LINK 10-Q
Interlink Electronics Inc (LINK)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from __________________ to ______________________.
Commission file number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
(Address of principal executive offices, zip code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ☐ |
| Accelerated filer ☐ |
Smaller reporting company | ||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 9, 2023, the issuer had
INTERLINK ELECTRONICS, INC.
TABLE OF CONTENTS
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2
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
INTERLINK ELECTRONICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, | December 31, | |||||
| 2023 |
| 2022 | |||
| (in thousands, except par value) | |||||
ASSETS | ||||||
Current assets | ||||||
Cash and cash equivalents |
| $ | |
| $ | |
Accounts receivable, net | | | ||||
Inventories | | | ||||
Prepaid expenses and other current assets | | | ||||
Total current assets | | | ||||
Property, plant and equipment, net | | | ||||
Intangible assets, net | | | ||||
Goodwill | | | ||||
Right-of-use assets | | | ||||
Deferred tax assets | | | ||||
Other assets | | | ||||
Total assets |
| $ | |
| $ | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
Current liabilities | ||||||
Accounts payable |
| $ | |
| $ | |
Accrued liabilities | | | ||||
Lease liabilities, current | | | ||||
Accrued income taxes | | | ||||
Total current liabilities | | | ||||
Long-term liabilities | ||||||
Lease liabilities, long term | | | ||||
Total long-term liabilities | | | ||||
Total liabilities | | | ||||
Commitments and contingencies (Note 10) | ||||||
Stockholders’ equity | ||||||
Preferred stock, $ | | | ||||
Common stock, $ | | | ||||
Additional paid-in-capital | | | ||||
Accumulated other comprehensive income (loss) | ( | ( | ||||
Accumulated deficit | ( | ( | ||||
Total stockholders’ equity | | | ||||
Total liabilities and stockholders’ equity |
| $ | |
| $ | |
See accompanying notes to these unaudited condensed consolidated financial statements.
3
INTERLINK ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
| (in thousands, except per share data) | |||||||||||
Revenue, net |
| $ | |
| $ | |
| $ | |
| $ | |
Cost of revenue | | | | | ||||||||
Gross profit | | | | | ||||||||
Operating expenses: | ||||||||||||
Engineering, research and development | | | | | ||||||||
Selling, general and administrative | | | | | ||||||||
Total operating expenses | | | | | ||||||||
Income (loss) from operations | ( | ( | | ( | ||||||||
Other income (expense): | ||||||||||||
Other income (expense), net | | | | | ||||||||
Income before income taxes | ( | | | | ||||||||
Income tax expense | | | | | ||||||||
Net income (loss) | $ | ( | $ | | $ | | $ | | ||||
Net income (loss) applicable to common stockholders |
| $ | ( |
| $ | ( |
| $ | ( |
| $ | ( |
Earnings (loss) per common share – basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Weighted average common shares outstanding – basic and diluted | | | | | ||||||||
See accompanying notes to these unaudited condensed consolidated financial statements.
4
INTERLINK ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
(in thousands) | ||||||||||||
Net income (loss) | $ | ( | $ | | $ | | $ | | ||||
Other comprehensive income (loss), net of tax: |
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Foreign currency translation adjustments |
| ( |
| ( | | ( | ||||||
Comprehensive income (loss) | $ | ( | $ | ( | $ | | $ | | ||||
See accompanying notes to these unaudited condensed consolidated financial statements.
5
INTERLINK ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
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Additional | Other | Total | ||||||||||||||||||||
Preferred Stock | Common Stock | Paid-in- | Comprehensive | Accumulated | Stockholders’ | |||||||||||||||||
Three Months Ended September 30, 2023 |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Income (Loss) |
| Deficit |
| Equity | ||||||
(in thousands) |
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Balance at June 30, 2023 |
| $ | | | $ | | $ | | $ | | $ | ( | $ | | ||||||||
Net income (loss) |
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Preferred stock dividends |
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Foreign currency translation adjustment |
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Stock-based compensation expense | | | | | | | | | ||||||||||||||
Repurchases of common stock |
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| ( |
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Balance at September 30, 2023 |
| $ | | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||||
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Additional | Other | Total | ||||||||||||||||||||
Preferred Stock | Common Stock | Paid-in- | Comprehensive | Accumulated | Stockholders’ | |||||||||||||||||
Nine Months Ended September 30, 2023 |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Income (Loss) |
| Deficit |
| Equity | ||||||
(in thousands) |
| |||||||||||||||||||||
Balance at December 31, 2022 |
| | $ | | | $ | | $ | | $ | ( | $ | ( | $ | | |||||||
Net income (loss) |
| — | — | — |
| — |
| — |
| — |
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Preferred stock dividends | — | — | — | — | — | — | ( | ( | ||||||||||||||
Foreign currency translation adjustment |
| — | — | — |
| — |
| — |
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| — |
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Stock-based compensation expense | — | — | | — | | — | — | | ||||||||||||||
Repurchases of common stock |
| — | — | ( |
| — |
| ( |
| — |
| — |
| ( | ||||||||
Balance at September 30, 2023 |
| | $ | | | $ | | $ | | $ | ( | $ | ( | $ | | |||||||
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Additional | Other | Total | ||||||||||||||||||||
Preferred Stock | Common Stock | Paid-in- | Comprehensive | Accumulated | Stockholders’ | |||||||||||||||||
Three Months Ended September 30, 2022 |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Income (Loss) |
| Deficit |
| Equity | ||||||
(in thousands) | ||||||||||||||||||||||
Balance at June 30, 2022 | | $ | | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||||
Net income | |
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Preferred stock dividends | |
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Foreign currency translation adjustment | | |
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Stock-based compensation expense |
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Balance at September 30, 2022 | | $ | | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||||
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| Accumulated |
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Additional | Other | Total | ||||||||||||||||||||
Preferred Stock | Common Stock | Paid-in- | Comprehensive | Accumulated | Stockholders’ | |||||||||||||||||
Nine Months Ended September 30, 2022 |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Income (Loss) |
| Deficit |
| Equity | ||||||
(in thousands) |
| |||||||||||||||||||||
Balance at December 31, 2021 |
| | $ | | | $ | | $ | | $ | | $ | ( | $ | | |||||||
Net income |
| — | — | — |
| — |
| — |
| — |
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Preferred stock dividends |
| — | — | — |
| — |
| — |
| — |
| ( |
| ( | ||||||||
Foreign currency translation adjustment |
| — | — | — |
| — |
| — |
| ( |
| — |
| ( | ||||||||
Stock-based compensation expense | — | — | | — | | — | — | | ||||||||||||||
Balance at September 30, 2022 |
| | $ | | | $ | | $ | | $ | ( | $ | ( | $ | | |||||||
See accompanying notes to these unaudited condensed consolidated financial statements.
6
INTERLINK ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended September 30, | ||||||
| 2023 |
| 2022 | |||
(in thousands) | ||||||
Cash flows from operating activities: | ||||||
Net income |
| $ | |
| $ | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||
Depreciation and amortization | | | ||||
Unrealized and realized (gains) on marketable securities | | ( | ||||
Stock-based compensation expense | | | ||||
Adjustment to reconcile operating lease expense to cash paid | | ( | ||||
Changes in operating assets and liabilities: | ||||||
Accounts receivable | | | ||||
Inventories | ( | ( | ||||
Prepaid expenses and other assets | | ( | ||||
Accounts payable | ( | | ||||
Accrued liabilities | ( | ( | ||||
Accrued income taxes | ( | | ||||
Net cash provided by (used in) operating activities | | ( | ||||
Cash flows from investing activities: | ||||||
Acquisition of Calman Technology Limited, net of cash acquired | ( | | ||||
Purchases of marketable securities | | ( | ||||
Proceeds from sales of marketable securities | | | ||||
Purchases of property, plant and equipment | ( | ( | ||||
Net cash used in investing activities | ( | ( | ||||
Cash flows from financing activities: | ||||||
Payment of dividends on preferred stock | ( | ( | ||||
Repurchases of common stock | ( | | ||||
Net cash used in financing activities | ( | ( | ||||
Effect of exchange rate changes on cash and cash equivalents | ( | ( | ||||
Net (decrease) in cash and cash equivalents | ( | ( | ||||
Cash and cash equivalents, beginning of period | | | ||||
Cash and cash equivalents, end of period |
| $ | |
| $ | |
Supplemental disclosure of cash flow information: | ||||||
Income taxes paid |
| $ | |
| $ | |
Interest paid | | |||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||
Lease liabilities arising from obtaining right-of-use assets | $ | | $ | | ||
See accompanying notes to these unaudited condensed consolidated financial statements.
7
INTERLINK ELECTRONICS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 1 – The Company and its Significant Accounting Policies
Description of Business
Interlink Electronics, Inc. (“we,” “us,” “our,” “Interlink” or the “Company”) operates in two principal sensor technology divisions: force/touch sensors, and gas sensors. Our Force-Sensing Resistor (FSR®) and related technologies, including membrane keypads, graphic overlays and printed electronics, are used extensively in human-machine interface (“HMI”) devices, while our gas sensors and instruments are used in environmental and air quality monitoring across a broad range of applications.
We design, develop, manufacture and sell a range of technologies that incorporate our proprietary materials technology, firmware and software into a portfolio of standard products and custom solutions. Our force-sensing products and solutions include sensor components, subassemblies, modules and products that support effective, efficient cursor control and novel three-dimensional user inputs. Our HMI technology platforms are deployed in a wide range of markets including consumer electronics, automotive, industrial, and medical. Our membrane keypads, graphic overlays and other printed circuits are also deployed in HMI markets and integrated into products such as medical devices and defense systems. Our electrochemical gas-sensing technology products and solutions are deployed in industry, community, health and home settings, with uses in fields such as carbon monoxide and ozone detection and air quality monitoring.
We serve our world-wide customer base from our corporate headquarters in Irvine, California; our Global Product Development and Materials Science Center and distribution and logistics center in Camarillo, California; our printed electronics manufacturing facilities in Shenzhen, China, and Irvine, Scotland; our advanced and proprietary production and product development facility in Newark, California; our engineering, research and development center in Singapore; and our distribution and logistics center in Hong Kong. We also maintain a technical and sales office in Japan. Our principal executive office is located at 15707 Rockfield Boulevard, Suite 105, Irvine, California 92618 and our telephone number is (805) 484-8855. Our website address is www.interlinkelectronics.com.
Fiscal Year
Our fiscal year is the calendar year reporting cycle beginning January 1 and ending December 31.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intra-entity transactions and balances have been eliminated in consolidation.
The accompanying unaudited interim consolidated financial statements for the Company and its subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting. Accordingly, certain information and footnote disclosures normally included in annual consolidated financial statements have been condensed or omitted in accordance with Rule 10-01 of Regulation S-X. In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments and the elimination of intra-entity accounts) considered necessary for a fair presentation of all periods presented. The results of the Company’s operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year. These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes included in our Annual Report on Form 10-K, which was filed the Securities and Exchange Commission on March 29, 2023.
8
Use of Estimates
The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and disclosures made in the accompanying notes to the consolidated financial statements. Management regularly evaluates estimates and assumptions related to revenue recognition, allowances for doubtful accounts, warranty reserves, inventory valuation reserves, stock-based compensation, purchased intangible asset valuations and useful lives, asset retirement obligations, and deferred income tax asset valuation allowances. These estimates and assumptions are based on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. The actual results we experience may differ materially and adversely from our original estimates. To the extent there are material differences between the estimates and the actual results, our future results of operations will be affected.
Revenue Recognition
We recognize revenue in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that are within the scope of ASC 606, we perform the following five steps; (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations; and (v) recognize revenue when (or as) we satisfy a performance obligation. The five-step model is applied to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services transferred to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize revenue in the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Delivery occurs when goods are shipped and title and risk of loss transfer to the customer, in accordance with the terms specified in the arrangement with the customer. Revenue recognition is deferred until the earnings process is complete.
We (i) input orders based upon receipt of a customer purchase order, (ii) confirm pricing through the customer purchase order record, (iii) validate creditworthiness through past payment history, credit agency reports and other financial data, and (iv) recognize revenue upon shipment of goods or when risk of loss and title transfer to the buyer. All customers have warranty rights, and some customers also have explicit or implicit rights of return. We establish reserves for potential customer returns or warranty repairs based on historical experience and other factors that enable us to reasonably estimate the obligation.
A portion of our product sales is made through distributors under agreements allowing for right of return. Our past history with these sell-through right of return provisions allow us to reasonably estimate the amount of inventory that could be returned pursuant to these agreements, and revenue is recognized accordingly.
Shipping and Handling Fees and Costs
Amounts billed to customers for shipping and handling fees are presented in revenues. Costs incurred for shipping and handling are included in cost of revenues.
Engineering, Research and Development Costs
Engineering, research and development (“R&D”) costs are expensed when incurred. R&D expenses consist primarily of compensation expenses for employees engaged in research, design and development activities. R&D expenses also include depreciation and amortization, and overhead, including facilities expenses.
Marketing and Advertising Costs
All of the costs related to marketing and advertising our products are expensed as incurred or at the time the marketing or advertising takes place.
9
Stock-Based Compensation
All stock-based payments to employees, including grants of employee stock options and employee stock purchase rights, are recognized in the financial statements based on their respective grant date (measurement date) fair values. We calculate the compensation cost of full-value awards, such as restricted stock, based on the market value of the underlying stock at the date of the grant. We estimate the expected life of a stock award as the period of time that the award is expected to be outstanding. We are required to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service periods. We estimate the fair value of each option award as of the date of grant using the Black-Scholes option pricing model, which was developed for use in estimating the value of traded options that have no vesting restrictions and that are freely transferable. The Black-Scholes option pricing model considers, among other factors, the expected life of the award and the expected volatility of our stock price. Although the Black-Scholes option pricing model meets the accounting guidance requirements, the fair values generated by the Black-Scholes option pricing model may not be indicative of the actual fair values of our awards, as it does not consider other factors important to those stock-based payment awards, such as continued employment, periodic vesting requirements, and limited transferability.
We have elected to recognize compensation expense for all stock-based awards on a straight-line basis over the requisite service period for the entire award. The amount of compensation expense recognized through the end of each reporting period is equal to the portion of the grant-date value of the awards that have vested, or for partially vested awards, the value of the portion of the award that is ultimately expected to vest for which the requisite services have been provided. The benefits of tax deductions in excess of recognized compensation cost are reported as a financing cash flow.
As of September 30, 2023, there were
Other Income (Expense)
Other income (expense), net, consists of interest income, foreign currency exchange gains and losses, gains and losses on marketable securities, and other non-operating income and expenses.
Income Taxes
We account for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not determinable beyond a “more likely than not” standard, we establish a valuation allowance. To the extent we establish a valuation allowance or increase or decrease this allowance in a period, we include an expense or benefit within the tax provision in the statement of operations. We also utilize a “more likely than not” recognition threshold and measurement analysis for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We recognize potential accrued interest and penalties related to unrecognized tax benefits within the consolidated statements of operations as income tax expense.
We operate within multiple tax jurisdictions and are subject to audit in these jurisdictions. Our foreign subsidiaries are subject to foreign income taxes on earnings in their respective jurisdictions. Earnings of our foreign subsidiaries are included in our U.S. federal income tax return as they are earned.
Foreign Currency Translation
The functional currency of our Chinese subsidiary is the Chinese Yuan Renminbi. The functional currency of our United Kingdom subsidiaries is the British pound sterling. The functional currency for our Hong Kong and Singapore subsidiaries is the United States dollar. Assets and liabilities are translated into United States dollars at the exchange rate in effect on the balance sheet date. Revenues and expenses are translated at the average exchange rate prevailing during the respective periods.
Comprehensive Income (Loss)
Comprehensive income (loss) includes all components of comprehensive income (loss), including net income (loss) and any changes in equity during the period from transactions and other events and circumstances generated by non-owner sources.
10
Segment Reporting
We operate in
Earnings Per Share
Basic earnings per share is computed by dividing net income (loss) applicable to common stockholders (i.e., net income (loss) adjusted for preferred stock dividends declared or accumulated) by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of diluted common shares, which includes common stock equivalents from, if applicable, and if dilutive, unexercised stock options, unvested restricted stock units, and shares issuable upon conversion of convertible preferred stock. Unexercised stock options and unvested restricted stock units are considered to be common stock equivalents if, using the treasury stock method, they are determined to be dilutive. Convertible preferred stock is considered to be common stock equivalents if, using the if-converted method, they are determined to be dilutive.
Under the two-class method of determining earnings for each class of stock, we consider the dividend rights and participating rights in undistributed earnings for each class of stock.
Leases
We account for our leases under ASC 842. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or our incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For finance leases, interest on the lease liability and the amortization of the right of use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred.
In calculating the right of use and lease liability, we have elected to combine lease and non-lease components. We exclude short-term leases having an initial term of 12 months or less from the new guidance as an accounting policy election, and recognize rent expense on a straight-line basis over the lease term.
Risk and Uncertainties
Our future results of operations involve a number of risks and uncertainties. Factors that could affect our business or future results and cause actual results to vary materially from historical results include, but are not limited to, the rapid change in our industry; problems with the performance, reliability or quality of our products; loss of customers; impacts of doing business internationally, including foreign currency fluctuations, changes in the trade policies of countries in which we or our customers do business, and political instability; potential shortages of the supplies we use to manufacture our products; disruptions in our manufacturing facilities; changes in environmental directives impacting our manufacturing process or product lines; the development of new proprietary technology and the enforcement of intellectual property rights by or against us; our ability to attract and retain qualified employees; and our ability to raise additional capital.
Our operations and financial results may be adversely affected by outbreaks of viruses, widespread illness, infectious diseases, contagions and unforeseen epidemics (such as the COVID-19 coronavirus) in countries in which our products are manufactured and sold. We experienced delays in the receipt of certain goods and the supply of our products from international and domestic shipping origins as a result of the COVID-19 pandemic and more general global supply chain constraints in fiscal 2021, and to a lesser extent in fiscal 2022 and so far in fiscal 2023. Depending on the continued extent and duration of these and similar constraints and disruptions, our supply chain, results of operations (including sales) or future business may be materially and adversely impacted. These and other issues affecting our international suppliers or internationally manufactured merchandise could have a material adverse effect on our business, results of operations and financial condition.
11
Fair Value Measurements
We determine fair value measurements based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, we follow the following fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) our own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs):
Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets;
Level 2: Other inputs observable directly or indirectly, such as quoted prices for similar assets or liabilities or market-corroborate inputs; and
Level 3: Unobservable inputs for which there is little or no market data and which requires the owner of the assets or liabilities to develop its own assumptions about how market participants would price these assets or liabilities.
Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy.
Recently Issued Accounting Pronouncements
We reviewed all recently issued accounting pronouncements and concluded they are not applicable or not expected to be material to our financial statements.
Subsequent Events
We have evaluated subsequent events through November 9, 2023, being the date these condensed consolidated financial statements were issued.
Note 2 – Details of Certain Financial Statement Components
Inventories, stated at the lower of cost or net realizable value, consisted of the following:
September 30, | December 31, | |||||
| 2023 |
| 2022 | |||
Inventories |
| (in thousands) | ||||
Raw materials |
| $ | |
| $ | |
Work-in-process | | | ||||
Finished goods | | | ||||
Total inventories |
| $ | |
| $ | |
Property, plant and equipment, net, consisted of the following:
September 30, | December 31, | |||||
| 2023 |
| 2022 | |||
Property, plant and equipment, net | (in thousands) | |||||
Furniture, machinery and equipment | $ | | $ | | ||
Leasehold improvements |
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Less: accumulated depreciation |
| ( |
| ( | ||
Total property, plant and equipment, net | $ | | $ | | ||
Depreciation expense totaled $
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Intangible assets, net consisted of the following:
September 30, | December 31, | |||||
| 2023 |
| 2022 | |||
Intangible assets, net | (in thousands) | |||||
Patents, tradenames, and trademarks | $ | | $ | | ||
Developed technology | | — | ||||
Customer relationships | | — | ||||
Non-compete agreements | | — | ||||
Order backlog | | — | ||||
In-process research and development | | — | ||||
| | |||||
Less: accumulated amortization |
| ( |
| ( | ||
Total intangible assets, net | $ | | $ | | ||
Amortization expense totaled $
Years ending December 31, |
| (in thousands) | |
2023 (remainder of year) | $ | | |
2024 |
| | |
2025 |
| | |
2026 |
| | |
2027 |
| | |
Thereafter | | ||
$ | | ||
Accrued liabilities consisted of the following:
September 30, | December 31, | |||||
| 2023 |
| 2022 | |||
Accrued liabilities | (in thousands) | |||||
Accrued compensation and benefits | $ | | $ | | ||
Accrued vacation |
| |
| | ||
Other accrued liabilities |
| |
| | ||
Total accrued liabilities | $ | | $ | | ||
Note 3 – Acquisitions
Acquisition of Assets of SPEC Sensors and KWJ Engineering
On December 16, 2022, we acquired substantially all of the assets of SPEC Sensors, LLC (“SPEC”), and KWJ Engineering, Inc. (“KWJ”) (collectively, “SPEC/KWJ”), two designers and manufacturers of gas, air and environmental quality sensors that were under common ownership, pursuant to an Asset Purchase Agreement, dated as of December 16, 2022 (the “Asset Purchase Agreement”), by and among the Company, SPEC/KWJ, and the respective equity holders of SPEC and KWJ. The Asset Purchase Agreement contains customary representations, warranties and covenants, including non-competition covenants. Under the terms of the Asset Purchase Agreement, the purchase price for both companies’ assets was $
13
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date, giving effect to the post-closing purchase price adjustment (in thousands).
Cash |
| $ | |
Accounts receivable |
| | |
Inventories |
| | |
Prepaid expenses and other current assets |
| | |
Property and equipment |
| | |
Deposits |
| | |
Accounts payable and accrued liabilities |
| ( | |
Net identifiable tangible assets acquired | | ||
Developed technology | | ||
Customer relationships | | ||
Tradenames and trademarks | | ||
In-process research and development | | ||
Non-compete agreements | | ||
Order backlog | | ||
Goodwill |
| | |
Net assets acquired | $ | |
The fair value of accounts receivable is equal to the $
The goodwill recognized is attributable primarily to expected synergies and the assembled workforces of SPEC/KWJ. The goodwill is expected to be deductible for income tax purposes.
Acquisition of Calman Technology Limited
On March 17, 2023, we acquired all of the outstanding shares in Calman Technology Limited (“Calman”), a Scotland-based designer and manufacturer of membrane keypads, graphic overlays and printed electronics, pursuant to a Share Purchase Agreement (the “Share Purchase Agreement”) by and among the Company’s wholly owned United Kingdom subsidiary, Interlink Electronics Limited, and the shareholders of Calman. The Share Purchase Agreement contains customary representations, warranties and covenants, including non-competition covenants on the part of the sellers, who continue to be employed by Calman. Under the terms of the Share Purchase Agreement, the purchase price was GB£
14
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands). We are in the process of identifying and measuring the fair value of certain property and equipment assets, intangible assets, and working capital balances, and accordingly the following measurements of these assets and goodwill are provisional and subject to change.
Cash |
| $ | |
Accounts receivable |
| | |
Inventories |
| | |
Prepaid expenses and other current assets |
| | |
Property, plant, and equipment |
| | |
Right-of-use assets |
| | |
Accounts payable and accrued liabilities |
| ( | |
Lease liabilities |
| ( | |
Net identifiable tangible assets acquired |
| | |
Goodwill |
| | |
Net assets acquired | $ | |
The fair value of accounts receivable is equal to the $
The goodwill recognized is attributable primarily to expected synergies and the assembled workforce of Calman. The goodwill is not expected to be deductible for income tax purposes.
The following represents the pro forma consolidated statement of operations as if both SPEC/KWJ and Calman had been included in our consolidated results for the periods ended September 30, 2023 and 2022 (unaudited):
| Pro Forma |
| Pro Forma | |||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
(in thousands) | ||||||||||||
Revenue | $ | | $ | | $ | | $ | | ||||
Net income (loss) | $ | ( | $ | ( | $ | | $ | | ||||
Note 4 – Marketable Securities
Our marketable securities consist of equity securities classified as available-for-sale (“AFS”). AFS securities are carried at fair value on the condensed consolidated balance sheets. Realized and unrealized gains and losses are reported in earnings within “other income (expense), net”. The specific identification method is used to determine realized gains and losses on AFS securities. During the three months ended September 30, 2023 and 2022, we purchased $
15
Note 5 – Earnings Per Share
Basic earnings per share is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period, plus the dilutive effect of any dilutive securities. The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
(in thousands, except per share data) | ||||||||||||
Net income (loss) |
| $ | ( |
| $ | |
| $ | |
| $ | |
Less: Preferred stock dividends | ( | ( | ( | ( | ||||||||
Net income (loss) applicable to common stockholders | ( | ( | ( | ( | ||||||||
Weighted average common shares outstanding – basic | | | | | ||||||||
Dilutive potential common shares from convertible preferred stock | — | — | — | — | ||||||||
Weighted average common shares outstanding – diluted | | | | | ||||||||
Earnings (loss) per common share, basic |
| $ | ( |
| $ | ( |
| $ | ( |
| $ | ( |
Earnings (loss) per common share, diluted | $ | ( | $ | ( | $ | ( | $ | ( | ||||
| ||||||||||||
Shares subject to anti-dilutive Series A Convertible Preferred Stock excluded from calculation | | | | | ||||||||
Note 6 – Stockholders’ Equity
Stock Repurchase Transaction
In May 2023, the Company’s board of directors approved the Company’s repurchase of
Stock Repurchase Program
In May 2023, the Company’s board of directors approved a Stock Repurchase Program to repurchase up to
Note 7 – Significant Customers, Concentrations of Credit Risk, and Geographic Information
Net revenues from customers equal to or greater than 10% of total net revenues are as follows:
Three Months Ended September 30, | Nine Months Ended September 30, |
| |||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| |
Customer A |
| | % | | % | | % | | % |
Customer B |
| | % | * | % | | % | * | % |
Customer C | | % | | % | * | % | | % | |
* Less than 10% of total net revenues
16
Net revenues by geographic area are as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
| (in thousands) | (in thousands) | ||||||||||
United States | $ | | $ | | $ | | $ | | ||||
Asia and Middle East |
| |
| |
| |
| | ||||
Europe and other |
| |
| |
| |
| | ||||
Revenue, net | $ | | $ | | $ | | $ | | ||||
Revenues by geographic area are based on the country of shipment destination. The geographic location of distributors and third-party manufacturing service providers may be different from the geographic location of the purchasers and/or ultimate end users.
We provide credit only to creditworthy customers who are subject to our credit verification procedures. Accounts receivable balances are monitored on an ongoing basis, and accounts deemed to have credit risk are fully reserved. At September 30, 2023,
Our long-lived assets were geographically located as follows:
| September 30, |
| December 31, | |||
| 2023 |
| 2022 | |||
| (in thousands) | |||||
United States | $ | | $ | | ||
Europe | | — | ||||
Asia |
| |
| | ||
Total long-lived assets | $ | | $ | | ||
17
Note 8 – Related Party Transactions
Qualstar Corporation (OTCMKTS:QBAK)
Qualstar Corporation (OTCMKTS:QBAK) (“Qualstar”) is a related party. Steven N. Bronson, our Chairman of the Board, President and Chief Executive Officer, is also the President, Chief Executive Officer and a director of Qualstar. Ryan J. Hoffman, our Chief Financial Officer, was also previously the Chief Financial Officer of Qualstar. Mr. Bronson, together with BKF Capital Group, Inc. (OTCMKTS:BKFG) which he controls, have a controlling interest in both Interlink and Qualstar. We have a facilities agreement with Qualstar to allow Qualstar to use of a portion of our Irvine, California office facility, and also our former Los Angeles, California office facility, for which we have agreed to split substantially all rent and lease-related costs on an apportioned basis according to the approximate relative usage levels by each entity. Qualstar also has a facilities agreement with us to allow us to use of a portion of its Camarillo, California office and warehouse facility, for which we have agreed to split substantially all rent and lease-related costs on an apportioned basis according to the approximate relative usage levels by each entity. In addition, we have various consulting agreements with Qualstar for certain of our respective employees and/or independent contractors that provide certain operational, sales, marketing, general and administrative services to the other entity. Interlink and Qualstar also agree to reimburse, or be reimbursed by, one another for expenses paid by one company on behalf of the other. Transactions with Qualstar and its subsidiaries are as follows:
Three Months Ended September 30, | ||||||||||||
| 2023 | 2022 | ||||||||||
| Due from |
| Due to |
| Due from |
| Due to | |||||
Qualstar | Qualstar | Qualstar | Qualstar | |||||||||
| (in thousands) | |||||||||||
Balance at July 1, | $ | | $ | | $ | | $ | | ||||
|
|
|
|
| ||||||||
Billed (or accrued) to Qualstar by Interlink |
| |
| — |
| |
| — | ||||
Paid by Qualstar to Interlink |
| ( |
| — |
| ( |
| — | ||||
|
|
|
|
| ||||||||
Billed (or accrued) to Interlink by Qualstar |
| — |
| |
| — |
| | ||||
Paid by Interlink to Qualstar |
| — |
| ( |
| — |
| ( | ||||
Balance at September 30, | $ | | $ | | $ | | $ | | ||||
Nine Months Ended September 30, | ||||||||||||
| 2023 | 2022 | ||||||||||
| Due from |
| Due to |
| Due from |
| Due to | |||||
Qualstar | Qualstar | Qualstar | Qualstar | |||||||||
| (in thousands) | |||||||||||
Balance at January 1, | $ | | $ | — | $ | | $ | | ||||
|
|
|
|
| ||||||||
Billed (or accrued) to Qualstar by Interlink |
| |
| — |
| |
| — | ||||
Paid by Qualstar to Interlink |
| ( |
| — |
| ( |
| — | ||||
|
|
|
|
| ||||||||
Billed (or accrued) to Interlink by Qualstar |
| — |
| |
| — |
| | ||||
Paid by Interlink to Qualstar |
| — |
| ( |
| — |
| ( | ||||
Balance at September 30, | $ | | $ | | $ | | $ | | ||||
18
BKF Capital Group (OTCMKTS:BKFG)
BKF Capital Group, Inc. (OTCMKTS:BKFG) (“BKF Capital”) is a related party. Steven N. Bronson, our Chairman of the Board, President and Chief Executive Officer, is also the Chief Executive Officer and Chairman of BKF Capital. Ryan J. Hoffman, our Chief Financial Officer, is also the Chief Financial Officer of BKF Capital. Mr. Bronson, together with BKF Capital, has a controlling interest in Interlink. We have a facilities agreement with BKF Capital to allow BKF Capital to use a portion of our Irvine, California office facility, for which we have agreed to split substantially all rent and lease-related costs on an apportioned basis according to the approximate relative usage levels by each entity. In addition, we have consulting agreements with BKF Capital for certain of our respective employees and/or independent contractors that provide certain operational and general and administrative services to the other entity. We entered into a M&A advisory consulting services agreement with Bronson Financial LLC (“BF”), a wholly owned subsidiary of BKF Capital, in which BF provides M&A advisory consulting services to us. Interlink and BKF Capital also agree to reimburse, or be reimbursed by, one another for expenses paid by one company on behalf of the other. Transactions with BKF Capital and its subsidiaries are as follows:
Three Months Ended September 30, | ||||||||||||
2023 | 2022 | |||||||||||
| Due from |
| Due to |
| Due from |
| Due to | |||||
BKF Capital | BKF Capital | BKF Capital | BKF Capital | |||||||||
(in thousands) | ||||||||||||
Balance at July 1, | $ | | $ | — | $ | | $ | — | ||||
|
|
|
|
| ||||||||
Billed (or accrued) to BKF Capital by Interlink |
| |
| — |
| |
| — | ||||
Paid by BKF Capital to Interlink |
| ( |
| — |
| ( |
| — | ||||
|
|
|
|
| ||||||||
Billed (or accrued) to Interlink by BKF Capital |
| — |
| |
| — |
| | ||||
Paid by Interlink to BKF Capital |
| — |
| ( |
| — |
| ( | ||||
Balance at September 30, | $ | | $ | — | $ | | $ | — | ||||
Nine Months Ended September 30, | ||||||||||||
2023 | 2022 | |||||||||||
| Due from |
| Due to |
| Due from |
| Due to | |||||
BKF Capital | BKF Capital | BKF Capital | BKF Capital | |||||||||
(in thousands) | ||||||||||||
Balance at January 1, | $ | | $ | — | $ | | $ | — | ||||
|
|
|
|
| ||||||||
Billed (or accrued) to BKF Capital by Interlink |
| |
| — |
| |
| — | ||||
Paid by BKF Capital to Interlink |
| ( |
| — |
| ( |
| — | ||||
|
|
|
|
| ||||||||
Billed (or accrued) to Interlink by BKF Capital |
| — |
| |
| — |
| | ||||
Paid by Interlink to BKF Capital |
| — |
| ( |
| — |
| ( | ||||
Balance at September 30, | $ | | $ | — | $ | | $ | — | ||||
Note 9 – Income Taxes
Our income tax expense is impacted by the mix of our domestic and foreign pre-tax earnings and losses. Our effective income tax rates are generally higher than the blended statutory tax rates of the jurisdictions in which we operate due to having incurred income tax expense on taxable income in certain jurisdictions, while not being able to benefit from losses in other jurisdictions for which our net operating loss carryovers (“NOLs”) are subject to valuation allowance. Income tax expense as a percentage of income/loss before income taxes was
19
We experienced an ownership change under IRC Section 382 in 2010. In general, a Section 382 ownership change occurs if there is a cumulative change in our ownership by “5% shareholders” (as defined in the Internal Revenue Code of 1986, as amended) that exceeds 50 percentage points over a rolling three-year period. An ownership change generally affects the rate at which NOLs and potential other deferred tax assets are permitted to offset future taxable income. Certain state jurisdictions within which we operate contain similar provisions and limitations. As of September 30, 2023, all of the remaining federal and state NOLs are subject to annual limitations due to the 2010 ownership change.
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. We analyzed our need to record a valuation allowance against our otherwise recognizable net deferred tax assets in the federal, state and foreign jurisdictions, and we determined that a valuation allowance on federal and state deferred tax assets was necessary at both September 30, 2023 and December 31, 2022, while
The Internal Revenue Code includes a provision, referred to as Global Intangible Low-Taxed Income (“GILTI”), which provides for a
Of our $5.2 million cash balance at September 30, 2023, $
Note 10 – Commitments and Contingencies
Lease Agreements
We lease facilities under non-cancellable operating leases. The leases expire at various dates through fiscal 2025 and frequently include renewal provisions for varying periods of time, provisions which require us to pay taxes, insurance and maintenance costs, and provisions for minimum rent increases. Minimum leases payments, including scheduled rent increases are recognized as rent expenses on a straight-line basis over the term of the lease.
The rate implicit in each lease is not readily determinable, and we therefore use our incremental borrowing rate to determine the present value of the lease payments. The weighted average incremental borrowing rate used to determine the initial value of right-of-use (“ROU”) assets and lease liabilities capitalized during the nine months ended September 30, 2023 was
ROU assets for operating leases are periodically reduced by impairment losses. We use the long-lived assets impairment guidance in ASC Subtopic 360-10, Property, Plant and Equipment – Overall, to determine whether a ROU asset is impaired, and if so, the amount of the impairment loss to recognize. As of September 30, 2023, we have not recognized any impairment losses for our ROU assets.
We monitor for events or changes in circumstances that require a reassessment of our leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in profit or loss.
In June 2023, we entered into a lease agreement to lease
We lease a
20
We lease a
We lease a
We lease a
We lease a
We lease a
As of September 30, 2023, we had current and long-term lease liabilities of $
Future minimum lease payments under non-cancellable operating leases that have remaining non-cancellable lease terms in excess of one year are as follows:
Years ending December 31, |
| (in thousands) | |
2023 (remainder of year) | $ | | |
2024 |
| | |
2025 |
| | |
2026 | — | ||
2027 | — | ||
Thereafter | — | ||
Total undiscounted future non-cancelable minimum lease payments |
| | |
Less: imputed interest | ( | ||
Present value of lease liabilities | $ | | |
During the three months ended September 30, 2023, we incurred approximately $
During the nine months ended September 30, 2023, we incurred approximately $
Litigation
We are not party to any legal proceedings as of September 30, 2023. We are occasionally involved in legal proceedings in the ordinary course of business, including actions against us which assert or may assert claims or seek to impose fines and penalties in substantial amounts. Related legal defense costs are expensed as incurred.
Warranties
We establish reserves for future product warranty costs that are expected to be incurred pursuant to specific warranty provisions with our customers. We generally warrant our products against defects for
21
time of sale and are updated throughout the warranty period based upon numerous factors including historical warranty return rates and claim costs over various warranty periods. Historically, our warranty returns have not been material.
Intellectual Property Indemnities
We indemnify certain customers and our contract manufacturers against liability arising from third-party claims of intellectual property rights infringement related to our products. These indemnities appear in development and supply agreements with our customers as well as manufacturing service agreements with our contract manufacturers, are not limited in amount or duration and generally survive the expiration of the contract. Given that the amount of any potential liabilities related to such indemnities cannot be determined until an infringement claim has been made, we are unable to determine the maximum amount of losses that we could incur related to such indemnifications.
Director and Officer Indemnities and Contractual Guarantees
Pursuant to our bylaws, we will indemnify our directors and executive officers to the fullest extent permitted by Nevada law, without limitation as to amount or duration, in the event of any actual or threatened lawsuit or proceeding. Certain costs incurred in connection with such indemnifications may be recovered under certain circumstances under various insurance policies. Given that the amount of any potential liabilities related to such indemnities cannot be determined until a lawsuit or proceeding has been threatened or filed, we are unable to determine the maximum amount of losses that we could incur relating to such indemnities.
We have also entered into an employment agreement with Steven N. Bronson, our Chairman of the Board, President and Chief Executive Officer. This agreement contains certain severance and change in control obligations. Under the agreement, if Mr. Bronson’s employment is terminated due to his death or disability (as such terms are defined in the agreement), Mr. Bronson or his beneficiaries will be entitled to receive: (i) his base compensation to the end of the monthly pay period immediately following the date of termination; (ii) accrued bonus payments; and (iii) immediate and full vesting of all unvested equity and/or options issued by the Company. If Mr. Bronson’s employment is terminated by him for good reason (as such term is defined in the agreement), or by us without cause, then Mr. Bronson will be entitled to receive: (i) his base compensation to the date of termination; (ii) a severance payment equal to
In the event of a change in control of the Company (as such term is defined in the agreement), Mr. Bronson is entitled to receive: (i) a change in control payment in an amount equal to twelve months of his base compensation, payable as of the date the change in control occurs; and (ii) immediate and full vesting of all unvested equity and/or options issued by the Company.
Guarantees and Indemnities
In the normal course of business, we are occasionally required to undertake indemnification for which we may be required to make future payments under specific circumstances. We review our exposure under such obligations no less than annually, or more frequently as required. The amount of any potential liabilities related to such obligations cannot be accurately determined until a formal claim is filed. Historically, any such amounts that become payable have not had a material negative effect our business, financial condition or results of operations. We maintain general and product liability insurance which may provide a source of recovery to us in the event of an indemnification claim.
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q 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. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements. These forward-looking statements speak only as of the date of this Form 10-Q and are subject to uncertainties, assumptions and business and economic risks. As such, our actual results could differ materially from those set forth in the forward-looking statements as a result of the factors set forth below in Part II, Item 1A, “Risk Factors,” and in our other reports filed with the Securities and Exchange Commission. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances described in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Form 10-Q to conform these statements to actual results or to changes in our expectations, except as required by law.
The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
Overview
We operate in two principal sensor technology divisions: force/touch sensors, and gas sensors. Our Force-Sensing Resistor (FSR®) and related technologies, including membrane keypads, graphic overlays and printed electronics, are used extensively in human-machine interface (“HMI”) devices, while our gas sensors and instruments are used in environmental and air quality monitoring across a broad range of applications. We design, develop, manufacture and sell a range of technologies that incorporate our proprietary materials technology, firmware and software into a portfolio of standard products and custom solutions.
Force/Touch Sensors
HMI and Force-Sensing Technology. Our HMI and force-sensing technology is used in sensor components, subassemblies, modules and products that support effective, efficient cursor control and novel three-dimensional user inputs and is deployed in a wide range of markets, including consumer electronics, automotive, industrial, and medical. The application of our HMI technology platforms includes vehicle entry, vehicle multi-media control interface, rugged touch controls, presence detection, collision detection, speed and torque controls, pressure mapping, biological monitoring and others. Interlink has been a leader in the printed electronics industry for over 38 years with the commercialization of our patented FSR® technology that has enabled rugged and reliable HMI solutions. Our solutions have focused on handheld user input, menu navigation, cursor control, and other intuitive interface technologies for the world’s top electronics manufacturers.
Membrane Keypads, Graphic Overlays and Printed Electronics. Through our acquisition in March 2023 of Calman Technology Limited, we offer membrane keypads, graphic overlays and printed electronics for use in fields such as medical devices and defense systems.
Gas-Sensing Technology
Through our acquisition in December 2022 of the business assets of SPEC Sensors, LLC and KWJ Engineering, Inc., early pioneers in miniaturized, low-cost gas-sensing technologies, we also offer electrochemical gas-sensing technology products and solutions for industry, community, health and home, with uses in fields such as carbon monoxide and ozone detection and air quality monitoring.
23
We sell our products and solutions globally to a diverse array of customers that include the Fortune 500 as well as start-ups, design houses, original design manufacturers, OEMs and universities. Our customers are some of the world’s largest companies and most recognizable brands. Our technology has been deployed in the consumer electronics, industrial automation, automotive, medical, defense and environmental monitoring markets. Our global presence in the United States, China, United Kingdom, Hong Kong, Singapore and Japan allows us to provide local sales and engineering support services to our existing and future customers. We manufacture our products in a state-of-the-art facility in Shenzhen, China, and in our advanced and proprietary facilities in Newark, California and Irvine, Scotland. We control 100% of the manufacturing and shipping process which enables us to respond quickly to customer product demand and design requirements.
We have invested significantly in the expansion of our technology platforms through our own internal development to ensure we provide the market with leading-edge solutions that are seamless to deploy and perform flawlessly. Having built a research and development (R&D) organization in Singapore to develop new product offerings that will meet the market’s growing demand for touch technology and smart surfaces, in 2020 we made the strategic decision to relocate a majority of R&D and product development efforts to Camarillo, California, where we have established a Global Product Development and Materials Science Center. Combined with the advanced and proprietary facilities in Silicon Valley and Scotland that were acquired in connection with the SPEC/KWJ and Calman transactions, we believe this will allow us to grow our business and be more closely aligned with current and future large-tier customers. We also plan to explore potential strategic relationships with companies and technology institutes that will support our growth initiatives.
We were incorporated in California in 1985. In 1996, we re-incorporated into a Delaware corporation and, in 2012, we again changed our domicile from Delaware to Nevada by completing a merger with a newly formed Nevada corporation named Interlink Electronics, Inc. Our principal executive office is located at 15707 Rockfield Boulevard, Suite 105, Irvine, California 92618 and our telephone number is (805) 484-8855. Our website address is www.interlinkelectronics.com. We make available our annual financial statements, quarterly financial statements, and other significant reports and amendments to such reports, free of charge, on our website as soon as reasonably practicable after such reports are prepared.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statements presentation, financial condition, results of operations, and cash flows will be affected.
A description of our critical accounting policies that represent the more significant judgments and estimates used in the preparation of our financial statements was provided in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2023. There have been no changes to our critical accounting policies and estimates described in the Form 10-K that have had a material impact on our condensed consolidated financial statements and related notes.
Recently Issued and Adopted Accounting Pronouncements
We reviewed all recently issued accounting pronouncements and concluded they are all not applicable or not expected to be material to our financial statements.
24
Results of Operations
The following table sets forth certain unaudited condensed consolidated statements of operations data for the periods indicated. The percentages in the table are based on net revenues.
| Three Months Ended September 30, | Nine Months Ended September 30, |
| ||||||||||||||||||
2023 | 2022 | 2023 | 2022 |
| |||||||||||||||||
$ |
| % |
| $ |
| % |
| $ |
| % |
| $ |
| % |
| ||||||
(in thousands, except percentages) |
| ||||||||||||||||||||
Revenue, net | $ | 3,075 | 100.0 | % | $ | 1,851 | 100.0 | % | $ | 10,402 | 100.0 | % | $ | 5,882 | 100.0 | % | |||||
Cost of revenue | 1,616 | 52.6 | % | 979 | 52.9 | % |
| 5,295 | 50.9 | % |
| 2,817 | 47.9 | % | |||||||
Gross profit | 1,459 | 47.4 | % | 872 | 47.1 | % |
| 5,107 | 49.1 | % |
| 3,065 | 52.1 | % | |||||||
Operating expenses: |
|
| |||||||||||||||||||
Engineering, research and development | 588 | 19.1 | % | 319 | 17.2 | % |
| 1,765 | 17.0 | % |
| 912 | 15.5 | % | |||||||
Selling, general and administrative | 963 | 31.3 | % | 743 | 40.1 | % |
| 3,201 | 30.8 | % |
| 2,476 | 42.1 | % | |||||||
Total operating expenses | 1,551 | 50.4 | % | 1,062 | 57.4 | % |
| 4,966 | 47.7 | % |
| 3,388 | 57.6 | % | |||||||
Income (loss) from operations | (92) | (3.0) | % | (190) | (10.3) | % |
| 141 | 1.4 | % |
| (323) | (5.5) | % | |||||||
Other income (expense): |
|
| |||||||||||||||||||
Other income (expense), net | 26 | 0.8 | % | 207 | 11.2 | % |
| 154 | 1.5 | % |
| 704 | 12.0 | % | |||||||
Income (loss) before income taxes | (66) | (2.1) | % | 17 | 0.9 | % |
| 295 | 2.8 | % |
| 381 | 6.5 | % | |||||||
Income tax expense | 59 | 1.9 | % | 11 | 0.6 | % |
| 230 | 2.2 | % |
| 121 | 2.1 | % | |||||||
Net income (loss) | $ | (125) | (4.1) | % | $ | 6 | 0.3 | % | $ | 65 | 0.6 | % | $ | 260 | 4.4 | % | |||||
Comparison of Three Months Ended September 30, 2023 and 2022
Revenue, net by the markets we serve is as follows:
| Three Months Ended September 30, |
| ||||||||||||||
2023 | 2022 |
| ||||||||||||||
% of | % of | |||||||||||||||
Amount |
| Revenue |
| Amount |
| Revenue |
| $ Change |
| % Change |
| |||||
(in thousands, except percentages) |
| |||||||||||||||
Industrial | $ | 988 |
| 32.1 | % | $ | 535 |
| 28.9 | % | $ | 453 |
| 84.7 | % | |
Medical |
| 831 |
| 27.0 | % |
| 450 |
| 24.3 | % |
| 381 |
| 84.7 | % | |
Consumer |
| 56 |
| 1.8 | % |
| 537 |
| 29.0 | % |
| (481) |
| (89.6) | % | |
Standard |
| 1,200 |
| 39.0 | % |
| 329 |
| 17.8 | % |
| 871 |
| 264.7 | % | |
Revenue, net | $ | 3,075 |
| 100.0 | % | $ | 1,851 |
| 100.0 | % | $ | 1,224 |
| 66.1 | % | |
We sell our custom products into the industrial, medical and consumer markets. We sell our standard products through various distribution networks. The ultimate customer for standard products may come from different markets which are often unknown to us at the time of sale. Each market has different product design cycles. Products with longer design cycles often have much longer product life-cycles. Products for the industrial, medical and automotive markets generally have longer design and life-cycles than consumer products. We currently have products with life-cycles that have exceeded twenty years and are ongoing.
Revenues were up in the three months ended September 30, 2023 compared to the same quarter in 2022 in the industrial and medical markets and for our standard products, and were down in the consumer and automotive markets. The increase in revenue from our industrial market customers is due to increased demand from customers in this market and also due to sales to new industrial market customers resulting from our acquisitions of SPEC/KWJ and Calman. The increase in revenue from our medical market customers is primarily due to sales to new medical market customers resulting from our acquisitions of SPEC/KWJ and Calman. The increase in revenue for our standard products is also primarily due to the addition of new customers resulting from our acquisitions of SPEC/KWJ and Calman. The decrease in revenue from our consumer market customers is primarily due to fluctuations in the timing of receipt and
25
fulfilment of orders from some of our larger consumer products customers. In all markets, the timing of orders from our customers is not always predictable and can be concentrated in varying periods during the year to coincide with their demand and production plans.
| Three Months Ended September 30, |
|
|
|
|
| ||||||||||
2023 | 2022 |
| ||||||||||||||
% of | % of | |||||||||||||||
Amount |
| Revenue |
| Amount |
| Revenue |
| $ Change |
| % Change |
| |||||
(in thousands, except percentages) |
| |||||||||||||||
Gross profit | $ | 1,459 |
| 47.4 | % | $ | 872 |
| 47.1 | % | $ | 587 |
| 67.3 | % | |
Our gross profit and gross margin percentage are impacted by various factors including product mix, customer mix, sales volume, and fluctuations in our cost of revenues, which are comprised of material costs, direct and indirect production labor costs, warehousing and logistics costs, facilities costs, and other costs related to production activities. Gross profit during the three months ended September 30, 2023 was up compared to the three months ended September 30, 2022 due primarily to higher revenues (resulting from our acquisitions of SPEC/KWJ and Calman). Gross margin percentage declined slightly due to changes in product and customer mix.
| Three Months Ended September 30, |
| ||||||||||||||
2023 | 2022 |
| ||||||||||||||
% of | % of | |||||||||||||||
Amount |
| Revenue |
| Amount |
| Revenue |
| $ Change |
| % Change |
| |||||
(in thousands, except percentages) |
| |||||||||||||||
Engineering, research and development | $ | 588 | 19.1 | % | $ | 319 | 17.2 | % | $ | 269 | 84.3 | % | ||||
Engineering and R&D expenses consist primarily of compensation expenses for employees engaged in research, design and product development activities, and the cost of those employees’ indirect supplies and allocation of facilities expenses. Our R&D team focuses both on internal design development in support of our technology roadmap and in order to develop our standard sensor solutions, as well as custom design development aimed at addressing our customers’ unique design challenges. Engineering and R&D costs for the three months ended September 30, 2023 were up compared to the three months ended September 30, 2022 due to increased engineering employee headcount following our acquisition of SPEC/KWJ in December 2022, the inclusion in the current year period of approximately $26,000 of non-cash amortization expense on intangible assets acquired in the SPEC/KWJ acquisition, and increased prototyping and product-development activities this year as compared to the prior year.
| Three Months Ended September 30, |
| ||||||||||||||
2023 | 2022 |
| ||||||||||||||
% of | % of | |||||||||||||||
Amount |
| Revenue |
| Amount |
| Revenue |
| $ Change |
| % Change |
| |||||
(in thousands, except percentages) |
| |||||||||||||||
Selling, general and administrative | $ | 963 |
| 31.3 | % | $ | 743 |
| 40.1 | % | $ | 220 |
| 29.6 | % | |
Selling, general and administrative expenses consist primarily of compensation expenses for employees in the sales, marketing, finance and executive functions, legal and other professional fees, communication expenses and facilities costs. Selling, general and administrative expenses for the three months ended September 30, 2023 were up compared to the three months ended September 30, 2022 due to increased employee headcount following our acquisitions of SPEC/KWJ in December 2022 and Calman in March 2023.
| Three Months Ended September 30, |
| ||||||||||||||
2023 | 2022 |
| ||||||||||||||
% of | % of |
| ||||||||||||||
| Amount |
| Revenue |
| Amount |
| Revenue |
| $ Change |
| % Change |
| ||||
(in thousands, except percentages) |
| |||||||||||||||
Other income (expense), net | $ | 26 |
| 0.8 | % | $ | 207 |
| 11.2 | % | $ | (181) |
| 87.4 | % | |
Other income (expense), net consists of non-operating income and expenses, such as gains and losses on marketable securities, foreign currency transaction gains and losses, interest income and expense, and other non-operating income and expenses. Other income (expense), net for the three months ended September 30, 2023 was comprised of $31,000 of interest income and $5,000 of foreign
26
currency transaction losses, while other income (expense), net for the three months ended September 30, 2022 was comprised of $181,000 of gains on marketable securities, $24,000 of foreign currency transaction gains, and $2,000 of other non-operating income.
| Three Months Ended September 30, |
| ||||||||||||||
2023 | 2022 |
| ||||||||||||||
|
|
|
|
| Change |
| ||||||||||
% of | % of | in % of | ||||||||||||||
Pre-tax | Pre-tax | Pre-tax | ||||||||||||||
Amount | Income | Amount | Income | $ Change | Income |
| ||||||||||
(in thousands, except percentages) |
| |||||||||||||||
Income tax expense | $ | 59 |
| 89.4 | % | $ | 11 |
| 64.7 | % | $ | 48 |
| 24.7 | % | |
Income tax expense reflects statutory tax rates in the jurisdictions in which we operate, adjusted for permanent book/tax differences. Our effective tax rate is directly affected by the relative proportions of earnings and losses in the jurisdictions in which we operate, including our current limitation on realizing tax benefits on domestic losses due to the valuation allowance on our domestic net operating loss carryforward. Based on the expected mix of domestic and foreign earnings and losses, we anticipate our effective tax rate to generally remain higher than the U.S. statutory rate of 21% primarily due to a significant portion of our consolidating earnings being recorded in the jurisdictions of China (25% tax rate) and the United Kingdom (25% tax rate), while our domestic losses do not benefit our effective tax rate due to the valuation allowance. State income taxes also have an impact in the U.S.
Discrete tax events may cause our effective rate to fluctuate on a quarterly basis. Certain events, including, for example, acquisitions and other business changes, which are difficult to predict, may also cause our effective tax rate to fluctuate. We are subject to changing tax laws, regulations, and interpretations in multiple jurisdictions. Corporate tax reform continues to be a priority in the U.S. and other jurisdictions. Additional changes to the tax system in the U.S. could have significant effects, positive and negative, on our effective tax rate, and on our deferred tax assets and liabilities.
Comparison of Nine Months Ended September 30, 2023 and 2022
Revenue, net by the markets we serve is as follows:
| Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | |||||||||||||||
| % of |
|
| % of |
|
| ||||||||||
Amount | Revenue | Amount | Revenue | $ Change | % Change | |||||||||||
(in thousands, except percentages) | ||||||||||||||||
Industrial | $ | 3,173 |
| 30.5 | % | $ | 2,131 |
| 36.2 | % | $ | 1,042 |
| 48.9 | % | |
Medical |
| 3,871 |
| 37.2 | % |
| 1,776 |
| 30.2 | % |
| 2,095 |
| 118.0 | % | |
Consumer |
| 350 |
| 3.4 | % |
| 993 |
| 16.9 | % |
| (643) |
| (64.8) | % | |
Standard |
| 3,008 |
| 28.9 | % |
| 982 |
| 16.7 | % |
| 2,026 |
| 206.3 | % | |
Revenue, net | $ | 10,402 |
| 100.0 | % | $ | 5,882 |
| 100.0 | % | $ | 4,520 |
| 76.8 | % | |
Revenues were up in the nine months ended September 30, 2023 compared to the first nine months of 2022 in the industrial and medical markets, and for our standard products, and were down in the consumer and automotive markets. The increase in revenue from our industrial market customers is due to increased shipments resulting from increased demand by customers in this market, and also due to sales to new industrial market customers resulting from our acquisitions of SPEC/KWJ and Calman. The increase in revenue from our medical market customers is primarily due to a continued increase in orders from and shipments to our largest medical customer, whose purchasing volume increased following the COVID-19 pandemic, and also due to sales of our force-sensing technologies to new medical market customers and also due to sales of our new gas-sensing and membrane keypads products resulting from our acquisitions of SPEC/KWJ and Calman. The increase in revenue for our standard products is primarily due to the addition of new customers resulting from our acquisitions of SPEC/KWJ and Calman. The decrease in revenue from our consumer market customers is primarily due to fluctuations in the timing of receipt and fulfilment of orders from some of our larger consumer products customers, and cyclicality in their product designs that cause our products to be included in or excluded from their programs from time to time. In all markets, the timing of orders from our customers is not always predictable and can be concentrated in varying periods during the year to coincide with their demand and production plans.
27
| Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | |||||||||||||||
| % of |
|
| % of |
|
| ||||||||||
Amount | Revenue | Amount | Revenue | $ Change | % Change | |||||||||||
(in thousands, except percentages) | ||||||||||||||||
Gross profit | $ | 5,107 |
| 49.1 | % | $ | 3,065 |
| 52.1 | % | $ | 2,042 |
| 66.6 | % | |
Gross profit during the nine months ended September 30, 2023 was up compared to the nine months ended September 30, 2022 due to higher revenues (resulting in large part from our acquisitions of SPEC/KWJ and Calman), while gross margin percentage was down due to higher materials and components costs on certain orders and unfavorable changes in product and customer mix.
| Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | |||||||||||||||
| % of |
|
| % of |
|
| ||||||||||
Amount | Revenue | Amount | Revenue | $ Change | % Change | |||||||||||
(in thousands, except percentages) | ||||||||||||||||
Engineering, research and development | $ | 1,765 |
| 17.0 | % | $ | 912 |
| 15.5 | % | $ | 853 |
| 93.5 | % | |
Engineering and R&D costs for the nine months ended September 30, 2023 were up compared to the nine months ended September 30, 2022 due to increased engineering employee headcount following our acquisition of SPEC/KWJ in December 2022, the inclusion in the current year period of approximately $108,000 of non-cash amortization expense on intangible assets acquired in the SPEC/KWJ acquisition, and increased prototyping and product-development activities this year as compared to the prior year.
| Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | |||||||||||||||
| % of |
|
| % of |
|
| ||||||||||
Amount | Revenue | Amount | Revenue | $ Change | % Change | |||||||||||
(in thousands, except percentages) | ||||||||||||||||
Selling, general and administrative | $ | 3,201 |
| 30.8 | % | $ | 2,476 |
| 42.1 | % | $ | 725 |
| 29.3 | % | |
Selling, general and administrative expenses for the nine months ended September 30, 2023 were up compared to the nine months ended September 30, 2022 due to increased employee headcount following our acquisitions of SPEC/KWJ in December 2022 and Calman in March 2023, and increased legal and other professional fees.
| Nine Months Ended September 30, |
| ||||||||||||||
2023 | 2022 |
| ||||||||||||||
% of | % of |
| ||||||||||||||
| Amount |
| Revenue |
| Amount |
| Revenue |
| $ Change |
| % Change |
| ||||
(in thousands, except percentages) |
| |||||||||||||||
Other income (expense), net | $ | 154 |
| 1.5 | % | $ | 704 |
| 12.0 | % | $ | (550) |
| (78.1) | % | |
Other income (expense), net for the nine months ended September 30, 2023 was comprised of $129,000 of interest income, $19,000 of foreign currency transaction gains, and $6,000 of other non-operating income, while other income (expense), net for the nine months ended September 30, 2022 was comprised of $562,000 of gains on marketable securities, $139,000 of foreign currency transaction gains, and $3,000 of other non-operating income.
| Nine Months Ended September 30, |
| ||||||||||||||
2023 | 2022 | Change |
| |||||||||||||
| % of |
|
| % of |
|
| in % of |
| ||||||||
Pre-tax | Pre-tax | Pre-tax | ||||||||||||||
Amount | Income | Amount | Income | $ Change | Income |
| ||||||||||
(in thousands, except percentages) |
| |||||||||||||||
Income tax expense | $ | 230 |
| 78.0 | % | $ | 121 |
| 31.8 | % | $ | 109 |
| 46.2 | % | |
Income tax expense reflects statutory tax rates in the jurisdictions in which we operate, adjusted for permanent book/tax differences. Our effective tax rate is directly affected by the relative proportions of earnings and losses in the jurisdictions in which we operate, including our current limitation on realizing tax benefits on domestic losses due to the valuation allowance on our domestic net operating loss carryforward.
28
Liquidity and Capital Resources
Cash requirements for working capital and capital expenditures have been funded from cash balances on hand, cash generated from operations, and sales of equity securities. As of September 30, 2023, we had cash and cash equivalents of $5.2 million, working capital of $8.0 million and no indebtedness. Cash and cash equivalents consist of cash and money market funds. Of our $5.2 million of cash, $1.6 million was held by foreign subsidiaries. If these funds are needed for our operations in the U.S., we have several methods to repatriate without significant tax effects, including repayment of intercompany loans or distributions of previously taxed income. Other distributions may require us to incur U.S. or foreign taxes to repatriate these funds.
We have outstanding 200,000 shares of our 8.0% Series A Convertible Preferred Stock (the “Preferred Stock”) that have an aggregate liquidation preference of $5.0 million. We pay, when, as and if declared by our board of directors, monthly cumulative cash dividends on the Preferred Stock at an annual rate of 8.0%; this is equivalent to $0.16667 per month and $2.00 per annum per share, based on a per share liquidation preference of $25.00. Dividends on the Preferred Stock are payable monthly in arrears on the 15th day of each calendar month. Our board of directors has declared cash dividends on the Preferred Stock each month since the Preferred Stock was issued in October 2021, and we expect that the board will continue to declare, and we will continue to pay, cash dividends on the Preferred Stock each month while the Preferred Stock is outstanding, subject to applicable limitations under Nevada law.
We believe that our existing cash and cash equivalents balance will be sufficient to maintain our current operations considering our current financial condition, obligations, and other expected cash flows. If our circumstances change, however, we may require additional cash. If we require additional cash, we may attempt to raise additional capital through equity, equity-linked or debt financing arrangements. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by the incurrence of indebtedness, we could be subject to fixed payment obligations and could also be subject to restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. If we are unable to raise additional needed funds, we may also take measures to reduce expenses to offset any shortfall.
Cash Flow Analysis
Our cash flows from operating, investing and financing activities are summarized as follows:
| Nine Months Ended | |||||
September 30, | ||||||
2023 |
| 2022 | ||||
(in thousands) | ||||||
Net cash provided by (used in) operating activities | $ | 155 | $ | (385) | ||
Net cash (used in) investing activities |
| (4,322) |
| (6,021) | ||
Net cash (used in) financing activities |
| (650) |
| (300) | ||
Net Cash Provided By (Used In) Operating Activities
For the nine months ended September 30, 2023, the $155,000 of cash provided by operating activities was attributable to net income of $65,000, adjusted for non-cash charges of $292,000 and offset by cash used in changes in operating assets and liabilities of $202,000.
Accounts receivable increased from $1.2 million at December 31, 2022 to $1.6 million at September 30, 2023 due to higher shipments during the third quarter of 2023 compared to the third quarter of 2022, and the addition of accounts receivable from our March 2023 acquisition of Calman. Many of our customers pay promptly and accounts receivable are generally related to the most recent shipments. Inventories increased from $2.1 million at December 31, 2022 to $2.9 million at September 30, 2023. Inventory balances fluctuate depending on the timing of materials purchases and product shipments, and also increased due to our March 2023 acquisition of Calman. Prepaid expenses and other current assets decreased from $321,000 at December 31, 2022 to $226,000 at September 30, 2023 due primarily to the receipt of the amount collected from the SPEC/KWJ acquisition escrow resulting from the reduction in the purchase price upon finalization of their closing-date working capital. Accounts payable and accrued liabilities increased from $841,000 at December 31, 2022 to $1.4 million at September 30, 2023, primarily due to purchase consideration that remains payable to the prior owners of Calman, offset by other factors such as the timing of payment for purchases of materials, compensation accruals, and other outside services, and the addition of Calman’s accounts payable and accrued liabilities to our consolidated balances.
29
For the nine months ended September 30, 2022, the $385,000 of cash used in operating activities was attributable to net income of $260,000, adjusted for non-cash charges of $201,000 and unrealized gains on marketable securities of $562,000 and cash used in changes in operating assets and liabilities of $284,000.
Net Cash Used In Investing Activities
Net cash used in investing activities of $4.3 million for the nine months ended September 30, 2023 consisted of $4.3 million used to acquire the equity interests of Calman (which is net of $1.6 million of cash acquired), and $44,000 used for purchases of property, plant, and equipment. Net cash used in investing activities of $6.0 million for the nine months ended September 30, 2022 consisted of purchases of $6.0 million of marketable securities (net of sales) and $9,000 of property, plant, and equipment.
Net Cash Used In Financing Activities
Net cash used in financing activities of $650,000 for the nine months ended September 30, 2023 consisted of $350,000 used for repurchases of 32,120 shares of common stock and $300,000 used for payments of dividends on our Preferred Stock. Net cash used in financing activities of $300,000 for the nine months ended September 30, 2022 was for payments of dividends on our Preferred Stock.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The phrase “disclosure controls and procedures” refers to controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended, or the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission, or SEC. Disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our chief executive officer, or CEO, and chief financial officer, or CFO, as appropriate to allow timely decision regarding required disclosure.
Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of September 30, 2023, the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our CEO and CFO had concluded that as of September 30, 2023, our disclosure controls and procedures were designed at a reasonable assurance level and were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Controls over Financial Reporting
There was no change in our internal control over financial reporting during the period ended September 30, 2023 that materially affected, or is reasonable likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
The Company’s internal control over financial reporting includes policies and procedures that (1) pertain to maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
30
generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Our management, including our CEO and CFO, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. In addition, the design of any system of controls is based in part on certain assumptions about the likelihood of future events, and controls may become inadequate if conditions change. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
31
PART II: OTHER INFORMATION
Item 1A. Risk Factors
This Quarterly Report on Form 10-Q contains forward-looking statements, which are subject to a variety of risks and uncertainties. Other actual results could differ materially from those anticipated in those forward-looking statements as a result of various factors, including those set forth in the risk factors relating to our business and common stock contained in Item 1A of our Annual Report on Form 10-K filed with the SEC on March 29, 2023. There have been no material changes to such risk factors during the nine months ended September 30, 2023.
Item 6. Exhibits
Exhibit |
|
|
| Incorporated by Reference |
| Filed | ||||||
Number |
| Exhibit Description |
| Form |
| File Number |
| Exhibit |
| Filing Date |
| Herewith |
3.1 |
|
| 10 |
| 000-21858 |
| 3.1 |
| February 17, 2016 |
|
| |
3.2 | 8-K | 001-37659 | 3.1 | October 25, 2021 | ||||||||
3.3 |
|
| 10 |
| 000-21858 |
| 3.2 |
| February 17, 2016 |
|
| |
3.4 |
|
| 10 |
| 000-21858 |
| 3.3 |
| February 17, 2016 |
|
| |
31.1 |
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| X | |
31.2 |
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|
| X | |
32.1* |
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|
|
| X | |
101.INS |
| XBRL Instance Document |
|
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| X |
101.SCH |
| XBRL Taxonomy Extension Schema Document |
|
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|
| X |
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document |
|
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|
|
| X |
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document |
|
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| X |
101.LAB |
| XBRL Taxonomy Extension Label Linkbase Document |
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|
| X |
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document |
|
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|
| X |
104 | The cover page from Interlink Electronics, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language) and contained in Exhibit 101. | X | ||||||||||
*The information in this exhibit is furnished and deemed not filed with the Securities and Exchange Commission for purposes of section 18 of the Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of Interlink Electronics, Inc. under the Securities Act of 1933, as amended, or the Exchange Act of 1934, as amended, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 9, 2023 |
| Interlink Electronics, Inc. | |
(Registrant) | |||
By: | /s/ Ryan J. Hoffman | ||
| Ryan J. Hoffman | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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