Note 11 - Shareholders' Equity

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Shareholders' Equity and Share-based Payments [Text Block]

11. Shareholders’ Equity

Equity compensation plans

We have a stock plan (the “Stock Plan”) and an inducement stock plan for newly hired employees (the “Inducement Plan”) (collectively the “Plans”). Under the Plans, stock options may be granted with a fixed exercise price that is equivalent to the fair market value of our common stock on the date of grant. These options have a term of up to 10 years and vest over a predetermined period, generally 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, RSUs and PSUs.

Stock-based compensation

The estimated fair value of stock-based awards is recognized as compensation expense over the vesting period of the award, net of estimated forfeitures. We estimate forfeitures based on historical experience and expected future activity. The fair value of 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 PSUs is estimated at the grant date based on the fair value of each vesting tranche as calculated by a Monte Carlo simulation. The fair value of stock options 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:

	Year Ended December 31,
	2021			2020
Dividend yield		0	%		0	%
Expected life (in years)		4.9			4.9
Expected volatility		111	%		64	%
Risk-free interest rate		1.0	%		0.5	%

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

	Year Ended December 31,
	2021		2020
Cost of revenue — Edge to Cloud	$	35	$	79
Selling, general and administrative		625		735
Research and development		14		(2	)
Total stock-based compensation expense	$	674	$	812
Per basic share	$	0.04	$	0.06
Per diluted share	$	0.04	$	0.06

Stock option activity

The following table summarizes stock option activity: 

						Weighted Average
						Remaining
				Weighted Average		Contractual Life		Aggregate
	Number of Shares			Exercise Price		(in years)		Intrinsic Value
Balance at December 31, 2019		1,544,826		$	2.74		7.47
Granted		683,900			1.08
Exercised		(26,250	)		1.34
Forfeited		(215,218	)		1.50
Expired		(200,367	)		4.82
Balance at December 31, 2020		1,786,891			3.10		7.75	$	330,831
Granted		195,000			2.76
Exercised		(36,130	)		1.88
Forfeited		(180,592	)		1.95
Expired		(101,155	)		3.24
Balance at December 31, 2021		1,664,014			2.07		6.64	$	405,223
Vested and expected to vest at December 31, 2021		1,664,014			2.07		6.64		405,223
Exercisable at December 31, 2021		993,041		$	2.41		5.76	$	188,009

At December 31, 2021, total compensation cost related to stock options granted but not yet recognized, net of estimated forfeitures, was approximately $252,000. This cost will be amortized on the straight-line method over a weighted-average period of approximately 1.1 years.

The following table summarizes certain additional information about stock options:

	Year Ended December 31,
	2021		2020
Weighted average grant-date fair value for options granted during the year	$	2.86	$	1.08
Vested options in-the-money		327,476		71,993
Aggregate intrinsic value of options exercised during the year	$	1.88	$	1.00

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 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:

	Number of			Weighted Average
	Shares			Award Price
Unvested at December 31, 2019		112,846		$	1.44
Granted		219,596			1.48
Vested		(167,745	)		1.45
Forfeited		—			—
Unvested at December 31, 2020		164,697			1.48
Granted		90,343			2.72
Vested		(199,311	)		1.83
Forfeited		(21,115	)		1.48
Unvested at December 31, 2021		34,614			2.72
Expected to vest after December 31, 2021		34,614		$	2.72

At December 31, 2021, total compensation cost not yet recognized related to granted RSUs was approximately $33,000, net of estimated forfeitures. This cost will be amortized on the straight-line method over a weighted-average period of approximately 0.3 years.

Performance Stock Units

In  January 2021, we issued 500,000 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 $77,000 was recorded in the selling, general and administrative line of our consolidated statement of operations for the year ended December 31, 2021. The PSUs had no impact on cash in 2021. At December 31, 2021, total compensation cost not yet recognized related to granted PSUs was approximately $59,000 and will be amortized over a weighted-average period of approximately 3.5 years.

Common stock reserved for future issuance

The following table summarizes our shares of common stock reserved for future issuance under the Plans as of December 31, 2021:

Stock options outstanding	1,664,014
Restricted stock units outstanding	34,614
Performance stock units outstanding	500,000
Stock options available for future grant	1,095,772
Common stock reserved for future issuance	3,294,400

Common Stock Sales

In the second and third quarters of 2021, we sold 108,879 and 6,793,798 shares of our common stock, respectively, pursuant to a registration statement on Form S-3 under the Securities Act of 1933, as amended (the "Securities Act") filed in  March 2021. We received proceeds of approximately $31,936,000, net of issuance costs of $1,157,000. The issued shares and total paid-in capital are reflected in the consolidated statement of shareholders' equity for the twelve months ended December 31, 2021.