INTERLINK ELECTRONICS INC 10-Q

Item 1. Financial Statements INTERLINK ELECTRONICS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, ​ 2024 2023 ​ (in thousands, except par value) ASSETS ​ ​ ​ ​ ​ ​ Current assets ​ ​ ​ ​ ​ ​ Cash and cash equivalents $ 4,367 $ 4,304 Accounts receivable, net ​ ​ 1,772 ​ ​ 2,167 Inventories ​ ​ 2,570 ​ ​ 2,476 Prepaid expenses and other current assets ​ ​ 368 ​ ​ 381 Total current assets ​ ​ 9,077 ​ ​ 9,328 Property, plant and equipment, net ​ ​ 289 ​ ​ 313 Intangible assets, net ​ ​ 2,437 ​ ​ 2,654 Goodwill ​ ​ 2,435 ​ ​ 2,461 Right-of-use assets ​ ​ 99 ​ ​ 143 Deferred tax assets ​ ​ 82 ​ ​ 83 Other assets ​ ​ 79 ​ ​ 80 Total assets $ 14,498 $ 15,062 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ Current liabilities ​ ​ ​ ​ ​ ​ Accounts payable $ 965 $ 464 Accrued liabilities ​ ​ 416 ​ ​ 492 Lease liabilities, current ​ ​ 112 ​ ​ 126 Accrued income taxes ​ ​ 342 ​ ​ 293 Total current liabilities ​ ​ 1,835 ​ ​ 1,375 ​ ​ ​ ​ ​ ​ ​ Long-term liabilities ​ ​ ​ ​ ​ ​ Lease liabilities, long term ​ ​ 2 ​ ​ 33 Deferred tax liabilities ​ ​ 581 ​ ​ 626 Total long-term liabilities ​ ​ 583 ​ ​ 659 Total liabilities ​ ​ 2,418 ​ ​ 2,034 ​ ​ ​ ​ ​ ​ ​ Commitments and contingencies (Note 8) ​ ​ — ​ ​ — ​ ​ ​ ​ ​ ​ ​ Stockholders’ equity ​ ​ ​ ​ ​ ​ Preferred stock, $ 0.01 par value: 1,000 shares authorized, 200 shares of Series A Convertible Preferred Stock issued and outstanding at both March 31, 2024 and December 31, 2023 ( $ 5.0 million liquidation preference) ​ ​ 2 ​ ​ 2 Common stock, $ 0.001 par value: 30,000 shares authorized, 9,860 shares issued and outstanding at both March 31, 2024 and December 31, 2023 ​ ​ 10 ​ ​ 10 Additional paid-in-capital ​ ​ 62,279 ​ ​ 62,279 Accumulated other comprehensive income ​ ​ 93 ​ ​ 200 Accumulated deficit ​ ​ ( 50,304 ) ​ ​ ( 49,463 ) Total stockholders’ equity ​ ​ 12,080 ​ ​ 13,028 Total liabilities and stockholders’ equity $ 14,498 $ 15,062 ​ See accompanying notes to these unaudited condensed consolidated financial statements. ​ 3 Table of Contents INTERLINK ELECTRONICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ 2024 2023 ​ (in thousands, except per share data) Revenue, net $ 3,124 $ 3,278 Cost of revenue ​ ​ 1,871 ​ ​ 1,691 Gross profit ​ ​ 1,253 ​ ​ 1,587 Operating expenses: ​ ​ ​ ​ ​ ​ Engineering, research and development ​ ​ 576 ​ ​ 527 Selling, general and administrative ​ ​ 1,428 ​ ​ 1,233 Total operating expenses ​ ​ 2,004 ​ ​ 1,760 Loss from operations ​ ​ ( 751 ) ​ ​ ( 173 ) Other income (expense): ​ ​ ​ ​ ​ ​ Other income (expense), net ​ ​ 32 ​ ​ 64 Loss before income taxes ​ ​ ( 719 ) ​ ​ ( 109 ) Income tax expense ​ ​ 22 ​ ​ 82 Net loss ​ $ ( 741 ) ​ $ ( 191 ) ​ ​ ​ ​ ​ ​ ​ Net loss applicable to common stockholders $ ( 841 ) $ ( 291 ) Earnings (loss) per common share – basic and diluted ​ $ ( 0.09 ) ​ $ ( 0.03 ) Weighted average common shares outstanding – basic and diluted ​ ​ 9,860 ​ ​ 9,915 ​ See accompanying notes to these unaudited condensed consolidated financial statements. ​ ​ 4 Table of Contents INTERLINK ELECTRONICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ 2024 2023 ​ ​ (in thousands) Net loss ​ $ ( 741 ) ​ $ ( 191 ) Other comprehensive income (loss), net of tax: ​ ​ ​ ​ Foreign currency translation adjustments ​ ( 107 ) ​ 182 Comprehensive loss ​ $ ( 848 ) ​ $ ( 9 ) ​ See accompanying notes to these unaudited condensed consolidated financial statements. ​ ​ 5 Table of Contents INTERLINK ELECTRONICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ Total ​ ​ Preferred Stock ​ Common Stock ​ Paid-in- ​ Comprehensive ​ Accumulated ​ Stockholders’ Three months ended March 31, 2024 Shares Amount Shares Amount Capital Income (Loss) Deficit Equity (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at December 31, 2023 200 ​ $ 2 ​ 9,860 ​ $ 10 ​ $ 62,279 ​ $ 200 ​ $ ( 49,463 ) ​ $ 13,028 Net loss — ​ ​ — ​ — ​ — ​ — ​ — ​ ( 741 ) ​ ( 741 ) Preferred stock dividends — ​ ​ — ​ — ​ — ​ — ​ — ​ ( 100 ) ​ ( 100 ) Foreign currency translation adjustment — ​ ​ — ​ — ​ — ​ — ​ ( 107 ) ​ — ​ ( 107 ) Balance at March 31, 2024 200 ​ $ 2 ​ 9,860 ​ $ 10 ​ $ 62,279 ​ $ 93 ​ $ ( 50,304 ) ​ $ 12,080 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ Total ​ ​ Preferred Stock ​ Common Stock ​ Paid-in- ​ Comprehensive ​ Accumulated ​ Stockholders’ Three months ended March 31, 2023 Shares Amount Shares Amount Capital Income (Loss) Deficit Equity (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at December 31, 2022 200 ​ $ 2 ​ 9,915 ​ $ 10 ​ $ 62,614 ​ $ ( 98 ) ​ $ ( 48,680 ) ​ $ 13,848 Net loss — ​ ​ — ​ — ​ — ​ — ​ — ​ ( 191 ) ​ ( 191 ) Preferred stock dividends ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 100 ) ​ ​ ( 100 ) Foreign currency translation adjustment — ​ ​ — ​ — ​ — ​ — ​ 182 ​ — ​ 182 Balance at March 31, 2023 200 ​ $ 2 ​ 9,915 ​ $ 10 ​ $ 62,614 ​ $ 84 ​ $ ( 48,971 ) ​ $ 13,739 ​ See accompanying notes to these unaudited condensed consolidated financial statements. ​ ​ 6 Table of Contents INTERLINK ELECTRONICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ 2024 2023 ​ ​ (in thousands) Cash flows from operating activities: ​ ​ ​ ​ ​ ​ Net loss $ ( 741 ) $ ( 191 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ ​ 229 ​ ​ 49 Adjustment to reconcile operating lease expense to cash paid ​ ​ ( 2 ) ​ ​ ( 1 ) Deferred income taxes ​ ​ ( 39 ) ​ ​ — Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ Accounts receivable ​ ​ 387 ​ ​ ( 396 ) Inventories ​ ​ ( 111 ) ​ ​ ( 208 ) Prepaid expenses and other assets ​ ​ 14 ​ ​ ( 179 ) Accounts payable ​ ​ 505 ​ ​ 375 Accrued liabilities ​ ​ ( 74 ) ​ ​ ( 149 ) Accrued income taxes ​ ​ 54 ​ ​ 80 Net cash provided by (used in) operating activities ​ ​ 222 ​ ​ ( 620 ) Cash flows from investing activities: ​ ​ ​ ​ ​ ​ Acquisition of Calman Technology Limited, net of cash acquired ​ ​ — ​ ​ ( 2,740 ) Purchases of property, plant and equipment ​ ​ ( 18 ) ​ ​ ( 10 ) Net cash (used in) investing activities ​ ​ ( 18 ) ​ ​ ( 2,750 ) Cash flows from financing activities: ​ ​ ​ ​ ​ ​ Payment of dividends on preferred stock ​ ​ ( 100 ) ​ ​ ( 100 ) Net cash (used in) financing activities ​ ​ ( 100 ) ​ ​ ( 100 ) ​ ​ ​ ​ ​ ​ ​ Effect of exchange rate changes on cash ​ ​ ( 41 ) ​ ​ 69 Net increase (decrease) in cash and cash equivalents ​ ​ 63 ​ ​ ( 3,401 ) Cash and cash equivalents, beginning of period ​ ​ 4,304 ​ ​ 10,091 Cash and cash equivalents, end of period $ 4,367 $ 6,690 ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure of cash flow information: ​ ​ ​ ​ ​ ​ Income taxes paid, net $ 6 $ 19 Interest paid ​ ​ — ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ See accompanying notes to these unaudited condensed consolidated financial statements. ​ ​ 7 Table of Contents INTERLINK ELECTRONICS, INC. ​ Notes to Condensed Consolidated Financial Statements (unaudited) Note 1 – The Company and its Significant Accounting Policies Description of Business Interlink Electronics, Inc. (“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. Our force-sensing products and solutions include sensor components, subassemblies, modules and products that support effective, efficient cursor control and novel three-dimensional user inputs. Our Human Machine Interface (“HMI”) technology platforms are deployed in a wide range of markets including consumer electronics, automotive, industrial, and medical. 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 Silicon Valley, 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 was made by issuing one full share of common stock in lieu of a fractional share. The stock dividend increased the number of issued and outstanding shares of common stock from 6,573,570 to 9,860,368 . Except as otherwise noted, all references to common stock, common stock issuable upon conversion of preferred stock, and corresponding per share information throughout this Quarterly Report on Form 10-Q 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. Fiscal Year Our fiscal year is the calendar year reporting cycle beginning January 1 and ending December 31. Basis of Presentation The accompanying unaudited interim consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intra-entity transactions and balances have been eliminated in consolidation. The accompanying unaudited interim consolidated financial statements for the Company and its subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting. Accordingly, certain information and footnote disclosures normally included in annual consolidated financial statements have been condensed or omitted in accordance with Rule 10-01 of Regulation S-X. 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 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 25, 2024. 8 Table of Contents 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 doubtful accounts, warranty reserves, inventory valuation reserves, stock-based compensation, purchased intangible asset valuations and useful lives, asset retirement obligations, and deferred income tax asset valuation allowances. These estimates and assumptions are based on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. The actual results we experience may differ materially and adversely from our original estimates. To the extent there are material differences between the estimates and the actual results, our future results of operations will be affected. Revenue Recognition We recognize revenue in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that are within the scope of ASC 606, we perform the following five steps; (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations; and (v) recognize revenue when (or as) we satisfy a performance obligation. The five-step model is applied to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services transferred to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize revenue in the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Delivery occurs when goods are shipped and title and risk of loss transfer to the customer, in accordance with the terms specified in the arrangement with the customer. Revenue recognition is deferred until the earnings process is complete. We (i) input orders based upon receipt of a customer purchase order, (ii) confirm pricing through the customer purchase order record, (iii) validate creditworthiness through past payment history, credit agency reports and other financial data, and (iv) recognize revenue upon shipment of goods or when risk of loss and title transfer to the buyer. All customers have warranty rights, and some customers also have explicit or implicit rights of return. We establish reserves for potential customer returns or warranty repairs based on historical experience and other factors that enable us to reasonably estimate the obligation. A portion of our product sales is made through distributors under agreements allowing for right of return. Our past history with these sell-through right of return provisions allow us to reasonably estimate the amount of inventory that could be returned pursuant to these agreements, and revenue is recognized accordingly. Shipping and Handling Fees and Costs Amounts billed to customers for shipping and handling fees are presented in revenues. Costs incurred for shipping and handling are included in cost of revenues. Engineering, Research and Development Costs Engineering, research and development (“R&D”) costs are expensed when incurred. R&D expenses consist primarily of compensation expenses for employees engaged in research, design and development activities. R&D expenses also include depreciation and amortization, and overhead, including facilities expenses. Marketing and Advertising Costs All of the costs related to marketing and advertising our products are expensed as incurred or at the time the marketing or advertising takes place. 9 Table of Contents Stock-Based Compensation All stock-based payments to employees, including grants of employee stock options and employee stock purchase rights, are recognized in the financial statements based on their respective grant date (measurement date) fair values. We calculate the compensation cost of full-value awards, such as restricted stock, based on the market value of the underlying stock at the date of the grant. We estimate the expected life of a stock award as the period of time that the award is expected to be outstanding. We are required to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service periods. We estimate the fair value of each option award as of the date of grant using the Black-Scholes option pricing model, which was developed for use in estimating the value of traded options that have no vesting restrictions and that are freely transferable. The Black-Scholes option pricing model considers, among other factors, the expected life of the award and the expected volatility of our stock price. Although the Black-Scholes option pricing model meets the accounting guidance requirements, the fair values generated by the Black-Scholes option pricing model may not be indicative of the actual fair values of our awards, as it does not consider other factors important to those stock-based payment awards, such as continued employment, periodic vesting requirements, and limited transferability. We have elected to recognize compensation expense for all stock-based awards on a straight-line basis over the requisite service period for the entire award. The amount of compensation expense recognized through the end of each reporting period is equal to the portion of the grant-date value of the awards that have vested, or for partially vested awards, the value of the portion of the award that is ultimately expected to vest for which the requisite services have been provided. The benefits of tax deductions in excess of recognized compensation cost are reported as a financing cash flow. As of March 31, 2024, 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. Income Taxes 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. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not determinable beyond a “more likely than not” standard, we establish a valuation allowance. To the extent we establish a valuation allowance or increase or decrease this allowance in a period, we include an expense or benefit within the tax provision in the statement of operations. We also utilize a “more likely than not” recognition threshold and measurement analysis for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We recognize potential accrued interest and penalties related to unrecognized tax benefits within the consolidated statements of operations as income tax expense. We operate within multiple tax jurisdictions and are subject to audit in these jurisdictions. Our foreign subsidiaries are subject to foreign income taxes on earnings in their respective jurisdictions. Earnings of our foreign subsidiaries are included in our U.S. federal income tax return as they are earned. Foreign Currency Translation The functional currency of our Chinese subsidiary is the Chinese Yuan Renminbi. 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. Revenues and expenses are translated at the average exchange rate prevailing during the respective periods. Comprehensive Income (Loss) Comprehensive income (loss) includes all components of comprehensive income (loss), including net income (loss) and any changes in equity during the period from transactions and other events and circumstances generated by non-owner sources. 10 Table of Contents Segment Reporting We operate in one reportable segment: the manufacture and sale of force/touch sensors and gas sensors. 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) 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. Leases We account for our leases under ASC 842. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or our incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For finance leases, interest on the lease liability and the amortization of the right of use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred. 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. Risk and Uncertainties Our future results of operations involve a number of risks and uncertainties. Factors that could affect our business or future results and cause actual results to vary materially from historical results include, but are not limited to, the rapid change in our industry; problems with the performance, reliability or quality of our products; loss of customers; 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; disruptions in our manufacturing facilities; changes in environmental directives impacting our manufacturing process or product lines; the development of new proprietary technology and the enforcement of intellectual property rights by or against us; our ability to attract and retain qualified employees; and our ability to raise additional capital. 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, and so far in fiscal 2024. 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. 11 Table of Contents Fair Value Measurements We determine fair value measurements based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, we follow the following fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) our own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs): Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets; Level 2: Other inputs observable directly or indirectly, such as quoted prices for similar assets or liabilities or market-corroborate inputs; and Level 3: Unobservable inputs for which there is little or no market data and which requires the owner of the assets or liabilities to develop its own assumptions about how market participants would price these assets or liabilities. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy. Recently Issued Accounting Pronouncements We reviewed all recently issued accounting pronouncements and concluded they are not applicable or not expected to be material to our financial statements. Subsequent Events We have evaluated subsequent events through May 9, 2024, 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, ​ 2024 2023 Inventories (in thousands) Raw materials $ 2,049 $ 1,986 Work-in-process ​ ​ 225 ​ ​ 232 Finished goods ​ ​ 296 ​ ​ 258 Total inventories $ 2,570 $ 2,476 ​ Property, plant and equipment, net, consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, ​ 2024 2023 Property, plant and equipment, net ​ (in thousands) Furniture, machinery and equipment ​ $ 2,014 ​ $ 2,009 Leasehold improvements ​ 406 ​ 412 ​ ​ 2,420 ​ 2,421 Less: accumulated depreciation ​ ( 2,131 ) ​ ( 2,108 ) Total property, plant and equipment, net ​ $ 289 ​ $ 313 ​ Depreciation expense totaled $ 40,000 and $ 37,000 for the three months ended March 31, 2024 and 2023, respectively. 12 Table of Contents Intangible assets, net, consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ ​ ​ Average ​ ​ ​ ​ ​ ​ ​ ​ Amortization ​ March 31, ​ December 31, ​ Period 2024 2023 Intangible assets, net ​ ​ ​ (in thousands) Patents, tradenames, and trademarks ​ 5 years ​ $ 932 ​ $ 935 Developed technology ​ 3.5 years ​ ​ 538 ​ ​ 543 Customer relationships ​ 6 years ​ ​ 1,433 ​ ​ 1,449 Non-compete agreements ​ 4 years ​ ​ 920 ​ ​ 930 Order backlog ​ 0.5 years ​ ​ 22 ​ ​ 22 In-process research and development ​ Indefinite ​ ​ 29 ​ ​ 29 ​ ​ ​ ​ ​ 3,874 ​ ​ 3,908 Less: accumulated amortization ​ ​ ​ ( 1,437 ) ​ ( 1,254 ) Total intangible assets, net ​ ​ ​ $ 2,437 ​ $ 2,654 ​ Amortization expense totaled $ 189,000 and $ 12,000 for the three months ended March 31, 2024 and 2023, respectively. Future amortization expense on existing intangible assets is as follows: ​ ​ ​ ​ ​ Years ending December 31, (in thousands) 2024 (remainder of year) ​ $ 559 2025 ​ 663 2026 ​ 539 2027 ​ 332 2028 ​ 261 Thereafter ​ ​ 83 ​ ​ $ 2,437 ​ The changes in the carrying amount of goodwill for the periods ended March 31, 2024 and 2023 are as follows: ​ ​ ​ ​ ​ ​ ​ (in thousands) Balance as of January 1, 2024 ​ $ 2,461 Adjustment to goodwill, foreign currency exchange rate changes ​ ( 26 ) Balance as of March 31, 2024 ​ $ 2,435 ​ ​ ​ ​ ​ ​ ​ (in thousands) Balance as of January 1, 2023 $ 650 Goodwill acquired in acquisition of Calman (before December 2023 adjustment to allocation) ​ ​ 4,052 Adjustment to goodwill, foreign currency exchange rate changes ​ ​ 154 Balance as of March 31, 2023 $ 4,856 ​ Accrued liabilities consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, ​ 2024 2023 Accrued liabilities ​ (in thousands) Accrued wages and benefits ​ $ 146 ​ $ 204 Accrued vacation ​ 190 ​ 185 Other accrued liabilities ​ 80 ​ 103 Total accrued liabilities ​ $ 416 ​ $ 492 ​ ​ 13 Table of Contents Note 3 – 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, giving effect to the post-closing purchase price adjustment and the revised allocation based on the results of the valuation report (in thousands). ​ ​ ​ ​ ​ Cash $ 1,577 Accounts receivable ​ 656 Inventories ​ 622 Prepaid expenses and other current assets ​ 12 Property, plant, and equipment ​ 146 Right-of-use assets ​ 91 Accounts payable and accrued liabilities ​ ( 615 ) Lease liabilities ​ ( 91 ) Net identifiable tangible assets acquired ​ ​ 2,398 Developed technology ​ ​ 381 Tradenames and trademarks ​ ​ 214 Customer relationships ​ ​ 1,260 Non-compete agreements ​ 843 Deferred tax liabilities ​ ​ ( 710 ) Goodwill ​ 2,064 Net assets acquired ​ $ 6,450 ​ 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 Calman had been included in our consolidated results for the full quarters ended March 31, 2024 and 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ Pro Forma ​ ​ Three Months Ended March 31, ​ 2024 2023 ​ ​ (in thousands) Revenue ​ $ 3,124 ​ $ 4,039 Net income (loss) ​ $ ( 741 ) ​ $ 296 ​ ​ 14 Table of Contents Note 4 – Earnings Per Share 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 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, ​ 2024 2023 ​ ​ (in thousands, except per share data) Net loss $ ( 741 ) $ ( 191 ) Less: Preferred stock dividends ​ ​ ( 100 ) ​ ​ ( 100 ) Net loss applicable to common stockholders ​ $ ( 841 ) ​ $ ( 291 ) ​ ​ ​ ​ ​ ​ ​ Weighted average common shares outstanding – basic ​ ​ 9,860 ​ ​ 9,915 Dilutive potential common shares from convertible preferred stock ​ ​ — ​ ​ — Weighted average common shares outstanding – diluted ​ ​ 9,860 ​ ​ 9,915 ​ ​ ​ ​ ​ ​ ​ Earnings (loss) per common share, basic $ ( 0.09 ) $ ( 0.03 ) Earnings (loss) per common share, diluted ​ $ ( 0.09 ) ​ $ ( 0.03 ) ​ ​ ​ ​ ​ ​ ​ Anti-dilutive shares issuable upon conversion of Series A Convertible Preferred Stock excluded from calculation ​ ​ 600 ​ ​ 600 ​ 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 their effect would be anti-dilutive due to the net losses and due to the $ 8.33 conversion price being higher than the average market price of the common stock. ​ Note 5 – Significant Customers, Concentrations of Credit Risk, and Geographic Information 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ ​ 2024 2023 Customer A 16 % 32 % Customer B 17 % * % * Less than 10% of total net revenues 15 Table of Contents Net revenues by geographic area are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ 2024 2023 ​ (in thousands) United States ​ $ 1,445 ​ $ 2,153 Asia and Middle East ​ 729 ​ 826 Europe and other ​ 950 ​ 299 Revenue, net ​ $ 3,124 ​ $ 3,278 ​ Revenues by geographic area are based on the country of shipment destination. The geographic location of distributors and third-party manufacturing service providers may be different from the geographic location of the purchasers and/or ultimate end users. We provide credit only to creditworthy third parties who are subject to our credit verification procedures. Accounts receivable balances are monitored on an ongoing basis, and accounts deemed to have credit risk are fully reserved. At March 31, 2024, two customers accounted for 24 % and 19 % of total accounts receivable. At December 31, 2023, two customers accounted for 35 % and 16 % of total accounts receivable. Our allowance for doubtful accounts was $ 0 at both March 31, 2024 and December 31, 2023. Our long-lived assets were geographically located as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, December 31, ​ 2024 2023 ​ (in thousands) United States ​ $ 674 ​ $ 733 Europe ​ ​ 4,565 ​ ​ 4,784 Asia ​ 182 ​ 217 Total long-lived assets ​ $ 5,421 ​ $ 5,734 ​ ​ 16 Table of Contents Note 6 – Related Party Transactions Qualstar Corporation (OTCMKTS:QBAK) Qualstar Corporation (OTCMKTS:QBAK) (“Qualstar”) is a related party. Steven N. Bronson, our Chairman of the Board, President and Chief Executive Officer, is also the President, Chief Executive Officer and a director of Qualstar. Ryan J. Hoffman, our Chief Financial Officer, is also the Acting Chief Financial Officer of Qualstar. Mr. Bronson, together with BKF Capital Group, Inc. (OTCMKTS:BKFG) which he controls, has a controlling interest in both Interlink and Qualstar. We have a facilities agreement with Qualstar to allow Qualstar to use 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. Qualstar also has a facilities agreement with us to allow us to use of a portion of its Camarillo, California office and warehouse facility, for which we have agreed to split substantially all rent and lease-related costs on an apportioned basis according to the approximate relative usage levels by each entity. In addition, we have various consulting agreements with Qualstar for certain of our respective employees and/or independent contractors that provide certain operational, sales, marketing, general and administrative services to the other entity. Interlink and Qualstar also agree to reimburse, or be reimbursed by, one another for expenses paid by one company on behalf of the other. Transactions with Qualstar and its subsidiaries are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ 2024 ​ 2023 ​ Due from Due to Due from Due to ​ ​ Qualstar ​ Qualstar ​ Qualstar ​ Qualstar ​ (in thousands) Balance at January 1, ​ $ 2 ​ ​ 32 ​ $ 6 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Billed (or accrued) to Qualstar by Interlink ​ 76 ​ — ​ 225 ​ — Paid by Qualstar to Interlink ​ ( 65 ) ​ — ​ ( 210 ) ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Billed (or accrued) to Interlink by Qualstar ​ — ​ 37 ​ — ​ 25 Paid by Interlink to Qualstar ​ — ​ ( 44 ) ​ — ​ ( 25 ) Balance at March 31, ​ $ 13 ​ ​ 25 ​ $ 21 ​ $ — ​ 17 Table of Contents BKF Capital Group (OTCMKTS:BKFG) BKF Capital Group, Inc. (OTCMKTS:BKFG) (“BKF Capital”) is a related party. Steven N. Bronson, our Chairman of the Board, President and Chief Executive Officer, is also the Chief Executive Officer and Chairman of BKF Capital. Ryan J. Hoffman, our Chief Financial Officer, is also the Chief Financial Officer of BKF Capital. Mr. 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, 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. Transactions with BKF Capital and its subsidiaries are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ ​ 2024 ​ 2023 ​ Due from Due to Due from Due to ​ ​ BKF Capital ​ BKF Capital ​ BKF Capital ​ BKF Capital ​ ​ (in thousands) Balance at January 1, ​ $ 2 ​ ​ — ​ $ 2 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Billed (or accrued) to BKF Capital by Interlink ​ 2 ​ — ​ 23 ​ — Paid by BKF Capital to Interlink ​ ( 3 ) ​ — ​ ( 8 ) ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Billed (or accrued) to Interlink by BKF Capital ​ — ​ 56 ​ — ​ 50 Paid by Interlink to BKF Capital ​ — ​ ( 56 ) ​ — ​ ( 50 ) Balance at March 31, ​ $ 1 ​ ​ — ​ $ 17 ​ $ — ​ ​ Note 7 – Income Taxes Income tax expense as a percentage of pre-tax loss was 3.1 % for the three months ended March 31, 2024 versus 75.2 % 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”). Accordingly, our effective tax rate can vary from the U.S. statutory tax rate of 21 % from quarter to quarter. The effective tax rates for each of the three-month periods ended March 31, 2024 and 2023 were impacted by the amount of our foreign pre-tax income and the tax expense thereon 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. In general, a Section 382 ownership change occurs if there is a cumulative change in our ownership by “5% shareholders” (as defined in the Internal Revenue Code of 1986, as amended) that exceeds 50 percentage points over a rolling three-year period. An ownership change generally affects the rate at which NOLs and potential other deferred tax assets are permitted to offset future taxable income. Certain state jurisdictions within which we operate contain similar provisions and limitations. As of March 31, 2024, 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 that a valuation allowance on federal and state deferred tax assets was necessary at both March 31, 2024 and December 31, 2023, while no valuation allowance on foreign deferred tax assets was necessary at both March 31, 2024 and December 31, 2023. 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. 18 Table of Contents The Internal Revenue Code includes a provision, referred to as Global Intangible Low-Taxed Income (“GILTI”), which provides for a 10.5 % tax on certain income of controlled foreign corporations. 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 our $ 4.4 million of cash at March 31, 2024, $ 2.7 million was held by our foreign subsidiaries. If these funds are needed for our operations in the U.S. 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. 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. operations. ​ Note 8 – Commitments and Contingencies Lease Agreements We lease facilities under non-cancellable operating leases. Our current leases expire at various dates through fiscal 2025 and frequently include renewal provisions for varying periods of time, provisions which require us to pay taxes, insurance and maintenance costs, and provisions for minimum rent increases. Minimum leases payments, including scheduled rent increases are recognized as rent expenses on a straight-line basis over the term of the lease. 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. No new right-of-use (“ROU”) assets were capitalized during the three months ended March 31, 2024 or 2023. 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 March 31, 2024, 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. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. 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 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. In March 2024 we extended the term of this lease through May 2025 for the same approximately $ 4,000 per - month rental fee. 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 $ 8,000 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. In March 2024, we entered into a new lease for a 5,183 square - foot facility in Fremont, California for a five - year and three - month period commencing May 1, 2024 (subject to completion of tenant improvements) for $ 10,625 per month, escalating 3.5 % annually, plus a share of common area operating expenses. We lease an approximately 9,800 square-foot manufacturing facility and administrative offices in Irvine, Scotland for approximately $ 5,000 per month. 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 logistics and distribution facility in Hong Kong for approximately $ 2,000 per month. This lease term ends April 2025. 19 Table of Contents We lease a 500 square-foot sales office in Tokyo, Japan for approximately $ 1,000 per month. This lease term ends November 2024. As of March 31, 2024, we had current and long-term lease liabilities of $ 112,000 and $ 2,000 , respectively, and right-of-use assets of $ 99,000 . As of December 31, 2023, we had current and long-term lease liabilities of $ 126,000 and $ 33,000 , respectively, and right of use assets of $ 143,000 . Future imputed interest as of March 31, 2024 totaled $ 4,000 . The weighted average remaining lease term of our leases as of March 31, 2024 is 0.5 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: ​ ​ ​ ​ ​ Years ending December 31, (in thousands) 2024 (remainder of year) ​ $ 85 2025 ​ 33 2026 ​ — 2027 ​ ​ — 2028 ​ ​ — Thereafter ​ ​ — Total undiscounted future non-cancelable minimum lease payments ​ 118 Less: imputed interest ​ ​ ( 4 ) Present value of lease liabilities ​ $ 114 ​ During the three months ended March 31, 2024, we incurred approximately $ 124,000 in operating lease costs. Operating lease costs of $ 67,000 are included in cost of revenue, and $ 57,000 are included in operating expenses in our condensed consolidated statements of operations for the three months ended March 31, 2024. 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. Litigation We are not party to any legal proceedings as of March 31, 2024. 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. Related legal defense costs are expensed as incurred. Warranties We establish reserves for future product warranty costs that are expected to be incurred pursuant to specific warranty provisions with our customers. We generally warrant our products against defects for one year from date of shipment, with certain exceptions in which the warranty period can extend to more than one year based on contractual agreements. Our warranty reserves are established at the time of sale and 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. Intellectual Property Indemnities 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. 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. 20 Table of Contents Director and Officer Indemnities and Contractual Guarantees Pursuant to our bylaws, we will indemnify our directors and executive officers to the fullest extent permitted by Nevada law, without limitation as to amount or duration, in the event of any actual or threatened lawsuit or proceeding. Certain costs incurred in connection with such indemnifications may be recovered under certain circumstances under various insurance policies. Given that the amount of any potential liabilities related to such indemnities cannot be determined until a lawsuit or proceeding has been threatened or filed, we are unable to determine the maximum amount of losses that we could incur relating to such indemnities. We have entered into an employment agreement with Steven N. Bronson, our Chairman of the Board, President and Chief Executive Officer. This agreement contains certain severance and change in control obligations. Under the agreement, if Mr. Bronson’s employment is terminated due to his death or disability (as such terms are defined in the agreement), Mr. Bronson or his beneficiaries will be entitled to receive: (i) his base compensation to the end of the monthly pay period immediately following the date of termination; (ii) accrued bonus payments; and (iii) immediate and full vesting of all unvested equity and/or options issued by the Company. If Mr. Bronson’s employment is terminated by him for good reason (as such term is defined in the agreement), or by us without cause, then Mr. Bronson will be entitled to receive: (i) his base compensation to the date of termination; (ii) a severance payment equal to twelve months of his base compensation; (iii) any earned bonus compensation; (iv) employee benefits for twelve months following the date of termination; (v) any vested company match 401(k) or other retirement contribution; and (vi) immediate and full vesting of all unvested equity and/or options issued by the Company. In the event of a change in control of the Company (as such term is defined in the agreement), Mr. Bronson is entitled to receive: (i) a change in control payment in an amount equal to twelve months of his base compensation, payable as of the date the change in control occurs; and (ii) immediate and full vesting of all unvested equity and/or options issued by the Company. Guarantees and Indemnities In the normal course of business, we are occasionally required to undertake indemnification for which we may be required to make future payments under specific circumstances. We review our exposure under such obligations no less than annually, or more frequently as required. The amount of any potential liabilities related to such obligations cannot be accurately determined until a formal claim is filed. Historically, any such amounts that become payable have not had a material negative effect on our business, financial condition or results of operations. We maintain general and product liability insurance which may provide a source of recovery to us in the event of an indemnification claim. ​ ​ 21 Table of Contents