What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2021-11-04 · 54 added, 78 removed, 110 unchanged (55% of the section changed)

12 unchanged sentences

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 35 years with the commercialization of our patented Force-Sensing Resistor (“FSR®”) technology that has enabled rugged and reliable HMI solutions.

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

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.

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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.

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

We also maintain a small embedded software and IoT application development center in Singapore, and we expect to launch an engineering, research and development center in the United Kingdom in 2022.

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.

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The percentages in the table are based on net revenues.

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31

(in thousands, except percentages)

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Income tax expense (benefit)

Comparison of Three Months Ended September 30, 2021 and 2020

Net income (loss)

Comparison of Three Months Ended March 31, 2022 and 2021

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

Three months ended September 30,

Three months ended March 31,

(in thousands, except percentages)

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.

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

We sell our standard products through various distribution networks.

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We currently have products with life-cycles that have exceeded twenty years and are ongoing.

Revenues were up in the three months ended September 30, 2021 compared to the three months ended September 30, 2020 in the industrial and 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 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 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.

Revenues were up in the three months ended March 31, 2022 compared to the three months ended March 31, 2021 in the industrial and medical markets and for our standard products, and were down in the consumer market.

The increase in revenue from our industrial market customers is due to increased shipments to by these customers for use in their ongoing product lines resulting from increased demand by their customers.

The increase in revenue from our medical market customers is primarily due to an increase in orders from and shipments to our largest medical customer, whose purchasing volume has increased as COVID-19 restrictions on their hospital installations have begun to subside.

The decrease in revenue from our consumer market customers is primarily due to a design change by one of our largest consumer products customers.

During the 2022 period, we also sold products in the automotive market for the first time since 2018, as we are again pursuing a program with an automotive manufacturer.

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 September 30,

Three months ended March 31,

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

Three months ended September 30,

Our gross profit and gross margin percentage are impacted by various factors including product mix, customer mix, sales volume, and fluctuations in our cost of revenues, which are comprised of material costs, direct and indirect production labor costs, warehousing and logistics costs, facilities costs, and other costs related to production activities.

Gross profit and gross margin percentage during the three months ended March 31, 2022 were up compared to the three months ended March 31, 2021 due to an increase in revenue, favorable changes in product and customer mix, and production efficiencies.

Three months ended March 31,

(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 September 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, and also due to receipt of a research incentive grant from the Singapore government that reduced expenses for 2021.

Three months ended September 30,

Engineering and R&D expenses consist primarily of compensation expenses for employees engaged in research, design and development activities, and the cost of those employees’ indirect supplies and allocation of facilities expenses.

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

Engineering and R&D costs for the three months ended March 31, 2022 were up compared to the three months ended March 31, 2021 due to increased engineering headcount and increased prototyping and product-development activities.

Three months ended March 31,

(in thousands, except percentages)

1 unchanged sentence

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 September 30, 2021 as compared with the prior year due to increases in sales, marketing, finance and administrative personnel, increase in legal and professional services costs, and an increase in costs associated with having relisted with Nasdaq during 2021.

Three months ended September 30,

Selling, general and administrative costs for the three months ended March 31, 2022 were up compared to the three months ended March 31, 2021 due to increased costs of professional services, and the prior year having included the $186 thousand benefit from forgiveness of the PPP loan.

Three months ended March 31,

(in thousands, except percentages)

Income tax expense (benefit)

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

The tax expense (benefit) for the three month periods ended September 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.

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.

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

Our effective tax rate is directly affected by the relative proportions of revenue and 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 similar to the U.S.

statutory rate of 21% primarily due to a significant portion of our earnings originating in the higher rate China jurisdiction (25%), offset by lower rate jurisdictions in Singapore (17%) and Hong Kong (16.5%).

State income taxes also have an impact in the U.S.

In December 2021, the Company’s income tax provision included a valuation allowance against domestic deferred tax assets due to recent history of U.S.

taxable losses.

Discrete tax events may cause our effective rate to fluctuate on a quarterly basis.

Certain events, including, for example, acquisitions and other business changes, which are difficult to predict, may also cause our effective tax rate to fluctuate.

We are subject to changing tax laws, regulations, and interpretations in multiple jurisdictions.

Continued corporate tax reform continues to be a priority in the U.S.

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

and other jurisdictions.

1 unchanged sentence

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

Comparison of Nine Months Ended September 30, 2021 and 2020

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

Nine months ended September 30,

(in thousands, except percentages)

Revenues were up in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 in all of the markets we serve.

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

In the normal cycle, some of our larger customers purchase in bulk quantities while their 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.

Nine months ended September 30,

(in thousands, except percentages)

The increase in gross profit for the nine months ended September 30, 2021 as compared with the prior year was due to the increase in revenues, while gross margin percentage was relatively unchanged.

Nine months ended September 30,

(in thousands, except percentages)

Engineering, research and development

Our engineering and R&D costs were down for the nine months ended September 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, and also due to receipt of a research incentive grant from the Singapore government that reduced expenses for 2021.

Nine months ended September 30,

(in thousands, except percentages)

Selling, general and administrative

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

Nine months ended September 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 book/tax differences.

The tax expense (benefit) for the nine month periods ended September 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 September 30, 2021, we had cash and cash equivalents of $6.647 million, working capital of $7.867 million, and no indebtedness.

Cash requirements for working capital and capital expenditures have been funded from cash balances on hand, cash generated from operations, and sales of equity securities.

As of March 31, 2022, we had cash and cash equivalents of $8.1 million, working capital of $12.2 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 marketable investments as of September 30, 2021.

Of the $8.1 million of cash balances on hand, $2.4 million was held by foreign subsidiaries.

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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 in the aggregate principal amount of $186 thousand pursuant to the PPP under the Coronavirus Aid, Relief, and Economic Security Act.

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

We have outstanding 200,000 shares of our 8.0% Series A Convertible Preferred Stock that has an aggregate liquidation preference of $5.0 million, for which we pay, when, as and if declared by our board of directors, monthly cumulative cash dividends at an annual rate of 8.0%, which is equivalent to $0.16667 per month and $2.00 per annum per share, based on a per share liquidation preference of $25.00.

Dividends on the Series A Convertible Preferred Stock are payable monthly in arrears on the 15th day of each calendar month.

Our board of directors commenced paying dividends on our Series A Convertible Preferred Stock in November 2021, and we expect that our board of directors will continue to declare and pay monthly cash dividends on our Series A Convertible Preferred Stock, subject to the limitations to do so under Nevada law.

We believe that our existing cash and cash equivalents balance will be sufficient to maintain our current operations considering our current financial condition, obligations, and other expected cash flows.

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

Nine Months Ended

September 30,

Three Months Ended

(in thousands)

Net cash provided by operating activities

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by financing activities

Net Cash Provided By Operating Activities

For the nine months ended September 30, 2021, the $639 thousand of cash provided by operating activities was attributable to net income of $243 thousand, adjusted for non-cash charges of $235 thousand, non-cash gain on forgiveness of PPP loan of $186 thousand, and cash provided by changes in operating assets and liabilities of $347 thousand.

For the nine months ended September 30, 2020, the $42 thousand of cash provided by operating activities was attributable to net income of $60 thousand, adjusted for non-cash charges of $253 thousand, and cash used in changes in operating assets and liabilities of $271 thousand.

Accounts receivable decreased slightly from $1,113 thousand at December 31, 2020 to $1,106 thousand at September 30, 2021 due to timing of shipments and payments during the third quarter of 2021 compared to the fourth quarter of 2020.

Net cash used in financing activities

Net Cash Used In Operating Activities

For the three months ended March 31, 2022, the $367 thousand of cash used in operating activities was attributable to net income of $142 thousand, adjusted for non-cash charges of $64 thousand, unrealized gains on marketable securities of $156 thousand, and cash used in changes in operating assets and liabilities of $417 thousand.

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 $71 thousand, non-cash gain on forgiveness of PPP loan of $186 thousand, and cash provided by changes in operating assets and liabilities of $157 thousand.

Accounts receivable increased from $1.080 million at December 31, 2021 to $1.300 million at March 31, 2022 due to higher shipments during the first quarter of 2022 compared to the fourth quarter of 2021.

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

Inventories decreased slightly from $866 thousand at December 31, 2020 to $807 thousand at September 30, 2021.

Inventories decreased slightly from $814 thousand at December 31, 2021 to $799 thousand at March 31, 2022.

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 $325 thousand at September 30, 2021, and accounts payable and accrued liabilities increased from $578 thousand at December 31, 2020 to $685 thousand at September 30, 2021, primarily due to the timing of payment for purchases of materials and other services provided.

Prepaid expenses and other current assets were relatively unchanged at $388 thousand at March 31, 2022 compared to $391 thousand at December 31, 2021.

Accounts payable and accrued liabilities decreased from $845 thousand at December 31, 2021 to $584 thousand at March 31, 2022, primarily due to the timing of payment for purchases of materials, compensation accruals, and other outside services.

Net Cash Used in Investing Activities

Net cash used in investing activities of $142 thousand for the nine months ended September 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 $66 thousand for the nine months ended September 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 nine months ended September 30, 2021.

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

Net cash used in investing activities of $2.185 million for the three months ended March 31, 2022 consisted of purchases of $2.179 million of marketable securities and $6 thousand of property, plant, and equipment.

Net cash used in investing activities of $12 thousand for the three months ended March 31, 2021 consisted of purchases of property, plant, and equipment.

Net Used In Financing Activities

Net cash used in financing activities of $100 thousand for the three months ended March 31, 2022 consisted of payment of dividends on our Series A Convertible Preferred Stock.

There was no cash provided by or used in financing activities during the three months ended March 31, 2021.

Off-Balance Sheet Arrangements

3 unchanged sentences

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 2. Management’s Discussion and Analysis