Socket Mobile (SCKT) 10-Q 11 Aug 17 2017 Q2 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2017	Aug. 04, 2017
Document And Entity Information
Entity Registrant Name	Socket Mobile, Inc.
Entity Central Index Key	944,075
Document Type	10-Q
Document Period End Date	Jun. 30, 2017
Amendment Flag	false
Current Fiscal Year End Date	--12-31
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		5,998,920
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2,017

Statements of Income (Unaudited

Statements of Income (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Income Statement [Abstract]
Revenues	$ 5,805,605	$ 5,211,742	$ 11,427,699	$ 10,255,528
Cost of revenues	2,695,943	2,632,031	5,405,342	5,169,537
Gross profit	3,109,662	2,579,711	6,022,357	5,085,991
Operating expenses:
Research and development	858,772	741,113	1,655,380	1,398,131
Sales and marketing	741,558	682,756	1,500,806	1,369,524
General and administrative	601,294	576,553	1,290,098	1,139,104
Total operating expenses	2,201,624	2,000,422	4,446,284	3,906,759
Operating income	908,038	579,289	1,576,073	1,179,232
Interest expense, net	(30,678)	(29,766)	(60,354)	(73,410)
Net income before income taxes	877,360	549,523	1,515,719	1,105,822
Income tax expense	(387,437)	(32,585)	(639,988)	(40,570)
Net income	$ 489,923	$ 516,938	$ 875,731	$ 1,065,252
Net income per share:
Basic	$ 0.08	$ 0.09	$ 0.15	$ 0.19
Diluted	$ 0.07	$ 0.07	$ 0.12	$ 0.16
Weighted average shares outstanding:
Basic	5,965,479	5,821,891	5,939,304	5,733,267
Diluted	7,785,868	7,474,785	7,764,795	7,158,833

Balance Sheets (Unaudited)

Balance Sheets (Unaudited) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 2,134,411	$ 1,319,006
Accounts receivable, net	3,090,122	2,866,877
Inventories, net	2,234,148	1,537,439
Prepaid expenses and other current assets	506,993	259,464
Deferred cost on shipments to distributors	202,009	947,799
Total current assets	8,167,683	6,930,585
Property and equipment:
Machinery and office equipment	2,109,160	2,063,221
Computer equipment	838,849	945,054
Property and equipment, gross	2,948,009	3,008,275
Accumulated depreciation	(2,455,493)	(2,444,392)
Property and equipment, net	492,516	563,883
Goodwill	4,427,000	4,427,000
Other assets	64,278	75,918
Deferred tax assets	8,642,325	9,589,408
Total assets	21,793,802	21,586,794
Current liabilities:
Accounts payable and accrued expenses	1,581,155	1,581,226
Accrued payroll and related expenses	605,952	632,931
Deferred revenue on shipments to distributors	464,250	2,010,441
Related party convertible notes payable	752,625	752,625
Short term portion of deferred service revenue	39,992	47,776
Short term portion of capital leases and deferred rent	48,610	39,175
Total current liabilities	3,492,584	5,064,174
Long term portion of deferred service revenue	32,974	25,610
Long term portion of capital leases and deferred rent	302,596	327,078
Total liabilities	3,828,154	5,416,862
Stockholders’ equity:
Common stock, $0.001 par value: Authorized – 20,000,000 shares, Issued and outstanding – 5,973,413 shares at June 30, 2017 and 5,878,405 shares at December 31, 2016	5,973	5,878
Additional paid-in capital	63,306,513	62,889,851
Accumulated deficit	(45,346,838)	(46,725,797)
Total stockholders’ equity	17,965,648	16,169,932
Total liabilities and stockholders’ equity	$ 21,793,802	$ 21,586,794

Balance Sheets (Parenthetical)

Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2017	Dec. 31, 2016
LIABILITIES AND STOCKHOLDERS' EQUITY
Common stock par value	$ 0.001	$ 0.001
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares issued	5,973,413	5,878,405
Common stock, shares outstanding	5,973,413	5,878,405

Statements of Cash Flows (Unaud

Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Operating activities
Net income	$ 875,731	$ 1,065,252
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation	203,086	150,822
Depreciation and amortization	159,105	132,970
Deferred income tax expense	613,989	15,969
Changes in operating assets and liabilities:
Accounts receivable	(223,245)	(86,424)
Inventories	(696,709)	446,845
Prepaid expenses and other current assets	(247,529)	(110,870)
Other assets	11,640	(5,000)
Accounts payable and accrued expenses	(71)	(620,481)
Accrued payroll and related expenses	(26,979)	(42,383)
Net deferred income on shipments to distributors	35,921	170,333
Customer deposit		(640,440)
Deferred service revenue	(420)	(25,092)
Change in deferred rent	(2,086)	5,933
Net cash provided by operating activities	702,433	457,434
Investing activities
Purchases of equipment	(87,738)	(98,905)
Net cash used in investing activities	(87,738)	(98,905)
Financing activities
Payments on capital leases	(12,961)	(18,523)
Proceeds from borrowings under bank line of credit agreement		350,000
Repayments of borrowings under bank line of credit agreement		(350,000)
Repayments of related party notes payable		(500,000)
Stock options exercised	213,671	117,609
Warrants exercised		158,145
Net cash provided by (used in) financing activities	200,710	(242,769)
Net increase in cash and cash equivalents	815,405	115,760
Cash and cash equivalents at beginning of period	1,319,006	938,155
Cash and cash equivalents at end of period	2,134,411	1,053,915
Supplemental disclosure of cash flow information
Cash paid for interest	1,857	11,738
Supplemental disclosure of non-cash investing and financing activities
Cashless exercise of warrants		$ 35

Basis of Presentation

Basis of Presentation	6 Months Ended
	Jun. 30, 2017
Notes to Financial Statements
Basis of Presentation	NOTE 1 — Basis of Presentation The accompanying unaudited financial statements of Socket Mobile, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals considered necessary for fair presentation have been included. The results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any future period. These financial statements should be read in conjunction with the audited financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Summary of Significant Accounti

Summary of Significant Accounting Policies	6 Months Ended
	Jun. 30, 2017
Accounting Policies [Abstract]
Summary of Significant Accounting Policies	NOTE 2 — Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates, and such differences may be material to the financial statements. Cash Equivalents and Fair Value of Financial Instruments The Company considers all highly liquid investments purchased with a maturity date of 90 days or less at date of purchase to be cash equivalents. At June 30, 2017 and December 31, 2016, all of the Company’s cash and cash equivalents consisted of amounts held in demand deposit accounts in banks. The aggregate cash balance on deposit in these accounts are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company’s cash balance on deposit in these accounts may, at times, exceed the federally insured limits. The Company has never experienced any losses in such accounts. The carrying value of the Company’s cash and cash equivalents, accounts receivable, accounts payable, debt and foreign exchange contracts approximate fair value due to the relatively short period of time to maturity. Revenue Recognition and Deferred Revenue The Company adopted the new revenue recognition policy effective January 1, 2017. Instead of deferring 100% of revenue and cost of revenue until products are sold by distributors, the new policy recognizes revenue on sales to distributors when shipping of product is completed and title transfers to the distributor, less a reserve for estimated product returns (sales and cost of sales). The reserves are based on estimates of future returns calculated from actual return history plus knowledge of pending returns outside of the norm. Actual return history is approximately 20% of the channel inventory, primarily from stock rotations. To reflect the period-specific effects of applying the new policy, the Company reclassified the balance of net deferred revenue on shipments to distributors in the amount of $1,062,642 as of December 31, 2016 to a refund liability of $2,010,441 (deferred revenue on shipments to distributors) and an asset of $947,799 (deferred cost on shipments to distributors). The effect of the change on January 1, 2017 is a one-time reduction (debit) to net deferred revenue in the amount of $836,000 less the deferred tax effects of $333,000 for a net improvement in retained deficit of $503,000. At June 30, 2017, the deferred revenue and deferred cost on shipments to distributors were $464,250 and $202,009, respectively.

Inventories

Inventories	6 Months Ended
	Jun. 30, 2017
Inventory Disclosure [Abstract]
Inventories	NOTE 3 — Inventories Inventories consist principally of raw materials and sub-assemblies, which are stated at the lower of cost (first-in, first-out) or market. Inventories at June 30, 2017 and December 31, 2016 were as follows: June 30, December 31, 2017 2016 Raw materials and sub-assemblies $ 3,084,578 $ 2,665,185 Finished goods 340,205 64,359 Inventory reserves (1,190,635 ) (1,192,105 ) Inventories, net $ 2,234,148 $ 1,537,439

Short Term Related Party Conver

Short Term Related Party Convertible Notes Payable	6 Months Ended
	Jun. 30, 2017
Related Party Transactions [Abstract]
Short Term Related Party Convertible Notes Payable	NOTE 4 — Short Term Related Party Convertible Notes Payable Short Term Related Party Convertible Notes Payable The balance of short term convertible notes payable to officers and directors of the company is $752,625 at June 30, 2017 and December 31, 2016. $380,696 of these notes have an original term of four years that accrue interest at 8% per annum compounded quarterly, mature on September 4, 2017, and have a note holder call provision. $371,929 has an original term of four years that accrued interest at 18% per annum compounded quarterly through March 30, 2016 and at 12% thereafter, matures on September 4, 2017, and does not have a note holder call provision. Accrued interest for all convertible notes was $441,306 and $382,808 at June 30, 2017 and December 31, 2016, respectively and was included in Accounts Payable and Accrued Expenses. Interest expense for the three and six months ended June 30, 2017 was $29,789 and $58,497, respectively. Interest expense for the three and six months ended June 30, 2016 was $26,823 and $61,004, respectively. The notes and accrued interest are convertible into common stock at the option of the holder at $1.25 per share. The convertible notes are secured by all of the assets of the Company and are subordinated to amounts outstanding under the Company’s working capital bank line of credit with the Company’s bank.

Bank Financing Arrangements

Bank Financing Arrangements	6 Months Ended
	Jun. 30, 2017
Debt Disclosure [Abstract]
Bank Financing Arrangements	NOTE 5 — Bank Financing Arrangements On March 20, 2017, the Company completed a Business Financing Modification Agreement by and between the Company and Western Alliance Bank (the “Bank) to extend the expiration date of the revolving credit line for domestic portion to February 27, 2019. The international portion of the credit line was not changed and will expire on February 27, 2018. Under the terms of the credit facility agreement with the Bank, the Company may borrow up to $2.5 million, of which up to $2.0 million is based on qualified receivables from domestic customers and up to $0.5 million is based on qualified receivables from international customers. In addition, the Company must maintain a minimum liquidity ratio calculated at the end of each month of quick assets (cash plus qualified accounts receivable) to outstanding obligations to the Bank not less than 1.75 to 1.0. Advances against the domestic and international lines are calculated at 70% of qualified receivables. Borrowings under the lines bear an annual interest rate equal to the Bank’s prime rate (minimum of 3.25%) plus 1.5%. There is also a collateral handling fee of 0.1% per month of the financed receivables outstanding. The applicable interest and fees are calculated based on the actual amounts borrowed. The borrowings under the credit facility are secured by a first priority security interest in the assets of the Company. All advances are at the Bank’s discretion and the Bank is not obligated to make advances. The agreement may be terminated by the Company or by the Bank at any time. At June 30, 2017, there were no amounts borrowed, and the total borrowing capacity was approximately $1,960,000. No amounts were drawn under the Company’s bank credit lines during the three and six months ended June 30, 2017. Total interest expense on the amounts drawn under the Company’s bank credit lines in effect during the three and six months ended June 30, 2016, was $1,813 and $3,000, respectively.

Segment Information and Concent

Segment Information and Concentrations	6 Months Ended
	Jun. 30, 2017
Segment Reporting [Abstract]
Segment Information and Concentrations	NOTE 6 — Segment Information and Concentrations Segment Information The Company operates in one segment—mobile systems solutions for businesses. Mobile systems solutions typically consist of mobile devices such as smartphones or tablets, some with data collection peripherals, and third-party vertical applications software. The Company markets its products in the United States and foreign countries through its sales personnel and distributors. Revenues for the geographic areas for three and six months ended June 30, 2017 and 2016 were as follows: Three Months Ended June 30, Six Months Ended June 30, 2017 2016 2017 2016 Revenues: United States $ 4,666,816 $ 4,198,238 $ 9,008,465 $ 8,278,157 Europe 831,526 678,262 1,931,208 1,415,657 Asia and rest of world 307,263 335,242 488,026 561,714 Total revenues $ 5,805,605 $ 5,211,742 $ 11,427,699 $ 10,255,528 Export revenues are attributable to countries based on the location of the Company’s customers. The Company does not hold long-lived assets in foreign locations. Major Customers Customers who accounted for at least 10% of the Company’s total revenues for the three and six month periods ended June 30, 2017 and 2016 were: Three Months Ended June 30, Six Months Ended June 30, 2017 2016 2017 2016 Ingram Micro Inc. 33 % 27 % 39 % 25 % ScanSource, Inc. 26 % 15 % 20 % 14 % BlueStar, Inc. 17 % 21 % 16 % 23 % Spinal Modulation, Inc. * 12 % * 13 % _____________ * Customer accounted for less than 10% of total revenues for the period Concentration of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk include cash, cash equivalents and accounts receivable. The Company invests its cash in demand deposit accounts in banks. To date, the Company has not experienced losses on the investments. The Company’s trade accounts receivables are primarily with distributors. The Company performs ongoing credit evaluations of its customers’ financial condition but the Company generally requires no collateral. Reserves are maintained for potential credit losses, and such losses have been within management’s expectations. Customers who accounted for at least 10% of the Company’s accounts receivable balances at June 30, 2017 and December 31, 2016 were as follows: June 30, December 31, 2017 2016 Ingram Micro Inc. 43 % 49 % ScanSource, Inc. 24 % * BlueStar, Inc. 16 % 30 % _____________ * Customer accounted for less than 10% of total accounts receivable balances Concentration of Suppliers Several of the Company’s component parts are produced by a sole or limited number of suppliers. Shortages could occur in these essential materials due to increased demand, or to an interruption of supply. Suppliers may choose to restrict credit terms or require advance payments causing delays in the procurement of essential materials. If the Company were unable to procure certain of such materials, it could have a material adverse effect upon its results. At June 30, 2017, 18% of the Company’s accounts payable balances was concentrated in the top two suppliers. For the three months ended June 30, 2017, the top two suppliers accounted for 58% of the inventory purchases.

Stock-Based Compensation

Stock-Based Compensation	6 Months Ended
	Jun. 30, 2017
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Stock-Based Compensation	NOTE 7 — Stock-Based Compensation The Company recognizes the compensation cost in the financial statements for all stock-based awards to employees, including grants of employee stock options, based on the fair value of the awards as of the date that the awards are issued. The fair values of stock options are generally determined using a binomial lattice valuation model that incorporates assumptions about expected volatility, risk-free interest rate, dividend yield, and expected life. Compensation cost for stock-based awards is recognized on a straight-line basis over the vesting period. Total stock-based compensation expense for the three and six months ended June 30, 2017, was $107,389 and $203,086, respectively. Total stock-based compensation expense for the three and six months ended June 30, 2016, was $85,603 and $150,822, respectively. In the three and six months ended June 30, 2017, 182,300 stock options were granted at a weighted average per share fair value estimated at $2.71.

Net Income per Share Applicable

Net Income per Share Applicable to Common Stockholders	6 Months Ended
	Jun. 30, 2017
Income Statement [Abstract]
Net Income per Share Applicable to Common Stockholders	NOTE 8 — Net Income per Share Applicable to Common Stockholders The following table sets forth the computation of basic and diluted net income per share: Three Months Ended June 30, Six Months Ended June 30, 2017 2016 2017 2016 Numerator: Net income $ 489,923 $ 516,938 $ 875,731 $ 1,065,252 Convertible note interest $ 29,789 27,490 $ 58,497 61,671 Adjusted diluted net income $ 519,712 $ 544,428 $ 934,228 $ 1,126,923 Denominator: Weighted average common shares outstanding used in computing net income per share: Basic 5,965,479 5,821,891 5,939,304 5,733,267 Effect of dilutive stock options and convertible notes payable 1,820,389 1,652,894 1,825,491 1,425,566 Diluted 7,785,868 7,474,785 7,764,795 7,158,833 Net income per share applicable to common stockholders: Basic $ 0.08 $ 0.09 $ 0.15 $ 0.19 Diluted $ 0.07 $ 0.07 $ 0.12 $ 0.16

Income Taxes

Income Taxes	6 Months Ended
	Jun. 30, 2017
Income Tax Disclosure [Abstract]
Income Taxes	NOTE 9 — Income Taxes Effective December 31, 2016, the Company released a full valuation allowance for deferred taxes and set up deferred tax assets on the balance sheet. With the consideration of available evidence, including three consecutive years of increasing net income and expectations for continued sustainable profitable operations, the Company believed that, in accordance with the guidance provided by ASC 740, it is more likely than not to realize the majority of the value of federal and state deferred tax assets. The Company will continue to monitor the likelihood that it will be able to recover the deferred tax assets in the future. The Company has recorded a provision for income taxes of $387,437 and $32,585 for the three months ended June 30, 2017 and 2016, respectively, and $639,988 and $40,570 for the six-month periods ended June 30, 2017 and 2016, respectively. The 2017 provision of $639,988 includes deferred tax expense of $613,988, federal alternative minimum tax expense of $20,000, and state alternative minimum tax expense of $6,000. The provisions for income tax for 2016 include federal alternative minimum tax expense of $18,501, state alternative minimum tax expense of $6,100, and deferred tax expense of $15,969.

Commitments and Contingencies

Commitments and Contingencies	6 Months Ended
	Jun. 30, 2017
Commitments and Contingencies Disclosure [Abstract]
Commitments and Contingencies	NOTE 10 — Commitments and Contingencies Operating Lease The Company leases office space under a non-cancelable operating lease that provides the Company approximately 37,100 square feet in Newark, California. The lease agreement expires on June 30, 2022. Monthly base rent increases four percent per year annually on July 1 st Future minimum lease payments under the operating lease at June 30, 2017 are as shown below: Annual minimum payments: Amount 2017 (July 1, 2017 to December 31, 2017) $ 216,843 2018 442,359 2019 460,053 2020 478,455 2021 to 2022 751,269 Total minimum payments $ 2,348,979 Capital Lease Obligations The Company leases certain of its equipment under capital leases. These leases are collateralized by their underlying assets. At June 30, 2017 and December 31, 2016, equipment with a cost of $100,584 was subject to such financing arrangements. The accumulated depreciation of the assets associated with the capital leases as of June 30, 2017 and December 31, 2016, amounted to $37,307 and $20,173 respectively. Future minimum payments under capital lease and equipment financing arrangements as of June 30, 2017, are as follows: Annual minimum payments: Amount 2017 (July 1, 2017 to December 31, 2017) $ 15,230 2018 27,607 2019 18,635 2020 9,545 Total minimum payments 71,017 Less amount representing interest (4,625 ) Present value of net minimum payments 66,392 Short term portion of capital leases (27,758 ) Long term portion of capital leases $ 38,634 Purchase Commitments As of June 30, 2017, the Company has non-cancelable purchase commitments for inventory to be used in the ordinary course of business of approximately $3,248,000. Legal Matters The Company is subject to disputes, claims, requests for indemnification and lawsuits arising in the ordinary course of business. Under the indemnification provisions of the Company’s customer agreements, the Company routinely agrees to indemnify and defend its customers against infringement of any patent, trademark, copyright, trade secrets, or other intellectual property rights arising from customers’ legal use of the Company’s products or services. The exposure to the Company under these indemnification provisions is generally limited to the total amount paid for the indemnified products. However, certain indemnification provisions potentially expose the Company to losses in excess of the aggregate amount received from the customer. To date, there have been no claims against the Company by its customers pertaining to such indemnification provisions, and no amounts have been recorded. The Company is currently not a party to any material legal proceedings. Recently Issued Financial Accounting Standards In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718), which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The new guidance removes the present requirement to delay recognition of a windfall tax benefit until it reduces current taxes payable; instead, it is required to be recognized at the time of settlement, subject to normal valuation allowance considerations. We adopted the new standard effective January 1, 2017. In February 2016, the FASB issued ASU No. 2016-02, Leases, which eliminates the current tests for lease classification under U.S. GAAP and requires lessees to recognize the right-of-use assets and related lease liabilities on the balance sheet for all leases greater than one year in duration. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. ASU 2016-02 provides that lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. We are assessing the impact that ASU 2016-02 is anticipated to have on our financial statements. We currently expect that most of our operating lease commitments will be subject to the new standard and recognized as lease liabilities and right-of-use assets upon our adoption of ASU 2016-02. From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position, results of operations or cash flows upon adoption.

Summary of Significant Accoun16

Summary of Significant Accounting Policies (Policies)	6 Months Ended
	Jun. 30, 2017
Accounting Policies [Abstract]
Use of estimates	Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates, and such differences may be material to the financial statements.
Cash Equivalents and Fair Value of Financial Instruments	Cash Equivalents and Fair Value of Financial Instruments The Company considers all highly liquid investments purchased with a maturity date of 90 days or less at date of purchase to be cash equivalents. At June 30, 2017 and December 31, 2016, all of the Company’s cash and cash equivalents consisted of amounts held in demand deposit accounts in banks. The aggregate cash balance on deposit in these accounts are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company’s cash balance on deposit in these accounts may, at times, exceed the federally insured limits. The Company has never experienced any losses in such accounts. The carrying value of the Company’s cash and cash equivalents, accounts receivable, accounts payable, debt and foreign exchange contracts approximate fair value due to the relatively short period of time to maturity.
Revenue Recognition and Deferred Revenue	Revenue Recognition and Deferred Revenue The Company adopted the new revenue recognition policy effective January 1, 2017. Instead of deferring 100% of revenue and cost of revenue until products are sold by distributors, the new policy recognizes revenue on sales to distributors when shipping of product is completed and title transfers to the distributor, less a reserve for estimated product returns (sales and cost of sales). The reserves are based on estimates of future returns calculated from actual return history plus knowledge of pending returns outside of the norm. Actual return history is approximately 20% of the channel inventory, primarily from stock rotations. To reflect the period-specific effects of applying the new policy, the Company reclassified the balance of net deferred revenue on shipments to distributors in the amount of $1,062,642 as of December 31, 2016 to a refund liability of $2,010,441 (deferred revenue on shipments to distributors) and an asset of $947,799 (deferred cost on shipments to distributors). The effect of the change on January 1, 2017 is a one-time reduction (debit) to net deferred revenue in the amount of $836,000 less the deferred tax effects of $333,000 for a net improvement in retained deficit of $503,000. At June 30, 2017, the deferred revenue and deferred cost on shipments to distributors were $464,250 and $202,009, respectively.

Inventories (Tables)

Inventories (Tables)	6 Months Ended
	Jun. 30, 2017
Inventory Disclosure [Abstract]
Inventory components	Inventories consist principally of raw materials and sub-assemblies, which are stated at the lower of cost (first-in, first-out) or market. Inventories at June 30, 2017 and December 31, 2016 were as follows: June 30, December 31, 2017 2016 Raw materials and sub-assemblies $ 3,084,578 $ 2,665,185 Finished goods 340,205 64,359 Inventory reserves (1,190,635 ) (1,192,105 ) Inventories, net $ 2,234,148 $ 1,537,439

Segment Information and Conce18

Segment Information and Concentrations (Tables)	6 Months Ended
	Jun. 30, 2017
Segment Reporting [Abstract]
Revenue by geographic areas	Segment Information The Company operates in one segment—mobile systems solutions for businesses. Mobile systems solutions typically consist of mobile devices such as smartphones or tablets, some with data collection peripherals, and third-party vertical applications software. The Company markets its products in the United States and foreign countries through its sales personnel and distributors. Revenues for the geographic areas for three and six months ended June 30, 2017 and 2016 were as follows: Three Months Ended June 30, Six Months Ended June 30, 2017 2016 2017 2016 Revenues: United States $ 4,666,816 $ 4,198,238 $ 9,008,465 $ 8,278,157 Europe 831,526 678,262 1,931,208 1,415,657 Asia and rest of world 307,263 335,242 488,026 561,714 Total revenues $ 5,805,605 $ 5,211,742 $ 11,427,699 $ 10,255,528 Export revenues are attributable to countries based on the location of the Company’s customers. The Company does not hold long-lived assets in foreign locations.
Major customers accounted for at least 10% of total revenues	Major Customers Customers who accounted for at least 10% of the Company’s total revenues for the three and six month periods ended June 30, 2017 and 2016 were: Three Months Ended June 30, Six Months Ended June 30, 2017 2016 2017 2016 Ingram Micro Inc. 33 % 27 % 39 % 25 % ScanSource, Inc. 26 % 15 % 20 % 14 % BlueStar, Inc. 17 % 21 % 16 % 23 % Spinal Modulation, Inc. * 12 % * 13 % _____________ * Customer accounted for less than 10% of total revenues for the period
Major customers accounted for at least 10% of net accounts receivable balances	Customers who accounted for at least 10% of the Company’s accounts receivable balances at June 30, 2017 and December 31, 2016 were as follows: June 30, December 31, 2017 2016 Ingram Micro Inc. 43 % 49 % ScanSource, Inc. 24 % * BlueStar, Inc. 16 % 30 % _____________ * Customer accounted for less than 10% of total accounts receivable balances

Net Income per Share Applicab19

Net Income per Share Applicable to Common Stockholders (Tables)	6 Months Ended
	Jun. 30, 2017
Income Statement [Abstract]
Net Income per Share Applicable to Common Stockholders (Tables)	The following table sets forth the computation of basic and diluted net income per share: Three Months Ended June 30, Six Months Ended June 30, 2017 2016 2017 2016 Numerator: Net income $ 489,923 $ 516,938 $ 875,731 $ 1,065,252 Convertible note interest $ 29,789 27,490 $ 58,497 61,671 Adjusted diluted net income $ 519,712 $ 544,428 $ 934,228 $ 1,126,923 Denominator: Weighted average common shares outstanding used in computing net income per share: Basic 5,965,479 5,821,891 5,939,304 5,733,267 Effect of dilutive stock options and convertible notes payable 1,820,389 1,652,894 1,825,491 1,425,566 Diluted 7,785,868 7,474,785 7,764,795 7,158,833 Net income per share applicable to common stockholders: Basic $ 0.08 $ 0.09 $ 0.15 $ 0.19 Diluted $ 0.07 $ 0.07 $ 0.12 $ 0.16

Commitments and Contingencies (

Commitments and Contingencies (Tables)	6 Months Ended
	Jun. 30, 2017
Commitments and Contingencies Disclosure [Abstract]
Future minimum payments for operating leases	Future minimum lease payments under the operating lease at June 30, 2017 are as shown below: Annual minimum payments: Amount 2017 (July 1, 2017 to December 31, 2017) $ 216,843 2018 442,359 2019 460,053 2020 478,455 2021 to 2022 751,269 Total minimum payments $ 2,348,979
Future minimum payments under capital lease and equipment financing arrangements	Future minimum payments under capital lease and equipment financing arrangements as of June 30, 2017, are as follows: Annual minimum payments: Amount 2017 (July 1, 2017 to December 31, 2017) $ 15,230 2018 27,607 2019 18,635 2020 9,545 Total minimum payments 71,017 Less amount representing interest (4,625 ) Present value of net minimum payments 66,392 Short term portion of capital leases (27,758 ) Long term portion of capital leases $ 38,634

Inventory Components (Details)

Inventory Components (Details) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Inventory Disclosure [Abstract]
Raw materials and sub-assemblies	$ 3,084,578	$ 2,665,185
Finished goods	340,205	64,359
Inventory reserves	(1,190,635)	(1,192,105)
Inventories, net	$ 2,234,148	$ 1,537,439

Short Term Related Party Conv22

Short Term Related Party Convertible Notes Payable (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Short term related party convertible notes payable	$ 752,625		$ 752,625		$ 752,625
Related party convertible notes payable maturity date	Sep. 4, 2017		Sep. 4, 2017
Accrued interest on related party convertible notes payable	$ 441,306		$ 441,306		$ 382,808
Interest expense on related party convertible notes payable	29,789	$ 26,823	58,497	$ 61,004
Short Term Related Party Convertible Notes Payable to Officers and Directors
Short term related party convertible notes payable	$ 380,696		$ 380,696
Conversion price	$ 1.25		$ 1.25
Annual interest rate on short term convertible notes payable, compounded quarterly	8.00%		8.00%
Short Term Related Party Convertible Notes Payable to Chairman
Short term related party convertible notes payable	$ 371,929	$ 371,929	$ 371,929	$ 371,929
Conversion price	$ 1.25	$ 1.25	$ 1.25	$ 1.25
Annual interest rate on short term convertible notes payable, compounded quarterly	12.00%	18.00%	12.00%	18.00%

Bank Financing Arrangements (De

Bank Financing Arrangements (Details Narrative) - USD ($)	Mar. 20, 2017	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Remaining borrowing capacity		$ 1,960,000		$ 1,960,000
Domestic Line of Credit
Aggregate maximum advance amount	$ 2,000,000
Borrowing capacity description	70% of qualified receivables
Debt reference rate	Bank's Prime Rate
Minimum interest rate on debt (as a percent)	3.25%
Basis point added to reference rate of debt	1.50%
Monthly collateral handling fee	0.10%
Interest expense			$ 1,813		$ 3,000
Line of credit expiration date	Feb. 27, 2019
Foreign Line of Credit
Aggregate maximum advance amount	$ 500,000
Borrowing capacity description	70% of qualified receivables
Debt reference rate	Bank's Prime Rate
Minimum interest rate on debt (as a percent)	3.25%
Basis point added to reference rate of debt	1.50%
Monthly collateral handling fee	0.10%
Line of credit expiration date	Feb. 27, 2018

Revenues By Geographic Areas (D

Revenues By Geographic Areas (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Revenues:	$ 5,805,605	$ 5,211,742	$ 11,427,699	$ 10,255,528
United States
Revenues:	4,666,816	4,198,238	9,008,465	8,278,157
Europe
Revenues:	831,526	678,262	1,931,208	1,415,657
Asia and rest of world
Revenues:	$ 307,263	$ 335,242	$ 488,026	$ 561,714

Major Customers Accounted for a

Major Customers Accounted for at Least 10% of Total Revenues (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Ingram Micro, Inc.
Percent of total revenues	33.00%	27.00%	39.00%	25.00%
Threshold percentage for disclosure	10.00%	10.00%	10.00%	10.00%
BlueStar, Inc.
Percent of total revenues	17.00%	21.00%	16.00%	23.00%
Threshold percentage for disclosure	10.00%	10.00%	10.00%	10.00%
ScanSource, Inc.
Percent of total revenues	26.00%	15.00%	20.00%	14.00%
Threshold percentage for disclosure	10.00%	10.00%	10.00%	10.00%
Spinal Modulation, Inc.
Percent of total revenues		12.00%		13.00%
Threshold percentage for disclosure	10.00%	10.00%	10.00%	10.00%

Major Customers Accounted for26

Major Customers Accounted for at Least 10% of Net Accounts Receivable Balances (Details)	Jun. 30, 2017	Dec. 31, 2016
Ingram Micro, Inc.
Percent of net accounts receivable balances	43.00%	49.00%
Threshold percentage for disclosure	10.00%	10.00%
ScanSource, Inc.
Percent of net accounts receivable balances	24.00%
Threshold percentage for disclosure	10.00%	10.00%
BlueStar, Inc.
Percent of net accounts receivable balances	16.00%	30.00%
Threshold percentage for disclosure	10.00%	10.00%

Concentration of Suppliers (Det

Concentration of Suppliers (Details Narrative)	3 Months Ended
	Jun. 30, 2017
Risks and Uncertainties [Abstract]
Accounts payable balances with top two suppliers	18.00%
Percentage of inventory purchases from top two suppliers	58.00%

Stock-Based Compensation (Detai

Stock-Based Compensation (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Stock-based compensation expenses	$ 107,389	$ 85,603	$ 203,086	$ 150,822
Stock options granted	182,300		182,300
Weighted average per share fair value	$ 2.71		$ 2.71

Net Income per Share Applicab29

Net Income per Share Applicable to Common Stockholders (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Numerator:
Net income	$ 489,923	$ 516,938	$ 875,731	$ 1,065,252
Convertible note interest	29,789	27,490	58,497	61,671
Adjusted diluted net income	$ 519,712	$ 544,428	$ 934,228	$ 1,126,923
Denominator: Weighted average common shares outstanding used in computing net income per share:
Basic	5,965,479	5,821,891	5,939,304	5,733,267
Effect of dilutive stock options and convertible notes payable	1,820,389	1,652,894	1,825,491	1,425,566
Diluted	7,785,868	7,474,785	7,764,795	7,158,833
Net income per share applicable to common stockholders:
Basic	$ 0.08	$ 0.09	$ 0.15	$ 0.19
Diluted	$ 0.07	$ 0.07	$ 0.12	$ 0.16

Income Taxes (Details Narrative

Income Taxes (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Income Tax Disclosure [Abstract]
Federal alternative minimum tax expense			$ 20,000	$ 18,501
State alternative minimum tax expense			6,000	6,100
Deferred tax expense			613,989	15,969
Total income tax expense	$ 387,437	$ 32,585	$ 639,988	$ 40,570

Commitments and Contingencies31

Commitments and Contingencies (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Commitments and Contingencies Disclosure [Abstract]
Rental expense for operating lease	$ 109,237	$ 109,507	$ 218,036	$ 218,045
Deferred rent	284,815		284,815		$ 286,901
Non-cancelable purchase commitments for inventory	3,248,000		3,248,000
Original cost of equipment under capital leases	100,584		100,584		100,584
Capital lease accumulated depreciation	$ 37,307		$ 37,307		$ 20,173

Future Minimum Payments for Ope

Future Minimum Payments for Operating Lease (Details)	Jun. 30, 2017USD ($)
Annual minimum payments:
2017 (July 1, 2017 to December 31, 2017)	$ 216,843
2,018	442,359
2,019	460,053
2,020	478,455
2021 to 2022	751,269
Total minimum payments	$ 2,348,979

Future Minimum Payments Under C

Future Minimum Payments Under Capital Lease And Equipment Financing Arrangements (Details)	Jun. 30, 2017USD ($)
Annual minimum payments:
2017 (July 1, 2017 to December 31, 2017)	$ 15,230
2,018	27,607
2,019	18,635
2,020	9,545
Total minimum payments	71,017
Less amount representing interest	(4,625)
Present value of net minimum payments	66,392
Short term portion of capital leases	(27,758)
Long term portion of capital leases	$ 38,634