INTERLINK ELECTRONICS INC 10-Q

Item 1. Financial Statements INTERLINK ELECTRONICS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, ​ 2022 2021 ​ (in thousands, except par value) ASSETS ​ ​ ​ ​ ​ ​ Current assets ​ ​ ​ ​ ​ ​ Cash and cash equivalents $ 8,130 $ 10,777 Restricted cash ​ ​ 5 ​ ​ 5 Marketable securities ​ ​ 2,335 ​ ​ — Accounts receivable, net ​ ​ 1,300 ​ ​ 1,080 Inventories ​ ​ 799 ​ ​ 814 Prepaid expenses and other current assets ​ ​ 388 ​ ​ 391 Total current assets ​ ​ 12,957 ​ ​ 13,067 Property, plant and equipment, net ​ ​ 290 ​ ​ 338 Intangible assets, net ​ ​ 116 ​ ​ 131 Right-of-use assets ​ ​ 119 ​ ​ 163 Deferred tax assets ​ ​ 8 ​ ​ 8 Other assets ​ ​ 42 ​ ​ 72 Total assets $ 13,532 $ 13,779 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ Current liabilities ​ ​ ​ ​ ​ ​ Accounts payable $ 333 $ 338 Accrued liabilities ​ ​ 251 ​ ​ 507 Lease liabilities, current ​ ​ 114 ​ ​ 138 Accrued income taxes ​ ​ 66 ​ ​ 54 Total current liabilities ​ ​ 764 ​ ​ 1,037 ​ ​ ​ ​ ​ ​ ​ Long-term liabilities ​ ​ ​ ​ ​ ​ Lease liabilities, long-term ​ ​ 14 ​ ​ 37 Total long-term liabilities ​ ​ 14 ​ ​ 37 Total liabilities ​ ​ 778 ​ ​ 1,074 Commitments and contingencies (Note 8) ​ ​ — ​ ​ — Stockholders’ equity ​ ​ ​ ​ ​ ​ Preferred stock, $ 0.01 par value: 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) ​ ​ 2 ​ ​ 2 Common stock, $ 0.001 par value: 30,000 shares authorized, 6,602 shares issued and outstanding at both March 31, 2022 and December 31, 2021 ​ ​ 7 ​ ​ 7 Additional paid-in-capital ​ ​ 62,552 ​ ​ 62,552 Accumulated other comprehensive income ​ ​ 103 ​ ​ 96 Accumulated deficit ​ ​ ( 49,910 ) ​ ​ ( 49,952 ) Total stockholders’ equity ​ ​ 12,754 ​ ​ 12,705 Total liabilities and stockholders’ equity $ 13,532 $ 13,779 ​ See accompanying notes to these unaudited condensed consolidated financial statements. ​ 3 Table of Contents INTERLINK ELECTRONICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ 2022 2021 ​ (in thousands, except per share data) Revenue, net $ 1,991 $ 1,568 Cost of revenue ​ ​ 750 ​ ​ 694 Gross profit ​ ​ 1,241 ​ ​ 874 Operating expenses: ​ ​ ​ ​ ​ ​ Engineering, research and development ​ ​ 263 ​ ​ 217 Selling, general and administrative ​ ​ 960 ​ ​ 717 Total operating expenses ​ ​ 1,223 ​ ​ 934 Income (loss) from operations ​ ​ 18 ​ ​ ( 60 ) Other income (expense): ​ ​ ​ ​ ​ ​ Other income (expense), net ​ ​ 155 ​ ​ 10 Income (loss) before income taxes ​ ​ 173 ​ ​ ( 50 ) Income tax expense (benefit) ​ ​ 31 ​ ​ ( 7 ) Net income (loss) ​ $ 142 ​ $ ( 43 ) ​ ​ ​ ​ ​ ​ ​ Net income (loss) applicable to common stockholders $ 42 $ ( 43 ) Earnings (loss) per common share – basic and diluted ​ $ 0.01 ​ $ ( 0.01 ) Weighted average common shares outstanding – basic and diluted ​ ​ 6,602 ​ ​ 6,601 ​ ​ ​ 4 Table of Contents INTERLINK ELECTRONICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ 2022 2021 ​ ​ (in thousands) Net income (loss) ​ $ 142 ​ $ ( 43 ) Other comprehensive income (loss), net of tax: ​ ​ ​ ​ Foreign currency translation adjustments ​ 7 ​ ( 12 ) Comprehensive income (loss) ​ $ 149 ​ $ ( 55 ) ​ See accompanying notes to these unaudited condensed consolidated financial statements. ​ ​ 5 Table of Contents INTERLINK ELECTRONICS, INC. CONDENSED CONSOLIDATED SATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ Total ​ ​ Preferred Stock ​ Common Stock ​ Paid-in- ​ Comprehensive ​ Accumulated ​ Stockholders’ Three months ended March 31, 2022 Shares Amount Shares Amount Capital Income (Loss) Deficit Equity (in thousands) ​ ​ ​ ​ ​ ​ Balance at December 31, 2021 200 ​ $ 2 ​ 6,602 ​ $ 7 ​ $ 62,552 ​ $ 96 ​ $ ( 49,952 ) ​ $ 12,705 Net income — ​ ​ — ​ — ​ — ​ — ​ — ​ 142 ​ 142 Preferred stock dividends — ​ ​ — ​ — ​ — ​ — ​ — ​ ( 100 ) ​ ( 100 ) Foreign currency translation adjustment — ​ ​ — ​ — ​ — ​ — ​ 7 ​ — ​ 7 Balance at March 31, 2022 200 ​ $ 2 ​ 6,602 ​ $ 7 ​ $ 62,552 ​ $ 103 ​ $ ( 49,910 ) ​ $ 12,754 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ Total ​ ​ Preferred Stock ​ Common Stock ​ Paid-in- ​ Comprehensive ​ Accumulated ​ Stockholders’ Three months ended March 31, 2021 Shares ​ Amount ​ Shares Amount Capital Income (Loss) Deficit Equity (in thousands) ​ ​ ​ ​ ​ ​ Balance at December 31, 2020 — ​ $ — ​ 6,601 ​ $ 7 ​ $ 57,966 ​ $ 37 ​ $ ( 49,170 ) ​ $ 8,840 Net (loss) — ​ ​ — ​ — ​ — ​ — ​ — ​ ( 43 ) ​ ( 43 ) Foreign currency translation adjustment — ​ ​ — ​ — ​ — ​ — ​ ( 12 ) ​ — ​ ( 12 ) Stock-based compensation expense — ​ ​ — ​ — ​ — ​ 5 ​ — ​ — ​ 5 Balance at March 31, 2021 — ​ $ — ​ 6,601 ​ $ 7 ​ $ 57,971 ​ $ 25 ​ $ ( 49,213 ) ​ $ 8,790 ​ See accompanying notes to these unaudited condensed consolidated financial statements. ​ ​ 6 Table of Contents ​ INTERLINK ELECTRONICS, INC. CONDENSED CONSOLIDATED SATEMENTS OF CASH FLOWS (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ 2022 2021 ​ ​ (in thousands) Cash flows from operating activities: ​ ​ ​ ​ ​ ​ Net income (loss) $ 142 $ ( 43 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ ​ 67 ​ ​ 71 Unrealized (gains) on marketable securities ​ ​ ( 156 ) ​ ​ — Stock-based compensation ​ ​ — ​ ​ 5 Gain on forgiveness of PPP loan ​ ​ — ​ ​ ( 186 ) Operating leases, other ​ ​ ( 3 ) ​ ​ ( 5 ) Deferred taxes ​ ​ — ​ ​ ( 20 ) Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ Accounts receivable ​ ​ ( 220 ) ​ ​ 143 Inventories ​ ​ 17 ​ ​ ( 20 ) Prepaid expenses and other assets ​ ​ 35 ​ ​ 55 Accounts payable ​ ​ ( 4 ) ​ ​ 53 Accrued liabilities ​ ​ ( 256 ) ​ ​ ( 48 ) Accrued income taxes ​ ​ 11 ​ ​ ( 6 ) Net cash used in operating activities ​ ​ ( 367 ) ​ ​ ( 1 ) Cash flows from investing activities: ​ ​ ​ ​ ​ ​ Purchases of marketable securities ​ ​ ( 2,179 ) ​ ​ — Purchases of property, plant and equipment ​ ​ ( 6 ) ​ ​ ( 12 ) Net cash used in investing activities ​ ​ ( 2,185 ) ​ ​ ( 12 ) Cash flows from financing activities: ​ ​ ​ ​ ​ ​ Payment of dividends on preferred stock ​ ​ ( 100 ) ​ ​ — Net cash used in financing activities ​ ​ ( 100 ) ​ ​ — ​ ​ ​ ​ ​ ​ ​ Effect of exchange rate changes on cash, cash equivalents and restricted cash ​ ​ 5 ​ ​ ( 9 ) Net decrease in cash and cash equivalents ​ ​ ( 2,647 ) ​ ​ ( 22 ) Cash, cash equivalents and restricted cash, beginning of period ​ ​ 10,782 ​ ​ 6,125 Cash, cash equivalents and restricted cash, end of period $ 8,135 $ 6,103 ​ ​ ​ ​ ​ ​ ​ Reconciliation of cash, cash equivalents and restricted cash, end of period: ​ ​ ​ ​ ​ ​ Cash and cash equivalents, end of period ​ $ 8,130 ​ $ 6,098 Restricted cash, end of period ​ ​ 5 ​ ​ 5 Cash, cash equivalents and restricted cash, end of period ​ $ 8,135 ​ $ 6,103 ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure of cash flow information: ​ ​ ​ ​ ​ ​ Income taxes paid $ 8 $ 6 Interest paid ​ ​ — ​ ​ — ​ See accompanying notes to these unaudited condensed consolidated financial statements. ​ ​ 7 Table of Contents INTERLINK ELECTRONICS, INC. Notes to Condensed Consolidated Financial Statements (unaudited) Note 1 – The Company and its Significant Accounting Policies Description of Business Interlink Electronics, Inc. (“we,” “us,” “our,” “Interlink” or the “Company”) 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 sensor-based products and custom sensor system 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. 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. In 1996, we re-incorporated into a Delaware corporation and, in 2012, we again changed our domicile from Delaware to Nevada by completing a merger with a newly formed Nevada corporation named Interlink Electronics, Inc. Our principal executive office is located at 1 Jenner, Suite 200, Irvine, California 92618 and our telephone number is (805) 484-8855. Our website address is www.interlinkelectronics.com. Interlink makes available its annual financial statements, quarterly financial statements, and other significant reports and amendments to such reports, free of charge, on its website as soon as reasonably practicable after such reports are prepared. Fiscal Year Our fiscal year is the calendar year reporting cycle beginning January 1 and ending December 31. Basis of Presentation The accompanying unaudited interim consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intra-entity transactions and balances have been eliminated in consolidation. The accompanying unaudited interim consolidated financial statements for the Company and its subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting. Accordingly, certain information and footnote disclosures normally included in annual consolidated financial statements have been condensed or omitted in accordance with Rule 10-01 of Regulation S-X. In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments and the elimination of intra-entity accounts) considered necessary for a fair presentation of all periods presented. The results of the Company’s operations for any interim periods are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year. These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes included in our Annual Report on Form 10-K, which was filed the Securities and Exchange Commission on March 29, 2022. Use of Estimates The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and disclosures made in the accompanying notes to the consolidated financial statements. Management regularly evaluates estimates and assumptions related to revenue recognition, allowances for doubtful accounts, warranty reserves, inventory valuation reserves, stock-based compensation, purchased intangible asset valuations and useful lives, asset retirement obligations, and deferred income tax asset valuation allowances. These estimates and 8 Table of Contents INTERLINK ELECTRONICS, INC. Notes to Condensed Consolidated Financial Statements - continued (unaudited) assumptions are based on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. The actual results we experience may differ materially and adversely from our original estimates. To the extent there are material differences between the estimates and the actual results, our future results of operations will be affected. Revenue Recognition We recognize revenue in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that are within the scope of ASC 606, we perform the following five steps; (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations; and (v) recognize revenue when (or as) we satisfy a performance obligation. The five-step model is applied to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services transferred to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize revenue in the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Delivery occurs when goods are shipped and title and risk of loss transfer to the customer, in accordance with the terms specified in the arrangement with the customer. Revenue recognition is deferred until the earnings process is complete. We (i) input orders based upon receipt of a customer purchase order, (ii) confirm pricing through the customer purchase order record, (iii) validate creditworthiness through past payment history, credit agency reports and other financial data, and (iv) recognize revenue upon shipment of goods or when risk of loss and title transfer to the buyer. All customers have warranty rights, and some customers also have explicit or implicit rights of return. We establish reserves for potential customer returns or warranty repairs based on historical experience and other factors that enable us to reasonably estimate the obligation. A portion of our product sales is made through distributors under agreements allowing for right of return. Our past history with these sell-through right of return provisions allow us to reasonably estimate the amount of inventory that could be returned pursuant to these agreements, and revenue is recognized accordingly. Warranty We establish reserves for future product warranty costs that are expected to be incurred pursuant to specific warranty provisions with our customers. We generally warrant our products against defects for one year from date of shipment, with certain exceptions in which the warranty period can extend to more than one year based on contractual agreements. A warranty reserve is recorded against revenues when products are shipped. At each reporting period, we adjust our reserve for warranty claims based on our actual warranty claims experience as a percentage of net revenue for the preceding 24 months and also consider the effect of known operations issues that may have an impact that differs from historical trends. Historically, our warranty returns have not been material. Shipping and Handling Fees and Costs Amounts billed to customers for shipping and handling fees are presented in revenues. Costs incurred for shipping and handling are included in cost of revenues. 9 Table of Contents INTERLINK ELECTRONICS, INC. Notes to Condensed Consolidated Financial Statements - continued (unaudited) Engineering, Research and Development Costs Engineering, research and development (“R&D”) costs are expensed when incurred. R&D expenses consist primarily of compensation expenses for employees engaged in research, design and development activities. R&D expenses also include depreciation and amortization, and overhead, including facilities expenses. Marketing and Advertising Costs All of the costs related to marketing and advertising our products are expensed as incurred or at the time the marketing or advertising takes place. Stock-Based Compensation All stock-based payments to employees, including grants of employee stock options and employee stock purchase rights, are recognized in the financial statements based on their respective grant date (measurement date) fair values. We calculate the compensation cost of full-value awards, such as restricted stock, based on the market value of the underlying stock at the date of the grant. We estimate the expected life of a stock award as the period of time that the award is expected to be outstanding. We are required to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service periods. We estimate the fair value of each option award as of the date of grant using the Black-Scholes option pricing model, which was developed for use in estimating the value of traded options that have no vesting restrictions and that are freely transferable. The Black-Scholes option pricing model considers, among other factors, the expected life of the award and the expected volatility of our stock price. Although the Black-Scholes option pricing model meets the accounting guidance requirements, the fair values generated by the Black-Scholes option pricing model may not be indicative of the actual fair values of our awards, as it does not consider other factors important to those stock-based payment awards, such as continued employment, periodic vesting requirements, and limited transferability. We have elected to recognize compensation expense for all stock-based awards on a straight-line basis over the requisite service period for the entire award. The amount of compensation expense recognized through the end of each reporting period is equal to the portion of the grant-date value of the awards that have vested, or for partially vested awards, the value of the portion of the award that is ultimately expected to vest for which the requisite services have been provided. The benefits of tax deductions in excess of recognized compensation cost are reported as a financing cash flow. As of 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. Income Taxes We account for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not determinable beyond a “more likely than not” standard, we establish a valuation allowance. To the extent we establish a valuation allowance or increase or decrease this allowance in a period, we include an expense or benefit within the tax provision in the statement of operations. We also utilize a “more likely than not” recognition threshold and measurement analysis for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We recognize potential accrued interest and penalties related to unrecognized tax benefits within the consolidated statements of operations as income tax expense. 10 Table of Contents INTERLINK ELECTRONICS, INC. Notes to Condensed Consolidated Financial Statements - continued (unaudited) We operate within multiple tax jurisdictions and are subject to audit in these jurisdictions. Our foreign subsidiaries are subject to foreign income taxes on earnings in their respective jurisdictions. Earnings of our foreign subsidiaries are included in our U.S. federal income tax return as they are earned. Foreign Currency Translation The functional currency of our Chinese subsidiary is the Chinese Yuan Renminbi. The functional currency 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. 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 We operate in one reportable segment: the manufacture and sale of force sensing technology solutions. Earnings Per Share Basic earnings per share is computed by dividing net income (loss) applicable to common stockholders (i.e., net income (loss) adjusted for preferred stock dividends declared or accumulated) by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income (loss) 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. Leases We account for our leases under ASC 842. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or our incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For finance leases, interest on the lease liability and the amortization of the right of use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred. In calculating the right of use and lease liability, we have elected to combine lease and non-lease components. We exclude short-term leases having 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. 11 Table of Contents INTERLINK ELECTRONICS, INC. Notes to Condensed Consolidated Financial Statements - continued (unaudited) Risk and Uncertainties Our future results of operations involve a number of risks and uncertainties. Factors that could affect our business or future results and cause actual results to vary materially from historical results include, but are not limited to, the rapid change in our industry; problems with the performance, reliability or quality of our products; loss of customers; impacts of doing business internationally, including foreign currency fluctuations and political instability; potential shortages of the supplies we use to manufacture our products; disruptions in our manufacturing facilities; changes in environmental directives impacting our manufacturing process or product lines; the development of new proprietary technology and the enforcement of intellectual property rights by or against us; our ability to attract and retain qualified employees; and our ability to raise additional capital. Public Health Threats Public health threats could adversely affect our ongoing or planned business operations. 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 We determine fair value measurements based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, we follow the following fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) our own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs): Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets; Level 2: Other inputs observable directly or indirectly, such as quoted prices for similar assets or liabilities or market-corroborate inputs; and Level 3: Unobservable inputs for which there is little or no market data and which requires the owner of the assets or liabilities to develop its own assumptions about how market participants would price these assets or liabilities. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy. Recently Issued Accounting Pronouncements We reviewed all recently issued accounting pronouncements and concluded they are not applicable or not expected to be material to our financial statements. Subsequent Events We have evaluated subsequent events through May 5, 2022, being the date these condensed consolidated financial statements were issued. ​ 12 Table of Contents INTERLINK ELECTRONICS, INC. Notes to Condensed Consolidated Financial Statements - continued (unaudited) Note 2 – Details of Certain Financial Statement Components Inventories, stated at the lower of cost or net realizable value, consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, ​ 2022 2021 Inventories (in thousands) Raw materials $ 459 $ 447 Work-in-process ​ ​ 201 ​ ​ 209 Finished goods ​ ​ 139 ​ ​ 159 Total inventories $ 799 $ 814 ​ Property, plant and equipment, net, consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, ​ 2022 2021 Property, plant and equipment, net ​ (in thousands) Furniture, machinery and equipment ​ $ 1,702 ​ $ 1,696 Leasehold improvements ​ 445 ​ 444 ​ ​ 2,147 ​ 2,140 Less: accumulated depreciation ​ ( 1,857 ) ​ ( 1,802 ) Total property, plant and equipment, net ​ $ 290 ​ $ 338 ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, ​ 2022 2021 Intangible assets, net ​ (in thousands) Patents and trademarks ​ $ 658 ​ $ 658 Less: accumulated amortization ​ ( 542 ) ​ ( 527 ) Total intangible assets, net ​ $ 116 ​ $ 131 ​ 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, (in thousands) 2022 (remainder of year) ​ $ 40 2023 ​ 42 2024 ​ 27 2025 ​ 7 ​ ​ $ 116 ​ 13 Table of Contents INTERLINK ELECTRONICS, INC. Notes to Condensed Consolidated Financial Statements - continued (unaudited) Accrued liabilities consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, ​ 2022 2021 Accrued Liabilities ​ (in thousands) Accrued wages and benefits ​ $ 113 ​ $ 402 Accrued vacation ​ 96 ​ 82 Other accrued liabilities ​ 24 ​ 23 Total accrued liabilities ​ $ 251 ​ $ 507 ​ ​ 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 (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 ​ ​ March 31, ​ 2022 2021 ​ ​ (in thousands, except per share data) Net income (loss) $ 142 $ ( 43 ) Less: Preferred stock dividends ​ ​ ( 100 ) ​ ​ — Net income (loss) applicable to common stockholders ​ $ 42 ​ $ ( 43 ) ​ ​ ​ ​ ​ ​ ​ Weighted average common shares outstanding – basic ​ ​ 6,602 ​ ​ 6,601 Dilutive potential common shares from stock options, restricted stock units, and convertible preferred stock ​ ​ — ​ ​ — Weighted average common shares outstanding – diluted ​ ​ 6,602 ​ ​ 6,601 ​ ​ ​ ​ ​ ​ ​ Earnings (loss) per common share, basic $ 0.01 $ ( 0.01 ) Earnings (loss) per common share, diluted ​ $ 0.01 ​ $ ( 0.01 ) ​ ​ ​ ​ ​ ​ ​ 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 ​ ​ 400 ​ ​ 400 ​ ​ 14 Table of Contents INTERLINK ELECTRONICS, INC. Notes to Condensed Consolidated Financial Statements - continued (unaudited) Note 5 – Significant Customers, Concentrations of Credit Risk, and Geographic Information We manage and operate our business through one operating segment. Net revenues from customers equal to or greater than 10% of total net revenues are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ ​ 2022 2021 Customer A 35 % * % Customer B * % 19 % Customer C ​ 15 % * % Customer D ​ * % 17 % Customer E 11 % * % * Less than 10% of total net revenues Net revenues by geographic area are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ 2022 2021 ​ (in thousands) United States ​ $ 1,001 ​ $ 270 Asia and Middle East ​ 811 ​ 1,112 Europe and other ​ 179 ​ 186 Revenue, net ​ $ 1,991 ​ $ 1,568 ​ Revenues by geographic area are based on the country of shipment destination. The geographic location of distributors and third-party manufacturing service providers may be different from the geographic location of the purchasers and/or ultimate end users. We provide credit only to creditworthy third parties who are subject to our credit verification procedures. Accounts receivable balances are monitored on an ongoing basis, and accounts deemed to have credit risk are fully reserved. At 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, December 31, ​ 2022 2021 ​ (in thousands) United States ​ $ 461 ​ $ 536 Asia ​ 114 ​ 176 Total long-lived assets ​ $ 575 ​ $ 712 ​ ​ Note 6 – Related Party Transactions Qualstar Corporation (OTCMKTS:QBAK) Qualstar Corporation (OTCMKTS:QBAK) (“Qualstar”) is a related party. Steven N. Bronson, our Chairman of the Board, President and Chief Executive Officer, is also the President, Chief Executive Officer and a director of Qualstar. Ryan J. Hoffman, our Chief Financial Officer, is also the Chief Financial Officer of Qualstar. Mr. Bronson, together with BKF Capital Group, Inc. (OTCMKTS:BKFG) which he controls, has a controlling interest in both Interlink and Qualstar. We have a facilities agreement with 15 Table of Contents INTERLINK ELECTRONICS, INC. Notes to Condensed Consolidated Financial Statements - continued (unaudited) 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 various consulting agreements with Qualstar for certain of our respective employees and/or independent contractors that provide certain operational, sales, marketing, general and administrative services to the other entity. Interlink and Qualstar also agree to reimburse, or be reimbursed by, one another for expenses paid by one company on behalf of the other. Transactions with Qualstar and its subsidiaries are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ 2022 ​ 2021 ​ Due from Qualstar Due to Qualstar Due from Qualstar Due to Qualstar ​ (in thousands) Balance at January 1, ​ $ 85 ​ $ 8 ​ $ 52 ​ $ 34 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Billed (or accrued) to Qualstar by Interlink ​ 185 ​ — ​ 208 ​ — Paid by Qualstar to Interlink ​ ( 251 ) ​ — ​ ( 145 ) ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Billed (or accrued) to Interlink by Qualstar ​ — ​ 22 ​ — ​ 24 Paid by Interlink to Qualstar ​ — ​ ( 22 ) ​ — ​ ( 57 ) Balance at March 31, ​ $ 19 ​ $ 8 ​ $ 115 ​ $ 1 ​ BKF Capital Group (OTCMKTS:BKFG) BKF Capital Group, Inc. (OTCMKTS:BKFG) (“BKF Capital”) is a related party. Steven N. Bronson, our Chairman of the Board, President and Chief Executive Officer, is also the Chief Executive Officer and Chairman of BKF Capital. Ryan J. Hoffman, our Chief Financial Officer, is also the Chief Financial Officer of BKF Capital. Mr. Bronson, together with BKF Capital, has a controlling interest in Interlink. We have a facilities agreement with BKF Capital to allow BKF Capital to use a portion of our Irvine, California office facility, for which we have agreed to split substantially all rent and lease-related costs on an apportioned basis according to the approximate relative usage levels by each entity. In addition, we have consulting agreements with BKF Capital for certain of our respective employees and/or independent contractors that provide certain operational and general and administrative services to the other entity. Interlink and BKF Capital also agree to reimburse, or be reimbursed by, one another for expenses paid by one company on behalf of the other. Transactions with BKF Capital and its subsidiaries are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ ​ 2022 ​ 2021 ​ Due from BKF Capital ​ Due to BKF Capital ​ Due from BKF Capital ​ Due to BKF Capital ​ ​ (in thousands) Balance at January 1, ​ $ 12 ​ $ — ​ $ — ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Billed (or accrued) to BKF Capital by Interlink ​ 39 ​ — ​ 2 ​ — Paid by BKF Capital to Interlink ​ ( 48 ) ​ — ​ ( 2 ) ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Billed (or accrued) to Interlink by BKF Capital ​ — ​ 30 ​ — ​ — Paid by Interlink to BKF Capital ​ — ​ ( 30 ) ​ — ​ — Balance at March 31, ​ $ 3 ​ $ — ​ $ — ​ $ — ​ ​ ​ 16 Table of Contents INTERLINK ELECTRONICS, INC. Notes to Condensed Consolidated Financial Statements - continued (unaudited) Note 7 – Income Taxes 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 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. 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. operations. ​ Note 8 – Commitments and Contingencies Lease Agreements We lease facilities under non-cancellable operating leases. The leases expire at various dates through fiscal 2023 and frequently include renewal provisions for varying periods of time, provisions which require us to pay taxes, insurance and maintenance costs, and provisions for minimum rent increases. Minimum leases payments, including scheduled rent increases are recognized as rent expenses on a straight-line basis over the term of the lease. The rate implicit in each lease is not readily determinable, and we therefore use our incremental borrowing rate to determine the present value of the lease payments. 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 March 31, 2022, we have not recognized any impairment losses for our ROU assets. 17 Table of Contents INTERLINK ELECTRONICS, INC. Notes to Condensed Consolidated Financial Statements - continued (unaudited) We monitor for events or changes in circumstances that require a reassessment of our leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in profit or loss. In June 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. 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. We lease a 3,000 square-foot distribution facility in Hong Kong for approximately $ 2 thousand per month. This lease term ends April 2023. We lease a 500 square-foot sales office in Tokyo, Japan for approximately $ 1 thousand per month. This lease term ends November 2022. 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: ​ ​ ​ ​ ​ Years ending December 31, (in thousands) 2022 (remainder of year) ​ $ 95 2023 ​ 38 Total undiscounted future non-cancelable minimum lease payments ​ 133 Less: imputed interest ​ ( 5 ) Present value of lease liabilities ​ $ 128 ​ 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. 18 Table of Contents INTERLINK ELECTRONICS, INC. Notes to Condensed Consolidated Financial Statements - continued (unaudited) Litigation 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. Related legal defense costs are expensed as incurred. Warranties We establish reserves for future product warranty costs that are expected to be incurred pursuant to specific warranty provisions with our customers. We generally warrant our products against defects for one year from date of shipment, with certain exceptions in which the warranty period can extend to more than one year based on contractual agreements. Our warranty reserves are established at the time of sale and updated throughout the warranty period based upon numerous factors including historical warranty return rates and expenses over various warranty periods. Historically, our warranty returns have not been material. Intellectual Property Indemnities We indemnify certain customers and our contract manufacturers against liability arising from third-party claims of intellectual property rights infringement related to our products. These indemnities appear in development and supply agreements with our customers as well as manufacturing service agreements with our contract manufacturers, are not limited in amount or duration and generally survive the expiration of the contract. Given that the amount of any potential liabilities related to such indemnities cannot be determined until an infringement claim has been made, we are unable to determine the maximum amount of losses that we could incur related to such indemnifications. Director and Officer Indemnities and Contractual Guarantees We have entered into indemnification agreements with our directors and executive officers, which require us to indemnify such individuals to the fullest extent permitted by Nevada law. Our indemnification obligations under such agreements are not limited in amount or duration. Certain costs incurred in connection with such indemnifications may be recovered under certain circumstances under various insurance policies. Given that the amount of any potential liabilities related to such indemnities cannot be determined until a lawsuit has been filed, we are unable to determine the maximum amount of losses that we could incur relating to such indemnities. We have also entered into an employment agreement with Steven N. Bronson, our Chairman of the Board, President and Chief Executive Officer. This agreement contains certain severance and change in control obligations. Under the agreement, if Mr. Bronson’s employment is terminated due to his death or disability (as such terms are defined in the agreement), Mr. Bronson or his beneficiaries will be entitled to receive: (i) his base compensation to the end of the monthly pay period immediately following the date of termination; (ii) accrued bonus payments; and (iii) all unvested equity and/or options issued by the Company shall immediately fully vest. If Mr. Bronson’s employment is terminated by him for good reason (as such term is defined in the agreement), or by us without cause, then Mr. Bronson will be entitled to receive: (i) his base compensation to the date of termination; (ii) a severance payment equal to twelve months of his base compensation; (iii) any earned bonus compensation; (iv) employee benefits for twelve months following the date of termination; (v) any vested company match 401k or other retirement contribution; and (vi) all unvested equity and/or options issued by the Company shall immediately fully vest. In the event of a change in control of the Company (as such term is defined in the agreement), Mr. Bronson is entitled to receive: (i) a change in control payment in an amount equal to twelve months of his base compensation, payable as of the date the change in control occurs; and (ii) all unvested equity and/or options issued by the Company shall immediately fully vest. 19 Table of Contents INTERLINK ELECTRONICS, INC. Notes to Condensed Consolidated Financial Statements - continued (unaudited) Guarantees and Indemnities In the normal course of business, we are occasionally required to undertake indemnification for which we may be required to make future payments under specific circumstances. We review our exposure under such obligations no less than annually, or more frequently as required. The amount of any potential liabilities related to such obligations cannot be accurately determined until a formal claim is filed. Historically, any such amounts that become payable have not had a material negative effect our business, financial condition or results of operations. We maintain general and product liability insurance which may provide a source of recovery to us in the event of an indemnification claim. ​ ​ 20 Table of Contents