Note 6 - Shareholders' Equity

3 Months Ended

Mar. 31, 2022

Notes to Financial Statements

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

6. 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:

	Three Months Ended March 31,
	2022			2021
Dividend yield		0	%		0	%
Expected life (years)		4.9			4.9
Expected volatility		111	%		83	%
Risk-free interest rate		1.8	%		0.4	%

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

	Three Months Ended March 31,
	2022		2021
Cost of revenue — Edge to Cloud	$	6	$	15
Selling, general and administrative		66		146
Research and development		3		7
Total stock-based compensation expense	$	75	$	168

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, 2021		1,664,014		$	2.07		6.64	$	405,223
Granted		50,000			1.84
Exercised		(54,167	)		1.20
Forfeited		(8,125	)		1.02
Expired		(26,625	)		3.45
Balance at March 31, 2022		1,625,097			2.07		6.70		385,088
Vested and expected to vest at March 31, 2022		1,625,097			2.07		6.70		385,088
Exercisable at March 31, 2022		988,838		$	2.38		6.13	$	189,808

At March 31, 2022, total compensation cost related to stock options granted but not yet recognized, net of estimated forfeitures, was $263,411. This cost will be amortized on the straight-line method over a weighted-average period of approximately 1.10 years. The following table summarizes certain information about stock options:

	Three Months Ended March 31,
	2022		2021
Weighted average grant-date fair value of options granted during the period	$	1.84	$	3.17
Options in-the-money (in shares)		312,661		550,733
Aggregate intrinsic value of options exercised during the period	$	1.20	$	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, 2021		34,614		$	2.72
Granted		—			—
Vested		(17,307	)		2.72
Forfeited		—			—
Unvested at March 31, 2022		17,307			2.72
Expected to vest after March 31, 2022		17,307		$	2.72

At March 31, 2022, total compensation cost not yet recognized related to granted RSUs was approximately $9,157, 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

In January 2021, we awarded PSUs to Messrs. Derrickson and Wheaton. The PSUs vest based on a combination of Bsquare's stock price performance and Messrs. Derrickson's and Wheaton's continued service. The first vesting measurement date was  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 $12,000 was recorded in the selling, general and administrative line of our consolidated statement of operations for the period ended March 31, 2022. At March 31, 2022, total compensation cost not yet recognized related to granted PSUs was approximately $48,000 and will be amortized over a weighted-average period of approximately 3.3 years.

In January 2022, the Compensation Committee of the board of directors (the "Committee") amended the PSUs, updating the definition of stock price performance, and reduced the total number of PSUs available to Messrs. Derrickson and Wheaton by 50,000 and 33,333 shares of common stock, respectively (the "2021 Shares"). In lieu of any claim to the 2021 Shares, each of Messrs. Derrickson and Wheaton received in February 2022 a cash settlement in an amount equal to the number of 2021 Shares multiplied by the closing price per share on January 5, 2022. Because the cash settlement was equal to the fair value of the 2021 Shares, we recognized the cash settlement as a charge to equity in the amount paid to repurchase the 2021 Shares.

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, 2022:

	March 31, 2022
Stock options outstanding		1,625,097
Restricted stock units and performance stock units outstanding		433,974
Stock options and restricted stock units available for future grant		1,045,772
Common stock reserved for future issuance		3,104,843