Shareholders' Equity

Equity Compensation Plans

We have a stock plan (the “Stock Plan”) and an inducement stock plan for newly hired employees (together with the Stock Plan, the “Plans”). Under the Plans, stock options to purchase shares of our common stock

may

be granted with a fixed exercise price that is equal to the fair market value of our common stock on the date of grant. These options have a term of up to

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, restricted and unrestricted stock awards, and restricted stock units (“RSUs”).

Stock-Based Compensation

The estimated fair value of stock-based awards is recognized as compensation expense over the vesting period of the award, net of estimated forfeitures. We estimate forfeitures based on historical experience and expected future activities. The fair value of RSUs is determined based on the number of shares granted and the quoted price of our common stock on the date of grant. The fair value of stock option awards is estimated at the grant date based on the fair value of each vesting tranche as calculated by the Black-Scholes-Merton (“BSM”) option-pricing model. The BSM model requires various highly judgmental assumptions including expected volatility and option life. If any of the assumptions used in the BSM model change significantly, stock-based compensation expense

may

differ materially in the future from that recorded in the current period. The fair values of our stock option grants and RSUs were estimated with the following weighted average assumptions:

	Three Months Ended March 31,
	2021			2020
Dividend yield		0	%		0	%
Expected life (years)		4.9			4.9
Expected volatility		83	%		60	%
Risk-free interest rate		0.4	%		1.1	%

The impact on our results of operations from stock-based compensation expense was as follows (in thousands):

	Three Months Ended March 31,
	2021		2020
Cost of revenue — Edge to Cloud	$	15	$	4
Selling, general and administrative		146		206
Research and development		7		5
Total stock-based compensation expense	$	168	$	215

Stock Option Activity

The following table summarizes stock option activity under the Plans:

						Weighted
						Average
						Remaining
				Weighted		Contractual
	Number of			Average		Life		Aggregate
	Shares			Exercise Price		(in years)		Intrinsic Value
Balance at December 31, 2020		1,786,891		$	2.04		7.75	$	330,831
Granted		75,000			3.17
Exercised		(6,963	)		5.15
Forfeited		(32,450	)		1.02
Expired		(10,250	)		2.91
Balance at March 31, 2021		1,812,228			2.09		7.73		2,789,370
Vested and expected to vest at March 31, 2021		1,637,437			2.14		7.63		2,468,576
Exercisable at March 31, 2021		800,338			2.76		6.60		909,183

March 31, 2021

, total compensation cost related to stock options granted but

not

yet recognized, net of estimated forfeitures, was

$406,780.

This cost will be amortized on the straight-line method over a weighted-average period of approximately

1.4

years. The following table summarizes certain information about stock options:

	Three Months Ended March 31,
	2021		2020
Weighted average grant-date fair value of options granted during the period	$	3.17	$	1.02
Options in-the-money (in shares)		550,733		—
Aggregate intrinsic value of options exercised during the period	$	5.15	$	—

The aggregate intrinsic value represents the difference between the exercise price of the underlying options and the quoted price of our common stock for the number of options exercised during the periods indicated. We issue new shares of common stock upon exercise of stock options.

Restricted Stock Unit Activity

The following table summarizes RSU activity under the Plans:

	Number of			Weighted Average
	Shares			Award Price
Unvested at December 31, 2020		164,697		$	1.48
Granted		—			—
Vested		(54,899	)		1.48
Forfeited		—			—
Unvested at March 31, 2021		109,798			1.48
Expected to vest after March 31, 2021		107,223			1.48

March 31, 2021

, total compensation cost

not

yet recognized related to granted RSUs was approximately

$28,000,

net of estimated forfeitures. This cost will be amortized on the straight-line method over a weighted-average period of approximately

0.2

years.

Performance Stock Units

January 2021

we issued

500,000

performance stock units (PSUs) to our executives. The PSUs vest based on a combination of Bsquare's stock price performance and executive service (continued employment). The

first

vesting measurement date is

January 5, 2022

and the final measurement date is

July 5, 2025.

We estimated the fair value of the awards utilizing Monte Carlo simulations. Based on the Monte Carlo model, expense of approximately

$17,000

was recorded in the selling, general and administrative line of our income statement in the current period. The PSUs had

impact on our cash flow statement.

Common Stock Reserved for Future Issuance

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

March 31, 2021

	March 31, 2021
Stock options outstanding		1,812,228
Restricted stock units and performance stock units outstanding		609,798
Stock options and restricted stock units available for future grant		1,209,825
Common stock reserved for future issuance		3,631,851