Lantronix (LTRX) 10-Q 27 Jan 17 2017 Q2 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	6 Months Ended
	Dec. 31, 2016	Jan. 20, 2017
Document And Entity Information
Entity Registrant Name	LANTRONIX INC
Entity Central Index Key	1,114,925
Document Type	10-Q
Document Period End Date	Dec. 31, 2016
Amendment Flag	false
Current Fiscal Year End Date	--06-30
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		17,469,935
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2,017

Unaudited Condensed Consolidate

Unaudited Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2016	Jun. 30, 2016
Current assets:
Cash and cash equivalents	$ 6,698	$ 5,962
Accounts receivable, net	2,866	3,164
Inventories, net	7,614	6,584
Contract manufacturers' receivable	366	369
Prepaid expenses and other current assets	566	580
Total current assets	18,110	16,659
Property and equipment, net	1,402	1,569
Goodwill	9,488	9,488
Other assets	47	63
Total assets	29,047	27,779
Current liabilities:
Accounts payable	2,280	2,721
Accrued payroll and related expenses	2,833	1,817
Warranty reserve	153	138
Other current liabilities	3,235	2,922
Total current liabilities	8,501	7,598
Long-term capital lease obligations	87	116
Other non-current liabilities	353	347
Total liabilities	8,941	8,061
Commitments and contingencies (Note 7)
Stockholders' equity:
Common stock	2	2
Additional paid-in capital	209,754	209,297
Accumulated deficit	(190,021)	(189,952)
Accumulated other comprehensive income	371	371
Total stockholders' equity	20,106	19,718
Total liabilities and stockholders' equity	$ 29,047	$ 27,779

Unaudited Condensed Consolidat3

Unaudited Condensed Consolidated Statements of Operations - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Income Statement [Abstract]
Net revenue	[1]	$ 11,222	$ 9,540	$ 22,162	$ 20,113
Cost of revenue		5,410	4,951	10,650	10,457
Gross profit		5,812	4,589	11,512	9,656
Operating expenses:
Selling, general and administrative		3,873	3,814	7,715	7,539
Research and development		1,873	1,716	3,818	3,387
Total operating expenses		5,746	5,530	11,533	10,926
Income (loss) from operations		66	(941)	(21)	(1,270)
Interest expense, net		(6)	(9)	(13)	(15)
Other income, net		4	28	1	47
Income (loss) before income taxes		64	(922)	(33)	(1,238)
Provision for income taxes		23	6	30	21
Net income (loss)		$ 41	$ (928)	$ (63)	$ (1,259)
Net income (loss) per share (basic)		$ 0	$ (.06)	$ 0	$ (.08)
Net income (loss) per share (diluted)		$ 0	$ (.06)	$ 0	$ (.08)
Weighted-average common shares (basic)		17,347,000	15,160,000	17,300,000	15,131,000
Weighted-average common shares (diluted)		17,703,000	15,160,000	17,300,000	15,131,000
Net revenue from related parties		$ 0	$ 45	$ 0	$ 113
[1]	Includes net revenue from related parties

Consolidated Statements of Cash

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Operating activities
Net loss	$ (63)	$ (1,259)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Share-based compensation	421	485
Depreciation	304	423
Provision for excess and obsolete inventories	53	79
Changes in operating assets and liabilities:
Accounts receivable	298	315
Inventories	(1,083)	1,563
Contract manufacturers' receivable	3	(113)
Prepaid expenses and other current assets	14	(215)
Other assets	14	25
Accounts payable	(477)	(1,352)
Accrued payroll and related expenses	1,016	(30)
Warranty reserve	15	(21)
Other liabilities	322	(290)
Cash received related to tenant lease incentives	0	53
Net cash provided by (used in) operating activities	837	(337)
Investing activities
Purchases of property and equipment	(99)	(103)
Net cash used in investing activities	(99)	(103)
Financing activities
Minimum tax withholding paid on behalf of employees for restricted shares	(87)	(46)
Proceeds from borrowings on line of credit	0	1,400
Payment of borrowings on line of credit	0	(1,400)
Net proceeds from issuances of common stock	117	95
Payment of capital lease obligations	(32)	(36)
Net cash provided by (used in) financing activities	(2)	13
Increase (decrease) in cash and cash equivalents	736	(427)
Cash and cash equivalents at beginning of period	5,962	4,989
Cash and cash equivalents at end of period	$ 6,698	$ 4,562

1. Summary of Significant Accou

1. Summary of Significant Accounting Policies	6 Months Ended
	Dec. 31, 2016
Accounting Policies [Abstract]
Summary of Significant Accounting Policies	The Company Lantronix, Inc. (the “Company,” “Lantronix,” “we,” “our,” or “us”) is a global provider of secure data access and management for Internet of Things (“IoT”) and information technology assets. Our mission is to be the leading provider of IoT gateways that enable companies to dramatically simplify the creation, deployment, and management of IoT projects while providing secure access to data for applications and people. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Lantronix have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Securities and Exchange Commission (“SEC”) Regulation S-X. Accordingly, they should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2016, included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2016, which was filed with the SEC on August 24, 2016. The unaudited condensed consolidated financial statements contain all normal recurring accruals and adjustments that in the opinion of management, are necessary to present fairly the consolidated financial position of Lantronix at December 31, 2016 and the consolidated results of our operations for the three and six months ended December 31, 2016 and our consolidated cash flows for the six months ended December 31, 2016. All intercompany accounts and transactions have been eliminated. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the three and six months ended December 31, 2016 are not necessarily indicative of the results to be expected for the full year or any future interim periods. Recent Accounting Pronouncements In March 2016, the Financial Accounting Standards Board (“FASB”) issued accounting guidance that changes how companies account for certain aspects of share-based payments to employees. Among other things, under the new guidance companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in-capital (“APIC”), but will instead record such items as income tax expense or benefit in the income statement, and APIC pools will be eliminated. Companies will apply this guidance prospectively. Another component of the new guidance allows companies to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards, whereby forfeitures can be estimated, as required historically, or recognized when they occur. If elected, the change to recognize forfeitures when they occur needs to be adopted using a modified retrospective approach. Lantronix adopted this guidance early for the fiscal year beginning July 1, 2016. In connection with the adoption, we have elected to recognize the impact of forfeitures on our share-based compensation expense as such forfeitures occur. Accordingly, as of July 1, 2016, we recorded a cumulative effect adjustment of approximately $6,000 to increase APIC and accumulated deficit. Going forward, we do not expect the adoption of this guidance to have a material effect on our financial statements. In February 2016, FASB issued an accounting standard that revises lease accounting guidance. The standard requires lessees to put most leases on their balance sheets, but recognize expenses on their income statements in a manner similar to the previous guidance. The standard will be effective for Lantronix in the fiscal year beginning July 1, 2019. Early adoption is permitted. We are currently evaluating the impact of this standard on our financial statements and related disclosures. In August 2014, FASB issued an accounting standard which requires management of an entity to assess, for each annual and interim period, if there is substantial doubt about the entity’s ability to continue as a going concern within one year of the financial statement issuance date. The definition of substantial doubt within the new standard incorporates a likelihood threshold of “probable” similar to the use of that term under current U.S. GAAP for loss contingencies. Certain disclosures are required if conditions give rise to substantial doubt about the entity’s ability to continue as a going concern. The standard became effective for Lantronix for the fiscal year beginning July 1, 2016. The adoption of this standard did not have a material impact on our financial statements and related disclosures. Revenue from Contracts with Customers In May 2014, FASB issued an accounting standard which superseded existing revenue recognition guidance under current U.S. GAAP. The standard is a comprehensive revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. In doing so, among other things, companies will generally need to use more judgment and make more estimates than under the current guidance. Recently, FASB has issued guidance clarifying certain topics such as (i) gross versus net revenue reporting, (ii) identifying performance obligations and licensing and (iii) accounting for shipping and handling fees and costs and accounting for consideration given by a vendor to a customer. The standard permits two methods of adoption: (i) retrospectively to each prior reporting period presented (the full retrospective method), or (ii) retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application (the cumulative catch-up transition method). We currently anticipate adopting the standard using the full retrospective method to restate each prior reporting period presented. The standard will be effective for Lantronix in the fiscal year beginning July 1, 2018, with an option to adopt the standard in the fiscal year beginning July 1, 2017. We are currently considering the effective date on which we plan to adopt the standard. We currently anticipate the standard will have a material impact on our financial statements and disclosures. While we continue to assess all potential impacts of the standard, we currently believe the most significant impact relates to our accounting for sales made to distributors under agreements which contain a limited right to return unsold products and price adjustment provisions. Under the existing revenue guidance, we have historically concluded that the price to these distributors is not fixed and determinable at the time we deliver products to them. Accordingly, revenue from sales to these distributors has not historically been recognized until the distributor resells the product. By contrast, under the new standard, we expect to recognize revenue, including estimates for applicable variable consideration, predominately at the time of shipment to these distributors.

2. Supplemental Financial Infor

2. Supplemental Financial Information	6 Months Ended
	Dec. 31, 2016
Supplemental Financial Information Details - Equivalents
Supplemental Financial Information	Inventories Inventories are stated at the lower of cost (first-in, first-out) or net realizable value and consist of the following: December 31, June 30, 2016 2016 (In thousands) Finished goods $ 4,345 $ 3,822 Raw materials 1,969 1,653 Finished goods held by distributors 1,300 1,109 Inventories, net $ 7,614 $ 6,584 Other Liabilities The following table presents details of our other liabilities: December 31, June 30, 2016 2016 (In thousands) Current Customer deposits and refunds $ 1,025 $ 663 Accrued raw materials purchases 646 582 Deferred revenue 188 427 Capital lease obligations 61 64 Taxes payable 272 275 Accrued operating expenses 1,043 911 Total other current liabilities $ 3,235 $ 2,922 Non-current Deferred rent $ 212 $ 225 Deferred revenue 141 122 Total other non-current liabilities $ 353 $ 347 Computation of Net Income (Loss) per Share Basic and diluted net income (loss) per share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the applicable period. The following table presents the computation of net income (loss) per share: Three Months Ended Six Months Ended 2016 2015 2016 2015 (In thousands, except per share data) Numerator: Net income (loss) $ 41 $ (928 ) $ (63 ) $ (1,259 ) Denominator: Weighted-average common shares outstanding (basic) 17,347 15,160 17,300 15,131 Effect of dilutive securities: Stock awards 356 – – – Denominator for net income (loss) per share (diluted) 17,703 15,160 17,300 15,131 Net income (loss) per share (basic) $ 0.00 $ (0.06 ) $ (0.00 ) $ (0.08 ) Net income (loss) per share (diluted) $ 0.00 $ (0.06 ) $ (0.00 ) $ (0.08 ) The following table presents the common stock equivalents excluded from the diluted net income (loss) per share calculation, because they were anti-dilutive for the periods presented. These excluded common stock equivalents could be dilutive in the future. Three Months Ended Six Months Ended 2016 2015 2016 2015 (In thousands) Common stock equivalents 2,190 3,857 2,446 3,774 Supplemental Cash Flow Information The following table presents non-cash investing and financing transactions excluded from the unaudited condensed consolidated statements of cash flows: Six Months Ended 2016 2015 (In thousands) Accrued property and equipment paid for in the subsequent period $ 36 $ 294 Non-cash acquisition of property and equipment under capital leases $ – $ 37 Non-cash tenant improvements paid by landlord $ – $ 190

3. Warranty Reserve

3. Warranty Reserve	6 Months Ended
	Dec. 31, 2016
Product Warranties Disclosures [Abstract]
Warranty Reserve	The standard warranty periods for our products typically range from one to five years. We establish reserves for estimated product warranty costs at the time revenue is recognized based upon our historical warranty experience, and additionally, for any known product warranty issues. Our warranty obligation is affected by product failure rates, and the use of materials or service delivery costs, which could differ from our estimates. As a result, increases or decreases to warranty reserves could be required, which could impact our gross margins. The following table presents details of our warranty reserve: Six Months Ended Year Ended December 31, June 30, 2016 2016 (In thousands) Beginning balance $ 138 $ 163 Charged to cost of revenue 50 91 Usage (35 ) (116 ) Ending balance $ 153 $ 138

4. Bank Line of Credit

4. Bank Line of Credit	6 Months Ended
	Dec. 31, 2016
Debt Disclosure [Abstract]
Bank Line of Credit	On September 22, 2016, we entered into an amendment (the “Amendment”) to our existing Loan and Security Agreement dated May 23, 2006 (as amended, the “Loan Agreement”) with Silicon Valley Bank (“SVB”). The Amendment provides, among other things, for a renewal of our $4.0 million revolving line of credit, based on qualified accounts receivable, with an extended maturity date of September 30, 2018. The Loan Agreement provides for an interest rate per annum equal to the greater of the prime rate plus 0.75% or 4.25%, provided that we maintain a monthly quick ratio of 1.0 to 1.0 or greater. The quick ratio measures our ability to use our cash and cash equivalents maintained at SVB to extinguish or retire our current liabilities immediately. If this ratio is not met, the interest rate will become the greater of the prime rate plus 1.25% or 4.25%. At December 31, 2016, we met the 1.0 to 1.0 or greater quick ratio. The Loan Agreement includes a covenant requiring us to maintain a certain Minimum Tangible Net Worth (“Minimum TNW”), currently required to be approximately $6.0 million. The Minimum TNW is subject to adjustment upward to the extent we raise additional equity or debt financing or achieve net income in future quarters. Our Actual Tangible Net Worth (“Actual TNW”) is calculated as total stockholders’ equity, less goodwill. The following table presents the Minimum TNW compared to our Actual TNW: December 31, 2016 (In thousands) Minimum TNW $ 6,021 Actual TNW $ 10,618 The following table presents certain information with respect to the Loan Agreement with SVB: December 31, June 30, 2016 2016 (In thousands) Outstanding borrowings on the line of credit $ – $ – Available borrowing capacity $ 2,647 $ 2,620 Outstanding letters of credit $ 51 $ 51 Our outstanding letters of credit were used as security deposits.

5. Stockholders' Equity

5. Stockholders' Equity	6 Months Ended
	Dec. 31, 2016
Equity [Abstract]
Stockholders' Equity	Stock Incentive Plans Our stock incentive plans permit the granting of stock options (both incentive and nonqualified stock options), restricted stock units (“RSUs”), stock appreciation rights, non-vested stock, and performance shares to certain employees, directors and consultants. As of December 31, 2016, no stock appreciation rights, non-vested stock, or performance shares were outstanding. Stock Options The following table presents a summary of activity during the six months ended December 31, 2016 with respect to our stock options: Weighted- Average Number of Exercise Price Shares per Share (In thousands) Balance of options outstanding at June 30, 2016 3,606 $ 1.85 Granted 722 1.36 Forfeited (19 ) 1.26 Expired (58 ) 2.71 Exercised – – Balance of options outstanding at December 31, 2016 4,251 $ 1.76 Restricted Stock Units The following table presents a summary of activity during the six months ended December 31, 2016 with respect to our RSUs: Weighted- Average Grant Date Number of Fair Value Shares per Share (In thousands) Balance of RSUs outstanding at June 30, 2016 460 $ 1.10 Granted 60 1.37 Vested (160 ) 1.10 Cancelled / forfeited – – Balance of RSUs outstanding at December 31, 2016 360 $ 1.15 In December 2016, 150,000 RSUs vested pursuant to a RSU grant made in April 2016 to Jeffrey Benck, our chief executive officer. In connection with the vesting of these RSUs, we issued approximately 94,000 shares of our common stock to Mr. Benck, and withheld the remaining 56,000 shares for purposes of employee payroll taxes. Employee Stock Purchase Plan Our 2013 Employee Stock Purchase Plan (the “ESPP”) is intended to provide employees with an opportunity to purchase our common stock through accumulated payroll deductions at the end of a specified purchase period. Each of our employees (including officers) is eligible to participate in the ESPP, subject to certain limitations as set forth in the ESPP. The following table presents a summary of activity under our ESPP during the six months ended December 31, 2016: Number of Shares (In thousands) Shares available for issuance at June 30, 2016 736 Shares issued (113 ) Shares available for issuance at December 31, 2016 623 Share-Based Compensation Expense The following table presents a summary of share-based compensation expense included in each functional line item on our unaudited condensed consolidated statements of operations: Three Months Ended Six Months Ended 2016 2015 2016 2015 (In thousands) Cost of revenue $ 13 $ 20 $ 24 $ 38 Selling, general and administrative 162 182 311 353 Research and development 45 50 86 94 Total share-based compensation expense $ 220 $ 252 $ 421 $ 485 The following table presents the remaining unrecognized share-based compensation expense related to our outstanding share-based awards as of December 31, 2016: Remaining Remaining Unrecognized Weighted- Compensation Average Years Expense To Recognize (In thousands) Stock options $ 1,331 3.1 RSUs 391 2.9 Stock purchase rights under ESPP 163 1.3 If there are any modifications or cancellations of the underlying unvested share-based awards, we may be required to accelerate, increase or cancel remaining unearned share-based compensation expense. Future share-based compensation expense and unearned share-based compensation will increase to the extent that we grant additional share-based awards.

6. Income Taxes

6. Income Taxes	6 Months Ended
	Dec. 31, 2016
Income Tax Disclosure [Abstract]
Income Taxes	We utilize the liability method of accounting for income taxes. The following table presents our effective tax rates based upon our provision for income taxes for the periods shown: Three Months Ended Six Months Ended 2016 2015 2016 2015 Effective tax rate 36% 1% 91% 2% The difference between our effective tax rates in the periods presented above and the federal statutory rate is primarily due to a tax benefit from our domestic losses being recorded with a full valuation allowance, as well as the effect of foreign earnings taxed at rates differing from the federal statutory rate. We record net deferred tax assets to the extent that we believe these assets will more likely than not be realized. As a result of our cumulative losses and uncertainty of generating future taxable income, we have provided a full valuation allowance against our net deferred tax assets as of December 31, 2016 and June 30, 2016.

7. Commitments and Contingencie

7. Commitments and Contingencies	6 Months Ended
	Dec. 31, 2016
Commitments and Contingencies Disclosure [Abstract]
Commitments and Contingencies	From time to time, we are involved in various legal proceedings and claims arising in the ordinary course of our business. Although the results of legal proceedings and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not, individually or in the aggregate, have a material adverse effect on our business, operating results, financial condition or cash flows. However, regardless of the outcome, litigation can have an adverse impact on us because of legal costs, diversion of management time and resources, and other factors.

1. Summary of Significant Acc12

1. Summary of Significant Accounting Policies (Policies)	6 Months Ended
	Dec. 31, 2016
Accounting Policies [Abstract]
The Company	The Company Lantronix, Inc. (the “Company,” “Lantronix,” “we,” “our,” or “us”) is a global provider of secure data access and management for Internet of Things (“IoT”) and information technology assets. Our mission is to be the leading provider of IoT gateways that enable companies to dramatically simplify the creation, deployment, and management of IoT projects while providing secure access to data for applications and people.
Basis of Presentation	Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Lantronix have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Securities and Exchange Commission (“SEC”) Regulation S-X. Accordingly, they should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2016, included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2016, which was filed with the SEC on August 24, 2016. The unaudited condensed consolidated financial statements contain all normal recurring accruals and adjustments that in the opinion of management, are necessary to present fairly the consolidated financial position of Lantronix at December 31, 2016 and the consolidated results of our operations for the three and six months ended December 31, 2016 and our consolidated cash flows for the six months ended December 31, 2016. All intercompany accounts and transactions have been eliminated. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the three and six months ended December 31, 2016 are not necessarily indicative of the results to be expected for the full year or any future interim periods.
Recent Accounting Pronouncements	Recent Accounting Pronouncements In March 2016, the Financial Accounting Standards Board (“FASB”) issued accounting guidance that changes how companies account for certain aspects of share-based payments to employees. Among other things, under the new guidance companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in-capital (“APIC”), but will instead record such items as income tax expense or benefit in the income statement, and APIC pools will be eliminated. Companies will apply this guidance prospectively. Another component of the new guidance allows companies to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards, whereby forfeitures can be estimated, as required historically, or recognized when they occur. If elected, the change to recognize forfeitures when they occur needs to be adopted using a modified retrospective approach. Lantronix adopted this guidance early for the fiscal year beginning July 1, 2016. In connection with the adoption, we have elected to recognize the impact of forfeitures on our share-based compensation expense as such forfeitures occur. Accordingly, as of July 1, 2016, we recorded a cumulative effect adjustment of approximately $6,000 to increase APIC and accumulated deficit. Going forward, we do not expect the adoption of this guidance to have a material effect on our financial statements. In February 2016, FASB issued an accounting standard that revises lease accounting guidance. The standard requires lessees to put most leases on their balance sheets, but recognize expenses on their income statements in a manner similar to the previous guidance. The standard will be effective for Lantronix in the fiscal year beginning July 1, 2019. Early adoption is permitted. We are currently evaluating the impact of this standard on our financial statements and related disclosures. In August 2014, FASB issued an accounting standard which requires management of an entity to assess, for each annual and interim period, if there is substantial doubt about the entity’s ability to continue as a going concern within one year of the financial statement issuance date. The definition of substantial doubt within the new standard incorporates a likelihood threshold of “probable” similar to the use of that term under current U.S. GAAP for loss contingencies. Certain disclosures are required if conditions give rise to substantial doubt about the entity’s ability to continue as a going concern. The standard became effective for Lantronix for the fiscal year beginning July 1, 2016. The adoption of this standard did not have a material impact on our financial statements and related disclosures. Revenue from Contracts with Customers In May 2014, FASB issued an accounting standard which superseded existing revenue recognition guidance under current U.S. GAAP. The standard is a comprehensive revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. In doing so, among other things, companies will generally need to use more judgment and make more estimates than under the current guidance. Recently, FASB has issued guidance clarifying certain topics such as (i) gross versus net revenue reporting, (ii) identifying performance obligations and licensing and (iii) accounting for shipping and handling fees and costs and accounting for consideration given by a vendor to a customer. The standard permits two methods of adoption: (i) retrospectively to each prior reporting period presented (the full retrospective method), or (ii) retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application (the cumulative catch-up transition method). We currently anticipate adopting the standard using the full retrospective method to restate each prior reporting period presented. The standard will be effective for Lantronix in the fiscal year beginning July 1, 2018, with an option to adopt the standard in the fiscal year beginning July 1, 2017. We are currently considering the effective date on which we plan to adopt the standard. We currently anticipate the standard will have a material impact on our financial statements and disclosures. While we continue to assess all potential impacts of the standard, we currently believe the most significant impact relates to our accounting for sales made to distributors under agreements which contain a limited right to return unsold products and price adjustment provisions. Under the existing revenue guidance, we have historically concluded that the price to these distributors is not fixed and determinable at the time we deliver products to them. Accordingly, revenue from sales to these distributors has not historically been recognized until the distributor resells the product. By contrast, under the new standard, we expect to recognize revenue, including estimates for applicable variable consideration, predominately at the time of shipment to these distributors.

2. Supplemental Financial Inf13

2. Supplemental Financial Information (Tables)	6 Months Ended
	Dec. 31, 2016
Supplemental Financial Information Details - Equivalents
Schedule of Inventory	December 31, June 30, 2016 2016 (In thousands) Finished goods $ 4,345 $ 3,822 Raw materials 1,969 1,653 Finished goods held by distributors 1,300 1,109 Inventories, net $ 7,614 $ 6,584
Schedule of Other Liabilities	December 31, June 30, 2016 2016 (In thousands) Current Customer deposits and refunds $ 1,025 $ 663 Accrued raw materials purchases 646 582 Deferred revenue 188 427 Capital lease obligations 61 64 Taxes payable 272 275 Accrued operating expenses 1,043 911 Total other current liabilities $ 3,235 $ 2,922 Non-current Deferred rent $ 212 $ 225 Deferred revenue 141 122 Total other non-current liabilities $ 353 $ 347
Schedule of Computation of Net Loss per Share	Three Months Ended Six Months Ended 2016 2015 2016 2015 (In thousands, except per share data) Numerator: Net income (loss) $ 41 $ (928 ) $ (63 ) $ (1,259 ) Denominator: Weighted-average common shares outstanding (basic) 17,347 15,160 17,300 15,131 Effect of dilutive securities: Stock awards 356 – – – Denominator for net income (loss) per share (diluted) 17,703 15,160 17,300 15,131 Net income (loss) per share (basic) $ 0.00 $ (0.06 ) $ (0.00 ) $ (0.08 ) Net income (loss) per share (diluted) $ 0.00 $ (0.06 ) $ (0.00 ) $ (0.08 )
Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share	Three Months Ended Six Months Ended 2016 2015 2016 2015 (In thousands) Common stock equivalents 2,190 3,857 2,446 3,774
Schedule of Supplemental Cash Flow Information	Six Months Ended 2016 2015 (In thousands) Accrued property and equipment paid for in the subsequent period $ 36 $ 294 Non-cash acquisition of property and equipment under capital leases $ – $ 37 Non-cash tenant improvements paid by landlord $ – $ 190

3. Warranty Reserve (Tables)

3. Warranty Reserve (Tables)	6 Months Ended
	Dec. 31, 2016
Product Warranties Disclosures [Abstract]
Schedule of warranty reserve	Six Months Ended Year Ended December 31, June 30, 2016 2016 (In thousands) Beginning balance $ 138 $ 163 Charged to cost of revenue 50 91 Usage (35 ) (116 ) Ending balance $ 153 $ 138

4. Bank Line of Credit (Tables)

4. Bank Line of Credit (Tables)	6 Months Ended
	Dec. 31, 2016
Debt Disclosure [Abstract]
Schedule of Minimum Tangible Net Worth	December 31, 2016 (In thousands) Minimum TNW $ 6,021 Actual TNW $ 10,618
Availability under the Line of Credit	December 31, June 30, 2016 2016 (In thousands) Outstanding borrowings on the line of credit $ – $ – Available borrowing capacity $ 2,647 $ 2,620 Outstanding letters of credit $ 51 $ 51

5. Stockholders' Equity (Tables

5. Stockholders' Equity (Tables)	6 Months Ended
	Dec. 31, 2016
Schedule of share-based compensation expense	Three Months Ended Six Months Ended 2016 2015 2016 2015 (In thousands) Cost of revenue $ 13 $ 20 $ 24 $ 38 Selling, general and administrative 162 182 311 353 Research and development 45 50 86 94 Total share-based compensation expense $ 220 $ 252 $ 421 $ 485
Schedule of unrecognized share-based compensation expense	Remaining Remaining Unrecognized Weighted- Compensation Average Years Expense To Recognize (In thousands) Stock options $ 1,331 3.1 RSUs 391 2.9 Stock purchase rights under ESPP 163 1.3
Stock Options [Member]
Summary of stock option activity	Weighted- Average Number of Exercise Price Shares per Share (In thousands) Balance of options outstanding at June 30, 2016 3,606 $ 1.85 Granted 722 1.36 Forfeited (19 ) 1.26 Expired (58 ) 2.71 Exercised – – Balance of options outstanding at December 31, 2016 4,251 $ 1.76
Restricted Stock Units (RSUs) [Member]
Summary of other-than-option activity	Weighted- Average Grant Date Number of Fair Value Shares per Share (In thousands) Balance of RSUs outstanding at June 30, 2016 460 $ 1.10 Granted 60 1.37 Vested (160 ) 1.10 Cancelled / forfeited – – Balance of RSUs outstanding at December 31, 2016 360 $ 1.15
ESPP [Member]
Summary of other-than-option activity	Number of Shares (In thousands) Shares available for issuance at June 30, 2016 736 Shares issued (113 ) Shares available for issuance at December 31, 2016 623

6. Income Taxes (Tables)

6. Income Taxes (Tables)	6 Months Ended
	Dec. 31, 2016
Income Tax Disclosure [Abstract]
Schedule of Effective Income Tax Rate	Three Months Ended Six Months Ended 2016 2015 2016 2015 Effective tax rate 36% 1% 91% 2%

2. Supplemental Financial Inf18

2. Supplemental Financial Information (Details - Inventories) - USD ($) $ in Thousands	Dec. 31, 2016	Jun. 30, 2016
Supplemental Financial Information Details - Equivalents
Finished goods	$ 4,345	$ 3,822
Raw materials	1,969	1,653
Finished goods held by distributors	1,300	1,109
Inventories, net	$ 7,614	$ 6,584

2. Supplemental Financial Inf19

2. Supplemental Financial Information (Details - Other liabilities) - USD ($) $ in Thousands	Dec. 31, 2016	Jun. 30, 2016
Current
Customer deposits and refunds	$ 1,025	$ 663
Accrued raw materials purchases	646	582
Deferred revenue	188	427
Capital lease obligations	61	64
Taxes payable	272	275
Other accrued liabilities	1,043	911
Total other current liabilities	3,235	2,922
Non-current
Deferred rent	212	225
Deferred revenue	141	122
Total other non-current liabilities	$ 353	$ 347

2. Supplemental Financial Inf20

2. Supplemental Financial Information (Details - Net Loss per Share) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Numerator:
Net income (loss)	$ 41	$ (928)	$ (63)	$ (1,259)
Denominator:
Weighted-average common shares outstanding (basic)	17,347,000	15,160,000	17,300,000	15,131,000
Effect of dilutive securities:
Stock awards	356,000	0	0	0
Denominator for net income (loss) per share (diluted)	17,703,000	15,160,000	17,300,000	15,131,000
Net income (loss) per share (basic)	$ 0	$ (.06)	$ 0	$ (.08)
Net income (loss) per share (diluted)	$ 0	$ (.06)	$ 0	$ (.08)

2. Supplemental Financial Inf21

2. Supplemental Financial Information (Details - Equivalents) - shares	3 Months Ended		6 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Supplemental Financial Information Details - Equivalents
Common stock equivalents	2,190,000	3,857,000	2,446,000	3,774,000

2. Supplemental Financial Inf22

2. Supplemental Financial Information (Details - Non-cash acquisition) - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Supplemental Cash Flow Information
Accrued property and equipment paid for in the subsequent period	$ 36	$ 294
Non-cash acquisition of property and equipment under capital leases	0	37
Non-cash tenant improvements paid by landlord	$ 0	$ 190

3. Warranty Reserve (Details -

3. Warranty Reserve (Details - Warranty reserve) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Dec. 31, 2016	Jun. 30, 2016
Product Warranties Disclosures [Abstract]
Beginning balance	$ 138	$ 163
Charged to cost of revenue	50	91
Usage	(35)	(116)
Ending balance	$ 153	$ 138

4. Bank Line of Credit (Details

4. Bank Line of Credit (Details - TNW) $ in Thousands	Dec. 31, 2016USD ($)
Debt Disclosure [Abstract]
Minimum TNW	$ 6,021
Actual TNW	$ 10,618

4. Bank Line of Credit (Detai25

4. Bank Line of Credit (Details - Credit Line) - USD ($) $ in Thousands	Dec. 31, 2016	Jun. 30, 2016
Debt Disclosure [Abstract]
Outstanding borrowings on the line of credit	$ 0	$ 0
Available borrowing capacity	2,647	2,620
Outstanding letters of credit	$ 51	$ 51

4. Bank Line of Credit and Debt

4. Bank Line of Credit and Debt (Details Narrative) $ in Thousands	6 Months Ended
	Dec. 31, 2016USD ($)
Debt Disclosure [Abstract]
Revolving Line	$4.0 million maximum revolving line
Credit line maximum borrowing amount	$ 4,000
Maturity date	Sep. 30, 2018
Interest rate description	The Loan Agreement provides for an interest rate per annum equal to the greater of the prime rate plus 0.75% or 4.25%, provided that we maintain a monthly quick ratio of 1.0 to 1.0 or greater.

5. Stockholders Equity (Details

5. Stockholders Equity (Details - Option activity) - Stock Options [Member]	6 Months Ended
	Dec. 31, 2016$ / sharesshares
Number of shares
Number of Shares Options Outstanding, Beginning | shares	3,606,000
Number of Shares Options Granted | shares	722,000
Number of Shares Options Forfeited | shares	(19,000)
Number of Shares Options Expired | shares	(58,000)
Number of Shares Options Outstanding, Ending | shares	4,521,000
Weighted Average Exercise Price per share
Exercise Price Outstanding, Beginning | $ / shares	$ 1.85
Exercise Price Granted | $ / shares	1.36
Exercise Price Forfeited | $ / shares	1.26
Exercise Price Expired | $ / shares	2.71
Exercise Price Outstanding, Ending | $ / shares	$ 1.76

5. Stockholders Equity (Detai28

5. Stockholders Equity (Details - RSU activity) - Restricted Stock Units (RSUs) [Member]	6 Months Ended
	Dec. 31, 2016$ / sharesshares
Number of RSU's Shares
Balance of RSU's, beginning | shares	460,000
Granted | shares	60,000
Vested | shares	(160,000)
Balance of RSU's, ending | shares	360,000
Weighted Average Grant Date Fair Value per share
RSU Shares Weighted-Average Grant-Date Fair Value per Share, beginning | $ / shares	$ 1.10
RSU Shares Granted, Weighted-Average Grant-Date Fair Value per Share | $ / shares	1.37
RSU Shares Vested, Weighted-Average Grant-Date Fair Value per Share | $ / shares	1.10
RSU Shares Weighted-Average Grant-Date Fair Value per Share, ending | $ / shares	$ 1.15

5. Stockholders Equity (Detai29

5. Stockholders Equity (Details - ESPP activity) - ESPP [Member]	6 Months Ended
	Dec. 31, 2016shares
Shares available for issuance at beginning of period	736,000
Shares issued	(113,000)
Shares available for issuance at end of period	623,000

5. Stockholders Equity (Detai30

5. Stockholders Equity (Details - Share based compensation) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Total share-based compensation	$ 220	$ 252	$ 421	$ 485
Cost of revenues [Member]
Total share-based compensation	13	20	24	38
Selling, general and administrative [Member]
Total share-based compensation	162	182	311	353
Research and development [Member]
Total share-based compensation	$ 45	$ 50	$ 86	$ 94

5. Stockholders Equity (Detai31

5. Stockholders Equity (Details - Unrecognized expense) $ in Thousands	6 Months Ended
	Dec. 31, 2016USD ($)
Stock Options [Member]
Unrecognized share-based compensation expense	$ 1,331
Weighted average years to recognize	3 years 1 month 6 days
Restricted Stock Units (RSUs) [Member]
Unrecognized share-based compensation expense	$ 391
Weighted average years to recognize	2 years 10 months 24 days
ESPP [Member]
Unrecognized share-based compensation expense	$ 163
Weighted average years to recognize	1 year 3 months 18 days

5. Stockholders' Equity (Detail

5. Stockholders' Equity (Details Narrative) - Restricted Stock Units (RSUs) [Member] - Benck [Member]	6 Months Ended
	Dec. 31, 2016shares
RSU's issued	94,000
Shares retained for payroll tax withholding	56,000

6. Income Taxes (Details - Effe

6. Income Taxes (Details - Effective tax rate)	3 Months Ended		6 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Income Tax Disclosure [Abstract]
Effective tax rate	36.00%	1.00%	91.00%	2.00%