10-Q

I 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2014

OR

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

For the transition period from to

Commission File Number: 000-27687

BSQUARE CORPORATION

(Exact name of registrant as specified in its charter)

Washington	91-1650880
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
110 110th Avenue NE, Suite 300, Bellevue WA	98004
(Address of principal executive offices)	(Zip Code)

(425) 519-5900

(Registrant’s telephone number, including area code)

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

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

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

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

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

The number of shares of common stock outstanding as of October 31, 2014: 11,725,716

BSQUARE CORPORATION

FORM 10-Q

For the Quarterly Period Ended September 30, 2014

TABLE OF CONTENTS

		Page
	PART I. FINANCIAL INFORMATION
Item 1	Financial Statements	3
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4	Controls and Procedures	19
	PART II. OTHER INFORMATION
Item 1A	Risk Factors	20
Item 5	Other Information	20
Item 6	Exhibits	20
	Signatures	21
	Index to Exhibits	22

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BSQUARE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

	September 30, 2014			December 31, 2013
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	12,575		$	13,510
Short-term investments		12,646			7,295
Accounts receivable, net of allowance for doubtful    accounts of $214 at September 30, 2014    and December 31, 2013		11,749			15,893
Prepaid expenses and other current assets		457			2,325
Total current assets		37,427			39,023
Equipment, furniture and leasehold improvements, net		1,405			411
Restricted cash		250			250
Deferred income taxes		304			304
Intangible assets, net		762			863
Goodwill		3,738			3,738
Other non-current assets		56			59
Total assets	$	43,942		$	44,648
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Third-party software fees payable	$	9,941		$	12,746
Accounts payable		171			634
Accrued compensation		1,843			2,383
Other accrued expenses		1,607			1,249
Deferred revenue		1,504			2,177
Total current liabilities		15,066			19,189
Deferred income taxes		144			144
Deferred rent		1,792			644
Shareholders’ equity:
Preferred stock, no par value: 10,000,000 shares    authorized; no shares issued and outstanding		—			—
Common stock, no par value: 37,500,000 shares    authorized; 11,722,591 shares issued and    outstanding at September 30, 2014 and 11,294,682    shares issued and outstanding at December 31,    2013		130,709			129,423
Accumulated other comprehensive loss		(725	)		(759	)
Accumulated deficit		(103,044	)		(103,993	)
Total shareholders’ equity		26,940			24,671
Total liabilities and shareholders’ equity	$	43,942		$	44,648

See notes to condensed consolidated financial statements.

3

BSQUARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Revenue:
Software	$	19,768		$	18,456		$	55,631		$	51,818
Service		4,767			5,116			14,690			14,461
Total revenue		24,535			23,572			70,321			66,279
Cost of revenue:
Software		16,760			15,965			47,189			43,087
Service		3,812			4,238			11,369			12,683
Total cost of revenue		20,572			20,203			58,558			55,770
Gross profit		3,963			3,369			11,763			10,509
Operating expenses:
Selling, general and administrative		2,880			3,960			9,352			11,432
Research and development		360			804			1,215			2,205
Total operating expenses		3,240			4,764			10,567			13,637
Income (loss) from operations		723			(1,395	)		1,196			(3,128	)
Other income (expense), net		(16	)		(15	)		(118	)		100
Income (loss) before income taxes		707			(1,410	)		1,078			(3,028	)
Income tax expense		(16	)		(2,157	)		(129	)		(2,206	)
Net income (loss)	$	691		$	(3,567	)	$	949		$	(5,234	)
Basic income (loss) per share	$	0.06		$	(0.32	)	$	0.08		$	(0.47	)
Diluted income (loss) per share	$	0.06		$	(0.32	)	$	0.08		$	(0.47	)
Shares used in calculation of income (loss) per share:
Basic		11,655			11,194			11,520			11,150
Diluted		11,832			11,194			11,732			11,150
Comprehensive income (loss):
Net income (loss)	$	691		$	(3,567	)	$	949		$	(5,234	)
Other comprehensive income (expense):
Foreign currency translation, net of tax		(97	)		56			34			(35	)
Change in unrealized gains on investments, net    of tax		—			1			—			(2	)
Total other comprehensive income (expense)		(97	)		57			34			(37	)
Comprehensive income (loss)	$	594		$	(3,510	)	$	983		$	(5,271	)

See notes to condensed consolidated financial statements.

4

BSQUARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

	Nine Months Ended September 30,
	2014			2013
Cash flows from operating activities:
Net income (loss)	$	949		$	(5,234	)
Adjustments to reconcile net income (loss) to net    cash provided by operating activities:
Realized loss on disposal of assets		33			—
Depreciation and amortization		479			586
Stock-based compensation		691			726
Deferred income taxes		—			2,181
Changes in operating assets and liabilities:
Accounts receivable, net		4,144			3,284
Prepaid expenses and other assets		1,871			(418	)
Third-party software fees payable		(2,805	)		(44	)
Accounts payable and accrued expenses		(645	)		(394	)
Deferred revenue		(673	)		237
Deferred rent		20			268
Net cash provided by operating activities		4,064			1,192
Cash flows from investing activities:
Purchases of equipment and furniture		(276	)		(216	)
Proceeds from maturities of short-term investments		9,195			8,932
Purchases of short-term investments		(14,547	)		(7,163	)
Reduction of restricted cash		—			625
Net cash provided by (used in) investing    activities		(5,628	)		2,178
Cash flows provided by financing activities—proceeds    from exercise of stock options		595			12
Effect of exchange rate changes on cash		34			(49	)
Net increase (decrease) in cash and cash    equivalents		(935	)		3,333
Cash and cash equivalents, beginning of period		13,510			9,903
Cash and cash equivalents, end of period	$	12,575		$	13,236
	Nine Months Ended September 30,
	2014			2013
Supplemental disclosure of cash flow information:
Non-cash investing activity-leasehold improvements    & furniture funded by landlord	$	1,128		$	—

See notes to condensed consolidated financial statements.

5

BSQUARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of BSQUARE Corporation (“BSQUARE”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting and include the accounts of BSQUARE and our wholly owned subsidiaries. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In our opinion, the unaudited condensed consolidated financial statements include all material adjustments, all of which are of a normal and recurring nature, necessary to present fairly our financial position as of September 30, 2014 and our operating results and cash flows for the three and nine months ended September 30, 2014 and 2013. The accompanying financial information as of December 31, 2013 is derived from audited financial statements. Preparing financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Examples include provisions for bad debts and income taxes, estimates of progress on professional engineering service arrangements and bonus accruals. Actual results may differ from these estimates. Interim results are not necessarily indicative of results for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2013. All intercompany balances have been eliminated.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”, amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The guidance is effective for annual and interim reporting periods beginning after December 15, 2016, with early adoption prohibited. We are currently evaluating the impact this ASU will have on our consolidated financial statements.

In August 2014 the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, requiring management to evaluate whether there is a substantial doubt about an entity’s ability to continue as a going concern and to provide related disclosures in the notes to the financial statements. The new guidance reduces diversity in the timing and content of disclosures from current guidance, and is effective for annual and interim reporting periods beginning after December 15, 2015 with early adoption permitted. We do not expect the adoption of this guidance to have a material effect on our consolidated financial statements.

Income (Loss) Per Share

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

We excluded an aggregate of 882,490 and 868,767options and RSUs for the three and nine months ended September 30, 2014, respectively, from diluted earnings per share because their effect was anti-dilutive. We excluded an aggregate of 940,812 and 837,812  options and RSUs for the three and nine months ended September 30, 2013, respectively, from diluted earnings per share because their effect was anti-dilutive. In a period where we are in a net loss position, diluted loss per share is computed using the basic share count.

6

2. Cash and Investments

Cash, cash equivalents, short-term investments, and restricted cash consisted of the following at September 30, 2014 and December 31, 2013 (in thousands):

	September 30, 2014		December 31, 2013
Cash	$	2,718	$	2,521
Cash equivalents:
Money market funds		8,356		8,989
Corporate commercial paper		1,250		—
Corporate debt securities		251		2,000
Total cash equivalents		9,857		10,989
Total cash and cash equivalents		12,575		13,510
Short-term investments:
Corporate commercial paper		1,199		1,500
Foreign government bonds		—		1,001
Corporate debt securities		11,447		4,794
Total short-term investments		12,646		7,295
Restricted cash—money market fund		250		250
Total cash, cash equivalents, investments and    restricted cash	$	25,471	$	21,055

Gross unrealized gains and losses on our short-term investments were not material as of September 30, 2014 and December 31, 2013. Our restricted cash balance at September 30, 2014 and December 31, 2013 relates to a letter of credit which secures our corporate headquarters lease.

3. Fair Value Measurements

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

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Directly or indirectly observable market-based inputs or unobservable inputs used in models or other valuation methodologies.

Level 3: Unobservable inputs that are not corroborated by market data. The inputs require significant management judgment or estimation.

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

7

Assets and liabilities measured at fair value on a recurring basis as of September 30, 2014 and December 31, 2013 are summarized below (in thousands):

	September 30, 2014
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Direct or Indirect Observable Inputs (Level 2)		Total
Assets
Cash equivalents:
Money market funds	$	8,356	$	—	$	8,356
Corporate commercial paper		—		1,250		1,250
Corporate debt		—		251		251
Total cash equivalents		8,356		1,501		9,857
Short-term investments:
Corporate commercial paper		—		1,199		1,199
Corporate debt		—		11,447		11,447
Total short-term investments		—		12,646		12,646
Restricted cash—money market fund		250		—		250
Total assets measured at fair value	$	8,606	$	14,147	$	22,753

	December 31, 2013
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Direct or Indirect Observable Inputs (Level 2)		Total
Assets
Cash equivalents:
Money market funds	$	8,989	$	—	$	8,989
Corporate debt		—		2,000		2,000
Total cash equivalents		8,989		2,000		10,989
Short-term investments:
Corporate commercial paper		—		1,500		1,500
Foreign government bonds		—		1,001		1,001
Corporate debt		—		4,794		4,794
Total short-term investments		—		7,295		7,295
Restricted cash—money market fund		250		—		250
Total assets measured at fair value	$	9,239	$	9,295	$	18,534

4. Goodwill and Intangible Assets

Goodwill relates to the 2011 acquisition of MPC Data, Ltd. (“MPC”), a United Kingdom based provider of embedded software engineering services. The excess of the acquisition consideration over the fair value of net assets acquired was recorded as goodwill. We operate as a single reporting unit, and MPC falls within that reporting unit. There was no change in the carrying amount of goodwill during the nine months ended September 30, 2014.

Intangible assets relate to customer relationships that we acquired from TestQuest Inc. in 2008 and from the acquisition of MPC in 2011, the vast majority of which relates to the MPC acquisition.

8

Information regarding our intangible assets as of September 30, 2014 and December 31, 2013 is as follows (in thousands):

	September 30, 2014
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
Customer relationships		1,275		(513	)		762

	December 31, 2013
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
Customer relationships		1,275		(412	)		863

Amortization expense was $34,000 and $101,000 for the three and nine months ended September 30, 2014, respectively, and $56,000 and $172,000 for the three and nine months ended September 30, 2013, respectively. Amortization in future periods is expected to be as follows (in thousands):

Remainder of 2014	$	34
2015		135
2016		130
2017		98
2018		98
Thereafter		267
Total	$	762

5. Shareholders’ Equity

Equity Compensation Plans

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

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Dividend yield		0	%		0	%		0	%		0	%
Expected life	3.3 years			4 years			3.3 years			4 years
Expected volatility		57	%		58	%		59	%		62	%
Risk-free interest rate		1.4	%		1.1	%		1.3	%		0.8	%

9

The impact on our results of operations of stock-based compensation expense for the three and nine months ended September 30, 2014 and 2013 was as follows (in thousands, except per share amounts):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Cost of revenue — service	$	69	$	48	$	146	$	184
Selling, general and administrative		144		145		510		456
Research and development		15		27		35		86
Total stock-based compensation expense	$	228	$	220	$	691	$	726
Per diluted share	$	0.02	$	0.02	$	0.06	$	0.07

Stock Option Activity

The following table summarizes stock option activity under the Plans for the nine months ended September 30, 2014:

Stock Options	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Balance at January 1, 2014		1,515,621		$	3.36
Granted		740,458			3.48
Exercised		(374,565	)		2.49
Forfeited		(96,531	)		3.27
Expired		(258,671	)		4.34
Balance at September 30, 2014		1,526,312		$	3.48		6.91	$	954,646
Vested and expected to vest at September 30, 2014		1,407,188		$	3.48		6.73	$	900,866
Exercisable at September 30, 2014		593,423		$	3.50		3.90	$	498,217

At September 30, 2014, total compensation cost related to stock options granted but not yet recognized was $923,055, net of estimated forfeitures. This cost will be amortized on the straight-line method over a weighted-average period of approximately 1.3 years. The following table summarizes certain information about stock options for the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Weighted-average grant-date fair value of option    grants for the period	$	1.74	$	—	$	1.71		1.07
Options in-the-money at period end		425,877		541,000		425,877		541,000
Aggregate intrinsic value of options exercised	$	171,558	$	—	$	412,781	$	1,000

The aggregate intrinsic value represents the difference between the exercise price of the underlying options and the quoted price of our common stock for the number of options that were in-the-money at period end or that were exercised during the period. We issue new shares of common stock upon exercise of stock options.

10

Restricted Stock Unit Activity

The following table summarizes RSU activity for the nine months ended September 30, 2014:

	Number of Shares			Weighted Average Grant Date Fair Value
Unvested at December 31, 2013		187,382		$	4.40
Granted		102,735			3.16
Vested		(132,421	)		3.70
Forfeited		(56,732	)		5.54
Unvested at September 30, 2014		100,964		$	3.43
Expected to vest after September 30, 2014		96,371		$	3.37

At September 30, 2014, total compensation cost related to RSUs granted but not yet recognized was $403,482, net of estimated forfeitures. This cost will be amortized on the straight-line method over a period of approximately 1.1 years. There were no RSAs outstanding as of September 30, 2014 or December 31, 2013.

Common Stock Reserved for Future Issuance

The following table summarizes our shares of common stock reserved for future issuance under the Plans:

	September 30, 2014
Stock options outstanding		1,526,312
Restricted stock units outstanding		100,964
Stock awards available for future grant		706,053
Common stock reserved for future issuance		2,333,329

6. Commitments and Contingencies

Lease and rent obligations

Our commitments include obligations outstanding under operating leases, which expire through 2020. We have lease commitments for office space in Bellevue, Washington; San Diego, California; Boston, Massachusetts; Taipei, Taiwan; Tokyo, Japan; and Trowbridge, UK. We also lease office space on a month-to-month basis in Akron, Ohio.

In August 2013, we amended the lease agreement for our Bellevue, Washington headquarters, which was initially scheduled to expire in August 2014, and extended the lease term to May 2020. The amendment to the headquarters lease provided that no cash lease payments were to be made for a seven-month period from June 1, 2013 to December 31, 2013. In conjunction with the amended lease agreement, the landlord provided lease incentives totaling $1,128,000 for leasehold improvements and furniture related to new space in the same building, which were capitalized and are reflected in the deferred rent liability. We are amortizing these assets over the shorter of their economic life or the lease term. We are recognizing rent expense, including the effect of the deferred rent, on a straight-line basis over the lease term.

Rent expense was $281,000 and $918,000 for the three and nine months ended September 30, 2014, respectively, and $402,000 and $1,156,000 for the three and nine months ended September 30, 2013, respectively.

As of September 30, 2014, we had $250,000 pledged as collateral for a bank letter of credit under the terms of our headquarters facility lease. The pledged cash supporting the outstanding letter of credit is classified as restricted cash.

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Future operating lease commitments are as follows by calendar year (in thousands):

Remainder of 2014	$	301
2015		1,290
2016		1,304
2017		1,200
2018		1,111
2019		1,038
2020		437
Total commitments	$	6,681

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 of these 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. The final outcome of these matters could vary significantly from the amounts included in the accompanying consolidated financial statements.

Volume Pricing Agreements

In conjunction with our activities under our OEM Distribution Agreements (“ODAs”) with Microsoft Corporation (“Microsoft”), as further described in Note 8, we enter into OEM Volume Royalty Pricing (“OVRP”) commitments with Microsoft. Under these OVRPs, we are provided with volume pricing on a customer-by-customer basis assuming certain minimum unit volumes are met. The OVRP terms are 12 months. In the event we don’t meet the committed minimum unit volumes, we are obligated to pay the difference between the committed per-unit volume rate and the actual per-unit rate we achieved based upon actual units purchased. The OVRP arrangements do not equate to a minimum purchase commitment but rather, the arrangements are a volume pricing arrangement based upon actual volume purchased. In substantially all significant instances, we have reciprocal agreements with our customers such that we will receive per-unit price adjustments, similar to the amounts we would subsequently owe to Microsoft if such OVRP volumes are not met. However, in the event a customer is unwilling or unable to pay us, we would be negatively impacted. Based upon the credit-worthiness of our customers, our historical OVRP experience with our customers and OVRP arrangements in general, we do not believe we will incur any material liability relating to active agreements and, therefore, no provision or reserve has been recorded as of September 30, 2014.

7. Information about Geographic Areas

Our chief operating decision-makers (i.e., Chief Executive Officer and certain direct reports) review financial information presented on a consolidated basis, accompanied by disaggregated information for purposes of allocating resources and evaluating financial performance. There are no segment managers who are held accountable by our chief operating decision-makers, or anyone else, for operations, operating results, or planning for levels or components below the consolidated unit level. Accordingly, we consider ourselves to be in a single reporting segment and operating unit structure.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Total revenue:
North America	$	22,456	$	20,875	$	62,955	$	59,714
Asia		830		1,379		3,581		3,129
Europe		1,249		1,318		3,785		3,436
Total revenue	$	24,535	$	23,572	$	70,321	$	66,279

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	September 30, 2014		December 31, 2013
Long-lived assets:
North America	$	1,669	$	678
Asia		365		403
Europe		4,480		4,544
Total long-lived assets	$	6,514	$	5,625

8. Significant Risk Concentrations

Significant Customer

One customer, Future Electronics, Inc., accounted for 18% and 11% of total revenue for the three and nine months ended September 30, 2014, respectively. No other customers accounted for more than 10% of total revenue for the three or nine months ended September 30, 2014 or September 30, 2013.

No customer had an accounts receivable balance which was 10% or more of the total accounts receivable at September 30, 2014. Future Electronics, Inc. had an accounts receivable balance of $3.7 million, or 23% of total accounts receivable, as of December 31, 2013, all of which was subsequently collected, and Mitsubishi Electric Corporation had an accounts receivable balance of $2.8 million, or 18% of total accounts receivable, as of December 31, 2013, all of which was subsequently collected. No other customer accounted for 10% or more of total accounts receivable at December 31, 2013.

Significant Supplier

We have two ODAs with Microsoft which enable us to sell Microsoft Windows Embedded operating systems to our customers in the United States, Canada, Argentina, Brazil, Chile, Columbia, Mexico, Peru, Puerto Rico, the Caribbean, the European Union, the European Free Trade Association, Turkey and Africa, which expire on June 30, 2016. We also have four ODAs with Microsoft which allow us to sell Microsoft Windows Mobile operating systems in the Americas (excluding Cuba), Japan, Taiwan, Europe, the Middle East, and Africa, which expire on June 30, 2015.

Software sales under these agreements constitute a significant portion of our software revenue and total revenue. These agreements are typically renewed bi-annually, annually or semi-annually; however, there is no automatic renewal provision in any of these agreements. Further, these agreements can be terminated unilaterally by Microsoft at any time. Microsoft currently offers a rebate program to sell Microsoft Windows Embedded operating systems pursuant to which we earn money for achieving certain predefined objectives. Prior to the third quarter of 2013, the entire earned rebate amount was treated as a reduction in software cost of sales in the quarter earned. Beginning in the third quarter of 2013, as a result of program modifications, we began treating a portion of the rebate as marketing development funds which are accounted for as a reduction in marketing expense if and when qualified program expenditures are made. Under this rebate program, we recognized $64,000 and $233,000 during the three and nine months ended September 30, 2014, respectively, and $89,000 and $658,000 during the three and nine months ended September 30, 2013, respectively, which was treated as a reduction in cost of sales. Additionally, during the three and nine months ended September 30, 2014, we qualified for $149,000 and $543,000, respectively, in rebate credits which will be accounted for as a reduction in marketing expense if and when qualified program expenditures are made.

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

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our condensed consolidated financial statements and related notes. Some statements and information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are not historical facts but are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, readers can identify forward- looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “forecast,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” or the negative of these terms or other comparable terminology, which when used are meant to signify the statement as forward-looking. These forward-looking statements include, but are not limited to, statements about our plans, objectives, expectations and intentions and other statements that are not historical facts. These forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and situations that are difficult to predict and that may cause our own, or our industry’s actual results, to be materially different from the future results that are expressed or implied by these statements. Accordingly, actual results may differ materially from those anticipated or expressed in such statements as a result of a variety of factors, including those discussed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2013 entitled “Risk Factors,” similar discussions in subsequently filed Quarterly Reports on Form 10-Q, including this Form 10-Q, as applicable, and those contained from time to time in our other filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date made. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

Overview

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

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

Critical Accounting Judgments

Management’s discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales, cost of sales and expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates on an on-going basis. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no significant changes to our critical accounting judgments, policies and estimates as described in our Annual Report on Form 10-K for the year ended December 31, 2013.

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Results of Operations

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(unaudited)						(unaudited)
Revenue:
Software		81	%		78	%		79	%		78	%
Service		19	%		22	%		21	%		22	%
Total revenue		100	%		100	%		100	%		100	%
Cost of revenue:
Software		68	%		68	%		67	%		65	%
Service		16	%		18	%		16	%		19	%
Total cost of revenue		84	%		86	%		83	%		84	%
Gross profit		16	%		14	%		17	%		16	%
Operating expenses:
Selling, general and administrative		12	%		17	%		13	%		18	%
Research and development		1	%		3	%		2	%		3	%
Total operating expenses		13	%		20	%		15	%		21	%
Income (loss) from operations		3	%		(6	)%		2	%		(5	)%
Other income (expense), net		0	%		0	%		(1	)%		0	%
Income (loss) before income taxes		3	%		(6	)%		1	%		(5	)%
Income tax expense		0	%		(9	)%		0	%		(3	)%
Net income (loss)		3	%		(15	)%		1	%		(8	)%

Revenue

Our revenue is generated from the sale of software, primarily third-party software that we resell and our own proprietary software, and the sale of engineering services. Total revenue increased $963,000, or 4%, to $24.5 million for the three months ended September 30, 2014, from $23.6 million in the year-ago period. Total revenue increased $4.0 million, or 6%, to $70.3 million for the nine months ended September 30, 2014, from $66.3 million in the year-ago period. Both of the increases were driven by higher third-party software sales.

Revenue from customers outside of North America decreased $0.6 million, or 23%, to $2.1 million for the three months ended September 30, 2014 compared to $2.7 million in the year-ago period. Revenue from customers outside of North America increased $0.8 million, or 12%, to $7.4 million for the nine months ended September 30, 2014 compared to $6.6 million in the year-ago period. The increase in the nine-month period was primarily driven by higher service revenue in Japan which, in turn, was driven by two large handheld terminal projects. The decrease in the three-month period is due to the timing of engineering services on the Japan projects.

Software revenue

Software revenue consists of sales of third-party software and revenue realized from our own proprietary software products, which include software license sales, royalties from our software products, and support and maintenance revenue. Software revenue for the three and nine months ended September 30, 2014 and 2013 was as follows (dollars in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(unaudited)						(unaudited)
Software revenue:
Third-party software	$	19,217		$	18,004		$	53,877		$	49,749
Proprietary software		551			452			1,754			2,069
Total software revenue	$	19,768		$	18,456		$	55,631		$	51,818
Software revenue as a percentage of total revenue		81	%		78	%		79	%		78	%
Third-party software revenue as a percentage of total    software revenue		97	%		98	%		97	%		96	%

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

Third-party software revenue increased $1.2 million, or 7%, for the three months ended September 30, 2014, from the year-ago period. The improvement was driven by a $2.9 million increase in sales of Windows Mobile operating systems driven by sales to two existing customers and was partially offset by a $1.0 million decrease in Windows Embedded operating system sales that resulted from the timing of sales to existing customers. Third-party software revenue increased $4.1 million, or 8%, for the nine months ended September 30, 2014, compared to the year-ago period. The increase was driven by a $5.5 million increase in Windows Embedded operating system sales, partially offset by a $1.1 million decrease in Adobe Flash sales. Revenue in the nine months ended September 30, 2014 further benefited from a significant sale of Windows Embedded operating systems in the amount of $2.6 million to a single customer in the first quarter of 2014.

Proprietary software revenue increased $99,000, or 22%, to $551,000 for the three months ended September 30, 2014, from $452,000 in the year-ago period, primarily driven by increases in sales of a number of our legacy products.

Proprietary software revenue decreased $315,000, or 15%, for the nine months ended September 30, 2014, compared to the year-ago period, driven primarily by a decline in Texas Instruments OMAP royalty revenue as well as declines in sales of a number of our legacy products.

Service revenue

Service revenue for the three and nine months ended September 30, 2014 and 2013 was as follows (dollars in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(unaudited)						(unaudited)
Service revenue	$	4,767		$	5,116		$	14,690		$	14,461
Service revenue as a percentage of total revenue		19	%		22	%		21	%		22	%

Service revenue decreased $349,000, or 7%, for the three months ended September 30, 2014, from the year-ago period. This decrease was driven by lower revenue associated with the MyFord Touch program. The decrease was partially offset by small increases in service revenue in both the United Kingdom and Asia.

Service revenue increased $229,000, or 2%, for the nine months ended September 30, 2014, compared to the year-ago period. The improvement was driven by a $1.5 million increase in Japan which benefited from two large handheld terminal projects as well as small increases in the United Kingdom and other regions in Asia. During the nine months ended September 30, 2014, we completed one of the projects in Japan which resulted in the recognition of $478,000 in service revenue and gross profit during the three months ended June 30, 2014. Both programs are being accounted for under the zero profit percentage of completion accounting method in which we recognize revenue during the project equal to our cost and recognize the remaining revenue, equal to the gross profit on the program, at completion. There were no such completions in the three months ended September 30, 2014. The increase was offset by a $1.5 million decline in North America service revenue which, in turn, was driven by lower revenue on the MyFord Touch program.

We continued to work on the MyFord Touch program during the three months ended September 30, 2014, a project we began with Ford during the second quarter of 2008 and which has been significant for us since its inception. We now perform these services through agreements with Microsoft and another customer. Service revenue from the MyFord Touch program was $655,000 and $1.2 million for the three months ended September 30, 2014 and 2013, respectively, and $2.1 million and $3.7 million for the nine months ended September 30, 2014 and 2013, respectively. These declines are primarily attributable to a reduction in the number of engineers working on the MyFord Touch project.

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Gross profit and gross margin

Cost of software revenue consists primarily of the cost of third-party software products payable to third-party vendors and support costs associated with our proprietary software products. Cost of service revenue consists primarily of salaries and benefits, contractor costs and re-billable expenses, related facilities and depreciation costs, and amortization of certain intangible assets related to acquisitions. Gross profit on the sale of third-party software products is also positively affected by rebate credits we receive from Microsoft for the sale of Windows Embedded operating systems earned through the achievement of defined objectives. Prior to the third quarter of 2013, the entire earned rebate amount was treated as a reduction of software cost of sales in the quarter earned. Beginning in the third quarter of 2013, as a result of program modifications, we began treating a portion of the rebate as marketing development funds which are accounted for as a reduction of marketing expense if and when qualified program expenditures are made. Under this rebate program, we recognized $64,000 and $233,000, respectively, during the three and nine months ended September 30, 2014 and $89,000 and $658,000, respectively, during the three and nine months ended September 30, 2013, which was treated as a reduction in cost of sales. Additionally, during the three and nine months ended September 30, 2014, we qualified for $149,000 and $543,000, respectively, in rebate credits which will be accounted for as a reduction in marketing expense if and when qualified program expenditures are made.

Gross profit and related gross margin for the three and nine months ended September 30, 2014 and 2013 were as follows (dollars in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(unaudited)						(unaudited)
Software gross profit	$	3,008		$	2,491		$	8,442		$	8,731
Software gross margin		15	%		13	%		15	%		17	%
Service gross profit	$	955		$	878		$	3,321		$	1,778
Service gross margin		20	%		17	%		23	%		12	%
Total gross profit	$	3,963		$	3,369		$	11,763		$	10,509
Total gross margin		16	%		14	%		17	%		16	%

Software gross profit and gross margin

Software gross profit increased by $517,000, or 21%, for the three months ended September 30, 2014, from the year-ago period, and software gross margin increased by 2 percentage points to 15% from the year-ago period. The increases in software gross profit and margin were driven by an increase in proprietary software revenue compared to a relatively fixed cost base as well as increased revenue from Windows Mobile operating systems which are a higher margin product. Third-party software gross margin was 14% for the three months ended September 30, 2014, and 13% for the year-ago period, driven by the increased revenue from proprietary software and Windows Mobile operating systems. Proprietary software gross margin was 74% for the three months ended September 30, 2014, compared to 42% in the year-ago period due to the increased revenue on a relatively fixed cost base.

Software gross profit decreased by $289,000, or 3%, for the nine months ended September 30, 2014, from the year-ago period, and software gross margin decreased by 2 percentage points to 15% from the year-ago period. The decrease in software gross profit was driven by a decrease in proprietary software revenue that has a relatively fixed cost base as well as a shift in product mix to lower margin Microsoft Embedded operating systems. Third-party software margin was 13% and 15% for the nine months ended September 30, 2014 and 2013, respectively, with the decline driven by the shift in products to lower margin Microsoft Embedded operating systems. Proprietary software margin was 72% for the nine months ended September 30, 2014, compared to 68% in the year-ago period.

Service gross profit and gross margin

Service gross profit increased by $77,000, or 9%, for the three months ended September 30, 2014, from the year-ago period. Service gross margin increased by 3 percentage points to 20% for the three months ended September 30, 2014, compared to the year-ago period. The increase in service gross profit was driven by a decline in cost of sales made possible by improvement in utilization that resulted largely from headcount reductions that occurred in the fourth quarter of 2013. The gross margin improvement resulted from an increase in our realized rate per hour.

Service gross profit increased $1.5 million, or 87%, for the nine months ended September 30, 2014, from $1.8 million in the year-ago period driven by the same factors that accounted for the three-month increase as well as the impact of recognizing the $478,000 of gross profit on the previously mentioned service project completed in Japan in the second quarter of 2014. Service gross margin increased 11 percentage points to 23% for the nine months ended September 30, 2014, compared to the year-ago period. The margin improvement was driven by a decline in our cost per billable hour resulting from utilization improvement, offset in part by a decline in our realized rate per hour.

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Operating expenses

Selling, general and administrative

Selling, general and administrative expenses consist primarily of salaries and related benefits, commissions for our sales teams, marketing and administrative personnel and related facilities and depreciation costs, as well as professional services fees (e.g., consulting, legal, tax and audit). Selling, general and administrative expenses decreased $1.1 million, or 27%, to $2.9 million for the three months ended September 30, 2014, from $4.0 million in the year-ago period. The decrease was driven primarily by lower headcount-related costs resulting from restructuring and other reductions as well as decreased facilities and travel expenses. Selling, general and administrative expenses represented 12% of our total revenue for the three months ended September 30, 2014 and 17% in the year-ago period.

Selling, general and administrative expenses decreased $2.0 million, or 18%, to $9.4 million for the nine months ended September 30, 2014, from $11.4 million in the year-ago period. The decrease was due to the same factors accounting for the decrease for the three-month period. Selling, general and administrative expenses represented 13% of our total revenue for the nine months ended September 30, 2014 and 18% for the year-ago period.

Research and development

Research and development expenses consist primarily of salaries and benefits for software development and quality assurance personnel, contractor and consultant costs and related facilities and depreciation costs. Research and development expenses decreased $444,000, or 55%, to $360,000 for the three months ended September 30, 2014, from $804,000 in the year-ago period due primarily to headcount and other expense reductions that took place in the fourth quarter of 2013. Research and development expenses represented 1% of our total revenue for the three months ended September 30, 2014 and 3% in the year-ago period.

Research and development expenses decreased $1.0 million, or 45%, to $1.2 million for the nine months ended September 30, 2014, from $2.2 million in the year-ago period. This decrease was driven by the same factors that accounted for the three-month decrease. Research and development expenses represented 2% of our total revenue for the nine months ended September 30, 2014 and 3% for the year-ago period.

Other income (expense), net

Other income or expense consists of interest income on our cash, cash equivalents and investments, gains and/or losses recognized on our investments, as well as gains or losses on foreign exchange transactions. Other expense increased $1,000 to $16,000 for the three months ended September 30, 2014, compared to the year-ago period, due to foreign currency transaction losses.

Other expense was $118,000 for the nine months ended September 30, 2014, compared to other income of $100,000 for the year-ago period, also as a result of net foreign currency transaction losses and gains, respectively.

Income tax expense

Income tax expense was $16,000 for the three months ended September 30, 2014, compared to $2.2 million in the year-ago period, a decrease of $2.1 million.In the third quarter of 2013, we determined that it was not more likely than not that we would generate sufficient future taxable income to utilize the US deferred tax assets. As a result, we recorded a valuation allowance of $2.2 million at that time with a resulting charge to income tax expense. Deferred tax assets relative to our foreign jurisdictions were already subject to a full valuation allowance.

Income tax expense decreased $2.1 million to $0.1 million for the nine months ended September 30, 2014, compared to $2.2 million in the year-ago period due to the same factors that accounted for the three-month change.

The effective tax rates for the three and nine months ended September 30, 2014 of 2% and 12%, respectively, werelower than the U.S. statutory rate of 34% because of net operating losses available to offset current year taxable income and a full valuationallowance on deferred tax assets. The effective tax rates for the three and nine months ended September 30, 2013 of 153% and 73%, respectively, were higher than the U.S. statutory rate of 34% primarily due to a $2.2 million charge recorded to increase the valuation allowance on deferred tax assets.

Liquidity and Capital Resources

As of September 30, 2014, we had $25.5 million of cash, cash equivalents, short-term and long-term investments and restricted cash, compared to $21.1 million at December 31, 2013.

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Net cash provided by operating activities was $4.1 million for the nine months ended September 30, 2014, driven primarily by net income, positive net working capital changes and non-cash charges. Net cash provided by operating activities was $1.2 million for the nine months ended September 30, 2013, driven by positive net working capital changes and non-cash charges, which were offset in part by our $5.2 million net loss for such period.

Investing activities used cash of $5.6 million for the nine months ended September 30, 2014, due to a net increase in short-term investments of $5.3 million and capital expenditures of $276,000. Investing activities provided cash of $2.2 million for the nine months ended September 30, 2013 due to a $1.8 million reduction in short-term investments and a $625,000 reduction in restricted cash as a result of amending our headquarters lease, offset by capital expenditures of $216,000.

Financing activities generated $595,000 during the nine months ended September 30, 2014, and $12,000 during the nine months ended September 30, 2013, as a result of employees’ exercise of stock options.

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

Cash Commitments

We have the following future or potential cash commitments:

— Minimum rents payable under operating leases total $301,000 for the remainder of 2014, $1.3 million in 2015 and 2016, $1.2 million in 2017, $1.1 million in 2018, $1.0 million in 2019 and $0.4 million thereafter; and

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

Recently Issued Accounting Standards

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

Item  3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Acting Principal 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 Acting Principal 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 Acting Principal 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 controls over financial reporting during the three months ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item  1A. 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, 2013, and in Part II, Item 1A, “Risk Factors” in our Quarterly Reports on Forms 10-Q for the periods ended March 31 and June 30, 2014.

Item 5. Other Information

Our Board of Directors has authorized Jerry D. Chase, our President and Chief Executive Officer, to also serve as our “Acting Principal Financial Officer” solely in connection with the review, execution and certification of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2014.

Item 6. Exhibits

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

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SIGNATURES

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

	BSQUARE CORPORATION (Registrant)
Date: November 13, 2014	By:	/s/ JERRY D. CHASE
		Jerry D. Chase
		President, Chief Executive Officer and Acting Principal Financial Officer

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BSQUARE CORPORATION

INDEX TO EXHIBITS

Exhibit		Filed or Furnished	Incorporated by Reference
Number	Description	Herewith	Form		Filing Date	Exhibit			File No.
3.1	Amended and Restated Articles of Incorporation			S-1	8/17/1999		3.1	(a)		333-85351
3.1(a)	Articles of Amendment to Amended and Restated Articles of Incorporation			10-Q	8/7/2000		3.1			000-27687
3.1(b)	Articles of Amendment to Amended and Restated Articles of Incorporation			8-K	10/11/2005		3.1			000-27687
3.2	Bylaws and all amendments thereto			10-K	3/19/2003		3.2			000-27687
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934	X
31.2	Certification of  Acting Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934	X
32.1	Certification of Chief Executive Officer and Acting Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X
101.INS	XBRL Instance Document	X
101.SCH	XBRL Taxonomy Extension Schema	X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase	X
101.DEF	XBRL Taxonomy Extension Definition Linkbase	X
101.LAB	XBRL Taxonomy Extension Label Linkbase	X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase	X

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EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

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

I, Jerry D. Chase, certify that:

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

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

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

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

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

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

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

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

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

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

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

Dated: November 13, 2014	/s/ Jerry D. Chase
	Jerry D. Chase President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF ACTING PRINCIPAL FINANCIAL OFFICER PURSUANT TO

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

I, Jerry D. Chase, certify that:

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

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

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

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

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

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

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

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

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

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

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

Dated: November 13, 2014	/s/ Jerry D. Chase
	Jerry D. Chase Acting Principal Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND ACTING PRINCIPAL 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, Jerry D. Chase, President, Chief Executive Officer and Acting Principal Financial Officer, certify that:

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

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

Dated: November 13, 2014	/s/ Jerry D. Chase
	Jerry D. Chase
	President, Chief Executive Officer and Acting Principal Financial Officer

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Shareholders' Equity - Summary of Shares of Common Stock Reserved for Future Issuance under Plans (Detail)	Sep. 30, 2014	Dec. 31, 2013
Common Stock Number Of Shares Par Value And Other Disclosures [Abstract]
Stock options outstanding	1,526,312	1,515,621
Restricted stock units outstanding	100,964
Stock awards available for future grant	706,053
Common stock reserved for future issuance	2,333,329

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Goodwill and Intangible Assets - Summary of Acquisition-Related Intangible Assets (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Acquired Finite-Lived Intangible Assets [Line Items]
Net Carrying Value	$ 762	$ 863
Customer relationships [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	1,275	1,275
Accumulated Amortization	(513)	(412)
Net Carrying Value	$ 762	$ 863

XML

Information about Geographic Areas - Revenue and Long-Lived Assets by Geographic Area (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Total revenue:
Total revenue	$ 24,535	$ 23,572	$ 70,321	$ 66,279
Long-lived assets:
Total long-lived assets	6,514		6,514		5,625
North America [Member]
Total revenue:
Total revenue	22,456	20,875	62,955	59,714
Long-lived assets:
Total long-lived assets	1,669		1,669		678
Asia [Member]
Total revenue:
Total revenue	830	1,379	3,581	3,129
Long-lived assets:
Total long-lived assets	365		365		403
Europe [Member]
Total revenue:
Total revenue	1,249	1,318	3,785	3,436
Long-lived assets:
Total long-lived assets	$ 4,480		$ 4,480		$ 4,544

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Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2014

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

4. Goodwill and Intangible Assets

Goodwill relates to the 2011 acquisition of MPC Data, Ltd. (“MPC”), a United Kingdom based provider of embedded software engineering services. The excess of the acquisition consideration over the fair value of net assets acquired was recorded as goodwill. We operate as a single reporting unit, and MPC falls within that reporting unit. There was no change in the carrying amount of goodwill during the nine months ended September 30, 2014.

Intangible assets relate to customer relationships that we acquired from TestQuest Inc. in 2008 and from the acquisition of MPC in 2011, the vast majority of which relates to the MPC acquisition.

Information regarding our intangible assets as of September 30, 2014 and December 31, 2013 is as follows (in thousands):

	September 30, 2014
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
Customer relationships		1,275		(513	)		762

	December 31, 2013
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
Customer relationships		1,275		(412	)		863

Amortization expense was $34,000 and $101,000 for the three and nine months ended September 30, 2014, respectively, and $56,000 and $172,000 for the three and nine months ended September 30, 2013, respectively. Amortization in future periods is expected to be as follows (in thousands):

Remainder of 2014	$	34
2015		135
2016		130
2017		98
2018		98
Thereafter		267
Total	$	762

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Shareholders' Equity - Stock-Based Compensation Expense (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense	$ 228	$ 220	$ 691	$ 726
Per diluted share	$ 0.02	$ 0.02	$ 0.06	$ 0.07
Cost of revenue- service [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense	69	48	146	184
Selling, general and administrative [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense	144	145	510	456
Research and development [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense	$ 15	$ 27	$ 35	$ 86

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Shareholders' Equity - Fair Values of Stock Option Grants Estimated with Weighted Average Assumptions (Detail)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Share Based Compensation Arrangement By Share Based Payment Award Fair Value Assumptions And Methodology [Abstract]
Dividend yield	0.00%	0.00%	0.00%	0.00%
Expected life	3 years 3 months 18 days	4 years	3 years 3 months 18 days	4 years
Expected volatility	57.00%	58.00%	59.00%	62.00%
Risk-free interest rate	1.40%	1.10%	1.30%	0.80%

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Shareholders' Equity - Summary of Stock Option Activity (Detail) (USD $)	9 Months Ended
	Sep. 30, 2014
Share Based Compensation Arrangement By Share Based Payment Award Options Outstanding Roll Forward
Number of Shares, Beginning Balance	1,515,621
Granted, Number of Shares	740,458
Exercised, Number of Shares	(374,565)
Forfeited, Number of Shares	(96,531)
Expired, Number of Shares	(258,671)
Number of Shares, Ending Balance	1,526,312
Vested and expected to vest, Number of Shares, Ending Balance	1,407,188
Exercisable, Number of Shares, Ending Balance	593,423
Weighted Average Exercise Price, Beginning Balance	$ 3.36
Granted, Weighted Average Exercise Price	$ 3.48
Exercised, Weighted Average Exercise Price	$ 2.49
Forfeited, Weighted Average Exercise Price	$ 3.27
Expired, Weighted Average Exercise Price	$ 4.34
Weighted Average Exercise Price, Ending Balance	$ 3.48
Vested and expected to vest, Weighted Average Exercise Price, Ending Balance	$ 3.48
Exercisable, Weighted Average Exercise Price, Ending Balance	$ 3.50
Weighted Average Remaining Contractual Life (in years)	6 years 10 months 28 days
Vested and expected to vest, Weighted Average Remaining Contractual Life (in years)	6 years 8 months 23 days
Exercisable, Weighted Average Remaining Contractual Life (in years)	3 years 10 months 24 days
Aggregate Intrinsic Value	$ 954,646
Vested and expected to vest, Aggregate Intrinsic Value	900,866
Exercisable, Aggregate Intrinsic Value	$ 498,217

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Shareholders' Equity - Summary of Certain Information about Stock Options (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Weighted-average grant-date fair value of option grants for the period	$ 1.74		$ 1.71	$ 1.07
Options in-the-money at period end	425,877	541,000	425,877	541,000
Aggregate intrinsic value of options exercised	$ 171,558		$ 412,781	$ 1,000

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Fair Value Measurements

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

3. Fair Value Measurements

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

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Directly or indirectly observable market-based inputs or unobservable inputs used in models or other valuation methodologies.

Level 3: Unobservable inputs that are not corroborated by market data. The inputs require significant management judgment or estimation.

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

Assets and liabilities measured at fair value on a recurring basis as of September 30, 2014 and December 31, 2013 are summarized below (in thousands):

	September 30, 2014
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Direct or Indirect Observable Inputs (Level 2)		Total
Assets
Cash equivalents:
Money market funds	$	8,356	$	—	$	8,356
Corporate commercial paper		—		1,250		1,250
Corporate debt		—		251		251
Total cash equivalents		8,356		1,501		9,857
Short-term investments:
Corporate commercial paper		—		1,199		1,199
Corporate debt		—		11,447		11,447
Total short-term investments		—		12,646		12,646
Restricted cash—money market fund		250		—		250
Total assets measured at fair value	$	8,606	$	14,147	$	22,753

	December 31, 2013
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Direct or Indirect Observable Inputs (Level 2)		Total
Assets
Cash equivalents:
Money market funds	$	8,989	$	—	$	8,989
Corporate debt		—		2,000		2,000
Total cash equivalents		8,989		2,000		10,989
Short-term investments:
Corporate commercial paper		—		1,500		1,500
Foreign government bonds		—		1,001		1,001
Corporate debt		—		4,794		4,794
Total short-term investments		—		7,295		7,295
Restricted cash—money market fund		250		—		250
Total assets measured at fair value	$	9,239	$	9,295	$	18,534

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Shareholders' Equity - Summary of Restricted Stock Unit Activity (Detail) (USD $)	9 Months Ended
	Sep. 30, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unvested, Number of Shares, Ending Balance	100,964
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unvested, Number of Shares, Beginning Balance	187,382
Granted, Number of Shares	102,735
Vested, Number of Shares	(132,421)
Forfeited, Number of Shares	(56,732)
Unvested, Number of Shares, Ending Balance	100,964
Expected to vest, Number of Shares, Ending Balance	96,371
Unvested, Weighted Average Grant Date Fair Value, Beginning Balance	$ 4.40
Granted, Weighted Average Grant Date Fair Value	$ 3.16
Vested, Weighted Average Grant Date Fair Value	$ 3.70
Forfeited, Weighted Average Grant Date Fair Value	$ 5.54
Unvested, Weighted Average Grant Date Fair Value, Ending Balance	$ 3.43
Expected to vest, Weighted Average Grant Date Fair Value, Ending Balance	$ 3.37

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Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 12,575	$ 13,510
Short-term investments	12,646	7,295
Accounts receivable, net of allowance for doubtful accounts of $214 at September 30, 2014 and December 31, 2013	11,749	15,893
Prepaid expenses and other current assets	457	2,325
Total current assets	37,427	39,023
Equipment, furniture and leasehold improvements, net	1,405	411
Restricted cash	250	250
Deferred income taxes	304	304
Intangible assets, net	762	863
Goodwill	3,738	3,738
Other non-current assets	56	59
Total assets	43,942	44,648
Current liabilities:
Third-party software fees payable	9,941	12,746
Accounts payable	171	634
Accrued compensation	1,843	2,383
Other accrued expenses	1,607	1,249
Deferred revenue	1,504	2,177
Total current liabilities	15,066	19,189
Deferred income taxes	144	144
Deferred rent	1,792	644
Shareholders’ equity:
Preferred stock, no par value: 10,000,000 shares authorized; no shares issued and outstanding
Common stock, no par value: 37,500,000 shares authorized; 11,722,591 shares issued and outstanding at September 30, 2014 and 11,294,682 shares issued and outstanding at December 31, 2013	130,709	129,423
Accumulated other comprehensive loss	(725)	(759)
Accumulated deficit	(103,044)	(103,993)
Total shareholders’ equity	26,940	24,671
Total liabilities and shareholders’ equity	$ 43,942	$ 44,648

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2014

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of BSQUARE Corporation (“BSQUARE”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting and include the accounts of BSQUARE and our wholly owned subsidiaries. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In our opinion, the unaudited condensed consolidated financial statements include all material adjustments, all of which are of a normal and recurring nature, necessary to present fairly our financial position as of September 30, 2014 and our operating results and cash flows for the three and nine months ended September 30, 2014 and 2013. The accompanying financial information as of December 31, 2013 is derived from audited financial statements. Preparing financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Examples include provisions for bad debts and income taxes, estimates of progress on professional engineering service arrangements and bonus accruals. Actual results may differ from these estimates. Interim results are not necessarily indicative of results for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2013. All intercompany balances have been eliminated.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”, amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The guidance is effective for annual and interim reporting periods beginning after December 15, 2016, with early adoption prohibited. We are currently evaluating the impact this ASU will have on our consolidated financial statements.

In August 2014 the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, requiring management to evaluate whether there is a substantial doubt about an entity’s ability to continue as a going concern and to provide related disclosures in the notes to the financial statements. The new guidance reduces diversity in the timing and content of disclosures from current guidance, and is effective for annual and interim reporting periods beginning after December 15, 2015 with early adoption permitted. We do not expect the adoption of this guidance to have a material effect on our consolidated financial statements.

Income (Loss) Per Share

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

We excluded an aggregate of 882,490 and 868,767options and RSUs for the three and nine months ended September 30, 2014, respectively, from diluted earnings per share because their effect was anti-dilutive. We excluded an aggregate of 940,812 and 837,812  options and RSUs for the three and nine months ended September 30, 2013, respectively, from diluted earnings per share because their effect was anti-dilutive. In a period where we are in a net loss position, diluted loss per share is computed using the basic share count.

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Commitments and Contingencies - Future Operating Lease Commitments (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014
Leases [Abstract]
Remainder of 2014	$ 301
2015	1,290
2016	1,304
2017	1,200
2018	1,111
2019	1,038
2020	437
Total commitments	$ 6,681

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Cash and Investments - Cash, Cash Equivalents, Short-Term Investments, and Restricted Cash (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013	Sep. 30, 2013	Dec. 31, 2012
Investment Holdings [Line Items]
Cash	$ 2,718	$ 2,521
Cash equivalents:
Total cash equivalents	9,857	10,989
Total cash and cash equivalents	12,575	13,510	13,236	9,903
Short-term investments:
Total short-term investments	12,646	7,295
Restricted cash—money market fund	250	250
Total cash, cash equivalents, investments and restricted cash	25,471	21,055
Corporate commercial paper [Member]
Cash equivalents:
Total cash equivalents	1,250
Short-term investments:
Total short-term investments	1,199	1,500
Corporate debt securities [Member]
Cash equivalents:
Total cash equivalents	251	2,000
Short-term investments:
Total short-term investments	11,447	4,794
Foreign government bonds [Member]
Short-term investments:
Total short-term investments		1,001
Money market funds [Member]
Cash equivalents:
Total cash equivalents	$ 8,356	$ 8,989

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Information about Geographic Areas - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2014 Segment
Segment Reporting [Abstract]
Number of reportable segment	1
Number of operating segment	1

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Goodwill and Intangible Assets - Additional Information (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Goodwill And Intangible Assets Disclosure [Abstract]
Change in carrying amount of goodwill			$ 0
Amortization expense	$ 34,000	$ 56,000	$ 101,000	$ 172,000

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Cash and Investments

9 Months Ended

Sep. 30, 2014

Cash And Cash Equivalents [Abstract]

Cash and Investments

2. Cash and Investments

Cash, cash equivalents, short-term investments, and restricted cash consisted of the following at September 30, 2014 and December 31, 2013 (in thousands):

	September 30, 2014		December 31, 2013
Cash	$	2,718	$	2,521
Cash equivalents:
Money market funds		8,356		8,989
Corporate commercial paper		1,250		—
Corporate debt securities		251		2,000
Total cash equivalents		9,857		10,989
Total cash and cash equivalents		12,575		13,510
Short-term investments:
Corporate commercial paper		1,199		1,500
Foreign government bonds		—		1,001
Corporate debt securities		11,447		4,794
Total short-term investments		12,646		7,295
Restricted cash—money market fund		250		250
Total cash, cash equivalents, investments and    restricted cash	$	25,471	$	21,055

Gross unrealized gains and losses on our short-term investments were not material as of September 30, 2014 and December 31, 2013. Our restricted cash balance at September 30, 2014 and December 31, 2013 relates to a letter of credit which secures our corporate headquarters lease.

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Statement Of Financial Position [Abstract]
Allowance for doubtful accounts receivable	$ 214	$ 214
Preferred stock, par value
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value
Common stock, shares authorized	37,500,000	37,500,000
Common stock, shares issued	11,722,591	11,294,682
Common stock, shares outstanding	11,722,591	11,294,682

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Goodwill and Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2014

Goodwill And Intangible Assets Disclosure [Abstract]

Summary of Acquisition-Related Intangible Assets

Information regarding our intangible assets as of September 30, 2014 and December 31, 2013 is as follows (in thousands):

	September 30, 2014
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
Customer relationships		1,275		(513	)		762

	December 31, 2013
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
Customer relationships		1,275		(412	)		863

Expected Amortization Expense for Future Period

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

Remainder of 2014	$	34
2015		135
2016		130
2017		98
2018		98
Thereafter		267
Total	$	762

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Document and Entity Information	9 Months Ended
	Sep. 30, 2014	Oct. 31, 2014
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3
Trading Symbol	BSQR
Entity Registrant Name	BSQUARE CORP /WA
Entity Central Index Key	0001054721
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		11,725,716

XML

Shareholders' Equity (Tables)

9 Months Ended

Sep. 30, 2014

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Fair Values of Stock Option Grants Estimated with Weighted Average Assumptions

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Dividend yield		0	%		0	%		0	%		0	%
Expected life	3.3 years			4 years			3.3 years			4 years
Expected volatility		57	%		58	%		59	%		62	%
Risk-free interest rate		1.4	%		1.1	%		1.3	%		0.8	%

Stock-Based Compensation Expense

The impact on our results of operations of stock-based compensation expense for the three and nine months ended September 30, 2014 and 2013 was as follows (in thousands, except per share amounts):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Cost of revenue — service	$	69	$	48	$	146	$	184
Selling, general and administrative		144		145		510		456
Research and development		15		27		35		86
Total stock-based compensation expense	$	228	$	220	$	691	$	726
Per diluted share	$	0.02	$	0.02	$	0.06	$	0.07

Summary of Stock Option Activity

The following table summarizes stock option activity under the Plans for the nine months ended September 30, 2014:

Stock Options	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Balance at January 1, 2014		1,515,621		$	3.36
Granted		740,458			3.48
Exercised		(374,565	)		2.49
Forfeited		(96,531	)		3.27
Expired		(258,671	)		4.34
Balance at September 30, 2014		1,526,312		$	3.48		6.91	$	954,646
Vested and expected to vest at September 30, 2014		1,407,188		$	3.48		6.73	$	900,866
Exercisable at September 30, 2014		593,423		$	3.50		3.90	$	498,217

Summary of Certain Information about Stock Options

The following table summarizes certain information about stock options for the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Weighted-average grant-date fair value of option    grants for the period	$	1.74	$	—	$	1.71		1.07
Options in-the-money at period end		425,877		541,000		425,877		541,000
Aggregate intrinsic value of options exercised	$	171,558	$	—	$	412,781	$	1,000

Summary of Restricted Stock Unit Activity

The following table summarizes RSU activity for the nine months ended September 30, 2014:

	Number of Shares			Weighted Average Grant Date Fair Value
Unvested at December 31, 2013		187,382		$	4.40
Granted		102,735			3.16
Vested		(132,421	)		3.70
Forfeited		(56,732	)		5.54
Unvested at September 30, 2014		100,964		$	3.43
Expected to vest after September 30, 2014		96,371		$	3.37

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

The following table summarizes our shares of common stock reserved for future issuance under the Plans:

	September 30, 2014
Stock options outstanding		1,526,312
Restricted stock units outstanding		100,964
Stock awards available for future grant		706,053
Common stock reserved for future issuance		2,333,329

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Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Revenue:
Software	$ 19,768	$ 18,456	$ 55,631	$ 51,818
Service	4,767	5,116	14,690	14,461
Total revenue	24,535	23,572	70,321	66,279
Cost of revenue:
Software	16,760	15,965	47,189	43,087
Service	3,812	4,238	11,369	12,683
Total cost of revenue	20,572	20,203	58,558	55,770
Gross profit	3,963	3,369	11,763	10,509
Operating expenses:
Selling, general and administrative	2,880	3,960	9,352	11,432
Research and development	360	804	1,215	2,205
Total operating expenses	3,240	4,764	10,567	13,637
Income (loss) from operations	723	(1,395)	1,196	(3,128)
Other income (expense), net	(16)	(15)	(118)	100
Income (loss) before income taxes	707	(1,410)	1,078	(3,028)
Income tax expense	(16)	(2,157)	(129)	(2,206)
Net income (loss)	691	(3,567)	949	(5,234)
Basic income (loss) per share	$ 0.06	$ (0.32)	$ 0.08	$ (0.47)
Diluted income (loss) per share	$ 0.06	$ (0.32)	$ 0.08	$ (0.47)
Shares used in calculation of income (loss) per share:
Basic	11,655	11,194	11,520	11,150
Diluted	11,832	11,194	11,732	11,150
Comprehensive income (loss):
Net income (loss)	691	(3,567)	949	(5,234)
Other comprehensive income (expense):
Foreign currency translation, net of tax	(97)	56	34	(35)
Change in unrealized gains on investments, net of tax		1		(2)
Total other comprehensive income (expense)	(97)	57	34	(37)
Comprehensive income (loss)	$ 594	$ (3,510)	$ 983	$ (5,271)

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Information about Geographic Areas

9 Months Ended

Sep. 30, 2014

Segment Reporting [Abstract]

Information about Geographic Areas

7. Information about Geographic Areas

Our chief operating decision-makers (i.e., Chief Executive Officer and certain direct reports) review financial information presented on a consolidated basis, accompanied by disaggregated information for purposes of allocating resources and evaluating financial performance. There are no segment managers who are held accountable by our chief operating decision-makers, or anyone else, for operations, operating results, or planning for levels or components below the consolidated unit level. Accordingly, we consider ourselves to be in a single reporting segment and operating unit structure.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Total revenue:
North America	$	22,456	$	20,875	$	62,955	$	59,714
Asia		830		1,379		3,581		3,129
Europe		1,249		1,318		3,785		3,436
Total revenue	$	24,535	$	23,572	$	70,321	$	66,279

	September 30, 2014		December 31, 2013
Long-lived assets:
North America	$	1,669	$	678
Asia		365		403
Europe		4,480		4,544
Total long-lived assets	$	6,514	$	5,625

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2014

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

6. Commitments and Contingencies

Lease and rent obligations

Our commitments include obligations outstanding under operating leases, which expire through 2020. We have lease commitments for office space in Bellevue, Washington; San Diego, California; Boston, Massachusetts; Taipei, Taiwan; Tokyo, Japan; and Trowbridge, UK. We also lease office space on a month-to-month basis in Akron, Ohio.

In August 2013, we amended the lease agreement for our Bellevue, Washington headquarters, which was initially scheduled to expire in August 2014, and extended the lease term to May 2020. The amendment to the headquarters lease provided that no cash lease payments were to be made for a seven-month period from June 1, 2013 to December 31, 2013. In conjunction with the amended lease agreement, the landlord provided lease incentives totaling $1,128,000 for leasehold improvements and furniture related to new space in the same building, which were capitalized and are reflected in the deferred rent liability. We are amortizing these assets over the shorter of their economic life or the lease term. We are recognizing rent expense, including the effect of the deferred rent, on a straight-line basis over the lease term.

Rent expense was $281,000 and $918,000 for the three and nine months ended September 30, 2014, respectively, and $402,000 and $1,156,000 for the three and nine months ended September 30, 2013, respectively.

As of September 30, 2014, we had $250,000 pledged as collateral for a bank letter of credit under the terms of our headquarters facility lease. The pledged cash supporting the outstanding letter of credit is classified as restricted cash.

Future operating lease commitments are as follows by calendar year (in thousands):

Remainder of 2014	$	301
2015		1,290
2016		1,304
2017		1,200
2018		1,111
2019		1,038
2020		437
Total commitments	$	6,681

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 of these 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. The final outcome of these matters could vary significantly from the amounts included in the accompanying consolidated financial statements.

Volume Pricing Agreements

In conjunction with our activities under our OEM Distribution Agreements (“ODAs”) with Microsoft Corporation (“Microsoft”), as further described in Note 8, we enter into OEM Volume Royalty Pricing (“OVRP”) commitments with Microsoft. Under these OVRPs, we are provided with volume pricing on a customer-by-customer basis assuming certain minimum unit volumes are met. The OVRP terms are 12 months. In the event we don’t meet the committed minimum unit volumes, we are obligated to pay the difference between the committed per-unit volume rate and the actual per-unit rate we achieved based upon actual units purchased. The OVRP arrangements do not equate to a minimum purchase commitment but rather, the arrangements are a volume pricing arrangement based upon actual volume purchased. In substantially all significant instances, we have reciprocal agreements with our customers such that we will receive per-unit price adjustments, similar to the amounts we would subsequently owe to Microsoft if such OVRP volumes are not met. However, in the event a customer is unwilling or unable to pay us, we would be negatively impacted. Based upon the credit-worthiness of our customers, our historical OVRP experience with our customers and OVRP arrangements in general, we do not believe we will incur any material liability relating to active agreements and, therefore, no provision or reserve has been recorded as of September 30, 2014.

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Fair Value Measurements - Assets and Liabilities Measured at Fair Value on Recurring Basis (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Short-term investments:
Total short-term investments	$ 12,646	$ 7,295
Restricted cash—money market fund	250	250
Recurring basis [Member]
Cash equivalents:
Total cash equivalents	9,857	10,989
Short-term investments:
Total short-term investments	12,646	7,295
Restricted cash—money market fund	250	250
Total assets measured at fair value	22,753	18,534
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Recurring basis [Member]
Cash equivalents:
Total cash equivalents	8,356	8,989
Short-term investments:
Restricted cash—money market fund	250	250
Total assets measured at fair value	8,606	9,239
Direct or Indirect Observable Inputs (Level 2) [Member] | Recurring basis [Member]
Cash equivalents:
Total cash equivalents	1,501	2,000
Short-term investments:
Total short-term investments	12,646	7,295
Total assets measured at fair value	14,147	9,295
Corporate commercial paper [Member]
Short-term investments:
Total short-term investments	1,199	1,500
Corporate commercial paper [Member] | Recurring basis [Member]
Cash equivalents:
Total cash equivalents	1,250
Short-term investments:
Total short-term investments	1,199	1,500
Corporate commercial paper [Member] | Direct or Indirect Observable Inputs (Level 2) [Member] | Recurring basis [Member]
Cash equivalents:
Total cash equivalents	1,250
Short-term investments:
Total short-term investments	1,199	1,500
Corporate debt securities [Member]
Short-term investments:
Total short-term investments	11,447	4,794
Corporate debt securities [Member] | Recurring basis [Member]
Cash equivalents:
Total cash equivalents	251	2,000
Short-term investments:
Total short-term investments	11,447	4,794
Corporate debt securities [Member] | Direct or Indirect Observable Inputs (Level 2) [Member] | Recurring basis [Member]
Cash equivalents:
Total cash equivalents	251	2,000
Short-term investments:
Total short-term investments	11,447	4,794
Foreign government bonds [Member]
Short-term investments:
Total short-term investments		1,001
Foreign government bonds [Member] | Recurring basis [Member]
Short-term investments:
Total short-term investments		1,001
Foreign government bonds [Member] | Direct or Indirect Observable Inputs (Level 2) [Member] | Recurring basis [Member]
Short-term investments:
Total short-term investments		1,001
Money market funds [Member] | Recurring basis [Member]
Cash equivalents:
Total cash equivalents	8,356	8,989
Money market funds [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Recurring basis [Member]
Cash equivalents:
Total cash equivalents	$ 8,356	$ 8,989

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Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2014

Commitments And Contingencies Disclosure [Abstract]

Future Operating Lease Commitments

Future operating lease commitments are as follows by calendar year (in thousands):

Remainder of 2014	$	301
2015		1,290
2016		1,304
2017		1,200
2018		1,111
2019		1,038
2020		437
Total commitments	$	6,681

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Cash and Investments (Tables)

9 Months Ended

Sep. 30, 2014

Cash And Cash Equivalents [Abstract]

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

Cash, cash equivalents, short-term investments, and restricted cash consisted of the following at September 30, 2014 and December 31, 2013 (in thousands):

	September 30, 2014		December 31, 2013
Cash	$	2,718	$	2,521
Cash equivalents:
Money market funds		8,356		8,989
Corporate commercial paper		1,250		—
Corporate debt securities		251		2,000
Total cash equivalents		9,857		10,989
Total cash and cash equivalents		12,575		13,510
Short-term investments:
Corporate commercial paper		1,199		1,500
Foreign government bonds		—		1,001
Corporate debt securities		11,447		4,794
Total short-term investments		12,646		7,295
Restricted cash—money market fund		250		250
Total cash, cash equivalents, investments and    restricted cash	$	25,471	$	21,055

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Significant Risk Concentrations

9 Months Ended

Sep. 30, 2014

Risks And Uncertainties [Abstract]

Significant Risk Concentrations

8. Significant Risk Concentrations

Significant Customer

One customer, Future Electronics, Inc., accounted for 18% and 11% of total revenue for the three and nine months ended September 30, 2014, respectively. No other customers accounted for more than 10% of total revenue for the three or nine months ended September 30, 2014 or September 30, 2013.

No customer had an accounts receivable balance which was 10% or more of the total accounts receivable at September 30, 2014. Future Electronics, Inc. had an accounts receivable balance of $3.7 million, or 23% of total accounts receivable, as of December 31, 2013, all of which was subsequently collected, and Mitsubishi Electric Corporation had an accounts receivable balance of $2.8 million, or 18% of total accounts receivable, as of December 31, 2013, all of which was subsequently collected. No other customer accounted for 10% or more of total accounts receivable at December 31, 2013.

Significant Supplier

We have two ODAs with Microsoft which enable us to sell Microsoft Windows Embedded operating systems to our customers in the United States, Canada, Argentina, Brazil, Chile, Columbia, Mexico, Peru, Puerto Rico, the Caribbean, the European Union, the European Free Trade Association, Turkey and Africa, which expire on June 30, 2016. We also have four ODAs with Microsoft which allow us to sell Microsoft Windows Mobile operating systems in the Americas (excluding Cuba), Japan, Taiwan, Europe, the Middle East, and Africa, which expire on June 30, 2015.

Software sales under these agreements constitute a significant portion of our software revenue and total revenue. These agreements are typically renewed bi-annually, annually or semi-annually; however, there is no automatic renewal provision in any of these agreements. Further, these agreements can be terminated unilaterally by Microsoft at any time. Microsoft currently offers a rebate program to sell Microsoft Windows Embedded operating systems pursuant to which we earn money for achieving certain predefined objectives. Prior to the third quarter of 2013, the entire earned rebate amount was treated as a reduction in software cost of sales in the quarter earned. Beginning in the third quarter of 2013, as a result of program modifications, we began treating a portion of the rebate as marketing development funds which are accounted for as a reduction in marketing expense if and when qualified program expenditures are made. Under this rebate program, we recognized $64,000 and $233,000 during the three and nine months ended September 30, 2014, respectively, and $89,000 and $658,000 during the three and nine months ended September 30, 2013, respectively, which was treated as a reduction in cost of sales. Additionally, during the three and nine months ended September 30, 2014, we qualified for $149,000 and $543,000, respectively, in rebate credits which will be accounted for as a reduction in marketing expense if and when qualified program expenditures are made.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2014

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of BSQUARE Corporation (“BSQUARE”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting and include the accounts of BSQUARE and our wholly owned subsidiaries. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In our opinion, the unaudited condensed consolidated financial statements include all material adjustments, all of which are of a normal and recurring nature, necessary to present fairly our financial position as of September 30, 2014 and our operating results and cash flows for the three and nine months ended September 30, 2014 and 2013. The accompanying financial information as of December 31, 2013 is derived from audited financial statements. Preparing financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Examples include provisions for bad debts and income taxes, estimates of progress on professional engineering service arrangements and bonus accruals. Actual results may differ from these estimates. Interim results are not necessarily indicative of results for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2013. All intercompany balances have been eliminated.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”, amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The guidance is effective for annual and interim reporting periods beginning after December 15, 2016, with early adoption prohibited. We are currently evaluating the impact this ASU will have on our consolidated financial statements.

In August 2014 the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, requiring management to evaluate whether there is a substantial doubt about an entity’s ability to continue as a going concern and to provide related disclosures in the notes to the financial statements. The new guidance reduces diversity in the timing and content of disclosures from current guidance, and is effective for annual and interim reporting periods beginning after December 15, 2015 with early adoption permitted. We do not expect the adoption of this guidance to have a material effect on our consolidated financial statements.

Income (Loss) Per Share

Income (Loss) Per Share

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

We excluded an aggregate of 882,490 and 868,767options and RSUs for the three and nine months ended September 30, 2014, respectively, from diluted earnings per share because their effect was anti-dilutive. We excluded an aggregate of 940,812 and 837,812  options and RSUs for the three and nine months ended September 30, 2013, respectively, from diluted earnings per share because their effect was anti-dilutive. In a period where we are in a net loss position, diluted loss per share is computed using the basic share count.

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Assets and Liabilities Measured at Fair Value on Recurring Basis

Assets and liabilities measured at fair value on a recurring basis as of September 30, 2014 and December 31, 2013 are summarized below (in thousands):

	September 30, 2014
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Direct or Indirect Observable Inputs (Level 2)		Total
Assets
Cash equivalents:
Money market funds	$	8,356	$	—	$	8,356
Corporate commercial paper		—		1,250		1,250
Corporate debt		—		251		251
Total cash equivalents		8,356		1,501		9,857
Short-term investments:
Corporate commercial paper		—		1,199		1,199
Corporate debt		—		11,447		11,447
Total short-term investments		—		12,646		12,646
Restricted cash—money market fund		250		—		250
Total assets measured at fair value	$	8,606	$	14,147	$	22,753

	December 31, 2013
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Direct or Indirect Observable Inputs (Level 2)		Total
Assets
Cash equivalents:
Money market funds	$	8,989	$	—	$	8,989
Corporate debt		—		2,000		2,000
Total cash equivalents		8,989		2,000		10,989
Short-term investments:
Corporate commercial paper		—		1,500		1,500
Foreign government bonds		—		1,001		1,001
Corporate debt		—		4,794		4,794
Total short-term investments		—		7,295		7,295
Restricted cash—money market fund		250		—		250
Total assets measured at fair value	$	9,239	$	9,295	$	18,534

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Commitments and Contingencies - Additional Information (Detail) (USD $)	3 Months Ended		9 Months Ended			1 Months Ended	7 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013	Aug. 31, 2013 Bellevue Washington [Member]	Dec. 31, 2013 Bellevue Washington [Member]
Other Commitments [Line Items]
Expirations of operating leases			2020
Expiration date of operating lease						2014-08
Amended expiration date of operating lease						2020-05
Cash lease payments made							$ 0
Leasehold improvements and furniture provided by the landlord						1,128,000
Rent expense	281,000	402,000	918,000	1,156,000
Restricted cash	250,000		250,000		250,000
Volume pricing agreements period of OVRP			12 months
Provision on contingencies	$ 0		$ 0

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Summary of Significant Accounting Policies - Additional Information (Detail) (Options and RSUs [Member])	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Options and RSUs [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Shares excluded from computations of diluted earnings per share	882,490	940,812	868,767	837,812

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Goodwill and Intangible Assets - Expected Amortization Expense for Future Period (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Goodwill And Intangible Assets Disclosure [Abstract]
Remainder of 2014	$ 34
2015	135
2016	130
2017	98
2018	98
Thereafter	267
Net Carrying Value	$ 762	$ 863

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Condensed Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Cash flows from operating activities:
Net income (loss)	$ 949	$ (5,234)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Realized loss on disposal of assets	33
Depreciation and amortization	479	586
Stock-based compensation	691	726
Deferred income taxes		2,181
Changes in operating assets and liabilities:
Accounts receivable, net	4,144	3,284
Prepaid expenses and other assets	1,871	(418)
Third-party software fees payable	(2,805)	(44)
Accounts payable and accrued expenses	(645)	(394)
Deferred revenue	(673)	237
Deferred rent	20	268
Net cash provided by operating activities	4,064	1,192
Cash flows from investing activities:
Purchases of equipment and furniture	(276)	(216)
Proceeds from maturities of short-term investments	9,195	8,932
Purchases of short-term investments	(14,547)	(7,163)
Reduction of restricted cash		625
Net cash provided by (used in) investing activities	(5,628)	2,178
Cash flows provided by financing activities—proceeds from exercise of stock options	595	12
Effect of exchange rate changes on cash	34	(49)
Net increase (decrease) in cash and cash equivalents	(935)	3,333
Cash and cash equivalents, beginning of period	13,510	9,903
Cash and cash equivalents, end of period	12,575	13,236
Supplemental disclosure of cash flow information:
Non-cash investing activity-leasehold improvements & furniture funded by landlord	$ 1,128

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Shareholders' Equity

9 Months Ended

Sep. 30, 2014

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Shareholders' Equity

5. Shareholders’ Equity

Equity Compensation Plans

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

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Dividend yield		0	%		0	%		0	%		0	%
Expected life	3.3 years			4 years			3.3 years			4 years
Expected volatility		57	%		58	%		59	%		62	%
Risk-free interest rate		1.4	%		1.1	%		1.3	%		0.8	%

The impact on our results of operations of stock-based compensation expense for the three and nine months ended September 30, 2014 and 2013 was as follows (in thousands, except per share amounts):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Cost of revenue — service	$	69	$	48	$	146	$	184
Selling, general and administrative		144		145		510		456
Research and development		15		27		35		86
Total stock-based compensation expense	$	228	$	220	$	691	$	726
Per diluted share	$	0.02	$	0.02	$	0.06	$	0.07

Stock Option Activity

The following table summarizes stock option activity under the Plans for the nine months ended September 30, 2014:

Stock Options	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Balance at January 1, 2014		1,515,621		$	3.36
Granted		740,458			3.48
Exercised		(374,565	)		2.49
Forfeited		(96,531	)		3.27
Expired		(258,671	)		4.34
Balance at September 30, 2014		1,526,312		$	3.48		6.91	$	954,646
Vested and expected to vest at September 30, 2014		1,407,188		$	3.48		6.73	$	900,866
Exercisable at September 30, 2014		593,423		$	3.50		3.90	$	498,217

At September 30, 2014, total compensation cost related to stock options granted but not yet recognized was $923,055, net of estimated forfeitures. This cost will be amortized on the straight-line method over a weighted-average period of approximately 1.3 years. The following table summarizes certain information about stock options for the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Weighted-average grant-date fair value of option    grants for the period	$	1.74	$	—	$	1.71		1.07
Options in-the-money at period end		425,877		541,000		425,877		541,000
Aggregate intrinsic value of options exercised	$	171,558	$	—	$	412,781	$	1,000

The aggregate intrinsic value represents the difference between the exercise price of the underlying options and the quoted price of our common stock for the number of options that were in-the-money at period end or that were exercised during the period. We issue new shares of common stock upon exercise of stock options.

Restricted Stock Unit Activity

The following table summarizes RSU activity for the nine months ended September 30, 2014:

	Number of Shares			Weighted Average Grant Date Fair Value
Unvested at December 31, 2013		187,382		$	4.40
Granted		102,735			3.16
Vested		(132,421	)		3.70
Forfeited		(56,732	)		5.54
Unvested at September 30, 2014		100,964		$	3.43
Expected to vest after September 30, 2014		96,371		$	3.37

At September 30, 2014, total compensation cost related to RSUs granted but not yet recognized was $403,482, net of estimated forfeitures. This cost will be amortized on the straight-line method over a period of approximately 1.1 years. There were no RSAs outstanding as of September 30, 2014 or December 31, 2013.

Common Stock Reserved for Future Issuance

The following table summarizes our shares of common stock reserved for future issuance under the Plans:

	September 30, 2014
Stock options outstanding		1,526,312
Restricted stock units outstanding		100,964
Stock awards available for future grant		706,053
Common stock reserved for future issuance		2,333,329

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Shareholders' Equity - Additional Information (Detail) (USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Dec. 31, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Term of stock options granted	10 years
Vesting of options granted	4 years
Compensation cost related to stock options granted but not yet recognized, net of estimated forfeitures	$ 923,055
Amortization cost, weighted-average period	1 year 3 months 18 days
Restricted stock award outstanding	0	0
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Amortization cost, weighted-average period	1 year 1 month 6 days
Compensation cost related to restricted stock units granted but not yet recognized	$ 403,482

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Significant Risk Concentrations - Additional Information (Detail) (USD $)	9 Months Ended		3 Months Ended		9 Months Ended		3 Months Ended	9 Months Ended			3 Months Ended	9 Months Ended	3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended		12 Months Ended	9 Months Ended	12 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2014 Agreement	Dec. 31, 2013	Sep. 30, 2014 Cost of revenue- service [Member]	Sep. 30, 2013 Cost of revenue- service [Member]	Sep. 30, 2014 Cost of revenue- service [Member]	Sep. 30, 2013 Cost of revenue- service [Member]	Sep. 30, 2014 Reduction in marketing expense in the future [Member]	Sep. 30, 2014 Reduction in marketing expense in the future [Member]	Dec. 31, 2013 Future Electronics, Inc. [Member]	Dec. 31, 2013 Mitsubishi Electric Corporation [Member]	Sep. 30, 2014 Revenue [Member] Future Electronics, Inc. [Member] Customer Concentration Risk [Member] Customer	Sep. 30, 2014 Revenue [Member] Future Electronics, Inc. [Member] Customer Concentration Risk [Member] Customer	Sep. 30, 2014 Revenue [Member] Other customer [Member] Customer Concentration Risk [Member] Customer	Sep. 30, 2013 Revenue [Member] Other customer [Member] Customer Concentration Risk [Member] Customer	Sep. 30, 2014 Revenue [Member] Other customer [Member] Customer Concentration Risk [Member] Customer	Sep. 30, 2013 Revenue [Member] Other customer [Member] Customer Concentration Risk [Member] Customer	Sep. 30, 2014 Revenue [Member] Other customer [Member] Customer Concentration Risk [Member] Minimum [Member]	Sep. 30, 2013 Revenue [Member] Other customer [Member] Customer Concentration Risk [Member] Minimum [Member]	Sep. 30, 2014 Revenue [Member] Other customer [Member] Customer Concentration Risk [Member] Minimum [Member]	Sep. 30, 2013 Revenue [Member] Other customer [Member] Customer Concentration Risk [Member] Minimum [Member]	Dec. 31, 2013 Accounts receivable [Member] Future Electronics, Inc. [Member] Credit Concentration Risk [Member]	Sep. 30, 2014 Accounts receivable [Member] Other customer [Member] Credit Concentration Risk [Member] Customer	Dec. 31, 2013 Accounts receivable [Member] Other customer [Member] Credit Concentration Risk [Member] Customer	Sep. 30, 2014 Accounts receivable [Member] Other customer [Member] Credit Concentration Risk [Member] Minimum [Member]	Dec. 31, 2013 Accounts receivable [Member] Other customer [Member] Credit Concentration Risk [Member] Minimum [Member]	Dec. 31, 2013 Accounts receivable [Member] Mitsubishi Electric Corporation [Member] Credit Concentration Risk [Member]
Concentration Risk [Line Items]
Number of customer account as major customer											1	1	0	0	0	0						0	0
Concentration risk, percentage											18.00%	11.00%					10.00%	10.00%	10.00%	10.00%	23.00%			10.00%	10.00%	18.00%
Accounts receivable	$ 11,749,000	$ 15,893,000							$ 3,700,000	$ 2,800,000
Expiration date one of OEM Distribution agreements for embedded operating systems	Jun. 30, 2016
Number of OEM Distribution agreements for embedded operating systems	2
Expiration date of OEM Distribution agreements for mobile operating systems, non-EMEA	Jun. 30, 2015
Number of OEM Distribution agreements for mobile operating systems	4
Earnings under the rebate program			$ 64,000	$ 89,000	$ 233,000	$ 658,000	$ 149,000	$ 543,000

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Information about Geographic Areas (Tables)

9 Months Ended

Sep. 30, 2014

Segment Reporting [Abstract]

Revenue and Long-Lived Assets by Geographic Area

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Total revenue:
North America	$	22,456	$	20,875	$	62,955	$	59,714
Asia		830		1,379		3,581		3,129
Europe		1,249		1,318		3,785		3,436
Total revenue	$	24,535	$	23,572	$	70,321	$	66,279

	September 30, 2014		December 31, 2013
Long-lived assets:
North America	$	1,669	$	678
Asia		365		403
Europe		4,480		4,544
Total long-lived assets	$	6,514	$	5,625