What changed in this filing

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Item 1. Financial Statements

2022-05-05 compared with 2021-11-04 · 173 added, 233 removed, 347 unchanged (54% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

(in thousands, except par value)

2 unchanged sentences

Restricted cash

Marketable securities

Accounts receivable, net

10 unchanged sentences

Lease liabilities, current

PPP loan payable

Accrued income taxes

7 unchanged sentences

Preferred stock, $ 0.01 par value:

1,000 shares authorized, no shares issued or outstanding

1,000 shares authorized, 200 shares of Series A Convertible Preferred Stock issued and outstanding at both March 31, 2022 and December 31, 2021 ($ 5.0 million liquidation preference)

Common stock, $ 0.001 par value:

30,000 shares authorized, 6,602 shares issued and outstanding at September 30, 2021;

6,601 shares issued and outstanding at December 31, 2020

30,000 shares authorized, 6,602 shares issued and outstanding at both March 31, 2022 and December 31, 2021

Additional paid-in-capital

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

(in thousands, except per share data)

9 unchanged sentences

Income tax expense (benefit)

Earnings per share – basic and diluted

Weighted average common shares outstanding – basic

Weighted average common shares outstanding - diluted

Net income (loss)

Net income (loss) applicable to common stockholders

Earnings (loss) per common share – basic and diluted

Weighted average common shares outstanding – basic and diluted

INTERLINK ELECTRONICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three months ended September 30,

Nine months ended September 30,

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three months ended March 31,

(in thousands)

Net income (loss)

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments

Comprehensive income

Comprehensive income (loss)

See accompanying notes to these unaudited condensed consolidated financial statements.

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CONDENSED CONSOLIDATED SATEMENTS OF STOCKHOLDERS’ EQUITY

Comprehensive

Stockholders’

Three months ended September 30, 2021

Income (Loss)

(in thousands)

Balance at June 30, 2021

Foreign currency translation adjustment

Stock-based compensation

Balance at September 30, 2021

Preferred Stock

Comprehensive

Stockholders’

Nine months ended September 30, 2021

Three months ended March 31, 2022

Income (Loss)

1 unchanged sentence

Balance at December 31, 2021

Foreign currency translation adjustment

Stock-based compensation

Balance at September 30, 2021

Comprehensive

Stockholders’

Three months ended September 30, 2020

Income (Loss)

(in thousands)

Balance at June 30, 2020

Preferred stock dividends

Foreign currency translation adjustment

Stock-based compensation

Balance at September 30, 2020

Balance at March 31, 2022

Preferred Stock

Comprehensive

Stockholders’

Nine months ended September 30, 2020

Three months ended March 31, 2021

Income (Loss)

2 unchanged sentences

Foreign currency translation adjustment

Stock-based compensation

Balance at September 30, 2020

Stock-based compensation expense

Balance at March 31, 2021

See accompanying notes to these unaudited condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED SATEMENTS OF CASH FLOWS

Nine months ended September 30,

Three months ended March 31,

(in thousands)

Cash flows from operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Depreciation and amortization

Unrealized (gains) on marketable securities

Stock-based compensation

Operating leases - other

Gain on forgiveness of PPP loan

Loss on disposal of property and equipment

Operating leases, other

Deferred taxes

Changes in operating assets and liabilities:

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Accrued income taxes

Deferred taxes

Deferred revenue

Net cash provided by operating activities

Net cash used in operating activities

Cash flows from investing activities:

Property, plant and equipment

Intangible assets

Purchases of marketable securities

Purchases of property, plant and equipment

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from PPP loan

Net cash provided by financing activities

Payment of dividends on preferred stock

Net cash used in financing activities

Effect of exchange rate changes on cash, cash equivalents and restricted cash

Net increase in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash, cash equivalents and restricted cash, beginning of period

5 unchanged sentences

Supplemental disclosure of cash flow information:

Income taxes paid (refunded), net

Income taxes paid

Interest paid

Supplemental disclosure of non-cash investing and financing activities:

Lease liabilities arising from obtaining right-of-use assets

See accompanying notes to these unaudited condensed consolidated financial statements.

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Our Human Machine Interface (“HMI”) technology platforms are deployed in a wide range of markets including consumer electronics, automotive, industrial, and medical.

Interlink serves our world-wide customer base from our corporate headquarters in Irvine, California (Orange County) 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 Internet-of-Things (“IoT”) application development center in Singapore.

We manufacture all our products in our printed electronics manufacturing facility in Shenzhen, China.

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.

Interlink serves our world-wide customer base from our corporate headquarters in Irvine, California, our Global Product Development and Materials Science Center and distribution and logistics center in Camarillo, California, our printed-electronics manufacturing facility in Shenzhen, China, our engineering, research and development center in Singapore, and our distribution and logistics center in Hong Kong.

We also maintain a technical and sales office in Japan, and we expect to launch an engineering, research and development center in the United Kingdom in 2022.

We were incorporated in California in 1985.

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generally accepted accounting principles (“GAAP”) for interim financial reporting.

Accordingly, certain information and footnote disclosures normally included in annual consolidated financial statements have been condensed or omitted.

Accordingly, certain information and footnote disclosures normally included in annual consolidated financial statements have been condensed or omitted in accordance with Rule 10-01 of Regulation S-X.

In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments and the elimination of intra-entity accounts) considered necessary for a fair presentation of all periods presented.

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These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes included in our Annual Report on Form 10-K, which was filed the Securities and Exchange Commission on March 29, 2022.

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

Use of Estimates

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Management regularly evaluates estimates and assumptions related to revenue recognition, allowances for doubtful accounts, warranty reserves, inventory valuation reserves, stock-based compensation, purchased intangible asset valuations and useful lives, asset retirement obligations, and deferred income tax asset valuation allowances.

These estimates and assumptions are based on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources.

These estimates and

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

assumptions are based on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources.

The actual results we experience may differ materially and adversely from our original estimates.

1 unchanged sentence

Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), when a customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, we perform the following five steps:

We recognize revenue in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that are within the scope of ASC 606, we perform the following five steps;

(i) identify the contract(s) with a customer;

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(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

(iv) allocate the transaction price to the performance obligations;

and (v) recognize revenue when (or as) we satisfy a performance obligation.

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Our past history with these sell-through right of return provisions allow us to reasonably estimate the amount of inventory that could be returned pursuant to these agreements, and revenue is recognized accordingly.

We recognize revenue for non-recurring engineering or non-recurring tooling fees when there is persuasive evidence of an arrangement, performance obligations are identified, fees are fixed or determinable, delivery has occurred, and collectability is reasonably assured.

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

We establish reserves for future product warranty costs that are expected to be incurred pursuant to specific warranty provisions with our customers.

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Costs incurred for shipping and handling are included in cost of revenues.

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

Engineering, Research and Development Costs

5 unchanged sentences

Stock-Based Compensation

Under the terms of our 2016 Omnibus Incentive Plan (the “2016 Plan”), directors, officers and key employees could be granted restricted stock units and stock awards, as well as non-qualified or incentive stock options, at the discretion of the Compensation Committee of the Board of Directors.

All stock-based payments to directors and employees, including grants of stock options and stock purchase rights, are recognized in the financial statements based on their respective grant date (measurement date) fair values.

We calculate the compensation cost of full-value awards such as restricted stock units and stock awards based on the market value of the underlying stock at the date of the grant.

The fair value of stock option awards is estimated at the date of grant using the Black-Scholes option pricing model;

however, the value calculated using an option pricing model may not be indicative of the fair value observed in a willing buyer/willing seller market transaction, or actually realized by the employee upon exercise.

Expected volatility used to estimate the fair value of options granted is based on the historical volatility of our common stock.

The risk-free interest rate is based on the United States Treasury constant maturity rate for the expected life of the stock option.

The expected life of a stock award is the period of time that the award is expected to be outstanding.

We recognize compensation expense for all stock-based awards on a straight-line basis over the requisite service period for the entire award.

All stock-based payments to employees, including grants of employee stock options and employee stock purchase rights, are recognized in the financial statements based on their respective grant date (measurement date) fair values.

We calculate the compensation cost of full-value awards, such as restricted stock, based on the market value of the underlying stock at the date of the grant.

We estimate the expected life of a stock award as the period of time that the award is expected to be outstanding.

We are required to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model.

The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service periods.

We estimate the fair value of each option award as of the date of grant using the Black-Scholes option pricing model, which was developed for use in estimating the value of traded options that have no vesting restrictions and that are freely transferable.

The Black-Scholes option pricing model considers, among other factors, the expected life of the award and the expected volatility of our stock price.

Although the Black-Scholes option pricing model meets the accounting guidance requirements, the fair values generated by the Black-Scholes option pricing model may not be indicative of the actual fair values of our awards, as it does not consider other factors important to those stock-based payment awards, such as continued employment, periodic vesting requirements, and limited transferability.

We have elected to recognize compensation expense for all stock-based awards on a straight-line basis over the requisite service period for the entire award.

The amount of compensation expense recognized through the end of each reporting period is equal to the portion of the grant-date value of the awards that have vested, or for partially vested awards, the value of the portion of the award that is ultimately expected to vest for which the requisite services have been provided.

The benefits of tax deductions in excess of recognized compensation cost are reported as a financing cash flow.

As of September 30, 2021, there were no stock-based compensation awards outstanding.

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

Other Income, Net

Other income, net, consists of interest income /expense, foreign exchange gains and losses and other non-operating gains and losses.

As of March 31, 2022, there were no stock-based compensation awards outstanding.

Other Income (Expense), Net

Other income (expense), net, consists of interest income, foreign currency exchange gains and losses, gains and losses on marketable securities, and other non-operating gains and losses.

We account for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards.

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We also utilize a “more likely than not” recognition threshold and measurement analysis for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

We recognize potential accrued interest and penalties related to unrecognized tax benefits within the statement of operations as income tax expense.

We recognize potential accrued interest and penalties related to unrecognized tax benefits within the consolidated statements of operations as income tax expense.

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

We operate within multiple tax jurisdictions and are subject to audit in these jurisdictions.

Our foreign subsidiaries are subject to foreign income taxes on earnings in their respective jurisdictions.

Earnings of our foreign subsidiaries that constitute Global Intangible Low Taxed Income (“GILTI”) are included in U.S.

taxable income with related taxes recorded as a current period income tax expense.

Earnings of our foreign subsidiaries are included in our U.S.

federal income tax return as they are earned.

Foreign Currency Translation

The functional currency of our Chinese subsidiary is the Chinese Yuan Renminbi.

The functional currency for our Hong Kong and Singapore subsidiaries is the United States dollar.

The functional currency for our Hong Kong, Singapore and United Kingdom subsidiaries is the United States dollar.

However, our Hong Kong, Singapore, and United Kingdom subsidiaries also transact business in their local currency.

Assets and liabilities are translated into United States dollars at the exchange rate in effect on the balance sheet date.

Revenues and expenses are translated at the average exchange rate prevailing during the respective periods.

Foreign currency transaction and remeasurement gains and losses are included in results of operations.

Comprehensive Income (Loss)

Comprehensive income (loss) includes all components of comprehensive income (loss), including net income (loss) and any changes in equity during the period from transactions and other events and circumstances generated by non-owner sources.

Segment Reporting

1 unchanged sentence

the manufacture and sale of force sensing technology solutions.

Comprehensive Income

Comprehensive income includes all components of comprehensive income, including net income and any changes in equity during the period from transactions and other events and circumstances generated by non-owner sources.

Earnings Per Share

Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period.

Diluted net income per share is computed by dividing net income by the weighted average number of diluted common shares, which is inclusive of common stock equivalents from unexercised stock options and restricted stock units.

Unexercised stock options and restricted stock units are considered to be common stock equivalents if, using the treasury stock method, they are determined to be dilutive.

Basic earnings per share is computed by dividing net income (loss) applicable to common stockholders (i.e., net income (loss) adjusted for preferred stock dividends declared or accumulated) by the weighted average number of common shares outstanding during the period.

Diluted earnings per share is computed by dividing net income (loss) by the weighted average number of diluted common shares, which is inclusive of common stock equivalents from unexercised stock options, unvested restricted stock units, and shares issuable upon conversion of convertible preferred stock.

Unexercised stock options, unvested restricted stock units, and convertible preferred stock are considered to be common stock equivalents if, using the treasury stock method, they are determined to be dilutive.

Under the two-class method of determining earnings for each class of stock, we consider the dividend rights and participating rights in undistributed earnings for each class of stock.

We account for our leases under ASC 842.

Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or our incremental borrowing rate.

Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term.

For finance leases, interest on the lease liability and the amortization of the right of use asset results in front-loaded expense over the lease term.

Variable lease expenses are recorded when incurred.

In calculating the right of use and lease liability, we have elected to combine lease and non-lease components.

We exclude short-term leases having initial term of 12 months or less from the new guidance as an accounting policy election, and recognizes rent expense on a straight-line basis over the lease term.

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

The Company accounts for its leases under ASC Topic 842, Leases .

Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheets as both a right-of-use (“ROU”) asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate.

Lease liabilities are increased by interest and reduced by payments each period, and the ROU asset is amortized over the lease term.

For finance leases, interest on the lease liability and the amortization of the ROU asset results in front-loaded expense over the lease term.

Variable lease expenses are recorded when incurred.

In calculating the ROU asset and lease liability, the Company has elected to combine lease and non-lease components.

The Company excludes short-term leases having initial term of 12 months or less from this guidance as an accounting policy election, and recognizes rent expense for such short-term leases on a straight-line basis over the lease term.

Risk and Uncertainties

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loss of customers;

impacts of doing business internationally, including foreign currency fluctuations;

impacts of doing business internationally, including foreign currency fluctuations and political instability;

potential shortages of the supplies we use to manufacture our products;

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Public health threats could adversely affect our ongoing or planned business operations.

For example, the COVID-19 pandemic resulted in quarantines, restrictions on travel and other business and economic disruptions.

We cannot presently predict the scope and severity of any potential business shutdowns or disruptions from such public health threats, but if we or any of the third parties with whom we engage, including the suppliers, distributers, resellers and other third parties with whom we conduct business, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines we plan could be materially and adversely impacted.

In particular, the outbreak in December 2019 of a novel coronavirus (COVID-19) in China resulted in quarantines, restrictions on travel and other business and economic disruptions.

We cannot predict the scope and severity of potential business shutdowns or disruptions posed by public health threats, but if we or any of the third parties with whom we engage, including the suppliers, distributers, resellers and other third parties with whom we conduct business, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and adversely impacted.

Fair Value Measurements

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Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy.

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

Recently Issued Accounting Pronouncements

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Subsequent Events

The Company has evaluated subsequent events through November 4, 2021, being the date these condensed consolidated financial statements were issued.

We have evaluated subsequent events through May 5, 2022, being the date these condensed consolidated financial statements were issued.

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

Note 2 – Details of Certain Financial Statement Components

Inventories, stated at the lower of cost or net realizable value, consisted of the following:

September 30,

(in thousands)

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Property, plant and equipment, net, consisted of the following:

September 30,

Property, plant and equipment, net

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Total property, plant and equipment, net

Depreciation expense totaled $ 51 thousand and $ 55 thousand for the three months ended September 30, 2021 and 2020, respectively, and $ 163 thousand and $ 173 thousand for the nine months ended September 30, 2021 and 2020, respectively.

Depreciation expense totaled $ 52 thousand and $ 54 thousand for the three months ended March 31, 2022 and 2021, respectively.

Intangible assets, net consisted of the following:

September 30,

Intangible assets, net

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Total intangible assets, net

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

Amortization expense totaled $ 16 thousand and $ 16 thousand for the three months ended September 30, 2021 and 2020, respectively, and $ 50 thousand and $ 44 thousand for the nine months ended September 30, 2021 and 2020, respectively.

Future amortization expense on existing intangible assets over the next five years is as follows:

Amortization expense totaled $ 15 thousand and $ 17 thousand for the three months ended March 31, 2022 and 2021, respectively.

Future amortization expense on existing intangible assets is as follows:

Years ending December 31,

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2022 (remainder of year)

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

Accrued liabilities consisted of the following:

September 30,

Accrued Liabilities

(in thousands)

Accrued warranty

Accrued wages and benefits

Accrued vacation

Accrued other

Other accrued liabilities

Total accrued liabilities

Note 3 – Marketable Securities

Our marketable securities consist of equity securities classified as available-for-sale (“AFS”).

AFS securities are carried at fair value on the condensed consolidated balance sheets.

Unrealized gains and losses are reported in earnings within “other income (expense), net”.

The specific identification method is used to determine realized gains and losses on AFS securities.

During the three months ended March 31, 2022, we purchased $ 2.179 million of marketable equity securities.

As of March 31, 2022, gross unrealized gains were $ 156 thousand, and gross unrealized losses were $ 0 .

As of March 31, 2022, our position in marketable equity securities had a historical cost of $ 2.179 million and a fair value of $ 2.335 million, as determined using Level 1 inputs on the fair value hierarchy.

Note 4 – Earnings Per Share

Basic earnings per share is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period.

Diluted earnings per share is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period, plus the dilutive effect of outstanding stock options and restricted stock-based awards using the treasury stock method.

Basic earnings per share is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding during the period.

Diluted earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period, plus the dilutive effect of outstanding stock options, restricted stock units, and common shares issuable upon conversion of convertible preferred stock using the treasury stock method.

The following table sets forth the computation of basic and diluted earnings per share:

Three Months Ended

Nine Months Ended

September 30,

(in thousands, except per share data)

Weighted average outstanding shares of common stock

Dilutive potential common shares from stock options and restricted stock units

Common stock and common stock equivalents

Earnings per share, basic and diluted

Shares subject to anti-dilutive stock options and restricted stock-based awards excluded from calculation

Net income (loss)

Preferred stock dividends

Net income (loss) applicable to common stockholders

Weighted average common shares outstanding – basic

Dilutive potential common shares from stock options, restricted stock units, and convertible preferred stock

Weighted average common shares outstanding – diluted

Earnings (loss) per common share, basic

Earnings (loss) per common share, diluted

Shares subject to anti-dilutive stock options and restricted stock units excluded from calculation

Shares subject to anti-dilutive Series A Convertible Preferred Stock excluded from calculation

INTERLINK ELECTRONICS, INC.

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Net revenues from customers equal to or greater than 10% of total net revenues are as follows:

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

* Less than 10% of total net revenues

Net revenues by geographic area are as follows:

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

(in thousands)

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Accounts receivable balances are monitored on an ongoing basis, and accounts deemed to have credit risk are fully reserved.

At September 30, 2021, two customers accounted for 34 % and 23 % of total accounts receivable, respectively.

At December 31, 2020, two customers accounted for 47 % and 22 % of total accounts receivable, respectively.

Our allowance for doubtful accounts was $ 0 at both September 30, 2021 and December 31, 2020.

At March 31, 2022, one customer accounted for 55 % of total accounts receivable.

At December 31, 2021, three customers accounted for 39 %, 18 %, and 12 % of total accounts receivable.

Our allowance for doubtful accounts was $ 0 at both March 31, 2022 and December 31, 2021.

Our long-lived assets were geographically located as follows:

September 30,

(in thousands)

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Total long-lived assets

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

Note 6 – Related Party Transactions

Qualstar Corporation (OTCM:QBAK)

Qualstar Corporation (OTCMKTS:QBAK)

Qualstar Corporation (OTCMKTS:QBAK) (“Qualstar”) is a related party.

Bronson, our Chairman of the Board, President and Chief Executive Officer, is also the President and Chief Executive Officer and Director of Qualstar.

Bronson, our Chairman of the Board, President and Chief Executive Officer, is also the President, Chief Executive Officer and a director of Qualstar.

Hoffman, our Chief Financial Officer, is also the Chief Financial Officer of Qualstar.

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(OTCMKTS:BKFG) which he controls, has a controlling interest in both Interlink and Qualstar.

We have a facilities agreement with Qualstar to allow Qualstar to use of a portion of our Irvine, California office facility, for which we have agreed to split substantially all rent and lease-related costs on an apportioned basis according to the approximate relative usage levels by each entity.

We have a facilities agreement with

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

Qualstar to allow Qualstar to use of a portion of our Irvine, California and Los Angeles, California office facilities, for which we have agreed to split substantially all rent and lease-related costs on an apportioned basis according to the approximate relative usage levels by each entity.

Qualstar also has a facilities agreement with us to allow us to use of a portion of its Camarillo, California office and warehouse facility, for which we have agreed to split substantially all rent and lease-related costs on an apportioned basis according to the approximate relative usage levels by each entity.

In addition, we have consulting agreements with Qualstar for certain of our respective employees and/or independent contractors that provide operational, sales, marketing, general and administrative services to the other entity.

In addition, we have various consulting agreements with Qualstar for certain of our respective employees and/or independent contractors that provide certain operational, sales, marketing, general and administrative services to the other entity.

Interlink and Qualstar also agree to reimburse, or be reimbursed by, one another for expenses paid by one company on behalf of the other.

Transactions with Qualstar are as follows:

Three months ended September 30,

Due from Qualstar

Due to Qualstar

Due from Qualstar

Due to Qualstar

(in thousands)

Balance at June 30,

Billed (or accrued) to Qualstar by Interlink

Paid by Qualstar to Interlink

Billed (or accrued) to Interlink by Qualstar

Paid by Interlink to Qualstar

Balance at September 30,

Nine months ended September 30,

Transactions with Qualstar and its subsidiaries are as follows:

Three months ended March 31,

Due from Qualstar

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Paid by Interlink to Qualstar

Balance at September 30,

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

BKF Capital Group (OTCM:BKFG)

Balance at March 31,

BKF Capital Group (OTCMKTS:BKFG)

BKF Capital Group, Inc.

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Hoffman, our Chief Financial Officer, is also the Chief Financial Officer of BKF Capital.

BKF Capital, together with Mr.

Bronson, has a controlling interest in Interlink.

We previously had a facilities agreement with BKF Capital under which BKF Capital was allowed to use a portion of our Irvine, California office facility, for which we had agreed to split substantially all rent and lease-related costs on an apportioned basis according to the approximate relative usage levels by each entity.

In addition, we have consulting agreements with BKF Capital for certain of our respective employees and/or independent contractors that provide operational and general and administrative services to the other entity.

Bronson, together with BKF Capital, has a controlling interest in Interlink.

We have a facilities agreement with BKF Capital to allow BKF Capital to use a portion of our Irvine, California office facility, for which we have agreed to split substantially all rent and lease-related costs on an apportioned basis according to the approximate relative usage levels by each entity.

In addition, we have consulting agreements with BKF Capital for certain of our respective employees and/or independent contractors that provide certain operational and general and administrative services to the other entity.

Interlink and BKF Capital also agree to reimburse, or be reimbursed by, one another for expenses paid by one company on behalf of the other.

Transactions with BKF Capital are as follows:

Three months ended September 30,

Due from BKF Capital

Due to BKF Capital

Due from BKF Capital

Due to BKF Capital

(in thousands)

Balance at June 30,

Billed (or accrued) to BKF Capital by Interlink

Paid by BKF Capital to Interlink

Billed (or accrued) to Interlink by BKF Capital

Paid by Interlink to BKF Capital

Balance at September 30,

Nine months ended September 30,

Transactions with BKF Capital and its subsidiaries are as follows:

Three months ended March 31,

Due from BKF Capital

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Paid by Interlink to BKF Capital

Balance at September 30,

Balance at March 31,

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

Note 7 – Income Taxes

Income tax expense as a percentage of pre-tax income was 11.9 % for the three months ended September 30, 2021, versus tax benefit of 154.2 % for the comparable period in the prior year.

Income tax expense as a percentage of pre-tax income was 20.8 % for the nine months ended September 30, 2021 versus tax benefit of 139.2 % for the comparable period in the prior year .

Our income tax expense/benefit is primarily impacted by permanent taxable differences, the mix of domestic and foreign pre-tax earnings, as well as our ability to utilize prior net operating loss carryforwards (“NOLs”).

The Company experienced an ownership change under IRC Section 382 in February 2010.

Income tax expense as a percentage of income before income taxes was 17.9 % for the three months ended March 31, 2022 versus an income tax benefit of 14.0 % for the comparable period in the prior year.

Our income tax expense is primarily impacted by the mix of domestic and foreign pre-tax earnings, as well as our ability to utilize prior net operating loss carryovers (“NOLs”).

We experienced an ownership change under IRC Section 382 in February 2010.

In general, a Section 382 ownership change occurs if there is a cumulative change in our ownership by “5% shareholders” (as defined in the Internal Revenue Code of 1986, as amended) that exceeds 50 percentage points over a rolling three-year period.

An ownership change generally affects the rate at which NOLs and potential other deferred tax assets are permitted to offset future taxable income.

Certain state jurisdictions within

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

which we operate contain similar provisions and limitations.

All of the remaining federal and state NOLs as of September 30, 2021 are subject to annual limitations due to the February 2010 ownership change.

Certain state jurisdictions within which we operate contain similar provisions and limitations.

As of March 31, 2022, all of the remaining federal and state NOLs are subject to annual limitations due to the February 2010 ownership change.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets.

Given our current earnings and anticipated future earnings, we determine there is sufficient evidence to reach a conclusion that a valuation allowance is not warranted.

We analyzed our need to record a valuation allowance against our otherwise recognizable net deferred tax assets in the federal, state and foreign jurisdictions, and we determined, primarily due to cumulative domestic losses incurred over the three-year period ended December 31, 2021, that a valuation allowance on federal and state deferred tax assets was necessary at December 31, 2021.

We determined no valuation allowance on foreign deferred tax assets was necessary at December 31, 2021.

The amount of deferred tax assets considered realizable could be adjusted in future periods if estimates of future taxable income during the carryforward period are reduced or increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for future profitability.

The Internal Revenue Code includes a provision, referred to as Global Intangible Low-Taxed Income (“GILTI”), which provides for a 10.5 % tax on certain income of controlled foreign corporations.

We have elected to account for GILTI as a period cost if and when occurred, rather than recognizing deferred taxes for basis differences expected to reverse.

Of the $ 8.1 million of cash balances on hand at March 31, 2022, $ 2.4 million was held by our foreign subsidiaries.

If these funds are needed for our operations in the U.S., we have several methods to repatriate the funds 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.

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

Note 8 – Commitments and Contingencies

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The rate implicit in each lease is not readily determinable, and we therefore use our incremental borrowing rate to determine the present value of the lease payments.

The weighted average incremental borrowing rate used to determine the initial value of ROU assets and lease liabilities capitalized during the nine months ended September 30, 2021 and 2020 was 5.50 % and 6.75 %, respectively.

No new right-of-use (“ROU”) assets were capitalized during the three months ended March 31, 2022 or 2021.

ROU assets for operating leases are periodically reduced by impairment losses.

We use the long-lived assets impairment guidance in ASC Subtopic 360-10, Property, Plant and Equipment – Overall , to determine whether a ROU asset is impaired, and if so, the amount of the impairment loss to recognize.

As of September 30, 2021, we have not recognized any impairment losses for our ROU assets.

As of March 31, 2022, we have not recognized any impairment losses for our ROU assets.

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Notes to Condensed Consolidated Financial Statements - continued

We monitor for events or changes in circumstances that require a reassessment of our leases.

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In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in profit or loss.

In June 2020, the Company entered into a sublease agreement to lease 4,351 square feet of space located in Irvine, California for approximately $ 6 thousand per month with 3 percent annual increases, plus common area maintenance costs.

In June 2020, we entered into a sublease agreement to lease 4,351 square feet of office space located in Irvine, California for approximately $ 6 thousand per month with 3 percent annual increases, plus common area maintenance costs.

The lease term began July 1, 2020 and ends May 31, 2023.

The space is used for executive offices, sales, finance and administration.

The Company leases a 14,476 square-foot manufacturing facility and administrative office in Shenzhen, China.

In May 2020, the Company renewed this lease for the period June 1, 2020 through May 31, 2022 for approximately $ 7 thousand per month through May 31, 2021 and increasing to approximately $ 8 thousand per month through May 31, 2022.

The Company leases a 275 square-foot engineering and administrative office in Singapore for approximately $ 1 thousand per month.

We lease a 14,476 square-foot manufacturing facility and administrative office in Shenzhen, China.

In May 2020, we renewed this lease for the period June 1, 2020 through May 31, 2022 for approximately $ 7 thousand per month through May 31, 2021 and increasing to approximately $ 8 thousand per month through May 31, 2022.

We lease a 275 square-foot engineering and administrative office in Singapore for approximately $ 1 thousand per month.

This lease term ends May 2023.

The Company leases a 3,000 square-foot distribution facility in Hong Kong for approximately $ 2 thousand per month.

We lease a 3,000 square-foot distribution facility in Hong Kong for approximately $ 2 thousand per month.

This lease term ends April 2023.

The Company leases a 500 square-foot sales office in Tokyo, Japan for approximately $ 1 thousand per month.

We lease a 500 square-foot sales office in Tokyo, Japan for approximately $ 1 thousand per month.

This lease term ends November 2022.

As of September 30, 2021, the Company had current and long-term lease liabilities of $ 150 thousand and $ 71 thousand, respectively, and ROU assets of $ 207 thousand.

As of December 31, 2020, the Company had current and long-term lease liabilities of $ 219 thousand and $ 140 thousand, respectively, and ROU assets of $ 334 thousand.

Future imputed interest as of September 30, 2021 totaled $ 10 thousand.

The weighted average remaining lease term of the Company’s leases as of September 30, 2021 is 0.8 years.

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

We sublease approximately 425 square-feet of office space in Los Angeles, California for approximately $ 1 thousand per month.

This lease term ends March 2023.

As of March 31, 2022, we had current and long-term lease liabilities of $ 114 thousand and $ 14 thousand, respectively, and right-of-use assets of $ 119 thousand.

As of December 31, 2021, we had current and long-term lease liabilities of $ 138 thousand and $ 37 thousand, respectively, and right of use assets of $ 163 thousand.

Future imputed interest as of March 31, 2022 totaled $ 5 thousand.

The weighted average remaining lease term of our leases as of March 31, 2022 is 0.4 years.

Future minimum lease payments under non-cancellable operating leases that have remaining non-cancellable lease terms in excess of one year are as follows:

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Present value of lease liabilities

During the three months ended September 30, 2021, we recognized approximately $ 68 thousand in operating lease costs,including approximately $ 29 thousand in cost of revenue and approximately $ 39 thousand in operating expenses.

During the three months ended September 30, 2020, we recognized approximately $ 77 thousand in operating lease costs, including approximately $ 29 thousand in cost of revenue and approximately $ 48 thousand in operating expenses.

During the nine months ended September 30, 2021, we recognized approximately $ 234 thousand in operating lease costs, including approximately $ 88 thousand in cost of revenue and approximately $ 146 thousand in operating expenses.

During the nine months ended September 30, 2020, we recognized approximately $ 187 thousand in operating lease costs, including approximately $ 73 thousand in cost of revenue and approximately $ 114 thousand in operating expenses.

We are not party to any legal proceedings as of September 30, 2021.

During the three months ended March 31, 2022, we incurred approximately $ 61 thousand in operating lease costs .

Operating lease costs of $ 32 thousand are included in cost of revenue, and $ 29 thousand are included in operating expenses in our condensed consolidated statements of operations for the three months ended March 31, 2022.

During the three months ended March 31, 2021, we incurred approximately $ 82 thousand in operating lease costs.

Operating lease costs of $ 30 thousand are included in cost of revenue, and $ 52 thousand are included in operating expenses in our condensed consolidated statements of operations for the three months ended March 31, 2021.

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

We are not party to any legal proceedings as of March 31, 2022.

We are occasionally involved in legal proceedings in the ordinary course of business, including actions against us which assert or may assert claims or seek to impose fines and penalties in substantial amounts.

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Given that the amount of any potential liabilities related to such indemnities cannot be determined until an infringement claim has been made, we are unable to determine the maximum amount of losses that we could incur related to such indemnifications.

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

Director and Officer Indemnities and Contractual Guarantees

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and (ii) all unvested equity and/or options issued by the Company shall immediately fully vest.

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

Guarantees and Indemnities

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We maintain general and product liability insurance which may provide a source of recovery to us in the event of an indemnification claim.

Note 8 – Subsequent Events

Series A Convertible Preferred Stock

On October 21, 2021, the Company entered into a securities purchase agreement with twenty one ( 21 ) investors, pursuant to which the Company sold to the investors an aggregate of one hundred twenty thousand ( 120,000 ) shares of its 8.0 % Series A Convertible Preferred Stock, par value $ 0.01 per share, at an offering price of $ 25.00 per share, for gross proceeds of $ 3.0 million.

Each share of Series A Convertible Preferred Stock is convertible into shares of the Company’s common stock at a conversion price of $ 12.50 per common share, or 2.0 shares of common stock, at any time at the option of the holder, subject to certain customary adjustments.

The Company may elect to automatically convert some or all of the Series A Convertible Preferred Stock into shares of common stock at any time on or after April 22, 2022 if the closing price of the common stock equals or exceeds $ 15.00 ( 120 % of the initial conversion price) for at least 20 out of 30 consecutive trading days ending within five trading days prior to the notice of automatic conversion.

The offering closed on October 22, 2021.

After payment of placement agent cash fees and expenses of the offering, the Company received net proceeds of approximately $ 2.82 million.

The securities purchase agreement allows for the sale by the Company of up to an additional 480,000 shares of Series A Convertible Preferred Stock at one or more subsequent closings within ninety ( 90 ) days of the initial closing date.

Holders of the Series A Convertible Preferred Stock generally have no voting rights.

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

On October 21, 2021, the Company filed the Certificate of Designations with the Secretary of State of the State of Nevada to establish the voting rights, powers, preferences and privileges, and the relative, participating, optional or other rights, and the qualifications, limitations or restrictions thereof, of the Series A Convertible Preferred Stock (“Certificate of Designations”).

The Series A Convertible Preferred Stock will not be redeemable before April 22, 2022 except as described below upon the occurrence of a Fundamental Change (as defined in the Certificate of Designations).

The Company may redeem, at the Company’s option, the Series A Convertible Preferred Stock, in whole or in part, at a cash redemption price of $ 27.50 plus accrued and unpaid dividends beginning April 22, 2022 through October 21, 2023, at a cash redemption price of $ 28.125 plus accrued and unpaid dividends beginning October 22, 2023 through October 21, 2024, and, at a cash redemption price of $ 28.75 plus accrued and unpaid dividends beginning October 22, 2024.

If the Company exercises the foregoing redemption right, holders of the Series A Convertible Preferred Stock will have the right to convert such shares into shares of common stock at the conversion price until the redemption date specified in the redemption notice delivered by the Company.

However, at any time within sixty ( 60 ) days after the occurrence of a Fundamental Change, the Company may redeem, at the Company’s option, the Series A Convertible Preferred Stock, in whole or in part, at a cash redemption price of $ 27.50 plus accrued and unpaid dividends if the redemption date occurs from October 22, 2022 through October 21, 2023, at a cash redemption price of $ 28.125 plus accrued and unpaid dividends if the redemption date occurs from October 22, 2023 through October 21, 2024, and at a cash redemption price of $ 28.75 plus accrued and unpaid dividends, if the redemption date occurs on and after October 22, 2024.

If the Company exercises the foregoing redemption right, holders of the Series A Convertible Preferred Stock will have the right to convert such shares into shares of common stock at the conversion price after the Fundamental Change but prior to the redemption date specified in the redemption notice delivered by the Company.

The Company entered into a registration rights agreement with the investors, dated October 22, 2021, pursuant to which the Company agreed to register for resale by the investors the shares of common stock issuable upon conversion of the Series A Convertible Preferred Stock.

The Company has committed to file the registration statement no later than January 19, 2022 and to cause the registration statement to become effective no later than April 19, 2022.

The registration rights agreement provides for liquidated damages upon the occurrence of certain events, including the Company’s failure to file the registration statement or cause it to become effective by the deadlines set forth above.

The amount of liquidated damages payable to an investor would be 0.5 % of the aggregate amount invested by such investor for each 30-day period, or pro rata portion thereof, during which the default continues.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements