UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2014
OR
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission File Number: 000-27687
BSQUARE CORPORATION
(Exact name of registrant as specified in its charter)
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Washington
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91-1650880
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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110 110
th
Avenue NE, Suite 200,
Bellevue WA
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98004
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(Address of principal executive offices)
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(Zip Code)
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(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.
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Large accelerated filer
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¨
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Accelerated filer
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¨
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Non-accelerated filer
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¨
(Do not check if a smaller reporting company)
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Smaller reporting company
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x
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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 April 30, 2014: 11,474,309
BSQUARE CORPORATION
FORM 10-Q
For the
Quarterly Period Ended March 31, 2014
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
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Item 1.
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Financial Statements
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BSQUARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
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March 31,
2014
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December 31,
2013
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(Unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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16,845
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$
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13,510
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Short-term investments
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6,131
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7,295
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Accounts receivable, net of allowance for doubtful accounts of $215 at March 31, 2014 and $214 at December 31, 2013
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13,130
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15,893
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Deferred income taxes
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12
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12
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Prepaid expenses and other current assets
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1,808
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2,313
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Total current assets
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37,926
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39,023
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Equipment, furniture and leasehold improvements, net
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1,496
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411
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Restricted cash
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250
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250
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Deferred income taxes
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304
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304
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Intangible assets, net
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830
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863
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Goodwill
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3,738
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3,738
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Other non-current assets
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57
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59
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Total assets
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$
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44,601
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$
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44,648
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LIABILITIES AND SHAREHOLDERS’ EQUITY
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Current liabilities:
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Third-party software fees payable
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$
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11,424
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$
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12,746
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Accounts payable
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187
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634
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Accrued compensation
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1,722
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2,383
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Other accrued expenses
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1,711
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1,249
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Deferred revenue
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2,707
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2,177
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Total current liabilities
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17,751
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19,189
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Deferred income taxes
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144
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144
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Deferred rent
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1,827
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644
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Shareholders’ equity:
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Preferred stock, no par value: 10,000,000 shares authorized; no shares issued and outstanding
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—
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—
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Common stock, no par value: 37,500,000 shares authorized; 11,459,676 shares issued and outstanding at March 31, 2014 and
11,294,682 shares issued and outstanding at December 31, 2013
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129,946
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129,423
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Accumulated other comprehensive loss
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(682
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)
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(759
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Accumulated deficit
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(104,385
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)
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(103,993
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)
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Total shareholders’ equity
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24,879
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24,671
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Total liabilities and shareholders’ equity
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$
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44,601
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$
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44,648
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See notes to condensed consolidated financial statements.
3
BSQUARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except per share amounts) (Unaudited)
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Three Months Ended
March 31,
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2014
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2013
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Revenue:
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Software
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$
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18,450
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$
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16,511
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Service
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4,281
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4,359
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Total revenue
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22,731
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20,870
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Cost of revenue:
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Software
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15,555
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13,167
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Service
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3,641
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4,356
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Total cost of revenue
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19,196
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17,523
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Gross profit
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3,535
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3,347
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Operating expenses:
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Selling, general and administrative
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3,300
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3,631
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Research and development
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432
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663
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Total operating expenses
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3,732
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4,294
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Loss from operations
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(197
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(947
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)
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Other income (expense), net
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(91
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90
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Loss before income taxes
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(288
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(857
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)
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Income tax expense
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(105
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)
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(5
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)
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Net loss
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$
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(393
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$
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(862
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Basic loss per share
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$
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(0.03
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)
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$
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(0.08
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)
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Diluted loss per share
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$
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(0.03
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)
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$
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(0.08
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)
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Shares used in calculation of loss per share:
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Basic
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11,390
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11,107
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Diluted
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11,390
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11,107
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Comprehensive loss:
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Net loss
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$
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(393
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)
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$
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(862
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)
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Other comprehensive income (expense):
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Foreign currency translation, net of tax
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77
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(96
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)
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Change in unrealized losses on investments, net of tax
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—
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(2
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)
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Total other comprehensive income (expense)
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77
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(98
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)
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Comprehensive loss
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$
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(316
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)
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$
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(960
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)
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See notes to condensed consolidated financial statements.
4
BSQUARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
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Three Months Ended
March 31,
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2014
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2013
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Cash flows from operating activities:
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Net loss
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$
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(393
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)
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$
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(862
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)
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Adjustments to reconcile net loss to net cash used in operating activities:
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Depreciation and amortization
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163
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210
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Realized loss on asset disposal
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33
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—
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Stock-based compensation
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244
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252
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Changes in operating assets and liabilities:
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Accounts receivable, net
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2,763
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3,456
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Prepaid expenses and other assets
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507
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(142
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)
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Third-party software fees payable
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(1,322
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)
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(2,387
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)
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Accounts payable and accrued expenses
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(646
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)
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(862
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)
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Deferred revenue
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530
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161
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Deferred rent
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16
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(21
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)
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Net cash provided by (used in) operating activities
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1,895
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(195
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)
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Cash flows from investing activities:
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Purchases of equipment and furniture
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(80
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)
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(18
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)
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Proceeds from maturities of short-term investments
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4,460
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5,375
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Purchases of short-term investments
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(3,297
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)
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(4,796
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)
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Net cash provided by investing activities
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1,083
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561
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Cash flows from financing activities—proceeds from exercise of stock options
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280
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|
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1
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Effect of exchange rate changes on cash
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77
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|
|
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(93
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)
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Net increase in cash and cash equivalents
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3,335
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|
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274
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Cash and cash equivalents, beginning of period
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13,510
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|
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9,903
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Cash and cash equivalents, end of period
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$
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16,845
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$
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10,177
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Three Months Ended
March 31,
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2014
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2013
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Supplemental disclosures of cash flow information:
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Non-cash investing activity:
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|
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Tenant improvement & furniture allowances funded by landlord
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$
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1,167
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|
|
$
|
—
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|
|
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See notes to condensed consolidated financial statements.
5
BSQUARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 March 31, 2014 and our operating results and
cash flows for the three months ended March 31, 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 July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” to bring conformity in the presentation of unrecognized tax benefits when a net
operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. ASU 2013-11 became effective for us on January 1, 2014. The adoption of this guidance did not have a material impact 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. Unvested but outstanding RSAs and RSUs which are
forfeitable are included in the diluted income per share calculation.
We excluded 1,673,707 and 1,879,014 options and RSUs for the three
months ended March 31, 2014 and 2013 from diluted EPS because their effect would have been anti-dilutive as we had a net loss for the period. These amounts include common stock equivalent shares of 858,343 and 783,120, as calculated using
the treasury stock method, that would have been included in diluted earnings per share had we been in a net income position. 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 (in thousands):
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|
|
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|
|
|
|
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|
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March 31,
2014
|
|
|
December 31,
2013
|
|
|
Cash
|
|
$
|
2,508
|
|
|
$
|
2,521
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
12,435
|
|
|
|
8,989
|
|
|
Corporate commercial paper
|
|
|
1,250
|
|
|
|
—
|
|
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Corporate debt securities
|
|
|
652
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents
|
|
|
14,337
|
|
|
|
10,989
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
16,845
|
|
|
|
13,510
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
Corporate commercial paper
|
|
|
1,250
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|
|
|
1,500
|
|
|
Foreign government bonds
|
|
|
—
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|
|
|
1,001
|
|
|
Corporate debt securities
|
|
|
4,881
|
|
|
|
4,794
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
|
6,131
|
|
|
|
7,295
|
|
|
Restricted cash—money market fund
|
|
|
250
|
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents, short-term investments and restricted cash
|
|
$
|
23,226
|
|
|
$
|
21,055
|
|
|
|
|
|
|
|
|
|
|
|
Gross unrealized gains and losses on our short-term investments were not material as of March 31, 2014
and December 31, 2013. Our restricted cash balance at March 31, 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.
Assets and liabilities measured at fair value on a recurring basis as of March 31, 2014 and December 31, 2013 are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 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
|
|
$
|
12,435
|
|
|
$
|
—
|
|
|
$
|
12,435
|
|
|
Corporate commercial paper
|
|
|
—
|
|
|
|
1,250
|
|
|
|
1,250
|
|
|
Corporate debt
|
|
|
—
|
|
|
|
652
|
|
|
|
652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents
|
|
|
12,435
|
|
|
|
1,902
|
|
|
|
14,337
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate commercial paper
|
|
|
—
|
|
|
|
1,250
|
|
|
|
1,250
|
|
|
Corporate debt securities
|
|
|
—
|
|
|
|
4,881
|
|
|
|
4,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
|
—
|
|
|
|
6,131
|
|
|
|
6,131
|
|
|
Restricted cash—money market fund
|
|
|
250
|
|
|
|
—
|
|
|
|
250
|
|
|
Total assets measured at fair value
|
|
$
|
12,685
|
|
|
$
|
8,033
|
|
|
$
|
20,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 securities
|
|
|
—
|
|
|
|
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 September 2011 acquisition of MPC Data, Ltd. (“MPC”), a United Kingdom based provider of
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 three months ended March 31, 2014.
Intangible assets relate to customer relationships
that we acquired from TestQuest Inc. in November 2008 and from the acquisition of MPC in September 2011, the vast majority of which relates to the MPC acquisition.
Information regarding our intangible assets as of March 31, 2014 and December 31, 2013 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2014
|
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Value
|
|
|
Customer relationships
|
|
|
1,275
|
|
|
|
(445
|
)
|
|
|
830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,275
|
|
|
$
|
(445
|
)
|
|
$
|
830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Value
|
|
|
Customer relationships
|
|
|
1,275
|
|
|
|
(412
|
)
|
|
|
863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,275
|
|
|
$
|
(412
|
)
|
|
$
|
863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was $33,000 and $59,000 for the three months ended March 31, 2014 and 2013,
respectively. Amortization in future periods is expected to be as follows (in thousands):
|
|
|
|
|
|
|
Remainder of 2014
|
|
$
|
101
|
|
|
2015
|
|
|
135
|
|
|
2016
|
|
|
130
|
|
|
2017
|
|
|
98
|
|
|
2018
|
|
|
98
|
|
|
Thereafter
|
|
|
268
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
830
|
|
|
|
|
|
|
|
8
5. Shareholders’ Equity
Stock Options
We have a stock plan (the “Stock Plan”) and an inducement stock plan for newly hired employees (the “Inducement Plan”)
(collectively the “Plans”). Under the Plans, stock options may be granted with a fixed exercise price that is equivalent to fair market value on the date of grant. These options have a term of up to 10 years and vest over a
predetermined period, generally four years. Incentive stock options granted under the Stock Plan may only be granted to our employees. The Plans also allow for awards of non-qualified stock options, stock appreciation rights, RSAs and unrestricted
stock awards, and RSUs
Stock-Based Compensation
The estimated fair value of stock-based awards is recognized as compensation expense over the vesting period of the awards, 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
March 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Expected life
|
|
|
3.2 years
|
|
|
|
3.7 years
|
|
|
Expected volatility
|
|
|
61
|
%
|
|
|
68
|
%
|
|
Risk-free interest rate
|
|
|
1.2
|
%
|
|
|
0.6
|
%
|
Stock-based compensation expense for the three months ended March 31, 2014 and 2013 was as follows (in thousands, except
per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Cost of revenue — service
|
|
$
|
41
|
|
|
$
|
73
|
|
|
Selling, general and administrative
|
|
|
175
|
|
|
|
149
|
|
|
Research and development
|
|
|
28
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
244
|
|
|
$
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
Per basic and diluted share
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
9
Stock Option Activity
The following table summarizes stock option activity for the three months ended March 31, 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 at fair value
|
|
|
330,850
|
|
|
|
3.32
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(123,613
|
)
|
|
|
2.48
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(12,959
|
)
|
|
|
3.64
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(57,032
|
)
|
|
|
5.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2014
|
|
|
1,652,867
|
|
|
$
|
3.33
|
|
|
|
4.91
|
|
|
$
|
444,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at March 31, 2014
|
|
|
1,561,427
|
|
|
$
|
3.33
|
|
|
|
4.69
|
|
|
$
|
444,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2014
|
|
|
983,478
|
|
|
$
|
3.30
|
|
|
|
2.57
|
|
|
$
|
398,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2014, total compensation cost related to stock options granted but not yet recognized was
$708,242, net of estimated forfeitures. This cost will be amortized on the straight-line method over a weighted-average period of approximately 1.5 years.
The following table summarizes certain information about stock options for the three months ended March 31, 2014 and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Weighted-average grant-date fair value of option grants for the period
|
|
$
|
1.82
|
|
|
$
|
1.65
|
|
|
|
|
|
|
|
|
|
|
|
|
Options in-the-money at period end
|
|
|
585,885
|
|
|
|
615,419
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate intrinsic value of options exercised
|
|
$
|
130,876
|
|
|
$
|
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 three months ended March 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted Average
Grant Date Fair
Value
|
|
|
Unvested at December 31, 2013
|
|
|
187,382
|
|
|
$
|
4.40
|
|
|
Granted
|
|
|
15,000
|
|
|
|
3.34
|
|
|
Vested
|
|
|
(52,858
|
)
|
|
|
4.17
|
|
|
Forfeited
|
|
|
(23,125
|
)
|
|
|
5.60
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at March 31, 2014
|
|
|
126,399
|
|
|
$
|
4.16
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected to vest after March 31, 2014
|
|
|
120,556
|
|
|
$
|
4.02
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2014, total compensation cost related to RSUs granted but not yet recognized was $412,570,
net of estimated forfeitures. This cost will be amortized on the straight-line method over a period of approximately 1.3 years.
Common Stock
Reserved for Future Issuance
The following table summarizes our shares of common stock reserved for future issuance under the
Plans at March 31, 2014:
|
|
|
|
|
|
|
|
|
March 31,
2014
|
|
|
Stock options outstanding
|
|
|
1,652,867
|
|
|
Restricted stock units outstanding
|
|
|
126,399
|
|
|
Stock options available for future grant
|
|
|
884,578
|
|
|
|
|
|
|
|
|
Common stock reserved for future issuance
|
|
|
2,663,844
|
|
|
|
|
|
|
|
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 and extended the term of the original lease that was
scheduled to expire in August 2014 to May 2020.
Rent expense was $324,000 and $376,000 for the three months ended March 31, 2014 and
2013, respectively.
As of March 31, 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
|
|
$
|
828
|
|
|
2015
|
|
|
1,101
|
|
|
2016
|
|
|
1,116
|
|
|
2017
|
|
|
1,140
|
|
|
2018
|
|
|
1,114
|
|
|
2019
|
|
|
1,038
|
|
|
2020
|
|
|
437
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,774
|
|
|
|
|
|
|
|
11
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”),
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 for 12
months. In the event we do not meet the committed minimum unit volumes, we are obligated to pay the difference between the committed per-unit volume rate and the actual per-unit rate we achieved based upon actual units purchased. The OVRP
arrangements do not equate to a minimum purchase commitment but rather, the arrangements are a volume pricing arrangement based upon actual volume purchased. In substantially all instances, we have reciprocal agreements with our customers such
that we will receive per-unit price adjustments, similar to the amounts we would subsequently owe to Microsoft if such OVRP volumes are not met. However, in the event a customer is unwilling or unable to pay us, we would be negatively impacted.
Based upon the credit-worthiness of our customers, our historical OVRP experience with our customers and OVRP arrangements in general, we do not believe we will incur any material liability in the current or future periods relating to existing
agreements.
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
March 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
20,591
|
|
|
$
|
19,082
|
|
|
Asia
|
|
|
1,084
|
|
|
|
904
|
|
|
Europe
|
|
|
1,056
|
|
|
|
884
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
22,731
|
|
|
$
|
20,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2014
|
|
|
December 31,
2013
|
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
1,776
|
|
|
$
|
678
|
|
|
Asia
|
|
|
373
|
|
|
|
403
|
|
|
Europe
|
|
|
4,526
|
|
|
|
4,544
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
6,675
|
|
|
$
|
5,625
|
|
|
|
|
|
|
|
|
|
|
|
12
8. Significant Risk Concentrations
Significant Customer
Outerwall (formerly Coinstar) accounted for $2.6 million, or 12% of total revenue during the three months ended March 31, 2014. Future
Electronics, a global distributor of electronic components, accounted for $2.2 million or, 11% of total revenue during the three months ended March 31, 2013. No other customer accounted for 10% or more of total revenue for the three months
ended March 31, 2014 or March 31, 2013.
No customer had an accounts receivable balance greater than 10% or more of total
accounts receivable at March 31, 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. 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 ODAs with Microsoft which enable us to sell Microsoft Windows Embedded operating systems to our customers in the United States, Canada,
the Caribbean (excluding Cuba), Mexico, the European Union and the European Free Trade Association, which expire on June 30, 2014. We also have ODAs with Microsoft which allow us to sell Microsoft Windows Mobile operating systems in the
Americas, Japan, Taiwan, Europe, the Middle East, and Africa, which expire on June 30, 2014.
Software sales under these agreements
constitute a significant portion of our software revenue and total revenue. These agreements are typically renewed annually or semi-annually; however, there is no automatic renewal provision in any of these agreements. Further, these agreements can
be terminated unilaterally by Microsoft at any time. Microsoft currently offers a rebate program to sell Microsoft Windows Embedded operating systems pursuant to which we earn money for achieving certain predefined objectives. Prior to the
third quarter of 2013, the 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 earned $64,000 during the three months ended March 31, 2014 and
$220,000 during the three months ended March 31, 2013, which was treated as a reduction in cost of sales. Additionally, during the three months ended March 31, 2014, we earned $149,000 in rebate credits which will be accounted for as
a reduction in marketing expense if and when qualified program expenditures are made.
13
|
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,” as well as 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 connect 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
utilize various Microsoft Windows Embedded and Windows Mobile operating systems, specifically Windows Embedded Compact, Windows Embedded Standard 7 and 8, Windows Mobile™, Windows Phone 8 and Windows Embedded 8 Handheld as well as devices
running other popular operating systems such as Android, Linux, and QNX.
We have been providing software solutions to the smart,
connected systems marketplace since our inception. Our customers include world class original equipment manufacturers (“OEMs”), original design manufacturers (“ODMs”) and enterprises, as well as silicon vendors and peripheral
vendors which purchase our software solutions for purposes of facilitating processor and peripheral sales to the aforementioned customer categories. In the case of enterprises, our customers include those which 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.
14
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 March 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
(unaudited)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
81
|
%
|
|
|
79
|
%
|
|
Service
|
|
|
19
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
100
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
68
|
|
|
|
63
|
|
|
Service
|
|
|
16
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
84
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
16
|
|
|
|
16
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
15
|
|
|
|
18
|
|
|
Research and development
|
|
|
2
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
17
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1
|
)
|
|
|
(5
|
)
|
|
Other income, net
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(2
|
)
|
|
|
(4
|
)
|
|
Income tax expense
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(2
|
)%
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
Revenue
Our revenue is generated from the sale of software, both our own proprietary software and third-party software that we resell, and the sale of
engineering services. Total revenue increased $1.9 million, or 9%, to $22.7 million for the three months ended March 31, 2014, from $20.9 million in the year-ago period. This increase was driven by higher Microsoft Windows Embedded operating
system sales due to a large sale in the amount of $2.6 million, partially offset by lower sales of Microsoft Windows Mobile operating systems due to declining demand.
Revenue from our customers outside of North America increased $352,000, or 20%, to $2.1 million for the three months ended March 31, 2014
compared to $1.8 million in the year-ago period.
15
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 months ended March 31, 2014 and 2013 was as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
(unaudited)
|
|
|
Software revenue:
|
|
|
|
|
|
|
|
|
|
Third-party software
|
|
$
|
17,695
|
|
|
$
|
15,491
|
|
|
Proprietary software
|
|
|
755
|
|
|
|
1,020
|
|
|
|
|
|
|
|
|
|
|
|
|
Total software revenue
|
|
$
|
18,450
|
|
|
$
|
16,511
|
|
|
|
|
|
|
|
|
|
|
|
|
Software revenue as a percentage of total revenue
|
|
|
81
|
%
|
|
|
79
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Third-party software revenue as a percentage of total software revenue
|
|
|
96
|
%
|
|
|
94
|
%
|
|
|
|
|
|
|
|
|
|
|
The vast majority of our third-party software revenue is comprised of sales of Microsoft Windows Embedded and
Windows Mobile operating systems. Third-party software revenue increased $2.2 million, or 14%, for the three months ended March 31, 2014, from the year-ago period. The increase was driven by a $4.2 million increase in sales of Microsoft Windows
Embedded operating systems due to a large sale in the amount of $2.6 million, partially offset by a $1.6 million decrease in sales of Windows Mobile operating systems due to declining demand. Proprietary software revenue decreased $265,000, or 26%,
for the three months ended March 31, 2014, compared to the year-ago period. This decline was primarily driven by lower royalties from one of our products.
Service revenue
Service revenue for the three months ended March 31, 2014 and 2013 was as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
(unaudited)
|
|
|
Service revenue
|
|
$
|
4,281
|
|
|
$
|
4,359
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenue as a percentage of total revenue
|
|
|
19
|
%
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
Service revenue decreased $78,000, or 2%, for the three months ended March 31, 2014, from the year-ago
period. This decrease was primarily driven by a $613,000 decrease associated with the MyFord Touch program. This decrease was largely offset by a $533,000 increase in Japan service revenue, attributable to two projects with a large handset
manufacturer.
Service revenue from the MyFord Touch program declined to $670,000, or 16% of total service revenue, for the three months
ended March 31, 2014, compared to $1.3 million, or 29% of total service revenue, in the year-ago period. The decline is attributable to a reduction in the number of engineers working on the MyFord Touch project.
Gross profit and gross margin
Cost of software revenue consists primarily of the cost of third-party software products payable to third-party vendors and support costs
associated with our proprietary software products. Cost of service revenue consists primarily of salaries and benefits, contractor costs and re-billable expenses, related facilities and depreciation costs, and amortization of certain intangible
assets related to acquisitions.
Gross profit on the sale of third-party software products is also positively impacted 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.
16
Under this rebate program, we earned $64,000 of rebate credits for the three months ended
March 31, 2014, compared to $220,000 for the year-ago period, which were treated as a reduction of cost of sales. Additionally, for the three months ended March 31, 2014 we earned $149,000 in rebate credits which will be accounted for
as a reduction in marketing expense if and when qualified expenditures are made.
Gross profit and related gross margin for the three
months ended March 31, 2014 and 2013 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
(unaudited)
|
|
|
Software gross profit
|
|
$
|
2,895
|
|
|
$
|
3,344
|
|
|
Software gross margin
|
|
|
16
|
%
|
|
|
20
|
%
|
|
Service gross profit
|
|
$
|
640
|
|
|
$
|
3
|
|
|
Service gross margin
|
|
|
15
|
%
|
|
|
0
|
%
|
|
Total gross profit
|
|
$
|
3,535
|
|
|
$
|
3,347
|
|
|
Total gross margin
|
|
|
16
|
%
|
|
|
16
|
%
|
Software gross profit and gross margin
Software gross profit decreased by $449,000 or 13%, for the three months ended March 31, 2014, from the year-ago period, while software
gross margin declined by four percentage points. The decrease in gross profit was primarily the result of a decline in high-margin proprietary software sales. The decrease in software gross margin was the result of a decline in sales of higher
margin Microsoft Windows Mobile operating systems and a change in our accounting for the Microsoft rebate beginning in the third quarter of 2013. Third-party software gross margin was 13% for the three months ended March 31, 2014, compared to
16% for the year-ago period. Proprietary software gross margin was 78% for the three months ended March 31, 2014, compared to 83% in the year-ago period, with the decrease driven by the reduction in proprietary software revenue compared to a
relatively fixed cost of sales base.
Service gross profit and gross margin
Service gross profit increased $637,000 for the three months ended March 31, 2014, from the year-ago period. Service gross margin
increased by fifteen percentage points to 15% for the three months ended March 31, 2014, up from 0% for the year-ago period. The increase in service gross profit was primarily driven by a $715,000 decline in cost of sales, resulting from cost
reductions enacted during the fourth quarter of 2013 to better align our costs with our future service revenue expectations. The gross margin increase primarily resulted from utilization improvement resulting from the cost reductions.
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 $331,000, or 9%, to $3.3 million for the
three months ended March 31, 2014, from $3.6 million in the year-ago period. The decrease was driven by reductions in sales costs, partially offset by higher marketing and general and administrative costs. Domestic and international sales staff
reductions associated with our corporate restructuring and the departure of our Senior Vice-President of Sales and Marketing, all of which occurred during the fourth quarter of 2013 resulted in a decline in personnel costs, including bonuses,
commissions and travel-related expenses during the first quarter of 2014. Selling, general and administrative expenses represented 14% of our total revenue for the three months ended March 31, 2014 and 18% in 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 $231,000, or 35%, to $432,000 for the three months ended March 31, 2014, from $663,000 in the year-ago period due
primarily to headcount reductions which took place in the fourth quarter of 2013. Research and development expenses represented 2% of our total revenue for the three months ended March 31, 2014 and 3% in the year-ago period.
17
Other income (expense), net
Other income or expense consists of interest income on our cash and short-term investments, gains and/or losses recognized on our investments,
as well as gains or losses on foreign exchange transactions. Other expense increased $181,000 to $91,000 for the three months ended March 31, 2014, from income of $90,000 in the year-ago period due to higher foreign currency transaction losses.
Income tax expense
Income tax expense was $105,000 for the three months ended March 31, 2014, compared to $5,000 in the year-ago period, a change of
$100,000. The increase represents income taxes related to the closure of our Taiwan subsidiary.
Liquidity and Capital Resources
As of March 31, 2014, we had $23.2 million of cash, cash equivalents, short-term and long-term investments and restricted cash, compared
to $21.1 million at December 31, 2013.
Net cash provided by operating activities was $1.9 million for the three months ended
March 31, 2014, driven by positive working capital changes. Net cash used in operating activities was $195,000 for the three months ended March 31, 2013, driven by an operating loss of $947,000, offset in part by non-cash expenses of
$462,000 and positive working capital changes.
Investing activities provided $1.1 million of cash for the three months ended
March 31, 2014, due to $1.2 million of net proceeds of short-term investments. Investing activities provided cash of $561,000 for the three months ended March 31, 2013, due primarily to net proceeds of short-term investments of $579,000.
Financing activities generated $280,000 during the three months ended March 31, 2014, and $1,000 during the three months ended
March 31, 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 $828,000 for the remainder of 2014, $1.1 million in 2015, $1.1 million in 2016, $1.1 million in 2017, $1.1 million in 2018 and $1.5 million thereafter;
|
|
|
•
|
|
In conjunction with our activities under our ODAs with Microsoft, we enter OVRP commitments with Microsoft. Under these OVRPs, we are provided with volume pricing on a customer-by-customer basis assuming certain minimum
unit volumes are met. The OVRP terms are 12 months. In the event we don’t meet the committed minimum unit volumes, we are obligated to pay the difference between the committed per-unit volume rate and the actual per-unit rate we achieved
based upon actual units purchased. The OVRP arrangements do not equate to a minimum purchase commitment but rather, the arrangements are a volume pricing arrangement based upon actual volume purchased. In substantially all instances, we
have reciprocal agreements with our customers such that we will receive per-unit price adjustments, similar to the amounts we would subsequently owe to Microsoft if such OVRP volumes are not met. However, in the event a customer is unwilling or
unable to pay us, we would be negatively impacted. Based upon the credit-worthiness of our customers, our historical OVRP experience with our customers and OVRP arrangements in general, we do not believe we will incur any material liability in the
current or future periods.
|
Recently Issued Accounting Standards
See Note 1, “Summary of Significant Accounting Policies” in the Notes to Condensed Consolidated Financial Statements in Item 1.
18
|
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 Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. Our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this report. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the
end of the period covered by this report.
There were no changes to our disclosure or other internal controls during the three months
ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
There has been no material change in the risk factors set forth in Part I,
Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013, other than below.
Our business and results of operations would be adversely impacted in the event that we incur business losses that are not covered by or
exceed our existing business insurance coverage
We are insured against certain business risks and liabilities under our corporate
insurance policies. However to the extent that we incur losses in connection with our business that are not covered by our existing insurance policies or that exceed our existing policy coverage, our business and results of operations would be
adversely impacted.
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.
19
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: May 15, 2014
|
|
By:
|
|
/s/ J
ERRY
D. C
HASE
|
|
|
|
|
|
Jerry D. Chase
President and Chief Executive Officer
|
|
|
|
|
|
Date: May 15, 2014
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By:
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/s/ S
COTT
C. M
AHAN
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Scott C. Mahan
Senior Vice President, Operations and Chief Financial Officer
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BSQUARE CORPORATION
INDEX TO EXHIBITS
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Exhibit
Number
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Description
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Filed
Here
with
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Incorporated by Reference
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Form
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Filing Date
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Exhibit
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File No.
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3.1
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Amended and Restated Articles of Incorporation
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S-1
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8/17/1999
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3.1
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(a)
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333-85351
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3.1(a)
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Articles of Amendment to Amended and Restated Articles of Incorporation
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10-Q
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8/7/2000
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3.1
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000-27687
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3.1(b)
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Articles of Amendment to Amended and Restated Articles of Incorporation
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8-K
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10/11/2005
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3.1
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000-27687
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3.2
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Bylaws and all amendments thereto
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10-K
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3/19/2003
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3.2
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000-27687
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10.1(1)
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Employment Letter Agreement dated February 21, 2014 with Jerry Chase
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X
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10.2(1)
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Amended and Restated Employment Letter Agreement dated February 21, 2014 to Scott Mahan amending Employment Letter Agreement
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X
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10.3(1)
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Amended and Restated Employment Letter Agreement dated February 21, 2014 to Mark Whiteside amending Employment Letter Agreement
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X
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10.4(1)
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Employment Letter Agreement dated February 21, 2014 with Scott Caldwell
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X
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31.1
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Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
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X
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31.2
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Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
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X
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32.1
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Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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X
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32.2
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Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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X
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101.INS
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XBRL Instance Document
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X
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101.SCH
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XBRL Taxonomy Extension Schema
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X
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase
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101.LAB
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XBRL Taxonomy Extension Label Linkbase
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X
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase
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X
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(1)
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Indicates a management contract or compensatory plan or arrangement.
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21
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Exhibit 10.1(1)
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February 24, 2014
Jerry
D. Chase
Dear Jerry,
BSQUARE Corporation (the
“Company”) is pleased to extend you an offer of employment as the Company’s President and Chief Executive Officer effective as of February 24, 2014. You will be paid bi-weekly at a rate equivalent to an annual salary of $325,000
(the “Base Salary”).
In addition to the Base Salary, you will be eligible to participate in the Company’s Annual Executive Bonus Program
(“AEBP”). Commencing in 2014, your annual bonus potential will be 77% of your Base Salary at 100% achievement. The Company’s executive bonus plan is structured such that no bonuses are paid until the Company achieves certain financial
targets and you achieve individual objectives that you and the Company’s Board of Directors (the “Board”) will agree upon. Bonuses are paid annually, in the first quarter following the close of the Company’s fiscal year, and are
payable at the sole discretion of the Compensation Committee of the Board. You must be employed by the Company at the end of the calendar year to be eligible to receive any bonus payout for that calendar year, and any bonus payout for 2014 will be
prorated based on the length of your employment during the year.
Your job classification is Executive. You will be employed as an exempt employee and
will not be entitled to overtime. You will be a Section 16 Executive, subject to certain BSQUARE stock trading restrictions and SEC reporting requirements.
You shall be eligible for the following benefits, in addition to any other benefits made available to you by the Company from time to time:
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A medical, dental, vision, life and disability plan
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A 401(k) retirement plan, with Company matching contributions
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Paid time off according to the Company’s standard policy
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Options to purchase 165,000 shares of the Company’s common stock provided you are employed by the Company in good standing at close of business on February 26, 2014 which shall be the grant date. Such options
shall be Non-Qualified Stock Options (NSOs), which shall vest as follows: 33% shall vest on February 24, 2015, and the balance will vest in equal monthly installments for two years thereafter. The strike price shall be the closing price of the
Company’s common stock on February 26, 2014. Stock options shall expire after 10 years.
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7,500 restricted stock units provided you are employed by the Company in good standing at close of business on February 26, 2014 which shall be the grant date, which shall vest as follows: 33% shall vest on
February 24, 2015, and the balance will vest in equal monthly installments for two years thereafter.
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In addition, you shall be
eligible to be reimbursed up to an aggregate of $63,000 for reasonable relocation expenses (including, without limitation, for reasonable visits by you and your immediate family, related airfare and other travel, meal and accommodations, and actual
moving costs) incurred for a period of six (6) months following your start date, to be paid upon presentation of appropriate receipts within ninety (90) days of your expenditure. In the unlikely event that your employment with the Company
terminates before February 24, 2015, except in the case of a termination without “cause” or due to a Change of Control (as defined below), you will be responsible for repaying the Company for all reimbursed relocation expenses from
any severance or other final pay you receive upon termination of employment.
110 110
th
Ave. NE., Suite 200, Bellevue, Washington 98004
Toll
Free:
888.820.4500
Main:
+1 425.519.5900
Fax:
+1 425.519.5999
Except as provided in the next paragraph, if your employment is terminated by the Company when neither
“cause” nor “long term disability” exists, and provided that you release the Company and its agents from any and all employment-related claims in a signed, written release satisfactory in form and substance to the Company,
(i) you will be entitled to receive severance equal to 12 months of your then annual Base Salary, (ii) you shall be eligible for continued COBRA coverage at the Company’s expense for a period of 12 months following your termination
date, and (iii) any AEBP bonus to which you would have otherwise been entitled as determined at the sole discretion of the Compensation Committee of the Board shall be payable on a pro rata basis as of your termination date. The foregoing
severance payments shall be paid out on regular payroll days post termination, subject to legally required and any individually agreed upon payroll deductions. During the period subsequent to your termination date in which you are being paid such
severance amounts, you would not be considered an employee and would therefore receive no Paid Time Off accrual, nor would you be entitled to benefits under the Company’s health and welfare plans or retirement savings plan as an active
employee, except as otherwise provided herein.
Immediately prior to consummation of a Change of Control, all of your unvested stock options or restricted
stock shall become fully vested and immediately exercisable. In addition, if your employment is terminated by the Company or any successor thereto within 18 months following a Change of Control when neither “cause” nor “long term
disability” exists or if you terminate your employment for “good reason,” and provided that you release the Company and any successor thereto and its respective agents from any and all employment-related claims in a signed, written
release satisfactory in form and substance to the Company or any successor thereto, you will be entitled to receive a one-time lump sum severance payment equal to (i) 18 months of your then annual Base Salary plus (ii) 66% of your target
AEBP bonus as may be modified from time to time by the Compensation Committee of the Board (provided the applicable percentage shall be 66% for 2014), and you shall be eligible for continued COBRA coverage at the Company’s expense for a period
of 18 months following your termination date. The foregoing severance payments shall be in lieu of the severance payments described in the preceding paragraph, and after expiration of the 18-month period following a Change of Control, you shall
continue to be entitled to receive the severance payments described in the preceding paragraph on the terms and conditions set forth therein.
For
purposes hereof, “cause,” “good reason” and “Change of Control” are defined on
Attachment A
hereto, and “long term disability” is defined in the Company’s sponsored Long Term Disability group
insurance plan.
No severance shall be payable hereunder unless the release described herein has been signed and become effective within sixty
(60) days from the date of termination (the “Release Deadline”). Upon the release becoming effective, any severance payable hereunder will be payable commencing on or as soon as administratively practicable after the Release Deadline.
In the event the termination occurs at a time during the calendar year when the release could become effective in the calendar year following the calendar year in which your termination occurs, then any payments hereunder that would be considered
deferred compensation under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations promulgated thereunder (“Section 409A”) will be paid commencing on the first payroll date to occur
during the calendar year following the calendar year in which such termination occurs, or, if later, the Release Deadline.
Notwithstanding any other
provision of this Letter Agreement, if at the time of the termination of your employment, you are a “specified employee,” determined in accordance with Section 409A, any payments and benefits provided hereunder that constitute
“nonqualified deferred compensation” subject to Section 409A that are provided on account of separation from service shall not be paid until the first payroll date to occur following the six-month anniversary of your termination date
(the “Specified Employee Payment Date”). The aggregate amount of any payments that would otherwise have been made during such six-month period shall be paid in a lump sum on the Specified Employee Payment Date without interest, and
thereafter, any remaining payments shall be paid without delay in accordance with their original schedule.
The foregoing provisions are intended to
comply with the requirements of Section 409A so that none of the benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply. You and the
Company agree to work together in good faith to consider amendments to this Letter Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to
actual payment to you under Section 409A.
Furthermore, notwithstanding any other provision of this Letter Agreement or any other plan, arrangement or
agreement to the contrary, if any of the payments or benefits provided or to be provided by the Company or any successor to you or for your benefit pursuant to the terms of this Letter Agreement or otherwise (“Covered Payments”) constitute
parachute payments (“Parachute Payments”) within the meaning of Section 280G of the Code and will be subject to the excise tax imposed under Section 4999 of the Code (or any successor provision thereto) or any interest or
penalties with respect to such excise tax (collectively, the “Excise Tax”), then the Company shall pay to you, no later than the time the Excise Tax is required to be paid by you or withheld by the Company, an additional amount (the
“Gross-up Payment”) equal to the sum of the Excise Tax payable by you, plus the amount necessary to put you in the same after-tax position (taking into account any and all applicable federal, state, local and foreign income, employment and
excise taxes (including the Excise Tax and any income and employment taxes imposed on the Gross-up Payment)) that you would have been in if you had not incurred any tax liability under Section 4999 of the Code. Any determination required under
this paragraph, including whether any payments or benefits are Parachute Payments, shall be made by the Company in its sole discretion. You shall provide the Company with such information and documents as the Company may reasonably request in order
to make a determination under this paragraph. The Company’s determinations shall be final and binding on the Company and you.
YOUR EMPLOYMENT IS
AT-WILL AND ACCORDINGLY, YOU OR THE COMPANY MAY TERMINATE THIS EMPLOYMENT RELATIONSHIP AT ANY TIME WITH OR WITHOUT NOTICE OR CAUSE.
This offer is
contingent upon compliance with the Immigration Reform and Control Act of 1986. The Act requires you to establish your identity and employment eligibility. To do so, on your start date you will be required to complete Section I of the Employment
Eligibility Verification Form, I-9. This offer is also contingent on your acceptance and return of the BSQUARE Proprietary Rights Agreement provided herewith.
This Letter Agreement will supersede that certain Individual Contractor Services Agreement dated September 23, 2013 between you and the Company in its
entirety. Please signify your acceptance hereof by signing and returning a copy of this Letter Agreement and the attached Proprietary Rights Agreement by the close of business on February 24, 2014.
On behalf of BSQUARE CORPORATION, I am very excited to have you on board!
Sincerely,
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BSQUARE CORPORATION
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Acknowledged and agreed:
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By:
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/s/ Jerry D. Chase
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Andrew Harries
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Jerry D. Chase
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Chairman of the Board of Directors
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ATTACHMENT A
For purposes of this Letter Agreement, “cause” means and is limited to dishonesty, fraud, commission of a felony or of a crime involving moral
turpitude, destruction or theft of Company property, physical attack to a fellow employee, intoxication at work, use of controlled substances or alcohol to an extent that materially impairs your performance of your duties, willful malfeasance or
gross negligence in the performance of your duties, violation of law in the course of employment that has a material adverse impact on the Company or its employees, your failure or refusal to perform your duties, your failure or refusal to follow
reasonable instructions or directions, misconduct materially injurious to the Company, neglect of duty, poor job performance, or any material breach of your duties or obligations to the Company that results in material harm to the Company.
For purposes hereof, “neglect of duty” means and is limited to the following circumstances: (i) you have, in one or more material respects,
failed or refused to perform your job duties in a reasonable and appropriate manner (including failure to follow reasonable directives), (ii) the Board, or a duly appointed representative of the Board, has counseled you in writing about the
neglect of duty and given you a reasonable opportunity to improve, and (iii) your neglect of duty either has continued at a material level after a reasonable opportunity to improve or has reoccurred at a material level within one year after you
were last counseled.
For purposes hereof, “poor job performance” means and is limited to the following circumstances: (i) you have, in one
or more material respects, failed to perform your job duties in a reasonable and appropriate manner, (ii) the Board, or a duly appointed representative of the Board, has counseled you in writing about the performance problems and given you a
reasonable opportunity to improve, and (iii) your performance problems either have continued at a material level after a reasonable opportunity to improve or the same or similar performance problems have reoccurred at a material level within
one year after you were last counseled.
For purposes of this Letter Agreement, “good reason” shall mean the occurrence of any of the following,
in each case without your written consent:
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(i)
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a material reduction in you Base Salary other than a general reduction in Base Salary that affects all similarly situated executives in substantially the same proportions;
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(ii)
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a material reduction in your AEBP bonus target; or
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(iii)
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a material, adverse change in your title, authority, duties or responsibilities (other than as required by applicable law).
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You cannot terminate your employment for good reason unless you have provided written notice to the Company of the existence of the circumstances providing
grounds for termination for good reason within thirty (30) days of the initial existence of such grounds and the Company has had at least thirty (30) days from the date on which such notice is provided to cure such circumstances. If you do
not terminate your employment for good reason within ninety (90) days after the first occurrence of the applicable grounds, then you will be deemed to have waived your right to terminate for good reason with respect to such grounds.
Further, for purposes of this Letter Agreement, a “Change of Control” shall mean:
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(i)
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the acquisition of the Company by another entity by means of merger, consolidation or other transaction or series of related transactions resulting in the exchange of the outstanding shares of the Company for securities
of, or consideration issued, or caused to be issued by, the acquiring entity or any of its affiliates, provided, that after such event the shareholders of the Company immediately prior to the event own less than a majority of the outstanding voting
equity securities of the surviving entity immediately following the event; or
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(ii)
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any sale, lease, exchange or other transfer not in the ordinary course of business (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company.
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Exhibit 10.2(1)
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Scott Mahan
Dear Scott,
BSQUARE Corporation (the “Company”) is pleased to offer you revised terms of employment as the Company’s Senior Vice President of Operations
and Chief Financial Officer effective as of February 21, 2014 (the “Effective Date”). As of the Effective Date, this letter agreement supersedes in full the letter agreement between you and the Company dated December 29, 2003, as
amended.
You will continue to report to the CEO. You will be paid bi-weekly at a rate equivalent to an annual salary of $277,957 (the “Base
Salary”). In addition to the Base Salary, you will continue to be eligible to participate in the Company’s Annual Executive Bonus Program (“AEBP”). Your 2014 annual bonus potential will be unchanged, at 50% of your Base Salary at
100% achievement. The Company’s executive bonus plan is structured such that no bonuses are paid until the Company achieves certain financial targets and you achieve individual objectives that you and the Company’s CEO will agree upon.
Bonuses are paid annually, in the first quarter following the close of the Company’s fiscal year, and are payable at the sole discretion of the Compensation Committee of the Company’s Board of Directors (the “Board”). You must be
employed by the Company at the end of the calendar year to be eligible to receive any bonus payout for that calendar year, except as otherwise specifically set out below.
Your job classification is Executive. You will continue to be employed as an exempt employee and will not be entitled to overtime. You will continue to be a
Section 16 Executive, subject to certain BSQUARE stock trading restrictions and SEC reporting requirements.
You shall be eligible for the following
benefits, in addition to any other benefits made available to you by the Company from time to time:
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•
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A medical, dental, vision, life and disability plan
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•
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A 401(k) retirement plan, with Company matching contributions
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•
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Paid time off according to the Company’s standard policy
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•
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A new grant of options to purchase 60,000 shares of the Company’s common stock, granted on February 26, 2014 provided you are employed in good standing as of this date. These options are Non-Qualified Stock
Options (NSOs), and shall vest as follows: 33% shall vest on the first anniversary of the grant date of February 26, 2014, and the balance will vest in equal monthly installments for two years thereafter. The strike price is the closing price
of the Company’s common stock on the grant date. Stock options expire after 10 years.
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•
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A new grant of 3,000 restricted stock units for shares of the Company’s common stock, granted on February 26, 2014 provided you are employed in good standing as of this date. These RSUs will vest as follows:
33% shall vest on the first anniversary of the grant date, and the balance will vest in equal monthly installments for two years thereafter.
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Except as provided in the next paragraph, if your employment is terminated by the Company when neither “cause” nor “long term disability”
exists, and provided that you release the Company and its agents from any and all employment-related claims in a signed, written release satisfactory in form and substance to the Company, (i) you will be entitled to receive severance equal to 9
months of your then annual Base Salary, (ii) your stock options and restricted stock units will continue to vest for 6 months from the termination date, (iii) you shall be eligible for continued COBRA coverage at the Company’s expense
for a period of 9 months following your termination date, and (iv) any AEBP bonus to which you would have otherwise been entitled as determined at the sole discretion of the Compensation Committee of the Board shall be payable on a pro rata
basis as of your termination date. The
foregoing severance payments shall be paid out on regular payroll days post termination, subject to legally required and any individually agreed upon payroll deductions. During the period
subsequent to your termination date in which you are being paid such severance amounts, you would not be considered an employee and would therefore receive no Paid Time Off accrual, nor would you be entitled to benefits under the Company’s
health and welfare plans or retirement savings plan as an active employee, except as otherwise provided herein.
Immediately prior to consummation of a
Change of Control, all of your unvested stock options and restricted stock units shall become fully vested and immediately exercisable. In addition, if your employment is terminated by the Company or any successor thereto within 12 months following
a Change of Control when neither “cause” nor “long term disability” exists or if you terminate your employment for “good reason,” and provided that you release the Company and any successor thereto and its respective
agents from any and all employment-related claims in a signed, written release satisfactory in form and substance to the Company or any successor thereto, you will be entitled to receive a one-time lump sum severance payment equal to (i) 12
months of your then annual Base Salary plus (ii) 66% of your target AEBP bonus as may be modified from time to time by the Compensation Committee of the Board (provided the applicable percentage shall be 66% for 2014), and you shall be eligible
for continued COBRA coverage at the Company’s expense for a period of 12 months following your termination date. The foregoing severance payments shall be in lieu of the severance payments described in the preceding paragraph, and after
expiration of the 12-month period following a Change of Control, you shall continue to be entitled to receive the severance payments described in the preceding paragraph on the terms and conditions set forth therein.
For purposes hereof, “cause,” “good reason” and “Change of Control” are defined on
Attachment A
hereto, and “long
term disability” is defined in the Company’s sponsored Long Term Disability group insurance plan.
No severance shall be payable hereunder
unless the release described herein has been signed and become effective within sixty (60) days from the date of termination (the “Release Deadline”). Upon the release becoming effective, any severance payable hereunder will be
payable commencing on or as soon as administratively practicable after the Release Deadline. In the event the termination occurs at a time during the calendar year when the release could become effective in the calendar year following the calendar
year in which your termination occurs, then any payments hereunder that would be considered deferred compensation under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations promulgated
thereunder (“Section 409A”) will be paid commencing on the first payroll date to occur during the calendar year following the calendar year in which such termination occurs, or, if later, the Release Deadline.
Notwithstanding any other provision of this Letter Agreement, if at the time of the termination of your employment, you are a “specified employee,”
determined in accordance with Section 409A, any payments and benefits provided hereunder that constitute “nonqualified deferred compensation” subject to Section 409A that are provided on account of separation from service shall
not be paid until the first payroll date to occur following the six-month anniversary of your termination date (the “Specified Employee Payment Date”). The aggregate amount of any payments that would otherwise have been made during such
six-month period shall be paid in a lump sum on the Specified Employee Payment Date without interest, and thereafter, any remaining payments shall be paid without delay in accordance with their original schedule.
The foregoing provisions are intended to comply with the requirements of Section 409A so that none of the benefits to be provided hereunder will be
subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply. You and the Company agree to work together in good faith to consider amendments to this Letter Agreement and to take such
reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to you under Section 409A.
Furthermore, notwithstanding any other provision of this Letter Agreement or any other plan, arrangement or agreement to the contrary, if any of the payments
or benefits provided or to be provided by the Company or any successor to you or for your benefit pursuant to the terms of this Letter Agreement or otherwise (“Covered Payments”) constitute parachute payments (“Parachute
Payments”) within the meaning of Section 280G of the Code and will be subject to the excise tax imposed under Section 4999 of the Code (or any successor provision thereto) or any interest or penalties with respect to such excise tax
(collectively, the “Excise Tax”), then the Company shall pay to you, no later than the time the Excise Tax is required to be paid by you or withheld by the Company, an additional
amount (the “Gross-up Payment”) equal to the sum of the Excise Tax payable by you, plus the amount necessary to put you in the same after-tax position (taking into account any and all
applicable federal, state, local and foreign income, employment and excise taxes (including the Excise Tax and any income and employment taxes imposed on the Gross-up Payment)) that you would have been in if you had not incurred any tax liability
under Section 4999 of the Code. Any determination required under this paragraph, including whether any payments or benefits are Parachute Payments, shall be made by the Company in its sole discretion. You shall provide the Company with such
information and documents as the Company may reasonably request in order to make a determination under this paragraph. The Company’s determinations shall be final and binding on the Company and you.
YOUR EMPLOYMENT IS AT-WILL AND ACCORDINGLY, YOU OR THE COMPANY MAY TERMINATE THIS EMPLOYMENT RELATIONSHIP AT ANY TIME WITH OR WITHOUT NOTICE OR CAUSE.
Please indicate your acceptance by signing and returning a copy of this Letter Agreement.
Sincerely,
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BSQUARE CORPORATION
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Acknowledged and agreed:
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By:
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/s/ Jerry Chase
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/s/ Scott Mahan
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Jerry Chase
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Scott Mahan
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President and CEO
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ATTACHMENT A
For purposes of this Letter Agreement, “cause” means and is limited to dishonesty, fraud, commission of a felony or of a crime involving moral
turpitude, destruction or theft of Company property, physical attack to a fellow employee, intoxication at work, use of controlled substances or alcohol to an extent that materially impairs your performance of your duties, willful malfeasance or
gross negligence in the performance of your duties, violation of law in the course of employment that has a material adverse impact on the Company or its employees, your failure or refusal to perform your duties, your failure or refusal to follow
reasonable instructions or directions, misconduct materially injurious to the Company, neglect of duty, poor job performance, or any material breach of your duties or obligations to the Company that results in material harm to the Company.
For purposes hereof, “neglect of duty” means and is limited to the following circumstances: (i) you have, in one or more material respects,
failed or refused to perform your job duties in a reasonable and appropriate manner (including failure to follow reasonable directives), (ii) the Board, or a duly appointed representative of the Board, has counseled you in writing about the
neglect of duty and given you a reasonable opportunity to improve, and (iii) your neglect of duty either has continued at a material level after a reasonable opportunity to improve or has reoccurred at a material level within one year after you
were last counseled.
For purposes hereof, “poor job performance” means and is limited to the following circumstances: (i) you have, in one
or more material respects, failed to perform your job duties in a reasonable and appropriate manner, (ii) the Board, or a duly appointed representative of the Board, has counseled you in writing about the performance problems and given you a
reasonable opportunity to improve, and (iii) your performance problems either have continued at a material level after a reasonable opportunity to improve or the same or similar performance problems have reoccurred at a material level within
one year after you were last counseled.
For purposes of this Letter Agreement, “good reason” shall mean the occurrence of any of the following,
in each case without your written consent:
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(i)
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a material reduction in you Base Salary other than a general reduction in Base Salary that affects all similarly situated executives in substantially the same proportions;
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(ii)
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a material reduction in your AEBP bonus target; or
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(iii)
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a material, adverse change in your title, authority, duties or responsibilities (other than as required by applicable law).
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You cannot terminate your employment for good reason unless you have provided written notice to the Company of the existence of the circumstances providing
grounds for termination for good reason within thirty (30) days of the initial existence of such grounds and the Company has had at least thirty (30) days from the date on which such notice is provided to cure such circumstances. If you do
not terminate your employment for good reason within ninety (90) days after the first occurrence of the applicable grounds, then you will be deemed to have waived your right to terminate for good reason with respect to such grounds.
Further, for purposes of this Letter Agreement, a “Change of Control” shall mean:
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(i)
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the acquisition of the Company by another entity by means of merger, consolidation or other transaction or series of related transactions resulting in the exchange of the outstanding shares of the Company for securities
of, or consideration issued, or caused to be issued by, the acquiring entity or any of its affiliates, provided, that after such event the shareholders of the Company immediately prior to the event own less than a majority of the outstanding voting
equity securities of the surviving entity immediately following the event; or
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(ii)
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any sale, lease, exchange or other transfer not in the ordinary course of business (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company.
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Exhibit 10.3(1)
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Mark Whiteside
Dear Mark,
BSQUARE Corporation (the “Company”) is pleased to offer you revised terms of employment as the Company’s Vice President of Professional
Services, US Solutions and International Sales effective as of February 21, 2014 (the “Effective Date”). As of the Effective Date this letter agreement supersedes in full the letter agreement between you and the Company dated
April 28, 2011, as amended.
You will continue to report to the CEO. You will be paid bi-weekly at a rate equivalent to an annual salary of $214,781
(the “Base Salary”). In addition to the Base Salary, effective as of January 1, 2014 you will be eligible for on target incentive compensation of 45% of your base pay at 100% achievement, governed and paid by the terms of your
Incentive Compensation plan then in effects. Effective as of January 1, 2014 you will no longer participate in the Company’s Annual Executive Bonus Program.
Your job classification is Executive. You will continue to be employed as an exempt employee and will not be entitled to overtime. You will continue to be a
Section 16 Executive, subject to certain BSQUARE stock trading restrictions and SEC reporting requirements.
You shall be eligible for the following
benefits, in addition to any other benefits made available to you by the Company from time to time:
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•
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A medical, dental, vision, life and disability plan
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•
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A 401(k) retirement plan, with Company matching contributions
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•
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Paid time off according to the Company’s standard policy
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•
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A new grant of options to purchase 10,000 shares of the Company’s common stock, granted on February 26, 2014 provided you are employed in good standing as of this date. These options are Non-Qualified Stock
Options (NSOs), and shall vest as follows: 33% shall vest on the first anniversary of the grant date of February 26, 2014, and the balance will vest in equal monthly installments for two years thereafter. The strike price is the closing price
of the Company’s common stock on the grant date. Stock options expire after 10 years.
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Except as provided in the next paragraph, if
your employment is terminated by the Company when neither “cause” nor “long term disability” exists, and provided that you release the Company and its agents from any and all employment-related claims in a signed, written release
satisfactory in form and substance to the Company, (i) you will be entitled to receive severance equal to 6 months of your then annual Base Salary, (ii) your stock options and restricted stock units will continue to vest for 4 months from
the termination date, and (iii) you shall be eligible for continued COBRA coverage at the Company’s expense for a period of 6 months following your termination date. The foregoing severance payments shall be paid out on regular payroll
days post termination, subject to legally required and any individually agreed upon payroll deductions. During the period subsequent to your termination date in which you are being paid such severance amounts, you would not be considered an employee
and would therefore receive no Paid Time Off accrual, nor would you be entitled to benefits under the Company’s health and welfare plans or retirement savings plan as an active employee, except as otherwise provided herein.
Immediately prior to consummation of a Change of Control, all of your unvested stock options and restricted stock units shall become fully vested and
immediately exercisable. In addition, if your employment is terminated by the Company or any successor thereto within 9 months following a Change of Control when neither “cause” nor “long term disability” exists or if you
terminate your employment for “good reason,” and provided that you release the Company and any successor thereto and its respective agents from any and all employment-related claims in a
signed, written release satisfactory in form and substance to the Company or any successor thereto, you will be entitled to receive a one-time lump sum severance payment equal to 9 months of your
then annual Base Salary and you shall be eligible for continued COBRA coverage at the Company’s expense for a period of 9 months following your termination date. The foregoing severance payments shall be in lieu of the severance payments
described in the preceding paragraph, and after expiration of the 9-month period following a Change of Control, you shall continue to be entitled to receive the severance payments described in the preceding paragraph on the terms and conditions set
forth therein.
For purposes hereof, “cause,” “good reason” and “Change of Control” are defined on
Attachment A
hereto, and “long term disability” is defined in the Company’s sponsored Long Term Disability group insurance plan.
No severance shall be
payable hereunder unless the release described herein has been signed and become effective within sixty (60) days from the date of termination (the “Release Deadline”). Upon the release becoming effective, any severance payable
hereunder will be payable commencing on or as soon as administratively practicable after the Release Deadline. In the event the termination occurs at a time during the calendar year when the release could become effective in the calendar year
following the calendar year in which your termination occurs, then any payments hereunder that would be considered deferred compensation under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the
regulations promulgated thereunder (“Section 409A”) will be paid commencing on the first payroll date to occur during the calendar year following the calendar year in which such termination occurs, or, if later, the Release Deadline.
Notwithstanding any other provision of this Letter Agreement, if at the time of the termination of your employment, you are a “specified employee,”
determined in accordance with Section 409A, any payments and benefits provided hereunder that constitute “nonqualified deferred compensation” subject to Section 409A that are provided on account of separation from service shall
not be paid until the first payroll date to occur following the six-month anniversary of your termination date (the “Specified Employee Payment Date”). The aggregate amount of any payments that would otherwise have been made during such
six-month period shall be paid in a lump sum on the Specified Employee Payment Date without interest, and thereafter, any remaining payments shall be paid without delay in accordance with their original schedule.
The foregoing provisions are intended to comply with the requirements of Section 409A so that none of the benefits to be provided hereunder will be
subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply. You and the Company agree to work together in good faith to consider amendments to this Letter Agreement and to take such
reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to you under Section 409A.
Furthermore, notwithstanding any other provision of this Letter Agreement or any other plan, arrangement or agreement to the contrary, if any of the payments
or benefits provided or to be provided by the Company or any successor to you or for your benefit pursuant to the terms of this Letter Agreement or otherwise (“Covered Payments”) constitute parachute payments (“Parachute
Payments”) within the meaning of Section 280G of the Code and will be subject to the excise tax imposed under Section 4999 of the Code (or any successor provision thereto) or any interest or penalties with respect to such excise tax
(collectively, the “Excise Tax”), then the Company shall pay to you, no later than the time the Excise Tax is required to be paid by you or withheld by the Company, an additional amount (the “Gross-up Payment”) equal to the sum
of the Excise Tax payable by you, plus the amount necessary to put you in the same after-tax position (taking into account any and all applicable federal, state, local and foreign income, employment and excise taxes (including the Excise Tax and any
income and employment taxes imposed on the Gross-up Payment)) that you would have been in if you had not incurred any tax liability under Section 4999 of the Code. Any determination required under this paragraph, including whether any payments
or benefits are Parachute Payments, shall be made by the Company in its sole discretion. You shall provide the Company with such information and documents as the Company may reasonably request in order to make a determination under this paragraph.
The Company’s determinations shall be final and binding on the Company and you.
YOUR EMPLOYMENT IS AT-WILL AND ACCORDINGLY, YOU OR THE COMPANY MAY
TERMINATE THIS EMPLOYMENT RELATIONSHIP AT ANY TIME WITH OR WITHOUT NOTICE OR CAUSE.
Please indicate your acceptance by signing and returning a copy of this Letter Agreement.
Sincerely,
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BSQUARE CORPORATION
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Acknowledged and agreed:
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By:
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/s/ Jerry Chase
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/s/ Mark Whiteside
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Jerry Chase
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Mark Whiteside
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President and CEO
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ATTACHMENT A
For purposes of this Letter Agreement, “cause” means and is limited to dishonesty, fraud, commission of a felony or of a crime involving moral
turpitude, destruction or theft of Company property, physical attack to a fellow employee, intoxication at work, use of controlled substances or alcohol to an extent that materially impairs your performance of your duties, willful malfeasance or
gross negligence in the performance of your duties, violation of law in the course of employment that has a material adverse impact on the Company or its employees, your failure or refusal to perform your duties, your failure or refusal to follow
reasonable instructions or directions, misconduct materially injurious to the Company, neglect of duty, poor job performance, or any material breach of your duties or obligations to the Company that results in material harm to the Company.
For purposes hereof, “neglect of duty” means and is limited to the following circumstances: (i) you have, in one or more material respects,
failed or refused to perform your job duties in a reasonable and appropriate manner (including failure to follow reasonable directives), (ii) the Board, or a duly appointed representative of the Board, has counseled you in writing about the
neglect of duty and given you a reasonable opportunity to improve, and (iii) your neglect of duty either has continued at a material level after a reasonable opportunity to improve or has reoccurred at a material level within one year after you
were last counseled.
For purposes hereof, “poor job performance” means and is limited to the following circumstances: (i) you have, in one
or more material respects, failed to perform your job duties in a reasonable and appropriate manner, (ii) the Board, or a duly appointed representative of the Board, has counseled you in writing about the performance problems and given you a
reasonable opportunity to improve, and (iii) your performance problems either have continued at a material level after a reasonable opportunity to improve or the same or similar performance problems have reoccurred at a material level within
one year after you were last counseled.
For purposes of this Letter Agreement, “good reason” shall mean the occurrence of any of the following,
in each case without your written consent:
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(i)
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a material reduction in you Base Salary other than a general reduction in Base Salary that affects all similarly situated executives in substantially the same proportions;
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(ii)
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a material reduction in your bonus target; or
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(iii)
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a material, adverse change in your title, authority, duties or responsibilities (other than as required by applicable law).
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You cannot terminate your employment for good reason unless you have provided written notice to the Company of the existence of the circumstances providing
grounds for termination for good reason within thirty (30) days of the initial existence of such grounds and the Company has had at least thirty (30) days from the date on which such notice is provided to cure such circumstances. If you do
not terminate your employment for good reason within ninety (90) days after the first occurrence of the applicable grounds, then you will be deemed to have waived your right to terminate for good reason with respect to such grounds.
Further, for purposes of this Letter Agreement, a “Change of Control” shall mean:
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(i)
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the acquisition of the Company by another entity by means of merger, consolidation or other transaction or series of related transactions resulting in the exchange of the outstanding shares of the Company for securities
of, or consideration issued, or caused to be issued by, the acquiring entity or any of its affiliates, provided, that after such event the shareholders of the Company immediately prior to the event own less than a majority of the outstanding voting
equity securities of the surviving entity immediately following the event; or
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(ii)
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any sale, lease, exchange or other transfer not in the ordinary course of business (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company.
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Exhibit 10.4(1)
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Scott Caldwell
Dear Scott,
BSQUARE Corporation (the “Company”) is pleased to offer you revised terms of employment as the Company’s Vice President of Worldwide OEM
Sales effective as of February 21, 2014 (the “Effective Date”). As of the Effective Date this letter agreement supersedes in full the prior agreements between you and the Company regarding your employment or compensation (excluding,
for clarity, any agreement regarding proprietary rights or confidentiality).
You will continue to report to the CEO. You will be paid bi-weekly at a rate
equivalent to an annual salary of $135,000 (the “Base Salary”). In addition to the Base Salary, you will continue to be eligible for on target incentive compensation of 140% of your Base Salary at 100% achievement, governed and paid by the
terms of your Incentive Compensation Plan then in effect.
You will continue to be employed as an exempt employee and will not be entitled to overtime.
You will be eligible for the following benefits, in addition to any other benefits made available to you by the Company from time to time:
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•
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A medical, dental, vision, life and disability plan
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•
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A 401(k) retirement plan, with Company matching contributions
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•
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Paid time off according to the Company’s standard policy
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•
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A new grant of options to purchase 30,000 shares of the Company’s common stock, granted on February 26, 2014 provided you are employed in good standing as of this date. These options are Non-Qualified Stock
Options (NSOs), and shall vest as follows: 33% shall vest on the first anniversary of the grant date of February 26, 2014, and the balance will vest in equal monthly installments for two years thereafter. The strike price is the closing price
of the Company’s common stock on the grant date. Stock options expire after 10 years.
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Except as provided in the next paragraph, if
your employment is terminated by the Company when neither “cause” nor “long term disability” exists, and provided that you release the Company and its agents from any and all employment-related claims in a signed, written release
satisfactory in form and substance to the Company, (i) you will be entitled to receive severance equal to 3 months of your then annual Base Salary and (ii) you shall be eligible for continued COBRA coverage at the Company’s expense
for a period of 3 months following your termination date. The foregoing severance payments shall be paid out on regular payroll days post termination, subject to legally required and any individually agreed upon payroll deductions. During the period
subsequent to your termination date in which you are being paid such severance amounts, you would not be considered an employee and would therefore receive no Paid Time Off accrual, nor would you be entitled to benefits under the Company’s
health and welfare plans or retirement savings plan as an active employee, except as otherwise provided herein.
Immediately prior to consummation of a
Change of Control, all of your unvested stock options and restricted stock units shall become fully vested and immediately exercisable. In addition, if your employment is terminated by the Company or any successor thereto within 9 months following a
Change of Control when neither “cause” nor “long term disability” exists or if you terminate your employment for “good reason,” and provided that you release the Company and any successor thereto and its respective
agents from any and all employment-related claims in a signed, written release satisfactory in form and substance to the Company or any successor thereto, you will be entitled to receive a one-time lump sum severance payment equal to 9 months of
your then annual Base Salary and you shall be eligible for continued COBRA coverage at the Company’s expense for a period of 9 months following
your termination date. The foregoing severance payments shall be in lieu of the severance payments described in the preceding paragraph, and after expiration of the 9-month period following a
Change of Control, you shall continue to be entitled to receive the severance payments described in the preceding paragraph on the terms and conditions set forth therein.
For purposes hereof, “cause,” “good reason” and “Change of Control” are defined on
Attachment A
hereto, and “long
term disability” is defined in the Company’s sponsored Long Term Disability group insurance plan.
No severance shall be payable hereunder
unless the release described herein has been signed and become effective within sixty (60) days from the date of termination (the “Release Deadline”). Upon the release becoming effective, any severance payable hereunder will be
payable commencing on or as soon as administratively practicable after the Release Deadline. In the event the termination occurs at a time during the calendar year when the release could become effective in the calendar year following the calendar
year in which your termination occurs, then any payments hereunder that would be considered deferred compensation under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations promulgated
thereunder (“Section 409A”) will be paid commencing on the first payroll date to occur during the calendar year following the calendar year in which such termination occurs, or, if later, the Release Deadline.
Notwithstanding any other provision of this Letter Agreement, if at the time of the termination of your employment, you are a “specified employee,”
determined in accordance with Section 409A, any payments and benefits provided hereunder that constitute “nonqualified deferred compensation” subject to Section 409A that are provided on account of separation from service shall
not be paid until the first payroll date to occur following the six-month anniversary of your termination date (the “Specified Employee Payment Date”). The aggregate amount of any payments that would otherwise have been made during such
six-month period shall be paid in a lump sum on the Specified Employee Payment Date without interest, and thereafter, any remaining payments shall be paid without delay in accordance with their original schedule.
The foregoing provisions are intended to comply with the requirements of Section 409A so that none of the benefits to be provided hereunder will be
subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply. You and the Company agree to work together in good faith to consider amendments to this Letter Agreement and to take such
reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to you under Section 409A.
Furthermore, notwithstanding any other provision of this Letter Agreement or any other plan, arrangement or agreement to the contrary, if any of the payments
or benefits provided or to be provided by the Company or any successor to you or for your benefit pursuant to the terms of this Letter Agreement or otherwise (“Covered Payments”) constitute parachute payments (“Parachute
Payments”) within the meaning of Section 280G of the Code and will be subject to the excise tax imposed under Section 4999 of the Code (or any successor provision thereto) or any interest or penalties with respect to such excise tax
(collectively, the “Excise Tax”), then the Company shall pay to you, no later than the time the Excise Tax is required to be paid by you or withheld by the Company, an additional amount (the “Gross-up Payment”) equal to the sum
of the Excise Tax payable by you, plus the amount necessary to put you in the same after-tax position (taking into account any and all applicable federal, state, local and foreign income, employment and excise taxes (including the Excise Tax and any
income and employment taxes imposed on the Gross-up Payment)) that you would have been in if you had not incurred any tax liability under Section 4999 of the Code. Any determination required under this paragraph, including whether any payments
or benefits are Parachute Payments, shall be made by the Company in its sole discretion. You shall provide the Company with such information and documents as the Company may reasonably request in order to make a determination under this paragraph.
The Company’s determinations shall be final and binding on the Company and you.
YOUR EMPLOYMENT IS AT-WILL AND ACCORDINGLY, YOU OR THE COMPANY MAY
TERMINATE THIS EMPLOYMENT RELATIONSHIP AT ANY TIME WITH OR WITHOUT NOTICE OR CAUSE.
Please indicate your acceptance by signing and returning a copy of this Letter Agreement.
Sincerely,
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BSQUARE CORPORATION
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Acknowledged and agreed:
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By:
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/s/ Jerry Chase
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/s/ Scott Caldwell
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Jerry Chase
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Scott Caldwell
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President and CEO
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ATTACHMENT A
For purposes of this Letter Agreement, “cause” means and is limited to dishonesty, fraud, commission of a felony or of a crime involving moral
turpitude, destruction or theft of Company property, physical attack to a fellow employee, intoxication at work, use of controlled substances or alcohol to an extent that materially impairs your performance of your duties, willful malfeasance or
gross negligence in the performance of your duties, violation of law in the course of employment that has a material adverse impact on the Company or its employees, your failure or refusal to perform your duties, your failure or refusal to follow
reasonable instructions or directions, misconduct materially injurious to the Company, neglect of duty, poor job performance, or any material breach of your duties or obligations to the Company that results in material harm to the Company.
For purposes hereof, “neglect of duty” means and is limited to the following circumstances: (i) you have, in one or more material respects,
failed or refused to perform your job duties in a reasonable and appropriate manner (including failure to follow reasonable directives), (ii) the Board, or a duly appointed representative of the Board, has counseled you in writing about the
neglect of duty and given you a reasonable opportunity to improve, and (iii) your neglect of duty either has continued at a material level after a reasonable opportunity to improve or has reoccurred at a material level within one year after you
were last counseled.
For purposes hereof, “poor job performance” means and is limited to the following circumstances: (i) you have, in one
or more material respects, failed to perform your job duties in a reasonable and appropriate manner, (ii) the Board, or a duly appointed representative of the Board, has counseled you in writing about the performance problems and given you a
reasonable opportunity to improve, and (iii) your performance problems either have continued at a material level after a reasonable opportunity to improve or the same or similar performance problems have reoccurred at a material level within
one year after you were last counseled.
For purposes of this Letter Agreement, “good reason” shall mean the occurrence of any of the following,
in each case without your written consent:
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|
(i)
|
a material reduction in you Base Salary other than a general reduction in Base Salary that affects all similarly situated executives in substantially the same proportions;
|
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|
(ii)
|
a material reduction in your bonus target; or
|
|
|
(iii)
|
a material, adverse change in your title, authority, duties or responsibilities (other than as required by applicable law).
|
You cannot terminate your employment for good reason unless you have provided written notice to the Company of the existence of the circumstances providing
grounds for termination for good reason within thirty (30) days of the initial existence of such grounds and the Company has had at least thirty (30) days from the date on which such notice is provided to cure such circumstances. If you do
not terminate your employment for good reason within ninety (90) days after the first occurrence of the applicable grounds, then you will be deemed to have waived your right to terminate for good reason with respect to such grounds.
Further, for purposes of this Letter Agreement, a “Change of Control” shall mean:
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(i)
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the acquisition of the Company by another entity by means of merger, consolidation or other transaction or series of related transactions resulting in the exchange of the outstanding shares of the Company for securities
of, or consideration issued, or caused to be issued by, the acquiring entity or any of its affiliates, provided, that after such event the shareholders of the Company immediately prior to the event own less than a majority of the outstanding voting
equity securities of the surviving entity immediately following the event; or
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(ii)
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any sale, lease, exchange or other transfer not in the ordinary course of business (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company.
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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.
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Dated: May 15, 2014
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/s/ J
ERRY
D. C
HASE
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Jerry D, Chase
President and Chief Executive
Officer
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Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
RULE 13(a)-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Scott C. Mahan, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of BSQUARE Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
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Dated: May 15, 2014
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/s/ Scott C. Mahan
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Scott C. Mahan
Senior Vice President,
Operations and Chief Financial Officer
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Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
I, Jerry D. Chase, President and Chief Executive Officer, certify that:
1. To my knowledge, this report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
2. To my knowledge, the information contained in this report fairly presents, in all material respects, the financial condition and
results of operations of BSQUARE Corporation.
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Dated: May 15, 2014
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/s/ J
ERRY
D. C
HASE
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Jerry D. Chase
President and Chief Executive
Officer
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Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
I, Scott C. Mahan, Senior Vice President, Operations and Chief Financial Officer, certify that:
1. To my knowledge, this report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
2. To my knowledge, the information contained in this report fairly presents, in all material respects, the financial condition and
results of operations of BSQUARE Corporation.
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Dated: May 15, 2014
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/s/ Scott C. Mahan
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Scott C. Mahan
Senior Vice President,
Operations and Chief Financial Officer
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