UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
BSQUARE CORPORATION
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(Address of principal executive offices) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
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| Name of each exchange on which registered |
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| The |
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
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Emerging growth company | |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of common stock outstanding as of October 31, 2021:
FORM 10-Q
For the Quarterly Period Ended September 30, 2021
TABLE OF CONTENTS
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Page |
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PART I. FINANCIAL INFORMATION |
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Item 1 |
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Item 2 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3 |
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Item 4 |
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PART II. OTHER INFORMATION |
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Item 1A |
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Item 6 |
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PART I. FINANCIAL INFORMATION
Financial Statements |
BSQUARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
September 30, 2021 | December 31, 2020 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Restricted cash | ||||||||
Accounts receivable, net of allowance for doubtful accounts of and at September 30, 2021 and December 31, 2020, respectively | ||||||||
Contract assets | ||||||||
Prepaid expenses and other current assets | ||||||||
Total current assets | ||||||||
Property and equipment, net of accumulated depreciation | ||||||||
Deferred tax assets | ||||||||
Intangible assets, net of accumulated amortization | ||||||||
Right-of-use lease asset, net | ||||||||
Other non-current assets | ||||||||
Total assets | $ | $ | ||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Third-party software fees payable | $ | $ | ||||||
Accounts payable | ||||||||
Paycheck Protection Program loan | ||||||||
Accrued compensation | ||||||||
Other accrued expenses | ||||||||
Deferred revenue | ||||||||
Operating lease | ||||||||
Total current liabilities | ||||||||
Deferred revenue, long-term | ||||||||
Operating lease, long-term | ||||||||
Paycheck Protection Program loan, long-term | ||||||||
Shareholders' equity: | ||||||||
Preferred stock, par: shares authorized; shares issued and outstanding | ||||||||
Common stock, par: shares authorized: and shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively | ||||||||
Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total shareholders' equity | ||||||||
Total liabilities and shareholders' equity | $ | $ |
See notes to condensed consolidated financial statements.
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, |
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2021 |
2020 |
2021 |
2020 |
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Revenue: |
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Partner Solutions |
$ | $ | $ | $ | ||||||||||||
Edge to Cloud |
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Total revenue |
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Cost of revenue: |
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Partner Solutions |
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Edge to Cloud |
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Total cost of revenue |
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Gross profit |
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Operating expenses: |
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Selling, general and administrative |
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Research and development |
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Total operating expenses |
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Loss from operations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Other (loss) income, net |
( |
) | ( |
) | ||||||||||||
Loss before income taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Income taxes |
||||||||||||||||
Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Basic loss per share |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Diluted loss per share |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Shares used in per share calculations: |
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Basic |
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Diluted |
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Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Other comprehensive gain (loss) |
||||||||||||||||
Foreign currency translation, net of tax |
( |
) | ( |
) | ||||||||||||
Unrealized loss on investments, net of tax |
( |
) | ( |
) | ||||||||||||
Total other comprehensive gain (loss) |
( |
) | ( |
) | ||||||||||||
Comprehensive loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) |
See notes to condensed consolidated financial statements.
BSQUARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September 30, |
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2021 |
2020 |
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Cash flows from operating activities: |
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Net loss |
$ | ( |
) | $ | ( |
) | ||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
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Depreciation and amortization |
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Stock-based compensation |
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Gain on extinguishment of PPP loan |
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— |
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Changes in operating assets and liabilities: |
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Accounts receivable, net |
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Contract assets |
( |
) | ||||||
Prepaid expenses and other assets |
( |
) | ( |
) | ||||
Third-party software fees payable |
( |
) | ( |
) | ||||
Accounts payable and accrued expenses |
( |
) | ( |
) | ||||
Operating lease |
( |
) | ||||||
Deferred revenue |
( |
) | ( |
) | ||||
Net cash (used in) provided by operating activities |
( |
) | ||||||
Cash flows from investing activities: |
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Additions to property and equipment |
( |
) | ( |
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Proceeds from maturities of short-term investments |
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Net cash (used in) provided by investing activities |
( |
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Cash flows from financing activities: |
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Proceeds from Paycheck Protection Program loan |
— |
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Proceeds from sale of common stock, net of issuance fees |
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— |
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Proceeds from exercise of stock options |
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Net cash provided by financing activities |
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Effect of exchange rate changes on cash and cash equivalents |
( |
) | ||||||
Net increase in cash and cash equivalents |
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Cash, restricted cash, and cash equivalents, beginning of period |
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Cash, restricted cash, and cash equivalents, end of period |
$ | $ |
See notes to condensed consolidated financial statements.
BSQUARE CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(In thousands, except share amounts)
(Unaudited)
Accumulated |
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Other |
Total |
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Preferred Stock |
Common Stock |
Comprehensive |
Accumulated |
Shareholders' |
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For the Three Months Ended September 30, 2021 |
Shares |
Amount |
Shares |
Amount |
Income (Loss) |
Deficit |
Equity |
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Balance as of June 30, 2021 |
— | $ | — | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||
Exercise of stock options |
— | — | — | — | ||||||||||||||||||||||||
Vesting of restricted stock awards |
— | — | — | — | — | — | ||||||||||||||||||||||
Sale of common stock |
— | — | — | — | ||||||||||||||||||||||||
Share-based compensation, including issuance of restricted stock |
— | — | — | — | — | |||||||||||||||||||||||
Net loss |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Foreign currency translation adjustment, net of tax |
— | — | — | — | ||||||||||||||||||||||||
Balance as of September 30, 2021 |
— | $ | — | $ | $ | ( |
) | $ | ( |
) | $ |
Accumulated |
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Other |
Total |
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Preferred Stock |
Common Stock |
Comprehensive |
Accumulated |
Shareholders' |
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For the Nine Months Ended September 30, 2021 |
Shares |
Amount |
Shares |
Amount |
Income (Loss) |
Deficit |
Equity |
|||||||||||||||||||||
Balance as of December 31, 2020 |
— | $ | — | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||
Exercise of stock options |
— | — | — | — | ||||||||||||||||||||||||
Vesting of restricted stock awards |
— | — | — | — | — | — | ||||||||||||||||||||||
Sale of common stock |
— | — | — | — | ||||||||||||||||||||||||
Share-based compensation, including issuance of restricted stock |
— | — | — | — | — | |||||||||||||||||||||||
Net loss |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Foreign currency translation adjustment, net of tax |
— | — | — | ( |
) | ( |
) | — | ( |
) | ||||||||||||||||||
Balance as of September 30, 2021 |
— | $ | — | $ | $ | ( |
) | $ | ( |
) | $ |
See notes to condensed consolidated financial statements
BSQUARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
BSQUARE Corporation (“Bsquare,” “we,” “us” and “our”) builds technology that is powering the next generation of connected devices and intelligent systems. We help companies realize the promise of the Internet of Things ("IoT") through the development of devices and systems that are cloud-enabled, share data seamlessly, facilitate distributed learning and control, and operate securely at scale. We believe that IoT-enabled systems can not only deliver value to our customers but also help people make better use of the resources of our planet. Bsquare's suite of services and software components create new revenue streams and operating models for our customers while providing opportunities for lowering costs and improving operations.
Since our founding in 1994, Bsquare has been at the intersection of hardware and software. Today that intersection is the "edge" where cloud-enabled devices connect to create intelligent systems that share data, facilitate distributed control and machine learning, and operate securely at scale. We believe that our expertise, products, and services are applicable in customer projects and initiatives ranging from device hardware, to the operating system, to IoT software solutions, and cloud services that make intelligent systems possible.
Our business has largely been focused on providing software solutions (including reselling software from Microsoft) and related engineering services to businesses that develop, market and sell dedicated-purpose standalone intelligent systems. Examples of dedicated-purpose standalone intelligent systems include smart, connected computing devices such as point-of-sale terminals, kiosks, tablets and handheld devices, as well as smart vending machines, ATM machines, digital signs, smart phones, set-top boxes and in-vehicle telematics and entertainment devices.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Bsquare have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting and include the accounts of Bsquare and our wholly owned subsidiaries. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In management’s opinion, the unaudited condensed consolidated financial statements include all material adjustments, all of which are of a normal and recurring nature, necessary to present fairly our financial position as of September 30, 2021 and our operating results and cash flows for the nine months ended September 30, 2021 and 2020. The accompanying financial information as of December 31, 2020 is derived from our audited financial statements as of that date.
These unaudited condensed financial statements and related notes should be read in conjunction with our audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 18, 2021.
Basis of consolidation
The consolidated financial statements include the accounts of Bsquare and our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
Revision of prior period financial statements
In connection with the preparation of our condensed consolidated financial statements, we identified an immaterial error related to the recognition of certain revenues in our Edge to Cloud segment in the third quarter of 2019 that had a rollforward effect on consolidated equity and deferred revenue in all quarterly and annual periods through the first quarter of fiscal year 2021. In accordance with SEC Staff Accounting Bulletin ("SAB") No. 99, “Materiality,” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” we evaluated the error and determined that the related impact was not material to our financial statements for any prior annual or interim period, but that correcting the cumulative impact of the error would be material to the results of operations for the three months ended June 30, 2021. Accordingly, we revised our consolidated balance sheets and statements of shareholder’s equity as of September 31, 2019, December 31, 2019, and December 31, 2020 and condensed consolidated statements of operations and comprehensive loss and cash flows for the year-ended December 31, 2019 and the three and nine months ended September 30, 2019. A summary of revisions to certain previously reported financial information presented herein for comparative purposes is included in Note 12 – Revision of Prior Period Financial Statements.
Use of estimates
Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Examples include provisions for bad debts and income taxes, estimates of progress on professional engineering service arrangements, bonus accruals, useful lives of intangible assets and property and equipment, fair values of stock-based awards, and assumptions used to determine the net present value of operating lease liabilities, among other estimates and assumptions. Actual results may differ from these estimates and assumptions.
Income (loss) per share
We compute basic income (loss) per share using the weighted average number of shares of common stock outstanding during the period. We consider restricted stock units as outstanding shares of common stock and include them in the computation of basic loss per share only when vested. We compute diluted loss per share using the weighted average number of shares of common stock outstanding and common stock equivalent shares outstanding during the period using the treasury stock method. We exclude common stock equivalent shares from the computation if their effect is anti-dilutive.
The following potentially dilutive weighted shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Stock options | ||||||||||||||||
Restricted stock units |
2. Revenue Recognition
Disaggregation of revenue
The following table provides information about disaggregated revenue by primary geographical area and includes a reconciliation of the disaggregated revenue with reportable segments (in thousands):
Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | |||||||||||||||||||||||
Partner | Edge to | Partner | Edge to | |||||||||||||||||||||
Solutions | Cloud | Total | Solutions | Cloud | Total | |||||||||||||||||||
Primary geographic area: | ||||||||||||||||||||||||
North America | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Europe | ||||||||||||||||||||||||
Asia | ||||||||||||||||||||||||
Total | $ | $ | $ | $ | $ | $ |
Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | |||||||||||||||||||||||
Partner | Edge to | Partner | Edge to | |||||||||||||||||||||
Solutions | Cloud | Total | Solutions | Cloud | Total | |||||||||||||||||||
Primary geographic area: | ||||||||||||||||||||||||
North America | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Europe | ||||||||||||||||||||||||
Asia | ||||||||||||||||||||||||
Total | $ | $ | $ | $ | $ | $ |
Contract balances
We receive payments from customers based upon contractual billing schedules; accounts receivable is recorded when the right to consideration becomes unconditional. Contract assets include amounts related to our contractual right to consideration for completed performance obligations not yet invoiced. Contract liabilities, presented as deferred revenue on our condensed consolidated balance sheets, include payments received in advance of performance under the contract and are realized when the associated revenue is recognized. We had
Significant changes in the contract assets and the deferred revenue balances during the three and nine months ended September 30, 2021 were as follows:
Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 | |||||||
Contract | Contract | |||||||
Assets | Assets | |||||||
Transferred to receivables from contract assets outstanding at December 31, 2020 |
Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 | |||||||
Deferred | Deferred | |||||||
Revenue | Revenue | |||||||
Revenue recognized that was included in deferred revenue at December 31, 2020 | $ | $ |
Contract acquisition costs
We capitalize contract acquisition costs for contracts with a life exceeding one year. Amortization of contract acquisition costs was $
Transaction price allocated to the remaining performance obligations
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The estimated revenue does not include contracts with original durations of one year or less, amounts of variable consideration attributable to royalties, or contract renewals that were unexercised as of September 30, 2021:
Remainder of | ||||||||||||
2021 | 2022 | After 2022 | ||||||||||
Edge to Cloud |
Practical expedients and exemptions
We generally expense sales commissions when incurred because the amortization period would have been less than one year. We record these costs within selling, general and administrative expenses.
When applicable and appropriate, the Company utilizes the ‘as-invoiced’ practical expedient which permits revenue recognition upon invoicing.
3. Cash, Cash Equivalents and Restricted Cash
Cash, cash equivalents and restricted cash consisted of the following (in thousands):
September 30, 2021 | December 31, 2020 | |||||||
Cash | $ | $ | ||||||
Cash equivalents (see detail in Note 4) | ||||||||
Restricted cash | ||||||||
Total cash and cash equivalents |
4. Fair Value Measurements
We measure our cash equivalents and restricted cash at fair value. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:
| Level 1: | Quoted prices in active markets for identical assets or liabilities. |
| Level 2: | Directly or indirectly observable market-based inputs or unobservable inputs used in models or other valuation methodologies. |
| Level 3: | Unobservable inputs that are not corroborated by market data. The inputs require significant management judgment or estimation. |
We classify our cash equivalents and restricted cash within Level 1 or Level 2 because our cash equivalents and restricted cash are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs.
Assets measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020 are summarized below (in thousands):
September 30, 2021 | December 31, 2020 | |||||||||||||||||||||||
Quoted Prices in | Direct or | Quoted Prices in | Direct or | |||||||||||||||||||||
Active Markets | Indirect | Active Markets | Indirect | |||||||||||||||||||||
for Identical | Observable | for Identical | Observable | |||||||||||||||||||||
Assets (Level 1) | Inputs (Level 2) | Total | Assets (Level 1) | Inputs (Level 2) | Total | |||||||||||||||||||
Assets | ||||||||||||||||||||||||
Cash equivalents: | ||||||||||||||||||||||||
Money market funds | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Total cash equivalents | ||||||||||||||||||||||||
Restricted cash: | ||||||||||||||||||||||||
Money market funds | ||||||||||||||||||||||||
Total assets measured at fair value | $ | $ | $ | $ | $ | $ |
5. Intangible Assets
Intangible assets related to customer relationships that we acquired from TestQuest, Inc. in November 2008 and from the acquisition of Bsquare EMEA, Ltd. in September 2011 and were as follows (in thousands):
September 30, 2021 | December 31, 2020 | |||||||||||||||||||||||
Gross | Gross | |||||||||||||||||||||||
Carrying | Accumulated | Net Book | Carrying | Accumulated | Net Book | |||||||||||||||||||
Amount | Amortization | Value | Amount | Amortization | Value | |||||||||||||||||||
Customer relationships | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ |
Amortization expense was $
6. Leases
We determine if an arrangement is a lease at inception. On our balance sheet, our office leases are included in right-of-use (“ROU”) lease asset, net and related lease liabilities are included in operating lease and operating lease, long-term. We determined that we do not currently have any leases that we are required to classify as finance leases.
ROU assets represent our right to use the underlying assets for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease agreements. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the term of the lease. For leases that do not provide an implicit rate, we use an incremental borrowing rate based on information available at the commencement date to determine the present value of lease payments. We use the implicit rate in the lease when readily determinable. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
In November 2020, we renewed the lease for our office facility in the UK. The term of the lease is
Our leases have remaining terms of
to years. The only leases that contain renewal options are for office space leases at our Seattle and Trowbridge locations. In the fourth quarter of 2019, we made the decision not to renew our Bellevue lease, which expired at the end of May 2020, and we made the decision not to renew our Taiwan lease, exiting that facility in February 2020. Because of changes in our business, we are not able to determine with reasonable certainty whether we will renew our Seattle lease. As a result, we have not considered renewal options when recording ROU assets, lease liabilities or lease expense.
The following tables present the components of our lease expense and supplemental cash flow information related to our leases for the nine months ended September 30, 2021 (in thousands):
Nine Months Ended | ||||
Total component lease expense was as follows: | September 30, 2021 | |||
Operating leases | $ | |||
Supplemental cash flow information related to leases was as follows: | ||||
Cash paid for amounts included in the measurement of lease liabilities | $ |
The following table presents supplemental balance sheet information related to our operating leases as of September 30, 2021 (dollars in thousands):
September 30, 2021 | ||||
Right-of-use lease assets | $ | |||
Current portion of operating lease liability | $ | |||
Operating lease liability, net of current portion | ||||
Total operating lease liabilities | $ | |||
Weighted average remaining lease term (years) | ||||
Weighted average discount rate | % |
The following table presents the amounts we are obligated to pay, by maturity, under our operating leases liabilities as of September 30, 2021 (in thousands):
Years Ending December 31, | ||||
2021, remainder of year | $ | |||
2022 | ||||
2023 | ||||
2024 | ||||
2025 | ||||
After 2025 | ||||
Total minimum lease payments | ||||
Less: amount representing interest | ( | ) | ||
Present value of lease liabilities | $ |
7. Shareholders’ Equity
Equity Compensation Plans
We have a stock plan (the “Stock Plan”) and an inducement stock plan for newly hired employees (together with the Stock Plan, the “Plans”). Under the Plans, stock options to purchase shares of our common stock may be granted with a fixed exercise price that is equal to the fair market value of our common stock on the date of grant. These options have a term of up to
Stock-Based Compensation
The estimated fair value of stock-based awards is recognized as compensation expense over the vesting period of the award, net of estimated forfeitures. We estimate forfeitures based on historical experience and expected future activities. The fair value of RSUs is determined based on the number of shares granted and the quoted price of our common stock on the date of grant. The fair value of stock option awards is estimated at the grant date based on the fair value of each vesting tranche as calculated by the Black-Scholes-Merton (“BSM”) option-pricing model. The BSM model requires various highly judgmental assumptions including expected volatility and option life. If any of the assumptions used in the BSM model change significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period. The fair values of our stock option grants and RSUs were estimated with the following weighted average assumptions:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Dividend yield | % | % | % | % | ||||||||||||
Expected life (years) | ||||||||||||||||
Expected volatility | % | % | % | % | ||||||||||||
Risk-free interest rate | % | % | % | % |
The impact on our results of operations from stock-based compensation expense was as follows (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Cost of revenue — Edge to Cloud | $ | $ | $ | $ | ||||||||||||
Selling, general and administrative | ||||||||||||||||
Research and development | ||||||||||||||||
Total stock-based compensation expense | $ | $ | $ | $ |
Stock Option Activity
The following table summarizes stock option activity under the Plans:
Weighted | ||||||||||||||||
Average | ||||||||||||||||
Remaining | ||||||||||||||||
Weighted | Contractual | |||||||||||||||
Number of | Average | Life | Aggregate | |||||||||||||
Shares | Exercise Price | (in years) | Intrinsic Value | |||||||||||||
Balance at December 31, 2020 | $ | $ | ||||||||||||||
Granted | ||||||||||||||||
Exercised | ( | ) | ||||||||||||||
Forfeited | ( | ) | ||||||||||||||
Expired | ( | ) | ||||||||||||||
Balance at September 30, 2021 | ||||||||||||||||
Vested and expected to vest at September 30, 2021 | ||||||||||||||||
Exercisable at September 30, 2021 | $ | $ |
At September 30, 2021, total compensation cost related to stock options granted but not yet recognized, net of estimated forfeitures, was $
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Weighted average grant-date fair value of options granted during the period | $ | $ | $ | $ | ||||||||||||
Options in-the-money (in shares) | ||||||||||||||||
Aggregate intrinsic value of options exercised during the period | $ | $ | $ | $ |
The aggregate intrinsic value represents the difference between the exercise price of the underlying options and the quoted price of our common stock for the number of options exercised during the periods indicated. We issue new shares of common stock upon exercise of stock options.
Restricted Stock Unit Activity
The following table summarizes RSU activity under the Plans:
Number of | Weighted Average | |||||||
Shares | Award Price | |||||||
Unvested at December 31, 2020 | $ | |||||||
Granted | ||||||||
Vested | ( | ) | ||||||
Forfeited | ( | ) | ||||||
Unvested at September 30, 2021 | ||||||||
Expected to vest after September 30, 2021 | $ |
At September 30, 2021, total compensation cost not yet recognized related to granted RSUs was approximately $
Performance Stock Units
In January 2021 we issued
Award Modifications
In June 2021, the outstanding RSU and non-qualified stock option awards of two Board members were modified. In accordance with ASC 718, we recorded incremental expense of $
Common Stock Reserved for Future Issuance
The following table summarizes our shares of common stock reserved for future issuance under the Plans as of September 30, 2021:
September 30, 2021 | ||||
Stock options outstanding | ||||
Restricted stock units and performance stock units outstanding | ||||
Stock options and restricted stock units available for future grant | ||||
Common stock reserved for future issuance |
Common Stock Sales
In the second and third quarters of 2021, we sold
8. Commitments and Contingencies
Lease and rent obligations
Our commitments include obligations outstanding under operating leases, which expire through 2027. We have lease commitments for office space in Seattle, Washington and Trowbridge, UK. See Note 6 - Leases.
Loss Contingencies
From time to time, we are subject to legal proceedings, claims, and litigation arising in the ordinary course of business, including tax assessments. We defend ourselves vigorously against any such claims. When (i) it is probable that an asset has been impaired or a liability has been incurred and (ii) the amount of the loss can be reasonably estimated, we record the estimated loss. We provide disclosure in the notes to the consolidated financial statements for loss contingencies that do not meet both conditions if there is a reasonable possibility that a loss may have been incurred that would be material to the financial statements. Significant judgment is required to determine the probability that a liability has been incurred and whether such liability is reasonably estimable. We base accruals made on the best information available at the time, which can be highly subjective. As of September 30, 2021, we have not recorded any loss contingency accruals.
9. Information about Geographic Areas and Operating Segments
Our chief operating decision-makers (i.e. our Chief Executive Officer and certain direct reports) review financial information presented on a consolidated basis, accompanied by disaggregated information for purposes of allocating resources and evaluating financial performance. There are no segment managers who are held accountable by our chief operating decision-makers, or anyone else, for operations, operating results, or planning for levels or components below the consolidated unit level. We operate within a single industry segment of computer software and services.
We have
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Partner Solutions: | ||||||||||||||||
Revenue | $ | $ | $ | $ | ||||||||||||
Cost of revenue | ||||||||||||||||
Gross profit | ||||||||||||||||
Edge to Cloud: | ||||||||||||||||
Revenue | ||||||||||||||||
Cost of revenue | ||||||||||||||||
Gross profit | ( | ) | ||||||||||||||
Total gross profit | ||||||||||||||||
Operating expenses | ||||||||||||||||
Other (expense) income, net | ( | ) | ( | ) | ||||||||||||
Income tax benefit (expense) | ||||||||||||||||
Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) |
Revenue by geographic area is based on the sales region of the customer. The following tables set forth total revenue and long-lived assets by geographic area (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Total revenue: | ||||||||||||||||
North America | $ | $ | $ | $ | ||||||||||||
Europe | ||||||||||||||||
Asia | ||||||||||||||||
Total revenue | $ | $ | $ | $ |
September 30, 2021 | December 31, 2020 | |||||||
Long-lived assets: | ||||||||
North America | $ | $ | ||||||
Europe | ||||||||
Total long-lived assets | $ | $ |
Long-lived assets increased due to additions of internally developed software throughout the year in North America.
10. Significant Risk Concentrations
Significant Customers
GES Manufacturing Services (M) Sdn. Bhd. accounted for $
GES Manufacturing Services (M) Sdn. Bhd. had accounts receivable balances of $
Significant Supplier
We are authorized to sell Windows IoT operating systems in Canada, the United States, Argentina, Brazil, Chile, Mexico, Peru, Venezuela, Puerto Rico, Columbia, and several Caribbean countries. Our distribution agreement for sales of Windows IoT operating systems in the European Union (“E.U.”), the European Free Trade Association, Turkey and Africa, expired on June 30, 2019 and was not renewed thereafter.
We have also entered into Original Equipment Manufacturer Distribution Agreements ("ODAs") with Microsoft pursuant to which we are licensed to sell Microsoft Windows Mobile operating systems to customers in North America, South America, Central America (excluding Cuba), Japan, Taiwan, Europe, the Middle East, and Africa. The ODAs to sell Windows Mobile operating systems are effective through April 30, 2022.
There is no automatic renewal provision in any of these agreements, and these agreements can be terminated unilaterally by Microsoft at any time.
The majority of our revenue continues to be derived from reselling Microsoft Windows Embedded and IoT operating system software to device makers. The sale of Microsoft operating systems has historically accounted for substantially all of our Partner Solutions revenue.
Microsoft currently offers a distributor incentives program through which we earn rebates pursuant to predefined objectives related to sales of Microsoft Windows IoT operating systems. In accordance with program rules, we allocate a portion of the incentive earnings to reduce cost of revenue with the remaining portion utilized to offset qualified marketing expenses in the period the expenditures are claimed and approved. During the second quarter of 2020 the program allocation was changed by Microsoft to a 50/50 split between the two components.
Under this rebate program, we recorded rebate credits as follows (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Reductions to cost of revenue | $ | $ | $ | $ | ||||||||||||
Reductions to marketing expense |
11. Paycheck Protection Program (PPP) loan
We obtained a $
At September 30, 2021 and December 31, 2020, the PPP Loan balance was as follows (in thousands):
September 30, 2021 |
December 31, 2020 |
|||||||
PPP Loan, .98%, due April 2022: |
||||||||
Principal |
$ | $ | ||||||
Accrued interest |
||||||||
$ | $ | |||||||
PPP Loan payable: |
||||||||
Current portion |
$ | |||||||
Long-term portion |
||||||||
$ | $ |
12. Revision of Prior Period Financial Statements
We revised certain prior period financial statements due to a $
Revised Consolidated Balance Sheets
As of December 31, 2019 | ||||||||||||
As reported | Adjustment | As revised | ||||||||||
Deferred revenue, current portion | $ | $ | ( | ) | $ | |||||||
Total current liabilities | ( | ) | ||||||||||
Accumulated deficit | ( | ) | ( | ) | ||||||||
Total shareholders' equity |
As of December 31, 2020 | ||||||||||||
As reported | Adjustment | As revised | ||||||||||
Deferred revenue, current portion | $ | $ | ( | ) | $ | |||||||
Total current liabilities | ( | ) | ||||||||||
Accumulated deficit | ( | ) | ( | ) | ||||||||
Total shareholders' equity |
Revised Consolidated Statement of Shareholders’ Equity
Year Ended | ||||||||||||
December 31, 2019 | ||||||||||||
As reported | Adjustment | As revised | ||||||||||
Net loss | $ | ( | ) | $ | $ | ( | ) | |||||
Accumulated deficit | ( | ) | ( | ) |
Three Months Ended | ||||||||||||
September 30, 2019 | ||||||||||||
As reported | Adjustment | As revised | ||||||||||
Net loss | $ | ( | ) | $ | $ | ( | ) | |||||
Accumulated deficit | ( | ) | ( | ) |
Nine Months Ended | ||||||||||||
September 30, 2019 | ||||||||||||
As reported | Adjustment | As revised | ||||||||||
Net loss | $ | ( | ) | $ | $ | ( | ) | |||||
Accumulated deficit | ( | ) | ( | ) |
Year Ended | ||||||||||||
December 31, 2020 | ||||||||||||
As reported | Adjustment | As revised | ||||||||||
Accumulated deficit | $ | ( | ) | $ | $ | ( | ) |
Revised Condensed Consolidated Statements of Operations and Comprehensive Loss
Year Ended | ||||||||||||
As of December 31, 2019 | ||||||||||||
As reported | Adjustment | As revised | ||||||||||
Edge to Cloud revenue | $ | $ | $ | |||||||||
Total revenue | ||||||||||||
Gross profit | ||||||||||||
Loss from operations | ( | ) | ( | ) | ||||||||
Loss before income taxes | ( | ) | ( | ) | ||||||||
Net loss | ( | ) | ( | ) | ||||||||
Basic loss per share | ( | ) | ( | ) | ||||||||
Diluted loss per share | ( | ) | ( | ) | ||||||||
Comprehensive loss | ( | ) | ( | ) |
Three Months Ended | ||||||||||||
September 30, 2019 | ||||||||||||
As reported | Adjustment | As revised | ||||||||||
Edge to Cloud revenue | $ | $ | $ | |||||||||
Total revenue | ||||||||||||
Gross profit | ||||||||||||
Loss from operations | ( | ) | ( | ) | ||||||||
Loss before income taxes | ( | ) | ( | ) | ||||||||
Net loss | ( | ) | ( | ) | ||||||||
Basic loss per share | ( | ) | ( | ) | ||||||||
Diluted loss per share | ( | ) | ( | ) | ||||||||
Comprehensive loss | ( | ) | ( | ) |
Nine Months Ended | ||||||||||||
September 30, 2019 | ||||||||||||
As reported | Adjustment | As revised | ||||||||||
Edge to Cloud revenue | $ | $ | $ | |||||||||
Total revenue | ||||||||||||
Gross profit | ||||||||||||
Loss from operations | ( | ) | ( | ) | ||||||||
Loss before income taxes | ( | ) | ( | ) | ||||||||
Net loss | ( | ) | ( | ) | ||||||||
Basic loss per share | ( | ) | ( | ) | ||||||||
Diluted loss per share | ( | ) | ( | ) | ||||||||
Comprehensive loss | ( | ) | ( | ) |
Revised Condensed Consolidated Statements of Cash Flows
We revised our condensed consolidated statements of cash flows for the year ended December 31, 2019 and the nine months ended September 31, 2019 for this correction, which had no impact to net cash used by operating activities in each such period.
Year Ended | ||||||||||||
December 31, 2019 | ||||||||||||
As reported | Adjustment | As revised | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net loss | $ | ( | ) | $ | $ | ( | ) | |||||
Deferred revenue | ( | ) | ( | ) | ( | ) | ||||||
Net cash used by operating activities | ( | ) | ( | ) |
Nine Months Ended | ||||||||||||
September 30, 2019 | ||||||||||||
As reported | Adjustment | As revised | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net loss | $ | ( | ) | $ | $ | ( | ) | |||||
Deferred revenue | ( | ) | ( | ) | ( | ) | ||||||
Net cash used in operating activities | ( | ) | ( | ) |
Revised Segment Information
Edge to Cloud revenue and gross profit were impacted for each of the applicable prior periods by the same amount as consolidated revenue and gross profit for the respective periods.
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion should be read in conjunction with our condensed consolidated financial statements and related notes. Some statements and information contained in this discussion are not historical facts but are forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, readers can identify forward- looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “forecast,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” or the negative of these terms or other comparable terminology, which when used are meant to signify the statement as forward-looking. These forward-looking statements include, but are not limited to, statements about our plans, objectives, expectations and intentions and other statements that are not historical facts. These forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and situations that are difficult to predict and that may cause our own, or our industry’s actual results, to be materially different from the future results that are expressed or implied by these statements. Accordingly, actual results may differ materially from those anticipated or expressed in such statements as a result of a variety of factors, including those discussed in the sections entitled “Risk Factors” in this Quarterly Report on Form 10-Q and in in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2020 as well as similar discussions contained in our periodic reports, and other documents or filings and documents that we may from time to time file or furnish with the SEC. Readers are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date made. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.
Overview
Bsquare is a software and services company that designs, configures, and deploys technologies that solve difficult problems for manufacturers and operators of connected devices. Our customers choose Bsquare to help realize the promise of the Internet of Things (IoT) to transform their businesses. Our products include software that connects devices to create intelligent systems that are cloud-enabled, contribute critical data, and facilitate distributed control and decision making. Our services include 24/7 IoT operations that allow our customers to focus on their businesses while we take care of security, monitoring, and general technology updates. The opportunity to help companies explore and capture the value of IoT is attractive and growing. In the last two years alone, we helped hundreds of companies deploy and manage over two million devices. We operate large IoT systems for our customers with device fleets that range in size and complexity. We believe we offer a unique combination of expertise in device-level solutions, embedded operating systems, and IoT services and software that is valued by a global customer base, from start-ups to Fortune 100 companies, across a diverse set of industries.
During 2021, we have continued our ongoing initiatives to strategically build our business at the intersection of our two business segments. In the Partner Solutions segment, customers who have been purchasing Operating System (OS) software from us are recognizing that their products, essentially interconnected devices and associated software, cannot be sold, installed, and then forgotten. For these customers, we offer software-based solutions that address the operational headaches caused by this relatively new and increasingly complex business requirement. In the Edge to Cloud segment, customers are relying on Bsquare for a complete solution, ranging from OS configuration to 24/7 support, dev/ops, and cloud management – the services that are critical when a customer puts an IoT solution into production. Experience with those customers has shown that Bsquare’s role can last well beyond the development phase and continue into their on-going operations. Our software and edge expertise combined with our position as a supply chain partner makes us uniquely suited to address these complex requirements, in both business segments.
Revenue
The COVID-19 pandemic, including its impact on the microchip supply chain, continues to affect our Partner Solutions customer ordering patterns and has caused ongoing disruptions and revenue variability in the Partner Solutions segment. Second quarter 2021 revenue was the highest since the onset of the COVID pandemic and third quarter 2021, while a decrease from second quarter, was the second highest. Nevertheless, revenue in 2021 lags pre-COVID-19 results and the moderate recovery experienced in 2021 has been inconsistent. We believe our Partner Solutions revenue is also affected by other Microsoft distributors offering deep discounts on Windows IoT OS software as part of hardware / software bundles. We expect this market trend may continue in future quarters. We are working to retain and attract customers with superior service and technical support, pricing that rewards loyalty, and a path to IoT operations.
In our Edge to Cloud segment, investments made to ensure we were meeting our operating commitments, while re-tooling and addressing issues with software previously delivered to some of our larger IoT customers, started to generate revenue for us in 2021. In the first quarter of 2021, we worked closely with Itron, Inc. to help them build their intelligent utility grid. Beyond gaining credibility as a reliable technology partner, we believe the experience we have gained serving Itron and our other large IoT customers positions us to improve our IoT software and services in 2021 and beyond.
Expenses
Our work in 2019 and 2020 to reduce our operating expense structure has provided a foundation from which we are strategically building our business. Our selling, general and administrative expenses in the first nine months of 2021 were nearly $740,000 less than similar expenses in the first nine months of 2020.
We have strategically invested in the development of new product offerings for our customers. Year-to-date 2021, that investment has totaled over $1.0 million. We are in the process of taking these products to market and are looking to reap a financial return on our R&D investment in 2022 and beyond.
Cash and Liquidity
Our cash, cash equivalents and restricted cash increased by $28.4 million in the first nine months of 2021. This increase in cash was driven by the receipt of net proceeds of $31.9 million from the sale of our common stock. This increase was partially offset by the use of cash stemming from R&D investments, operational results (primarily soft Partner Solutions revenue) and variations in working capital items.
Cash will be invested strategically to grow our business and enhance our value proposition to customers.
Critical Accounting Judgments
Our condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales, cost of sales and expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates on an on-going basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable in the circumstances, which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no significant changes to our critical accounting judgments, policies and estimates as described in our Annual Report on Form 10-K for the year ended December 31, 2020.
Results of Operations
The following table presents our summarized results of operations for the periods indicated. Our historical operating results are not necessarily indicative of the results for any future period.
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||||||||||||||
(In thousands, except percentages) |
2021 |
2020 |
$ Change |
% Change |
2021 |
2020 |
$ Change |
% Change |
||||||||||||||||||||||||
Total revenue |
$ | 10,646 | $ | 10,420 | $ | 226 | 2 | % | $ | 31,289 | $ | 36,073 | $ | (4,784 | ) | (13 | )% | |||||||||||||||
Total cost of revenue |
9,318 | 8,530 | 788 | 9 | 27,176 | 30,552 | (3,376 | ) | (11 | ) | ||||||||||||||||||||||
Gross profit |
1,328 | 1,890 | (562 | ) | (30 | ) | 4,113 | 5,521 | (1,408 | ) | (26 | ) | ||||||||||||||||||||
Operating expenses |
2,194 | 2,028 | 166 | 8 | 7,150 | 7,173 | (23 | ) | (0 | ) | ||||||||||||||||||||||
Loss from operations |
(866 | ) | (138 | ) | (728 | ) | 528 | (3,037 | ) | (1,652 | ) | (1,385 | ) | 84 | ||||||||||||||||||
Other (loss) income, net |
(29 | ) | 2 | (31 | ) | (1,550 | ) | 1,575 | (31 | ) | 1,606 | (5,180 | ) | |||||||||||||||||||
Loss before income taxes |
(895 | ) | (136 | ) | (759 | ) | 558 | (1,462 | ) | (1,683 | ) | 221 | (13 | ) | ||||||||||||||||||
Income tax benefit |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Net loss |
$ | (895 | ) | $ | (136 | ) | $ | (759 | ) | 558 | % | $ | (1,462 | ) | $ | (1,683 | ) | $ | 221 | (13 | )% |
Revenue
We generate revenue from the sale of software, both embedded operating system software that we resell and our own proprietary software, and related professional services.
Total revenue for the three months ended September 30, 2021 increased compared to the same period in 2020, primarily due to increased sales in our Partner Solutions segment in North America and Asia, slightly offset by lower revenue in our Edge to Cloud segment.
Total revenue for the nine months ended September 30, 2021 decreased compared to the same period in 2020, primarily due to decreased sales in our Partner Solutions segment in North America and Europe, and a small decrease in our Edge to Cloud segment.
Additional revenue details are as follows:
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||||||||||||||
(In thousands, except percentages) |
2021 |
2020 |
$ Change |
% Change |
2021 |
2020 |
$ Change |
% Change |
||||||||||||||||||||||||
Revenue |
||||||||||||||||||||||||||||||||
Partner Solutions |
$ | 9,638 | $ | 9,145 | $ | 493 | 5 | % | $ | 28,393 | $ | 33,160 | $ | (4,767 | ) | (14 | )% | |||||||||||||||
Edge to Cloud |
1,008 | 1,275 | (267 | ) | (21 | ) | 2,896 | 2,913 | (17 | ) | (1 | ) | ||||||||||||||||||||
Total revenue |
$ | 10,646 | $ | 10,420 | $ | 226 | 2 | % | $ | 31,289 | $ | 36,073 | $ | (4,784 | ) | (13 | )% | |||||||||||||||
As a percentage of total revenue: |
||||||||||||||||||||||||||||||||
Partner Solutions |
91 | % | 88 | % | 91 | % | 92 | % | ||||||||||||||||||||||||
Edge to Cloud |
9 | % | 12 | % | 9 | % | 8 | % |
Partner Solutions revenue
Partner Solutions revenue increased $493,000 or 5% for the quarterly period ended September 30, 2021 compared to the same period in 2020.
While revenue has not returned to pre-COVID levels, these results reflect some moderate recovery.
Partner Solutions revenue decreased $4.8 million or 14% for the nine months ended September 30, 2021 compared to the same period in 2020. The results were largely driven by first quarter 2021 results which accounted for a $7.1 million decrease. The second and third quarters of 2021 have both compared favorably to last year.
Edge to Cloud revenue
Edge to Cloud revenue decreased for the three months ended September 30, 2021 compared to the same period in 2020, primarily due to a decrease in professional services revenue driven by continued purchasing delays from one of our large customers as well as the conclusion of our relationships with some smaller customers as we have strategically shifted our focus to larger customers and product development opportunities. Edge to Cloud revenue for the nine months ended September 30, 2021 was in-line with revenue recognized compared to the same period in 2020. We expect Edge to Cloud revenue will continue to vary in timing and amount.
Gross profit and gross margin
Cost of revenue for the Partner Solutions segment consists primarily of embedded operating system software product costs payable to third-party vendors, net of rebate credits earned through Microsoft’s distributor incentive program. Cost of revenue for the Edge to Cloud segment consists primarily of salaries and benefits and re-billable expenses, and amortization of certain intangible assets. Gross profit and gross margin were as follows:
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||||||||||||||
(In thousands, except percentages) |
2021 |
2020 |
$ Change |
% Change |
2021 |
2020 |
$ Change |
% Change |
||||||||||||||||||||||||
Partner Solutions |
$ | 1,147 | $ | 1,743 | $ | (596 | ) | (34 | )% | $ | 3,865 | $ | 5,658 | $ | (1,793 | ) | (32 | )% | ||||||||||||||
Partner Solutions gross margin |
12 | % | 19 | % | (7.0 | ) | 14 | % | 17 | % | (3.0 | ) | ||||||||||||||||||||
Edge to Cloud |
$ | 181 | $ | 147 | $ | 34 | 23 | % | $ | 248 | $ | (137 | ) | $ | 385 | (281 | )% | |||||||||||||||
Edge to Cloud gross margin |
18 | % | 12 | % | 6.0 | 9 | % | (5 | )% | 13.0 | ||||||||||||||||||||||
Total gross profit |
$ | 1,328 | $ | 1,890 | $ | (562 | ) | (30 | )% | $ | 4,113 | $ | 5,521 | $ | (1,408 | ) | (26 | )% | ||||||||||||||
Total gross margin |
12 | % | 18 | % | (6.0 | ) | 13 | % | 15 | % | (2.0 | ) |
Partner Solutions gross profit and gross margin
Partner Solutions gross profit dollars and gross margin rate decreased for the three and nine month periods ended September 30, 2021 due to lower Microsoft rebates and variation in customer and product mix.
Gross profit on Partner Solutions is impacted by rebate credits earned through Microsoft’s distributor incentives program. In accordance with program rules, we allocate a portion of the incentive earnings to reduce cost of revenue with the remaining portion utilized to offset qualified marketing expenses in the period the expenditures are claimed and approved. For the three and nine month periods ended September 30, 2021, we allocated 50% of rebates to reduce cost of sales and 50% to marketing expenses. During the first half of 2020, we allocated 20% of rebates to reduce cost of sales and 80% to marketing expenses. In the second half of 2020, we began allocating the rebates 50/50 as we do now. See Footnote 10 – Significant Risk Concentrations for further information about these rebates.
Edge to Cloud gross profit and gross margin
Edge to Cloud gross profit dollars and gross margin rate increased for the three and nine months ended September 30, 2021 primarily due to reduced cost of revenue.
Operating expenses
The following table presents our operating expenses for the periods indicated:
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||||||||||||||
(In thousands, except percentages) |
2021 |
2020 |
$ Change |
% Change |
2021 |
2020 |
$ Change |
% Change |
||||||||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||||||||
Selling, general and administrative |
$ | 1,786 | $ | 1,987 | $ | (201 | ) | (10 | )% | $ | 6,209 | $ | 6,951 | $ | (742 | ) | (11 | )% | ||||||||||||||
Research and development |
408 | 41 | 367 | 895 | % | 941 | 222 | 719 | 324 | % | ||||||||||||||||||||||
Total operating expenses |
$ | 2,194 | $ | 2,028 | $ | 166 | 8 | % | $ | 7,150 | $ | 7,173 | $ | (23 | ) | (0 | )% | |||||||||||||||
As a percentage of total revenue: |
||||||||||||||||||||||||||||||||
Selling, general and administrative |
17 | % | 19 | % | 20 | % | 19 | % | ||||||||||||||||||||||||
Research and development |
4 | % | 0 | % | 3 | % | 1 | % |
Selling, general and administrative
Selling, general and administrative (“SG&A”) expenses consist primarily of salaries and related benefits, commissions and bonuses for our sales, marketing and administrative personnel, facilities and depreciation costs, as well as professional services fees (e.g., consulting, legal, audit and tax). SG&A expenses for the three months ended September 30, 2021 were in-line with SG&A expenses for the three months ended September 30, 2020.
SG&A expenses decreased for the nine months ended September 30, 2021 primarily due to labor and benefit savings resulting from our prior restructuring efforts, partially offset by a reduction in the incentive program rebates from Microsoft.
Research and development
Research and development (“R&D”) expenses consist primarily of salaries and related benefits for software development and quality assurance personnel, contractor and consultant costs. R&D expenses increased for the three and nine months ended September 30, 2021 primarily due to higher salaries and related benefits and other costs related to product development.
Other income (loss), net
Other income (loss), net consists primarily of interest income on our cash and investments, gains and losses we may recognize on our investments, and gains and losses on foreign exchange transactions and other items. During the second quarter of 2021 this line-item also included a $1.6 million gain on extinguishment of debt related to the forgiveness of our loan under the Paycheck Protection Program. See Footnote 11 – Paycheck Protection Program Loan for additional information.
Income taxes
Income taxes were not recorded for the quarterly periods ended September 30, 2021 and September 30, 2020, respectively.
Liquidity and Capital Resources
As of September 30, 2021, we had $41.4 million of cash, cash equivalents, and restricted cash. During the nine month period ended September 30, 2021, we received net cash proceeds of $31.9 million from the sale of our common stock. We generally invest our excess cash in high quality marketable investments. These investments typically include corporate notes and bonds, commercial paper, and money market funds, although specific holdings can vary from period to period depending upon our cash requirements. There were no investments held at September 30, 2021.
We believe that our existing cash and cash equivalents will be sufficient to meet our needs for working capital and capital expenditures for at least the next 12 months.
Cash Flows from Operating Activities
Operating activities used cash of approximately $3.2 million for the nine months ended September 30, 2021, which included our net loss increased by a net non-cash adjustment of $0.6 million and changes to our operating assets and liabilities of $1.2 million. The non-cash adjustment included a $1.6 million gain on the extinguishment of our PPP loan that was partially offset by stock-based compensation and depreciation and amortization add-backs of approximately $1.0 million. The changes to our operating assets and liabilities primarily included $0.8 million in deferred revenue, reflecting payments made to us during the nine months ended September 30, 2021 in advance of our performance, and $0.5 million in accounts payable and accrued expenses, reflecting our use of cash for operating expenses.
Cash Flows from Investing Activities
Investing activities used cash of approximately $0.4 million for the nine months ended September 30, 2021. The cash used relates to additions to our property, plant and equipment in the form of internally-developed software.
Cash Flows from Financing Activities
Financing activities provided cash of approximately $32.0 million for the nine months ended September 30, 2021. This cash is related primarily to the sale of our common stock during April and July 2021, in addition to employee stock options exercised throughout 2021. See Note 7 - Shareholders’ Equity for more information about the sale of our common stock.
Cash Commitments
Our future or potential cash commitments relate to minimum rents payable under operating leases, which total $80,000 for the remainder of 2021, $0.3 million in 2022, $0.3 million in 2023, $0.3 million in 2024, $0.3 million in 2025, and $0.4 million thereafter.
Quantitative and Qualitative Disclosures about Market Risk |
Not applicable.
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 Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our 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 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 in our internal control over financial reporting during the three months ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Risk Factors |
There have been no material changes 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, 2020 and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, other than as listed below.
If we are unable to attract, hire, and retain employees with the skills and experience required by our business, our ability to compete may be harmed.
Competition for qualified personnel in the technology industry has historically been intense, particularly for software engineers and other technical staff. Recently, that competition has surpassed even historical norms and the fight for talent has expanded beyond technical roles and into virtually all areas of our company. The loss to competitors of any of our executive officers or other key employees, or the inability to hire, train, retain, motivate, and manage qualified personnel, could harm our business. Recruiting efforts, particularly for senior employees or employees with specialized skills, may be time-consuming, which may delay the execution of our plans. Failure to ensure effective transfer of knowledge and smooth transitions involving key employees who do depart could hinder our strategic planning and execution. If we are not successful in managing these risks, our business, financial condition, and operating results may be harmed.
Our customers face manufacturing and supply chain risks that could reduce demand for our products, harming our financial condition, operating results, and prospects.
Our customers purchase software products from us that are incorporated with other components into finished goods for sale into their own markets. They rely on a variety of third-party suppliers, contract manufacturers and service providers to provide raw materials, parts and sub-systems. Recent global shortages in energy, raw materials, and labor have harmed our customers' ability to acquire the necessary components for their products, which have in turn caused them to delay or cancel some of their orders with us. If our customers experience ongoing supply shortages and price increases driven by raw material shortages, part availability, manufacturing capacity, labor shortages, industry allocations, tariffs, trade barriers, natural disasters, and/or pandemics (including COVID-19), their buying patterns and volumes may continue to be volatile. As a result, our revenue, overall financial condition, and operating results could be harmed.
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S-1 |
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August 17, 1999 |
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10.1 | Side Letter, dated July 6, 2021 between Bsquare Corporation and B. Riley Securities, Inc. | 8-K | July 7, 2021 | 10.1 | 000-27687 | ||||||||
31.1 |
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Inline XBRL Instance Document - the instance does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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Inline XBRL Taxonomy Extension Schema Document |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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Inline XBRL Taxonomy Extension Presentation Document |
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104 | Cover Page Interactive Data File (formatted in Inline XBRL and included in Exhibit 101) | X | |||||||||||
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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.
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BSQUARE CORPORATION (Registrant) |
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Date: November 10, 2021 |
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By: |
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/s/ Christopher Wheaton |
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Christopher Wheaton |
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Chief Financial and Operating Officer, Secretary and Treasurer (Principal Financial and Accounting Officer and Duly Authorized Signatory) |
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
RULE 13(a)-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Ralph C. Derrickson, 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 10, 2021 |
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/s/ Ralph C. Derrickson |
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Ralph C. Derrickson President and Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
RULE 13(a)-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Christopher Wheaton, 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 10, 2021 |
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/s/ Christopher Wheaton |
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Christopher Wheaton Chief Financial and Operating Officer, Secretary and Treasurer (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION OF PRESIDENT AND 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, Ralph C. Derrickson, President and 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 10, 2021 |
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/s/ Ralph C. Derrickson |
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Ralph C. Derrickson |
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President and Chief Executive Officer (Principal Executive Officer) |
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, Christopher Wheaton, Chief Financial and Operating Officer, Secretary and Treasurer, 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 10, 2021 |
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/s/ Christopher Wheaton |
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Christopher Wheaton |
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Chief Financial and Operating Officer, Secretary and Treasurer (Principal Financial and Accounting Officer) |
Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ / shares in Thousands, $ in Thousands |
Sep. 30, 2021 |
Dec. 31, 2020 |
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Accounts receivable, allowance for doubtful accounts | $ 50 | $ 50 |
Preferred stock, par value (in dollars per share) | $ 0 | $ 0 |
Preferred stock, shares authorized (in shares) | 10,000,000 | 10,000,000 |
Preferred stock, shares issued (in shares) | 0 | 0 |
Preferred stock, shares outstanding (in shares) | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0 | $ 0 |
Common stock, shares authorized (in shares) | 37,500,000 | 37,500,000 |
Common stock, shares issued (in shares) | 20,357,099 | 13,235,038 |
Common stock, shares outstanding (in shares) | 20,357,099 | 13,235,038 |
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
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Revenue: | ||||
Total revenue | $ 10,646 | $ 10,420 | $ 31,289 | $ 36,073 |
Cost of revenue: | ||||
Total cost of revenue | 9,318 | 8,530 | 27,176 | 30,552 |
Gross profit | 1,328 | 1,890 | 4,113 | 5,521 |
Operating expenses: | ||||
Selling, general and administrative | 1,786 | 1,987 | 6,209 | 6,951 |
Research and development | 408 | 41 | 941 | 222 |
Total operating expenses | 2,194 | 2,028 | 7,150 | 7,173 |
Loss from operations | (866) | (138) | (3,037) | (1,652) |
Other (loss) income, net | (29) | 2 | 1,575 | (31) |
Loss before income taxes | (895) | (136) | (1,462) | (1,683) |
Income taxes | 0 | 0 | 0 | 0 |
Net loss | $ (895) | $ (136) | $ (1,462) | $ (1,683) |
Basic loss per share (in dollars per share) | $ (0.05) | $ (0.01) | $ (0.09) | $ (0.13) |
Diluted loss per share (in dollars per share) | $ (0.05) | $ (0.01) | $ (0.09) | $ (0.13) |
Shares used in per share calculations: | ||||
Basic (in shares) | 19,603 | 13,165 | 15,419 | 13,205 |
Diluted (in shares) | 19,603 | 13,165 | 15,419 | 13,205 |
Net loss | $ (895) | $ (136) | $ (1,462) | $ (1,683) |
Other comprehensive gain (loss) | ||||
Foreign currency translation, net of tax | 37 | 11 | (30) | (27) |
Unrealized loss on investments, net of tax | 0 | (3) | 0 | (3) |
Total other comprehensive gain (loss) | 37 | 8 | (30) | (30) |
Comprehensive loss | (858) | (128) | (1,492) | (1,713) |
Partner Solutions [Member] | ||||
Revenue: | ||||
Total revenue | 9,638 | 9,145 | 28,393 | 33,160 |
Cost of revenue: | ||||
Total cost of revenue | 8,491 | 7,402 | 24,528 | 27,502 |
Gross profit | 1,147 | 1,743 | 3,865 | 5,658 |
Edge to Cloud [Member] | ||||
Revenue: | ||||
Total revenue | 1,008 | 1,275 | 2,896 | 2,913 |
Cost of revenue: | ||||
Total cost of revenue | 827 | 1,128 | 2,648 | 3,050 |
Gross profit | $ 181 | $ 147 | $ 248 | $ (137) |
Note 1 - Description of Business and Summary of Significant Accounting Policies |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Description and Accounting Policies [Text Block] |
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
BSQUARE Corporation (“Bsquare,” “we,” “us” and “our”) builds technology that is powering the next generation of connected devices and intelligent systems. We help companies realize the promise of the Internet of Things ("IoT") through the development of devices and systems that are cloud-enabled, share data seamlessly, facilitate distributed learning and control, and operate securely at scale. We believe that IoT-enabled systems can not only deliver value to our customers but also help people make better use of the resources of our planet. Bsquare's suite of services and software components create new revenue streams and operating models for our customers while providing opportunities for lowering costs and improving operations.
Since our founding in 1994, Bsquare has been at the intersection of hardware and software. Today that intersection is the "edge" where cloud-enabled devices connect to create intelligent systems that share data, facilitate distributed control and machine learning, and operate securely at scale. We believe that our expertise, products, and services are applicable in customer projects and initiatives ranging from device hardware, to the operating system, to IoT software solutions, and cloud services that make intelligent systems possible.
Our business has largely been focused on providing software solutions (including reselling software from Microsoft) and related engineering services to businesses that develop, market and sell dedicated-purpose standalone intelligent systems. Examples of dedicated-purpose standalone intelligent systems include smart, connected computing devices such as point-of-sale terminals, kiosks, tablets and handheld devices, as well as smart vending machines, ATM machines, digital signs, smart phones, set-top boxes and in-vehicle telematics and entertainment devices.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Bsquare have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting and include the accounts of Bsquare and our wholly owned subsidiaries. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In management’s opinion, the unaudited condensed consolidated financial statements include all material adjustments, all of which are of a normal and recurring nature, necessary to present fairly our financial position as of September 30, 2021 and our operating results and cash flows for the nine months ended September 30, 2021 and 2020. The accompanying financial information as of December 31, 2020 is derived from our audited financial statements as of that date.
These unaudited condensed financial statements and related notes should be read in conjunction with our audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 18, 2021.
Basis of consolidation
The consolidated financial statements include the accounts of Bsquare and our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
Revision of prior period financial statements
In connection with the preparation of our condensed consolidated financial statements, we identified an immaterial error related to the recognition of certain revenues in our Edge to Cloud segment in the third quarter of 2019 that had a rollforward effect on consolidated equity and deferred revenue in all quarterly and annual periods through the first quarter of fiscal year 2021. In accordance with SEC Staff Accounting Bulletin ("SAB") No. 99, “Materiality,” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” we evaluated the error and determined that the related impact was not material to our financial statements for any prior annual or interim period, but that correcting the cumulative impact of the error would be material to the results of operations for the three months ended June 30, 2021. Accordingly, we revised our consolidated balance sheets and statements of shareholder’s equity as of September 31, 2019, December 31, 2019, and December 31, 2020 and condensed consolidated statements of operations and comprehensive loss and cash flows for the year-ended December 31, 2019 and the three and nine months ended September 30, 2019. A summary of revisions to certain previously reported financial information presented herein for comparative purposes is included in Note 12 – Revision of Prior Period Financial Statements.
Use of estimates
Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Examples include provisions for bad debts and income taxes, estimates of progress on professional engineering service arrangements, bonus accruals, useful lives of intangible assets and property and equipment, fair values of stock-based awards, and assumptions used to determine the net present value of operating lease liabilities, among other estimates and assumptions. Actual results may differ from these estimates and assumptions.
Income (loss) per share
We compute basic income (loss) per share using the weighted average number of shares of common stock outstanding during the period. We consider restricted stock units as outstanding shares of common stock and include them in the computation of basic loss per share only when vested. We compute diluted loss per share using the weighted average number of shares of common stock outstanding and common stock equivalent shares outstanding during the period using the treasury stock method. We exclude common stock equivalent shares from the computation if their effect is anti-dilutive.
The following potentially dilutive weighted shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented:
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Note 2 - Revenue Recognition |
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Revenue from Contract with Customer [Text Block] |
2. Revenue Recognition
Disaggregation of revenue
The following table provides information about disaggregated revenue by primary geographical area and includes a reconciliation of the disaggregated revenue with reportable segments (in thousands):
Contract balances
We receive payments from customers based upon contractual billing schedules; accounts receivable is recorded when the right to consideration becomes unconditional. Contract assets include amounts related to our contractual right to consideration for completed performance obligations not yet invoiced. Contract liabilities, presented as deferred revenue on our condensed consolidated balance sheets, include payments received in advance of performance under the contract and are realized when the associated revenue is recognized. We had no asset impairment charges related to contract assets for each of the three and nine months ended September 30, 2021 and 2020.
Significant changes in the contract assets and the deferred revenue balances during the three and nine months ended September 30, 2021 were as follows:
Contract acquisition costs
We capitalize contract acquisition costs for contracts with a life exceeding one year. Amortization of contract acquisition costs was $4,000 and $23,000 for the three months ended September 30, 2021 and 2020, respectively, and was $57,000 and $68,000 for the nine months ended September 30, 2021 and 2020, respectively. There were no asset impairment charges for contract acquisition costs for any of the periods noted above.
Transaction price allocated to the remaining performance obligations
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The estimated revenue does not include contracts with original durations of one year or less, amounts of variable consideration attributable to royalties, or contract renewals that were unexercised as of September 30, 2021:
Practical expedients and exemptions
We generally expense sales commissions when incurred because the amortization period would have been less than one year. We record these costs within selling, general and administrative expenses.
When applicable and appropriate, the Company utilizes the ‘as-invoiced’ practical expedient which permits revenue recognition upon invoicing.
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Note 3 - Cash, Cash Equivalents and Restricted Cash |
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Cash, Cash Equivalents, and Short-term Investments [Text Block] |
3. Cash, Cash Equivalents and Restricted Cash
Cash, cash equivalents and restricted cash consisted of the following (in thousands):
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Note 4 - Fair Value Measurements |
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Fair Value Disclosures [Text Block] |
4. Fair Value Measurements
We measure our cash equivalents and restricted cash at fair value. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:
We classify our cash equivalents and restricted cash within Level 1 or Level 2 because our cash equivalents and restricted cash are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs.
Assets measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020 are summarized below (in thousands):
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Intangible Assets Disclosure [Text Block] |
5. Intangible Assets
Intangible assets related to customer relationships that we acquired from TestQuest, Inc. in November 2008 and from the acquisition of Bsquare EMEA, Ltd. in September 2011 and were as follows (in thousands):
Amortization expense was $22,000 and $25,000 for the three months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, the gross carrying amount of the intangible assets has been fully amortized. |
Note 6 - Leases |
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Lessee, Operating Leases [Text Block] |
6. Leases
We determine if an arrangement is a lease at inception. On our balance sheet, our office leases are included in right-of-use (“ROU”) lease asset, net and related lease liabilities are included in operating lease and operating lease, long-term. We determined that we do not currently have any leases that we are required to classify as finance leases.
ROU assets represent our right to use the underlying assets for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease agreements. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the term of the lease. For leases that do not provide an implicit rate, we use an incremental borrowing rate based on information available at the commencement date to determine the present value of lease payments. We use the implicit rate in the lease when readily determinable. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
In November 2020, we renewed the lease for our office facility in the UK. The term of the lease is 120 months, with rent payments starting on November 30, 2020 and the lease term ending on November 8, 2030. The Company has an opportunity to break the lease at the -year mark in November 2025. As it is reasonably certain that we will utilize this option, the accounting for this lease utilized November 2025 as the end date. The lease commencement date was November 9, 2020. As a result of entering into this lease agreement, we recorded additional ROU assets and net lease liabilities of $365,559 on our consolidated balance sheet as of December 31, 2020. There was no material impact to our statement of operations or statement of cash flows as a result of entering into this lease.
Our leases have remaining terms of to years. The only leases that contain renewal options are for office space leases at our Seattle and Trowbridge locations. In the fourth quarter of 2019, we made the decision not to renew our Bellevue lease, which expired at the end of May 2020, and we made the decision not to renew our Taiwan lease, exiting that facility in February 2020. Because of changes in our business, we are not able to determine with reasonable certainty whether we will renew our Seattle lease. As a result, we have not considered renewal options when recording ROU assets, lease liabilities or lease expense.
The following tables present the components of our lease expense and supplemental cash flow information related to our leases for the nine months ended September 30, 2021 (in thousands):
The following table presents supplemental balance sheet information related to our operating leases as of September 30, 2021 (dollars in thousands):
The following table presents the amounts we are obligated to pay, by maturity, under our operating leases liabilities as of September 30, 2021 (in thousands):
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Note 7 - Shareholders' Equity |
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Shareholders' Equity and Share-based Payments [Text Block] |
7. Shareholders’ Equity
Equity Compensation Plans
We have a stock plan (the “Stock Plan”) and an inducement stock plan for newly hired employees (together with the Stock Plan, the “Plans”). Under the Plans, stock options to purchase shares of our common stock may be granted with a fixed exercise price that is equal to the fair market value of our common stock on the date of grant. These options have a term of up to 10 years and vest over a predetermined period, generally years. Incentive stock options granted under the Stock Plan may only be granted to our employees. The Plans also allow for awards of non-qualified stock options, stock appreciation rights, restricted and unrestricted stock awards, and restricted stock units (“RSUs”).
Stock-Based Compensation
The estimated fair value of stock-based awards is recognized as compensation expense over the vesting period of the award, net of estimated forfeitures. We estimate forfeitures based on historical experience and expected future activities. The fair value of RSUs is determined based on the number of shares granted and the quoted price of our common stock on the date of grant. The fair value of stock option awards is estimated at the grant date based on the fair value of each vesting tranche as calculated by the Black-Scholes-Merton (“BSM”) option-pricing model. The BSM model requires various highly judgmental assumptions including expected volatility and option life. If any of the assumptions used in the BSM model change significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period. The fair values of our stock option grants and RSUs were estimated with the following weighted average assumptions:
The impact on our results of operations from stock-based compensation expense was as follows (in thousands):
Stock Option Activity
The following table summarizes stock option activity under the Plans:
At September 30, 2021, total compensation cost related to stock options granted but not yet recognized, net of estimated forfeitures, was $393,969. This cost will be amortized on the straight-line method over a weighted-average period of approximately 1.2 years. The following table summarizes certain information about stock options:
The aggregate intrinsic value represents the difference between the exercise price of the underlying options and the quoted price of our common stock for the number of options exercised during the periods indicated. We issue new shares of common stock upon exercise of stock options.
Restricted Stock Unit Activity
The following table summarizes RSU activity under the Plans:
At September 30, 2021, total compensation cost not yet recognized related to granted RSUs was approximately $78,656, net of estimated forfeitures. This cost will be amortized on the straight-line method over a weighted-average period of approximately 0.4 years.
Performance Stock Units
In January 2021 we issued 500,000 performance stock units (PSUs) to our executives. The PSUs vest based on a combination of Bsquare's stock price performance and executive service (continued employment). The first vesting measurement date is January 5, 2022 and the final measurement date is July 5, 2025. We estimated the fair value of the awards utilizing Monte Carlo simulations. Based on the Monte Carlo model, expense of approximately $17,000 and $51,000 was recorded in the selling, general and administrative line of our statement of operations for the three and nine months ended September 30, 2021, respectively. The PSUs had no impact on our cash flow statement.
Award Modifications
In June 2021, the outstanding RSU and non-qualified stock option awards of two Board members were modified. In accordance with ASC 718, we recorded incremental expense of $41,000 during the period related to the revaluation of these modified awards.
Common Stock Reserved for Future Issuance
The following table summarizes our shares of common stock reserved for future issuance under the Plans as of September 30, 2021:
Common Stock Sales
In the second and third quarters of 2021, we sold 108,879 and 6,793,798 shares of our common stock, respectively, pursuant to a registration statement on Form S-3 under the Securities Act of 1933, as amended (the "Securities Act") filed in March 2021. We received proceeds of approximately $31,936,000, net of issuance costs of $1,157,000. The issued shares and total paid-in capital are reflected in the consolidated statement of shareholder’s equity for the three and nine months ended September 30, 2021.
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Note 8 - Commitments and Contingencies |
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Notes to Financial Statements | |
Commitments and Contingencies Disclosure [Text Block] |
8. Commitments and Contingencies
Lease and rent obligations
Our commitments include obligations outstanding under operating leases, which expire through 2027. We have lease commitments for office space in Seattle, Washington and Trowbridge, UK. See Note 6 - Leases.
Loss Contingencies
From time to time, we are subject to legal proceedings, claims, and litigation arising in the ordinary course of business, including tax assessments. We defend ourselves vigorously against any such claims. When (i) it is probable that an asset has been impaired or a liability has been incurred and (ii) the amount of the loss can be reasonably estimated, we record the estimated loss. We provide disclosure in the notes to the consolidated financial statements for loss contingencies that do not meet both conditions if there is a reasonable possibility that a loss may have been incurred that would be material to the financial statements. Significant judgment is required to determine the probability that a liability has been incurred and whether such liability is reasonably estimable. We base accruals made on the best information available at the time, which can be highly subjective. As of September 30, 2021, we have not recorded any loss contingency accruals.
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Note 9 - Information About Geographic Areas and Operating Segments |
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Segment Reporting Disclosure [Text Block] |
9. Information about Geographic Areas and Operating Segments
Our chief operating decision-makers (i.e. our Chief Executive Officer and certain direct reports) review financial information presented on a consolidated basis, accompanied by disaggregated information for purposes of allocating resources and evaluating financial performance. There are no segment managers who are held accountable by our chief operating decision-makers, or anyone else, for operations, operating results, or planning for levels or components below the consolidated unit level. We operate within a single industry segment of computer software and services.
We have two major product lines, Partner Solutions and Edge to Cloud, each of which we consider to be operating and reportable segments. We do not allocate costs other than direct cost of goods sold to the segments or produce segment income statements, and we do not produce asset information by reportable segment. The following table sets forth profit and loss information about our segments (in thousands):
Revenue by geographic area is based on the sales region of the customer. The following tables set forth total revenue and long-lived assets by geographic area (in thousands):
Long-lived assets increased due to additions of internally developed software throughout the year in North America.
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Note 10 - Significant Risk Concentrations |
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Concentration Risk Disclosure [Text Block] |
10. Significant Risk Concentrations
Significant Customers
GES Manufacturing Services (M) Sdn. Bhd. accounted for $1.1 million or approximately 11% of our total revenue for the three months ended September 30, 2021. No other customers accounted for 10% or more of total revenue for the three months ended September 30, 2020 or the nine months ended September 30, 2021 and 2020.
GES Manufacturing Services (M) Sdn. Bhd. had accounts receivable balances of $958,000 or approximately 16% of our total accounts receivable at September 30, 2021. Honeywell International, Inc. and affiliated entities ("Honeywell") had accounts receivable balances of $680,000 or approximately 12% of our total accounts receivable at December 31, 2020. Kodak Alaris had accounts receivable balances of $866,000 or approximately 15% of our total accounts receivable at December 31, 2020.
Significant Supplier
We are authorized to sell Windows IoT operating systems in Canada, the United States, Argentina, Brazil, Chile, Mexico, Peru, Venezuela, Puerto Rico, Columbia, and several Caribbean countries. Our distribution agreement for sales of Windows IoT operating systems in the European Union (“E.U.”), the European Free Trade Association, Turkey and Africa, expired on June 30, 2019 and was not renewed thereafter.
We have also entered into Original Equipment Manufacturer Distribution Agreements ("ODAs") with Microsoft pursuant to which we are licensed to sell Microsoft Windows Mobile operating systems to customers in North America, South America, Central America (excluding Cuba), Japan, Taiwan, Europe, the Middle East, and Africa. The ODAs to sell Windows Mobile operating systems are effective through April 30, 2022.
There is no automatic renewal provision in any of these agreements, and these agreements can be terminated unilaterally by Microsoft at any time.
The majority of our revenue continues to be derived from reselling Microsoft Windows Embedded and IoT operating system software to device makers. The sale of Microsoft operating systems has historically accounted for substantially all of our Partner Solutions revenue.
Microsoft currently offers a distributor incentives program through which we earn rebates pursuant to predefined objectives related to sales of Microsoft Windows IoT operating systems. In accordance with program rules, we allocate a portion of the incentive earnings to reduce cost of revenue with the remaining portion utilized to offset qualified marketing expenses in the period the expenditures are claimed and approved. During the second quarter of 2020 the program allocation was changed by Microsoft to a 50/50 split between the two components.
Under this rebate program, we recorded rebate credits as follows (in thousands):
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Note 11 - Paycheck Protection Program (PPP) Loan |
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Debt Disclosure [Text Block] |
11. Paycheck Protection Program (PPP) loan
We obtained a $1.6 million loan (the "PPP Loan") from JPMorgan Chase Bank, N.A. (the “Lender”) under the Paycheck Protection Program ("PPP") on April 7, 2020 (the “Note”). The Note had a two-year term, bore interest at the rate of 0.98% per annum, and could be prepaid at any time without payment of any premium or penalty. The principal and accrued interest under the Note was forgivable after an eight- or 24-week period if we used the PPP Loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and otherwise comply with PPP requirements. In April 2021, we applied for forgiveness of this loan in accordance with the program, and in June 2021, we received confirmation that the loan principal (and related accrued interest) was forgiven in its entirety. The gain on loan forgiveness is included in other income (loss), net on the statement of operations for the nine months ended September 30, 2021, and as a gain on extinguishment of debt in the statement of cash flows for the nine months ended September 30, 2021.
At September 30, 2021 and December 31, 2020, the PPP Loan balance was as follows (in thousands):
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Error Correction [Text Block] |
12. Revision of Prior Period Financial Statements
We revised certain prior period financial statements due to a $77,000 error related to the recognition of certain revenues in our Edge to Cloud segment. The error occurred in the third quarter of 2019 and had a rollforward effect on consolidated equity and deferred revenue in all quarterly and annual periods through the first quarter of 2021. See Note 1 - Description of Business and Summary of Significant Accounting Policies. A summary of the revisions to our previously reported financial statements is presented below (in thousands).
Revised Consolidated Balance Sheets
Revised Consolidated Statement of Shareholders’ Equity
Revised Condensed Consolidated Statements of Operations and Comprehensive Loss
Revised Condensed Consolidated Statements of Cash Flows
We revised our condensed consolidated statements of cash flows for the year ended December 31, 2019 and the nine months ended September 31, 2019 for this correction, which had no impact to net cash used by operating activities in each such period.
Revised Segment Information
Edge to Cloud revenue and gross profit were impacted for each of the applicable prior periods by the same amount as consolidated revenue and gross profit for the respective periods. |
Significant Accounting Policies (Policies) |
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Description of Business [Policy Text Block] | Description of Business
BSQUARE Corporation (“Bsquare,” “we,” “us” and “our”) builds technology that is powering the next generation of connected devices and intelligent systems. We help companies realize the promise of the Internet of Things ("IoT") through the development of devices and systems that are cloud-enabled, share data seamlessly, facilitate distributed learning and control, and operate securely at scale. We believe that IoT-enabled systems can not only deliver value to our customers but also help people make better use of the resources of our planet. Bsquare's suite of services and software components create new revenue streams and operating models for our customers while providing opportunities for lowering costs and improving operations.
Since our founding in 1994, Bsquare has been at the intersection of hardware and software. Today that intersection is the "edge" where cloud-enabled devices connect to create intelligent systems that share data, facilitate distributed control and machine learning, and operate securely at scale. We believe that our expertise, products, and services are applicable in customer projects and initiatives ranging from device hardware, to the operating system, to IoT software solutions, and cloud services that make intelligent systems possible.
Our business has largely been focused on providing software solutions (including reselling software from Microsoft) and related engineering services to businesses that develop, market and sell dedicated-purpose standalone intelligent systems. Examples of dedicated-purpose standalone intelligent systems include smart, connected computing devices such as point-of-sale terminals, kiosks, tablets and handheld devices, as well as smart vending machines, ATM machines, digital signs, smart phones, set-top boxes and in-vehicle telematics and entertainment devices.
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Basis of Accounting, Policy [Policy Text Block] | Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Bsquare have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting and include the accounts of Bsquare and our wholly owned subsidiaries. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In management’s opinion, the unaudited condensed consolidated financial statements include all material adjustments, all of which are of a normal and recurring nature, necessary to present fairly our financial position as of September 30, 2021 and our operating results and cash flows for the nine months ended September 30, 2021 and 2020. The accompanying financial information as of December 31, 2020 is derived from our audited financial statements as of that date.
These unaudited condensed financial statements and related notes should be read in conjunction with our audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 18, 2021.
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Consolidation, Policy [Policy Text Block] | Basis of consolidation
The consolidated financial statements include the accounts of Bsquare and our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
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Use of Estimates, Policy [Policy Text Block] | Use of estimates
Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Examples include provisions for bad debts and income taxes, estimates of progress on professional engineering service arrangements, bonus accruals, useful lives of intangible assets and property and equipment, fair values of stock-based awards, and assumptions used to determine the net present value of operating lease liabilities, among other estimates and assumptions. Actual results may differ from these estimates and assumptions.
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Earnings Per Share, Policy [Policy Text Block] | Income (loss) per share
We compute basic income (loss) per share using the weighted average number of shares of common stock outstanding during the period. We consider restricted stock units as outstanding shares of common stock and include them in the computation of basic loss per share only when vested. We compute diluted loss per share using the weighted average number of shares of common stock outstanding and common stock equivalent shares outstanding during the period using the treasury stock method. We exclude common stock equivalent shares from the computation if their effect is anti-dilutive.
The following potentially dilutive weighted shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented:
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Note 1 - Description of Business and Summary of Significant Accounting Policies (Tables) |
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Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block] |
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Cash, Cash Equivalents and Investments [Table Text Block] |
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Note 4 - Fair Value Measurements (Tables) |
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Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block] |
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Note 5 - Intangible Assets (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Finite-Lived Intangible Assets [Table Text Block] |
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Note 6 - Leases (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||
Lease, Cost [Table Text Block] |
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Lessee, Operating Leases, Supplemental Balance Sheet Information [Table Text Block] |
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Lessee, Operating Lease, Liability, Maturity [Table Text Block] |
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Note 7 - Shareholders' Equity (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block] |
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Share-based Payment Arrangement, Expensed and Capitalized, Amount [Table Text Block] |
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Share-based Payment Arrangement, Option, Activity [Table Text Block] |
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Schedule of Share Based Compensation Additional Stock Options Activity [Table Text Block] |
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Share-based Payment Arrangement, Restricted Stock Unit, Activity [Table Text Block] |
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Schedule of Common Stock Reserved For Future Issuance [Table Text Block] |
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Note 9 - Information About Geographic Areas and Operating Segments (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Schedule of Segment Reporting Information, by Segment [Table Text Block] |
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Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas [Table Text Block] |
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Note 10 - Significant Risk Concentrations (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Schedule of Rebate Credit [Table Text Block] |
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Note 11 - Paycheck Protection Program (PPP) Loan (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Debt [Table Text Block] |
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Note 12 - Revision of Prior Period Financial Statements (Tables) |
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Schedule of Error Corrections and Prior Period Adjustments [Table Text Block] |
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Note 1 - Description of Business and Summary of Significant Accounting Policies - Potentially Dilutive Shares Excluded From Calculation of Diluted Net Loss Per Share (Details) - shares |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
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Share-based Payment Arrangement, Option [Member] | ||||
Stock options (in shares) | 384,444 | 1,796,478 | 317,909 | 1,769,556 |
Restricted stock units (in shares) | 384,444 | 1,796,478 | 317,909 | 1,769,556 |
Restricted Stock Units (RSUs) [Member] | ||||
Stock options (in shares) | 35,275 | 35,123 | 68,341 | 46,851 |
Restricted stock units (in shares) | 35,275 | 35,123 | 68,341 | 46,851 |
Note 2 - Revenue Recognition (Details Textual) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
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Contract with Customer, Asset, Credit Loss Expense (Reversal) | $ 0 | $ 0 | $ 0 | $ 0 |
Capitalized Contract Cost, Amortization | 4,000 | 23,000 | 57,000 | 68,000 |
Capitalized Contract Cost, Impairment Loss | $ 0 | $ 0 | $ 0 | $ 0 |
Note 2 - Revenue Recognition - Disaggregation of Revenue (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||||
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Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2019 |
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2019 |
Dec. 31, 2019 |
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Total revenue | $ 10,646 | $ 10,420 | $ 14,718 | $ 31,289 | $ 36,073 | $ 43,994 | $ 59,360 |
North America [Member] | |||||||
Total revenue | 9,258 | 8,919 | 26,067 | 30,449 | |||
Europe [Member] | |||||||
Total revenue | 112 | 785 | 476 | 1,819 | |||
Asia [Member] | |||||||
Total revenue | 1,276 | 716 | 4,746 | 3,805 | |||
Partner Solutions [Member] | |||||||
Total revenue | 9,638 | 9,145 | 28,393 | 33,160 | |||
Partner Solutions [Member] | North America [Member] | |||||||
Total revenue | 8,294 | 7,819 | 23,372 | 28,104 | |||
Partner Solutions [Member] | Europe [Member] | |||||||
Total revenue | 68 | 613 | 275 | 1,344 | |||
Partner Solutions [Member] | Asia [Member] | |||||||
Total revenue | 1,276 | 713 | 4,746 | 3,712 | |||
Edge to Cloud [Member] | |||||||
Total revenue | 1,008 | 1,275 | $ 2,162 | 2,896 | 2,913 | $ 6,653 | $ 8,732 |
Edge to Cloud [Member] | North America [Member] | |||||||
Total revenue | 964 | 1,100 | 2,695 | 2,345 | |||
Edge to Cloud [Member] | Europe [Member] | |||||||
Total revenue | 44 | 172 | 201 | 475 | |||
Edge to Cloud [Member] | Asia [Member] | |||||||
Total revenue | $ 0 | $ 3 | $ 0 | $ 93 |
Note 2 - Revenue Recognition - Significant Changes in Contract Assets and Deferred Revenue (Details) - USD ($) |
3 Months Ended | 9 Months Ended |
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Sep. 30, 2021 |
Sep. 30, 2021 |
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Transferred to receivables from contract assets | $ 0 | $ 0 |
Revenue recognized that was included in deferred revenue | $ 435,835 | $ 1,515,077 |
Note 2 - Revenue Recognition - Transaction Price Allocated to the Remaining Performance Obligations 2 (Details) - Edge to Cloud [Member] $ in Thousands |
Sep. 30, 2021
USD ($)
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Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-10-01 | |
Remaining Performance Obligation | $ 315,944 |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-01-01 | |
Remaining Performance Obligation | 1,419,096 |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-01-01 | |
Remaining Performance Obligation | $ 466,287 |
Note 2 - Revenue Recognition - Transaction Price Allocated to the Remaining Performance Obligations (Details) (Parentheticals) - Edge to Cloud [Member] |
Sep. 30, 2021 |
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Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-10-01 | |
Remaining Performance Obligation, Period (Year) | 3 months |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-01-01 | |
Remaining Performance Obligation, Period (Year) | 1 year |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-01-01 | |
Remaining Performance Obligation, Period (Year) | 1 year |
Note 3 - Cash, Cash Equivalents and Restricted Cash - Schedule of Cash and Cash Equivalents (Details) - USD ($) $ in Thousands |
Sep. 30, 2021 |
Dec. 31, 2020 |
---|---|---|
Cash | $ 3,925 | $ 6,509 |
Cash equivalents (see detail in Note 4) | 37,105 | 6,114 |
Restricted cash | 337 | 337 |
Total cash and cash equivalents | $ 41,367 | $ 12,960 |
Note 4 - Fair Value Measurements - Assets Measured at Fair Value on Recurring Basis (Details) - Fair Value, Recurring [Member] - USD ($) $ in Thousands |
Sep. 30, 2021 |
Dec. 31, 2020 |
---|---|---|
Total cash equivalents | $ 37,105 | $ 6,114 |
Restricted cash | 337 | 337 |
Total assets measured at fair value | 37,442 | 6,451 |
Money Market Funds [Member] | ||
Total cash equivalents | 37,105 | 6,114 |
Fair Value, Inputs, Level 1 [Member] | ||
Total cash equivalents | 37,105 | 6,114 |
Restricted cash | 337 | 337 |
Total assets measured at fair value | 37,442 | 6,451 |
Fair Value, Inputs, Level 1 [Member] | Money Market Funds [Member] | ||
Total cash equivalents | 37,105 | 6,114 |
Fair Value, Inputs, Level 2 [Member] | ||
Total cash equivalents | 0 | 0 |
Restricted cash | 0 | 0 |
Total assets measured at fair value | 0 | 0 |
Fair Value, Inputs, Level 2 [Member] | Money Market Funds [Member] | ||
Total cash equivalents | $ 0 | $ 0 |
Note 5 - Intangible Assets (Details Textual) - USD ($) |
3 Months Ended | |
---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
|
Amortization of Intangible Assets, Total | $ 22,000 | $ 25,000 |
Note 5 - Intangible Assets - Intangible Assets (Details) - USD ($) $ in Thousands |
Sep. 30, 2021 |
Dec. 31, 2020 |
---|---|---|
Intangible assets, net of accumulated amortization | $ 0 | $ 71 |
Customer Relationships [Member] | ||
Customer relationships, gross carrying amount | 982 | 982 |
Customer relationships, accumulated amortization | (982) | (911) |
Intangible assets, net of accumulated amortization | $ 0 | $ 71 |
Note 6 - Leases (Details Textual) - USD ($) |
Nov. 09, 2020 |
Sep. 30, 2021 |
Dec. 31, 2020 |
---|---|---|---|
Operating Lease, Right-of-Use Asset | $ 1,660,000 | $ 1,853,000 | |
Operating Lease, Liability, Total | $ 1,784,000 | ||
Minimum [Member] | |||
Lessee, Operating Lease, Remaining Lease Term (Year) | 5 years | ||
Maximum [Member] | |||
Lessee, Operating Lease, Remaining Lease Term (Year) | 7 years | ||
Office Facility in the UK [Member] | |||
Lessee, Operating Lease, Renewal Term (Month) | 120 months | ||
Lessee Operating Lease, Termination Option Term (Year) | 5 years | ||
Operating Lease, Right-of-Use Asset | $ 365,559 |
Note 6 - Leases - Components of Lease Expense and Supplemental Cash Flow Information (Details) $ in Thousands |
9 Months Ended |
---|---|
Sep. 30, 2021
USD ($)
| |
Operating leases | $ 311 |
Cash paid for amounts included in the measurement of lease liabilities | $ 311 |
Note 6 - Leases - Supplemental Balance Sheet Information (Details) - USD ($) $ in Thousands |
Sep. 30, 2021 |
Dec. 31, 2020 |
---|---|---|
Operating Lease, Right-of-Use Asset | $ 1,660 | $ 1,853 |
Current portion of operating lease liability | 354 | 344 |
Operating lease liability, net of current portion | 1,430 | $ 1,630 |
Total operating lease liabilities | $ 1,784 | |
Weighted average remaining lease term (years) (Year) | 5 years 4 months 24 days | |
Weighted average discount rate | 8.50% |
Note 6 - Leases - Amounts Obligated to Pay, by Maturity, Under Operating Leases Liabilities (Details) $ in Thousands |
Sep. 30, 2021
USD ($)
|
---|---|
2021, remainder of year | $ 78 |
2022 | 315 |
2023 | 322 |
2024 | 329 |
2025 | 325 |
After 2025 | 440 |
Total minimum lease payments | 1,809 |
Less: amount representing interest | (25) |
Operating Lease, Liability, Total | $ 1,784 |
Note 7 - Shareholders' Equity - Weighted Average Assumptions of Stock Options (Details) - Share-based Payment Arrangement, Option [Member] |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
Dividend yield | 0.00% | 0.00% | 0.00% | 0.00% |
Expected life (years) (Year) | 4 years 10 months 24 days | 4 years 10 months 24 days | 4 years 10 months 24 days | 4 years 10 months 24 days |
Expected volatility | 111.00% | 63.00% | 111.00% | 63.00% |
Risk-free interest rate | 0.60% | 0.20% | 0.60% | 0.50% |
Note 7 - Shareholders' Equity - Stock-based Compensation Expense (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
Total stock-based compensation expense | $ 218 | $ 281 | $ 596 | $ 601 |
Cost of Sales [Member] | Edge to Cloud [Member] | ||||
Total stock-based compensation expense | 6 | 26 | 30 | 50 |
Selling, General and Administrative Expenses [Member] | ||||
Total stock-based compensation expense | 188 | 250 | 515 | 536 |
Research and Development Expense [Member] | ||||
Total stock-based compensation expense | $ 24 | $ 5 | $ 51 | $ 15 |
Note 7 - Shareholders' Equity - Summary of Certain Additional Information about Stock Options (Details) - Share-based Payment Arrangement, Option [Member] - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
Weighted average grant-date fair value of options granted during the period (in dollars per share) | $ 2.75 | $ 1.37 | $ 2.88 | $ 1.03 |
Options in-the-money (in shares) (in shares) | 629,272 | 59,201 | 629,272 | 59,201 |
Aggregate intrinsic value of options exercised during the period | $ 1,200 | $ 1,350 | $ 1,880 | $ 1,350 |
Note 7 - Shareholders' Equity - Common Stock Reserved for Future Issuance (Details) - shares |
Sep. 30, 2021 |
Dec. 31, 2020 |
---|---|---|
Stock options outstanding (in shares) | 1,788,252 | 1,786,891 |
Stock options and restricted stock units available for future grant (in shares) | 1,115,772 | |
Common stock reserved for future issuance (in shares) | 3,455,945 | |
Restricted Stock Units and Performance Stock Units [Member] | ||
Restricted stock units and performance stock units outstanding (in shares) | 551,921 |
Note 9 - Information About Geographic Areas and Operating Segments (Details Textual) |
9 Months Ended |
---|---|
Sep. 30, 2021 | |
Number of Operating Segments | 2 |
Number of Reportable Segments | 2 |
Note 9 - Information About Geographic Areas and Operating Segments - Profit and Loss Information (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||||
---|---|---|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2019 |
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2019 |
Dec. 31, 2019 |
|
Revenue | $ 10,646 | $ 10,420 | $ 14,718 | $ 31,289 | $ 36,073 | $ 43,994 | $ 59,360 |
Cost of revenue | 9,318 | 8,530 | 27,176 | 30,552 | |||
Gross profit | 1,328 | 1,890 | 2,709 | 4,113 | 5,521 | 7,523 | 10,173 |
Operating expenses | 2,194 | 2,028 | 7,150 | 7,173 | |||
Other (loss) income, net | (29) | 2 | 1,575 | (31) | |||
Income taxes | 0 | 0 | 0 | 0 | |||
Net loss | (895) | (136) | (1,030) | (1,462) | (1,683) | (7,744) | (9,104) |
Partner Solutions [Member] | |||||||
Revenue | 9,638 | 9,145 | 28,393 | 33,160 | |||
Cost of revenue | 8,491 | 7,402 | 24,528 | 27,502 | |||
Gross profit | 1,147 | 1,743 | 3,865 | 5,658 | |||
Edge to Cloud [Member] | |||||||
Revenue | 1,008 | 1,275 | $ 2,162 | 2,896 | 2,913 | $ 6,653 | $ 8,732 |
Cost of revenue | 827 | 1,128 | 2,648 | 3,050 | |||
Gross profit | $ 181 | $ 147 | $ 248 | $ (137) |
Note 9 - Information About Geographic Areas and Operating Segments - Revenue and Long-lived Assets by Geographic Area (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | |||||
---|---|---|---|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2019 |
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2019 |
Dec. 31, 2019 |
Dec. 31, 2020 |
|
Total revenue | $ 10,646 | $ 10,420 | $ 14,718 | $ 31,289 | $ 36,073 | $ 43,994 | $ 59,360 | |
Total long-lived assets | 1,956 | 1,956 | $ 1,358 | |||||
North America [Member] | ||||||||
Total revenue | 9,258 | 8,919 | 26,067 | 30,449 | ||||
Total long-lived assets | 1,780 | 1,780 | 1,179 | |||||
Europe [Member] | ||||||||
Total revenue | 112 | 785 | 476 | 1,819 | ||||
Total long-lived assets | 176 | 176 | $ 179 | |||||
Asia [Member] | ||||||||
Total revenue | $ 1,276 | $ 716 | $ 4,746 | $ 3,805 |
Note 10 - Significant Risk Concentrations - Rebate Credits (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
Cost of Sales [Member] | ||||
Reductions | $ 26 | $ 500 | $ 236 | $ 654 |
Selling and Marketing Expense [Member] | ||||
Reductions | $ 110 | $ 123 | $ 287 | $ 1,026 |
Note 11 - Paycheck Protection Program (PPP) Loan (Details Textual) - USD ($) $ in Thousands |
9 Months Ended | ||
---|---|---|---|
Apr. 07, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
Proceeds from Notes Payable, Total | $ 1,600 | $ 1,580 |
Note 11 - Paycheck Protection Program (PPP) Loan - PPP Loan Balance (Details) - USD ($) $ in Thousands |
Sep. 30, 2021 |
Dec. 31, 2020 |
---|---|---|
Notes Payable, Total | $ 0 | $ 1,584 |
Current portion | 0 | 950 |
Long-term portion | 0 | 634 |
Paycheck Protection Program CARES Act [Member] | ||
Principal | 0 | 1,572 |
Accrued interest | 0 | 12 |
Notes Payable, Total | 0 | 1,584 |
Current portion | 0 | 950 |
Long-term portion | $ 0 | $ 634 |
Note 12 - Revision of Prior Period Financial Statements (Details Textual) - USD ($) |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||||
---|---|---|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2019 |
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2019 |
Dec. 31, 2019 |
|
Revenue from Contract with Customer, Excluding Assessed Tax, Total | $ 10,646,000 | $ 10,420,000 | $ 14,718,000 | $ 31,289,000 | $ 36,073,000 | $ 43,994,000 | $ 59,360,000 |
Revision of Prior Period, Error Correction, Adjustment [Member] | |||||||
Revenue from Contract with Customer, Excluding Assessed Tax, Total | 77,000 | $ 77,000 | $ 77,000 | ||||
Error Related to Recognition of Certain Revenues in Edge to Cloud Segment [Member] | Revision of Prior Period, Error Correction, Adjustment [Member] | |||||||
Revenue from Contract with Customer, Excluding Assessed Tax, Total | $ (77,000) |
Note 12 - Revision of Prior Period Financial Statements - Error Correction and Prior Period Adjustments (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||||||
---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2019 |
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2019 |
Dec. 31, 2019 |
Jun. 30, 2021 |
Dec. 31, 2020 |
|
Deferred revenue, current portion | $ 1,098 | $ 1,098 | $ 1,482 | $ 2,088 | |||||
Total current liabilities | 8,830 | 8,830 | 11,123 | 11,262 | |||||
Accumulated deficit | (131,468) | $ (126,757) | (131,468) | $ (126,757) | (128,117) | (130,006) | |||
Total shareholders' equity | 39,836 | 39,836 | 9,773 | $ 8,886 | 8,728 | ||||
Net loss | (895) | $ (136) | (1,030) | (1,462) | $ (1,683) | (7,744) | (9,104) | ||
Total revenue | 10,646 | 10,420 | 14,718 | 31,289 | 36,073 | 43,994 | 59,360 | ||
Gross profit | 1,328 | 1,890 | 2,709 | 4,113 | 5,521 | 7,523 | 10,173 | ||
Loss from operations | (866) | (138) | (1,052) | (3,037) | (1,652) | (7,860) | (9,237) | ||
Loss before income taxes | (895) | (136) | (1,030) | (1,462) | (1,683) | (7,744) | (9,088) | ||
Net loss | $ (895) | $ (136) | $ (1,030) | $ (1,462) | $ (1,683) | $ (7,744) | $ (9,104) | ||
Basic loss per share (in dollars per share) | $ (0.05) | $ (0.01) | $ (0.08) | $ (0.09) | $ (0.13) | $ (0.60) | $ (0.71) | ||
Diluted loss per share (in dollars per share) | $ (0.05) | $ (0.01) | $ (0.08) | $ (0.09) | $ (0.13) | $ (0.60) | $ (0.71) | ||
Comprehensive loss | $ (858) | $ (128) | $ (1,034) | $ (1,492) | $ (1,713) | $ (7,822) | $ (9,165) | ||
Deferred revenue | (771) | (310) | (125) | (304) | |||||
Net cash used by operating activities | (3,192) | 754 | (4,994) | (5,995) | |||||
Edge to Cloud [Member] | |||||||||
Total revenue | 1,008 | 1,275 | 2,162 | 2,896 | 2,913 | 6,653 | 8,732 | ||
Gross profit | $ 181 | $ 147 | $ 248 | $ (137) | |||||
Previously Reported [Member] | |||||||||
Deferred revenue, current portion | 1,559 | 2,165 | |||||||
Total current liabilities | 11,200 | 11,339 | |||||||
Accumulated deficit | (126,834) | (126,834) | (128,194) | (130,083) | |||||
Total shareholders' equity | 9,696 | 8,651 | |||||||
Net loss | (1,107) | (7,821) | (9,181) | ||||||
Total revenue | 14,641 | 43,917 | 59,283 | ||||||
Gross profit | 2,632 | 7,446 | 10,096 | ||||||
Loss from operations | (1,129) | (7,937) | (9,314) | ||||||
Loss before income taxes | (1,107) | (7,821) | (9,165) | ||||||
Net loss | $ (1,107) | $ (7,821) | $ (9,181) | ||||||
Basic loss per share (in dollars per share) | $ (0.09) | $ (0.60) | $ (0.71) | ||||||
Diluted loss per share (in dollars per share) | $ (0.09) | $ (0.60) | $ (0.71) | ||||||
Comprehensive loss | $ (1,111) | $ (7,899) | $ (9,242) | ||||||
Deferred revenue | (48) | (227) | |||||||
Net cash used by operating activities | (4,994) | (5,995) | |||||||
Previously Reported [Member] | Edge to Cloud [Member] | |||||||||
Total revenue | 2,085 | 6,576 | 8,655 | ||||||
Revision of Prior Period, Error Correction, Adjustment [Member] | |||||||||
Deferred revenue, current portion | (77) | (77) | |||||||
Total current liabilities | (77) | (77) | |||||||
Accumulated deficit | 77 | 77 | 77 | 77 | |||||
Total shareholders' equity | 77 | $ 77 | |||||||
Net loss | 77 | 77 | 77 | ||||||
Total revenue | 77 | 77 | 77 | ||||||
Gross profit | 77 | 77 | 77 | ||||||
Loss from operations | 77 | 77 | 77 | ||||||
Loss before income taxes | 77 | 77 | 77 | ||||||
Net loss | $ 77 | $ 77 | $ 77 | ||||||
Basic loss per share (in dollars per share) | $ 0.01 | $ 0 | $ 0 | ||||||
Diluted loss per share (in dollars per share) | $ 0.01 | $ 0 | $ 0 | ||||||
Comprehensive loss | $ 77 | $ 77 | $ 77 | ||||||
Deferred revenue | (77) | (77) | |||||||
Net cash used by operating activities | 0 | 0 | |||||||
Revision of Prior Period, Error Correction, Adjustment [Member] | Edge to Cloud [Member] | |||||||||
Total revenue | $ 77 | $ 77 | $ 77 |
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