What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-11 compared with 2022-11-10 · 136 added, 190 removed, 377 unchanged (46% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

(in thousands, except par value)

1 unchanged sentence

Cash and cash equivalents

Restricted cash

Marketable securities

Accounts receivable, net

19 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 September 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 March 31, 2023 and December 31, 2022 ($ 5.0 million liquidation preference)

Common stock, $ 0.001 par value:

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

30,000 shares authorized, 6,610 shares issued and outstanding at both March 31, 2023 and December 31, 2022

Additional paid-in-capital

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

(in thousands, except per share data)

9 unchanged sentences

Income tax expense

Net income (loss)

Net income (loss) applicable to common stockholders

Earnings per common share – basic and diluted

Earnings (loss) per common share – basic and diluted

Weighted average common shares outstanding – basic and diluted

See accompanying notes to these unaudited condensed consolidated financial statements.

INTERLINK ELECTRONICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

(in thousands)

Net income (loss)

Other comprehensive income (loss), net of tax:

7 unchanged sentences

Stockholders’

Three months ended September 30, 2022

Income (Loss)

(in thousands)

Balance at June 30, 2022

Preferred stock dividends

Foreign currency translation adjustment

Stock-based compensation expense

Balance at September 30, 2022

Preferred Stock

Comprehensive

Stockholders’

Nine months ended September 30, 2022

Three months ended March 31, 2023

Income (Loss)

3 unchanged sentences

Foreign currency translation adjustment

Stock-based compensation expense

Balance at September 30, 2022

Preferred Stock

Comprehensive

Stockholders’

Three months ended September 30, 2021

Income (Loss)

(in thousands)

Balance at June 30, 2021

Foreign currency translation adjustment

Stock-based compensation expense

Balance at September 30, 2021

Balance at March 31, 2023

Preferred Stock

1 unchanged sentence

Stockholders’

Nine months ended September 30, 2021

Three months ended March 31, 2022

Income (Loss)

1 unchanged sentence

Balance at December 31, 2021

Preferred stock dividends

Foreign currency translation adjustment

Stock-based compensation expense

Balance at September 30, 2021

Balance at March 31, 2022

See accompanying notes to these unaudited condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine months ended September 30,

Three months ended March 31,

(in thousands)

Cash flows from operating activities:

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

Net income (loss)

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

Depreciation and amortization

Unrealized and realized (gains) on marketable securities

Stock-based compensation expense

(Gain) on forgiveness of PPP loan

Unrealized (gains) on marketable securities

Adjustment to reconcile operating lease expense to cash paid

Loss on disposal of property and equipment

Deferred taxes

Changes in operating assets and liabilities:

4 unchanged sentences

Accrued income taxes

Net cash provided by (used in) operating activities

Net cash (used in) operating activities

Cash flows from investing activities:

Acquisition of Calman Technology Limited, net of cash acquired

Purchases of marketable securities

Proceeds from sales of marketable securities

Purchases of property, plant and equipment

3 unchanged sentences

Net cash (used in) financing activities

Effect of exchange rate changes on 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

Cash, cash equivalents and restricted cash, end of period

Reconciliation of cash, cash equivalents and restricted cash, end of period:

Effect of exchange rate changes on cash

Net decrease in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Restricted cash, end of period

Cash, cash equivalents and restricted cash, end of period

Supplemental disclosure of cash flow information:

Income taxes paid (refunded), net

Income taxes paid, net

Interest paid

Supplemental disclosure of non-cash investing and financing activities:

Lease liabilities arising from obtaining right-of-use assets

See accompanying notes to these unaudited condensed consolidated financial statements.

4 unchanged sentences

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.

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.

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

force/touch sensors, and gas sensors.

Our Force-Sensing Resistor (FSR®) and related technologies, including membrane keypads, graphic overlays and printed electronics, are used extensively in human-machine interface (“HMI”) devices, while our gas sensors and instruments are used in environmental and air quality monitoring across a broad range of applications.

We design, develop, manufacture and sell a range of technologies that incorporate our proprietary materials technology, firmware and software into a portfolio of standard products and custom 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 HMI technology platforms are deployed in a wide range of markets including consumer electronics, automotive, industrial, and medical.

Our membrane keypads, graphic overlays and other printed circuits are also deployed in HMI markets and integrated into products such as medical devices and defense systems.

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.

We serve 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 facilities in Shenzhen, China, and Irvine, Scotland;

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.

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.

Our fiscal year is the calendar year reporting cycle beginning January 1 and ending December 31.

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

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

The results of the Company’s operations for any interim period 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, 2023.

Use of Estimates

29 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 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 income and expenses.

As of March 31, 2023, there were no stock-based compensation awards outstanding.

Other Income (Expense)

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

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

7 unchanged sentences

federal income tax return as they are earned.

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

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.

The functional currency of our United Kingdom subsidiaries is the British pound sterling.

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

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

4 unchanged sentences

We operate in one reportable segment:

the manufacture and sale of force sensing technology solutions.

the manufacture and sale of force/touch sensors and gas sensors.

Earnings Per Share

9 unchanged sentences

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

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

Risk and Uncertainties

3 unchanged sentences

loss of customers;

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

impacts of doing business internationally, including foreign currency fluctuations, changes in the trade policies of countries in which we or our customers do business, and political instability;

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

1 unchanged sentence

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 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.

Our operations may be adversely affected by health concerns regarding the outbreak of viruses, widespread illness, infectious diseases, contagions and the occurrence of unforeseen epidemics (including the outbreak of the COVID-19 coronavirus and its potential impact on our financial results) in countries in which our products are manufactured and sold.

We experienced delays in the receipt of certain goods and the supply of our products from international and domestic shipping origins as a result of the COVID-19 pandemic and more general global supply chain constraints in fiscal 2021, and to a lesser extent in fiscal 2022 and so far in fiscal 2023.

Depending on the continued extent and duration of these and similar constraints and disruptions, our supply chain, results of operations (including sales) or future business may be materially and adversely impacted.

These and other issues affecting our international suppliers or internationally manufactured merchandise could have a material adverse effect on our business, results of operations and financial condition .

Fair Value Measurements

8 unchanged sentences

Subsequent Events

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

We have evaluated subsequent events through May 11, 2023, being the date these condensed consolidated financial statements were issued.

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 $ 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.

Depreciation expense totaled $ 37,000 and $ 52,000 for the three months ended March 31, 2023 and 2022, respectively.

Intangible assets, net, consisted of the following:

September 30,

Intangible assets, net

3 unchanged sentences

Total intangible assets, net

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.

Amortization expense totaled $ 12,000 and $ 15,000 for the three months ended March 31, 2023 and 2022, respectively.

Future amortization expense on existing intangible assets is as follows:

2 unchanged sentences

2023 (remainder of year)

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

Accrued liabilities consisted of the following:

September 30,

Accrued liabilities

(in thousands)

Accrued compensation and benefits

Accrued wages and benefits

Accrued vacation

1 unchanged sentence

Total accrued liabilities

Note 3 – Marketable Securities

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

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

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 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.

Notes to Condensed Consolidated Financial Statements - continued

Note 3 – Acquisitions

Acquisition of Assets of SPEC Sensors and KWJ Engineering

On December 16, 2022, we acquired substantially all of the assets of SPEC Sensors, LLC (“SPEC”), and KWJ Engineering, Inc.

(“KWJ”) (collectively, “SPEC/KWJ”), two designers and manufacturers of gas, air and environmental quality sensors that were under common ownership, pursuant to an Asset Purchase Agreement, dated as of December 16, 2022 (the “Asset Purchase Agreement”), by and among the Company, SPEC/KWJ, and the respective equity holders of SPEC and KWJ.

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

Under the terms of the Asset Purchase Agreement, the purchase price for both companies’ assets was $ 2,000,000 plus the amount by which the combined companies’ net working capital at closing was more than $ 1,350,000 ;

at closing, the purchase price was calculated as $ 2,269,000 , of which $ 1,519,000 was paid to SPEC/KWJ, and $ 750,000 was paid into escrow against purchase price adjustments and potential claims for breaches of representations and warranties by SPEC/KWJ or the equity holders.

Subsequent to the closing, the parties reached an agreement pursuant to which (i) the purchase price was reduced to $ 2,102,313 resulting from a $ 166,687 reduction in closing date net working capital, with such funds having being distributed to the Company from the escrow account in May 2023, and (ii) the remaining funds in the escrow account were released to SPEC/KWJ in May 2023 without prejudice to the Company’s rights in respect of breaches of representations, warranties or covenants.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands), giving effect to the post-closing purchase price adjustment.

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

Accounts receivable

Prepaid expenses and other current assets

Accounts payable and 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 $ 306,000 gross contractual amount, as we expect the entire balance to be collectible.

Acquisition of Calman Technology Limited

On March 17, 2023, we acquired all of the outstanding shares in Calman Technology Limited (“Calman”), a Scotland-based designer and manufacturer of membrane keypads, graphic overlays and printed electronics, pursuant to a Share Purchase Agreement (the “Share Purchase Agreement”) by and among the Company’s wholly owned United Kingdom subsidiary, Interlink Electronics Limited, and the shareholders of Calman.

The Share Purchase Agreement contains customary representations, warranties and covenants, including non-competition covenants on the part of the sellers, who continue to be employed by Calman.

Under the terms of the Share Purchase Agreement, the purchase price is GB£ 4,127,000 (approximately $ 4,912,000 ), of which GB£ 3,627,000 (approximately $ 4,317,000 ) was paid at closing and the balance is being held back for up to nine months against potential claims for breaches of representations and warranties (subject to certain deductibles and caps).

The purchase price is subject to adjustment based on the extent if any to which Calman’s net working capital is more or less than GB£ 600,000 (approximately $ 714,000 ), which is expected to result in additional consideration of approximately GB£ 1,297,000 (approximately $ 1,544,000 ).

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

Accounts receivable

Prepaid expenses and other current assets

Property, plant, and equipment

Right-of-use assets

Accounts payable and accrued liabilities

Lease liabilities

Net identifiable assets acquired

Net assets acquired

The goodwill recognized is attributable primarily to expected synergies and the assembled workforce of Calman.

The goodwill is not expected to be deductible for income tax purposes.

The fair value of accounts receivable is equal to the $ 663,000 gross contractual amount, as we expect the entire balance to be collectible.

The following represents the pro forma consolidated statement of operations as if both SPEC/KWJ and Calman had been included in our consolidated results for the periods ended March 31, 2023 and 2022 (unaudited):

Three Months Ended March 31,

(in thousands)

Net income (loss)

Note 4 – Earnings Per Share

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(in thousands, except per share data)

3 unchanged sentences

Weighted average common shares outstanding – basic

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

Dilutive potential common shares from convertible preferred stock

Weighted average common shares outstanding – diluted

1 unchanged sentence

Earnings (loss) per common share, diluted

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

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

2 unchanged sentences

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

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

* Less than 10% of total net revenues

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

Net revenues by geographic area are as follows:

Three months ended September 30,

Nine months ended September 30,

(in thousands)

Three months ended March 31,

(in thousands)

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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 customers who are subject to our credit verification procedures.

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 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 September 30, 2022 and December 31, 2021.

At March 31, 2023, two customers accounted for 45 % and 17 % of total accounts receivable.

At December 31, 2022, two customers accounted for 20 % and 13 % of total accounts receivable.

Our allowance for doubtful accounts was $ 0 at both March 31, 2023 and December 31, 2022.

Our long-lived assets were geographically located as follows:

September 30,

(in thousands)

1 unchanged sentence

Total long-lived assets

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

Note 6 – Related Party Transactions

10 unchanged sentences

Transactions with Qualstar and its subsidiaries are as follows:

Three months ended September 30,

(in thousands)

Balance at July 1,

Billed (or accrued) to Qualstar by Interlink

Paid by Qualstar to Interlink

Billed (or accrued) to Interlink by Qualstar

Paid by Interlink to Qualstar

Balance at September 30,

Nine months ended September 30,

Three months ended March 31,

(in thousands)

4 unchanged sentences

Paid by Interlink to Qualstar

Balance at September 30,

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

Balance at March 31,

BKF Capital Group (OTCMKTS:BKFG)

9 unchanged sentences

Transactions with BKF Capital and its subsidiaries are as follows:

Three months ended September 30,

(in thousands)

Balance at July 1,

Billed (or accrued) to BKF Capital by Interlink

Paid by BKF Capital to Interlink

Billed (or accrued) to Interlink by BKF Capital

Paid by Interlink to BKF Capital

Balance at September 30,

Nine months ended September 30,

Three months ended March 31,

(in thousands)

4 unchanged sentences

Paid by Interlink to BKF Capital

Balance at September 30,

Balance at March 31,

Note 7 – Income Taxes

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.

Notes to Condensed Consolidated Financial Statements - continued

Income taxes as a percentage of pre-tax income was an expense of 75.2 % for the three months ended March 31, 2023 versus expense of 17.9 % 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, permanent differences between book income/loss and taxable income/loss, and our ability to utilize prior net operating loss carryovers (“NOLs”).

The effective tax rate for the three months ended March 31, 2023 was impacted by having incurred tax expense on our foreign pre-tax income while not realizing a benefit on our domestic pre-tax loss due to the valuation allowance on our domestic NOLs.

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

2 unchanged sentences

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

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

As of March 31, 2023, 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.

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.

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 March 31, 2023 and December 31, 2022, while no valuation allowance on foreign deferred tax assets was necessary at both March 31, 2023 and December 31, 2022.

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.

1 unchanged sentence

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 $ 3.9 million of cash balances on hand at September 30, 2022, $ 0.9 million was held by our foreign subsidiaries.

Of the $ 6.7 million of cash balances on hand at March 31, 2023, $ 2.7 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.

1 unchanged sentence

or foreign taxes to repatriate these funds.

However, our intent is to permanently reinvest these funds outside the U.S.

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

Note 8 – Commitments and Contingencies

4 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 nine months ended September 30, 2022 was 7.0 %, and during the nine months ended September 30, 2021 was 5.5 %.

No new right-of-use (“ROU”) assets were capitalized during the three months ended March 31, 2023 or 2022.

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

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

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

As of March 31, 2023, 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.

1 unchanged sentence

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

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

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.

In June 2020, we entered into a sublease agreement to lease 4,351 square feet of office space located in Irvine, California for approximately $ 6,000 per month with 3 percent annual increases, plus common area maintenance costs.

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

1 unchanged sentence

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

In May 2022, we renewed this lease for the period June 1, 2022 through May 31, 2024 for approximately $ 8,000 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 $ 18,000 per month.

We lease an approximately 9,800 square-foot manufacturing facility and administrative offices in Irvine, Scotland for approximately $ 5,000 per month (with a 50 % discount through October 2023).

This lease term ends February 2028, with an option for us to terminate the lease in February 2025.

We lease a 275 square-foot engineering and administrative office in Singapore for approximately $ 1,000 per month.

This lease term ends May 2024.

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

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

This lease term ends April 2025.

We lease 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 $ 1,000 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 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 September 30, 2022 totaled $ 10 thousand.

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

We sublease on a month-to-month basis approximately 1,000 square-feet of office space in Los Angeles, California for approximately $ 1,000 per month.

As of March 31, 2023, we had current and long-term lease liabilities of $ 144,000 and $ 83,000 , respectively, and right-of-use assets of $ 224,000 .

As of December 31, 2022, we had current and long-term lease liabilities of $ 131,000 and $ 46,000 , respectively, and right of use assets of $ 172,000 .

Future imputed interest as of March 31, 2023 totaled $ 15,000 .

The weighted average remaining lease term of our leases as of March 31, 2023 is 1.2 years.

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

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Present value of lease liabilities

During the three months ended September 30, 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 September 30, 2022.

During the three months ended March 31, 2023, we incurred approximately $ 119,000 in operating lease costs.

Operating lease costs of $ 41,000 are included in cost of revenue, and $ 78,000 are included in operating expenses in our condensed consolidated statements of operations for the three months ended March 31, 2023.

During the three months ended March 31, 2022, we incurred approximately $ 61,000 in operating lease costs.

Operating lease costs of $ 32,000 are included in cost of revenue, and $ 29,000 are included in operating expenses in our condensed consolidated statements of operations for the three months ended March 31, 2022.

We are not party to any legal proceedings as of March 31, 2023.

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

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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.

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.

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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.

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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-Q

Item 1. Financial Statements