Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements. These forward-looking statements speak only as of the date of this Form 10-Q and are subject to uncertainties, assumptions and business and economic risks. As such, our actual results could differ materially from those set forth in the forward-looking statements as a result of the factors set forth below in Part II, Item 1A, “Risk Factors,” and in our other reports filed with the Securities and Exchange Commission. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances described in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Form 10-Q to conform these statements to actual results or to changes in our expectations, except as required by law.
The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
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.
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 patented 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.
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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.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statements presentation, financial condition, results of operations, and cash flows will be affected.
A description of our critical accounting policies that represent the more significant judgments and estimates used in the preparation of our financial statements was provided in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 27, 2025. There have been no changes to our critical accounting policies and estimates described in the Form 10-K that have had a material impact on our condensed consolidated financial statements and related notes.
Recently Issued and Adopted Accounting Pronouncements
We reviewed all recently issued accounting pronouncements and concluded they are all not applicable or not expected to be material to our financial statements.
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Results of Operations
The following table sets forth certain unaudited condensed consolidated statements of operations data for the periods indicated. The percentages in the table are based on revenues.
Three Months Ended March 31,
2025
2024
$
%
$
%
(in thousands, except percentages)
Revenue
$
2,664
100.0
%
$
3,124
100.0
%
Cost of revenue
1,715
64.4
%
1,871
59.9
%
Gross profit
949
35.6
%
1,253
40.1
%
Operating expenses:
Engineering, research and development
434
16.3
%
576
18.4
%
Selling, general and administrative
1,364
51.2
%
1,428
45.7
%
Total operating expenses
1,798
67.5
%
2,004
64.1
%
(Loss) from operations
(849)
(31.9)
%
(751)
(24.0)
%
Other income (expense), net
5
0.2
%
32
1.0
%
(Loss) before income taxes
(844)
(31.7)
%
(719)
(23.0)
%
Income tax expense (benefit)
(39)
(1.5)
%
22
0.7
%
Net (loss)
$
(805)
(30.2)
%
$
(741)
(23.7)
%
Comparison of Three Months Ended March 31, 2025 and 2024
Revenue by the markets we serve is as follows:
Three Months Ended March 31,
2025
2024
% of
% of
Amount
Revenue
Amount
Revenue
$ Change
% Change
(in thousands, except percentages)
Medical
$
714
26.8
%
$
1,185
37.9
%
$
(471)
(39.7)
%
Industrial
589
22.1
%
677
21.7
%
(88)
(13.0)
%
Consumer
11
0.4
%
132
4.2
%
(121)
(91.7)
%
Standard
1,350
50.7
%
1,130
36.2
%
220
19.5
%
Revenue
$
2,664
100.0
%
$
3,124
100.0
%
$
(460)
(14.7)
%
We sell our custom products into the medical, industrial, and consumer markets. We sell our standard products to customers in many markets through various distribution networks. 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. We currently have products with life cycles that have exceeded 20 years and are ongoing.
Revenues were down in the three months ended March 31, 2025 compared to the three months ended March 31, 2024 from customers in all of the custom markets into which we sell, and were up from 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 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.
Three Months Ended March 31,
2025
2024
% of
% of
Amount
Revenue
Amount
Revenue
$ Change
% Change
(in thousands, except percentages)
Gross profit
$
949
35.6
%
$
1,253
40.1
%
$
(304)
(24.3)
%
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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 and gross margin percentage were down during the three months ended March 31, 2025 compared to the three months ended March 31, 2024 due primarily to lower revenues and also in part to changes in product and customer mix.
Three Months Ended March 31,
2025
2024
% of
% of
Amount
Revenue
Amount
Revenue
$ Change
% Change
(in thousands, except percentages)
Engineering, research and development
$
434
16.3
%
$
576
18.4
%
$
(142)
(24.7)
%
Engineering and R&D expenses consist primarily of compensation expenses for employees engaged in research, design and development activities, plus the cost of those employees’ indirect supplies and allocation of facilities expenses. Our R&D team focuses both on internal design development in order to develop our products and solutions, and on custom design development aimed at addressing our customers’ unique design challenges. Engineering and R&D costs for the three months ended March 31, 2025 were down compared to the three months ended March 31, 2024 due to decreased engineering employee and consultant compensation costs.
Three Months Ended March 31,
2025
2024
% of
% of
Amount
Revenue
Amount
Revenue
$ Change
% Change
(in thousands, except percentages)
Selling, general and administrative
$
1,364
51.2
%
$
1,428
45.7
%
$
(64)
(4.5)
%
Selling, general and administrative expenses consist primarily of compensation expenses for sales and administrative employees, legal and other professional fees, facilities expenses, communication expenses, and intangible asset amortization expense. Selling, general and administrative costs for the three months ended March 31, 2025 were down slightly compared to the three months ended March 31, 2024 due to lower sales and administrative compensation expense on lower headcount and lower professional services expenses, offset in part by higher facilities costs.
Three Months Ended March 31,
2025
2024
% of
% of
Amount
Revenue
Amount
Revenue
$ Change
% Change
(in thousands, except percentages)
Other income (expense), net
$
5
0.2
%
$
32
1.0
%
$
(27)
(84.3)
%
Other income (expense) 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) for the three months ended March 31, 2025 was comprised of $6,000 of interest income, offset by $1,000 of foreign currency transaction losses, while other income (expense) for the three months ended March 31, 2024 was comprised of $14,000 of interest income, and $18,000 of foreign currency transaction gains.
Income taxes as a percentage of pre-tax loss was 4.6% for the three months ended March 31, 2025 versus 3.1% for the three months ended March 31, 2024. Our income tax expense is impacted by the mix of domestic and foreign pre-tax earnings and losses, permanent differences between book income/loss and taxable income/loss, and our ability to utilize net operating loss carryforwards (“NOLs”). Accordingly, our effective tax rate typically will vary from the U.S. statutory tax rate of 21% from quarter to quarter. The effective tax rates for the three-month periods ended March 31, 2025 and 2024 were impacted by the amount of our foreign pre-tax income/loss and the tax expense/benefit thereon while not realizing a benefit on our domestic pre-tax loss and certain foreign losses due to the valuation allowances thereon.
Discrete tax events may cause our effective rate to fluctuate on a quarterly basis. Certain events, including, for example, acquisitions and other business changes, which are difficult to predict, may also cause our effective tax rate to fluctuate. We are subject to changing tax laws, regulations, and interpretations in multiple jurisdictions. Corporate tax reform continues to be a priority in the U.S. and other jurisdictions. Additional changes to the tax system in the U.S. could have significant effects, positive and negative, on our effective tax rate and on our deferred tax assets and liabilities.
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Liquidity and Capital Resources
Cash requirements for working capital and capital expenditures have historically been funded from cash balances on hand, cash generated from operations, and sales of equity securities. As of March 31, 2025, we had cash and cash equivalents of $2.6 million, working capital of $4.8 million and no indebtedness. Cash and cash equivalents consist of cash and money market funds. Of our $2.6 million of cash, $1.9 million was held by foreign subsidiaries. If these funds are needed for our operations in the U.S. or for acquisitions, we have several methods to repatriate 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.
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.
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. If our circumstances change, however, we may require additional cash. If we require additional cash, we may attempt to raise additional capital through equity, equity-linked or debt financing arrangements. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by the incurrence of indebtedness, we could be subject to fixed payment obligations and could also be subject to restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. If we are unable to raise additional needed funds, we may also take measures to reduce expenses to offset any shortfall.
Cash Flow Analysis
Our cash flows from operating, investing and financing activities are summarized as follows:
Three Months Ended
March 31,
2025
2024
(in thousands)
Net cash provided by (used in) operating activities
$
(271)
$
222
Net cash (used in) investing activities
(29)
(18)
Net cash (used in) financing activities
(100)
(100)
Net Cash Provided By (Used In) Operating Activities
For the three months ended March 31, 2025, the $271,000 of cash used in operating activities was attributable to net loss of $805,000, adjusted for non-cash charges of $142,000 and cash provided by changes in operating assets and liabilities of $392,000. For the three months ended March 31, 2024, the $222,000 of cash provided by operating activities was attributable to net loss of $741,000, adjusted for non-cash charges of $188,000 and cash provided by changes in operating assets and liabilities of $775,000.
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Accounts receivable was unchanged at $1.6 million at both December 31, 2024 and March 31, 2025, resulting from lower shipments during the first quarter of 2025 compared to the fourth quarter of 2024, and slightly higher days-sales outstanding at March 31, 2025 (55) compared to December 31, 2024 (42). Many of our customers pay promptly and the accounts receivable balance is generally related to the most recent shipments. Inventories were down slightly from $2.0 million at December 31, 2024 to $1.8 million at March 31, 2025. Inventory balances fluctuate depending on the timing of materials purchases and product shipments. Prepaid expenses and other current assets were substantially unchanged at $328,000 at December 31, 2024 and $329,000 at March 31, 2025; this balance fluctuates with the timing of making prepayments versus when the benefits of those prepayments are consumed. Accounts payable, accrued liabilities, and accrued income taxes increased from $1.0 million at December 31, 2024 to $1.2 million at March 31, 2025; the balances of these working capital liabilities fluctuate due to the timing of purchases and payments on inventories and other accruals of employee compensation and outside services.
Net Cash (Used In) Investing Activities
Net cash used in investing activities of $29,000 for the three months ended March 31, 2025, and $18,000 for the three months ended March 31, 2024, consisted of purchases of property, plant, and equipment.
Net Cash (Used In) Financing Activities
Net cash used in financing activities of $100,000 for each of the three months ended March 31, 2025 and 2024 consisted of payment of dividends on our Preferred Stock.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.