What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-25 compared with 2023-03-29 · 179 added, 156 removed, 570 unchanged (37% of the section changed)

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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 )

Consolidated Balance Sheets as of December 31, 2023 and 2022

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Opinion on the Financial Statements

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

(the Company) as of December 31, 2022, 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, 2022, 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.

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

(the Company) as of December 31, 2023 and 2022, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for the years 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, 2023 and 2022, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

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.

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

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.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

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 entity’s internal control over financial reporting.

As part of our audits 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.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

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 provides a reasonable basis for our opinion.

Our audits 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 audits provide a reasonable basis for our opinion.

Critical Audit Matters

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March 25, 2024

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

INTERLINK ELECTRONICS, INC.

Opinion on the Financial Statements

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

(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 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.

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

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

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

Accordingly, we express no such opinion.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

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.

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.

March 29, 2022

INTERLINK ELECTRONICS, INC.

CONSOLIDATED BALANCE SHEETS

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Cash and cash equivalents

Restricted cash

Accounts receivable, net

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Lease liabilities, long term

Deferred tax liabilities

Total long-term liabilities

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Weighted average common shares outstanding - diluted

The accompanying notes are an integral part of these consolidated financial statements.

INTERLINK ELECTRONICS, INC.

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Balance at December 31, 2021

Issuance of preferred stock

Issuance of common stock

Preferred stock dividends

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Balance at December 31, 2022

Issuance of common stock

Repurchases of common stock

Preferred stock dividends

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Net income (loss)

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

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

Depreciation and amortization

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Unrealized and realized (gains) on marketable securities

Loss on disposal of property, plant and equipment

Gain on forgiveness of PPP loan

Adjustment to reconcile operating lease expense to cash paid

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Accrued income taxes

Net cash provided by (used in) operating activities

Net cash (used in) operating activities

Cash flows from investing activities:

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Purchases of property, plant and equipment

Acquisition of Calman Technology Limited, net of cash acquired

Acquisition of SPEC and KWJ, net of cash acquired

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Cash flows from financing activities:

Proceeds from issuance of preferred stock, net of $ 432 of issuance costs

Payment of dividends on preferred stock

Proceeds from issuance of common stock

Net cash provided by (used in) financing activities

Repurchases of common stock

Issuance of common stock

Net cash (used in) financing activities

Effect of exchange rate changes on cash

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

Net (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:

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:

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Interlink Electronics, Inc.

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

force-sensing technology and gas-sensing technology.

(“we,” “us,” “our,” “Interlink” or the “Company”) is a global sensor and printed electronics company operating in two principal sensor technology divisions:

force/touch sensors, and gas and environmental sensors.

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.

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Our Human Machine Interface (“HMI”) technology platforms are deployed in a wide range of markets including consumer electronics, automotive, industrial, and medical.

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.

Our membrane keypads, graphic overlays, printed electronics and industrial label products are applicable for use in a wide range of fields, from industrial automation, process control and monitoring to medical and diagnostic devices and defense systems.

Our electrochemical gas-sensing technology instruments, 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;

our technical sales office in Japan;

and our distribution and logistics center in Hong Kong.

Our principal executive office is located at 15707 Rockfield Boulevard, Suite 105, Irvine, California 92618 and our telephone number is (805) 484-8855.

Our website address is www.interlinkelectronics.com.

March 2024 Common Stock Dividend

On March 1, 2024, the Board of Directors declared a 50 % common stock dividend with a record date of March 11, 2024, that was paid on March 22, 2024.

Settlement of fractional share interests will be made by issuing one full share of common stock in lieu of a fractional share.

Although the exact effect on common stock outstanding will depend on the number of fractional share settlements, the stock dividend is expected to increase the number of issued and outstanding shares of common stock from 6,573,570 to approximately 9,860,355 .

Except as otherwise noted, all references to common stock, common stock issuable upon conversion of preferred stock, and corresponding per share information throughout this Annual Report on Form 10-K have been retroactively adjusted to reflect the stock dividend, which is accounted for as a stock split effected in the form of a stock dividend.

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

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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 gains (losses) of $ 121 thousand and $( 40 ) thousand were recorded in the years ended December 31, 2022 and 2021, respectively.

Foreign currency transaction and remeasurement gains and losses are included in results of operations within other

income (expense), net, for which gains of $ 3,000 and $ 121,000 were recorded in the years ended December 31, 2023 and 2022, respectively.

Segment Reporting

We operate in one reportable segment:

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

the manufacture and sale of force/touch - and gas/environmental-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.

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.

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To determine revenue recognition for arrangements that are within the scope of ASC 606, we perform the following five steps;

(i) identify the contracts(s) with a customer;

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

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Warranty claims charges are recorded within cost of revenue as claims are incurred and honored.

At each reporting period, we adjust our reserve for warranty claims (as either a charge or benefit to cost of revenue) based on our actual warranty claims experience as a percentage of net revenue during the preceding 24 months, as an estimation of the total future warranty claims expected to be incurred and honored for goods sold through the end of the reporting period.

the end of the reporting period.

We also consider the effect of known operations issues that may have an impact that differs from historical trends.

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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.

Diluted earnings per share is computed by dividing net income (loss) by the weighted average number of diluted common shares, which is inclusive of common stock equivalents from unexercised stock options, unvested restricted stock units, and shares issuable upon conversion of convertible preferred stock.

Unexercised stock options, unvested restricted stock units, and convertible preferred stock are considered to be common stock equivalents if, using the treasury stock method, they are determined to be dilutive.

Diluted earnings per share is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of diluted common shares, which includes common stock equivalents from, if applicable, and if dilutive, unexercised stock options, unvested restricted stock units, and shares issuable upon conversion of convertible preferred stock.

Unexercised stock options and unvested restricted stock units are considered to be common stock equivalents if, using the treasury stock method, they are determined to be dilutive.

Convertible preferred stock is considered to be common stock equivalents if, using the if-converted method, they are determined to be dilutive.

Under the two-class method of determining earnings for each class of stock, we consider the dividend rights and participating rights in undistributed earnings for each class of stock.

On March 1, 2024, the Board of Directors declared a 50 % common stock dividend that was paid on March 22, 2024.

For all years presented, all share and per share data have been retroactively adjusted for the effect of the 50 % common stock dividend, which is accounted for as a stock split effected in the form of a stock dividend.

The Company accounts for its leases under ASC 842.

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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;

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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 and financial results may be adversely affected by outbreaks of viruses, widespread illness, infectious diseases, contagions and unforeseen epidemics (such as the COVID-19 coronavirus) 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 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.

Cash, Cash Equivalents and Restricted Cash

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Our balances in each country were insured at the maximum limit determined by each country.

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.

In the U.S., we had approximately $ 94,000 and $ 8.4 million in excess of the Federal Deposit Insurance Corporation limit of $ 250,000 per depositor, per insured bank at December 31, 2023 and 2022, respectively.

Approximately $ 1.1 million and $ 0.7 million held in banks in China at December 31, 2023 and 2022, 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.

Approximately $ 63 thousand and $ 202 thousand held in banks in Hong Kong at December 31, 2022 and 2021, respectively, was not insured.

Approximately $ 132,000 and $ 168,000 held in banks in Singapore at December 31, 2023 and 2022, respectively, was not insured.

Approximately $ 40,000 and $ 63,000 held in banks in Hong Kong at December 31, 2023 and 2022, respectively, was not insured.

Approximately $ 1.1 million held in banks in the United Kingdom at December 31, 2023 was not insured.

Accounts Receivable and Allowance for Credit Losses

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We perform periodic reviews to evaluate the recoverability of property, plant and equipment and to determine whether facts and circumstances exist that would indicate that the carrying amounts of property, plant and equipment exceed their fair values.

If facts and circumstances indicate that the carrying amount of property, plant and equipment might not be fully recoverable, projected undiscounted net cash flows associated with the related asset or group of assets over their estimated remaining useful lives are compared against their respective carrying amounts.

compared against their respective carrying amounts.

In the event that the projected undiscounted cash flows are not sufficient to recover the carrying value of the assets, the assets are written down to their estimated fair values.

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We evaluate our finite-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of an intangible asset or asset group may not be recoverable.

The carrying value of an intangible asset or asset group is not recoverable if the amounts of undiscounted future cash flows the assets are expected to generate (including any net proceeds expected from the disposal of the asset) are less than its carrying value.

The carrying value of an intangible asset or asset group is not recoverable if the amount of undiscounted future cash flows the assets are expected to generate (including any net proceeds expected from the disposal of the asset) are less than its carrying value.

When we identify that an impairment has occurred, we reduce the carrying value of the asset to its comparable market value (if available and appropriate) or to its estimated fair value based on a discounted cash flow approach.

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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.

Goodwill acquired in a purchase business combination is determined to have an indefinite useful life and is not amortized but is 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.

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The Company has evaluated subsequent events through March 25, 2024, being the date these consolidated financial statements were issued.

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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Total property, plant and equipment, net

Depreciation expense totaled $ 193 thousand and $ 216 thousand in 2022 and 2021, respectively.

Depreciation expense totaled $ 200,000 and $ 193,000 in 2023 and 2022, respectively.

The changes in the carrying amount of goodwill for the years ended December 31, 2023 and 2022 are as follows:

(in thousands)

Balance as of January 1, 2022

Goodwill acquired in acquisition of SPEC/KWJ

Balance as of December 31, 2022

Adjustment to goodwill, acquisition price allocation of SPEC/KWJ

Goodwill acquired in acquisition of Calman

Adjustment to goodwill, foreign currency exchange rate changes

Balance as of December 31, 2023

Intangible assets, net

(in thousands)

Patents and trademarks

Patents, tradenames, and trademarks

Developed technology

Customer relationships

Non-compete agreements

Order backlog

In-process research and development

accumulated amortization

Total intangibles, net

Amortization expense totaled $ 54 thousand and $ 65 thousand in 2022 and 2021, respectively.

Future amortization on existing intangibles over the next five years is as follows:

Total intangible assets, net

Amortization expense totaled $ 662,000 and $ 54,000 in 2023 and 2022, respectively.

Future amortization on existing intangible assets over the next five years and thereafter is as follows:

Years ending December 31,

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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.

During the years ended December 31, 2023 and 2022, we purchased $ 0 and $ 6.027 million of marketable securities, respectively and we sold $ 0 and $ 8.476 million of marketable securities, respectively, for realized gains of $ 0 and $ 2.249 million, respectively.

Note 4 – Acquisition

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 preliminarily 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 the determination that the closing date net working capital was $ 166,687 lower than was preliminarily calculated, with such funds having been distributed back 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 fair values of the assets acquired and liabilities assumed at the acquisition date, giving effect to the post-closing purchase price adjustment (in thousands).

Accounts receivable

Prepaid expenses and other current assets

Accounts payable

Accrued liabilities

Net identifiable assets acquired

Property and equipment

Accounts payable and accrued liabilities

Net identifiable tangible assets acquired

Developed technology

Customer relationships

Tradenames and trademarks

In-process research and development

Non-compete agreements

Order backlog

Net assets acquired

The fair value of accounts receivable is equal to the $ 306,000 gross contractual amount, as we expect the entire balance to be collectible.

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):

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 was GB£ 4,127,000 (approximately $ 4,912,000 ), of which GB£ 3,627,000 (approximately $ 4,317,000 ) was paid at closing and the remaining GB£ 500,000 (approximately $ 595,000 ) was held back against potential claims for breaches of representations and warranties (subject to certain deductibles and caps) and was paid to the sellers in December 2023.

The purchase price was subject to adjustment based on the extent, if any, to which Calman’s net working capital at closing was more or less than GB£ 600,000 (approximately $ 714,000 ), which resulted in additional purchase consideration of approximately GB£ 1,292,000 (approximately $ 1,538,000 ).

The following table summarizes the 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 tangible assets acquired

Developed technology

Tradenames and trademarks

Customer relationships

Non-compete agreements

Deferred tax liabilities

Net assets acquired

After our September 30, 2023 financial statements were issued, the valuation report for the acquired intangible assets was completed.

Based on the results of that valuation report, we have revised the preliminarily allocated GB£ 3,404,000 (approximately $ 4,052,000 ) of goodwill to be allocated as follows:

GB£ 320,000 (approximately $ 381,000 ) developed technology, GB£ 180,000 (approximately $ 214,000 ) trademarks and tradenames, GB£ 1,059,000 (approximately $ 1,260,000 ) customer relationships, GB£ 708,000 (approximately $ 843,000 ) non-compete agreements, and GB£ 1,734,000 (approximately $ 2,064,000 ) goodwill, offset by GB£ 597,000 (approximately $ 710,000 ) deferred tax liabilities.

In addition, the changes in these provisional amounts resulted in an increase in amortization expense and accumulated amortization of GB£ 266,000 (approximately $ 329,000 ) recorded in the three months ended December 31, 2023, of which GB£ 20,000 (approximately $ 25,000 ) relates to the three months ended March 31, 2023, GB£ 123,000 (approximately $ 155,000 ) relates to the three months ended June 30, 2023, and GB£ 123,000 (approximately $ 149,000 ) relates to the three months ended September 30, 2023.

The fair value of accounts receivable is equal to the $ 656,000 gross contractual amount, as we expect the entire balance to be collectible.

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 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 full fiscal years ended December 31, 2023 and 2022 (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.

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.

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 $ 8.33 per common share, or 3.0 shares of common stock, as adjusted for the 50 % common stock dividend declared and paid in March 2024, at any time at the option of the holder, subject to certain customary adjustments.

Holders of Series A Convertible Preferred Stock do not participate in common stock dividends, but such common stock dividends if and when declared would reduce the conversion price at which shares of Series A Convertible Preferred Stock would convert into common stock.

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Basic earnings per share is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding during the period.

Diluted earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period, plus the dilutive effect of outstanding stock options, restricted stock units, and common shares issuable upon conversion of convertible preferred stock using the treasury stock method.

Diluted earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period, plus the dilutive effect of any dilutive securities.

On March 1, 2024, the Board of Directors declared a 50 % common stock dividend with a record date of March 11, 2024, that was paid on March 22, 2024.

The effect of this stock dividend (which is accounted for as a stock split effected in the form of a stock dividend) has been applied retroactively to weighted average common shares outstanding, earnings per share, and the conversion rate and conversion price applicable for our Series A Convertible Preferred Stock, as if the 50 % common stock dividend had occurred at the beginning of the earliest period presented.

The following table sets forth the computation of basic and diluted earnings per share:

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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

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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

200,000 shares of Series A Convertible Preferred Stock convertible into 600,000 shares of common stock were outstanding but were not included in the computation of diluted earnings (loss) per share because the $ 8.33 conversion price was greater than the average market price of the common stock.

Note 8 – Income Taxes

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Income (loss) before income taxes:

Income tax provision (benefit) consists of the following for the years ended December 31, 2022 and 2021:

Income tax provision consists of the following for the years ended December 31, 2023 and 2022:

(in thousands)

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Total deferred

Total income tax provision (benefit)

Total income tax provision

A reconciliation of the income tax provision (benefit) by applying the statutory United States federal income tax rate to income (loss) before income taxes is as follows:

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Change in valuation allowance

Income tax provision (benefit)

Income tax provision

Deferred tax assets and liabilities are recognized for future tax consequences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse.

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Net deferred tax assets

Intangible assets

Net deferred tax liabilities

Deferred taxes are recorded for the following net operating losses (“NOLs”) that can be used in future tax years:

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

As of December 31, 2022, $ 32.3 million of the federal NOLs and $ 13.9 million of the state NOLs are subject to annual limitations due to the February 2010 ownership change, at approximately $ 71 thousand per year.

As of December 31, 2022, $ 29.7 million of the federal NOLs and $ 13.7 million of the state NOLs are subject to annual limitations due to the February 2010 ownership change, at approximately $ 71,000 per year.

Because these limitations preclude the use of a large portion of these NOLs, the Company permanently wrote-off the related deferred tax assets during the year ended December 31, 2015.

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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, 2022 and 2021, a valuation allowance of $ 477 thousand and $ 629 thousand, respectively, was recorded against our domestic deferred tax assets.

On the basis of this evaluation, as of December 31, 2023 and 2022, a valuation allowance of $ 640,000 and $ 477,000 , 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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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 $ 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.

Of our $ 4.3 million of cash at December 31, 2023, $ 2.3 million was held by our foreign subsidiaries.

If these funds are needed for U.S.

operations or for acquisitions, we have several methods to repatriate the funds without significant tax effects, including repayment of intercompany loans or distributions of previously taxed income.

Other distributions may require us to incur U.S.

or foreign taxes to repatriate these funds.

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.

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

The Company is subject to taxation in the U.S.

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We manage and operate our business through one operating segment.

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

Net revenues from customers comprising at least 10% of total net revenues are as follows:

Year ended December 31,

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At December 31, 2023, two customers accounted for 35 % and 16 % of total accounts receivable.

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.

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

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Participants in this plan may contribute between 1 % and 60 % of their eligible pay on a pretax basis, up to the annual Internal Revenue Service dollar limits.

The Company will make matching contributions in an amount equal to 50 % of the participant’s deferral contributions, not to exceed $ 5,000 .

The Company will make matching contributions in an amount equal to 50 % of the participant’s deferral contributions, not to exceed $ 5,000 per participant per year.

All contributions, including the Company match, are vested immediately.

Our matching contributions to the plan were $ 23 thousand and $ 5 thousand in 2022 and 2021, respectively.

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 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.

Proceeds from the loan were used to fund designated expenses, including certain payroll costs, group health care benefits and other permitted expenses, in accordance with the PPP.

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

Forgiveness of the PPP loan resulted in contra-expense of $ 186 thousand being recorded in selling, general and administrative expense during the year ended December 31, 2021.

Our matching contributions to the plan were $ 69,000 and $ 23,000 in 2023 and 2022, respectively.

Note 11 – Related Party Transactions

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Bronson, our Chairman of the Board, President and Chief Executive Officer, is also the President, Chief Executive Officer and a director of Qualstar.

Hoffman, our Chief Financial Officer, is also the Chief Financial Officer of Qualstar.

Hoffman, our Chief Financial Officer, was also the Chief Financial Officer of Qualstar through August 2023.

Bronson, together with BKF Capital Group, Inc.

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

We have a facilities agreement with BKF Capital to allow BKF Capital to use a portion of our Irvine, California office facility, for which we have agreed to split substantially all rent and lease-related costs on an apportioned basis according to the

approximate relative usage levels by each entity.

In addition, we have consulting agreements with BKF Capital for certain of our respective employees and/or independent contractors that provide certain operational and general and administrative services to the other entity.

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.

We entered into a M&A advisory consulting services agreement with Bronson Financial LLC (“BF”), a wholly owned subsidiary of BKF Capital, pursuant to 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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Year ended December 31,

Due from BKF Capital

Due to BKF Capital

Due from BKF Capital

Due to BKF Capital

(in thousands)

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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, 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.

In June 2023, we entered into a lease agreement to lease 1,560 square feet of office space in Irvine, California for approximately $ 4,000 per month for a term commencing June 2023 and ending May 2024.

Our Irvine, California office is used for executive offices, sales, finance and administration.

We previously occupied a different 4,351 square-foot office space in Irvine, California from June 2020 to May 2023 under a sublease agreement for approximately $ 6,000 per month, plus common area maintenance costs.

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.

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 thousand per month.

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

In February 2023, we renewed this lease for the period March 1, 2023 through February 28, 2024 for approximately $ 18,000 per month.

In February 2024, we extended this lease for the period March 1, 2024 to February 28, 2025 for approximately $ 19,000 per month.

We lease a 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 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 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.

As of December 31, 2021, the Company 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 December 31, 2022 totaled $ 8 thousand.

As of December 31, 2023, the Company had current and long-term lease liabilities of $ 126,000 and $ 33,000 , respectively, and ROU assets of $ 143,000 .

As of December 31, 2022, the Company had current and long-term lease liabilities of $ 131,000 and $ 46,000 , respectively, and ROU assets of $ 172,000 .

Future imputed interest as of December 31, 2023 totaled $ 7,000 .

The weighted average remaining lease term of the Company’s leases as of December 31, 2023 is 0.7 years.

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Present value of lease liabilities

During the year ended December 31, 2022, we recognized approximately $ 255 thousand in operating lease costs, including approximately $ 126 thousand in cost of revenue and approximately $ 129 thousand in operating expenses.

During the year ended December 31, 2021, we recognized approximately $ 294 thousand in operating lease costs, including approximately $ 122 thousand in cost of revenue and approximately $ 172 thousand in operating expenses.

During the year ended December 31, 2023, we incurred approximately $ 501,000 in operating lease costs, including approximately $ 211,000 in cost of revenue and approximately $ 290,000 in operating expenses.

During the year ended December 31, 2022, we incurred approximately $ 255,000 in operating lease costs, including approximately $ 126,000 in cost of revenue and approximately $ 129,000 in operating expenses.

We are not party to any material legal proceedings at December 31, 2023.

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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.

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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