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Item 8. Financial Statements and Supplementary Data

2023-03-29 compared with 2022-03-29 · 136 added, 102 removed, 590 unchanged (29% of the section changed)

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (LMHS, P.C., Norwell, MA, Firm ID 3373 )

Report of Independent Registered Public Accounting Firm (Macias Gini & O’Connell LLP, Irvine, CA, Firm ID 324 )

Report of Independent Registered Public Accounting Firm (RBSM LLP, Larkspur, CA, Firm ID 587 )

Consolidated Balance Sheets as of December 31, 2022 and 2021

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These financial statements are the responsibility of the entity’s management.

Our responsibility is to express an opinion on the entity’s financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

Our responsibility is to express an opinion on these financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provide a reasonable basis for our opinion.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgements.

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

/s/ Macias Gini & O’Connell LLP

/s/ LMHS, P.C.

We have served as the Company’s auditor since 2022.

Norwell, Massachusetts

March 29, 2023

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Board of Directors and Shareholders

Interlink Electronics, Inc.

& Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Interlink Electronics, Inc.

& Subsidiaries (the Company) as of December 31, 2020, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

(the Company) as of December 31, 2021, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

These financial statements are the responsibility of the entity’s management.

Our responsibility is to express an opinion on the entity’s financial statements based on our audit.

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The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting.

Accordingly, we express no such opinion.

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We believe that our audit provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Realizability of deferred tax assets

As described in Notes 1 and 6 to the consolidated financial statements, the Company recognizes deferred income taxes for the effects of temporary differences between the tax basis of an asset or liability and their reported amounts in the accompanying consolidated balance sheet.

These temporary differences result in taxable or deductible amounts in future years.

Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that is more likely than not to be realized.

As of December 31, 2020 the Company concluded it is more likely than not the Company will generate sufficient taxable income primarily within the applicable net operating loss periods to fully realize $527 thousand of its net deferred tax assets.

We identified the realizability of deferred tax assets as a critical audit matter due to the Company’s tax structure and the significant judgments and

estimates made by management to determine that sufficient taxable income will be generated to realize a portion of deferred tax assets prior to expiration.

This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate management’s estimates of taxable income in relation to the duration of statutory carryforward periods for the use of these deferred tax assets.

The primary procedures we performed to address this critical audit matter included:

● Recalculating the mathematical accuracy of management’s accounting for the previously described taxes, which included supporting calculations, schedules, and reconciliations.

● Reading and evaluating management’s documentation of the accounting for income taxes, including relevant significant accounting policies, and information obtained by management from third party tax specialists which details management’s basis for the accounting and impact to the consolidated financial statements.

● Utilized with internal tax specialists in evaluating management’s calculation of its provision for income taxes and that the significant judgments used were applied consistently with the tax code.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgements.

We determined that there are no critical audit matters.

/s/ Macias Gini & O’Connell LLP

We served as the Company’s auditor since 2021, which ended in 2022.

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Lease liabilities, current

PPP loan payable

Accrued income taxes

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Preferred stock, $ 0.01 par value:

1,000 shares authorized, 200 and 0 shares of Series A Convertible Preferred Stock issued and outstanding at December 31, 2021 ($ 5.0 million liquidation preference) and 2020, respectively

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

Common stock, $ 0.001 par value:

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Additional paid-in-capital

Accumulated other comprehensive income

Accumulated other comprehensive income (loss)

Accumulated deficit

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Total operating expenses

Income (loss) from operations

Loss from operations

Other income (expense):

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Income (loss) before income taxes

Income tax expense (benefit)

Income tax expense

Net income (loss)

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Balance at December 31, 2020

Issuance of preferred stock

Preferred stock dividends

Foreign currency translation adjustment

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Balance at December 31, 2021

Issuance of preferred stock

Issuance of common stock

Preferred stock dividends

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Net income (loss)

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

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

Depreciation and amortization

Stock-based compensation expense

Unrealized and realized (gains) on marketable securities

Loss on disposal of property, plant and equipment

Gain on forgiveness of PPP loan

Operating leases, other

Adjustment to reconcile operating lease expense to cash paid

Deferred income taxes

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Accrued income taxes

Deferred revenue

Net cash provided by operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

Property, plant and equipment

Intangible assets

Net cash used in investing activities

Purchases of marketable securities

Proceeds from sales of marketable securities

Purchases of property, plant and equipment

Acquisition of SPEC and KWJ, net of cash acquired

Net cash provided by (used in) investing activities

Cash flows from financing activities:

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Payment of dividends on preferred stock

Proceeds from PPP loan

Net cash provided by financing activities

Proceeds from issuance of common stock

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash

Net increase in cash, cash equivalents, and restricted cash

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

Cash, cash equivalents and restricted cash, beginning of period

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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.

(“we,” “us,” “our,” “Interlink” or the “Company”) operates in two principal divisions:

force-sensing technology and gas-sensing technology.

We design, develop, manufacture and sell a range of force-sensing and gas-sensing technologies that incorporate our proprietary materials technology, firmware and software into a portfolio of standard sensor based products and custom sensor system solutions.

Our force-sensing products and solutions 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.

Interlink serves our world-wide customer base from our corporate headquarters in Irvine, California, our Global Product Development and Materials Science Center and our 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.

Our electrochemical gas-sensing technology products and solutions are deployed in industry, community, health and home settings, with uses in fields such as carbon monoxide and ozone detection and air quality monitoring.

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 advanced and proprietary production and product development facility in Newark, California, 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.

Our principal executive office is located at 1 Jenner, Suite 200, Irvine, California 92618 and our telephone number is (805) 484-8855.

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

Foreign currency transaction and remeasurement gains and losses are included in results of operations within other income (expense), net, for which losses of $ 40 thousand and $ 104 thousand were recorded in the years ended December 31, 2021 and 2020, respectively.

Foreign currency transaction and remeasurement gains and losses are included in results of operations within other income (expense), net, for which gains (losses) of $ 121 thousand and $( 40 ) thousand were recorded in the years ended December 31, 2022 and 2021, respectively.

Segment Reporting

We operate in one reportable segment:

the manufacture and sale of force sensing technology solutions.

the manufacture and sale of force- and gas-sensing technology solutions.

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 credit losses, inventory valuation reserves, warranty reserves, stock-based compensation, purchased intangible asset valuations and useful lives, asset retirement obligations, and deferred income tax asset valuation allowances.

These estimates and assumptions are based on current facts, historical experience and various other factors that we believe to be reasonable under the

circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources.

Management regularly evaluates estimates and assumptions related to revenue recognition,

allowances for credit losses, inventory valuation reserves, warranty reserves, stock-based compensation, purchased intangible asset valuations and useful lives, asset retirement obligations, and deferred income tax asset valuation allowances.

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

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

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Shipping and Handling Fees and Costs

Amounts billed to customers for shipping and handling fees are presented in revenue.

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

Amounts billed to customers for shipping and handling fees are classified in revenue.

Costs incurred for shipping and handling are classified in cost of revenue.

Engineering, Research and Development Costs

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Other Income (Expense), Net

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

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.

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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.

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.

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loss of customers;

impacts of doing business internationally, including foreign currency fluctuations;

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

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

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and our ability to raise additional capital.

Public health threats could have an adverse effect on our operations and financial results.

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 has resulted in quarantines, restrictions on travel and other business and economic disruptions.

We cannot presently predict the scope and severity of any potential business shutdowns or disruptions, 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.

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 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.

Cash, Cash Equivalents and Restricted Cash

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In the U.S., we had approximately $ 8.4 million and $ 8.2 million in excess of the Federal Deposit Insurance Corporation limit of $ 250 thousand per depositor, per insured bank at December 31, 2022 and 2021, respectively.

Approximately $ 1.9 million and $ 1.2 million held in banks in China at December 31,

2021 and 2020, respectively, was not insured.

Approximately $ 0.7 million and $ 1.9 million held in banks in China at December 31, 2022 and 2021, respectively, was not insured.

Approximately $ 168 thousand and $ 296 thousand held in banks in Singapore at December 31, 2022 and 2021, respectively, was not insured.

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

Currently, we do not have goodwill or indefinite-lived intangible assets.

Goodwill arises from business combinations and is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date.

Goodwill acquired in a purchase business combination is determined to have an

indefinite useful life and is not amortized, but tested for impairment at least annually or more frequently in events and circumstances exist that indicate that a goodwill impairment test should be performed.

We have selected December 31 as the date to perform the annual impairment test.

As of December 31, 2022, we have not recognized any impairment losses for our goodwill.

Fair Value Measurements

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The Company has evaluated subsequent events through March 29, 2023, being the date these consolidated financial statements were issued.

Subsequent to December 31, 2021, the Company used cash to purchase approximately $ 1.9 million of marketable securities.

On March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver.

According to the FDIC, all insured depositors of SVB will have full access to their insured deposits.

The Company has total cash and cash equivalents of approximately $ 10 million March 10, 2023.

Approximately $ 800 thousand was held at SVB at that date, which represents approximately 8 % of the Company’s cash and cash equivalents balance at that date.

The Company’s deposits with SVB are largely uninsured.

Notwithstanding the closure of SVB, the Company continues to believe that its existing cash and cash equivalents balance and cash flow from operations will be sufficient to meet its working capital, capital expenditures, and material cash requirements from known contractual obligations for the next twelve months and beyond.

On March 17, 2023, we acquired all of the stock of Calman Technology Limited, an independent company based outside Glasgow, Scotland, with over 25 years of experience in the design and manufacture of membrane keypads, graphic overlays and printed electronics.

The purchase price was approximately $ 5.0 million.

Note 2 – Details of Certain Financial Statement Components

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(in thousands)

Accrued warranty

Accrued wages and benefits

Accrued vacation

Accrued other

Accrued other liabilities

Total accrued liabilities

Note 3 – Marketable Securities

Our marketable securities consist of equity securities classified as available-for-sale (“AFS”) and recorded at fair value, as determined using Level 1 inputs on the fair value hierarchy.

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.

the years ended December 31, 2022 and 2021, we purchased $ 6.027 million and $ 0 of marketable securities, respectively and we sold $ 8.476 million and $ 0 of marketable securities, respectively, for realized gains of $ 2.249 million and $ 0 , respectively.

Note 4 – Acquisition of Assets of SPEC Sensors and KWJ Engineering

On December 16, 2022, we acquired all of the assets of SPEC Sensors, LLC, a Delaware limited liability company (“SPEC”), and KWJ Engineering, Inc., a California corporation (“KWJ”) (collectively, “SPEC/KWJ”), two industry-leading designers and manufacturers of gas, air and environmental quality sensors, pursuant to an Asset Purchase Agreement, dated as of December 16, 2022 (the “Purchase Agreement”), by and among the Company, SPEC/KWJ, and the equity holders of SPEC and KWJ (the “Transaction”).

The Purchase Agreement contains customary representations, warranties and covenants, including non-competition covenants.

Under the terms of the Purchase Agreement, the purchase price for both companies’ assets was $ 2,000,000 , plus (or minus) the amount by which the combined companies’ net working capital at closing is more (or less) than $ 1,350,000 , which was preliminarily calculated as $ 2,213,527 , of which $ 1,519,000 was paid at closing, $ 375,000 was paid into escrow subject to a 90 -day purchase price adjustment process (of which we expect $ 55,473 will be reimbursed to us), and $ 375,000 was paid into escrow to be available to satisfy claims, if any, made by the Company for breaches of representations and warranties by SPEC/KWJ or the equity holders.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands).

We are in the process of identifying and measuring the fair value of certain property and equipment assets, intangible assets, and working capital balances, thus the provisional measurements of these assests and goodwill are subject to change.

Accounts receivable

Prepaid expenses and other current assets

Accounts payable

Accrued liabilities

Net identifiable assets acquired

Net assets acquired

The goodwill recognized is attributable primarily to expected synergies and the assembled workforces of SPEC/KWJ.

The goodwill is expected to be deductible for income tax purposes.

The fair value of accounts receivable is equal to the $ 316 thousand gross contractual amount, as we expect the entire balance to be collectible.

Revenue and (loss) of SPEC/KWJ included in our consodliated statement of operations from the acquisition date to December 31, 2022 were $ 10 thousand and $( 100 ) thousand, respectively.

The following represents the proforma consolidated statement of operations as if SPEC/KWJ had been included in our consolidated results for the entire years ended December 31, 2022 and 2021 (unaudited):

Year Ended December 31,

(in thousands)

Net income (loss)

Note 5 - Series A Convertible Preferred Stock

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

Dividends on the Series A Convertible Preferred Stock accrue daily and are payable monthly in arrears on the 15th day of the calendar month, at the rate of 8.0 % per annum of its liquidation preference, which is the equivalent to $ 2.00 per annum per share.

Dividends on the Series A Convertible Preferred Stock accrue daily and are payable monthly in arrears on the 15th day of the calendar month, at the rate of 8.0 % per annum of its

liquidation preference, which is the equivalent to $ 2.00 per annum per share.

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

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

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

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

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

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

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

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

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

The stock-based compensation expense recorded in the year ended December 31, 2021 was for shares of common stock issued to members of the Board of Directors as partial compensation for their service as a director.

The stock-based compensation expense recorded in the year ended December 31, 2020 was from a legacy restricted stock award that became fully vested in that year.

The stock-based compensation expense recorded in the years ended December 31, 2022 and 2021 was for shares of common stock issued to members of the Board of Directors as partial compensation for their service as a director.

Note 7 - Earnings Per Share

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The federal and state NOLs expire at various dates between 2022 through 2030.

Foreign NOLs are related to the jurisdictions of Singapore and Hong Kong and may be carried forward indefinitely.

Foreign NOLs are related to the jurisdiction of Hong Kong and may be carried forward indefinitely.

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

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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 that a valuation allowance on federal and state deferred tax assets was necessary at December 31, 2021, while no valuation allowance on foreign deferred tax assets was necessary at December 31, 2021.

One objective negative piece of evidence we evaluated was our cumulative domestic loss incurred over the three-year period ended December 31, 2021.

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 that a valuation allowance on federal and state deferred tax assets was necessary at both December 31, 2022 and 2021, while no valuation allowance on foreign deferred tax assets was necessary at both December 31, 2022 and 2021.

One objective negative piece of evidence we evaluated was our cumulative domestic loss incurred over the three-year periods ended December 31, 2022 and 2021.

Such objective negative evidence limits our ability to consider other subjective evidence, such as our projections for future profitability.

On the basis of this evaluation, as of December 31, 2021, a valuation allowance of $ 629 thousand was recorded against our domestic deferred tax assets.

On the basis of this evaluation, as of December 31, 2022 and 2021, a valuation allowance of $ 477 thousand and $ 629 thousand, respectively, was recorded against our domestic deferred tax assets.

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.

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Of the $ 10.1 million of cash balances on hand at December 31, 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.

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.

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Year ended December 31,

* less than 10% of total net revenues

Net revenues by geographic area are as follows:

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

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

At December 31, 2022, two customers accounted for 20 % and 13 % 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 December 31, 2022 and 2021.

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Note 11 – Paycheck Protection Program Loan

In April 2020, the Company received a loan in the aggregate principal amount of $ 186 thousand pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

The loan was evidenced by a promissory note, dated April 21, 2020, issued by us to the lender, which was to mature on April 20, 2022, and bore interest at a rate of 1.00 % per annum, payable monthly following an initial deferral period as specified under the PPP.

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

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

We have a facilities agreement with 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

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

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

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

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.

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.

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

The weighted average incremental borrowing rate used to determine the initial value of ROU assets and lease liabilities capitalized during the years ended December 31, 2021 and 2020 was 5.50 % and 6.75 %, respectively.

The weighted average incremental borrowing rate used to determine the initial value of right-of-use (“ROU”) assets and lease liabilities capitalized during the years ended December 31, 2022 and 2021 was 7.00 % and 5.50 %, respectively.

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

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

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

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

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

The lease term ends May 31, 2023.

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

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

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

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

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

In May 2022, we renewed this lease for the period June 1, 2022 through May 31, 2024 for approximately $ 8 thousand per month.

We lease a 10,635 square-foot manufacturing facility and administrative offices in Newark, California.

In February 2023, we renewed this lease for the period March 1, 2023 through February 28, 2024 for approximately $ 18 thousand per month.

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

This lease term ends May 2023.

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

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

This lease term ends April 2023.

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

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

This lease term ends November 2024.

We sublease approximately 205 square-feet of office space in Los Angeles, California for approximately $ 1 thousand per month.

This lease term ends March 2023.

As of December 31, 2022, the Company had current and long-term lease liabilities of $ 131 thousand and $ 46 thousand, respectively, and ROU assets of $ 172 thousand.

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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.

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.

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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.

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.

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.

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(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.

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(iv) employee benefits for twelve months following the date of termination;

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

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

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

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

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

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(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.

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

Guarantees and Indemnities

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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-K

Item 8. Financial Statements and Supplementary Data