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Item 7. Management’s Discussion and Analysis

2026-03-26 compared with 2025-03-27 · 49 added, 56 removed, 163 unchanged (39% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and the related notes to the consolidated financial statements included later in this Annual Report on Form 10-K.

In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties.

Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements.

Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”

Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Form 10-K, particularly in “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”

Executive Overview

Interlink Electronics, Inc.

is a leading provider of sensors and printed electronics used extensively in HMI devices and IoT solutions.

Our broad product and technology portfolio encompasses force, piezo-electric, rugged HMI, wearable sensors for textiles and fabrics, gas sensors, instruments, and systems.

Our blue-chip customers trust our products and solutions which span various markets, including industrial, medical, automotive, consumer, wearables, and IoT.

Our technical and engineering expertise in materials science, manufacturing, embedded electronics, firmware, and software enables us to create and deliver high-quality, cost-effective custom solutions tailored to our customers’ unique requirements.

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.

Our principal products are:

Force/Touch Sensors .

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

These 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.

The application of our HMI technology platforms includes vehicle entry, vehicle multi-media control interface, rugged touch controls, presence detection, collision detection, speed and torque controls, pressure mapping, biological monitoring and others.

Through our 2023 acquisition of Calman, which brought us over 25 years of HMI design and manufacturing expertise as a leading provider of specialized printed electronics, we offer customized membrane keypads, graphic overlays, printed electronics and industrial label products for use in a wide range of fields, from industrial instrumentation, process control and monitoring to medical and diagnostic devices and defense systems.

Additionally, through our 2024 acquisition of Conductive Transfers, which deepened our innovative patentened processes for integration of printed electronic technologies, we offer functional e-textiles and wearable technology, including heated clothing and personal protection equipment, and other products in development for medical and automotive environments and other wearable form-factors.

Gas and Environmental Sensors.

We entered the gas and environmental sensing market in 2022 through our acquisition of the business assets of SPEC and KWJ, early pioneers in miniaturized, low-cost gas and environmental sensing technologies.

Following our acquisition of these operations, we now offer electrochemical gas-sensing technology products and solutions for industry, community, health and home, with uses in fields such as safety, personal wellness and air quality monitoring.

We sell our products and solutions globally to a diverse array of customers that include Fortune Global 500 companies with the world’s most recognizable brands, as well as start-ups, design houses, original design and equipment manufacturers, and universities.

Our technology has been deployed in the consumer electronics, automotive, industrial automation, medical, defense and environmental monitoring markets.

Our global presence in the United States, China, United Kingdom, Hong Kong, Singapore and Japan allows us to broadly provide sales and engineering support services to our existing and future worldwide customers.

We manufacture our products in a state-of-the-art facility in Shenzhen, China, and in our advanced and proprietary facilities in Fremont, California, Irvine, Scotland, and Barnsley, England.

We control 100% of the manufacturing and shipping process, which enables us to respond quickly to customer product demand and design requirements.

We have invested significantly in the expansion of our technology platforms through our own internal development to ensure we continue to provide the market with leading-edge solutions that are seamless to deploy and perform flawlessly.

Having previously built an R&D organization in Singapore to develop new product offerings that will meet the market’s growing demand for touch technology and smart surfaces, we relocated a majority of our R&D and product development efforts to Camarillo, California, where we have established a Global Product Development and Materials Science Center.

Combined with the advanced and proprietary facilities in Silicon Valley, Scotland, and England that were acquired in connection with the acquisitions of SPEC/KWJ, Calman, and Conductive Transfers, we believe this will allow us to grow our business and be more closely aligned with current and future top-tier customers.

We also plan to explore potential strategic relationships with companies and technology institutes that will support our growth initiatives.

is a leading global provider of advanced sensing technologies and printed electronics solutions that enable Human-Machine Interface (“HMI”) devices and Internet-of-Things (“IoT”) applications.

Our broad product and technology portfolio spans force and touch sensors, piezoelectric sensors, rugged HMI devices, wearable and textile-based sensors, electrochemical gas and environmental sensors, instruments, and fully integrated systems.

Our business is organized around two technology platforms:

Force/Touch Sensing and HMI Solutions .

Our force-sensing resistor (“FSR®”) technology, together with piezoelectric sensing, printed electronics, rugged interface devices, and emerging smart textile platforms, enables intuitive, durable, and low-power user input solutions.

These technologies are deployed in applications such as vehicle entry and control systems, industrial and medical interfaces, presence and pressure detection, wearable monitoring, and other three-dimensional input environments.

Through our acquisitions of Calman in 2023 and Conductive Transfers Limited in 2024, we expanded our capabilities in customized membrane keypads, graphic overlays, industrial labeling, conductive textiles, and integrated printed electronic systems.

These additions enhance our vertical integration, broaden our intellectual property portfolio, and strengthen our presence in European markets.

We are increasingly positioning our HMI offerings as integrated subsystems that combine sensing hardware with proprietary firmware, signal processing, and system-level design.

Gas and Environmental Sensing Solutions .

We entered the gas and environmental sensing market in 2022 through the acquisition of the assets of SPEC Sensors and KWJ Engineering.

We now design and manufacture miniaturized electrochemical gas sensors, instruments, and monitoring systems for safety, health, air quality, and industrial applications.

Our products are designed to address growing demand for compact, low-power, and cost-effective sensing solutions suitable for wireless, wearable, and IoT deployments.

We prioritize revenue growth in targeted strategic markets, gross margin expansion driven by favorable product mix and operational efficiencies, disciplined capital allocation, and the ongoing advancement of differentiated sensing platforms.

Our strategy emphasizes higher-margin, application-specific solutions built on scalable technology foundations.

A substantial portion of our revenue is generated from custom solutions developed in close collaboration with OEM customers.

Although these engineering and product development engagements often involve extended design cycles, they frequently lead to multi-year production programs that provide long-term revenue visibility and strengthen customer relationships.

We maintain a global operational footprint to support our customers and manufacturing strategy.

We manufacture our force-sensing and printed electronic products at our facilities in Shenzhen, China, and Irvine, Scotland, and our gas and environmental sensors and instruments at the facility in Fremont, California.

Our vertically integrated manufacturing approach allows us to maintain control over proprietary processes, quality standards, and supply chain responsiveness.

Results of Operations

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Loss before income taxes

Income tax expense

Income tax expense (benefit)

Comparison of the Years Ended December 31, 2025 and 2024

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(in thousands, except percentages)

We sell our custom products into the medical, industrial, and consumer markets.

We sell our custom products into the medical, industrial, automotive and other specialty markets.

We sell our standard products to customers in many markets through various distribution networks.

The ultimate customer for our standard products may come from different markets which are often unknown to us at the time of sale.

The ultimate customer for our products may come from different markets that are often unknown to us at the time of sale.

Each market has different product design cycles.

Products with longer design cycles often have much longer product life cycles.

Medical, industrial, and environmental monitoring products generally have longer design and life cycles than consumer products.

Medical, industrial, and other specialty markets such as environmental monitoring products generally have long design and life cycles.

We currently have products with life cycles that have exceeded 20 years and are ongoing.

Revenues were down in 2024 compared to 2023 to customers in all of the custom markets we sell to, and were up to customers of our standard products.

The decrease in revenue from customers in all custom markets was due to decreased shipments of our force-sensing and gas-sensing products and solutions resulting from lower customer demand in 2024 compared to 2023.

In all markets, the timing of orders from our customers is not always predictable and can be less in some periods and higher in others depending on their projects and building plans.

Revenues were up in 2025 compared to 2024 to customers in the industrial and automotive markets, and were down to customers in the medical market and to customers of our standard products.

The increase in revenue from customers in the industrial market was due to increased shipments on higher customer demand due to increases in their production levels, while the increase in revenue from customers in the automotive market was due to new products and to programs intended to support innovation and automation in that market group.

The decrease in revenue from customers in the medical market was due to lower shipments of our traditional force-sensing products offset in part by higher shipments of our Calman printed electronics, all of which is driven by customer demand.

In all markets, the timing of orders from our customers is not always predictable and can vary significantly from period to period depending on customers’ projects and building plans.

Year Ended December 31,

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Our gross profit and gross margin percentage are impacted by various factors including product mix, customer mix, sales volume, and fluctuations in our cost of revenues, which are comprised of material costs, direct and indirect production labor costs, warehousing and logistics costs, facilities costs, and other costs related to production activities.

Gross profit for 2024 was down compared to 2023 due to lower revenue on lower customer demand, while gross margin percentage was down due primarily to the impact the largely fixed portion of our manufacturing- and production-related cost of revenue has on our gross margin percentage, in addition to changes in product and customer mix.

Gross profit and gross margin percentage for 2025 were down compared to 2024 due primarily to changes in the mix of products sold, and also in part due to strengthened Chinese yuan relative to the U.S.

dollar which increased the cost of our production activities in China.

Year Ended December 31,

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Our R&D team focuses both on internal design development of our force-sensing and gas-sensing technologies and other printed electronics solutions, as well as custom design development aimed at addressing our customers’ unique design challenges.

Engineering and R&D costs for 2024 were down compared to the prior year due primarily to decreased engineering employee headcount, offset in part by increased prototyping and product-development activities this year as compared to the prior year.

Engineering and R&D costs for 2025 were down compared to the prior year due primarily to lower engineering employee headcount and lower consultant and outside services costs, offset in part by higher costs on prototyping and product-development activities.

Year Ended December 31,

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Selling, general and administrative expenses consist primarily of compensation expenses, legal and other professional fees, facilities expenses and communication expenses.

Selling, general and administrative expenses for the current year were up compared to last year due primarily to the inclusion of Calman for the full year of 2024 (versus only the March to December period of 2023).

Selling, general and administrative expenses for the current year were up slightly compared to last year due primarily to the inclusion of Conductive Transfers in 2025 (which was acquired in December 2024), offset in part by lower sales and administrative compensation expense on lower headcount elsewhere.

Year Ended December 31,

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

Other income (expense), net for 2024 was comprised of $54,000 of interest income and $39,000 of foreign currency transaction gains, while other income (expense), net for 2023 was comprised of $155,000 of interest income, $3,000 of foreign currency transaction gains, and $6,000 of other non-operating income.

Other income (expense), net for 2025 was comprised of $20,000 of interest income and $3,000 of foreign currency transaction gains, while other income (expense), net for 2024 was comprised of $54,000 of interest income and $39,000 of foreign currency transaction gains.

Year Ended December 31,

(in thousands, except percentages)

Income tax expense

Income tax expense (benefit)

Income tax expense reflects statutory tax rates in the jurisdictions in which we operate on the taxable income (loss) we generate in each jurisdiction.

For both 2024 and 2023, the Company’s income tax expense reflects tax expense on its foreign earnings with no tax benefit on its domestic losses due to the valuation allowance recorded on domestic net operating losses and other deferred tax assets.

Our effective tax rate is directly affected by the relative proportions of our taxable income in the jurisdictions in which we operate and the applicable tax rates in such jurisdictions.

For both 2025 and 2024, the Company’s income tax expense reflects tax expense (or benefit) on its foreign earnings (or losses) with no tax benefit on its domestic losses due to the valuation allowance recorded on domestic net operating losses and other deferred tax assets.

Our effective tax rate is directly affected by the relative proportions of our taxable income/loss in the jurisdictions in which we operate and the applicable tax rates in such jurisdictions.

Based on the expected mix of domestic and foreign earnings, we anticipate our effective tax rate to remain higher than the U.S.

statutory rate of 21% primarily due to a portion of our earnings originating in higher rate jurisdictions of China (25%) and the United Kingdom (25%), offset in part by earnings in lower-rate jurisdictions of Hong Kong (16.5%) and Singapore (17%), while our domestic losses are expected to provide no tax benefit due to the valuation allowance recorded on domestic net operating losses and other deferred tax assets.

statutory rate of 21% primarily due to a portion of our earnings originating in higher rate jurisdictions of China (25%) and the United Kingdom (25%), offset in part by earnings in the lower-rate jurisdiction of Hong Kong (16.5%), while our domestic losses are expected to provide no tax benefit due to the valuation allowance recorded on domestic net operating losses and other deferred tax assets.

State income taxes also have an impact in the U.S.

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Liquidity and Capital Resources

Cash requirements for working capital, capital expenditures, and acquisition activities have been funded from our cash balances, cash generated from operations and sales of marketable securities, and issuances of equity securities.

Cash requirements for working capital, capital expenditures, and acquisition activities have historically been funded from our cash balances, cash generated from operations, and issuances of equity securities.

As of December 31, 2025, we had cash and cash equivalents of $2.7 million, working capital of $4.6 million and no indebtedness.

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

We have outstanding 200,000 shares of our 8.0% Series A Convertible Preferred Stock (the “Preferred Stock”) that have an aggregate liquidation preference of $5.0 million.

We pay, when, as and if declared by our Board of Directors, monthly cumulative cash dividends on the Preferred Stock at an annual rate of 8.0%;

this is equivalent to $0.16667 per month and $2.00 per annum per share, based on a per share liquidation preference of $25.00.

Dividends on the Preferred Stock are payable monthly in arrears on the 15th day of each calendar month.

Our Board of Directors has declared, and we have paid, cash dividends on the Preferred Stock each month since the Preferred Stock was issued in October 2021, and we expect that the board will continue to declare, and we will continue to pay, such cash dividends each month while the Preferred Stock is outstanding, subject to applicable limitations under Nevada law.

In October 2025, we converted our Series A Convertible Preferred Stock into Common Stock, which eliminated the 8.0% per annum cumulative cash dividend payable on the Preferred Stock, for a cash savings of $400,000 per year.

We believe that our existing cash and cash equivalents balance will be sufficient to maintain our current operations considering our current financial condition, obligations, and other expected cash flows.

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For the year ended December 31, 2025, the $112,000 in net cash used in operating activities was attributable to net loss of $1,615,000, adjusted for non-cash charges of $519,000 and cash provided by changes in operating assets and liabilities of $984,000.

For the year ended December 31, 2023, the $116,000 in net cash used in operating activities was attributable to net loss of $383,000, adjusted for non-cash charges of $806,000 and cash used in changes in operating assets and liabilities of $539,000.

For the year ended December 31, 2024, the $367,000 in net cash used in operating activities was attributable to net loss of $1,984,000, adjusted for non-cash charges of $809,000 and cash provided by changes in operating assets and liabilities of $808,000.

Accounts receivable decreased from $1,612,000 at December 31, 2024 to $1,542,000 at December 31, 2025 due to the timing of shipments and cash collections during the fourth quarter of 2025 compared to the fourth quarter of 2024.

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Inventories decreased from $2,009,000 at December 31, 2024 to $1,801,000 at December 31, 2025 due primarily to variability in the timing of materials purchases and customer demand on product shipments.

Prepaid expenses and other current assets decreased slightly from $381,000 at December 31, 2023 to $328,000 at December 31, 2024.

Prepaid expenses and other current assets decreased from $328,000 at December 31, 2024 to $236,000 at December 31, 2025.

The balance of these current assets fluctuates with the timing of payments of insurance premiums, advances, and estimated income taxes.

Accounts payable, accrued liabilities, and accrued income taxes decreased from $1,249,000 at December 31, 2023 to $1,038,000 at December 31, 2024.

Accounts payable, accrued liabilities, and accrued income taxes increased from $1,038,000 at December 31, 2024 to $1,339,000 at December 31, 2025.

The balance of these current liabilities fluctuates based on the timing of payment for purchases of materials, compensation accruals, outside services, and income taxes.

Net Cash (Used In) Investing Activities

Net cash used in investing activities for the year ended December 31, 2025 consisted of $56,000 used for purchases of property and equipment.

Net cash used in investing activities of $491,000 for the year ended December 31, 2024 consisted of $314,000 used to acquire the assets of Conductive Transfers in December 2024, and $177,000 used for purchases of property and equipment.

Net cash used in investing activities of $4,885,000 for the year ended December 31, 2023 consisted of $4,873,000 used to acquire the equity interests of Calman (which was net of $1,577,000 of cash acquired), $111,000 received from the purchase price escrow for the acquisition of SPEC and KWJ upon finalization of the purchase price, and $123,000 used for purchases of property and equipment.

Net Cash (Used In) Financing Activities

Net cash used in financing activities of $91,000 for the year ended December 31, 2025 consisted of proceeds of $242,000 from issuance of Common Stock (net of $86,000 of offering costs), offset by payment of $333,000 of dividends on our Preferred Stock.

Net cash used in financing activities for the year ended December 31, 2024 consisted of payment of $400,000 of dividends on our Preferred Stock.

Net cash used in financing activities of $750,000 for the year ended December 31, 2023 consisted of payment of $400,000 of dividends on our Preferred Stock, and $350,000 used for repurchases of 56,430 shares of common stock.

Transactions with Related Parties

For a discussion of transactions with related parties, see Note 10, Related Party Transactions , of the notes to the consolidated financial statements, and Item 13, Certain Relationships and Related Transactions, and Director Independence , appearing elsewhere in this Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

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Recently Issued and Adopted Accounting Pronouncements

For a discussion of recently adopted accounting pronouncements, see Recently Issued Accounting Pronouncements in Note 1, The Company and its Significant Accounting Policies , of the notes to the consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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 7. Management’s Discussion and Analysis