Note 10 - Shareholders' Equity

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

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

10. Shareholders’ Equity

Equity compensation plans

We have a stock plan (the “Stock Plan”) for equity awards to eligible service providers and an inducement stock plan for newly hired employees (the “Inducement Plan”) (collectively the “Plans”). We stopped using the Inducement Plan in 2019, although it continues to govern outstanding awards granted under it. Under the Stock Plan, 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 Stock Plan also allows 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, and we account for forfeitures as they occur. 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,
	2022			2021
Dividend yield		0	%		0	%
Expected life (in years)		5.9			4.9
Expected volatility		96	%		111	%
Risk-free interest rate		2.9	%		1.0	%

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,
	2022		2021
Cost of revenue — Edge to Cloud	$	12	$	35
Selling, general and administrative		401		625
Research and development		7		14
Total stock-based compensation expense	$	420	$	674
Per basic and diluted share	$	0.02	$	0.04

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, 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
Granted		112,000			1.57
Exercised		(69,631	)		1.16
Forfeited		(97,867	)		1.53
Expired		(69,238	)		3.21
Balance at December 31, 2022		1,539,278			2.05		5.17	$	43,783
Vested and expected to vest at December 31, 2022		1,539,278			2.05		5.17		43,783
Exercisable at December 31, 2022		1,169,731		$	2.22		4.53	$	31,617

At December 31, 2022, total compensation cost related to stock options granted but not yet recognized was approximately $137,000. This cost will be amortized on the straight-line method over a weighted-average period of approximately 0.9 years.

The following table summarizes certain additional information about stock options:

	Year Ended December 31,
	2022		2021
Weighted average grant-date fair value for options granted during the year	$	1.21	$	2.86
Vested options in-the-money		237,720		327,476
Aggregate intrinsic value of options exercised during the year	$	2,057	$	1.88

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, 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
Granted		83,221			3.25
Vested		(72,726	)		3.00
Forfeited		—			—
Unvested at December 31, 2022		45,109			3.25
Expected to vest after December 31, 2022		45,109		$	3.25

At December 31, 2022, total compensation cost not yet recognized related to granted RSUs was approximately $62,000. This cost will be amortized on the straight-line method over a weighted-average period of approximately 0.4 years.

Performance Stock Units

In January 2021, we awarded PSUs to our CEO and CFO. The PSUs vest based on a combination of Bsquare's stock price performance and continued employment. 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, and we record the expense in the selling, general and administrative line of our consolidated statement of operations. For the years ended December 31, 2022 and 2021, we recorded expense of approximately $36,000 and $77,000, respectively. At December 31, 2022, total compensation cost not yet recognized related to granted PSUs was approximately $23,300 and will be amortized over a weighted-average period of approximately 2.5 years.

In January 2022, the Compensation Committee of the Board of Directors (the "Committee") amended the PSU agreements, updating the definition of stock price performance, and reducing the total number of PSUs available to the CEO and CFO 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 the CEO and CFO 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 settle 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 December 31, 2022:

Stock options outstanding	1,539,278
Restricted stock units and performance stock units outstanding	461,776
Stock options available for future grant	905,551
Common stock reserved for future issuance	2,906,605

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.

Share Repurchase Program

In November 2022, the our Board of Directors authorized a share repurchase program (the “Program”) pursuant to which we can repurchase up to $5.0 million of our common stock. The Program has an expiration date of June 30, 2023, but provides for termination at any time.

A summary of common stock repurchase activity for the twelve months ended December 31, 2022 is presented in the following table:

	Year Ended December 31,
	2022		2021
Shares repurchased		178,857		—
Total cost of shares repurchased	$	202,947	$	—