LINK 8-K/A
Interlink Electronics Inc (LINK)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Amendment No. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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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. ¨
Explanatory Note
On December 22, 2022, Interlink Electronics, Inc. (“Interlink” or the “Company”) filed a Current Report on Form 8-K (the “Original Report”) to report that it acquired all of the assets of SPEC Sensors, LLC and KWJ Engineering, Inc. (the “Transaction”).
| Item 9.01 | Financial Statements and Exhibits. |
| (a) | Financial statements of businesses or funds acquired. |
The audited combined financial statements of SPEC Sensors, LLC and KWJ Engineering, Inc. as of and for the years ended December 31, 2021 and 2020, and the related notes thereto, are included as Exhibit 99.1 to this Current Report and are incorporated herein by reference.
The unaudited condensed combined balance sheets of SPEC Sensors, LLC and KWJ Engineering, Inc. as of September 30, 2022 and December 31, 2021, the unaudited condensed combined statements of operations, owners’ equity and cash flows of SPEC Sensors, LLC and KWJ Engineering, Inc. for the nine months ended September 30, 2022 and 2021, and the related notes thereto, are included as Exhibit 99.2 to this Current Report and are incorporated herein by reference.
| (b) | Pro forma financial information. |
The unaudited pro forma condensed combined financial statements of Interlink Electronics, Inc. are included as Exhibit 99.3 to this Current Report and are incorporated herein by reference. The unaudited pro forma condensed combined financial statements of Interlink Electronics, Inc. are comprised of the unaudited pro forma condensed combined balance sheet as of September 30, 2022, the unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2022, the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2021, and the related notes thereto.
The unaudited pro forma condensed combined financial statements were derived from the separate historical financial statements of Interlink Electronics, Inc. and of SPEC Sensors, LLC and KWJ Engineering, Inc. These pro forma financial statements may not necessarily reflect what our results of operations and financial position would have been had the Transaction occurred during the periods presented in the pro forma financial statements, or what our results of operations and financial position will be in the future.
2
| (d) | Exhibits. |
3
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 hereunto duly authorized.
| Date: February 24, 2023 | INTERLINK ELECTRONICS, INC. | |
| By: | /s/ Ryan J. Hoffman | |
| Ryan J. Hoffman | ||
| Chief Financial Officer | ||
4
Exhibit 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-261602 and 333-261603) and Form S-8 (No. 333-250142) of Interlink Electronics, Inc., of our report dated October 24, 2022, relating to the combined financial statements of SPEC Sensors, LLC and Affiliate, which appears in this Current Report on Form 8-K/A.
/s/ LMHS, P.C.
Norwell, MA
February 24, 2023
1
Exhibit 99.1
SPEC SENSORS, LLC AND KWJ ENGINEERING, INC. (AN AFFILIATE)
AUDITED COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
SPEC SENSORS, LLC AND AFFILIATE
AUDITED COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
| Page | |
| INDEPENDENT AUDITORS' REPORT | 2 |
| COMBINED FINANCIAL STATEMENTS: | |
| Combined Balance Sheets | 3 |
| Combined Statements of Operations and Owners' Equity | 4 |
| Combined Statements of Cash Flows | 5 |
| Notes to Combined Financial Statements | 6-9 |
Independent Auditors' Report
To The Owners
SPEC Sensors, LLC and Affiliate
Newark, California
We have audited the accompanying consolidated financial statements of SPEC Sensors, LLC and Affiliate, which comprise the combined balance sheets as of December 31, 2021 and 2020, and the related combined statements of operations, changes in owners' equity, and cash flows for the year then ended, and the related notes to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the balance sheets as of December 31, 2021 and 2020, and the statements of operations, changes in stockholders' equity, and cash flows for the years ended December 31, 2021 and 2020.
Unqualified Opinion on the 2021 and 2020 Financial Statements
In our opinion, the 2021 and 2020 combined financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of their operations and cash flows for the years then ended, in accordance with accounting principles generally accepted in the United States of America.
LMHS, P.C.
Norwell, Massachusetts
October 24, 2022
SPEC SENSORS, LLC AND AFFILIATE
COMBINED BALANCE SHEETS
DECEMBER 31, 2021 AND 2020
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 777,529 | $ | 869,503 | ||||
| Accounts Receivable | 346,245 | 233,271 | ||||||
| Inventory | 656,766 | 951,582 | ||||||
| Prepaid Expenses and Other | 37,881 | 37,520 | ||||||
| 1,818,421 | 2,091,876 | |||||||
| PROPERTY AND EQUIPMENT: | ||||||||
| Machinery and Equipment | 534,511 | 526,674 | ||||||
| Accumulated Depreciation | (526,417 | ) | (523,371 | ) | ||||
| 8,094 | 3,303 | |||||||
| OTHER ASSETS: | ||||||||
| Deposits | 16,000 | 16,603 | ||||||
| Intangible Assets, Net | 31,737 | 52,193 | ||||||
| 47,737 | 68,796 | |||||||
| $ | 1,874,252 | $ | 2,163,975 | |||||
| LIABILITIES AND OWNERS' EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts Payable and Accrued Expenses | $ | 86,246 | $ | 272,432 | ||||
| LONG-TERM DEBT - PPP LOANS | - | 391,594 | ||||||
| OWNERS' EQUITY: | ||||||||
| Members' Equity | 71,437 | 27,772 | ||||||
| Common Stock, No Par Value; 100 Shares Authorized, Issued and Outstanding | 11,000 | 11,000 | ||||||
| Additional Paid-in Capital | 1,692,187 | 1,692,187 | ||||||
| Retained Earnings | 13,382 | (231,010 | ) | |||||
| 1,788,006 | 1,499,949 | |||||||
| $ | 1,874,252 | $ | 2,163,975 | |||||
See Notes to Combined Financial Statements
3
SPEC SENSORS, LLC AND AFFILIATE
COMBINED STATEMENTS OF OPERATIONS AND OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 2021 AND 2020
| 2021 | 2020 | |||||||
| NET SALES | $ | 4,796,262 | $ | 4,765,980 | ||||
| COST OF GOODS SOLD: | ||||||||
| Purchases, Net | 1,601,023 | 1,669,709 | ||||||
| Direct Labor | 1,135,674 | 1,067,316 | ||||||
| Other Direct Expenses | 226,715 | 148,398 | ||||||
| 2,963,412 | 2,885,423 | |||||||
| GROSS PROFIT | 1,832,850 | 1,880,557 | ||||||
| SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: | ||||||||
| Engineering and Research and Development | 77,405 | 184,382 | ||||||
| Overhead Expenses | 932,707 | 798,458 | ||||||
| General and Administrative Expenses | 923,460 | 940,906 | ||||||
| 1,933,572 | 1,923,746 | |||||||
| LOSS FROM OPERATIONS | (100,722 | ) | (43,189 | ) | ||||
| OTHER INCOME AND (EXPENSE): | ||||||||
| Interest Income | 692 | 1,519 | ||||||
| Other Income | 391,594 | 18,725 | ||||||
| Interest Expense | (2,657 | ) | (1,606 | ) | ||||
| 389,629 | 18,638 | |||||||
| EARNINGS (LOSS) BEFORE STATE INCOME TAXES | 288,907 | (24,551 | ) | |||||
| STATE INCOME TAXES | 850 | 850 | ||||||
| NET EARNINGS (LOSS) | 288,057 | (25,401 | ) | |||||
| OWNERS' EQUITY, BEGINNING | 1,499,949 | 1,525,350 | ||||||
| OWNERS' EQUITY, ENDING | $ | 1,788,006 | $ | 1,499,949 | ||||
See Notes to Combined Financial Statements
4
SPEC SENSORS, LLC AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2021 AND 2020
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Earnings (Loss) | $ | 288,057 | $ | (25,401 | ) | |||
| Noncash Items Included in Net Earning (Loss): | ||||||||
| Depreciation and Amortization | 25,112 | 25,610 | ||||||
| Gain on Extinguishment of Debt | (391,594 | ) | - | |||||
| (Increase) Decrease In: | ||||||||
| Accounts Receivable | (112,974 | ) | 27,263 | |||||
| Inventory | 294,816 | (238,285 | ) | |||||
| Deposits | 603 | (321 | ) | |||||
| Prepaid Expenses and Other | (361 | ) | (26,422 | ) | ||||
| Increase (Decrease) In: | ||||||||
| Accounts Payable and Accrued Expenses | (186,186 | ) | (207,634 | ) | ||||
| (82,527 | ) | (445,190 | ) | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Additions to Property and Equipment | (9,447 | ) | - | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| New Borrowings: | ||||||||
| Note Payable - PPP Loan | - | 391,594 | ||||||
| NET DECREASE IN CASH | (91,974 | ) | (53,596 | ) | ||||
| CASH - BEGINNING | 869,503 | 923,100 | ||||||
| CASH - ENDING | $ | 777,529 | $ | 869,504 | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Cash Paid During The Year For: | ||||||||
| Interest | $ | 692 | $ | 1,519 | ||||
| State Income Taxes | $ | 850 | $ | 850 | ||||
See Notes to Combined Financial Statements
5
SPEC SENSORS, LLC AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
| A. | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: |
| 1. | Principles of Combination - The combined financial statements include the accounts of SPEC Sensors, LLC and KWJ Engineering, Inc. (the Company). The Companies are affiliated through common ownership, management, and operations. All material intercompany transactions and accounts have been eliminated in the combination of the financial statements. |
| 2. | Organization - SPEC Sensors, LLC was formed in the state of California and commenced operations on May 30, 2012. KWJ Engineering, Inc. was incorporated under the laws of the state of California and commenced operations on January 22, 1993. |
| 3. | Operations - SPEC Sensors, LLC (SPEC) is engaged in the manufacturing and distribution of electrochemical gas sensors and gas sensor modules, both calibrated and uncalibrated. SPEC has one facility in Newark, CA which it shares with its affiliate, KWJ Engineering, Inc. (KWJ). KWJ is engaged in the manufacturing and distribution of several lines of gas detection products and performs grant and contract research and development services. KWJ sells the following three product lines: Eco Sensors low-cost ozone monitors, KWJ Legacy in line CO monitors and TTD gas sensors. The work for both companies is performed primarily under worldwide market-price and is performed primarily in the Bay Area region of California. |
| 4. | Method of Accounting - The Company's policy is to prepare its combined financial statements on the accrual method of accounting whereby revenues are recognized when earned and expenses are recognized when incurred. This method of accounting conforms to generally accepted accounting principles. |
| 5. | Concentration of Credit Risk - Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of deposits in excess of federally insured limits and accounts receivable. These risks are managed by maintaining all deposits in high quality financial institutions and obtaining signed sales orders, and/or establishing credit limits with all customers. Management believes that the Company is not exposed to any significant credit risk as a result of these credit concentrations. |
| 6. | Cash and Cash Equivalents - For purposes of the combined statements of cash flows, the Company considers all highly liquid investments available for current use with an initial maturity of three months or less to be cash equivalents. |
| 7. | Inventory - The Company's inventory is valued at the lower of cost (first-in, first-out) or market. |
| 8. | Property and Equipment - Property and equipment are recorded at cost. Maintenance and repairs are charged to expense as incurred whereas major betterments are capitalized. Depreciation is computed using the straight-line method over five to seven years. |
| 9. | Intangible Assets - Intangible assets subject to amortization include capitalized software and development costs, all of which are amortized using the straight-line method over fifteen years. |
| 10. | Fair Value of Financial Instruments - The Company's financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and long-term debt. The recorded values of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses and approximate their fair values based on their short-term nature. The recorded values of long-term debt approximate their fair values, as current interest rates approximate market rates. |
| 11. | Revenue Recognition - In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue From Contracts with Customers ("ASU 2014-09"), which is aimed at creating common revenue recognition guidance for GAAP and the International Financial Reporting Standards ("IFRS"). This new guidance provides a comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue guidance issued by the FASB. ASU 2014-09 also requires both qualitative and quantitative disclosures, including descriptions of performance obligations. |
6
SPEC SENSORS, LLC AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
| A. | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued) |
On January 1, 2020, the Company adopted ASU 2014-09 and all related amendments ("ASC 606") and applied its provisions to all uncompleted contracts using the modified retrospective basis. The application of this new revenue recognition standard resulted in no adjustment to the opening balance of retained earnings.
Performance Obligations - Revenue from contracts with customers is recognized when, or as, the Company satisfies its performance obligations by transferring goods or services to customers. A good or service is transferred to a customer when, or as, the customer obtains control of that good or service. A performance obligation may be satisfied over time or at a point in time. Revenue from a performance obligation satisfied at a point in time is recognized at the point in time that the Company determines the customer has obtained control over the promised good or service. The amount of revenue recognized reflects the consideration of which the Company expects to be entitled in exchange for the promised goods or services.
The following provides detailed information on the recognition of the Company's revenue from contracts with customers:
Product Sales - The Company is engaged in the manufacturing and distribution of gas sensors, kits, elements, engineering services, and related products. Revenue on the sale of these products is recognized when orders are shipped.
All revenue for the years ended December 31, 2021 and 2020 was determined to be performance obligations satisfied at a point in time.
| 12. | Freight - The Company includes freight in as a component of inventory and freight out as part of cost of goods sold. |
| 13. | Income Taxes - SPEC Sensors, LLC is a limited liability company treated as a Partnership for federal and state income tax purposes. Members of a partnership are taxed directly on their proportionate share of the Company's earnings. KWJ Engineering, Inc. has elected under the Internal Revenue Code to be an S Corporation for federal and state tax purposes. In lieu of corporate federal income taxes, the stockholders of an S Corporation are taxed on their proportionate share of the Corporation's taxable income. Consequently, no provision or liability for income taxes has been included in the combined financial statements. |
| 14. | Uncertainty In Income and Other Taxes - The Company adopted the standards for Accounting for Uncertainty in Income Taxes (income, sales, use and payroll), which required the Company to report any uncertain tax positions and to adjust its combined financial statements for the impact thereof. As of December 31, 2021 and 2020, the Company determined that it had no tax positions that did not meet the "more likely than not" threshold of being sustained by the applicable tax authority. The Company files tax and information returns in the United States Federal, California, and other state jurisdictions as applicable. These returns are subject to examination by tax authorities for the last three years. |
| 15. | Sales Tax - The Company excludes from its sales all sales taxes assessed to its customers. Sales taxes assessed on sales are recorded as accrued liabilities until remitted to state agencies. The Company remits sales taxes to various states as applicable. |
7
SPEC SENSORS, LLC AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
| A. | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued) |
| 16. | General and Administrative Expenses - These expenses are charged to operations as incurred and are not allocated to cost of sales. |
| 17. | Use of Estimates - The preparation of the combined financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. |
| B. | ACCOUNTS RECEIVABLE: |
The Company utilizes the allowance method to account for uncollectible accounts receivable balances. Under the allowance method, an estimate of uncollectible customer balances is made based on the Company's prior history and other factors such as the credit quality of the customer and economic conditions of the market. Based on these factors, at December 31, 2021 and 2020, no allowance for doubtful accounts was recorded.
| C. | INVENTORY, NET: |
Inventory, both materials and finished goods, consists primarily of electrochemical gas sensors, gas sensors modules, ECO sensors low-cost ozone monitors, CO monitors and TTD gas sensors. Inventory was valued at $656,766 and $951,582 on December 31, 2021, and 2020, respectively.
| D. | INTANGIBLE ASSETS, NET: |
Intangible assets consist of the following at December 31,:
| 2021 | 2020 | |||||||
| Capitalized Syndication and Organization Costs | $ | 20,961 | $ | 19,351 | ||||
| Other Intangible Assets | 302,489 | 302,489 | ||||||
| 323,450 | 321,840 | |||||||
| Accumulated Amortization | (291,713 | ) | (269,647 | ) | ||||
| $ | 31,737 | $ | 52,193 | |||||
| E. | ADVERTISING: |
The Company follows the policy of charging the costs of advertising to expense as incurred. For the years ended December 31, 2021, and 2020, advertising costs amounted to $7,820 and $18,371, respectively.
| F. | OPERATING LEASES: |
The Company leases its manufacturing, distribution and office space in Newark, California for terms in excess of one year. Rent expense for the years ended December 31, 2021, and 2020 amounted to $187,078 and $165,886, respectively.
The following is a schedule by years of the future minimum lease payments as of December 31,:
| 2022 | $ | 192,692 | ||
| 2023 | 32,272 | |||
| $ | 224,964 |
| G. | MAJOR CUSTOMER: |
For the year ended December 31, 2021, the Company had one major customer, to which sales accounted for approximately 12% of the Company's revenue. At December 31, 2021, accounts receivable from this customer represented approximately 3%, of the total accounts receivable balance. For the years ended December 31, 2020, the Company did not have any major customers.
8
SPEC SENSORS, LLC AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
| H. | PPP FUNDS FORGIVENESS: |
On May 6, 2020, SPEC Sensors, LLC received loan proceeds from Bank of the West in the amount of $52,905 under the Paycheck Protection Program ("PPP"). On May 7, 2020, KWJ Engineering, Inc. received loan proceeds from Bank of West in the amount of $338,689 under the PPP. The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), provides for loans to qualifying businesses for amounts up to 2.5 times the average qualifying monthly payroll expenses of the qualifying business. The loan and accrued interest are forgivable as long as the borrower uses the proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of forgiveness will be reduced if the borrower is unable to re-hire to the same employment level, reduces salaries during the covered period, or uses more than forty percent of the money on nonemployment expenses.
On July 23, 2021, both SPEC Sensors, LLC and KWJ Engineering, Inc. were granted forgiveness from the Small Business Administration (SBA) for the full amounts of each loan. In accordance with ASC 470, Debt, $391,594 of PPP funds were recognized on the combined statements of operations and owners' equity as other income for the year ended December 31, 2021.
| I. | CONTINGENT LIABILITIES: |
The Company has certain contingent liabilities and is a party to various claims and actions arising in the ordinary course of business. Management is of the opinion that all such matters are without merit or are of such kind or involve such amounts that unfavorable disposition would not have a material effect on the financial position of the Company.
| J. | SUBSEQUENT EVENTS: |
Management has evaluated events occurring after the combined balance sheet date through October 24 2022, the date in which the combined financial statements were available to be issued.
On January 30, 2020, the World Health Organization declared COVID-19 a public health emergency. The declaration has a potential impact on the Company and its customers from production delays, contract stoppages or decreases, and other. Significant work stoppages and an economic slowdown has impacted not only the United States, but the worldwide economy. Management is unable to estimate the impact that this public health emergency will have on the Company's financial position or its operating results and accordingly, no adjustments have been made to the accompanying combined financial statements.
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Exhibit 99.2
SPEC SENSORS, LLC AND KWJ ENGINEERING, INC. (AN AFFILIATE)
CONDENSED COMBINED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
SPEC
SENSORS, LLC AND KWJ ENGINEERING, INC. (AN AFFILIATE)
INDEX TO CONDENSED COMBINED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
CONDENSED COMBINED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
| Condensed Combined Balance Sheets as of September 30, 2022 and December 31, 2021 | 1 | |||
| Condensed Combined Statements of Operations for the Nine Months Ended September 30, 2022 and 2021 | 2 | |||
| Condensed Combined Statements of Owners’ Equity for the Nine Months Ended September 30, 2022 and 2021 | 3 | |||
| Condensed Combined Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 | 4 | |||
| Notes to Condensed Combined Interim Financial Statements | 5 – 7 |
SPEC SENSORS, LLC AND KWJ ENGINEERING, INC. (AN AFFILIATE)
CONDENSED COMBINED BALANCE SHEETS
SEPTEMBER 30, 2022 AND DECEMBER 31, 2021
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 630,767 | $ | 777,525 | ||||
| Accounts receivable | 244,129 | 346,244 | ||||||
| Inventory | 627,143 | 656,766 | ||||||
| Prepaid expenses and other | 37,668 | 37,882 | ||||||
| 1,539,707 | 1,818,417 | |||||||
| PROPERTY AND EQUIPMENT | ||||||||
| Machinery and equipment | 563,611 | 534,511 | ||||||
| 563,611 | 534,511 | |||||||
| Accumulated depreciation | (530,144 | ) | (526,417 | ) | ||||
| 33,467 | 8,094 | |||||||
| OTHER ASSETS | ||||||||
| Deposits | 16,000 | 16,000 | ||||||
| Intangible assets | 16,395 | 31,737 | ||||||
| 32,395 | 47,737 | |||||||
| $ | 1,605,569 | $ | 1,874,248 | |||||
| LIABILITIES AND OWNERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | 194,880 | $ | 86,243 | ||||
| 194,880 | 86,243 | |||||||
| OWNERS’ EQUITY | 1,410,689 | 1,788,005 | ||||||
| LIABILITIES AND OWNERS’ EQUITY | $ | 1,605,569 | $ | 1,874,248 | ||||
See notes to condensed combined financial statements.
1
SPEC SENSORS, LLC AND KWJ ENGINEERING, INC. (AN AFFILIATE)
CONDENSED COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
| Nine Months Ended | ||||||||
| September 30, 2022 | September 30, 2021 | |||||||
| NET SALES | $ | 3,267,842 | $ | 3,890,633 | ||||
| COST OF GOODS SOLD | ||||||||
| Purchases, net | 659,729 | 808,833 | ||||||
| Direct labor | 1,154,829 | 1,020,813 | ||||||
| Other direct expenses | 193,243 | 183,997 | ||||||
| 2,007,802 | 2,013,643 | |||||||
| GROSS PROFIT | 1,260,041 | 1,876,990 | ||||||
| SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | ||||||||
| Engineering and research and development | 112,301 | 75,051 | ||||||
| Overhead expenses | 780,592 | 699,722 | ||||||
| General and administrative expenses | 719,047 | 599,206 | ||||||
| 1,611,940 | 1,373,979 | |||||||
| EARNINGS (LOSS) FROM OPERATIONS | (351,899 | ) | 503,011 | |||||
| OTHER INCOME AND (EXPENSE) | ||||||||
| Interest income | 261 | 600 | ||||||
| Other income | - | 391,594 | ||||||
| Interest expense | (2,229 | ) | (1,755 | ) | ||||
| (1,968 | ) | 390,439 | ||||||
| EARNINGS (LOSS) BEFORE STATE INCOME TAXES | (353,867 | ) | 893,450 | |||||
| STATE INCOME TAXES | 50 | 50 | ||||||
| NET EARNINGS (LOSS) | $ | (353,917 | ) | $ | 893,400 | |||
See notes to condensed combined financial statements.
2
SPEC SENSORS, LLC AND KWJ ENGINEERING, INC. (AN AFFILIATE)
CONDENSED COMBINED STATEMENTS OF OWNERS’ EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
| Nine Months Ended | ||||||||
| September 30, 2022 | September 30, 2021 | |||||||
| OWNERS’ EQUITY, BEGINNING | $ | 1,788,005 | $ | 1,499,940 | ||||
| NET EARNINGS (LOSS) | (353,917 | ) | 893,400 | |||||
| REPURCHASE OF EQUITY INTEREST | (23,399 | ) | - | |||||
| OWNERS’ EQUITY, ENDING | $ | 1,410,689 | $ | 2,393,340 | ||||
See notes to condensed combined financial statements.
3
SPEC SENSORS, LLC AND KWJ ENGINEERING, INC. (AN AFFILIATE)
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
| Nine Months Ended | ||||||||
| September 30, | September 30, | |||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net earnings (loss) | $ | (353,917 | ) | $ | 893,400 | |||
| Noncash items included in net earnings (loss): | ||||||||
| Depreciation and amortization | 19,069 | 5,876 | ||||||
| Gain on extinguishment of debt | - | (391,594 | ) | |||||
| (Increase) decrease in: | ||||||||
| Accounts receivable | 102,115 | (315,415 | ) | |||||
| Inventory | 29,623 | (41,869 | ) | |||||
| Prepaid expenses and other | 214 | 2,139 | ||||||
| Deposits | - | 603 | ||||||
| Increase (decrease) in: | ||||||||
| Accounts payable and accrued expenses | 108,637 | (85,285 | ) | |||||
| (94,259 | ) | 67,855 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Additions to property and equipment | (29,100 | ) | - | |||||
| (29,100 | ) | - | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Repurchase of equity interest | (23,399 | ) | - | |||||
| (23,399 | ) | - | ||||||
| NET INCREASE (DECREASE) IN CASH | (146,758 | ) | 67,855 | |||||
| CASH – BEGINNING | 777,525 | 869,501 | ||||||
| CASH – ENDING | $ | 630,767 | $ | 937,356 | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | 2,229 | $ | 1,755 | ||||
| State income taxes | $ | 50 | $ | 50 | ||||
See notes to condensed combined financial statements.
4
SPEC SENSORS, LLC AND KWJ ENGINEERING, INC. (AN AFFILIATE)
NOTES TO CONDENSED COMBINED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
| A. | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: |
| 1. | Principles of Combination - The condensed combined financial statements include the accounts of SPEC Sensors, LLC and KWJ Engineering, Inc. (the Company). The Companies are affiliated through common ownership, management, and operations. All material intercompany transactions and accounts have been eliminated in the combination of the financial statements. |
| 2. | Organization - SPEC Sensors, LLC was formed in the state of California and commenced operations on May 30, 2012. KWJ Engineering, Inc. was incorporated under the laws of the state of California and commenced operations on January 22, 1993. |
| 3. | Operations - SPEC Sensors, LLC (SPEC) is engaged in the manufacturing and distribution of electrochemical gas sensors and gas sensor modules, both calibrated and uncalibrated. SPEC has one facility in Newark, CA which it shares with its affiliate, KWJ Engineering, Inc. (KWJ). KWJ is engaged in the manufacturing and distribution of several lines of gas detection products and performs grant and contract research and development services. KWJ sells the following three product lines: Eco Sensors low-cost ozone monitors, KWJ Legacy in-line CO monitors, and TTD gas sensors. The work for both companies is performed primarily under worldwide market-pricing and is performed primarily in the Bay Area region of California. |
| 4. | Method of Accounting - The Company’s policy is to prepare its condensed combined financial statements on the accrual method of accounting whereby revenues are recognized when earned and expenses are recognized when incurred. This method of accounting conforms to generally accepted accounting principles (GAAP). |
| 5. | Concentration of Credit Risk - Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of deposits in excess of federally insured limits and accounts receivable. These risks are managed by maintaining all deposits in high quality financial institutions and obtaining signed sales orders, and/or establishing credit limits with all customers. Management believes that the Company is not exposed to any significant credit risk as a result of these credit concentrations. |
| 6. | Cash and Cash Equivalents - For purposes of the condensed combined statements of cash flows, the Company considers all highly liquid investments available for current use with an initial maturity of three months or less to be cash equivalents. |
| 7. | Inventory - The Company’s inventory is valued at the lower of cost (first-in, first-out) or market. |
| 8. | Property and Equipment - Property and equipment are recorded at cost. Maintenance and repairs are charged to expense as incurred whereas major betterments are capitalized. Depreciation is computed using the straight-line method over five to seven years. |
| 9. | Intangible Assets - Intangible assets subject to amortization include capitalized software and development costs, all of which are amortized using the straight-line method over fifteen years. |
| 10. | Fair Value of Financial Instruments - The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and long-term debt. The recorded values of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate their fair values based on their short-term nature. The recorded values of long-term debt approximate their fair values, as current interest rates approximate market rates. |
| 11. | Revenue Recognition - The Company recognizes revenue in accordance with Topic 606 of the Financial Accounting Standards Board Accounting Standards Codification. Revenue from contracts with customers is recognized when, or as, the Company satisfies its performance obligations by transferring goods or services to customers. A good or service is transferred to a customer when, or as, the customer obtains control of that good or service. A performance obligation may be satisfied over time or at a point in time. Revenue from a performance obligation satisfied at a point in time is recognized at the point in time that the Company determines the customer has obtained control over the promised good or service. The amount of revenue recognized reflects the consideration of which the Company expects to be entitled in exchange for the promised goods or services. The Company is engaged in the manufacturing and distribution of gas sensors, kits, elements, engineering services, and related products. Revenue is recognized when orders are shipped or services are rendered. All revenue for the periods ended September 30, 2022 and 2021 was determined to be performance obligations satisfied at a point in time. |
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| 12. | Income Taxes - SPEC Sensors, LLC is a limited liability company treated as a Partnership for federal and state income tax purposes. Members of a partnership are taxed directly on their proportionate share of the Company’s earnings. KWJ Engineering, Inc. has elected under the Internal Revenue Code to be an S Corporation for federal and state tax purposes. In lieu of corporate federal income taxes, the stockholders of an S Corporation are taxed on their proportionate share of the Corporation’s taxable income. Consequently, no provision or liability for income taxes has been included in the condensed combined financial statements. As of September 30, 2022 and December 31, 2021, the Company determined that it had no tax positions that did not meet the “more likely than not” threshold of being sustained by the applicable tax authority. The Company files tax and information returns in the United States Federal, California, and other state jurisdictions as applicable. These returns are subject to examination by tax authorities for the last three years. |
| 13. | Sales Tax - The Company excludes from its sales all sales taxes assessed to its customers. Sales taxes assessed on sales are recorded in accrued expenses until remitted to state agencies. The Company remits sales taxes to various states as applicable. |
| 14. | General and Administrative Expenses - These expenses are charged to operations as incurred and are not allocated to cost of sales. |
| 15. | Use of Estimates - The preparation of condensed combined financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. |
B. ACCOUNTS RECEIVABLE:
The Company utilizes the allowance method to account for uncollectible accounts receivable balances. Under the allowance method, an estimate of uncollectible customer balances is made based on the Company’s prior history and other factors such as the credit quality of the customer and economic conditions of the market. Based on these factors, at September 30, 2022 and December 31, 2021, no allowance for doubtful accounts was recorded.
C. INVENTORY, NET:
Inventory, both materials and finished goods, consists primarily of electrochemical gas sensors, gas sensors modules, ECO sensors low-cost ozone monitors, CO monitors and TTD gas sensors. Inventory was valued at $627,143 and $656,766 on September 30, 2022 and December 31, 2021, respectively.
D. INTANGIBLE ASSETS, NET:
Intangible assets consist of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Capitalized Syndication and Organization Costs | $ | 20,961 | $ | 20,961 | ||||
| Other Intangible Assets | 302,489 | 302,489 | ||||||
| 323,450 | 323,450 | |||||||
| Accumulated Amortization | (307,055 | ) | (291,713 | ) | ||||
| $ | 16,395 | $ | 31,737 | |||||
E. OPERATING LEASES:
The Company leases its manufacturing, distribution and office space in Newark, California for terms in excess of one year. Rent expense for the nine months ended September 30, 2022 and 2021 amounted to $148,043 and $145,871, respectively.
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The following is a schedule by years of the future minimum lease payments as of September 30, 2022:
| Year Ending December 31, 2022 (remainder of year) | $ | 48,408 | ||
| Year Ending December 31, 2023 | 32,272 | |||
| $ | 80,680 |
F. MAJOR CUSTOMERS:
For the nine months ended September 30, 2022, the Company had one major customer, to which sales accounted for approximately 11% of the Company’s revenue. For the nine months ended September 30, 2021, the Company had one major customer, to which sales accounted for approximately 13% of the Company’s revenue.
G. PPP FUNDS FORGIVENESS:
On May 6, 2020, SPEC Sensors, LLC received loan proceeds from Bank of the West in the amount of $52,905 under the Paycheck Protection Program (PPP). On May 7, 2020, KWJ Engineering, Inc. received loan proceeds from Bank of the West in the amount of $338,689 under the PPP. The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act, provides for forgivable loans to qualifying businesses for amounts up to 2.5 times the average qualifying monthly payroll expenses of the qualifying business. On July 23, 2021, both SPEC Sensors, LLC and KWJ Engineering, Inc. were granted forgiveness from the Small Business Administration for the full amounts of each loan. In accordance with ASC 470, Debt, $391,594 of PPP funds were recognized on the condensed combined statements of operations as other income for the nine months ended September 30, 2021.
H. CONTINGENT LIABILITIES:
The Company has certain contingent liabilities and is a party to various claims and actions arising in the ordinary course of business. Management is of the opinion that all such matters are without merit or are of such kind or involve such amounts that unfavorable disposition would not have a material effect on the financial position of the Company.
I. SUBSEQUENT EVENTS:
Management has evaluated events occurring after the combined balance sheet date through February [●], 2023, the date in which these unaudited condensed combined financial statements were available to be issued. On December 16, 2022, Interlink Electronics, Inc. acquired all of our assets for approximately $2,269,000, subject to adjustment based on the extent if any to which our net working capital at closing is more or less than $1,350,000.
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Exhibit 99.3
INTERLINK ELECTRONICS, INC.
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
September 30, 2022
(unaudited)
INTERLINK ELECTRONICS, INC.
INDEX TO UNAUDITED PRO FORMA CONDENSED COBINED FINANCIAL STATEMENTS
September 30, 2022
| Introduction to Unaudited Pro Forma Condensed Combined Financial Statements | 2 | |||
| Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2022 | 3 | |||
| Unaudited Pro Forma Condensed Combined Statement of Operations for the Nine Months Ended September 30, 2022 | 4 | |||
| Unaudited Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 2021 | 5 | |||
| Notes to Unaudited Pro Forma Condensed Combined Financial Statements | 6 – 7 |
INTERLINK ELECTRONICS, INC.
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
September 30, 2022
On December 16, 2022, Interlink Electronics, Inc., a Nevada corporation, (“Interlink” or the “Company”), acquired all of the assets of SPEC Sensors, LLC, a Delaware limited liability company (“SPEC”), and KWJ Engineering, Inc., a California corporation (“KWJ”) (collectively, “SPEC/KWJ”) pursuant to an Asset Purchase Agreement (the “Purchase Agreement”) by and among the Company, SPEC/KWJ, and the equity holders of SPEC and KWJ (the “Transaction”). The Purchase Agreement contains customary representations, warranties, and covenants, including non-competition covenants on the part of the two principal equity holders, who will continue with the Company.
Under the terms of the Purchase Agreement, the purchase price for both companies’ assets is $2,269,000, of which $1,519,000 was paid at closing, $375,000 was paid into escrow subject to a 90-day purchase price adjustment process, and $375,000 was escrowed against claims for breaches of representations and warranties (subject to certain deductibles and caps). The purchase price is subject to adjustment based on the extent if any to which the combined companies’ net working capital at closing is more or less than $1,350,000.
The following unaudited pro forma condensed combined financial statements are presented to illustrate the pro forma effects of our having entered into and closed the Transaction. We have derived our historical financial data as of September 30, 2022, for the nine months ended September 30, 2022, and for the year ended December 31, 2021 from our financial statements contained on Forms 10-Q and 10-K as filed with the Securities and Exchange Commission. We have derived SPEC Sensors, LLC and KWJ Engineering, Inc.’s historical financial statements as of September 30, 2022, for the nine months ended September 30, 2022, and for the year ended December 31, 2021 from SPEC Sensors, LLC and KWJ Engineering, Inc.’s combined financial statements contained elsewhere in this Form 8-K/A.
The unaudited pro forma condensed combined balance sheet as of September 30, 2022 assumes the Transaction consummated on September 30, 2022. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2022 assumes the Transaction consummated on January 1, 2022. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2021 assumes the Transaction consummated on January 1, 2021.
The information presented in the unaudited pro forma condensed combined financial statements does not purport to represent what our financial position or results of operations would have been had the Transaction occurred during the periods presented, nor is it indicative of our future financial position or results of operations for any period. You should not rely on this information as being indicative of the historical results that would have been achieved had the companies always been combined or the future results that the combined companies will experience after the Transaction.
The unaudited pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable under the circumstances. These unaudited pro forma condensed combined financial statements should be read in conjunction with the accompanying notes and assumptions and the historical financial statements and related notes of Interlink Electronics, Inc. and SPEC Sensors, LLC and KWJ Engineering, Inc.
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INTERLINK ELECTRONICS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
September 30, 2022
| Interlink Electronics, Inc. | SPEC Sensors, LLC and KWJ Engineering, Inc. (combined) | Pro Forma Adjustments (Note 3) | AJE # | Pro Forma Combined Balances | ||||||||||||||
| (in thousands, except par value) | ||||||||||||||||||
| ASSETS | ||||||||||||||||||
| Current assets | ||||||||||||||||||
| Cash and cash equivalents | $ | 3,889 | $ | 631 | $ | (2,011 | ) | 1 | $ | 2,509 | ||||||||
| Marketable securities | 6,574 | - | - | 6,574 | ||||||||||||||
| Accounts receivable, net | 958 | 244 | - | 1,202 | ||||||||||||||
| Inventories | 1,057 | 627 | - | 1,684 | ||||||||||||||
| Prepaid expenses and other current assets | 453 | 38 | - | 491 | ||||||||||||||
| Total current assets | 12,931 | 1,540 | (2,011 | ) | 12,460 | |||||||||||||
| Property, plant and equipment, net | 196 | 34 | - | 230 | ||||||||||||||
| Intangible assets, net | 89 | 16 | 292 | 2 | 397 | |||||||||||||
| Goodwill | - | - | 308 | 2 | 308 | |||||||||||||
| Right-of-use assets | 197 | - | - | 197 | ||||||||||||||
| Deferred tax assets | 8 | - | - | 8 | ||||||||||||||
| Other assets | 39 | 16 | - | 55 | ||||||||||||||
| Total assets | $ | 13,460 | $ | 1,606 | $ | (1,411 | ) | $ | 13,655 | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||
| Current liabilities | ||||||||||||||||||
| Accounts payable | $ | 358 | $ | 195 | $ | - | $ | 553 | ||||||||||
| Accrued liabilities | 334 | - | - | 334 | ||||||||||||||
| Lease liabilities, current | 144 | - | - | 144 | ||||||||||||||
| Accrued income taxes | 113 | - | - | 113 | ||||||||||||||
| Total current liabilities | 949 | 195 | - | 1,144 | ||||||||||||||
| Long-term liabilities | ||||||||||||||||||
| Lease liabilities, long-term | 60 | - | - | 60 | ||||||||||||||
| Total long-term liabilities | 60 | - | - | 60 | ||||||||||||||
| Total liabilities | 1,009 | 195 | - | 1,204 | ||||||||||||||
| Stockholders’ equity | ||||||||||||||||||
| Preferred stock, $0.01 par value: 1,000 shares authorized, 200 shares of Series A Convertible Preferred Stock issued and outstanding ($5.0 million liquidation preference) | 2 | - | - | 2 | ||||||||||||||
| Common stock, $0.001 par value: 30,000 shares authorized, 6,604 shares issued and outstanding | 7 | - | - | 7 | ||||||||||||||
| Additional paid-in-capital | 62,567 | - | - | 62,567 | ||||||||||||||
| Accumulated other comprehensive (loss) | (133 | ) | - | - | (133 | ) | ||||||||||||
| Accumulated deficit | (49,992 | ) | - | - | (49,992 | ) | ||||||||||||
| Owners’ equity | - | 1,411 | (14,11 | ) | 3 | - | ||||||||||||
| Total stockholders’ equity | 12,451 | 1,411 | (1,411 | ) | 12,451 | |||||||||||||
| Total liabilities and stockholders’ equity | $ | 13,460 | $ | 1,606 | $ | (1,411 | ) | $ | 13,655 | |||||||||
3
INTERLINK ELECTRONICS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2022
| Interlink Electronics, Inc. | SPEC Sensors, LLC and KWJ Engineering, Inc. (combined) | Pro Forma Adjustments (Note 3) | AJE# | Pro Forma Combined Balances | ||||||||||||||
| (in thousands, except per share amounts) | ||||||||||||||||||
| Revenue, net | $ | 5,882 | $ | 3,268 | $ | - | $ | 9,150 | ||||||||||
| Cost of revenue | 2,817 | 2,008 | - | 4,825 | ||||||||||||||
| Gross profit | 3,065 | 1,260 | - | 4,325 | ||||||||||||||
| Operating expenses | 3,388 | 1,612 | 31 | 4 | 5,031 | |||||||||||||
| Income (loss) from operations | (323 | ) | (352 | ) | (31 | ) | (706 | ) | ||||||||||
| Other income (expense), net | 704 | (2 | ) | - | 702 | |||||||||||||
| Income (loss) before income taxes | 381 | (354 | ) | (31 | ) | (4 | ) | |||||||||||
| Income taxes | 121 | - | - | 121 | ||||||||||||||
| Net income (loss) | $ | 260 | $ | (354 | ) | $ | (31 | ) | $ | (125 | ) | |||||||
| Net income (loss) applicable to common stockholders | $ | (40 | ) | $ | (425 | ) | ||||||||||||
| Earnings per common share – basic and diluted | $ | (0.01 | ) | $ | (0.06 | ) | ||||||||||||
| Weighted average common shares outstanding – basic and diluted | 6,603 | 6,603 | ||||||||||||||||
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INTERLINK ELECTRONICS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2021
| Interlink Electronics, Inc. | SPEC Sensors, LLC and KWJ Engineering, Inc. (combined) | Pro Forma Adjustments (Note 3) | AJE# | Pro Forma Combined Balances | ||||||||||||||
| (in thousands, except per share amounts) | ||||||||||||||||||
| Revenue, net | $ | 7,478 | $ | 4,796 | $ | - | $ | 12,274 | ||||||||||
| Cost of revenue | 3,420 | 2,963 | - | 6,383 | ||||||||||||||
| Gross profit | 4,058 | 1,833 | - | 5,891 | ||||||||||||||
| Operating expenses | 4,137 | 1,934 | 41 | 5 | 6,112 | |||||||||||||
| Income (loss) from operations | (79 | ) | (101 | ) | (41 | ) | (221 | ) | ||||||||||
| Other income (expense), net | (50 | ) | 390 | - | 340 | |||||||||||||
| Income (loss) before income taxes | (129 | ) | 289 | (41 | ) | 119 | ||||||||||||
| Income taxes | 605 | 1 | - | 606 | ||||||||||||||
| Net income (loss) | $ | (734 | ) | $ | 288 | $ | (41 | ) | $ | (487 | ) | |||||||
| Net income (loss) applicable to common stockholders | $ | (782 | ) | $ | (535 | ) | ||||||||||||
| Earnings per common share – basic and diluted | $ | (0.12 | ) | $ | (0.08 | ) | ||||||||||||
| Weighted average common shares outstanding – basic and diluted | 6,601 | 6,601 | ||||||||||||||||
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INTERLINK ELECTRONICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
September 30, 2022
Note 1. Basis of Presentation
The unaudited pro forma condensed combined financial statements have been prepared in order to present the combined financial position and results of operations of Interlink Electronics, Inc. (“Interlink” or the “Company”) and SPEC Sensors, LLC (“SPEC”) and KWJ Engineering, Inc. (“KWJ”) (collectively, “SPEC/KWJ”) as if the Transaction had occurred at September 30, 2022 for the unaudited pro forma condensed combined balance sheet, as if the Transaction had occurred at January 1, 2022 for the unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2022, and as if the Transaction had occurred at January 1, 2021 for the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2021.
The condensed financial statements of Interlink as of September 30, 2022, for the nine months ended September 30, 2022, and for the year ended December 31, 2021 were derived from our financial statements contained on Forms 10-Q and 10-K as filed with the Securities and Exchange Commission.
The condensed financial statements of SPEC/KWJ as of September 30, 2022, for the nine months ended September 30, 2022, and for the year ended December 31, 2021 were derived from SPEC/KWJ’s combined financial statements contained elsewhere in this Form 8-K/A.
The Transaction is reflected in the unaudited pro forma condensed combined financial statements as being accounted for based on the acquisition method in accordance with Accounting Standards Codification Topic 805, Business Combinations. Under the acquisition method, the total estimated purchase price is calculated as described in Note 2. In accordance with the accounting guidance for business combinations, the assets acquired and liabilities assumed have been measured at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Note 2. Acquisition
On December 16, 2022, the Company acquired all of the assets of SPEC/KWJ for cash consideration of $2,000,000 plus (or minus) the amount by which net working capital at closing is more (or less) than $1,350,000. Had the Transaction occurred on September 30, 2022, the purchase price would have been $2,010,8278, as SPEC/KWJ’s net working capital was $1,360,828 as of September 30, 2022. For the purposes of these unaudited pro forma condensed combined financial statements, the Company made preliminary estimates of the fair value of all identifiable assets acquired and liabilities assumed. The preliminary estimated fair value of all the assets acquired and liabilities assumed may be revised as a result of additional information obtained regarding the assets acquired and liabilities assumed, and revisions of provisional estimates of fair value, including, but not limited to, the completion of identification of and valuations related to intangible assets. The purchase price allocation will be finalized during the 12-month measurement period following the acquisition date. Therefore, it is likely that the fair value of the assets acquired and liabilities assumed will vary from those shown and as reflected in the unaudited pro forma condensed combined balance sheet, and the differences may be material.
The following summarizes the Company’s preliminary allocation of the purchase price to the fair value of the assets acquired and liabilities assumed at the acquisition date:
| Purchase Price Allocation | ||||
| Cash | $ | 630,767 | ||
| Accounts receivable | 244,129 | |||
| Inventory | 627,143 | |||
| Prepaid expenses and other | 37,668 | |||
| Property and equipment | 33,467 | |||
| Deposits | 16,000 | |||
| Intangible assets | 308,267 | |||
| Goodwill | 308,267 | |||
| Total assets acquired | 2,205,708 | |||
| Accounts payable and accrued expenses | 194,880 | |||
| Total liabilities assumed | 194,880 | |||
| Net assets acquired | $ | 2,010,828 | ||
6
The goodwill is primarily for expected synergies from combining the operations of SPEC/KWJ with the Company’s existing operations. The goodwill is expected to be deductible for tax purposes.
Note 3. Pro Forma Adjustments
The following unaudited pro forma adjustments are incorporated into the unaudited pro forma condensed combined balance sheet as of September 30, 2022, and the unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2022, and for the year ended December 31, 2021.
AJE 1 - Recognition of the cash payment of $2,010,828 for the acquisition of SPEC/KWJ.
AJE 2 - Recognition of goodwill of $308,267 and the increase in the preliminary estimated fair value of amortizable intangible assets of $291,872.
AJE 3 - Elimination of SPEC/KWJ’s owners’ equity.
AJE 4 - Reverse amortization expense of $15,342 for the nine months ended September 30, 2022, and record amortization expense of $46,240 for the amortizable intangible assets that would have been recorded had the Transaction occurred at the beginning of the period.
AJE 5 - Reverse amortization expense of $20,456 for the year ended December 31, 2021, and record amortization expense of $61,653 for the amortizable intangible assets that would have been recorded had the Transaction occurred at the beginning of the period.
7