BSQUARE Discontinues Manufacturing of the Power Handheld Device; Focuses solely on business of providing software and services to Smart Device makers.

BELLEVUE, Wash. -- BSQUARE (Nasdaq:BSQR) announced today that it has ended the manufacturing of its Power Handheld hardware device and restructured the Power Handheld business unit. The company will continue to sell the enabling software included in the device to smart device makers as a complement to the consulting services and software that the company offers today.

"BSQUARE is exiting the business of manufacturing and marketing our own device," noted Brian Crowley, president and CEO of BSQUARE. "We will leave that business to Original Equipment Manufacturers and we will focus on what we do best. This decision also removes the friction that has existed wherein we were competing with some of our own OEM customers."

"There is clearly a market opportunity for converged devices, however, we sold a relatively small number of units and the ongoing investment didn't make sense at the expense of our core business," said Crowley. "Before reaching this decision, we performed a thorough exploration of strategic options and ultimately could not find a viable sale or spinout alternative." BSQUARE had previously announced that it was exploring strategic alternatives for the Power Handheld business unit.

BSQUARE will retain the intellectual property incorporated in the Power Handheld device as part of its increasing investment in proprietary software products. "In our development efforts on behalf of smart device makers and ourselves, BSQUARE has created valuable radio interface layer, user interface, power management and information management software that smart device makers have licensed or expressed an interest in licensing for integration into Microsoft Windows CE and Windows Mobile-based handheld devices. We are making focused investments in productizing these technologies," commented Crowley. "We are retaining all the capabilities necessary to help bring smart devices to market; we just won't be bringing the devices to market ourselves."

As a result of this action, the majority of the Power Handheld personnel were terminated with the remainder reassigned into product development initiatives or retained to provide ongoing support for the Power Handheld device. BSQUARE will continue to provide warranty support for devices previously sold.

The decision will result in a charge of approximately $3.3 million in the second quarter relating to asset impairment and restructuring costs. In addition to this charge, the Power Handheld business unit incurred operating losses of approximately $1.2 million in the second quarter of 2004 on declining revenues of $370,000. The Power Handheld business segment will be reported as a discontinued operation in BSQUARE's financial results.

"The Power Handheld device was a significant diversification initiative for our company requiring a substantial cash investment," commented Crowley. "While we are disappointed with the outcome of this initiative, the decision is in the best interest of our shareholders, allowing us to trim our losses and cash burn significantly. In contrast to the Power Handheld business, we have made tremendous strides in stabilizing our core software and service business, positioning it for a return to profitability. With the discontinuation of the Power Handheld device, management can now turn its full attention to growing that core business."

BSQUARE will release earnings on July 29, 2004, after market close.

About BSQUARE

BSQUARE is a leading global provider of software, engineering services and consulting for the smart device market. Since 1994, BSQUARE has provided world-class device makers with the building blocks necessary to design, develop, and test innovative products quickly and cost effectively. A sample of BSQUARE customers includes Motorola, Hewlett-Packard, Texas Instruments, Vodafone U.K., HTC, Microsoft and others. BSQUARE is one of Microsoft's largest value-added partners worldwide for Windows Embedded software, a Gold-level Systems Integrator of the year and a leading Windows Mobile solutions provider for Smartphone and Pocket PC. BSQUARE is a Texas Instruments-licensed Independent OMAP(TM) (Open Multimedia Application Platform) Technology Center. The company's SDIO Now! technology has been adopted by over 60 top-tier smart device makers. For more information, visit BSQUARE at www.bsquare.com or call 888-820-4500.

BSQUARE is a registered trademark of BSQUARE Corporation.

This release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements relating to our projected financial results and outlook for our Power Handheld business. The words "believe," "expect," "intend," "anticipate," variations of such words, and similar expressions identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. Our forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict and could cause actual results to differ materially from those projected. Factors that could affect our actual results include a decline in the market for our products, technology licenses and services; a decline in the market for Windows-based or other smart devices or the failure of this market to develop as anticipated; adverse changes in macro-economic conditions; our ability to successfully implement, execute and make adjustments in our business strategy, business model or product offerings to meet the needs of our current, new and potential customers; risks associated with the effects of our restructurings; and our ability to successfully support our operations, competition and intellectual property risks. A more detailed description of certain factors that could affect actual results include, but are not limited to, those discussed in BSQUARE's Annual Report on Form 10-K for the year ended December 31, 2003 in the section entitled "Risk Factors" and in our subsequent Quarterly Report on Form 10-Q. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release. We undertake no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date of this release or to reflect the occurrence of unanticipated events.