What changed in this filing

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Item 1. Financial Statements

2018-11-09 compared with 2018-08-09 · 147 added, 118 removed, 734 unchanged (27% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

September 30,

(in thousands, except par value)

20 unchanged sentences

Common stock, $0.001 par value:

30,000 shares authorized, 6,479 and 7,328 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively

30,000 shares authorized, 6,483 and 7,336 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively

Additional paid-in-capital

7 unchanged sentences

( unaudited )

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

(in thousands, except per share data)

20 unchanged sentences

( unaudited )

Six months ended June 30,

Nine months ended September 30,

(in thousands)

39 unchanged sentences

Interlink serves our world-wide customer base from our corporate headquarters in Westlake Village, California (greater Los Angeles area), our global research and development (“R&D”) and engineering center in Singapore, our printed-electronics manufacturing facility in Shenzhen, China and our global distribution and logistics center in Hong Kong.

We also maintain engineering, assembly and prototyping capabilities in Simi Valley, California along with technical and sales offices in Japan and at multiple locations in the United States.

We also maintain engineering, assembly and prototyping capabilities in Simi Valley, California along with technical and sales offices in Japan.

Our principal executive office is located at 31248 Oak Crest Drive, Suite 110, Westlake Village, California 91361 and our telephone number is (805) 484-8855.

8 unchanged sentences

However, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly our consolidated financial position and our consolidated results of operations and consolidated cash flows.

The results of operations for the three and six months ended June 30, 2018 are not necessarily indicative of the results to be expected for future quarters or the full year.

The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results to be expected for future quarters or the full year.

Our condensed consolidated financial statements include the accounts of Interlink and our subsidiaries in Shenzhen, China, Hong Kong and Singapore.

49 unchanged sentences

Effective January 1, 2018, the Company adopted ASU No.

2014-12 and it did not have a material effect on our consolidated financial statements or the timing of when we recoignize revenue.

In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810):

Amendments to the Consolidation Analysis”, to change the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities.

The standard is effective for fiscal and interim periods within those fiscal years, beginning after December 15, 2015.

Effective January 1, 2016, the Company adopted ASU No.

2015-02 and it had no impact on our consolidated financial statements.

2014-12 and it did not have a material effect on our consolidated financial statements or the timing of when we recognize revenue.

In July 2015, the FASB issued ASU 2015-11, “

29 unchanged sentences

Additionally, with respect to forfeitures of awards, an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur.

The amendments in this standard are effective for annual periods beginning after December

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

15, 2016, and interim periods within those annual periods, with early adoption permitted.

The amendments in this standard are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, with early adoption permitted.

Effective January 1, 2017, the Company adopted ASU No.

6 unchanged sentences

The effective date of this update is for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted.

The update requires retrospective application to all periods presented but may be applied prospectively if retrospective application is impracticable.

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

requires retrospective application to all periods presented but may be applied prospectively if retrospective application is impracticable.

Effective January 1, 2018, the Company adopted ASU No.

36 unchanged sentences

Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.

The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

within those fiscal years and requires retrospective application.

The Company is currently evaluating the impact of ASU 2016-02 to our consolidated financial statements.

The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and requires retrospective application.

The Company is currently evaluating the impact of ASU 2016-02 to our consolidated financial statements, but does not expect it to have a significant impact on our consolidated financial statements.

In June 2016, the FASB issued ASU No.

1 unchanged sentence

Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ”, that significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income, including trade receivables.

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

The standard requires an entity to estimate its lifetime “expected credit loss”

31 unchanged sentences

Leases (Topic 842), Targeted Improvements ”, to provide additional guidance for the adoption of Topic 842.

ASU 2018-10 clarifies certain provisions and correct unintended applications of the guidance such as the application of implicit rate,

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

lessee reassessment of lease classification, and certain transition adjustments that should be recognized to earnings rather than to stockholders' equity.

ASU 2018-10 clarifies certain provisions and correct unintended applications of the guidance such as the application of implicit rate, lessee reassessment of lease classification, and certain transition adjustments that should be recognized to earnings rather than to stockholders' equity.

ASU 2018-11 provides an alternative transition method and practical expedient for separating contract components for the adoption of Topic 842.

2 unchanged sentences

The Company is currently evaluating the effect the new lease standards will have on our consolidated financial statements.

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

In July 2018, the FASB issued ASU 2018-09, “

4 unchanged sentences

The Company does not expect the adoption of the new standard to have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement to ASC Topic 820, Fair Value Measurement (‘ASC 820’) ”.

ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying, and/or adding certain disclosures.

ASU 2018-13 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2019.

An entity is permitted to early adopt by modifying existing disclosures and delay adoption of the additional disclosures until the effective date.

The adoption of this disclosure update is not expected to have a material impact on our consolidated financial statements and disclosures.

We reviewed all other recently issued accounting pronouncements and concluded they are not applicable or not expected to be material to our financial statements.

1 unchanged sentence

Inventories, stated at the lower of cost or net realizable value, consist of the following:

September 30,

(in thousands)

22 unchanged sentences

Restricted stock units, December 31, 2017

Restricted stock units, June 30, 2018

The aggregate intrinsic values in the preceding table for the restricted stock units outstanding represent the total pretax intrinsic value, based on our closing stock price of $3.25 and $5.22 as of June 30, 2018 and December 31, 2017, respectively.

A total of forty thousand restricted stock units vested in the six months ended June 30, 2018.

Stock based compensation incurred for the three and six months ended June 30, 2018 was $9 thousand and $39 thousand, respectively, as compared to $21 thousand and $50 thousand for the comparable periods ended June 30, 2017.

Restricted stock units, September 30, 2018

The aggregate intrinsic values in the preceding table for the restricted stock units outstanding represent the total pretax intrinsic value, based on our closing stock price of $4.02 and $5.22 as of September 30, 2018 and December 31, 2017, respectively.

A total of forty thousand restricted stock units vested in the nine months ended September 30, 2018.

Stock based compensation incurred for the three and nine months ended September 30, 2018 was $22 thousand and $61 thousand, respectively, as compared to $29 thousand and $79 thousand for the comparable periods ended September 30, 2017.

Stock Options

12 unchanged sentences

Cancelled or expired

Options outstanding, June 30, 2018

Options exercisable, June 30, 2018

Options outstanding, September 30, 2018

Options exercisable, September 30, 2018

This intrinsic value represents the excess of the fair market value of our common stock on the date of exercise over the exercise price of such options.

The aggregate intrinsic values in the preceding table for the options outstanding represent the total pretax intrinsic value, based on our closing stock price of $3.25 and $5.22 as of June 30, 2018 and December 31, 2017, respectively, which would have been received by the option holders had those option holders exercised their in-the-money options as of those dates.

The aggregate intrinsic values in the preceding table for the options outstanding represent the total pretax intrinsic value, based on our closing stock price of $4.02 and $5.22 as of September 30, 2018 and December 31, 2017, respectively, which would have been received by the option holders had those option holders exercised their in-the-money options as of those dates.

The fair value of stock-based option awards is estimated at the date of grant using the Black-Scholes option pricing model;

1 unchanged sentence

Expected volatility used to estimate the fair value of options granted is based on the historical volatility of our common stock.

The risk-free interest rate is based on the United States Treasury constant maturity rate for the expected life of the stock option.

The expected life of a stock award is the period of time that the award is expected to be outstanding.

The risk-free

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

The following table provides additional information in regards to options outstanding as of June 30, 2018:

interest rate is based on the United States Treasury constant maturity rate for the expected life of the stock option.

The expected life of a stock award is the period of time that the award is expected to be outstanding.

The following table provides additional information in regards to options outstanding as of September 30, 2018:

Options Outstanding

13 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands, except per share data)

17 unchanged sentences

The repurchased shares were immediately retired and restored to the status of authorized and unissued shares.

At June 30, 2018, the Company had 6,478,797 shares of common stock issued and outstanding.

At September 30, 2018, the Company had 6,482,784 shares of common stock issued and outstanding.

NOTE 6-SIGNIFICANT CUSTOMERS, CONCENTRATION OF CREDIT RISK AND GEOGRAPHIC INFORMATION

1 unchanged sentence

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

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

* Less than 10% of total net revenues

Net revenues by geographic area are as follows:

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

(in thousands)

7 unchanged sentences

Accounts receivable balances are monitored on an ongoing basis, and accounts deemed to have credit risk are fully reserved.

At June 30, 2018, three customers accounted for 40%, 20% and 10% of total accounts receivable, respectively.

At September 30, 2018, two customers accounted for 45% and 25% of total accounts receivable, respectively.

At December 31, 2017, three customers accounted for 35%, 10% and 10% of total accounts receivable, respectively.

Our allowance for doubtful accounts was $0 and $32 thousand at June 30, 2018 and December 31, 2017, respectively.

Our allowance for doubtful accounts was $0 and $32 thousand at September 30, 2018 and December 31, 2017, respectively.

INTERLINK ELECTRONICS, INC.

1 unchanged sentence

Our long-lived assets (property, plant and equipment plus intangibles, net) were geographically located as follows:

September 30,

(in thousands)

11 unchanged sentences

Interlink intends to use a portion of this office space for a fee of $2,465 per month.

Effective September 1, 2018 the square footage dedicated to Interlink was decreased and the fee was lowered to $1,255 per month.

BKF still intends to utilize a portion of the Interlink offices in California for a fee of $250 per month.

Effective March 1, 2018 we modified the existing agreement and entered into a cost-sharing agreement with Interlink that calls for a monthly net settlement of all shared costs between the use of the California and the South Carolina offices, including rent, administrative expenses and similar costs.

For the three and six months ended June 30, 2018 BKF paid $750 and $3,000, respectively to the Company, as compared to $750 and $2,250 thousand for the comparable periods ended June 30, 2017.

The Company incurred costs to BKF of $2,465 and $7,395 for the three and six months ended June 30, 2018, respectively.

Effective March 1, 2018 we entered into a cost-sharing agreement with BKF that calls for a monthly net settlement of all shared costs between the use of the California and the South Carolina offices, including rent, administrative expenses and similar costs.

For the three and nine months ended September 30, 2018 BKF paid $750 and $3,000, respectively to the Company, as compared to $750 and $3,000 thousand for the comparable periods ended September 30, 2017.

The Company incurred costs to BKF of $6,468 and $16,328 for the three and nine months ended September 30, 2018, respectively.

There were no similar payments made by the Company to BKF in 2017.

Bronson, our Chairman of the Board, President and Chief Executive Officer, is also the Chairman of the Board, Chief Executive Officer and majority shareholder of BKF.

At June 30, 2018 and December 31, 2017, there were no unpaid amounts owed by BKF to us.

At June 30, 2018 the company’s outstanding balance due BKF was $0.

At September 30, 2018 and December 31, 2017, there were no unpaid amounts outstanding between the parties.

Qualstar Corporation (NASDAQ:QBAK)

The Company agreed to reimburse, or be reimbursed by, Qualstar Corporation (“Qualstar”) for our occupancy and use of a portion of their Simi Valley manufacturing location and other expenses paid by one company on behalf of the other.

The Company utilizes a portion of a Simi Valley, California manufacturing facility leased by Qualstar Corporation (“Qualstar”) for our assembly and prototyping operations.

In addition, Qualstar or Interlink will occasionally pay administrative expenses on behalf of the other party, and seek reimbursement at cost.

Bronson, our Chairman

INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements - continued

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

of the Board, President and Chief Executive Officer, is also the President and Chief Executive Officer of Qualstar.

Transactions with Qualstar are as follows:

Three months ended June 30,

Three months ended September 30,

Due from Qualstar

3 unchanged sentences

(in thousands)

Balance at March 31,

Balance at September 30,

Billed to Qualstar by Interlink

2 unchanged sentences

Paid by Interlink to Qualstar

Balance at June 30,

Six months ended June 30,

Balance at September 30,

Nine months ended September 30,

Due from Qualstar

8 unchanged sentences

Paid by Interlink to Qualstar

Balance at June 30,

Balance at September 30,

NOTE 8-INCOME TAXES

Income tax expense as a percentage of income before income taxes was 27.0% and 28.3% for the three and six months ended June 30, 2018 versus 34.4% and 34.2% for the comparable period in the prior year.

Income tax expense as a percentage of income before income taxes was 35.3% and 29.6% for the three and nine months ended September 30, 2018 versus 33.3% and 33.9% for the comparable period in the prior year.

Our income tax expense is primarily impacted by the mix of domestic and foreign pre-tax earnings, as well as our ability to utilize prior net operating loss carryovers (“NOLs”).

4 unchanged sentences

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

All of the remaining federal and state NOLs as of June 30, 2018 are subject to annual limitations due to the February 2010 ownership change.

All of the remaining federal and state NOLs as of September 30, 2018 are subject to annual limitations due to the February 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.

12 unchanged sentences

Operating Leases

We are not party to any legal proceedings at June 30, 2018.

We are not party to any legal proceedings at September 30, 2018.

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.

43 unchanged sentences

We maintain general and product liability insurance which may provide a source of recovery to us in the event of an indemnification claim.

NOTE 10-SUBSEQUENT EVENTS

In July, 2018, subseqent to quarter end, the Company received purchase orders of $880,000 from an existing prestigious medical customer.

This order is for deliveries from October 2018 to June 2019.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

29 unchanged sentences

the attraction and retention of qualified employees and key personnel;

the imposition of restrictions, tariffs, duties, or regulations by the United States and foreign governments on the importation of our products or our customers’

products that incorporate our components;

future acquisitions of or investments in complementary companies or technologies;

45 unchanged sentences

The advent of smarter products (e.g., products with embedded sensor technologies) provides an opportunity for us to deliver unique solutions to build and nurture breakthrough innovation.

The tariffs announced by the Office of the United States Trade Representative (USTR) under the Section 301 Action went into effect in July 2018 with additional products added to the list in August 2018.

All items identified, as classified, under the Harmonized Tariff Schedule of the United States (HTSUS) with a country of origin of China are subject to a 25% duty upon importation into the United States.

Interlink continues to work toward minimizing the impact of the tariffs to our customers, yet adhere to the law.

Initially our inventory position served to delay the immediate impact of the tariff in some instances.

The tariff only impacts products with specific HTSUS codes, with a listed country of origin of China, and consumed within the United States.

There is no impact on pricing for products shipped outside the United States.

We will continue to monitor the situation and exhaust all avenues to mitigate any impact or uncertainty to our customers.

Overall, our customers tend to be market leaders, and have been stable enough to manage their businesses through any challenging market cycle.

In spite of decreased sales resulting from the loss a significant customer platform, we are very pleased with our performance in the three and six months ended June 30, 2018.

We are confident that our leadership position in providing HMI solutions remains strong.

In spite of declining revenues, we are very optimistic with our performance in the three and nine months ended September 30, 2018, as significant progress has been made in repositioning the business to focus on R&D and new product development.

This includes revamping our global sales organization to reflect broadened technology offerings and geographies.

It will take time to turn the corner, and we will remain patient and capitalize on opportunities as they arise rather than sacrificing margins in order to pull revenue forward.

We are confident that our leadership position in providing HMI solutions remains strong, and the lull in revenues is temporary.

However, due to extended sales cycles, we antiicipate the results in the third quarter of 2018 are indicative of the next tweleve months.

We remain committed to our strategy to create shareholder value through earnings growth and balanced capital allocation, including disciplined investments for organic growth and innovation and strategic bolt-on acquisitions.

7 unchanged sentences

These estimates could change under different assumptions or conditions.

We believe that our critical accounting policies and estimates, as described in our annual Report on Form 10-K for the year ended December 31, 2017, are most important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments.

There have been no significant changes to these polices during the six months ended June 30, 2018.

and require management’s most difficult, subjective and complex judgments.

There have been no significant changes to these polices during the nine months ended September 30, 2018.

Impact of Recent Accounting Pronouncements

6 unchanged sentences

The percentages in the table are based on net revenues.

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

(in thousands, except percentages)

13 unchanged sentences

Comprehensive income

Results of Operations for the three months ended June 30, 2018, as compared to the three months ended June 30, 2017

Results of Operations for the three months ended September 30, 2018, as compared to the three months ended September 30, 2017

Revenue, net by Market is as follows:

Three months ended June 30,

Three months ended September 30,

(in thousands, except percentages)

6 unchanged sentences

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

The decrease in net revenues was driven by a major customer in the automotive market making a design change to their product that eliminated the need for our solution.

This decrease was partially offset by increased sales of our custom products in the industrial and medical markets.

We also had an increase in sales of our standard products.

Other than the automotive market, growth in our custom product sales was driven by increased sales to our current customers for use in ongoing product lines.

In all of our custom product markets, some of our larger customers purchase in bulk quantities and absorption of these products can straddle several financial reporting periods.

The decrease in automotive market revenues was driven by a major customer making a design change to their product that eliminated the need for our solution.

Revenues for this customer have eroded from mid-2017 to mid-2018.

In addition, a product for another large automotive customer had expectedly reached its end of life cycle.

As a result, automotive revenues in the quarter ended September 30, 2018 were negligible.

We also saw decreases in the medical and consumer markets, partially offset by increased sales of our custom products in the industrial market.

We also had a decrease in sales of our standard products.

Diminution in our custom product sales was driven by decreased sales to our current customers for use in their ongoing product lines.

In all of our product markets, some of our larger customers purchase in bulk quantities and absorption of these products can straddle several financial reporting periods.

The timing of orders from our customers is not always predictable and can be concentrated in varying periods during the year to coincide with their project and building plans.

Some of our more recent custom product success for new product lines in the medical market has been in the pipeline as part of a long design cycle and revenues are just starting to be realized in 2018.

In July 2018, subsequent to quarter end, the Company received purchase orders of $880,000 from an existing prestigious medical customer.

Many of our products are currently subject to import tariffs inposed on goods manufactured in China, increasing the cost to our customers by up to 25%.

We believe many of our existing customers have reduced orders until the uncertainty passes, hoping to avoid tariffs.

In the worst case, some of them may be seeking alterntive domestic suppliers.

Some of our more recent custom product success for new product lines in the medical market is making its way into the pipeline as part of a long design cycle and revenues are just starting to be realized in late 2018.

In July 2018, the Company received purchase orders of $880,000 from an existing prestigious medical customer.

This order is for deliveries from October 2018 to June 2019.

However, as these revenues materialize, revenues from current product lines that reach the end of their life cycle will likely offset some of this expected growth in 2018.

we expect revenues to be lower in the second half of 2018 until we are able to fully replace the automotive revenue.

Three months ended June 30,

we expect revenues to be lower in the fourth quarter of 2018 and into early 2019 until we are able to fully replace the automotive revenue.

Three months ended September 30,

(in thousands, except percentages)

1 unchanged sentence

Our cost of revenue is impacted by various factors including product mix, volume, material costs, manufacturing efficiencies, facilities costs, compensation costs and any provisions for excess and obsolete inventories.

Cost of revenues decreased compared with the prior year consistent with the decrease in revenues, particularly in the automotive market.

Cost of revenues decreased compared with the prior year consistent with the decrease in revenues.

Cost of revenues increased as a percentage of revenues for the same reason, including less revenue to cover fixed costs and production overhead costs.

Three months ended June 30,

Three months ended September 30,

(in thousands, except percentages)

2 unchanged sentences

Our R&D team focuses both on internal design development, as well as design development aimed at addressing customer design challenges, in order to develop our HMI solutions.

Our engineering and R&D costs increased as compared with the same period in the prior year primarily due to continued investments in our Singapore R&D center and an increase in our engineering and R&D staffing worldwide in order to enhance our technology and product offerings.

We will continue to substantially grow the global R&D center in

Singapore over the next three years, including expanding our R&D team, expanding the size of the facility, and investing in additional tools and equipment.

Three months ended June 30,

Our engineering and R&D costs were flat as compared with the same period in the prior year primarily due to a leveling out of our continued investment in our Singapore R&D center.

However, we will continue to substantially grow the global R&D center in Singapore over the next several years, including expanding our R&D team, expanding the size of the facility, and investing in additional tools and equipment.

Three months ended September 30,

(in thousands, except percentages)

2 unchanged sentences

SG&A expenses decreased as compared with the same period in the prior year driven by internal efficiencies gained during a period of lower revenue, and reduced reliance of third party consultants and professional service providers.

Three months ended June 30,

We are responding to the contraction in revenues by revamping our global sales organization to reflect broadened technology offerings and geographies.

As a result, SG&A expenses are expected to increase in the fourth quarter.

Three months ended September 30,

Pre-tax Income

3 unchanged sentences

Tax expense reflects statutory tax rates in the jurisdictions that we operate adjusted for normal book/tax differences.

Tax expense for the three months ended June 30, 2018 was lower primarily as a result of the enactment of the 2017 Tax Cut and Jobs Act (TCJA), which was signed into law on December 22, 2017.

Tax expense for the three months ended September 30, 2018 was lower primarily as a result of the enactment of the 2017 Tax Cut and Jobs Act (TCJA), which was signed into law on December 22, 2017.

The TCJA significantly reforms the Internal Revenue Code of 1986 (as amended) and includes, among other things, changes to U.S.

11 unchanged sentences

could have significant effects, positive and negative, on our effective tax rate, and on our deferred tax assets and liabilities.

Results of Operations for the six months ended June 30, 2018, as compared to the six months ended June 30, 2017

Results of Operations for the nine months ended September 30, 2018, as compared to the nine months ended September 30, 2017

Revenue, net by Market is as follows:

Six months ended June 30,

Nine months ended September 30,

(in thousands, except percentages)

6 unchanged sentences

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

The decrease in net revenues was driven by a major customer in the automotive market making a design change to their product that eliminated the need for our solution.

This decrease was partially offset by increased sales of our custom products in the industrial and medical markets.

The decrease in net revenues was primarily driven by a major customer in the automotive market making a design change to their product that eliminated the need for our solution.

Revenues for this customer have eroded from mid-2017 to mid-2018.

In addition, a product for another large automotive customer had expectedly reached its end of life cycle.

We also saw decreases in the medical and consumer markets, partially offset by increased sales of our custom products in the industrial market.

We also had an increase in sales of our standard products.

Other than the automotive market, growth in our custom product sales was driven by increased sales to our current customers for use in ongoing product lines.

In all of our custom product markets, some of our larger customers purchase in bulk quantities and absorption of these products can straddle several financial reporting periods.

Other than the automotive market, decreased revenues in our custom product markets was driven by lower sales to our current customers for use in their ongoing product lines.

In all of our product markets, some of our larger customers purchase in bulk quantities and absorption of these products can straddle several financial reporting periods.

The timing of orders from our customers is not always predictable and can be concentrated in varying periods during the year to coincide with their project and building plans.

In July 2018, subsequent to quarter end, the Company received purchase orders of $880,000 from an existing prestigious medical customer.

Masny of our products are currently subject to import tariffs inposed on goods manufactured in China, increasing the cost to our customers by up to 25%.

We believe many of our existing customers have reduced orders until the uncertainty passes, hoping to avoid tariffs.

In the worst case, some of them may be seeking alterntive domestic suppliers.

In July 2018, the Company received purchase orders of $880,000 from an existing prestigious medical customer.

This order is for deliveries from October 2018 to June 2019.

However, as these revenues materialize, revenues from current product lines that reach the end of their life cycle will likely offset some of this expected growth in 2018.

Overall, we expect revenues to be lower in the second half of 2018 until we are able to fully replace the automotive revenue.

Six months ended June 30,

Overall, we expect revenues to be lower in the fourth quarter of 2018 and into early 2019 until we are able to fully replace the automotive revenue.

Nine months ended September 30,

(in thousands, except percentages)

1 unchanged sentence

Cost of revenues decreased compared with the prior year consistent with the decrease in revenues, particularly in the automotive market, although additional costs associated with the abrupt loss of the major customer were recognized in the first quarter of 2018.

revenues decreased compared with the prior year consistent with the decrease in revenues, particularly in the automotive market.

Cost of revenues increased as a percentage of revenues for the same reason, including less revenue to cover fixed costs and production overhead costs.

Six months ended June 30,

Nine months ended September 30,

(in thousands, except percentages)

2 unchanged sentences

Our R&D team focuses both on internal design development, as well as design development aimed at addressing customer design challenges, in order to develop our HMI solutions.

We will continue to substantially grow the global R&D center in Singapore over the next three years, including expanding our R&D team, expanding the size of the facility, and investing in additional tools and equipment.

Six months ended June 30,

Our engineering and R&D costs increased as compared with the same period in the prior year primarily due to investments in our Singapore R&D center and an increase in our engineering and R&D staffing worldwide in order to enhance our technology and product offerings.

We will continue to substantially grow the global R&D center in Singapore over the next several years, including expanding our R&D team, expanding the size of the facility, and investing in additional tools and equipment.

Nine months ended September 30,

(in thousands, except percentages)

1 unchanged sentence

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

SG&A expenses decreased slightly as compared with the same period in the prior year driven by internal efficiencies gained during a period of lower revenue, and reduced reliance of third party consultants and professional service providers.

Six months ended June 30,

We are responmding to the contraction in revenues by revamping our global sales organization to reflect broadened technology offerings and geographies.

As a result, SG&A expenses are expected to increase in the fourth quarter.

Nine months ended September 30,

Pre-tax Income

3 unchanged sentences

Tax expense reflects statutory tax rates in the jurisdictions that we operate adjusted for normal book/tax differences.

Tax expense for the three months ended June 30, 2018 was lower primarily as a result of the enactment of the 2017 Tax Cut and Jobs Act (TCJA), which was signed into law on December 22, 2017.

Tax expense for the nine months ended September 30, 2018 was lower primarily as a result of the enactment of the 2017 Tax Cut and Jobs Act (TCJA), which was signed into law on December 22, 2017.

The TCJA significantly reforms the Internal Revenue Code of 1986 (as amended) and includes, among other things, changes to U.S.

7 unchanged sentences

We are subject to changing tax laws, regulations, and interpretations in multiple jurisdictions.

Continued corporate tax reform continues to

be a priority in the U.S.

Continued corporate tax reform continues to be a priority in the U.S.

and other jurisdictions.

3 unchanged sentences

Cash requirements for working capital and capital expenditures have been funded from cash balances on hand and cash generated from operations.

As of June 30, 2018, we had cash and cash equivalents of $6.0 million, working capital of $7.6 million and no indebtedness.

As of September 30, 2018, we had cash and cash equivalents of $6.4 million, working capital of $7.8 million and no indebtedness.

Cash and cash equivalents consist of cash and money market funds.

We did not have any short-term or long-term investments as of June 30, 2018.

We did not have any short-term or long-term investments as of September 30, 2018.

Of the $6.4 million of cash balances on hand, $2.3 million was held by foreign subsidiaries.

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The universal shelf registration statement on Form S-3 permits us to sell, in one or more public offerings, shares of our common stock, shares of preferred stock or debt securities, or any combination of such securities and warrants to purchase securities, for proceeds in an aggregate amount of up to $35.0 million, subject to limitations on the amount of securities we may sell in any twelve-month period.

As of June 30, 2018, we have not issued any securities pursuant to the Form S-3.

As of September 30, 2018, we have not issued any securities pursuant to the Form S-3.

The Form S-3 will expire in November 2020.

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Our cash flows from operating, investing and financing activities are summarized as follows:

Six months ended June 30,

Nine months ended September 30,

(in thousands)

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Net Cash Provided by Operating Activities

For the six months ended June 30, 2018, the $1,190 thousand in net cash provided by operating activities was primarily attributable to net income of $477 thousand, adjusted for non-cash charges of $124 thousand.

For the nine months ended September 30, 2018, the $1,775 thousand in net cash provided by operating activities was primarily attributable to net income of $576 thousand, adjusted for non-cash charges of $184 thousand.

The net increase in cash due to changes in operating assets and liabilities of $1,015 thousand was primarily due to payments and shipments during the period.

For the six months ended June 30, 2017, the $949 thousand in net cash provided by operating activities was primarily attributable to net income of $913 thousand, adjusted for non-cash charges of $136 thousand.

For the nine months ended September 30, 2017, the $1,853 thousand in net cash provided by operating activities was primarily attributable to net income of $1,265 thousand, adjusted for non-cash charges of $232 thousand.

The net decrease in cash due to changes in operating assets and liabilities of $356 thousand was primarily due to the timing of shipments and payments during the period.

Net Cash Used in Investing Activities

Net cash used in investing activities was $2,997 thousand for the six months ended June 30, 2018, compared to $60 thousand for the six months ended June 30, 2017.

Net cash used in investing activities was $3,006 thousand for the nine months ended September 30, 2018, compared to $173 thousand for the nine months ended September 30, 2017.

The increase is primarily related to share repurchases of $2,764 thousand plus additional expenditures for leasehold improvements and equipment for the expansion of our global R&D center in Singapore.

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The repurchased shares were immediately retired and restored to the status of authorized and unissued shares.

At June 30, 2018, we had 6,478,797 shares of common stock issued and outstanding.

At September 30, 2018, we had 6,482,784 shares of common stock issued and outstanding.

Off-Balance Sheet Arrangements

At June 30, 2018 and December 31, 2017, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

At September 30, 2018 and December 31, 2017, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

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We recognize rent expense on a straight-line basis over the lease periods.

As of June 30, 2018, our principal commitments consisted of obligations under the operating leases for our office and manufacturing facilities.

As of September 30, 2018, our principal commitments consisted of obligations under the operating leases for our office and manufacturing facilities.

The following table summarizes our future minimum payments under these arrangements:

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements