What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-10 compared with 2021-05-06 · 137 added, 234 removed, 57 unchanged (87% of the section changed)

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.

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.

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.

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.

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.

Interlink Electronics, Inc.

(“we”, “us”, “our”,

“Interlink” or the “Company”) designs, develops, manufactures and sells a range of force-sensing technologies

that incorporate our proprietary materials technology, firmware and software into a portfolio of standard products and custom solutions.

These include sensor components, subassemblies, modules and products that support effective, efficient cursor control and novel three-dimensional

Our Human Machine Interface (“HMI”) technology platforms are 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, biological monitoring and

Interlink has been a leader in the printed electronics industry for

over 30 years with the commercialization of our patented Force-Sensing Resistor (“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.

We invented FSR®

technology and pioneered commercialization of

printed electronics manufacturing, paving the way for industry-wide adoption of force sensing technology.

Our extensive knowledge and

experience with this technology, along with the firmware we incorporate in our HMI solutions, differentiates us from other providers of

HMI solutions.

(“we”, “us”, “our”, “Interlink” or the “Company”) designs, develops, manufactures and sells a range of force-sensing technologies that incorporate our proprietary materials technology, firmware and software into a portfolio of standard products and custom solutions.

These include sensor components, subassemblies, modules and products that support effective, efficient cursor control and novel three-dimensional user inputs.

Our Human Machine Interface (“HMI”) technology platforms are 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, biological monitoring and others.

Interlink has been a leader in the printed electronics industry for over 30 years with the commercialization of our patented Force-Sensing Resistor (“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.

We invented FSR® technology and pioneered commercialization of printed electronics manufacturing, paving the way for industry-wide adoption of force sensing technology.

Our extensive knowledge and experience with this technology, along with the firmware we incorporate in our HMI solutions, differentiates us from other providers of HMI solutions.

We, along with our customers, incorporate our FSR and force sensing sensors and modules into end user products.

and modules are used in electronics devices and systems where user input must be converted into useful output data.

Our force sensing

technology solution platforms enabled industry-first implementations in gaming, smartphone, rugged notebook, automotive cockpit and automotive

entry applications.

Consumer and end-user demand for enhanced user experience is driving the need for innovative multi-modal HMI technologies

and applications.

Our sensors and modules are used in electronics devices and systems where user input must be converted into useful output data.

Our force sensing technology solution platforms enabled industry-first implementations in gaming, smartphone, rugged notebook, automotive cockpit and automotive entry applications.

Consumer and end-user demand for enhanced user experience is driving the need for innovative multi-modal HMI technologies and applications.

Force sensing input provides a critical novel modality that drives a paradigm shift in HMI.

Market requirements for innovative solutions that enable smaller, thinner

devices, lower power consumption, highly refined designs, better navigation and more intuitive usability in all environments, are also

driving increased demand for our products.

Industry is moving towards the use of multi-modal HMI in the home, industrial, medical and

automotive spaces.

Interlink delivers cutting edge, high performance HMI solutions for customers who wish to replace outdated switches

and knobs in these environments.

Significant market opportunities are rapidly emerging for us to improve

upon the functionality of standard capacitive sensors which are widely available and competitively priced.

Inadvertent activation, where

users unintentionally activate a control, is a common problem with capacitive technology.

In contrast, force sensing solutions require

a deliberate application of force to operate.

We have had recent success in using our force sensing solutions in combination with capacitive

technologies to minimize the latter’s performance issues, enabling force sensing solutions to complement competitive technologies

and provide hybrid solutions and open up new opportunities for growth.

We continue to simultaneously expand our standard product portfolio

and develop new technology platforms to grow existing markets and capture emerging markets.

This portfolio expansion will incorporate

other complimentary sensing technologies.

This broader portfolio of technologies will allow us to use our expertise in integrating multiple

sensing technologies for applications in the rapidly growing Internet-of-Things (“IoT”).

Interlink serves our world-wide customer base from our corporate headquarters

in Irvine, California (Orange County area) and from our facility in Camarillo, California (Ventura County).

We plan to establish a Global

Product Development and Materials Science Center in our existing Camarillo footprint, which we expect to be operational in May 2021.

facility will have a state-of-the-art printed electronics development laboratory as well as materials science lab.

Our engineering team

will be based in this center where we will work with our U.S.

and global customers on developing, engineering, prototyping and implementing

our advanced HMI solutions.

Market requirements for innovative solutions that enable smaller, thinner devices, lower power consumption, highly refined designs, better navigation and more intuitive usability in all environments, are also driving increased demand for our products.

Industry is moving towards the use of multi-modal HMI in the home, industrial, medical and automotive spaces.

Interlink delivers cutting edge, high performance HMI solutions for customers who wish to replace outdated switches and knobs in these environments.

Significant market opportunities are rapidly emerging for us to improve upon the functionality of standard capacitive sensors which are widely available and competitively priced.

Inadvertent activation, where users unintentionally activate a control, is a common problem with capacitive technology.

In contrast, force sensing solutions require a deliberate application of force to operate.

We have had recent success in using our force sensing solutions in combination with capacitive technologies to minimize the latter’s performance issues, enabling force sensing solutions to complement competitive technologies and provide hybrid solutions and open up new opportunities for growth.

We continue to simultaneously expand our standard product portfolio and develop new technology platforms to grow existing markets and capture emerging markets.

This portfolio expansion will incorporate other complimentary sensing technologies.

This broader portfolio of technologies will allow us to use our expertise in integrating multiple sensing technologies for applications in the rapidly growing Internet-of-Things (“IoT”).

Interlink serves our world-wide customer base from our corporate headquarters in Irvine, California (Orange County area) and from our facility in Camarillo, California (Ventura County).

We have established a Global Product Development and Materials Science Center in our Camarillo footprint.

This facility has a state-of-the-art printed electronics development laboratory as well as materials science lab.

Our engineering team is based in this center where we work with our U.S.

and global customers on developing, engineering, prototyping and implementing our advanced HMI solutions.

We also maintain a small embedded software and IoT application development center in Singapore.

We manufacture

all our products in our printed electronics manufacturing facility in Shenzhen, China, which has been in operation since 2006.

we maintain a global distribution and logistics center in Hong Kong, a technical sales office in Japan, and several manufacturer representatives

and distributors in strategic locations in our key markets, all of which allows us to support our global customer base.

We sell our products

in a wide range of markets, including consumer electronics, automotive, industrial and medical.

Our customers are some of the world’s

largest companies and most recognizable brands.

We manufacture all our products in our printed electronics manufacturing facility in Shenzhen, China, which has been in operation since 2006.

In addition, we maintain a global distribution and logistics center in Hong Kong, a technical sales office in Japan, and several manufacturer representatives and distributors in strategic locations in our key markets, all of which allows us to support our global customer base.

We sell our products in a wide range of markets, including consumer electronics, automotive, industrial and medical.

Our customers are some of the world’s largest companies and most recognizable brands.

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 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 17, 2021.

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.

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 17, 2021.

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

Recent accounting pronouncements are detailed in Note 1 to our condensed

consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

We reviewed all recently issued accounting pronouncements and concluded they are all not applicable or not expected to be material to our financial statements.

Results of Operations

The following table sets forth certain unaudited

condensed consolidated statements of income data for the periods indicated.

The following table sets forth certain unaudited condensed consolidated statements of income data for the periods indicated.

The percentages in the table are based on net revenues.

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

(in thousands, except percentages)

10 unchanged sentences

Net income (loss)

Comparison of Three Months Ended March 31, 2021 and 2020

Comparison of Three Months Ended June 30, 2021 and 2020

Revenue, net by the markets we serve is as follows:

Three months ended March 31,

Three months ended June 30,

(in thousands, except percentages)

We sell our custom products into the industrial, medical and consumer

We sell our custom products into the industrial, medical and consumer markets.

We previously sold custom products in the automotive market and continue to pursue opportunities in that sector.

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.

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 with longer design cycles often have much longer product life-cycles.

Industrial and medical products 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 March 31, 2021

compared to the three months ended March 31, 2020 in the industrial and consumer markets, and were down in the medical markets

and for our standard products.

The increase in revenue from our industrial market customers is due to increased purchasing volume by

these customers for use in their ongoing product lines resulting from changes in demand by their customers.

The increase in revenue

from our consumer market customers is due to an increase in purchase levels on corresponding products and programs.

The decrease in

revenue from our medical market customers is primarily due to significant reduction of shipments to our largest medical customer,

which is subject to delays in installing devices that use our products in hospitals due to COVID-19 restrictions.

The decrease in

revenue on our standard products is due to cyclical purchasing pattern of some of our larger customers who took delivery of bulk

quantities during 2020.

In the normal cycle, some of our larger customers purchase in bulk quantities and absorption of these

products can straddle several financial reporting periods.

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 project and building plans.

Three months ended March 31,

Revenues were up in the three months ended June 30, 2021 compared to the three months ended June 30, 2020 in the medical and consumer markets, and for our standard products.

The increase in revenue from our medical market customers was due to an increase in purchasing levels by these customers in the current year as compared to the pandemic-impacted levels in the prior year.

The increase in revenue from our consumer market customers was due to an increase in purchasing levels on corresponding products and programs.

The decrease in revenue from our industrial market customers was due to timing of purchasing volume by these customers for use in their ongoing product lines resulting from changes in demand by their customers.

The cyclical purchasing pattern of some of our larger customers affects our revenues on a quarterly basis.

In the normal cycle, our larger customers tend to purchase in bulk quantities and consume these products over several financial reporting periods.

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 project and building plans.

Three months ended June 30,

(in thousands, except percentages)

Our gross profit and gross margin percentage are impacted by various

factors including product mix, customer mix, volume, material costs, manufacturing efficiencies, facilities costs, compensation costs

and provisions for excess and obsolete inventories.

The decrease in gross profit for the three months ended March 31, 2021 as compared

with the prior year was due to the decrease in revenues, while gross margin percentage was substantially unchanged.

Three months ended March 31,

Our gross profit and gross margin percentage are impacted by various factors including product mix, customer mix, volume, material costs, manufacturing efficiencies, facilities costs, compensation costs and provisions for excess and obsolete inventories.

The increase in gross profit for the three months ended June 30, 2021 as compared with the prior year was due to the increase in revenues, while gross margin percentage was impacted by changes in product mix and customer mix, and an increase in production costs.

Three months ended June 30,

(in thousands, except percentages)

Engineering, research and development

Engineering and R&D expenses consist primarily of compensation

expenses for employees engaged in research, design and development activities.

Our R&D team focuses both on internal design development,

as well as design development aimed at addressing customer design challenges, in order to develop our HMI solutions.

Our engineering and R&D costs were down for the three months ended

March 31, 2021 when compared with the prior year because we reduced costs and headcount at our Singapore R&D center during 2020

as part of the transfer of the lab to Camarillo, California.

Three months ended March31,

Engineering and R&D expenses consist primarily of compensation expenses for employees engaged in research, design and development activities.

Our R&D team focuses both on internal design development, as well as design development aimed at addressing customer design challenges, in order to develop our HMI solutions.

Our engineering and R&D costs were down for the three months ended June 30, 2021 when compared with the prior year because we reduced costs and headcount at our Singapore R&D center as part of the transfer of the lab to Camarillo, California.

Three months ended June 30,

(in thousands, except percentages)

Selling, general and administrative

Selling, general and administrative expenses consist primarily of compensation

expenses, legal and other professional fees, facilities expenses and communication expenses.

Selling, general and administrative expenses

decreased during the three months ended March 31, 2021 as compared with the prior year due to recording forgiveness of the $186 thousand

PPP loan, offset by increases in sales, marketing, finance and administrative personnel, and an increase in legal costs and filing fees

associated with relisting with Nasdaq during the quarter.

Three months ended March 31,

Pre-tax Income

Selling, general and administrative expenses consist primarily of compensation expenses, legal and other professional fees, facilities expenses and communication expenses.

Selling, general and administrative expenses increased during the three months ended June 30, 2021 as compared with the prior year due to increases in sales, marketing, finance and administrative personnel, and an increase in costs associated with having relisted with Nasdaq during 2021.

Three months ended June 30,

(in thousands, except percentages)

Income tax expense (benefit)

Income tax expense (benefit) reflects statutory tax rates in the jurisdictions

that we operate adjusted for normal book/tax differences.

The tax benefit for the three month periods ended March 31, 2021 and 2020

was a result of operating losses for the quarters.

Our effective tax rate is directly affected by the relative proportions

of income before taxes in the jurisdictions in which we operate.

Based on the expected mix of domestic and foreign earnings, we anticipate

our effective tax rate to remain lower than the U.S.

statutory rate primarily due to a significant portion of our earnings originating

in lower rate foreign jurisdictions.

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.

Income tax expense reflects statutory tax rates in the jurisdictions that we operate adjusted for normal book/tax differences.

The tax expense for the three month periods ended June 30, 2021 and 2020 was a result of taxable income in the domestic and foreign jurisdictions in which we operate, including the effects of permanent taxable differences.

Our effective tax rate is directly affected by the relative proportions of income before taxes in the jurisdictions in which we operate.

Discrete tax events and permanent taxable differences 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.

Continued corporate tax

reform continues to be a priority in the U.S.

Continued 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.

could have significant effects, positive and negative, on our effective tax rate, and on our deferred tax assets and liabilities.

Comparison of Six Months Ended June 30, 2021 and 2020

Revenue, net by the markets we serve is as follows:

Six months ended June 30,

(in thousands, except percentages)

Revenues were up in the six months ended June 30, 2021 compared to the six months ended June 30, 2020 in the industrial and consumer markets, and were down in the medical markets and for our standard products.

The increase in revenue from our industrial market customers was due to increased purchasing volume by these customers for use in their ongoing product lines resulting from changes in demand by their customers.

The increase in revenue from our consumer market customers was due to an increase in purchasing levels on corresponding products and programs.

The decrease in revenue from our medical market customers was primarily due to a reduction of shipments to our largest medical customer, which was subject to delays in installing devices that use our products in hospitals due to COVID-19 restrictions.

The decrease in revenue on our standard products was due to the cyclical purchasing pattern of some of our larger customers who took delivery of bulk quantities during 2020.

In the normal cycle, some of our larger customers purchase in bulk quantities while consumption of these products can straddle several financial reporting periods.

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 project and building plans.

Six months ended June 30,

(in thousands, except percentages)

The increase in gross profit for the six months ended June 30, 2021 as compared with the prior year was due to the increase in revenues, while gross margin percentage was impacted by changes in product mix and customer mix, and an increase in production costs.

Six months ended June 30,

(in thousands, except percentages)

Engineering, research and development

Our engineering and R&D costs were down for the six months ended June 30, 2021 when compared with the prior year because we reduced costs and headcount at our Singapore R&D center as part of the transfer of the lab to Camarillo, California.

Six months ended June 30,

(in thousands, except percentages)

Selling, general and administrative

Selling, general and administrative expenses increased during the six months ended June 30, 2021 as compared with the prior year due to increases in sales, marketing, finance and administrative personnel, and an increase in legal costs and filing fees associated with having relisted with Nasdaq during 2021, offset by the $186 thousand gain/benefit recorded for forgiveness of the PPP loan in the first quarter of 2021.

Six months ended June 30,

(in thousands, except percentages)

Income tax expense (benefit)

Income tax expense (benefit) reflects statutory tax rates in the jurisdictions that we operate adjusted for normal book/tax differences.

The tax expense (benefit) for the six month periods ended June 30, 2021 and 2020 was a result of taxable income (losses) in the domestic and foreign jurisdictions in which we operate, including the effects of permanent taxable differences.

Liquidity and Capital Resources

Cash requirements for working capital and capital expenditures have

been funded from cash balances on hand and cash generated from operations.

As of March 31, 2021, we had cash and cash equivalents

of $6.1 million, working capital of $7.5 million and no indebtedness.

Cash and cash equivalents consist of cash and money market

We did not have any short-term or long-term investments as of March 31, 2021.

Of the $6.1 million of cash balances on

hand, $1.7 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.

Cash requirements for working capital and capital expenditures have been funded from cash balances on hand and cash generated from operations.

As of June 30, 2021, we had cash and cash equivalents of $6.250 million, working capital of $7.541 million, and no indebtedness.

Cash and cash equivalents consist of cash and money market funds.

We did not have any short-term or long-term investments as of June 30, 2021.

Of the $6.250 million of cash balances on hand, $2.228 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.

However, our intent is to permanently reinvest

these funds outside the U.S.

However, our intent is to permanently reinvest these funds outside the U.S.

and our current plans do not demonstrate a need to repatriate cash to fund our U.S.

During the second quarter of 2020, the Company received a loan from

Silicon Valley Bank in the aggregate principal amount of $186 thousand pursuant to the Paycheck Protection Program (the “PPP”)

under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

The loan was evidenced by a promissory note,

dated April 21, 2020, issued by us to the lender, which was scheduled to mature on April 20, 2022, and bore interest at a rate of

1.00% per annum.

Proceeds from the loan were used to fund designated expenses, including certain payroll costs, group health care benefits

and other permitted expenses, in accordance with the PPP.

Under the terms of the PPP, up to the entire amount of principal and accrued

interest was eligible to be forgiven to the extent loan proceeds are used for qualifying expenses as described in the CARES Act and applicable

implementing guidance issued by the U.S.

During the second quarter of 2020, the Company received a loan from Silicon Valley Bank in the aggregate principal amount of $186 thousand pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

The loan was evidenced by a promissory note, dated April 21, 2020, issued by us to the lender, which was scheduled to mature on April 20, 2022, and bore interest at a rate of 1.00% per annum.

Proceeds from the loan were used to fund designated expenses, including certain payroll costs, group health care benefits and other permitted expenses, in accordance with the PPP.

Under the terms of the PPP, up to the entire amount of principal and accrued interest was eligible to be forgiven to the extent loan proceeds are used for qualifying expenses as described in the CARES Act and applicable implementing guidance issued by the U.S.

Small Business Administration under the PPP.

The full amount of the loan principal and interest

was forgiven in February 2021.

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.

The full amount of the loan principal and interest was forgiven in February 2021.

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.

unable to raise additional needed funds, we may also take measures to reduce expenses to offset any shortfall.

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:

Three Months Ended

Our cash flows from operating, investing and financing activities are summarized as follows:

Six Months Ended

(in thousands)

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Net cash (used in) investing activities

1 unchanged sentence

Net Cash Provided By Operating Activities

For the three months ended March 31, 2021, the $1 thousand

of cash used in operating activities was attributable to net loss of $43 thousand, adjusted for non-cash charges of $136 thousand,

non-cash gain on forgiveness of PPP loan of $186 thousand, and cash provided by changes in operating assets and liabilities of $92 thousand.

For the three months ended March 31, 2020, the $263 thousand

of cash provided by operating activities was attributable to net loss of $18 thousand, adjusted for non-cash charges of $142 thousand,

and cash provided by changes in operating assets and liabilities of $139 thousand.

Accounts receivable decreased from $1,113 thousand at December

31, 2020 to $970 thousand at March 31, 2021 due to lower shipments during the first quarter of 2021 compared to the fourth quarter

For the six months ended June 30, 2021, the $234 thousand of cash provided by operating activities was attributable to net income of $20 thousand, adjusted for non-cash charges of $290 thousand, non-cash gain on forgiveness of PPP loan of $186 thousand, and cash provided by changes in operating assets and liabilities of $110 thousand.

For the six months ended June 30, 2020, the $130 thousand of cash provided by operating activities was attributable to net loss of $5 thousand, adjusted for non-cash charges of $269 thousand, and cash used in changes in operating assets and liabilities of $134 thousand.

Accounts receivable increased slightly from $1,113 thousand at December 31, 2020 to $1,173 thousand at June 30, 2021 due to timing of shipments and payments during the second quarter of 2021 compared to the fourth quarter of 2020.

Many of our customers pay promptly and accounts receivable is generally related to the most recent shipments.

Inventories increased

from $866 thousand at December 31, 2020 to $881 thousand at March 31, 2021.

Inventory balances fluctuate depending on the

timing of materials purchases and product shipments.

Prepaid expenses and other current assets decreased from $392 thousand at December

31, 2020 to $337 thousand at March 31, 2021, and accounts payable and accrued liabilities increased from $578 thousand

at December 31, 2020 to $581 thousand at March 31, 2021, primarily due to the timing of payment for purchases of materials and

other services provided.

Inventories increased slightly from $866 thousand at December 31, 2020 to $878 thousand at June 30, 2021.

Inventory balances fluctuate depending on the timing of materials purchases and product shipments.

Prepaid expenses and other current assets decreased from $392 thousand at December 31, 2020 to $168 thousand at June 30, 2021, and accounts payable and accrued liabilities increased from $578 thousand at December 31, 2020 to $674 thousand at June 30, 2021, primarily due to the timing of payment for purchases of materials and other services provided.

Net Cash (Used In) Investing Activities

Net cash used in investing activities of $12 thousand for the

three months ended March 31, 2021 consisted purchases of property, plant, and equipment.

Net cash used in investing activities of

$34 thousand for the three months ended March 31, 2020 consisted of legal costs related to securing patents on new products

and processes developed thereunder.

Net cash used in investing activities of $142 thousand for the six months ended June 30, 2021 consisted of purchases of property, plant, and equipment, primarily related to completion of the Global Product Development and Materials Science Center in our Camarillo footprint.

Net cash used in investing activities of $48 thousand for the six months ended June 30, 2020 consisted of legal costs related to securing patents on new products and processes developed thereunder.

Net Cash Provided By Financing Activities

There was no cash provided by or used in financing activities during

the three months ended March 31, 2021 and 2020.

There was no cash provided by or used in financing activities during the six months ended June 30, 2021.

Net cash provided by financing activities for the six months ended June 30, 2020 was attributable to proceeds from the PPP loan.

Off-Balance Sheet Arrangements

3 unchanged sentences

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What changed 10-Q

Item 2. Management’s Discussion and Analysis