for Windows Mobile operating systems in Korea						Oct. 31, 2012
Revenue	18,456,000	19,635,000	51,818,000	55,645,000			1,200,000	2,900,000
Earnings under the rebate program									$ 89,000	$ 196,000	$ 658,000	$ 609,000	$ 208,000

XML

Shareholders' Equity - Impact on the Results of Operations of Recording Stock-Based Compensation Expense (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense	$ 220	$ (207)	$ 726	$ 686
Per diluted share	$ 0.02	$ (0.02)	$ 0.07	$ 0.06
Cost of revenue - service [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense	48	34	184	242
Selling, general and administrative [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense	145	(267)	456	355
Research and development [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense	$ 27	$ 26	$ 86	$ 89

XML

Fair Value Measurements - Assets and Liabilities Measured at Fair Value on a Recurring Basis (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Short-term investments:
Total short-term investments	$ 8,053	$ 9,826
Restricted cash-money market fund	250	875
Corporate commercial paper [Member]
Short-term investments:
Total short-term investments	1,250	4,374
Foreign government bonds [Member]
Short-term investments:
Total short-term investments	1,001	999
Corporate debt securities [Member]
Short-term investments:
Total short-term investments	5,802	4,097
Municipal securities [Member]
Short-term investments:
Total short-term investments		356
Recurring basis [Member]
Short-term investments:
Total short-term investments	8,053	9,826
Restricted cash-money market fund	250	875
Total assets measured at fair value	18,242	18,014
Recurring basis [Member] | Corporate commercial paper [Member]
Short-term investments:
Total short-term investments	1,250	4,374
Recurring basis [Member] | Foreign government bonds [Member]
Short-term investments:
Total short-term investments	1,001	999
Recurring basis [Member] | Corporate debt securities [Member]
Short-term investments:
Total short-term investments	5,802	4,097
Recurring basis [Member] | Municipal securities [Member]
Short-term investments:
Total short-term investments		356
Recurring basis [Member] | Cash equivalents-money market fund [Member]
Assets:
Cash equivalents-money market fund	9,939	7,313
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Recurring basis [Member]
Short-term investments:
Total short-term investments
Restricted cash-money market fund	250	875
Total assets measured at fair value	10,189	8,188
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Recurring basis [Member] | Corporate commercial paper [Member]
Short-term investments:
Total short-term investments
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Recurring basis [Member] | Foreign government bonds [Member]
Short-term investments:
Total short-term investments
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Recurring basis [Member] | Corporate debt securities [Member]
Short-term investments:
Total short-term investments
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Recurring basis [Member] | Municipal securities [Member]
Short-term investments:
Total short-term investments
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Recurring basis [Member] | Cash equivalents-money market fund [Member]
Assets:
Cash equivalents-money market fund	9,939	7,313
Direct or Indirect Observable Inputs (Level 2) [Member] | Recurring basis [Member]
Short-term investments:
Total short-term investments	8,053	9,826
Restricted cash-money market fund
Total assets measured at fair value	8,053	9,826
Direct or Indirect Observable Inputs (Level 2) [Member] | Recurring basis [Member] | Corporate commercial paper [Member]
Short-term investments:
Total short-term investments	1,250	4,374
Direct or Indirect Observable Inputs (Level 2) [Member] | Recurring basis [Member] | Foreign government bonds [Member]
Short-term investments:
Total short-term investments	1,001	999
Direct or Indirect Observable Inputs (Level 2) [Member] | Recurring basis [Member] | Corporate debt securities [Member]
Short-term investments:
Total short-term investments	5,802	4,097
Direct or Indirect Observable Inputs (Level 2) [Member] | Recurring basis [Member] | Municipal securities [Member]
Short-term investments:
Total short-term investments		356
Direct or Indirect Observable Inputs (Level 2) [Member] | Recurring basis [Member] | Cash equivalents-money market fund [Member]
Assets:
Cash equivalents-money market fund

XML

Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of BSQUARE Corporation (“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 our 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 September 30, 2013 and our operating results and cash flows for the three and nine months ended September 30, 2013 and 2012. The accompanying financial information as of December 31, 2012 is derived from audited financial statements. Preparing financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Examples include provisions for bad debts and income taxes, estimates of progress on professional engineering service arrangements and bonus accruals. Actual results may differ from these estimates. Interim results are not necessarily indicative of results for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2012. All intercompany balances have been eliminated.

Recently Issued Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update (“ASU”) No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” Under ASU 2013-02, an entity is required to provide information about the amounts reclassified out of Accumulated Other Comprehensive Income (“AOCI”) by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in the financial statements. Our adoption of ASU 2013-02 effective January 1, 2013 did not have any effect on our financial position, results of operations or cash flows.

Income (Loss) Per Share

Basic income or loss per share is computed using the weighted average number of common shares outstanding during the period, and excludes any dilutive effects of common stock equivalent shares, such as options, restricted stock awards and restricted stock units. Restricted stock awards (“RSAs”) are considered outstanding and included in the computation of basic income or loss per share when underlying restrictions expire and the awards are no longer forfeitable. Restricted stock units (“RSUs”) are considered outstanding and included in the computation of basic income or loss per share only when vested. Diluted income per share is computed using the weighted average number of common shares outstanding and common stock equivalent shares outstanding during the period using the treasury stock method.

Common stock equivalent shares of 940,812 and 837,812 and 993,687 and 904,637 were excluded from the computations of basic and diluted income per share for the three and nine months ended September 30, 2013 and 2012, respectively,, because their effect was anti-dilutive. Unvested but outstanding RSUs and RSAs which are forfeitable are included in the diluted income per share calculation. In a period where we are in a net loss position, the diluted loss per share is computed using the basic share count.

XML

Fair Value Measurements

9 Months Ended

Sep. 30, 2013

Fair Value Disclosures [Abstract]

Fair Value Measurements

3. Fair Value Measurements

We measure our cash equivalents and short-term investments 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 short-term investments within Level 1 or Level 2 because our cash equivalents and short-term investments are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs.

Assets and liabilities measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012 are summarized below (in thousands):

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Direct or Indirect Observable Inputs (Level 2)		Total
Assets:
Cash equivalents—money market fund	$	9,939	$	—	$	9,939
Short-term investments:
Corporate commercial paper		—		1,250		1,250
Foreign government bonds		—		1,001		1,001
Corporate debt securities		—		5,802		5,802
Total short-term investments		—		8,053		8,053
Restricted cash—money market fund		250		—		250
Total assets measured at fair value	$	10,189	$	8,053	$	18,242

 

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Direct or Indirect Observable Inputs (Level 2)		Total
Assets:
Cash equivalents—money market fund	$	7,313	$	—	$	7,313
Short-term investments:
Municipal securities		—		356		356
Corporate commercial paper		—		4,374		4,374
Foreign government bonds		—		999		999
Corporate debt securities		—		4,097		4,097
Total short-term investments		—		9,826		9,826
Restricted cash—money market fund		875		—		875
Total assets measured at fair value	$	8,188	$	9,826	$	18,014

XML

Commitments and Contingencies

9 Months Ended

Sep. 30, 2013

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

6. Commitments and Contingencies

Lease and rent obligations

Our commitments include obligations outstanding under operating leases, which expire through 2020. We have lease commitments for office space in Bellevue, Washington; San Diego, California; Chandler, Arizona: Boston, Massachusetts: Taipei, Taiwan; Beijing, China; Seoul, Korea; Tokyo, Japan; Munich, Germany; and Trowbridge, UK. We also lease office space on a month-to-month basis in Akron, Ohio. Subsequent to September 30, 2013, we gave notice to terminate the Beijing, China and Munich Germany leases. See Note 10 for additional information.

In August 2013, we amended the lease agreement for our Bellevue, WA headquarters and extended the term of the original lease that was scheduled to expire in August 2014 to May 2020.

Rent expense was $402,000 and $1,156,000 for the three and nine months ended September 30, 2013, respectively, and $445,000 and $1,400,000 for the three and nine months ended September 30, 2012, respectively. As of September 30, 2013, we had $250,000 pledged as collateral for a bank letter of credit under the terms of our headquarters facility lease. The pledged cash supporting the outstanding letter of credit is classified as restricted cash.

Future operating lease commitments as of September 30, 2013 are as follows by calendar year (in thousands):*

Remainder of 2013	$	132
2014		1,135
2015		1,256
2016		1,281
2017		1,169
Thereafter		2,656
Total commitments	$	7,629

 

* As discussed above, subsequent to September 30, 2013, we gave notice to terminate the Beijing, China and Munich, Germany leases. The amounts disclosed above are as of September 30, 2013 and thus include amounts that would have been owed under the terminated leases.

Volume Pricing Agreements

In conjunction with our activities under our OEM Distribution Agreements (“ODAs”) with Microsoft Corporation (“Microsoft”), as further described in Note 8, we enter into OEM Volume Royalty Pricing (“OVRP”) commitments with Microsoft. Under these OVRPs, we are provided with volume pricing on a customer-by-customer basis assuming certain minimum unit volumes are met. The OVRP terms are 12 months. In the event we don’t meet the committed minimum unit volumes, we are obligated to pay the difference between the committed per-unit volume rate and the actual per-unit rate we achieved based upon actual units purchased. The OVRP arrangements do not equate to a minimum purchase commitment but rather, the arrangements are a volume pricing arrangement based upon actual volume purchased. In substantially all instances, we have reciprocal agreements with our customers such that we will receive per-unit price adjustments, similar to the amounts we would subsequently owe to Microsoft if such OVRP volumes are not met. However, in the event a customer is unwilling or unable to pay us, we would be negatively impacted. Based upon the credit-worthiness of our customers, our historical OVRP experience with our customers and OVRP arrangements in general, we do not believe we will incur any material liability in future periods and therefore no provision or reserve has been recorded as of September 30, 2013.

XML

Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2013

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

4. Goodwill and Intangible Assets

Goodwill relates to the September 2011 acquisition of MPC Data, Ltd. (“MPC”), a United Kingdom based provider of embedded software engineering services. The excess of the acquisition consideration over the fair value of net assets acquired was recorded as goodwill. There was no change in the carrying amount of goodwill during the nine months ended September 30, 2013.

Intangible assets relate to developed technology, trade names and trademarks, customer relationships, and non-compete agreements that we acquired from TestQuest Inc. in November 2008 and from the acquisition of MPC in September 2011.

Information regarding our intangible assets as of September 30, 2013 and December 31, 2012 is as follows (in thousands):  

	September 30, 2013
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
Customer relationships	$	1,275	$	(378	)	$	897
Non-compete agreements		196		(196	)		0
Total	$	1,471	$	(574	)	$	897

 

	December 31, 2012
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
Customer relationships	$	1,275	$	(276	)	$	999
Non-compete agreements		196		(126	)		70
Total	$	1,471	$	(402	)	$	1,069

Amortization expense was $56,000 and $172,000 for the three and nine months ended September 30, 2013, respectively, and $85,000 and $261,000 for the three and nine months ended September 30, 2012, respectively. Amortization in future periods is expected to be as follows (in thousands):

Remainder of 2013	$	34
2014		135
2015		135
2016		130
2017		98
Thereafter		365
Total	$	897

XML

Income Taxes - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Income Tax Disclosure [Abstract]
Effective income tax rate	(153.70%)	50.60%	(72.80%)	127.20%
Deferred tax assets valuation allowance	$ 2.2		$ 2.2

XML

Goodwill and Intangible Assets - Expected Amortization Expense for Acquisition-Related Intangible Assets (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Goodwill And Intangible Assets Disclosure [Abstract]
Remainder of 2013	$ 34
2014	135
2015	135
2016	130
2017	98
Thereafter	365
Total / Net Carrying Value	$ 897	$ 1,069

XML

Shareholders' Equity - Summary of Stock Option Activity under Plans (Detail) (USD $)	9 Months Ended
	Sep. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Number of Shares, Beginning Balance	1,539,618
Granted at fair value, Number of Shares	270,080
Exercised, Number of Shares	(3,000)
Forfeited, Number of Shares	(39,808)
Expired, Number of Shares	(150,127)
Number of Shares, Ending Balance	1,616,763
Vested and expected to vest, Number of Shares, Ending Balance	1,557,509
Exercisable, Number of Shares, Ending Balance	1,156,660
Weighted Average Exercise Price, Beginning Balance	$ 3.55
Granted at fair value, Weighted Average Exercise Price	$ 2.98
Exercised, Weighted Average Exercise Price	$ 2.67
Forfeited, Weighted Average Exercise Price	$ 3.50
Expired, Weighted Average Exercise Price	$ 4.24
Weighted Average Exercise Price, Ending Balance	$ 3.40
Vested and expected to vest, Weighted Average Exercise Price, Ending Balance	$ 3.40
Exercisable, Weighted Average Exercise Price, Ending Balance	$ 3.41
Weighted Average Remaining Contractual Life (in years), Ending Balance	4 years
Vested and expected to vest, Weighted Average Remaining Contractual Life (in years)	3 years 10 months 28 days
Exercisable, Weighted Average Remaining Contractual Life (in years)	2 years 10 months 21 days
Aggregate Intrinsic Value	$ 257,000
Vested and expected to vest, Aggregate Intrinsic Value	257,000
Exercisable, Aggregate Intrinsic Value	$ 254,000

XML

Commitments and Contingencies - Operating Lease Commitments (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013
Leases [Abstract]
Remainder of 2013	$ 132
2014	1,135
2015	1,256
2016	1,281
2017	1,169
Thereafter	2,656
Total commitments	$ 7,629

XML

Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Statement Of Financial Position [Abstract]
Allowance for doubtful accounts receivable	$ 263	$ 200
Preferred stock, no par value
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, no par value
Common stock, shares authorized	37,500,000	37,500,000
Common stock, shares issued	11,203,707	11,065,217
Common stock, shares outstanding	11,203,707	11,065,217

XML

Income Taxes

9 Months Ended

Sep. 30, 2013

Income Tax Disclosure [Abstract]

Income Taxes

9. Income Taxes

We determine our provision for income taxes for interim periods using an estimate of our annual effective rate. We record any changes to the estimated annual rate in the interim period in which the change occurs, including discrete tax items. Our effective tax rate was (153.7%) and 50.6% for the three months ended September 30, 2013 and 2012, and (72.8%) and 127.2% for the nine months ended September 30, 2013 and 2012. The change in the effective tax rate for the three months and nine months ended September 30, 2013, as compared to the same periods in 2012, was due to the recording of a valuation allowance related to United States deferred tax assets.

In the third quarter of 2013, we determined that it was not more likely than not that we would generate sufficient future taxable income to utilize the US deferred tax assets. As a result, we recorded a valuation allowance of $2.2 million. Deferred tax assets relative to our foreign jurisdictions were not affected.

The factors we considered in recording a full valuation allowance on our US deferred tax assets included, among other things, our recent history of losses over the last approximately three years.

XML

Condensed Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Cash flows from operating activities:
Net loss	$ (5,234)	$ 220
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	586	758
Stock-based compensation	726	685
Deferred income taxes	2,181	415
Changes in operating assets and liabilities:
Accounts receivable, net	3,284	(3,176)
Prepaid expenses and other assets	(418)	367
Third-party software fees payable	(44)	2,303
Accounts payable and accrued expenses	(394)	(1,076)
Deferred revenue	237	331
Deferred rent	268	(13)
Net cash provided by operating activities	1,192	814
Cash flows from investing activities:
Purchases of equipment and furniture	(216)	(336)
Proceeds from maturities of short-term investments	8,932	8,400
Purchases of short-term investments	(7,163)	(10,535)
Reduction of restricted cash	625
Net cash provided by (used in) investing activities	2,178	(2,471)
Cash flows provided by financing activities-proceeds from exercise of stock options	12	193
Effect of exchange rate changes on cash	(49)	(144)
Net increase (decrease) in cash and cash equivalents	3,333	(1,608)
Cash and cash equivalents, beginning of period	9,903	8,505
Cash and cash equivalents, end of period	$ 13,236	$ 6,897

XML

Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Current assets:
Cash and cash equivalents	$ 13,236	$ 9,903
Short-term investments	8,053	9,826
Accounts receivable, net of allowance for doubtful accounts of $263 at September 30, 2013 and $200 at December 31, 2012	12,811	16,095
Deferred tax assets	160	296
Prepaid expenses and other current assets	1,300	858
Total current assets	35,560	36,978
Equipment, furniture and leasehold improvements, net	561	759
Restricted cash	250	875
Deferred tax asset	210	2,255
Intangible assets, net	897	1,069
Goodwill	3,738	3,738
Other non-current assets	93	117
Total assets	41,309	45,791
Current liabilities:
Third-party software fees payable	11,055	11,099
Accounts payable	778	553
Accrued compensation	1,986	2,205
Other accrued expenses	1,332	1,732
Deferred revenue	1,074	837
Total current liabilities	16,225	16,426
Deferred tax liability	206	206
Deferred rent	422	154
Shareholders' equity:
Preferred stock, no par value: 10,000,000 shares authorized; no shares issued and outstanding
Common stock, no par value: 37,500,000 shares authorized; 11,203,707 shares issued and outstanding at September 30, 2013 and 11,065,217 shares issued and outstanding at December 31, 2012	129,215	128,474
Accumulated other comprehensive loss	(791)	(733)
Accumulated deficit	(103,968)	(98,736)
Total shareholders' equity	24,456	29,005
Total liabilities and shareholders' equity	$ 41,309	$ 45,791

XML

Shareholders' Equity - Additional Information (Detail) (USD $)	9 Months Ended
	Sep. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Term of stock options granted	10 years
Vesting of options granted	4 years
Shares allocated for award under inducement plan	250,000
Shares available for grant under inducement plan	46,750
Amortization cost, weighted average period	1 year 4 months 24 days
Compensation cost related to stock options granted but not yet recognized, net of estimated forfeitures	$ 281,000
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Amortization cost, weighted average period	1 year 4 months 24 days
Compensation cost related to granted but not yet recognized	$ 656,000

XML

Summary of Significant Accounting Policies - Additional Information (Detail)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Earnings Per Share [Abstract]
Common stock equivalent shares excluded from computations of basic and diluted income per share	940,812	993,687	837,812	904,637

XML

Information about Geographic Areas - Revenue and Long-Lived Assets by Geographic Area (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Total revenue:
Total revenue	$ 23,572	$ 25,485	$ 66,279	$ 75,538
Long-lived assets:
Total long-lived assets	5,735		5,735		8,813
North America [Member]
Total revenue:
Total revenue	20,875	20,102	59,714	60,528
Long-lived assets:
Total long-lived assets	782		782		3,663
Asia [Member]
Total revenue:
Total revenue	1,379	4,127	3,129	11,269
Long-lived assets:
Total long-lived assets	410		410		447
Europe [Member]
Total revenue:
Total revenue	1,318	1,256	3,436	3,741
Long-lived assets:
Total long-lived assets	$ 4,543		$ 4,543		$ 4,703

XML

Shareholders' Equity - Summary of Shares of Common Stock Reserved for Future Issuance under Plans (Detail)	Sep. 30, 2013	Dec. 31, 2012
Common Stock Number Of Shares Par Value And Other Disclosures [Abstract]
Stock options outstanding	1,616,763	1,539,618
Restricted stock units outstanding	228,299
Stock options available for future grant	952,724
Common stock reserved for future issuance	2,797,786

XML

Commitments and Contingencies - Additional Information (Detail) (USD $)	3 Months Ended		9 Months Ended			1 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012	Aug. 31, 2013 Bellevue, WA [Member]
Other Commitments [Line Items]
Expirations of operating leases			2020
Expirations of operating leases						2014-08
Expirations of operating leases						2020-05
Rent expense	$ 402,000	$ 445,000	$ 1,156,000	$ 1,400,000
Restricted cash	$ 250,000		$ 250,000		$ 875,000
Volume pricing agreements period of OVRP			12 months

XML

Significant Risk Concentrations

9 Months Ended

Sep. 30, 2013

Risks And Uncertainties [Abstract]

Significant Risk Concentrations

8. Significant Risk Concentrations

Significant Customer

No customer accounted for 10% or more of total revenue for the three or nine months ended September 30, 2013 or September 30, 2012.

No customer had an accounts receivable balance which was 10% or more of the total accounts receivable at September 30, 2013. Bluebird Soft, Inc., a designer and manufacturer of handheld mobile devices, had an accounts receivable balance of $2.1 million, or 13% of total accounts receivable, as of December 31, 2012, all of which was subsequently collected. No other customer accounted for 10% or more of total accounts receivable at December 31, 2012.

Significant Supplier

We have ODAs with Microsoft which enable us to sell Microsoft Windows Embedded operating systems to our customers in the United States, Canada, the Caribbean (excluding Cuba), Mexico, the European Union and the European Free Trade Association, which expire on September 30, 2014. We also have ODAs with Microsoft which allow us to sell Microsoft Windows Mobile operating systems in the Americas, Japan, Taiwan, Europe, the Middle East, and Africa. Our current distribution agreements related to Windows Mobile expire in September 2014. Our rights to distribute Windows Mobile operating systems in Korea ended on October 31, 2012. We sold $1.2 million and $2.9 million of Windows Mobile operating systems in Korea during the three and nine months ended September 30, 2012.

Software sales under these agreements constitute a significant portion of our software revenue and total revenue. These agreements are typically renewed annually or semi-annually; however, there is no automatic renewal provision in any of these agreements. Further, these agreements can be terminated unilaterally by Microsoft at any time. Microsoft currently offers a rebate program to sell Microsoft Windows Embedded operating systems pursuant to which we earn money for achieving certain predefined objectives. Prior to the third quarter of 2013, the earned rebate amount was treated as a reduction in software cost of sales in the quarter earned. Beginning in the third quarter of 2013, as a result of program modifications, we began treating a portion of the rebate as market development funds which will be accounted for as a reduction in marketing expense as qualified program spend occurs in the future.

Under this rebate program, we earned $89,000 and $658,000 during the three and nine months ended September 30, 2013, respectively, and $196,000 and $609,000 during the three and nine months ended September 30 2012, respectively, which was treated as a reduction in cost of sales. Additionally, during the three months ended September 30, 2013 we earned $208,000 which will be accounted for as a reduction in marketing expense in the future as qualified program expenditures are made.

XML

Shareholders' Equity - Fair Values of Stock Option Grants Estimated with Weighted Average Assumptions (Detail)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Share Based Compensation Arrangement By Share Based Payment Award Fair Value Assumptions And Methodology [Abstract]
Dividend yield	0.00%	0.00%	0.00%	0.00%
Expected life	4 years	4 years	4 years	4 years
Expected volatility	58.00%	73.00%	62.00%	73.00%
Risk-free interest rate	1.10%	0.50%	0.80%	0.60%

XML

Subsequent Event - Additional Information (Detail) (USD $)	3 Months Ended				0 Months Ended
	Sep. 30, 2013 Scenario, Forecast [Member]	Sep. 30, 2013 Scenario, Forecast [Member] One-time Employee Termination Benefits [Member]	Sep. 30, 2013 Scenario, Forecast [Member] Facility-related Costs [Member]	Sep. 30, 2013 Scenario, Forecast [Member] Employee Severance [Member]	Oct. 10, 2013 Subsequent Event [Member] Person
Subsequent Event [Line Items]
Number of workforce reduction					50
Percentage of workforce reduction					20.00%
Pre-tax restructuring charges	$ 625,000	$ 500,000	$ 125,000
Estimated cash outlays				850,000
Asset impairment charge			$ 50,000

XML

Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of BSQUARE Corporation (“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 our 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 September 30, 2013 and our operating results and cash flows for the three and nine months ended September 30, 2013 and 2012. The accompanying financial information as of December 31, 2012 is derived from audited financial statements. Preparing financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Examples include provisions for bad debts and income taxes, estimates of progress on professional engineering service arrangements and bonus accruals. Actual results may differ from these estimates. Interim results are not necessarily indicative of results for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2012. All intercompany balances have been eliminated.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update (“ASU”) No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” Under ASU 2013-02, an entity is required to provide information about the amounts reclassified out of Accumulated Other Comprehensive Income (“AOCI”) by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in the financial statements. Our adoption of ASU 2013-02 effective January 1, 2013 did not have any effect on our financial position, results of operations or cash flows.

Income (Loss) Per Share

Income (Loss) Per Share

Basic income or loss per share is computed using the weighted average number of common shares outstanding during the period, and excludes any dilutive effects of common stock equivalent shares, such as options, restricted stock awards and restricted stock units. Restricted stock awards (“RSAs”) are considered outstanding and included in the computation of basic income or loss per share when underlying restrictions expire and the awards are no longer forfeitable. Restricted stock units (“RSUs”) are considered outstanding and included in the computation of basic income or loss per share only when vested. Diluted income per share is computed using the weighted average number of common shares outstanding and common stock equivalent shares outstanding during the period using the treasury stock method.

Common stock equivalent shares of 940,812 and 837,812 and 993,687 and 904,637 were excluded from the computations of basic and diluted income per share for the three and nine months ended September 30, 2013 and 2012, respectively,, because their effect was anti-dilutive. Unvested but outstanding RSUs and RSAs which are forfeitable are included in the diluted income per share calculation. In a period where we are in a net loss position, the diluted loss per share is computed using the basic share count.

XML

Information about Geographic Areas

9 Months Ended

Sep. 30, 2013

Segment Reporting [Abstract]

Information about Geographic Areas

7. Information about Geographic Areas

Our chief operating decision-makers (i.e., 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. Accordingly, we consider ourselves to be in a single reporting segment and operating unit structure.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Total revenue:
North America	$	20,875	$	20,102	$	59,714	$	60,528
Asia		1,379		4,127		3,129		11,269
Europe		1,318		1,256		3,436		3,741
Total revenue	$	23,572	$	25,485	$	66,279	$	75,538

	September 30, 2013		December 31, 2012
Long-lived assets:
North America	$	782	$	3,663
Asia		410		447
Europe		4,543		4,703
Total long-lived assets	$	5,735	$	8,813

XML

Cash and Investments

9 Months Ended

Sep. 30, 2013

Cash And Cash Equivalents [Abstract]

Cash and Investments

2. Cash and Investments

Cash, cash equivalents, short-term investments, and restricted cash consisted of the following at September 30, 2013 and December 31, 2012 (in thousands):

	September 30, 2013		December 31, 2012
Cash	$	3,297	$	2,590
Cash equivalents—money market fund		9,939		7,313
Total cash and cash equivalents		13,236		9,903
Short-term investments:
Municipal securities		—		356
Corporate commercial paper		1,250		4,374
Foreign government bonds		1,001		999
Corporate debt securities		5,802		4,097
Total short-term investments		8,053		9,826
Restricted cash—money market fund		250		875
Total cash, cash equivalents, short-term investments and restricted cash	$	21,539	$	20,604

Gross unrealized gains and losses on our short-term investments were not material as of September 30, 2013 and December 31, 2012. Our restricted cash balance at September 30, 2013 and December 31, 2012 relates to a letter of credit which secures our corporate headquarters lease.

XML

Shareholders' Equity - Summary of Certain Information about Stock Options (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Weighted-average grant-date fair value of option grants for the period			$ 1.07	$ 2.23
Options in-the-money at period end	541,000	616,350	541,000	616,350
Aggregate intrinsic value of options exercised	$ 0	$ 34,000	$ 1,000	$ 67,000

XML

Goodwill and Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2013

Goodwill And Intangible Assets Disclosure [Abstract]

Summary of Acquisition-Related Intangible Assets

Information regarding our intangible assets as of September 30, 2013 and December 31, 2012 is as follows (in thousands):  

	September 30, 2013
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
Customer relationships	$	1,275	$	(378	)	$	897
Non-compete agreements		196		(196	)		0
Total	$	1,471	$	(574	)	$	897

 

	December 31, 2012
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
Customer relationships	$	1,275	$	(276	)	$	999
Non-compete agreements		196		(126	)		70
Total	$	1,471	$	(402	)	$	1,069

Expected Amortization Expense for Acquisition-Related Intangible Assets

Amortization in future periods is expected to be as follows (in thousands):

Remainder of 2013	$	34
2014		135
2015		135
2016		130
2017		98
Thereafter		365
Total	$	897

XML

Subsequent Event

9 Months Ended

Sep. 30, 2013

Subsequent Events [Abstract]

Subsequent Event

10. Subsequent Event

On October 10, 2013, we effected a restructuring that included a workforce reduction and the closure of our offices in Beijing, China and Munich, Germany. The restructuring was approved by our Board of Directors on October 9, 2013. The workforce reduction impacted approximately 50 headcount worldwide, including full-time employees and consultants, which represented approximately 20% of the Company’s headcount pre-reduction.

We currently anticipate incurring pre-tax restructuring charges of approximately $625,000 in the fourth quarter of 2013, with $500,000 representing one-time employee termination benefits and $125,000 representing facilities-related costs, primarily remaining lease obligations in China and Germany. Our current estimate of cash outlays related to the one-time employee termination benefits, vacation and other obligations is $850,000, the vast majority of which will occur in the fourth quarter of 2013. Additionally, we expect to recognize a $50,000 asset impairment charge in the fourth quarter of 2013 related to China and Germany.

We expect the staff reductions and office closures will be substantially completed by the end of the fourth quarter of 2013 with some activities, including legal entity closures, continuing into 2014.

XML

Information about Geographic Areas (Tables)

9 Months Ended

Sep. 30, 2013

Segment Reporting [Abstract]

Revenue and Long-Lived Assets by Geographic Area

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Total revenue:
North America	$	20,875	$	20,102	$	59,714	$	60,528
Asia		1,379		4,127		3,129		11,269
Europe		1,318		1,256		3,436		3,741
Total revenue	$	23,572	$	25,485	$	66,279	$	75,538

	September 30, 2013		December 31, 2012
Long-lived assets:
North America	$	782	$	3,663
Asia		410		447
Europe		4,543		4,703
Total long-lived assets	$	5,735	$	8,813

XML

Shareholders' Equity (Tables)

9 Months Ended

Sep. 30, 2013

Equity [Abstract]

Fair Values of Stock Option Grants Estimated with Weighted Average Assumptions

The fair values of our stock option grants were estimated with the following weighted average assumptions:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Dividend yield		0	%		0	%		0	%		0	%
Expected life		4 years			4 years			4 years			4 years
Expected volatility		58	%		73	%		62	%		73	%
Risk-free interest rate		1.1	%		0.5	%		0.8	%		0.6	%

Impact on the Results of Operations of Recording Stock-Based Compensation Expense

The impact on our results of operations of recording stock-based compensation expense for the three and nine months ended September 30, 2013 and 2012 was as follows (in thousands, except per share amounts):  

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013		2012			2013		2012
Cost of revenue — service	$	48	$	34		$	184	$	242
Selling, general and administrative		145		(267	)		456		355
Research and development		27		26			86		89
Total stock-based compensation expense	$	220	$	(207	)	$	726	$	686
Per diluted share	$	0.02	$	(0.02	)	$	0.07	$	0.06

Summary of Stock Option Activity under the Plans

The following table summarizes stock option activity under the Plans for the nine months ended September 30, 2013:  

Stock Options	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Balance at January 1, 2013		1,539,618		$	3.55
Granted at fair value		270,080			2.98
Exercised		(3,000	)		2.67
Forfeited		(39,808	)		3.50
Expired		(150,127	)		4.24
Balance at September 30, 2013		1,616,763		$	3.40		4.00	$	257,000
Vested and expected to vest at September 30, 2013		1,557,509		$	3.40		3.91	$	257,000
Exercisable at September 30, 2013		1,156,660		$	3.41		2.89	$	254,000

Summary of Certain Information about Stock Options

The following table summarizes certain information about stock options for the three and nine months ended September 30, 2013 and 2012:  

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Weighted-average grant-date fair value of option grants for the period	$	—	$	—	$	1.07		2.23
Options in-the-money at period end		541,000		616,350		541,000		616,350
Aggregate intrinsic value of options exercised	$	0	$	34,000	$	1,000	$	67,000

Summary of Restricted Stock Unit Activity

The following table summarizes RSU activity for the nine months ended September 30, 2013:

	Number of Shares			Weighted Average Grant Date Fair Value
Unvested at January 1, 2013		236,513		$	4.95
Granted		128,838			2.75
Vested		(131,777	)		3.97
Forfeited		(5,275	)		6.75
Unvested at September 30, 2013		228,299		$	4.23
Expected to vest after September 30, 2013		216,377		$	4.05

Summary of Shares of Common Stock Reserved for Future Issuance under the Plans

The following table summarizes our shares of common stock reserved for future issuance under the Plans at September 30, 2013:

	September 30, 2013
Stock options outstanding		1,616,763
Restricted stock units outstanding		228,299
Stock options available for future grant		952,724
Common stock reserved for future issuance		2,797,786

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2013	Oct. 31, 2013
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3
Trading Symbol	BSQR
Entity Registrant Name	BSQUARE CORP /WA
Entity Central Index Key	0001054721
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		11,233,580

XML

Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2013

Commitments And Contingencies Disclosure [Abstract]

Operating Lease Commitments

Future operating lease commitments as of September 30, 2013 are as follows by calendar year (in thousands):*  

Remainder of 2013	$	132
2014		1,135
2015		1,256
2016		1,281
2017		1,169
Thereafter		2,656
Total commitments	$	7,629

 

* As discussed above, subsequent to September 30, 2013, we gave notice to terminate the Beijing, China and Munich, Germany leases. The amounts disclosed above are as of September 30, 2013 and thus include amounts that would have been owed under the terminated leases.