This Quarterly Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements include statements
forecasting our future financial condition and results, our future operating
activities, market acceptance of our products, expectations for general market
growth of mobile computing devices, growth in demand for our data capture
products, expansion of the markets that we serve, expansion of the distribution
channels for our products, and the timing of the introduction and availability
of new products, as well as other forecasts discussed under "Management's
Discussion and Analysis of Financial Condition and Results of Operations." Words
such as "may," "will," "predicts," "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates," variations of such words, and similar
expressions are intended to identify such forward-looking statements. Such
forward-looking statements are based on current expectations, estimates and
projections about our industry, and management's beliefs and assumptions. These
forward-looking statements are not guarantees of future performance and are
subject to risks and uncertainties; therefore, actual results and outcomes may
differ materially from what is expressed or forecasted in any such
forward-looking statements. Factors that could cause actual results and outcomes
to differ materially include,1 but are not limited to: volatility in the world
economy generally and in the markets we serve in particular, including the
impact of the COVID-19 pandemic; the risk of delays in the availability of our
products due to technological, market or financial factors including the
availability of product components and necessary working capital; our ability to
successfully develop, introduce and market future products; our ability to
effectively manage and contain our operating costs; the availability of
third-party hardware and software that our products are intended to work with;
product delays associated with new model introductions and product changeovers
by the makers of products that our products are intended to work with; continued
growth in demand for barcode scanners; market acceptance of emerging standards
such as RFID/Near Field Communications and of our related data capture products;
the ability of our strategic relationships to benefit our business as expected;
our ability to enter into additional distribution relationships; and other
factors described in this Form 10-Q including under "Risk Factors" and those
discussed in other documents we filed with the Securities and Exchange
Commission. We assume no obligation to update such forward-looking statements or
to update the reasons why actual results could differ materially from those
anticipated in such forward-looking statements.



You should read the following discussion in conjunction with the interim
condensed financial statements and notes included elsewhere in this report, the
Company's annual financial statements included in its Annual Report on Form
10-K, and other information contained in other reports and documents filed from
time to time with the Securities and Exchange Commission.



  15


  Index


The Company and its products





We are a leading innovator of data capture and delivery solutions for enhanced
productivity in workforce mobilization. Our products are incorporated into
mobile applications used in point of sale (POS), commercial services (field
workers), asset tracking, manufacturing process and quality control,
transportation and logistics (goods tracking and movement), event management
(ticketing, entry, access control, and identification), medical and education.
Our primary products are cordless data capture devices incorporating barcode
scanning or RFID/Near Field Communications (NFC) technologies that connect over
Bluetooth. All products work with applications running on smartphones, mobile
computers and tablets using operating systems from Apple® (iOS), Google™
(Android™) and Microsoft® (Windows®). We offer an easy-to-use software developer
kit (Capture SDK) to application developers, which enables them to provide their
users with our advanced barcode scanning features. Our products are integrated
in their application solutions and are marketed by the application developers or
the resellers of their applications. The number of our registered developers for
data capture applications continues to grow.



Companion SocketScan family. Our Companion SocketScan family consists of the
ergonomic and independent 700 series, including 1D Linear Imaging (S700), 1D
Laser (S730), and 1D/2D Universal Barcode (S740), available in multiple vivid
colors: blue, green, red, white, yellow and black.



Companion DuraScan Family. Our DuraScan® 700 Series Linear Barcode Scanner
(D700), Laser Barcode Scanner (D730) and Universal Barcode Scanner (D740, D745,
D750, D755, D760), are designed to be durable barcode scanners with IP54-rated
outer casing to withstand tougher environments. Universal Barcode Scanners
(D740, D745, D750, D755, D760) read all common 1D, stacked, 2D and postal codes.
D740 is priced competitively with a 1D barcode scanner, making D740 the
affordable 2D option available in the market. D760 includes MRZ
(machine-readable zone) support, making it capable of scanning passports, visas
and other travel documents. D745 and D755 are medical-grade, universal scanners.



Attachable Family. Our attachable scanners include DuraSled and SocketScan 800
Series scanners. DuraSled is a barcode scanning sled designed for durability. It
combines a phone with a scanner to create a one-handed solution. DuraSled
protects phones from impact damage and provides a robust charging solution for
all environments. It is easy-to-use and ideal for delivery services, stock
counting, ticketing and other application-driven mobile solutions.  The DuraSled
series are compatible with Apple, Samsung and Windows devices.



SocketScan 800 Series cordless barcode scanners, 1D linear imaging (S800) and 2D
(S840, S860) are attachable to smartphones, tablets and other mobile devices
with an easily detachable clip or DuraCase, creating a one-handed solution. S860
includes MRZ (machine-readable zone) support, making it capable of scanning
passports, visas and other travel documents in addition to barcodes. SocketScan
800 Series scanners may be used stand-alone as well.



Contactless RFID/NFC reader writer.  Our contactless product line includes D600
and S550. The D600, an ergonomically handheld model with IP54-rated outer
casing, can read and write many different types of electronic SmartTags or
transfer data with near field communication. The S550, a contactless membership
card reader/writer, is designed to facilitate tap-and-go smart card and NFC
applications. It combines the latest 13.56 MHz contactless technology with

Bluetooth LE connectivity.



  16


  Index



Software Developer Kit (Capture SDK). Our Software Developer Kit (Capture SDK)
supports all our data capture devices with a single integration, making it
easier for a developer to integrate our data capture capabilities into their
application. With the installation of our data capture software, the developers'
customers can choose any of our products that work best for them. Our Capture
SDK enables the developer to modify captured data, control the placement of the
barcoded or RFID data in their application, and control the feedback to the user
that the transaction and transmission was successfully completed. Our Capture
SDK also supports the built-in camera in a customer's smartphone or tablet to be
used for occasional or lower volume data collection requirements. The Capture
SDK uses tools integrated with software building environments such as CocoaPods,
Maven and NuGet, adds support for high level frameworks such as Xamarin, Cordova
and Java, and adds other features to make it easier for developers to integrate
our data capture software into their applications.



We design our own products and are responsible for all associated test
equipment. We use third party contract manufacturers to make many components. We
perform final product assembly, test and packaging at, and distribute our
products from our Newark, California facility. We offer our products worldwide
through two-tier distribution enabling customers to purchase from large numbers
of on-line resellers around the world including application developers who
resell their own solutions along with our data capture products. We believe
growth in mobile applications and the mobile workforce are resulting from
technical advances in mobile technologies, cost reductions in mobile devices and
the growing adoption by businesses of mobile applications for smartphones and
tablets, building a growing demand for our products. Our data capture products
address the need for speed and accuracy by today's mobile workers and by the
systems supporting those workers, thereby enhancing their productivity and
allowing them to exploit time sensitive opportunities and improve customer

satisfaction.



Results of Operations



Revenues



Total revenues for the three and six months ended June 30, 2021, were
approximately $6.0 million and $10.8 million, respectively, an increase of 119%
and 55%, respectively, from revenues of approximately $2.7 million and $6.9
million, respectively, in the comparable periods one year ago. The key driver of
the revenue increase for the three and six months ended June 30, 2021, was the
deployment of business applications, particularly in retail as the economy
re-opens following the easing of COVID-19 restrictions.



Gross Margins



Our gross profit margins on sales for the three and six months ended June 30,
2021 were 55% and 54%, respectively, compared to gross margins of 50% and 52%
for the corresponding periods a year ago. The improvement in margins was
primarily attributed to higher revenues and the absorption of fixed
manufacturing overhead.



  17


  Index


Research and Development Expense


Research and development expense in the three and six months ended June 30, 2021
were approximately $972,000 and $1,903,000, respectively, an increase of 13% and
9% compared to expenses of approximately $860,000 and $1,741,000 in the
corresponding periods a year ago. The increase was primarily due to variable
compensation related to improved overall company performance and the
amortization and depreciation expenses of newly acquired intangible asset and
equipment. We believe a continued commitment to research and development
activities is essential to maintain or achieve a leadership position for our
existing products, provide innovative new product offerings, and provide
engineering support for key customers. In addition, we consider our ability to
accelerate time to market for new products to be critical to our revenue growth.
Therefore, we expect to continue to make significant research and development
investments as our revenue grows.



Sales and Marketing Expense



Sales and marketing expense in the three and six months ended June 30, 2021 were
approximately $734,000 and $1,395,000, respectively, an increase of 2% and a
decrease of 6% compared to expense of approximately $722,000 and $1,490,000 in
the corresponding periods a year ago. The increase in expense quarter over
quarter was primarily attributed to the development of a new RMA portal. The
decrease of expense during the first half of 2021 was primarily due to lower
personnel costs reflecting the department change of several employees. We expect
that sales and marketing expenses will increase for the rest of the year as we
continue improving our website and increasing brand and product awareness and
customer base outside retail.



General and Administrative Expense





General and administrative expense in the three and six months ended June 30,
2021 were approximately $734,000 and $1,475,000, respectively, an increase of
25% and 18% compared to expense of approximately $590,000 and $1,256,000 in the
corresponding periods a year ago. The increase was primarily due to variable
compensation related to improved overall company performance and higher
professional fees associated with the filing of a shelf registration statement.



Interest Expense, Net of Interest Income


Interest expense, net of interest income, in the three and six months ended June
30, 2021 was approximately $51,000 and $100,000, respectively, compared to
approximately $8,100 and $27,600, respectively, in the same periods one year
ago. Interest expense in the three and six months ended June 30, 2021 was
related to interest on the secured subordinated convertible notes payable (see
"NOTE 6 - Secured Subordinated Convertible Notes Payable" of the notes to
consolidated financial statements for more information) and on the CalCap loan.
Our credit lines had no outstanding balances during the three and six months
ended June 30, 2021. Interest expense in 2020 was primarily related to interest
on bank term loan and credit line facilities.



Interest income reflects interest earned on cash balances. Interest income was
nominal in each of the comparable first quarters, reflecting low average rates
of return.



  18


  Index



Income Taxes



In the three and six months ended June 30, 2021, we recorded a net income tax
benefit of $1.86 million primarily attributed to the tax deduction of $7.97
million resulting from the disqualified disposition of incentive stock options
as of June 30, 2021. We recorded no deferred tax benefit for the loss in the
three and six months ended June 30, 2020. Our deferred tax asset, primarily
representing future income tax savings from the application of net operating
loss carry forwards, was valued at $7.38 million as of June 30, 2021.



 We have determined that utilization of existing net operating losses against
future taxable income is not limited by Section 382 of the Internal Revenue
Code. Future ownership changes, however, may limit our ability to fully utilize
the existing net operating loss carryforwards against any future taxable income.
We will continue to monitor the likelihood to realize the value of deferred

tax
assets in the future.


Liquidity and Capital Resources





As reflected in our Statements of Cash Flows, net cash provided by operating
activities was approximately $450,000 in the first half of 2021, compared to net
cash provided of approximately $244,000 in the comparable period a year ago. We
calculate net cash used in or provided by operating activities by increasing our
net income (approximately $2,830,000 in the first half of 2021) or by decreasing
our net loss (approximately $858,000 in the first half of 2020) by the expenses,
such as stock-based compensation expense, depreciation, amortization and
deferred tax expense, that did not require the use of cash. These amounts
totaled approximately ($1,180,000) and $554,000 in the first half of 2021 and
2020, respectively. In addition, we report increases in assets and reductions in
liabilities as uses of cash and decreases in assets and increases in liabilities
as sources of cash, together referred to as changes in operating assets and
liabilities.



In the first half of 2021, changes in operating assets and liabilities resulted
in net cash used in operating activities of approximately $1.2 million which
were primarily from increasing our inventory levels in order to cope with supply
issues and longer component lead times for the remainder of 2021, increased
accounts receivable driven by higher shipment levels in the second quarter of
2021 and increased prepaid expenses. The uses of cash were partially offset by
increases in accrued payroll and related expenses related to an improvement in
overall profitability, and by increases in accounts payable driven primarily by
increased inventory purchases. In the first half of 2020, changes in operating
assets and liabilities resulted in net cash provided by operating activities of
approximately $549,000 which was primarily due to decreases in accounts
receivable resulting from the lower shipments in the second quarter of 2020.



In the first half of 2021 and 2020, we invested approximately $305,000 and $256,000, respectively, in manufacturing tooling costs and computer software development costs.





  19


  Index



Net cash provided by financing activities was approximately $2.65 million in the
first half of 2021, compared to net cash used in financing activities of
approximately $20,000 in the comparable period a year ago. Financing activities
in 2021 consisted primarily of $1.78 million in proceeds from the exercise of
employee stock options and of a net borrowing of $875,000 on the CalCap loan.
Financing activities in the first half of 2020 consisted of proceeds of a loan
of $1.06 million under the Paycheck Protection Program ("PPP") of the
Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and a loan of
$150,000 from the SBA under its Economic Injury Disaster ("EIDL") assistance
program, offset by repayments of borrowings under our bank lines of credit and
by $250,000 repayment on our term loan.



Contractual Obligations



Our contractual cash obligations at June 30, 2021 are outlined in the table
below:



                                                         Payments Due by Period
                                                 Less than        1 to 3         4 to 5        More than
   Contractual Obligations        Total            1 year          years         years          5 years

 Unconditional purchase
obligations with contract
manufacturers                 $ 10,858,000     $ 10,625,000     $ 233,000     $       -      $        -
 Operating lease                   526,000          526,000            -              -               -
 Total contractual
obligations                   $ 11,384,000     $ 11,151,000     $ 233,000     $       -      $        -



Off-Balance Sheet Arrangements

As of June 30, 2021, we had no off-balance sheet arrangements as defined in Item 303 of Regulation S-K.



















  20


  Index

© Edgar Online, source Glimpses