Description of Business and Summary of Significant Accounting Policies

Description of business

BSQUARE Corporation (“BSQUARE,” “we,” “us” and “our”) was incorporated in Washington State in

July 1994.

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

Bsquare builds technology that is powering the next generation of intelligent systems. We help companies realize the promise of the Internet of Things (“IoT”) through the development of devices and systems that are cloud-enabled, share data seamlessly, facilitate distributed learning and control, and operate securely at scale. We believe that IoT-enabled systems can

not

only deliver value to our customers but also help people make better use of the resources of our planet. Bsquare's suite of services and software components create new revenue streams and operating models for our customers while providing opportunities for lowering costs and improving operations.

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 management's opinion, the unaudited condensed consolidated financial statements include all material adjustments, all of which are of a normal and recurring nature, necessary to present fairly our financial position as of

June 30, 2020

and our operating results and cash flows for

six

months ended

June 30, 2020

and

2019

. The accompanying financial information as of

December 31, 2019

is derived from our audited financial statements as of that date.

These unaudited condensed financial statements and related notes should be read in conjunction with our audited financial statements and related notes included in our Annual Report on Form

-K for the year ended

December 31, 2019

, as filed with the SEC on

February 24, 2020.

Basis of consolidation

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

Use of estimates

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

may

differ from these estimates and assumptions.

Income (Loss) Per Share

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

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Stock options		1,922,935		1,761,483		1,748,717		1,626,540
Restricted stock units		39,152		67,339		57,806		75,545

Small Business Administration Paycheck Protection Program loan

April 10, 2020,

we received loan proceeds of

$1.6

million (the “PPP Loan”) under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) administered by the Small Business Administration (“SBA”), provides for loans to qualifying companies in amounts up to

2.5

times their average payroll expenses. We treat our PPP Loan as financial liability and accrue interest under the interest method, per the terms of the underlying promissory note. On our balance sheet, amounts due within

months are classified as a current liability and amounts due more than

months after the balance sheet date are classified as a long-term liability.

COVID-

impact

March 2020,

the World Health Organization declared a pandemic related to the rapidly spreading coronavirus (“COVID-

19”

) outbreak. In addition, multiple governmental authorities have imposed “stay at home,” “shelter-in-place” and similar orders that have and

may

continue to disrupt business operations and present economic uncertainties. We are closely monitoring the impact of COVID-

on all aspects of our business, including how it has impacted and

may

continue to impact our customers, employees, suppliers, and vendors. For the quarterly period ended

June 30, 2020,

we experienced adverse conditions for our business as a result of COVID-

19,

including a reduction in customer demand for certain products. Due to the uncertainties surrounding COVID-

19,

we are unable to predict the extent the pandemic will continue to impact our operational and financial performance in future periods. We will continue to closely monitor the effects of the pandemic on our business operations and will make any necessary adjustments to our financial statements and presentation of operating results in future periods. As a result, our estimates and judgments

may

change materially as new events occur or additional information becomes available to us.