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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2019

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 our 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 September 30, 2019, our operating results for nine months ended September 30, 2019 and 2018 and our cash flows for the nine months ended September 30, 2019 and 2018. The accompanying financial information as of December 31, 2018 is derived from audited financial statements as of that date.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC on March 4, 2019.

Effective July 1, 2019, we have made the following changes to our operating segments:

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Our Third-Party Software operating segment has been renamed to Partner Solutions;

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Our Professional Engineering Service operating segment has been renamed to Edge to Cloud, consistent with the suite of software and services we offer; and

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We combined our Proprietary Software operating segment into our Edge to Cloud operating segment as a result of management’s decision to stop marketing of DataV^tmas an IoT platform in the second quarter of 2019. Prior period segment amounts have been recast to reflect our reporting segments on a comparable basis.

See Note 9. “Information about Geographic Areas and Operating Segments,” for additional information on our segments.

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.

Recently Adopted Accounting Standards

Recently Adopted Accounting Standard

We adopted Accounting Standard Update (“ASU”) No. 2016-02, “Leases” (“ASU 2016-02”) on January 1, 2019. See Note 6, “Leases.”

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, assumptions used to determine the net present value of operating lease liabilities, and the fair values of acquired assets and liabilities, among other estimates. Actual results may differ from these estimates.

Loss Per Share

We compute basic loss per share using the weighted average number of common shares outstanding during the period. We consider restricted stock units as outstanding common shares 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 common shares 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 September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Stock options		1,534,817		1,679,969		1,560,546		1,584,046
Restricted stock units		59,130		51,679		78,430		64,043