What changed in this filing

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Item 1. Financial Statements

2022-11-10 compared with 2022-08-11 · 108 added, 98 removed, 459 unchanged (31% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

(in thousands, except par value)

24 unchanged sentences

Preferred stock, $ 0.01 par value:

1,000 shares authorized, 200 shares of Series A Convertible Preferred Stock issued and outstanding at both June 30, 2022 and December 31, 2021 ($ 5.0 million liquidation preference)

1,000 shares authorized, 200 shares of Series A Convertible Preferred Stock issued and outstanding at both September 30, 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 both June 30, 2022 and December 31, 2021

30,000 shares authorized, 6,604 shares issued and outstanding at September 30, 2022, 6,602 shares issued and outstanding at December 31, 2021

Additional paid-in-capital

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

(in thousands, except per share data)

7 unchanged sentences

Other income (expense), net

Income before income taxes

Income (loss) before income taxes

Income tax expense

Net income applicable to common stockholders

Net income (loss) applicable to common stockholders

Earnings per common share – basic and diluted

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

(in thousands)

8 unchanged sentences

Stockholders’

Three months ended June 30, 2022

Three months ended September 30, 2022

Income (Loss)

(in thousands)

Balance at March 31, 2022

Balance at June 30, 2022

Preferred stock dividends

Foreign currency translation adjustment

Balance at June 30, 2022

Stock-based compensation expense

Balance at September 30, 2022

Preferred Stock

1 unchanged sentence

Stockholders’

Six months ended June 30, 2022

Nine months ended September 30, 2022

Income (Loss)

3 unchanged sentences

Foreign currency translation adjustment

Balance at June 30, 2022

Stock-based compensation expense

Balance at September 30, 2022

Preferred Stock

1 unchanged sentence

Stockholders’

Three months ended June 30, 2021

Three months ended September 30, 2021

Income (Loss)

(in thousands)

Balance at March 31, 2021

Balance at June 30, 2021

Foreign currency translation adjustment

Stock-based compensation expense

Balance at June 30, 2021

Balance at September 30, 2021

Preferred Stock

1 unchanged sentence

Stockholders’

Six months ended June 30, 2021

Nine months ended September 30, 2021

Income (Loss)

3 unchanged sentences

Stock-based compensation expense

Balance at June 30, 2021

Balance at September 30, 2021

See accompanying notes to these unaudited condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended June 30,

Nine months ended September 30,

(in thousands)

Cash flows from operating activities:

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

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

Depreciation and amortization

Unrealized (gains) losses on marketable securities

Stock-based compensation

Unrealized and realized (gains) on marketable securities

Stock-based compensation expense

(Gain) on forgiveness of PPP loan

8 unchanged sentences

Accrued income taxes

Net cash provided by operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

Purchases of marketable securities

Proceeds from sales of marketable securities

Purchases of property, plant and equipment

4 unchanged sentences

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

Net (decrease) increase in cash and cash equivalents

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

35 unchanged sentences

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.

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 with the Securities and Exchange Commission on March 29, 2022.

INTERLINK ELECTRONICS, INC.

24 unchanged sentences

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 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 are updated throughout the warranty period based upon numerous factors including historical warranty return rates and claim costs over various warranty periods.

Historically, our warranty returns have not been material.

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

Shipping and Handling Fees and Costs

5 unchanged sentences

R&D expenses also include depreciation and amortization, and overhead, including facilities expenses.

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

Marketing and Advertising Costs

12 unchanged sentences

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

As of June 30, 2022, there were no stock-based compensation awards outstanding.

As of September 30, 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.

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

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

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.

7 unchanged sentences

federal income tax return as they are earned.

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

Foreign Currency Translation

14 unchanged sentences

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.

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

We account for our leases under ASC 842.

14 unchanged sentences

changes in environmental directives impacting our manufacturing process or product lines;

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

the development of new proprietary technology and the enforcement of intellectual property rights by or against us;

1 unchanged sentence

and our ability to raise additional capital.

Public Health Threats

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

Public health threats could adversely affect our ongoing or planned business operations, including shutdowns, supply chain disruptions, logistical restrictions, impacts on consumer spending patterns, and other such affects.

In particular, the outbreak 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.

We cannot predict the scope and severity of potential business shutdowns or economic 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

5 unchanged sentences

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

1 unchanged sentence

Subsequent Events

We have evaluated subsequent events through August 11, 2022, being the date these condensed consolidated financial statements were issued.

We have evaluated subsequent events through November 10, 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)

4 unchanged sentences

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

September 30,

Property, plant and equipment, net

4 unchanged sentences

Total property, plant and equipment, net

Depreciation expense totaled $ 50 thousand and $ 57 thousand for the three months ended June 30, 2022 and 2021, respectively.

Depreciation expense totaled $ 102 thousand and $ 111 thousand for the six months ended June 30, 2022 and 2021, respectively.

Depreciation expense totaled $ 48 thousand and $ 51 thousand for the three months ended September 30, 2022 and 2021, respectively.

Depreciation expense totaled $ 150 thousand and $ 163 thousand for the nine months ended September 30, 2022 and 2021, respectively.

Intangible assets, net consisted of the following:

September 30,

Intangible assets, net

3 unchanged sentences

Total intangible assets, net

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

Amortization expense totaled $ 13 thousand and $ 17 thousand for the three months ended June 30, 2022 and 2021, respectively.

Amortization expense totaled $ 28 thousand and $ 34 thousand for the six months ended June 30, 2022 and 2021, respectively.

Amortization expense totaled $ 14 thousand and $ 16 thousand for the three months ended September 30, 2022 and 2021, respectively.

Amortization expense totaled $ 42 thousand and $ 50 thousand for the nine months ended September 30, 2022 and 2021, respectively.

Future amortization expense on existing intangible assets is as follows:

2 unchanged sentences

2022 (remainder of year)

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

Accrued liabilities consisted of the following:

September 30,

Accrued liabilities

7 unchanged sentences

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”.

Realized and 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 and six months ended June 30, 2022, we purchased $ 3.8 million and $ 6.0 million of marketable equity securities, respectively.

As of June 30, 2022, gross unrealized gains were $ 381 thousand, and gross unrealized losses were $ 0 .

As of June 30, 2022, our position in marketable equity securities had a historical cost of $ 6.0 million and a fair value of $ 6.4 million, as determined using Level 1 inputs on the fair value hierarchy.

During the three months ended September 30, 2022, we purchased $ 0 and sold $ 15 thousand of marketable equity securities.

During the nine months ended September 30, 2022, we purchased $ 6.027 million and sold $ 15 thousand of marketable equity securities.

During the three months ended September 30, 2022, gross realized gains were $ 2 thousand and gross realized losses were $ 0 .

During the nine months ended September 30, 2022, gross realized gains were $ 2 thousand and gross realized losses were $ 0 .

As of September 30, 2022, gross unrealized gains were $ 560 thousand, and gross unrealized losses were $ 0 .

As of September 30, 2022, our position in marketable equity securities had a historical cost of $ 6.014 million and a fair value of $ 6.574 million, as determined using Level 1 inputs on the fair value hierarchy.

INTERLINK ELECTRONICS, INC.

5 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands, except per share data)

Net income (loss)

Preferred stock dividends

Net income applicable to common stockholders

Net income (loss) applicable to common stockholders

Weighted average common shares outstanding – basic

1 unchanged sentence

Weighted average common shares outstanding – diluted

Earnings per common share, basic

Earnings per common share, 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

3 unchanged sentences

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

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

* Less than 10% of total net revenues

2 unchanged sentences

Net revenues by geographic area are as follows:

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

(in thousands)

5 unchanged sentences

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.

We provide credit only to creditworthy customers 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 June 30, 2022, three customers accounted for 28 %, 21 %, and 11 % of total accounts receivable.

At September 30, 2022, three customers accounted for 35 %, 16 %, and 14 % 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 June 30, 2022 and December 31, 2021.

Our allowance for doubtful accounts was $ 0 at both September 30, 2022 and December 31, 2021.

Our long-lived assets were geographically located as follows:

September 30,

(in thousands)

15 unchanged sentences

Transactions with Qualstar and its subsidiaries are as follows:

Three months ended June 30,

Three months ended September 30,

(in thousands)

Balance at April 1,

Balance at July 1,

Billed (or accrued) to Qualstar by Interlink

2 unchanged sentences

Paid by Interlink to Qualstar

Balance at June 30,

Six months ended June 30,

Balance at September 30,

Nine months ended September 30,

(in thousands)

4 unchanged sentences

Paid by Interlink to Qualstar

Balance at June 30,

Balance at September 30,

INTERLINK ELECTRONICS, INC.

8 unchanged sentences

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.

We entered into a M&A advisory consulting services agreement with Bronson Financial LLC (“BF”), a wholly owned subsidiary of BKF Capital, in which BF provides M&A advisory consulting services to us.

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 June 30,

Three months ended September 30,

(in thousands)

Balance at April 1,

Balance at July 1,

Billed (or accrued) to BKF Capital by Interlink

2 unchanged sentences

Paid by Interlink to BKF Capital

Balance at June 30,

Six months ended June 30,

Balance at September 30,

Nine months ended September 30,

(in thousands)

4 unchanged sentences

Paid by Interlink to BKF Capital

Balance at June 30,

Balance at September 30,

Note 7 – Income Taxes

Income tax expense as a percentage of income before income taxes was 41.4 % for the three months ended June 30, 2022 versus 39.4 % for the comparable period in the prior year.

Income tax expense as a percentage of income before income taxes was 30.2 % for the six months ended June 30, 2022 versus 63.0 % for the comparable period in the prior year.

Our income tax expense is impacted by the mix of domestic and foreign pre-tax earnings and losses, as well as the valuation allowance on certain of our net operating loss carryovers (“NOLs”).

The effective income tax rates are higher than the blended statutory tax rates due to having incurred income tax expense on taxable income in certain jurisdictions, while not being able to benefit from losses in other jurisdictions for which our NOLs are subject to valuation allowance.

Our income tax expense is impacted by the mix of our domestic and foreign pre-tax earnings and losses.

Our effective income tax rates are higher than the blended statutory tax rates of the jurisdictions in which we operate due to having incurred income tax expense on taxable income in certain jurisdictions, while not being able to benefit from losses in other jurisdictions for which our net operating loss carryovers (“NOLs”) are subject to valuation allowance.

Income tax expense as a percentage of income/loss before income taxes was 64.7 % for the three months ended September 30, 2022 versus 11.9 % for the comparable quarter in the prior year.

Income tax expense as a percentage of income before income taxes was 31.8 % for the nine months ended September 30, 2022 versus 20.8 % for the comparable period in the prior year.

INTERLINK ELECTRONICS, INC.

4 unchanged sentences

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

As of June 30, 2022, all of the remaining federal and state NOLs are subject to annual limitations due to the 2010 ownership change.

As of September 30, 2022, all of the remaining federal and state NOLs are subject to annual limitations due to the 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.

4 unchanged sentences

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 $ 4.4 million of cash balances on hand at June 30, 2022, $ 0.9 million was held by our foreign subsidiaries.

Of the $ 3.9 million of cash balances on hand at September 30, 2022, $ 0.9 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.

7 unchanged sentences

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 right-of-use (“ROU”) assets and lease liabilities capitalized during the six months ended June 30, 2022 was 7.0 %, and during the six months ended June 30, 2021 was 5.5 %.

The weighted average incremental borrowing rate used to determine the initial value of right-of-use (“ROU”) assets and lease liabilities capitalized during the nine months ended September 30, 2022 was 7.0 %, and during the nine months ended September 30, 2021 was 5.5 %.

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 June 30, 2022, we have not recognized any impairment losses for our ROU assets.

As of September 30, 2022, we have not recognized any impairment losses for our ROU assets.

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

16 unchanged sentences

This lease term ends March 2023.

As of June 30, 2022, we had current and long-term lease liabilities of $ 172 thousand and $ 87 thousand, respectively, and ROU assets of $ 252 thousand.

As of September 30, 2022, we had current and long-term lease liabilities of $ 144 thousand and $ 60 thousand, respectively, and ROU assets of $ 197 thousand.

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

Future imputed interest as of June 30, 2022 totaled $ 15 thousand.

The weighted average remaining lease term of our leases as of June 30, 2022 is 1.3 years.

Future imputed interest as of September 30, 2022 totaled $ 10 thousand.

The weighted average remaining lease term of our leases as of September 30, 2022 is 1.1 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:

5 unchanged sentences

Present value of lease liabilities

During the three months ended June 30, 2022, we incurred approximately $ 61 thousand in operating lease costs, of which $ 30 thousand is included in cost of revenue and $ 31 thousand is included in operating expenses in our condensed consolidated statements of operations.

During the three months ended June 30, 2021, we incurred approximately $ 84 thousand in operating lease costs, of which $ 30 thousand is included in cost of revenue and $ 54 thousand is included in operating expenses in our condensed consolidated statements of operations.

During the six months ended June 30, 2022, we incurred approximately $ 122 thousand in operating lease costs, of which $ 62 thousand is included in cost of revenue and $ 60 thousand is included in operating expenses in our condensed consolidated statements of operations.

During the six months ended June 30, 2021, we incurred approximately $ 166 thousand in operating lease costs, of which $ 59 thousand is included in cost of revenue and $ 107 thousand is included in operating expenses in our condensed consolidated statements of operations.

During the three months ended September 30, 2022, we incurred approximately $ 67 thousand in operating lease costs, of which $ 33 thousand is included in cost of revenue and $ 34 thousand is included in operating expenses in our condensed consolidated statements of operations.

During the three months ended September 30, 2021, we incurred approximately $ 68 thousand in operating lease costs, of which $ 29 thousand is included in cost of revenue and $ 39 thousand is included in operating expenses in our condensed consolidated statements of operations.

During the nine months ended September 30, 2022, we incurred approximately $ 189 thousand in operating lease costs, of which $ 94 thousand is included in cost of revenue and $ 95 thousand is included in operating expenses in our condensed consolidated statements of operations.

During the nine months ended September 30, 2021, we incurred approximately $ 234 thousand in operating lease costs, of which $ 88 thousand is included in cost of revenue and $ 146 thousand is included in operating expenses in our condensed consolidated statements of operations.

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

We are not party to any legal proceedings as of June 30, 2022.

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

9 unchanged sentences

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.

Pursuant to our bylaws, we will indemnify our directors and executive officers to the fullest extent permitted by Nevada law, without limitation as to amount or duration, in the event of any actual or threatened lawsuit or proceeding.

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.

Given that the amount of any potential liabilities related to such indemnities cannot be determined until a lawsuit or proceeding has been threatened or 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.

6 unchanged sentences

(ii) accrued bonus payments;

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

and (iii) immediate and full vesting of all unvested equity and/or options issued by the Company.

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.

5 unchanged sentences

(v) any vested company match 401(k) or other retirement contribution;

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

and (vi) immediate and full vesting of all unvested equity and/or options issued by the Company.

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

In the event of a change in control of the Company (as such term is defined in the agreement), Mr.

1 unchanged sentence

(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.

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

and (ii) immediate and full vesting of all unvested equity and/or options issued by the Company.

Guarantees and Indemnities

5 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 1. Financial Statements