[PART I -- FINANCIAL INFORMATION](index=2&type=section&id=PART%20I%20--%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20%28unaudited%29) This section presents Interlink Electronics' unaudited condensed consolidated financial statements and related notes, covering balance sheets, income, equity, and cash flows [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity | ASSETS (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :---------------------- | :----------- | :----------- | | Cash and cash equivalents | $5,207 | $10,091 | | Accounts receivable, net | $1,622 | $1,178 | | Inventories | $2,875 | $2,112 | | Total current assets | $9,930 | $13,702 | | Total assets | $15,294 | $14,983 | | LIABILITIES AND STOCKHOLDERS' EQUITY (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------------------------------- | :----------- | :----------- | | Accounts payable | $909 | $273 | | Accrued liabilities | $443 | $568 | | Total current liabilities | $1,961 | $1,089 | | Total liabilities | $2,015 | $1,135 | | Total stockholders' equity | $13,279 | $13,848 | | Total liabilities and stockholders' equity | $15,294 | $14,983 | - Cash and cash equivalents decreased significantly from **$10,091 thousand** at December 31, 2022, to **$5,207 thousand** at September 30, 2023. Total current assets also decreased from **$13,702 thousand** to **$9,930 thousand**[9](index=9&type=chunk) - Total liabilities increased from **$1,135 thousand** at December 31, 2022, to **$2,015 thousand** at September 30, 2023, primarily driven by an increase in accounts payable and accrued income taxes[9](index=9&type=chunk) [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's financial performance over periods, including revenue, gross profit, and net income or loss | (in thousands, except per share data) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue, net | $3,075 | $1,851 | $10,402 | $5,882 | | Gross profit | $1,459 | $872 | $5,107 | $3,065 | | Income (loss) from operations | $(92) | $(190) | $141 | $(323) | | Net income (loss) | $(125) | $6 | $65 | $260 | | Earnings (loss) per common share – basic and diluted | $(0.03) | $(0.01) | $(0.04) | $(0.01) | - Net revenue for the three months ended September 30, 2023, increased by **66.1%** to **$3,075 thousand** from **$1,851 thousand** in the prior year period. For the nine months, net revenue increased by **76.8%** to **$10,402 thousand** from **$5,882 thousand**[11](index=11&type=chunk) - The company reported a net loss of **$(125) thousand** for the three months ended September 30, 2023, compared to a net income of **$6 thousand** in the same period last year. For the nine months, net income decreased to **$65 thousand** from **$260 thousand**[11](index=11&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) This section presents the total comprehensive income or loss, including net income and other comprehensive income items | (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income (loss) | $(125) | $6 | $65 | $260 | | Foreign currency translation adjustments | $(194) | $(80) | $1 | $(229) | | Comprehensive income (loss) | $(319) | $(74) | $66 | $31 | - Comprehensive loss for the three months ended September 30, 2023, was **$(319) thousand**, a significant increase from **$(74) thousand** in the prior year, primarily due to foreign currency translation adjustments[14](index=14&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) This section outlines changes in stockholders' equity, reflecting net income, dividends, and other equity transactions | (in thousands) | Balance at Dec 31, 2022 | Net Income (Loss) | Preferred Stock Dividends | Foreign Currency Translation Adjustment | Stock-Based Compensation Expense | Repurchases of Common Stock | Balance at Sep 30, 2023 | | :------------- | :---------------------- | :---------------- | :------------------------ | :-------------------------------------- | :------------------------------- | :-------------------------- | :---------------------- | | Total Stockholders' Equity | $13,848 | $65 | $(300) | $1 | $15 | $(350) | $13,279 | - Total stockholders' equity decreased from **$13,848 thousand** at December 31, 2022, to **$13,279 thousand** at September 30, 2023, primarily due to preferred stock dividends and common stock repurchases[17](index=17&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section details cash inflows and outflows from operating, investing, and financing activities over specific periods | (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $155 | $(385) | | Net cash used in investing activities | $(4,322) | $(6,021) | | Net cash used in financing activities | $(650) | $(300) | | Net (decrease) in cash and cash equivalents | $(4,884) | $(6,893) | | Cash and cash equivalents, end of period | $5,207 | $3,889 | - Operating activities generated **$155 thousand** in cash for the nine months ended September 30, 2023, a significant improvement from **$(385) thousand** cash used in the prior year period[19](index=19&type=chunk) - Investing activities used **$4,322 thousand**, primarily for the acquisition of Calman Technology Limited, compared to **$6,021 thousand** used in the prior year, which included purchases of marketable securities[19](index=19&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [Note 1 – The Company and its Significant Accounting Policies](index=9&type=section&id=Note%201%20%E2%80%93%20The%20Company%20and%20its%20Significant%20Accounting%20Policies) This note describes Interlink Electronics' business operations, global presence, and key accounting policies for interim reporting - Interlink Electronics, Inc. operates in two main sensor technology divisions: force/touch sensors (including FSR® technology, membrane keypads, graphic overlays, and printed electronics for HMI devices) and gas sensors (for environmental and air quality monitoring)[21](index=21&type=chunk)[22](index=22&type=chunk) - The company's global presence includes corporate headquarters in Irvine, California; a Global Product Development and Materials Science Center in Camarillo, California; manufacturing facilities in Shenzhen, China, and Irvine, Scotland; and an R&D center in Singapore[23](index=23&type=chunk) - The unaudited interim consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial reporting, with certain information condensed or omitted per Rule 10-01 of Regulation S-X[26](index=26&type=chunk) [Note 2 – Details of Certain Financial Statement Components](index=14&type=section&id=Note%202%20%E2%80%93%20Details%20of%20Certain%20Financial%20Statement%20Components) This note provides detailed breakdowns of specific financial statement components, including inventories and intangible assets | Inventories (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------- | :----------- | :----------- | | Raw materials | $2,398 | $1,635 | | Work-in-process | $205 | $192 | | Finished goods | $272 | $285 | | Total inventories | $2,875 | $2,112 | | Intangible assets, net (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | Patents, tradenames, and trademarks | $705 | $658 | | Developed technology | $134 | — | | Customer relationships | $96 | — | | Total intangible assets, net | $289 | $76 | - Total inventories increased from **$2,112 thousand** at December 31, 2022, to **$2,875 thousand** at September 30, 2023, primarily in raw materials[54](index=54&type=chunk) - Intangible assets, net, significantly increased from **$76 thousand** to **$289 thousand**, largely due to the addition of developed technology, customer relationships, and non-compete agreements, likely from recent acquisitions[55](index=55&type=chunk) [Note 3 – Acquisitions](index=15&type=section&id=Note%203%20%E2%80%93%20Acquisitions) This note details the company's recent acquisitions, including SPEC Sensors/KWJ Engineering and Calman Technology Limited - On December 16, 2022, Interlink acquired substantially all assets of SPEC Sensors, LLC and KWJ Engineering, Inc. (SPEC/KWJ), designers and manufacturers of gas sensors, for a final purchase price of **$2,102 thousand**[56](index=56&type=chunk) - On March 17, 2023, Interlink acquired all outstanding shares of Calman Technology Limited, a Scotland-based designer and manufacturer of membrane keypads, graphic overlays, and printed electronics, for approximately **$4,912 thousand** (GB£4,127,000)[60](index=60&type=chunk) Pro Forma Consolidated Statement of Operations (in thousands) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $3,075 | $3,866 | $11,163 | $12,042 | | Net income (loss) | $(125) | $(93) | $552 | $815 | [Note 4 – Marketable Securities](index=17&type=section&id=Note%204%20%E2%80%93%20Marketable%20Securities) This note provides information on the company's marketable securities, including purchases and sales - As of September 30, 2023, Interlink had no marketable equity securities. During the nine months ended September 30, 2023, no marketable securities were purchased or sold, compared to **$6,000 thousand** purchased and **$15 thousand** sold in the prior year period[65](index=65&type=chunk) [Note 5 – Earnings Per Share](index=18&type=section&id=Note%205%20%E2%80%93%20Earnings%20Per%20Share) This note details the calculation of basic and diluted earnings per common share for the reported periods | (in thousands, except per share data) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income (loss) applicable to common stockholders | $(225) | $(94) | $(235) | $(40) | | Weighted average common shares outstanding – basic and diluted | 6,582 | 6,603 | 6,597 | 6,603 | | Earnings (loss) per common share, basic and diluted | $(0.03) | $(0.01) | $(0.04) | $(0.01) | - Basic and diluted earnings per common share for the three months ended September 30, 2023, was **$(0.03)**, compared to **$(0.01)** in the prior year. For the nine months, it was **$(0.04)** compared to **$(0.01)** in the prior year[66](index=66&type=chunk) - **400,000 shares** of common stock convertible from Series A Convertible Preferred Stock were excluded from diluted EPS calculation as they were anti-dilutive due to the conversion price being higher than the average market price[66](index=66&type=chunk) [Note 6 – Stockholders' Equity](index=18&type=section&id=Note%206%20%E2%80%93%20Stockholders%27%20Equity) This note provides details on changes in stockholders' equity, including common stock repurchases - In May 2023, the Company repurchased **5,500 shares** of common stock for **$50 thousand** (**$9.10 per share**)[67](index=67&type=chunk) - Under a Stock Repurchase Program approved in May 2023, the Company repurchased **18,217 shares** for approximately **$173 thousand** during the three months ended September 30, 2023, and **32,120 shares** for approximately **$300 thousand** during the nine months ended September 30, 2023[68](index=68&type=chunk) [Note 7 – Significant Customers, Concentrations of Credit Risk, and Geographic Information](index=18&type=section&id=Note%207%20%E2%80%93%20Significant%20Customers%2C%20Concentrations%20of%20Credit%20Risk%2C%20and%20Geographic%20Information) This note discloses information on major customers, credit risk concentrations, and revenue distribution by geographic area Net Revenues from Significant Customers | Customer | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Customer A | 11 % | 20 % | 22 % | 27 % | | Customer B | 19 % | * % | 11 % | * % | | Customer C | 11 % | 15 % | * % | 18 % | * Less than 10% of total net revenues Net Revenues by Geographic Area (in thousands) | Region | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :---------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | United States | $1,257 | $661 | $5,357 | $2,657 | | Asia and Middle East | $816 | $1,069 | $2,770 | $2,849 | | Europe and other | $1,002 | $121 | $2,275 | $376 | - At September 30, 2023, two customers accounted for **26%** and **17%** of total accounts receivable, with no allowance for doubtful accounts[71](index=71&type=chunk) [Note 8 – Related Party Transactions](index=21&type=section&id=Note%208%20%E2%80%93%20Related%20Party%20Transactions) This note details transactions with related parties, including Qualstar Corporation and BKF Capital Group - Interlink has facilities and consulting agreements with Qualstar Corporation and BKF Capital Group, both related parties controlled by Steven N. Bronson, Interlink's Chairman, President, and CEO[73](index=73&type=chunk)[75](index=75&type=chunk) Transactions with Qualstar (in thousands) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Billed (or accrued) to Qualstar by Interlink | $196 | $206 | $630 | $592 | | Billed (or accrued) to Interlink by Qualstar | $31 | $29 | $87 | $74 | Transactions with BKF Capital (in thousands) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Billed (or accrued) to BKF Capital by Interlink | $8 | $20 | $41 | $81 | | Billed (or accrued) to Interlink by BKF Capital | $56 | $37 | $136 | $97 | [Note 9 – Income Taxes](index=22&type=section&id=Note%209%20%E2%80%93%20Income%20Taxes) This note explains the company's effective income tax rates and factors influencing tax expense - The effective income tax rate for the three months ended September 30, 2023, was **89.3%**, up from **64.7%** in the prior year. For the nine months, it was **78.0%**, up from **31.8%**[76](index=76&type=chunk) - The higher effective tax rates are due to the mix of domestic and foreign pre-tax earnings/losses and the inability to benefit from domestic losses due to a valuation allowance on net operating loss carryovers (NOLs)[76](index=76&type=chunk)[78](index=78&type=chunk) - As of September 30, 2023, **$1,600 thousand** of the **$5,200 thousand** cash balance was held by foreign subsidiaries, which can be repatriated without significant tax effects through intercompany loans or previously taxed income distributions[80](index=80&type=chunk) [Note 10 – Commitments and Contingencies](index=23&type=section&id=Note%2010%20%E2%80%93%20Commitments%20and%20Contingencies) This note outlines the company's lease obligations, legal proceedings, and other contractual commitments and indemnities - The company leases facilities under non-cancellable operating leases expiring through fiscal 2025, with a weighted average remaining lease term of **0.9 years** as of September 30, 2023[81](index=81&type=chunk)[90](index=90&type=chunk) Future Minimum Lease Payments (in thousands) | Years ending December 31, | Amount | | :------------------------ | :----- | | 2023 (remainder of year) | $43 | | 2024 | $129 | | 2025 | $33 | | Total undiscounted future non-cancelable minimum lease payments | $205 | | Less: imputed interest | $(10) | | Present value of lease liabilities | $195 | - Operating lease costs for the three months ended September 30, 2023, were approximately **$129 thousand**, and for the nine months, approximately **$379 thousand**, showing an increase from the prior year periods[91](index=91&type=chunk)[92](index=92&type=chunk) - The company is not party to any legal proceedings as of September 30, 2023, but provides indemnities for intellectual property, directors/officers, and other contractual guarantees, with historical amounts not having a material negative effect[93](index=93&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk)[101](index=101&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results, highlighting business segments, investments, and performance comparisons [Overview](index=28&type=section&id=Overview) This overview describes Interlink's core sensor technology divisions and strategic investments in R&D and acquisitions - Interlink operates in force/touch sensors (FSR® technology, membrane keypads, graphic overlays) for HMI devices and gas sensors for environmental monitoring[105](index=105&type=chunk) - Recent acquisitions of Calman Technology Limited (March 2023) expanded membrane keypads and printed electronics offerings, while SPEC Sensors and KWJ Engineering (December 2022) added electrochemical gas-sensing technology[107](index=107&type=chunk)[108](index=108&type=chunk) - The company has invested in R&D, relocating a majority of efforts to a Global Product Development and Materials Science Center in Camarillo, California, to align with customer needs and growth initiatives[110](index=110&type=chunk) [Critical Accounting Policies and Estimates](index=29&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section confirms no material changes to critical accounting policies and estimates during the reported period - The company's critical accounting policies and estimates, as described in the Annual Report on Form 10-K, have not materially changed during the nine months ended September 30, 2023[113](index=113&type=chunk) [Recently Issued and Adopted Accounting Pronouncements](index=29&type=section&id=Recently%20Issued%20and%20Adopted%20Accounting%20Pronouncements) This section states that recently issued accounting pronouncements were reviewed and deemed immaterial to financial statements - All recently issued accounting pronouncements were reviewed and deemed not applicable or not expected to be material to the financial statements[114](index=114&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, comparing key metrics for the current and prior periods [Comparison of Three Months Ended September 30, 2023 and 2022](index=30&type=section&id=Comparison%20of%20Three%20Months%20Ended%20September%2030%2C%202023%20and%202022) This section compares the company's financial results for the three months ended September 30, 2023, versus 2022 Revenue, net by Market (in thousands) | Market | Sep 30, 2023 Amount | Sep 30, 2023 % of Revenue | Sep 30, 2022 Amount | Sep 30, 2022 % of Revenue | $ Change | % Change | | :-------- | :------------------ | :------------------------ | :------------------ | :------------------------ | :------- | :------- | | Industrial | $988 | 32.1 % | $535 | 28.9 % | $453 | 84.7 % | | Medical | $831 | 27.0 % | $450 | 24.3 % | $381 | 84.7 % | | Consumer | $56 | 1.8 % | $537 | 29.0 % | $(481) | (89.6)% | | Standard | $1,200 | 39.0 % | $329 | 17.8 % | $871 | 264.7 % | | Total | $3,075 | 100.0 % | $1,851 | 100.0 % | $1,224 | 66.1 % | - Revenue increased by **66.1%** YoY, driven by significant growth in Industrial (**84.7%**), Medical (**84.7%**), and Standard products (**264.7%**), largely due to the SPEC/KWJ and Calman acquisitions. Consumer market revenue decreased by **89.6%** due to order timing fluctuations[117](index=117&type=chunk)[118](index=118&type=chunk) Key Financials (in thousands, except percentages) | Metric | Sep 30, 2023 Amount | Sep 30, 2023 % of Revenue | Sep 30, 2022 Amount | Sep 30, 2022 % of Revenue | $ Change | % Change | | :----- | :------------------ | :------------------------ | :------------------ | :------------------------ | :------- | :------- | | Gross profit | $1,459 | 47.4 % | $872 | 47.1 % | $587 | 67.3 % | | Engineering, R&D | $588 | 19.1 % | $319 | 17.2 % | $269 | 84.3 % | | Selling, G&A | $963 | 31.3 % | $743 | 40.1 % | $220 | 29.6 % | | Other income (expense), net | $26 | 0.8 % | $207 | 11.2 % | $(181) | (87.4)% | | Income tax expense | $59 | 89.4 % of Pre-tax Income | $11 | 64.7 % of Pre-tax Income | $48 | 24.7 % | - Gross profit increased by **67.3%** due to higher revenues, while gross margin percentage slightly declined. R&D and SG&A expenses increased by **84.3%** and **29.6%** respectively, primarily due to increased headcount and amortization from acquisitions[120](index=120&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk) [Comparison of Nine Months Ended September 30, 2023 and 2022](index=33&type=section&id=Comparison%20of%20Nine%20Months%20Ended%20September%2030%2C%202023%20and%202022) This section compares the company's financial results for the nine months ended September 30, 2023, versus 2022 Revenue, net by Market (in thousands) | Market | Sep 30, 2023 Amount | Sep 30, 2023 % of Revenue | Sep 30, 2022 Amount | Sep 30, 2022 % of Revenue | $ Change | % Change | | :-------- | :------------------ | :------------------------ | :------------------ | :------------------------ | :------- | :------- | | Industrial | $3,173 | 30.5 % | $2,131 | 36.2 % | $1,042 | 48.9 % | | Medical | $3,871 | 37.2 % | $1,776 | 30.2 % | $2,095 | 118.0 % | | Consumer | $350 | 3.4 % | $993 | 16.9 % | $(643) | (64.8)% | | Standard | $3,008 | 28.9 % | $982 | 16.7 % | $2,026 | 206.3 % | | Total | $10,402 | 100.0 % | $5,882 | 100.0 % | $4,520 | 76.8 % | - Total revenue increased by **76.8%** YoY, driven by strong growth in Industrial (**48.9%**), Medical (**118.0%**), and Standard products (**206.3%**), largely attributed to increased demand and recent acquisitions. Consumer market revenue declined by **64.8%** due to order timing and product design cyclicality[127](index=127&type=chunk) Key Financials (in thousands, except percentages) | Metric | Sep 30, 2023 Amount | Sep 30, 2023 % of Revenue | Sep 30, 2022 Amount | Sep 30, 2022 % of Revenue | $ Change | % Change | | :----- | :------------------ | :------------------------ | :------------------ | :------------------------ | :------- | :------- | | Gross profit | $5,107 | 49.1 % | $3,065 | 52.1 % | $2,042 | 66.6 % | | Engineering, R&D | $1,765 | 17.0 % | $912 | 15.5 % | $853 | 93.5 % | | Selling, G&A | $3,201 | 30.8 % | $2,476 | 42.1 % | $725 | 29.3 % | | Other income (expense), net | $154 | 1.5 % | $704 | 12.0 % | $(550) | (78.1)% | | Income tax expense | $230 | 78.0 % of Pre-tax Income | $121 | 31.8 % of Pre-tax Income | $109 | 46.2 % | - Gross profit increased by **66.6%** due to higher revenues, but gross margin percentage decreased due to higher material costs and unfavorable product/customer mix. R&D and SG&A expenses rose by **93.5%** and **29.3%** respectively, mainly due to increased headcount, amortization from acquisitions, and professional fees[129](index=129&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk) [Liquidity and Capital Resources](index=36&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash position, working capital, and capital structure, including preferred stock - As of September 30, 2023, the company had **$5,200 thousand** in cash and cash equivalents, **$8,000 thousand** in working capital, and no indebtedness[134](index=134&type=chunk) - The company has **200,000 shares** of **8.0% Series A Convertible Preferred Stock** outstanding, with an aggregate liquidation preference of **$5,000 thousand**, paying monthly cash dividends[135](index=135&type=chunk) - Management believes existing cash will be sufficient for current operations but may seek additional capital through equity, equity-linked, or debt financing if circumstances change, which could dilute existing stockholders or impose restrictive covenants[136](index=136&type=chunk) [Cash Flow Analysis](index=36&type=section&id=Cash%20Flow%20Analysis) This section analyzes cash flows from operating, investing, and financing activities for the reported periods Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------- | :----------------------------- | :----------------------------- | | Operating Activities | $155 | $(385) | | Investing Activities | $(4,322) | $(6,021) | | Financing Activities | $(650) | $(300) | - Operating activities provided **$155 thousand** in cash for the nine months ended September 30, 2023, a positive shift from cash used in the prior year, driven by net income and non-cash adjustments, partially offset by changes in operating assets and liabilities[138](index=138&type=chunk) - Investing activities used **$4,322 thousand**, primarily for the acquisition of Calman Technology Limited. Financing activities used **$650 thousand**, mainly for common stock repurchases and preferred stock dividends[141](index=141&type=chunk)[142](index=142&type=chunk) [Off-Balance Sheet Arrangements](index=38&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms that the company does not have any off-balance sheet arrangements - The company does not have any off-balance sheet arrangements[143](index=143&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section states that there are no quantitative and qualitative disclosures about market risk applicable to the company for the reported period - The company has no applicable quantitative and qualitative disclosures about market risk for the period[144](index=144&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of the company's disclosure controls and procedures and internal controls over financial reporting, confirming their effectiveness - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2023[146](index=146&type=chunk) - There were no material changes in internal control over financial reporting during the period ended September 30, 2023[147](index=147&type=chunk) - The company acknowledges that control systems provide only reasonable, not absolute, assurance and are subject to human diligence, judgment lapses, and potential breakdowns[150](index=150&type=chunk) [PART II -- OTHER INFORMATION](index=41&type=section&id=PART%20II%20--%20OTHER%20INFORMATION) This section includes other required information such as risk factors, exhibits, and corporate signatures [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the risk factors outlined in the company's Annual Report on Form 10-K, with no material changes - No material changes to the risk factors previously disclosed in Item 1A of the Annual Report on Form 10-K have occurred during the nine months ended September 30, 2023[153](index=153&type=chunk) [Item 6. Exhibits](index=41&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications and XBRL documents - The report includes certifications from the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1) and XBRL instance and taxonomy documents (Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE)[155](index=155&type=chunk) [Signatures](index=42&type=section&id=Signatures) This section contains the required signatures for the Quarterly Report on Form 10-Q, confirming its submission - The report was signed by Ryan J. Hoffman, Chief Financial Officer (Principal Financial and Accounting Officer) on November 9, 2023[157](index=157&type=chunk)

[PART I -- FINANCIAL INFORMATION](index=2&type=section&id=PART%20I%20--%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income (loss), stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, acquisitions, and other financial components [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows a decrease in cash and cash equivalents, an increase in accounts receivable, inventories, and goodwill, and a significant increase in total liabilities from December 31, 2022, to June 30, 2023 | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------- | :----------------------------- | :------------------------------- | | Cash and cash equivalents | $5,106 | $10,091 | | Accounts receivable, net | $2,147 | $1,178 | | Inventories | $2,940 | $2,112 | | Goodwill | $4,545 | $650 | | Total assets | $16,079 | $14,983 | | Total liabilities | $2,223 | $1,135 | | Total stockholders' equity | $13,856 | $13,848 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the three months ended June 30, 2023, the company reported significant revenue growth and a return to operating income, leading to a substantial increase in net income, while the six-month period saw revenue growth but a decrease in net income Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue, net | $4,049 | $2,040 | $7,327 | $4,031 | | Gross profit | $2,061 | $952 | $3,648 | $2,193 | | Income (loss) from operations | $406 | $(151) | $233 | $(133) | | Net income | $381 | $112 | $190 | $254 | | Earnings (loss) per common share – basic and diluted | $0.04 | $0.00 | $0.00 | $0.01 | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Comprehensive income for the three and six months ended June 30, 2023, significantly improved compared to the prior year, primarily driven by positive foreign currency translation adjustments Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $381 | $112 | $190 | $254 | | Foreign currency translation adjustments | $13 | $(156) | $195 | $(149) | | Comprehensive income (loss) | $394 | $(44) | $385 | $105 | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity remained relatively stable, with net income and positive foreign currency translation adjustments largely offsetting preferred stock dividends and common stock repurchases during the six months ended June 30, 2023 - Total stockholders' equity at June 30, 2023, was **$13,856 thousand**, a slight increase from **$13,848 thousand** at December 31, 2022[16](index=16&type=chunk) - For the six months ended June 30, 2023, the company recorded **$195 thousand** in foreign currency translation adjustments, a positive change compared to a **$(149) thousand** loss in the same period of 2022[16](index=16&type=chunk)[17](index=17&type=chunk) - Common stock repurchases amounted to **$(177) thousand** for the six months ended June 30, 2023[16](index=16&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flows from operating activities turned negative for the six months ended June 30, 2023, while investing activities continued to be a significant use of cash, primarily due to the acquisition of Calman Technology Limited, and financing activities also used more cash due to common stock repurchases Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $(245) | $28 | | Net cash (used in) investing activities | $(4,310) | $(6,036) | | Net cash (used in) financing activities | $(377) | $(200) | | Net (decrease) in cash, cash equivalents and restricted cash | $(4,985) | $(6,375) | | Cash, cash equivalents and restricted cash, end of period | $5,106 | $4,407 | - Investing activities in H1 2023 included a **$4,278 thousand** outflow for the acquisition of Calman Technology Limited, net of cash acquired, compared to **$6,027 thousand** for purchases of marketable securities in H1 2022[19](index=19&type=chunk) - Financing activities in H1 2023 included **$177 thousand** for repurchases of common stock, in addition to **$200 thousand** for preferred stock dividends[19](index=19&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide comprehensive details on the company's business, significant accounting policies, recent acquisitions, marketable securities, earnings per share calculations, changes in stockholders' equity, customer and geographic concentrations, related party transactions, income tax impacts, and various commitments and contingencies [Note 1 – The Company and its Significant Accounting Policies](index=9&type=section&id=Note%201%20%E2%80%93%20The%20Company%20and%20its%20Significant%20Accounting%20Policies) Interlink Electronics operates in force/touch and gas sensor technology divisions, serving global markets with proprietary solutions, with financial statements prepared under U.S. GAAP, and revenue recognized upon customer control of goods, while also highlighting risks related to industry changes, international operations, and supply chain disruptions - Interlink Electronics, Inc. operates in two principal sensor technology divisions: **force/touch sensors** (Force-Sensing Resistor (FSR®), membrane keypads, graphic overlays, printed electronics for HMI) and **gas sensors** (environmental and air quality monitoring, carbon monoxide, ozone detection)[21](index=21&type=chunk)[22](index=22&type=chunk) - The company serves a worldwide customer base from locations in California, China, Scotland, Singapore, Hong Kong, and Japan[23](index=23&type=chunk) - Revenue is recognized in accordance with ASC 606 when the customer obtains control of promised goods or services, typically upon shipment and transfer of title and risk of loss[28](index=28&type=chunk)[29](index=29&type=chunk) - As of June 30, 2023, there were **no stock-based compensation awards outstanding**[36](index=36&type=chunk) - The company operates in **one reportable segment**: the manufacture and sale of force/touch sensors and gas sensors[44](index=44&type=chunk) - Future results are subject to risks including rapid industry change, product performance, customer loss, international business impacts (foreign currency, trade policies, political instability), supply chain shortages, and intellectual property enforcement[49](index=49&type=chunk)[50](index=50&type=chunk) [Note 2 – Details of Certain Financial Statement Components](index=15&type=section&id=Note%202%20%E2%80%93%20Details%20of%20Certain%20Financial%20Statement%20Components) This note provides a detailed breakdown of inventories, property, plant and equipment, intangible assets, and accrued liabilities, showing changes between June 30, 2023, and December 31, 2022, with significant increases in raw materials and intangible assets Inventories (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :--------------- | :------------ | :---------------- | | Raw materials | $2,539 | $1,635 | | Work-in-process | $200 | $192 | | Finished goods | $201 | $285 | | **Total** | **$2,940** | **$2,112** | Property, Plant and Equipment, net (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :------------------------- | :------------ | :---------------- | | Furniture, machinery and equipment | $1,905 | $1,688 | | Leasehold improvements | $405 | $417 | | Less: accumulated depreciation | $(1,973) | $(1,921) | | **Total property, plant and equipment, net** | **$337** | **$184** | Intangible Assets, net (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :------------------------- | :------------ | :---------------- | | Patents, tradenames, and trademarks | $705 | $658 | | Developed technology | $134 | — | | Customer relationships | $96 | — | | Non-compete agreements | $26 | — | | Order backlog | $22 | — | | In-process research and development | $29 | — | | Less: accumulated amortization | $(688) | $(582) | | **Total intangible assets, net** | **$324** | **$76** | - Amortization expense for intangible assets significantly increased to **$94 thousand** for Q2 2023 (from **$13 thousand** in Q2 2022) and **$106 thousand** for H1 2023 (from **$28 thousand** in H1 2022)[56](index=56&type=chunk) [Note 3 – Acquisitions](index=16&type=section&id=Note%203%20%E2%80%93%20Acquisitions) The company completed two significant acquisitions: SPEC Sensors and KWJ Engineering in December 2022, and Calman Technology Limited in March 2023, expanding its sensor offerings and manufacturing capabilities, resulting in substantial goodwill and intangible asset recognition - Acquired substantially all assets of SPEC Sensors, LLC and KWJ Engineering, Inc. in December 2022 for a revised purchase price of **$2,102,313**[57](index=57&type=chunk) - Goodwill of **$246 thousand** was recognized from the SPEC/KWJ acquisition, primarily due to expected synergies and assembled workforces, and is expected to be tax deductible[59](index=59&type=chunk)[60](index=60&type=chunk) - Acquired all outstanding shares of Calman Technology Limited in March 2023 for **GB£4,127,000** (approximately **$4,912,000**)[61](index=61&type=chunk) - Goodwill of **$4,052 thousand** was recognized from the Calman acquisition, primarily for expected synergies and assembled workforce, and is not expected to be tax deductible[63](index=63&type=chunk)[64](index=64&type=chunk) Pro Forma Consolidated Statement of Operations (Six Months Ended June 30, in thousands) | Metric | 2023 | 2022 | | :--------------- | :--- | :--- | | Revenue | $8,088 | $8,177 | | Net income (loss) | $677 | $908 | [Note 4 – Marketable Securities](index=19&type=section&id=Note%204%20%E2%80%93%20Marketable%20Securities) The company held no marketable equity securities as of June 30, 2023, and had no purchases or sales of such securities during the current three and six-month periods, a change from significant activity in the prior year - As of June 30, 2023, the company had **no marketable equity securities**[65](index=65&type=chunk) - No marketable securities were purchased or sold during the three and six months ended June 30, 2023[65](index=65&type=chunk) - In the six months ended June 30, 2022, the company purchased **$6.0 million** of marketable securities and recognized **$225 thousand** in gross realized and unrealized gains[65](index=65&type=chunk) [Note 5 – Earnings Per Share](index=20&type=section&id=Note%205%20%E2%80%93%20Earnings%20Per%20Share) The computation of basic and diluted earnings per share shows an increase for the three months ended June 30, 2023, but a decrease for the six-month period, primarily influenced by net income and preferred stock dividends Earnings Per Share (in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) applicable to common stockholders | $281 | $12 | $(10) | $54 | | Earnings (loss) per common share, basic | $0.04 | $0.00 | $0.00 | $0.01 | | Earnings (loss) per common share, diluted | $0.04 | $0.00 | $0.00 | $0.01 | - **400 thousand shares** of Series A Convertible Preferred Stock were anti-dilutive and excluded from the calculation of diluted EPS for all periods presented[66](index=66&type=chunk) [Note 6 – Stockholders' Equity](index=20&type=section&id=Note%206%20%E2%80%93%20Stockholders'%20Equity) The company engaged in common stock repurchase activities during May 2023, including a private transaction and the initiation of a broader stock repurchase program for up to 100,000 shares - In May 2023, the company repurchased **5,500 shares** of common stock for **$50,050** (**$9.10 per share**) in a private transaction[67](index=67&type=chunk) - A Stock Repurchase Program was approved in May 2023 to repurchase up to **100,000 shares** of common stock[68](index=68&type=chunk) - During the three months ended June 30, 2023, **13,903 shares** were repurchased for approximately **$127,000** under the program[68](index=68&type=chunk) [Note 7 – Significant Customers, Concentrations of Credit Risk, and Geographic Information](index=20&type=section&id=Note%207%20%E2%80%93%20Significant%20Customers%2C%20Concentrations%20of%20Credit%20Risk%2C%20and%20Geographic%20Information) This note details the concentration of revenue from key customers and geographic regions, highlights the shift in revenue distribution, and outlines the geographic location of long-lived assets, particularly the increase in Europe due to acquisitions Net Revenues from Significant Customers (% of total net revenues) | Customer | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Customer A | 23% | 24% | 27% | 30% | | Customer B | 13% | * (Less than 10%) | * (Less than 10%) | * (Less than 10%) | | Customer C | 11% | 25% | * (Less than 10%) | 20% | Net Revenues by Geographic Area (in thousands) | Region | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | United States | $1,947 | $995 | $4,100 | $1,996 | | Asia and Middle East | $1,128 | $969 | $1,954 | $1,780 | | Europe and other | $974 | $76 | $1,273 | $255 | | **Revenue, net** | **$4,049** | **$2,040** | **$7,327** | **$4,031** | - At June 30, 2023, two customers accounted for **29%** and **18%** of total accounts receivable, with an allowance for doubtful accounts of **$0**[72](index=72&type=chunk) Long-Lived Assets by Geographic Location (in thousands) | Region | June 30, 2023 | December 31, 2022 | | :------------- | :------------ | :---------------- | | United States | $782 | $935 | | Europe | $4,527 | — | | Asia | $325 | $344 | | **Total long-lived assets** | **$5,634** | **$1,279** | [Note 8 – Related Party Transactions](index=23&type=section&id=Note%208%20%E2%80%93%20Related%20Party%20Transactions) The company engages in various transactions with Qualstar Corporation and BKF Capital Group, both related parties due to common control by Steven N. Bronson, including shared facilities, consulting services, and expense reimbursements - Steven N. Bronson, the company's Chairman, President, and CEO, also controls Qualstar Corporation and BKF Capital Group, Inc., making them related parties[74](index=74&type=chunk)[76](index=76&type=chunk) - Agreements with Qualstar and BKF Capital include sharing office facilities and providing operational, sales, marketing, and general and administrative consulting services[74](index=74&type=chunk)[76](index=76&type=chunk) - Interlink and Qualstar/BKF Capital reimburse each other for expenses paid on behalf of the other entity[74](index=74&type=chunk)[76](index=76&type=chunk) [Note 9 – Income Taxes](index=24&type=section&id=Note%209%20%E2%80%93%20Income%20Taxes) The company's income tax expense is influenced by the mix of domestic and foreign earnings and losses, with a valuation allowance on federal and state deferred tax assets due to a 2010 ownership change, causing the effective tax rate to fluctuate - The effective income tax rates are generally higher than blended statutory rates due to income tax expense on taxable income in certain jurisdictions and the inability to benefit from domestic losses due to a valuation allowance on net operating loss (NOL) carryforwards[77](index=77&type=chunk) Income Tax Expense as a Percentage of Income Before Income Taxes | Period | 2023 | 2022 | | :------------------------------- | :--- | :--- | | Three Months Ended June 30, | 18.9% | 41.4% | | Six Months Ended June 30, | 47.4% | 30.2% | - All remaining federal and state NOLs are subject to annual limitations due to an IRC Section 382 ownership change in 2010[78](index=78&type=chunk) - A valuation allowance on federal and state deferred tax assets was deemed necessary at June 30, 2023, and December 31, 2022, but not on foreign deferred tax assets[79](index=79&type=chunk) - The company has elected to account for Global Intangible Low-Taxed Income (GILTI) as a period cost[80](index=80&type=chunk) [Note 10 – Commitments and Contingencies](index=25&type=section&id=Note%2010%20%E2%80%93%20Commitments%20and%20Contingencies) This note details the company's operating lease agreements for various global facilities, outlining lease liabilities, right-of-use assets, and future minimum payments, while also addressing potential liabilities from litigation, product warranties, intellectual property indemnities, and specific indemnification clauses for directors and officers, including the CEO's employment agreement - The company leases facilities under non-cancellable operating leases expiring through fiscal 2025, with a weighted average remaining lease term of **1.1 years** as of June 30, 2023[82](index=82&type=chunk)[91](index=91&type=chunk) Lease Liabilities and Right-of-Use Assets (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :-------------------------- | :------------ | :---------------- | | Current lease liabilities | $157 | $131 | | Long-term lease liabilities | $77 | $46 | | Right-of-use assets | $225 | $172 | Future Minimum Lease Payments (undiscounted, in thousands) | Years ending December 31, | Amount | | :------------------------ | :----- | | 2023 (remainder of year) | $83 | | 2024 | $141 | | 2025 | $24 | | **Total undiscounted future non-cancelable minimum lease payments** | **$248** | - Operating lease costs for the six months ended June 30, 2023, were approximately **$250 thousand**, compared to **$122 thousand** in the prior year[93](index=93&type=chunk) - The company was **not party to any legal proceedings** as of June 30, 2023[94](index=94&type=chunk) - The CEO's employment agreement includes severance and change in control obligations, such as base compensation, bonus payments, and immediate full vesting of unvested equity/options upon certain termination events or a change in control[99](index=99&type=chunk)[100](index=100&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and future outlook, including an overview of business segments, critical accounting policies, and detailed analysis of revenue, gross profit, operating expenses, and cash flows, highlighting significant revenue growth driven by recent acquisitions and increased demand in key markets [Overview](index=30&type=section&id=Overview) Interlink Electronics operates in force/touch and gas sensor technologies, expanding its offerings and global presence through recent acquisitions of Calman Technology Limited and SPEC Sensors/KWJ Engineering, and is investing in R&D to meet market demand and align with large-tier customers - The company operates in two principal sensor technology divisions: **force/touch sensors** (HMI, FSR®, membrane keypads, graphic overlays, printed electronics) and **gas sensors** (electrochemical, environmental and air quality monitoring)[104](index=104&type=chunk)[105](index=105&type=chunk)[107](index=107&type=chunk) - Acquisitions of Calman Technology Limited (March 2023) and SPEC Sensors/KWJ Engineering (December 2022) expanded product offerings and manufacturing capabilities[106](index=106&type=chunk)[107](index=107&type=chunk) - The company serves a diverse global customer base across consumer electronics, industrial automation, automotive, medical, defense, and environmental monitoring markets[108](index=108&type=chunk) - Significant investment in R&D, including relocating product development to Camarillo, California, and leveraging acquired facilities, aims to provide leading-edge solutions and support growth initiatives[109](index=109&type=chunk) [Critical Accounting Policies and Estimates](index=31&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The company's critical accounting policies and estimates, which involve significant judgments and assumptions in preparing financial statements, remain consistent with those disclosed in its Annual Report on Form 10-K, with no material changes impacting the current condensed consolidated financial statements - The preparation of consolidated financial statements requires management to make estimates and assumptions that affect reported amounts[111](index=111&type=chunk) - There have been **no material changes** to the critical accounting policies and estimates described in the Annual Report on Form 10-K filed on March 29, 2023[112](index=112&type=chunk) [Recently Issued and Adopted Accounting Pronouncements](index=31&type=section&id=Recently%20Issued%20and%20Adopted%20Accounting%20Pronouncements) The company has reviewed all recently issued accounting pronouncements and determined that none are applicable or expected to have a material impact on its financial statements - All recently issued accounting pronouncements have been reviewed[113](index=113&type=chunk) - Concluded that they are **not applicable** or **not expected to be material** to the financial statements[113](index=113&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) The company experienced substantial revenue growth for both the three and six months ended June 30, 2023, primarily driven by recent acquisitions and increased demand in the medical and industrial markets, with gross profit also increasing, but net income for the six-month period declined due to lower other income, despite improved operating income Consolidated Statements of Operations Data (in thousands, except percentages) | Metric | Q2 2023 | Q2 2022 | % Change (YoY) | H1 2023 | H1 2022 | % Change (YoY) | | :-------------------------------- | :------ | :------ | :------------- | :------ | :------ | :------------- | | Revenue, net | $4,049 | $2,040 | 98.5% | $7,327 | $4,031 | 81.8% | | Cost of revenue | $1,988 | $1,088 | 82.7% | $3,679 | $1,838 | 100.2% | | Gross profit | $2,061 | $952 | 116.5% | $3,648 | $2,193 | 66.3% | | Engineering, research and development | $650 | $330 | 97.0% | $1,177 | $593 | 98.5% | | Selling, general and administrative | $1,005 | $773 | 30.0% | $2,238 | $1,733 | 29.1% | | Total operating expenses | $1,655 | $1,103 | 50.0% | $3,415 | $2,326 | 46.8% | | Income (loss) from operations | $406 | $(151) | N/A | $233 | $(133) | N/A | | Other income (expense), net | $64 | $342 | (81.3)% | $128 | $497 | (74.2)% | | Income (loss) before income taxes | $470 | $191 | 146.1% | $361 | $364 | (0.8)% | | Income tax expense (benefit) | $89 | $79 | 12.7% | $171 | $110 | 55.5% | | Net income (loss) | $381 | $112 | 240.2% | $190 | $254 | (25.2)% | - Revenue growth in Q2 2023 and H1 2023 was primarily driven by increased shipments to industrial and medical market customers, resulting from higher demand and sales to new customers acquired through SPEC/KWJ and Calman[117](index=117&type=chunk)[126](index=126&type=chunk) - Gross profit for Q2 2023 increased by **116.5%** to **$2,061 thousand**, with gross margin improving to **50.9%** due to higher revenues, lower material costs, and favorable product/customer mix[118](index=118&type=chunk) - Engineering and R&D expenses increased by **97.0%** in Q2 2023 and **98.5%** in H1 2023, mainly due to increased employee headcount from the SPEC/KWJ acquisition, non-cash amortization, and higher product-development activities[119](index=119&type=chunk)[128](index=128&type=chunk) - Other income (expense), net, decreased significantly in both Q2 2023 and H1 2023, primarily due to the absence of marketable securities gains present in the prior year and lower foreign currency transaction gains[122](index=122&type=chunk)[132](index=132&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2023, the company had $5.1 million in cash and cash equivalents and $8.3 million in working capital, with no indebtedness, and while current cash balances are believed to be sufficient for operations, the company may seek additional capital through financing arrangements if circumstances change - As of June 30, 2023, the company had **$5.1 million** in cash and cash equivalents and **$8.3 million** in working capital, with **no indebtedness**[134](index=134&type=chunk) - **$1.3 million** of the cash balance was held by foreign subsidiaries, with methods available for repatriation without significant tax effects[134](index=134&type=chunk) - The company has **200,000 shares** of **8.0% Series A Convertible Preferred Stock** outstanding, with an aggregate liquidation preference of **$5.0 million**, paying monthly cash dividends[135](index=135&type=chunk) - Existing cash and cash equivalents are believed to be sufficient for current operations, but additional capital may be required through equity, equity-linked, or debt financing if circumstances change[136](index=136&type=chunk) [Cash Flow Analysis](index=38&type=section&id=Cash%20Flow%20Analysis) For the six months ended June 30, 2023, operating activities used cash, while investing activities continued to be a significant outflow, primarily due to the acquisition of Calman Technology Limited, and financing activities also used cash for preferred stock dividends and common stock repurchases Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $(245) | $28 | | Net cash (used in) investing activities | $(4,310) | $(6,036) | | Net cash (used in) financing activities | $(377) | $(200) | - Cash used in operating activities for H1 2023 was **$245 thousand**, primarily due to changes in operating assets and liabilities, including increases in accounts receivable and inventories, and an increase in accounts payable and accrued liabilities[138](index=138&type=chunk)[139](index=139&type=chunk) - Net cash used in investing activities for H1 2023 was **$4.3 million**, predominantly for the acquisition of Calman Technology Limited, net of cash acquired[141](index=141&type=chunk) - Net cash used in financing activities for H1 2023 was **$377 thousand**, consisting of **$177 thousand** for common stock repurchases and **$200 thousand** for preferred stock dividends[142](index=142&type=chunk) [Off-Balance Sheet Arrangements](index=38&type=section&id=Off-Balance%20Sheet%20Arrangements) The company explicitly states that it does not have any off-balance sheet arrangements - The company does not have any off-balance sheet arrangements[143](index=143&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section is marked as 'Not Applicable,' indicating that the company has no material market risk disclosures to report for the period - The section is marked as 'Not Applicable'[144](index=144&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of June 30, 2023, concluding they were effective at a reasonable assurance level, and no material changes in internal control over financial reporting were identified during the period - The CEO and CFO evaluated the effectiveness of disclosure controls and procedures as of June 30, 2023, and concluded they were **effective at a reasonable assurance level**[147](index=147&type=chunk) - There was **no change in internal control over financial reporting** during the period ended June 30, 2023, that materially affected, or is reasonably likely to materially affect, internal control over financial reporting[148](index=148&type=chunk) - Management acknowledges that control systems provide only reasonable, not absolute, assurance and are subject to human diligence, judgment lapses, and breakdowns[150](index=150&type=chunk) [PART II -- OTHER INFORMATION](index=41&type=section&id=PART%20II%20--%20OTHER%20INFORMATION) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the comprehensive risk factors detailed in the company's Annual Report on Form 10-K filed on March 29, 2023, and confirms that no material changes to these risks occurred during the three months ended June 30, 2023 - Refers to risk factors contained in Item 1A of the Annual Report on Form 10-K filed on March 29, 2023[152](index=152&type=chunk) - No material changes to such risk factors occurred during the three months ended June 30, 2023[152](index=152&type=chunk) [Item 6. Exhibits](index=41&type=section&id=Item%206.%20Exhibits) This section lists all exhibits accompanying the Form 10-Q, including corporate governance documents, officer certifications, and XBRL financial data files, with specific notes on the filing status of certain exhibits - Exhibits include Articles of Incorporation, Certificate of Designations of Series A Preferred Stock, Bylaws, and various certifications (31.1, 31.2, 32.1)[154](index=154&type=chunk) - XBRL Instance Document and Taxonomy Extension Schema, Calculation, Definition, Label, and Presentation Linkbase Documents are included[154](index=154&type=chunk) - Exhibit 32.1 (Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350) is furnished and deemed not filed with the SEC[154](index=154&type=chunk) [Signatures](index=43&type=section&id=Signatures) The report was duly signed on behalf of Interlink Electronics, Inc. by its Chief Financial Officer, Ryan J. Hoffman, on August 10, 2023 - The report was signed by Ryan J. Hoffman, Chief Financial Officer, on behalf of Interlink Electronics, Inc[156](index=156&type=chunk) - The signing date of the report was August 10, 2023[156](index=156&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2023 or ☐ Transition Report Pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1 Jenner, Suite 200 Irvine, California 92618 (Address of principal executive offices, ...

[Special Note Regarding Forward-Looking Statements](index=3&type=section&id=Special%20Note%20Regarding%20Forward-Looking%20Statements) This section cautions that forward-looking statements are subject to risks, and actual results may differ materially - Forward-looking statements are identified by words such as "believe," "may," "will," "potentially," "estimate," "continue," "anticipate," "intend," "could," "would," "project," "plan," and "expect"[5](index=5&type=chunk) - Actual results, performance, or achievements may differ materially from forward-looking statements due to known and unknown risks, uncertainties, and other important factors[5](index=5&type=chunk) - Key risks include the impact of the COVID-19 pandemic, ability to fund operations, future financial results, capital resources, hiring plans, business strategy, market penetration, competitive advantages, intellectual property, customer relationships, employee retention, competition, future acquisitions, and compliance with legal and export regulations[6](index=6&type=chunk) PART I [Business Overview](index=6&type=section&id=Item%201.%20Business) Interlink operates in force-sensing HMI and gas-sensing technologies, providing proprietary solutions for diverse markets, expanding into gas-sensing via a 2022 acquisition - Interlink operates in two principal divisions: force-sensing resistors/Human Machine Interface (HMI) technology and gas-sensing technology[12](index=12&type=chunk) - The company designs, develops, manufactures, and sells proprietary force-sensing technologies, including FSR® technology, for HMI solutions in consumer electronics, automotive, industrial, and medical markets[13](index=13&type=chunk)[14](index=14&type=chunk)[15](index=15&type=chunk) - Interlink entered the gas-sensing market in December 2022 through the acquisition of SPEC Sensors, LLC and KWJ Engineering, Inc. for approximately **$2.2 million**, offering electrochemical gas-sensing products[18](index=18&type=chunk) - The market for gas sensors is growing rapidly, driven by demand in various industries, green initiatives, government mandates, and the availability of smaller, lower-cost, connected sensors[19](index=19&type=chunk) [Company Profile and Operations](index=6&type=section&id=Our%20Company) Interlink Electronics, Inc. specializes in force-sensing and gas-sensing technologies, serving a worldwide customer base from its California headquarters and global facilities - Interlink operates in force-sensing resistors/HMI technology and gas-sensing technology divisions[12](index=12&type=chunk) - Global operations include headquarters in Irvine, CA; development in Camarillo, CA; SPEC-KWJ facility in Newark, CA; manufacturing in Shenzhen, China; and an R&D center in Singapore[20](index=20&type=chunk) - The company was incorporated in California in 1985, then Delaware in 1996, and finally Nevada in 2012[21](index=21&type=chunk) [Industry Landscape and Market Trends](index=10&type=section&id=Our%20Industry) The HMI industry has shifted from industrial to consumer electronics, driving demand for touch-sensitive designs, while the gas-sensing market expands into IoT and health monitoring - HMI technologies, initially industrial, became ubiquitous in consumer electronics with touch-sensitive smartphones, driving demand for sleek, touch-sensing designs across various devices[25](index=25&type=chunk) - Printed force sensors account for approximately **30% of the printed sensor market**, with the total market for printed, flexible, and organic electronics projected to grow from **$41.2 billion in 2020 to $74 billion in 2030**[26](index=26&type=chunk) - The gas-detection industry is expanding beyond traditional safety applications to new areas like breath analysis, food transport, wearable monitors, and IoT, driven by demand for smaller, lower-cost, high-performance sensors[30](index=30&type=chunk) [Strategic Objectives and Growth Initiatives](index=12&type=section&id=Our%20Strategy) Interlink aims to be a global leader in multi-sensing HMI and gas-sensing solutions by expanding market presence, strengthening customer relationships, pursuing a multi-technology roadmap, and evaluating acquisitions - Primary objective is to be the global leader in multi-sensing HMI and gas-sensing solutions for automotive, consumer electronics, medical, industrial automation, and environmental monitoring markets[32](index=32&type=chunk) - Key strategic initiatives include expanding presence in existing and new markets, strengthening relationships with current customers, pursuing a multi-technology roadmap (resistive, piezo, capacitive, haptics), and evaluating inorganic growth opportunities through acquisitions[36](index=36&type=chunk) [Technology Platforms and Product Offerings](index=12&type=section&id=Our%20Technology%20Platforms%20and%20Products) Interlink's FSR® technology provides thin, durable, low-power force-sensing solutions, while SPEC Sensors offers miniaturized, low-power electrochemical gas sensors for various applications - Interlink's patented FSR® sensor technology is thin, durable, low-power, and force-sensitive, offering advantages over capacitive sensors in harsh environments and for continuous variable control[35](index=35&type=chunk)[38](index=38&type=chunk) - The company offers a comprehensive portfolio of standard HMI solutions, including single-zone FSR® sensors, force-sensing linear potentiometers (FSLP), integrated mouse modules, and is adding piezoelectric sensors[39](index=39&type=chunk)[41](index=41&type=chunk) - Gas-sensing products, primarily from SPEC Sensors, focus on smaller, low-power, low-cost electrochemical sensors for applications like carbon monoxide and ozone detection, and air quality monitoring[40](index=40&type=chunk)[43](index=43&type=chunk)[44](index=44&type=chunk) - Specific gas-sensing products include Eco Sensors™ branded ozone monitors, in-line carbon monoxide monitors, and a line of screen-printed electrochemical gas sensors for various gases[48](index=48&type=chunk) [Intellectual Property Protection](index=16&type=section&id=Intellectual%20Property) Interlink protects its intellectual property through patents, copyrights, trade secrets, trademarks, and non-disclosure agreements, with 24 patents held and 16 pending as of December 31, 2022 - Intellectual property is protected through patents, copyrights, trade secrets, trademarks, and non-disclosure agreements[45](index=45&type=chunk) - As of December 31, 2022, the company held **24 patents** and had **16 pending**, categorized into sensors (8 patents, expiring 2024-2032), sensing systems (5 patents, expiring 2029-2038), and human interface devices (11 patents, expiring 2024-2036)[50](index=50&type=chunk) - Proprietary screen-printing techniques for FSR® sensors, conducted in-house, are considered a significant trade secret due to the considerable domain knowledge and expertise required[47](index=47&type=chunk)[49](index=49&type=chunk) [Competitive Landscape](index=18&type=section&id=Competition) Interlink operates in highly competitive force-sensing/HMI and gas-sensing markets, differentiating itself with disruptive force-sensing technology and smaller, lower-cost, customizable gas sensors - Markets for force-sensing/HMI and gas-sensing are highly competitive and subject to rapid technological advancement and significant price competition[51](index=51&type=chunk)[55](index=55&type=chunk) - In force-sensing/HMI, Interlink offers disruptive technology replacing outdated switches and complements commoditized capacitive sensing with hybrid solutions for unique challenges[53](index=53&type=chunk) - In gas-sensing, the company competes with smaller, thinner, lower-cost, and customizable sensors, combined with custom electronics and calibration, maintaining an advantage in ozone sensing and in-line CO monitors[54](index=54&type=chunk) [Sales Channels and Cycle](index=18&type=section&id=Sales%20and%20Marketing) Interlink sells globally through direct sales, representatives, and distributors, with a long sales cycle for custom solutions and varying product lifespans across markets - Products are sold through direct sales employees, outside sales representatives, and distributors (e.g., Digi-Key Electronics, Grainger, Cole Parmer)[56](index=56&type=chunk) - The sales cycle for custom solutions can range from months to several years, involving design opportunity, design win (often as a sole-source supplier), and mass production phases[57](index=57&type=chunk)[58](index=58&type=chunk)[63](index=63&type=chunk) - Product lifespans vary: consumer electronics (6 months-5 years), industrial/automotive (3-10 years), and medical (over 20 years)[58](index=58&type=chunk) [Customer Base and Revenue Concentration](index=20&type=section&id=Our%20Customers) Interlink serves a diverse global customer base, with international sales accounting for **55% of revenue** in 2022, but experiences high revenue concentration from a few key customers - Customers include leading electronics companies, luxury and mid-market car companies, medical and industrial equipment firms, and IoT market entrants[59](index=59&type=chunk) - International sales accounted for **55% of net revenues in 2022** (down from 71% in 2021), with Japan (**24%**), China (**15%**), and Taiwan (**6%**) being significant contributors[61](index=61&type=chunk) Customer Revenue Concentration (in thousands) | Customer | % of Net Revenues (2022) | % of Net Revenues (2021) | | :--------- | :----------------------- | :----------------------- | | Customer A | 24.9% | 14.7% | | Customer B | 17.8% | 9.4% | | Customer C | 9.3% | 14.7% | [Manufacturing and Supply Chain](index=22&type=section&id=Manufacturing%20Operations%20and%20Principal%20Suppliers) Interlink operates ISO-certified manufacturing in China and California, relying on single-source suppliers for critical materials, while ensuring products comply with RoHS and REACH standards - Manufacturing facilities are located in Shenzhen, China (ISO 9001, 14001, 13485 certified) and Newark, California (SPEC-KWJ facility)[64](index=64&type=chunk)[20](index=20&type=chunk) - Materials are purchased from outside suppliers, with certain components sourced from single-suppliers (e.g., Henkel, DuPont, Solvay, SABIC, 3M), which increases supply risk[65](index=65&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2022 or ☐ Transition Report Pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________________ to ______________________. Commission file number 001-37659 INTERLINK ELECTRONICS, INC. (Exact name of registrant as specified in i ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2022 or ☐ Transition Report Pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________________ to ______________________. Commission file number 001-37659 INTERLINK ELECTRONICS, INC. (Exact name of registrant as specified in its ch ...

[PART I -- FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20--%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) Presents Interlink Electronics' unaudited condensed consolidated financial statements and detailed notes on accounting policies and components [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (in thousands) | ASSETS | March 31, 2022 | December 31, 2021 | | :-------------------- | :------------- | :---------------- | | Cash and cash equivalents | $8,130 | $10,777 | | Marketable securities | $2,335 | — | | Accounts receivable, net | $1,300 | $1,080 | | Inventories | $799 | $814 | | Total current assets | $12,957 | $13,067 | | Total assets | $13,532 | $13,779 | | LIABILITIES AND STOCKHOLDERS' EQUITY | March 31, 2022 | December 31, 2021 | | Accounts payable | $333 | $338 | | Accrued liabilities | $251 | $507 | | Total current liabilities | $764 | $1,037 | | Total liabilities | $778 | $1,074 | | Total stockholders' equity | $12,754 | $12,705 | | Total liabilities and stockholders' equity | $13,532 | $13,779 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations (in thousands, except per share data) | | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Revenue, net | $1,991 | $1,568 | | Cost of revenue | $750 | $694 | | Gross profit | $1,241 | $874 | | Total operating expenses | $1,223 | $934 | | Income (loss) from operations | $18 | $(60) | | Other income (expense), net | $155 | $10 | | Income (loss) before income taxes | $173 | $(50) | | Income tax expense (benefit) | $31 | $(7) | | Net income (loss) | $142 | $(43) | | Net income (loss) applicable to common stockholders | $42 | $(43) | | Earnings (loss) per common share – basic and diluted | $0.01 | $(0.01) | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands) | | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :------------- | :-------------------------------- | :-------------------------------- | | Net income (loss) | $142 | $(43) | | Foreign currency translation adjustments | $7 | $(12) | | Comprehensive income (loss) | $149 | $(55) | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Condensed Consolidated Statements of Stockholders' Equity (in thousands) | | Preferred Stock Amount | Common Stock Amount | Additional Paid-in-Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Stockholders' Equity | | :------------- | :--------------------- | :------------------ | :------------------------- | :-------------------------------------------- | :------------------ | :------------------------- | | Balance at Dec 31, 2021 | $2 | $7 | $62,552 | $96 | $(49,952) | $12,705 | | Net income | — | — | — | — | $142 | $142 | | Preferred stock dividends | — | — | — | — | $(100) | $(100) | | Foreign currency translation adjustment | — | — | — | $7 | — | $7 | | Balance at Mar 31, 2022 | $2 | $7 | $62,552 | $103 | $(49,910) | $12,754 | | Balance at Dec 31, 2020 | — | $7 | $57,966 | $37 | $(49,170) | $8,840 | | Net (loss) | — | — | — | — | $(43) | $(43) | | Foreign currency translation adjustment | — | — | — | $(12) | — | $(12) | | Stock-based compensation expense | — | — | $5 | — | — | $5 | | Balance at Mar 31, 2021 | — | $7 | $57,971 | $25 | $(49,213) | $8,790 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (in thousands) | | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(367) | $(1) | | Net cash used in investing activities | $(2,185) | $(12) | | Net cash used in financing activities | $(100) | — | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | $5 | $(9) | | Net decrease in cash and cash equivalents | $(2,647) | $(22) | | Cash, cash equivalents and restricted cash, beginning of period | $10,782 | $6,125 | | Cash, cash equivalents and restricted cash, end of period | $8,135 | $6,103 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [Note 1 – The Company and its Significant Accounting Policies](index=9&type=section&id=Note%201%20%E2%80%93%20The%20Company%20and%20its%20Significant%20Accounting%20Policies) Outlines Interlink's business, global operations, fiscal year, and significant accounting policies, including revenue, R&D, and leases - Interlink Electronics, Inc. designs, develops, manufactures, and sells **force-sensing technologies**, including sensor components, subassemblies, modules, and products for cursor control and 3D user inputs. Its **HMI technology platforms** are used in consumer electronics, automotive, industrial, and medical markets[21](index=21&type=chunk) - The company operates globally with corporate headquarters in Irvine, California, a Global Product Development and Materials Science Center in Camarillo, California, a manufacturing facility in Shenzhen, China, an engineering R&D center in Singapore, and distribution in Hong Kong. A new R&D center in the UK is expected in 2022[22](index=22&type=chunk) - Revenue is recognized when customers obtain control of promised goods or services, typically upon shipment when title and risk of loss transfer. The company establishes reserves for potential customer returns or warranty repairs based on historical experience[30](index=30&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk) - Engineering, research and development costs are expensed as incurred, primarily consisting of compensation for R&D employees, depreciation, amortization, and overhead[35](index=35&type=chunk) - As of March 31, 2022, there were **no stock-based compensation awards outstanding**[39](index=39&type=chunk) - The company operates in **one reportable segment**: the manufacture and sale of force sensing technology solutions[46](index=46&type=chunk) - Leases are accounted for under ASC 842, with arrangements classified as operating or financing leases and recorded on the balance sheet as right-of-use assets and lease liabilities. Short-term leases (12 months or less) are excluded[49](index=49&type=chunk)[50](index=50&type=chunk) - Future results are subject to risks including rapid industry change, product performance, customer loss, international business impacts (e.g., foreign currency, political instability), supply shortages, manufacturing disruptions, environmental directives, intellectual property, talent retention, and capital raising[51](index=51&type=chunk) - Public health threats, such as COVID-19, could adversely affect business operations, including potential shutdowns or disruptions to suppliers, distributors, and resellers[52](index=52&type=chunk) [Note 2 – Details of Certain Financial Statement Components](index=17&type=section&id=Note%202%20%E2%80%93%20Details%20of%20Certain%20Financial%20Statement%20Components) This note provides a detailed breakdown of the company's inventories, property, plant and equipment, and intangible assets, including their carrying values and associated depreciation and amortization expenses Inventories (in thousands) | Inventories | March 31, 2022 | December 31, 2021 | | :------------------------ | :------------- | :---------------- | | Raw materials | $459 | $447 | | Work-in-process | $201 | $209 | | Finished goods | $139 | $159 | | Total inventories | $799 | $814 | Property, plant and equipment, net (in thousands) | Property, plant and equipment, net | March 31, 2022 | December 31, 2021 | | :------------------------------------------------ | :------------- | :---------------- | | Furniture, machinery and equipment | $1,702 | $1,696 | | Leasehold improvements | $445 | $444 | | Less: accumulated depreciation | $(1,857) | $(1,802) | | Total property, plant and equipment, net | $290 | $338 | Intangible assets, net (in thousands) | Intangible assets, net | March 31, 2022 | December 31, 2021 | | :------------------------------------ | :------------- | :---------------- | | Patents and trademarks | $658 | $658 | | Less: accumulated amortization | $(542) | $(527) | | Total intangible assets, net | $116 | $131 | | Future amortization expense on existing intangible assets (in thousands) | | Years ending December 31, 2022 (remainder of year) | $40 | | Years ending December 31, 2023 | $42 | | Years ending December 31, 2024 | $27 | | Years ending December 31, 2025 | $7 | | Total | $116 | Accrued Liabilities (in thousands) | Accrued Liabilities | March 31, 2022 | December 31, 2021 | | :--------------------------------- | :------------- | :---------------- | | Accrued wages and benefits | $113 | $402 | | Accrued vacation | $96 | $82 | | Other accrued liabilities | $24 | $23 | | Total accrued liabilities | $251 | $507 | [Note 3 – Marketable Securities](index=18&type=section&id=Note%203%20%E2%80%93%20Marketable%20Securities) This note details the company's marketable securities, which are equity securities classified as available-for-sale and carried at fair value. It also reports unrealized gains and recent purchases - Marketable securities consist of **equity securities classified as available-for-sale (AFS)**, carried at fair value. Unrealized gains and losses are **reported in earnings within 'other income (expense), net'**[60](index=60&type=chunk) - During the three months ended March 31, 2022, the company purchased **$2.179 million** of marketable equity securities[60](index=60&type=chunk) - As of March 31, 2022, marketable equity securities had a fair value of **$2.335 million** (historical cost **$2.179 million**), with gross unrealized gains of **$156 thousand**[60](index=60&type=chunk) [Note 4 – Earnings Per Share](index=18&type=section&id=Note%204%20%E2%80%93%20Earnings%20Per%20Share) This note provides the computation of basic and diluted earnings per share for the three months ended March 31, 2022, and 2021, detailing the net income applicable to common stockholders and weighted average shares outstanding Earnings Per Share (in thousands, except per share data) | | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net income (loss) | $142 | $(43) | | Less: Preferred stock dividends | $(100) | — | | Net income (loss) applicable to common stockholders | $42 | $(43) | | Weighted average common shares outstanding – basic | 6,602 | 6,601 | | Dilutive potential common shares from stock options, restricted stock units, and convertible preferred stock | — | — | | Weighted average common shares outstanding – diluted | 6,602 | 6,601 | | Earnings (loss) per common share, basic | $0.01 | $(0.01) | | Earnings (loss) per common share, diluted | $0.01 | $(0.01) | | Shares subject to anti-dilutive Series A Convertible Preferred Stock excluded from calculation | 400 | 400 | [Note 5 – Significant Customers, Concentrations of Credit Risk, and Geographic Information](index=19&type=section&id=Note%205%20%E2%80%93%20Significant%20Customers%2C%20Concentrations%20of%20Credit%20Risk%2C%20and%20Geographic%20Information) This note details revenue concentration from significant customers, geographic distribution of net revenues and long-lived assets, and concentrations of credit risk in accounts receivable Net revenues from customers equal to or greater than 10% of total net revenues | | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :----------------------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Customer A | 35 % | * % | | Customer B | * % | 19 % | | Customer C | 15 % | * % | | Customer D | * % | 17 % | | Customer E | 11 % | * % | Net revenues by geographic area (in thousands) | Net revenues by geographic area | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :--------------------------------------------- | :-------------------------------- | :-------------------------------- | | United States | $1,001 | $270 | | Asia and Middle East | $811 | $1,112 | | Europe and other | $179 | $186 | | Revenue, net | $1,991 | $1,568 | - At March 31, 2022, **one customer accounted for 55%** of total accounts receivable. The **allowance for doubtful accounts was $0** at both March 31, 2022, and December 31, 2021[64](index=64&type=chunk) Long-lived assets (in thousands) | Long-lived assets | March 31, 2022 | December 31, 2021 | | :------------------------------- | :------------- | :---------------- | | United States | $461 | $536 | | Asia | $114 | $176 | | Total long-lived assets | $575 | $712 | [Note 6 – Related Party Transactions](index=19&type=section&id=Note%206%20%E2%80%93%20Related%20Party%20Transactions) This note details transactions with related parties, Qualstar Corporation and BKF Capital Group, both controlled by Interlink's CEO. These transactions include facilities agreements, consulting services, and expense reimbursements - Interlink has facilities and consulting agreements with Qualstar Corporation, a related party where Steven N. Bronson (Interlink's CEO) is also CEO and a director. Transactions include splitting rent/lease costs and providing operational, sales, marketing, general, and administrative services[66](index=66&type=chunk)[67](index=67&type=chunk) Qualstar Transactions (in thousands) | Qualstar Transactions | Due from Qualstar (2022) | Due to Qualstar (2022) | Due from Qualstar (2021) | Due to Qualstar (2021) | | :----------------------------------- | :----------------------- | :--------------------- | :----------------------- | :--------------------- | | Balance at January 1, | $85 | $8 | $52 | $34 | | Billed (or accrued) to Qualstar by Interlink | $185 | — | $208 | — | | Paid by Qualstar to Interlink | $(251) | — | $(145) | — | | Billed (or accrued) to Interlink by Qualstar | — | $22 | — | $24 | | Paid by Interlink to Qualstar | — | $(22) | — | $(57) | | Balance at March 31, | $19 | $8 | $115 | $1 | - Interlink also has facilities and consulting agreements with BKF Capital Group, Inc., another related party controlled by Steven N. Bronson. These agreements involve sharing office facilities and providing operational and general and administrative services[68](index=68&type=chunk) BKF Capital Transactions (in thousands) | BKF Capital Transactions | Due from BKF Capital (2022) | Due to BKF Capital (2022) | Due from BKF Capital (2021) | Due to BKF Capital (2021) | | :-------------------------------------- | :-------------------------- | :------------------------ | :-------------------------- | :------------------------ | | Balance at January 1, | $12 | — | — | — | | Billed (or accrued) to BKF Capital by Interlink | $39 | — | $2 | — | | Paid by BKF Capital to Interlink | $(48) | — | $(2) | — | | Billed (or accrued) to Interlink by BKF Capital | — | $30 | — | — | | Paid by Interlink to BKF Capital | — | $(30) | — | — | | Balance at March 31, | $3 | — | — | — | [Note 7 – Income Taxes](index=22&type=section&id=Note%207%20%E2%80%93%20Income%20Taxes) This note discusses the company's income tax expense, the impact of domestic and foreign pre-tax earnings, limitations on Net Operating Losses (NOLs) due to an ownership change, the valuation allowance against deferred tax assets, and the treatment of Global Intangible Low-Taxed Income (GILTI) - Income tax expense as a percentage of income before income taxes was **17.9%** for Q1 2022, compared to a benefit of **14.0%** for Q1 2021, primarily influenced by the mix of domestic and foreign pre-tax earnings and NOL utilization[69](index=69&type=chunk) - All remaining federal and state NOLs are subject to annual limitations due to an IRC Section 382 ownership change in February 2010[70](index=70&type=chunk) - A valuation allowance was deemed necessary against federal and state deferred tax assets at December 31, 2021, primarily due to cumulative domestic losses over the preceding three-year period[71](index=71&type=chunk) - Of the **$8.1 million** cash balances at March 31, 2022, **$2.4 million** was held by foreign subsidiaries, with the intent to **permanently reinvest these funds outside the U.S.**[73](index=73&type=chunk) [Note 8 – Commitments and Contingencies](index=22&type=section&id=Note%208%20%E2%80%93%20Commitments%20and%20Contingencies) This note details the company's commitments and contingencies, including operating lease agreements for various facilities globally, the absence of material litigation, product warranty provisions, intellectual property indemnities, and director/officer indemnification agreements - The company leases facilities under non-cancellable operating leases expiring through fiscal 2023, with current and long-term lease liabilities of **$114 thousand** and **$14 thousand**, respectively, and right-of-use assets of **$119 thousand** as of March 31, 2022[74](index=74&type=chunk)[82](index=82&type=chunk) Future minimum lease payments (in thousands) | | | | :------------------------------------------ | :--- | | Years ending December 31, 2022 (remainder of year) | $95 | | Years ending December 31, 2023 | $38 | | Total undiscounted future non-cancelable minimum lease payments | $133 | | Less: imputed interest | $(5) | | Present value of lease liabilities | $128 | - Operating lease costs incurred were approximately **$61 thousand** for the three months ended March 31, 2022, compared to **$82 thousand** for the same period in 2021[83](index=83&type=chunk)[84](index=84&type=chunk) - As of March 31, 2022, the company was **not party to any material legal proceedings**[85](index=85&type=chunk) - The company generally warrants its products against defects for one year from shipment, with warranty reserves established at the time of sale. Historically, warranty returns have not been material[86](index=86&type=chunk) - Interlink indemnifies certain customers and contract manufacturers against third-party intellectual property infringement claims, and has indemnification agreements with its directors and executive officers, which are not limited in amount or duration[87](index=87&type=chunk)[88](index=88&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's analysis of Interlink's financial condition and results, covering business, policies, performance, liquidity, and cash flows [Overview](index=28&type=section&id=Overview) Interlink Electronics, Inc. specializes in designing, developing, manufacturing, and selling force-sensing technologies, including its proprietary FSR® technology, for Human Machine Interface (HMI) solutions across various markets. The company is expanding its product portfolio to include hybrid solutions and IoT applications, supported by a global operational footprint - Interlink designs, develops, manufactures, and sells **force-sensing technologies**, incorporating proprietary materials, firmware, and software into standard sensor-based products and custom solutions[95](index=95&type=chunk) - The company's patented **Force-Sensing Resistor (FSR®) technology** has been commercialized for **over 35 years**, enabling rugged and reliable **HMI solutions** in consumer electronics, automotive, industrial, and medical markets[96](index=96&type=chunk)[97](index=97&type=chunk) - Interlink is expanding its standard product portfolio and developing new technology platforms, including **hybrid solutions** that combine force sensing with capacitive technologies to address performance issues and capture new opportunities in the rapidly growing **Internet-of-Things (IoT) market**[99](index=99&type=chunk) - Global operations include headquarters in Irvine, CA, a Global Product Development and Materials Science Center in Camarillo, CA, a manufacturing facility in Shenzhen, China, an R&D center in Singapore, and an expected R&D center in the UK in 2022[100](index=100&type=chunk) [Critical Accounting Policies and Estimates](index=29&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Management confirms that there have been no material changes to the critical accounting policies and estimates previously disclosed in the Annual Report on Form 10-K - There have been **no changes to critical accounting policies and estimates** described in the Annual Report on Form 10-K that have had a material impact on the condensed consolidated financial statements[102](index=102&type=chunk) [Recently Issued and Adopted Accounting Pronouncements](index=29&type=section&id=Recently%20Issued%20and%20Adopted%20Accounting%20Pronouncements) The company has reviewed all recently issued accounting pronouncements and concluded that they are either not applicable or not expected to have a material impact on its financial statements - All recently issued accounting pronouncements have been reviewed and are concluded to be **not applicable or not expected to be material** to the financial statements[103](index=103&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) Interlink reported a significant increase in net revenue and a return to net income for the three months ended March 31, 2022, compared to the prior year. This improvement was driven by strong growth in the medical and standard product markets, favorable product and customer mix, and production efficiencies, despite a decline in the consumer market Results of Operations (in thousands, except percentages) | | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Revenue, net | $1,991 (100.0%) | $1,568 (100.0%) | | Cost of revenue | $750 (37.7%) | $694 (44.3%) | | Gross profit | $1,241 (62.3%) | $874 (55.7%) | | Total operating expenses | $1,223 (61.4%) | $934 (59.6%) | | Income (loss) from operations | $18 (0.9%) | $(60) (-3.8%) | | Other income (expense), net | $155 (7.8%) | $10 (0.6%) | | Income (loss) before income taxes | $173 (8.7%) | $(50) (-3.2%) | | Income tax expense (benefit) | $31 (1.6%) | $(7) (-0.4%) | | Net income (loss) | $142 (7.1%) | $(43) (-2.7%) | Revenue, net by market (in thousands, except percentages) | | Three months ended March 31, 2022 | Three months ended March 31, 2021 | $ Change | % Change | | :-------------------------------------------------------- | :-------------------------------- | :-------------------------------- | :---------------- | :---------------- | | Industrial | $574 (28.8%) | $538 (34.3%) | $36 | 6.7 % | | Medical | $703 (35.3%) | $43 (2.7%) | $660 | 1,534.9 % | | Consumer | — (—%) | $449 (28.6%) | $(449) | (100.0)% | | Automotive | $3 (0.2%) | — (—%) | $3 | 100.0 % | | Standard | $711 (35.7%) | $538 (34.3%) | $173 | 32.2 % | | Revenue, net | $1,991 (100.0%) | $1,568 (100.0%) | $423 | 27.0 % | - Gross profit increased by **$367 thousand** (**42.0%**) to **$1.241 million**, with gross margin improving from **55.7%** to **62.3%** due to increased revenue, favorable product/customer mix, and production efficiencies[109](index=109&type=chunk) - Engineering, research and development expenses increased by **$46 thousand** (**21.2%**) to **$263 thousand**, driven by increased engineering headcount and product-development activities[110](index=110&type=chunk) - Selling, general and administrative expenses rose by **$243 thousand** (**33.9%**) to **$960 thousand**, primarily due to increased professional services costs and the absence of the **$186 thousand PPP loan forgiveness benefit** recognized in the prior year[111](index=111&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) Interlink maintains a strong liquidity position with $8.1 million in cash and cash equivalents and $12.2 million in working capital as of March 31, 2022, with no indebtedness. The company pays monthly dividends on its Series A Convertible Preferred Stock and believes existing cash will be sufficient for current operations, while also outlining potential future capital raising options - As of March 31, 2022, the company had cash and cash equivalents of **$8.1 million**, working capital of **$12.2 million**, and **no indebtedness**[115](index=115&type=chunk) - Of the **$8.1 million** cash balance, **$2.4 million** was held by foreign subsidiaries, with the intent to **permanently reinvest these funds outside the U.S.**[115](index=115&type=chunk) - The company has **200,000 shares** of **8.0%** Series A Convertible Preferred Stock (**$5.0 million** liquidation preference) and **commenced paying monthly cumulative cash dividends in November 2021**[116](index=116&type=chunk) - Management believes existing cash and cash equivalents will be sufficient for current operations, but may seek additional capital through equity, equity-linked, or debt financing if circumstances change[117](index=117&type=chunk) [Cash Flow Analysis](index=32&type=section&id=Cash%20Flow%20Analysis) For the three months ended March 31, 2022, Interlink experienced a net decrease in cash primarily due to significant cash used in investing activities for marketable securities purchases and cash used in operating activities, partially offset by net income Cash Flow Analysis (in thousands) | | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(367) | $(1) | | Net cash used in investing activities | $(2,185) | $(12) | | Net cash used in financing activities | $(100) | — | - Net cash used in operating activities was **$367 thousand** for Q1 2022, primarily due to cash used in changes in operating assets and liabilities, despite net income[120](index=120&type=chunk) - Net cash used in investing activities was **$2.185 million** for Q1 2022, mainly driven by **$2.179 million** in purchases of marketable securities[123](index=123&type=chunk) - Net cash used in financing activities was **$100 thousand** for Q1 2022, consisting of dividend payments on Series A Convertible Preferred Stock[124](index=124&type=chunk) [Off-Balance Sheet Arrangements](index=34&type=section&id=Off-Balance%20Sheet%20Arrangements) The company states that it does not have any off-balance sheet arrangements - The company **does not have any off-balance sheet arrangements**[125](index=125&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section states that there are no quantitative and qualitative disclosures about market risk applicable to the company for the reporting period - This item is **not applicable**[126](index=126&type=chunk) [Item 4. Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) Details evaluation of disclosure and internal controls over financial reporting, concluding effectiveness with no material changes [Evaluation of Disclosure Controls and Procedures](index=34&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management, with the participation of the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of March 31, 2022, concluding they were effective at a reasonable assurance level - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were designed at a reasonable assurance level and were **effective as of March 31, 2022**[128](index=128&type=chunk)[130](index=130&type=chunk) [Changes in Internal Controls over Financial Reporting](index=36&type=section&id=Changes%20in%20Internal%20Controls%20over%20Financial%20Reporting) There were no changes in the company's internal control over financial reporting during the period ended March 31, 2022, that materially affected, or are reasonably likely to materially affect, these controls - There was **no change in internal control over financial reporting** during the period ended March 31, 2022, that materially affected, or is reasonable likely to materially affect, internal control over financial reporting[131](index=131&type=chunk) [Limitations on Effectiveness of Controls and Procedures](index=36&type=section&id=Limitations%20on%20Effectiveness%20of%20Controls%20and%20Procedures) The company acknowledges that its internal control over financial reporting, despite being well-designed and operated, can only provide reasonable, not absolute, assurance due to inherent limitations such as human diligence, judgment lapses, and potential breakdowns - Control systems, no matter how well designed and operated, can provide only **reasonable, not absolute, assurance** that objectives will be met[133](index=133&type=chunk) - Internal control over financial reporting is subject to lapses in judgment and breakdowns resulting from human failures, and controls may become inadequate if conditions change[133](index=133&type=chunk) [PART II -- OTHER INFORMATION](index=37&type=section&id=PART%20II%20--%20OTHER%20INFORMATION) [Item 1A. Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - There have been **no material changes to the risk factors** during the three months ended March 31, 2022, as previously set forth in Item 1A of the Annual Report on Form 10-K[136](index=136&type=chunk) [Item 6. Exhibits](index=37&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including corporate governance documents, certifications from executive officers, and XBRL-related documents - Exhibits include Articles of Incorporation, Certificate of Designations of Series A Preferred Stock, Bylaws, and amendments[137](index=137&type=chunk) - Certifications of Principal Executive Officer and Principal Financial Officer pursuant to the Sarbanes-Oxley Act of 2002 are included[137](index=137&type=chunk) - XBRL Instance Document and Taxonomy Extension Documents (Schema, Calculation, Definition, Label, Presentation Linkbase) are filed[137](index=137&type=chunk) [Signatures](index=39&type=section&id=Signatures) The report was duly signed on behalf of Interlink Electronics, Inc. by Ryan J. Hoffman, Chief Financial Officer, on May 5, 2022 - The report was signed by Ryan J. Hoffman, Chief Financial Officer (Principal Financial and Accounting Officer), on **May 5, 2022**[140](index=140&type=chunk)

[Special Note Regarding Forward-Looking Statements](index=3&type=section&id=Special%20Note%20Regarding%20Forward-Looking%20Statements) This section highlights that the report contains forward-looking statements subject to risks and uncertainties that may cause actual results to differ materially - The report contains forward-looking statements subject to known and unknown risks, uncertainties, and important factors that may cause actual results to differ materially[6](index=6&type=chunk) - Key factors influencing future results include the impact of the COVID-19 pandemic, ability to fund operations, future financial results, business strategy, competitive advantages, intellectual property protection, market acceptance of technology, customer relationships, employee retention, increased competition, future acquisitions, and compliance with legal and export regulations[7](index=7&type=chunk) - Readers should not rely on forward-looking statements as predictions of future events, and the company undertakes no obligation to update them, except as required by law[9](index=9&type=chunk) [PART I](index=4&type=section&id=PART%20I) [Item 1. Business](index=4&type=section&id=Item%201.%20Business) Interlink Electronics designs and sells force-sensing HMI solutions for diverse markets, focusing on global expansion and new technology development [Our Company](index=4&type=section&id=Our%20Company) Interlink Electronics is a leader in printed electronics, specializing in FSR® technology for HMI solutions globally - Interlink has been a leader in the printed electronics industry for over **35 years**, commercializing its patented Force-Sensing Resistor (FSR®) technology for rugged and reliable HMI solutions[13](index=13&type=chunk)[14](index=14&type=chunk) - The company's global presence includes corporate headquarters in Irvine, CA, a Global Product Development and Materials Science Center in Camarillo, CA, an embedded software and IoT application development center in Singapore, and a manufacturing facility in Shenzhen, China[17](index=17&type=chunk) - Interlink's solutions focus on handheld user input, menu navigation, and cursor control for top electronics manufacturers, differentiating itself through extensive FSR® knowledge and integrated firmware[13](index=13&type=chunk)[14](index=14&type=chunk) [Our Industry](index=6&type=section&id=Our%20Industry) The HMI technology market is rapidly expanding, driven by demand for advanced interfaces and IoT integration - HMI technologies transitioned from industrial products to ubiquitous consumer electronics, driven by demand for sleek, touch-sensitive, and gesture-driven interfaces[20](index=20&type=chunk) - The total market for printed, flexible, and organic electronics is projected to grow from **$41.2 billion in 2020 to $74 billion in 2030**, with printed force sensors accounting for approximately **30% of the printed sensor market share**[21](index=21&type=chunk) - Interlink's sensing technology platforms provide a critical backbone for data sensing, measurement, and analytics in emerging Internet-of-Things (IoT) wireless connectivity implementations[24](index=24&type=chunk) [Our Strategy](index=8&type=section&id=Our%20Strategy) The company's primary objective is to be a global leader in multi-sensing HMI technology solutions, pursuing market expansion and inorganic growth - The primary objective is to be the global leader and provider of multi-sensing based HMI technology solutions for the automotive, consumer electronics, medical, and industrial automation markets[25](index=25&type=chunk) - Strategic initiatives include expanding presence in existing and new markets, strengthening relationships with current major customers, and pursuing a multi-technology roadmap (resistive, piezo, capacitive, haptic technology)[28](index=28&type=chunk) - The company also intends to pursue inorganic growth opportunities through potential acquisitions that provide relevant new technologies[28](index=28&type=chunk) [Our Technology Platforms and Products](index=8&type=section&id=Our%20Technology%20Platforms%20and%20Products) Interlink's core FSR® sensor technology is evolving into comprehensive HMI solutions, with ongoing R&D in advanced sensing platforms - Interlink's core technology is its patented FSR® sensor, which uses printed electronics, is thin, durable, low-power, and provides continuous variable control, unlike capacitive sensors[26](index=26&type=chunk)[30](index=30&type=chunk) - The company is transitioning from an FSR® sensor supplier to an HMI solutions provider, investing in R&D for leading-edge force sensing and related technology platforms, including embedded software and materials science[26](index=26&type=chunk) - Product offerings include standard single zone FSR® sensors, Force Sensing Linear Potentiometers (FSLP) for navigation, integrated mouse modules, and new piezoelectric sensors for diverse applications[32](index=32&type=chunk) [Intellectual Property](index=12&type=section&id=Intellectual%20Property) Interlink protects its crucial intellectual property through patents, copyrights, trade secrets, and agreements, with in-house manufacturing safeguarding proprietary techniques - Interlink relies on a combination of patents, copyrights, trade secrets, trademarks, and agreements to protect its intellectual property, which is considered crucial to its business[34](index=34&type=chunk) Intellectual Property Portfolio (as of December 31, 2021) | Category | Patents Held | Patents Pending | | :------- | :----------- | :-------------- | | Sensors | 8 | N/A | | Sensing Systems | 4 | N/A | | Human Interface Devices | 11 | N/A | | **Total** | **23** | **14** | - Proprietary screen-printing techniques for FSR® sensors are conducted in-house in the U.S. and China to maintain quality and protect trade secrets, which are considered difficult to replicate[36](index=36&type=chunk) [Competition](index=12&type=section&id=Competition) Interlink operates in a highly competitive market, differentiating itself through disruptive force-sensing technology and sophisticated HMI solutions - The markets for Interlink's products are highly competitive and subject to rapid advancements in design technology, requiring continuous development of value-added products[38](index=38&type=chunk) - The company competes by offering disruptive force-sensing technology that replaces older switch technology and provides functionality where commoditized capacitive sensing is unreliable or unsuitable[40](index=40&type=chunk) - Interlink's strategy to maintain a competitive edge involves developing and offering more sophisticated solutions, including smart surfaces for HMI applications, amidst significant price competition[41](index=41&type=chunk) [Sales and Marketing](index=14&type=section&id=Sales%20and%20Marketing) Interlink utilizes direct sales, representatives, and distributors to serve a diverse customer base, with a sales cycle focused on design wins and mass production - Sales channels include direct sales employees, outside sales representatives, and distributors like Digi-Key Electronics, serving large multinational companies, startups, and OEMs[42](index=42&type=chunk) - The sales cycle for custom solutions involves two main phases: 'Design Opportunity to Design Win' (customer engagement, sample provision, design commitment) and 'Mass Production' (product moves to production, varying lifespans)[43](index=43&type=chunk)[44](index=44&type=chunk)[48](index=48&type=chunk) - Sales personnel have extensive engineering backgrounds and receive substantial support from internal engineering resources, engaging early in the development phase with customers[25](index=25&type=chunk)[42](index=42&type=chunk) [Our Customers](index=14&type=section&id=Our%20Customers) Interlink serves a global customer base across various industries, with international sales contributing significantly to net revenues and a few key customers driving a substantial portion of revenue - Interlink serves a diverse global customer base, including leading electronics manufacturers, automotive, medical, and industrial equipment companies, and IoT market entrants[45](index=45&type=chunk) International Sales Contribution to Net Revenues | Year | International Sales % of Net Revenues | | :--- | :------------------------------------ | | 2021 | 71% | | 2020 | 59% | Top Customer Revenue Contribution (2021 vs. 2020) | Customer | 2021 Net Revenues % | 2020 Net Revenues % | | :------- | :------------------ | :------------------ | | Customer 1 | 17.0% | 17.4% | | Customer 2 | 14.7% | 15.8% | | Customer 3 | 14.7% | 11.6% | [Manufacturing Operations and Principal Suppliers](index=16&type=section&id=Manufacturing%20Operations%20and%20Principal%20Suppliers) Interlink operates an ISO-certified manufacturing facility in China, relying on external suppliers for materials, which introduces supply chain risks - Interlink operates an ISO 9001, ISO 14001, and ISO 13485 certified manufacturing facility in Shenzhen, China, with plans for IATF 16949 certification in 2022[52](index=52&type=chunk) - The company sources materials from outside suppliers, including multinational conglomerates, and relies on single-suppliers for certain components, which increases supply chain risk[53](index=53&type=chunk) - All products are RoHS and REACH compliant, and the company monitors suppliers to eliminate Conflict Minerals[52](index=52&type=chunk) [Engineering, Research and Development](index=16&type=section&id=Engineering,%20Research%20and%20Development) Future success hinges on continuous R&D and technology acquisition, with global R&D centers driving innovation in materials science and printed electronics - Future success depends largely on the company's ability to continuously improve products and process technologies, and to develop or acquire new technologies[54](index=54&type=chunk) - Key R&D locations include the Global Product Development and Materials Science Center in Camarillo, CA, an embedded software engineering team in Singapore, and a planned R&D center in the United Kingdom in 2022[55](index=55&type=chunk) - The global R&D team pursues scientific research, technology platform development, and advanced product development in materials science, printed electronics, and multi-disciplinary system engineering, supporting strategic partnerships[57](index=57&type=chunk) [Our Employees](index=16&type=section&id=Our%20Employees) Interlink's success relies on attracting and retaining qualified personnel, maintaining good employee relations without collective bargaining agreements Employee Distribution (as of December 31, 2021) | Department | Number of Employees | | :--------- | :------------------ | | Operations | N/A (largest) | | R&D | N/A | | Administration | N/A | | Sales | N/A (smallest) | | **Total** | **89** | - The company's ability to attract

PART I -- FINANCIAL INFORMATION [Item 1. Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) Unaudited Q3 2021 financial statements show total assets at $10.21 million, nine-month net revenue of $5.86 million, net income of $243 thousand, and $6.64 million in cash [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $6,642 | $6,120 | | Total current assets | $8,885 | $8,496 | | Total assets | $10,213 | $10,022 | | **Liabilities & Equity** | | | | Total current liabilities | $1,018 | $1,042 | | Total liabilities | $1,089 | $1,182 | | Total stockholders' equity | $9,124 | $8,840 | | Total liabilities and stockholders' equity | $10,213 | $10,022 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue, net | $2,223 | $1,548 | $5,855 | $4,941 | | Gross profit | $1,292 | $811 | $3,293 | $2,768 | | Income (loss) from operations | $259 | $(79) | $332 | $(110) | | Net income | $223 | $65 | $243 | $60 | | Earnings per share – basic and diluted | $0.03 | $0.01 | $0.04 | $0.01 | [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net income | $223 | $65 | $243 | $60 | | Foreign currency translation adjustments | $(2) | $64 | $21 | $49 | | Comprehensive income | $221 | $129 | $264 | $109 | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) - Total stockholders' equity increased from **$8.84 million** at December 31, 2020, to **$9.12 million** at September 30, 2021. The increase was primarily driven by net income of **$243 thousand** and positive foreign currency translation adjustments of **$21 thousand** for the nine-month period[16](index=16&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $639 | $42 | | Net cash used in investing activities | $(142) | $(66) | | Net cash provided by financing activities | $0 | $186 | | Net increase in cash and cash equivalents | $522 | $211 | | Cash, cash equivalents and restricted cash, end of period | $6,647 | $6,055 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail the company's force-sensing technology business, significant customer concentrations, related party transactions, and a $3.0 million Series A Convertible Preferred Stock issuance in October 2021 - The company designs, develops, manufactures, and sells a range of force-sensing technologies for markets including consumer electronics, automotive, industrial, and medical. Manufacturing is conducted in Shenzhen, China, with a global presence including offices in the US, Singapore, Hong Kong, and Japan[20](index=20&type=chunk)[21](index=21&type=chunk) - As of September 30, 2021, the company had significant customer concentration, with two customers accounting for **34%** and **23%** of total accounts receivable, respectively[66](index=66&type=chunk) - The company engages in related party transactions with Qualstar Corporation and BKF Capital Group, Inc., entities controlled by Interlink's CEO, Steven N. Bronson. These transactions involve shared facilities, consulting services, and expense reimbursements[68](index=68&type=chunk)[69](index=69&type=chunk) - On October 21, 2021, the company entered into an agreement to sell **120,000 shares** of **8.0% Series A Convertible Preferred Stock** for gross proceeds of **$3.0 million**. The offering closed on October 22, 2021, with net proceeds of approximately **$2.82 million**[93](index=93&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q3 2021 revenue growth of 43.6% driven by industrial and medical markets, improved gross margin, increased SG&A, and a strong liquidity position with $6.6 million cash [Results of Operations](index=33&type=section&id=Results%20of%20Operations) Q3 2021 revenue grew 43.6% to $2.2 million, primarily from industrial and medical markets, with gross margin expanding to 58.1% and a shift to operating income Revenue by Market - Q3 2021 vs Q3 2020 (in thousands) | Market | Q3 2021 | Q3 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Industrial | $557 | $319 | $238 | 74.6% | | Medical | $333 | $16 | $317 | 1,981.3% | | Consumer | $374 | $375 | $(1) | —% | | Standard | $959 | $839 | $120 | 14.3% | | **Total** | **$2,223** | **$1,548** | **$675** | **43.6%** | Revenue by Market - 9 Months 2021 vs 9 Months 2020 (in thousands) | Market | 9 Months 2021 | 9 Months 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Industrial | $1,529 | $1,204 | $325 | 27.0% | | Medical | $662 | $540 | $122 | 22.6% | | Consumer | $1,271 | $823 | $448 | 54.4% | | Standard | $2,393 | $2,374 | $19 | 0.8% | | **Total** | **$5,855** | **$4,941** | **$914** | **18.5%** | - Gross profit for Q3 2021 increased by **59.3%** to **$1.3 million**, with gross margin improving to **58.1%** from **52.4%** in Q3 2020, driven by favorable changes in product and customer mix[113](index=113&type=chunk) - Q3 2021 R&D expenses decreased by **49.5%** to **$105 thousand** due to cost reductions at the Singapore R&D center and a government grant. SG&A expenses increased by **36.1%** to **$928 thousand** due to higher personnel costs and expenses related to the Nasdaq relisting[114](index=114&type=chunk)[115](index=115&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity position with $6.6 million in cash, $7.9 million working capital, and no debt, funding operations from existing cash - As of September 30, 2021, the company had cash and cash equivalents of **$6.647 million** and working capital of **$7.867 million** with no indebtedness[126](index=126&type=chunk) - Of the total cash balance, **$2.565 million** was held by foreign subsidiaries and is intended to be permanently reinvested outside the U.S.[126](index=126&type=chunk) - A **$186 thousand** Paycheck Protection Program (PPP) loan received in 2020 was fully forgiven in the first quarter of 2021[127](index=127&type=chunk) [Cash Flow Analysis](index=40&type=section&id=Cash%20Flow%20Analysis) Nine-month operating cash flow significantly increased to $639 thousand due to higher net income, with $142 thousand used in investing and no financing activities in 2021 Cash Flow Summary (in thousands) | Activity | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $639 | $42 | | Net cash used in investing activities | $(142) | $(66) | | Net cash provided by financing activities | $0 | $186 | - The **$639 thousand** in cash from operations in the first nine months of 2021 was driven by net income of **$243 thousand**, non-cash charges of **$235 thousand**, and positive changes in working capital of **$347 thousand**, offset by a **$186 thousand** non-cash gain on PPP loan forgiveness[130](index=130&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=40&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This item is reported as not applicable for the current reporting period - The company states that Quantitative and Qualitative Disclosures About Market Risk are 'Not Applicable'[136](index=136&type=chunk) [Item 4. Controls and Procedures](index=41&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting - Based on an evaluation as of September 30, 2021, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[138](index=138&type=chunk) - There were no changes in internal control over financial reporting during the quarter ended September 30, 2021, that materially affected, or are reasonably likely to materially affect, internal controls[139](index=139&type=chunk) PART II -- OTHER INFORMATION [Item 1A. Risk Factors](index=42&type=section&id=Item%201A.%20Risk%20Factors) No material changes to previously disclosed risk factors from the Annual Report on Form 10-K were reported - There have been no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020[142](index=142&type=chunk) [Item 6. Exhibits](index=42&type=section&id=Item%206.%20Exhibits) Exhibits filed include officer certifications, the Certificate of Designations for Series A Preferred Stock, and XBRL data files - The exhibits filed with this report include officer certifications (31.1, 31.2, 32.1), the Certificate of Designations for Series A Preferred Stock (3.2), and XBRL interactive data files[144](index=144&type=chunk) [Signatures](index=43&type=section&id=Signatures) The quarterly report was signed on November 4, 2021, by Chief Financial Officer Ryan J. Hoffman - The report was signed on November 4, 2021, by Ryan J. Hoffman, Chief Financial Officer[146](index=146&type=chunk)

[PART I – FINANCIAL INFORMATION](index=2&type=section&id=PART%20I%20--%20FINANCIAL%20INFORMATION) This section presents the company's unaudited financial statements and management's financial analysis [Item 1. Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents Interlink Electronics, Inc.'s unaudited consolidated financial statements and notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position at specific reporting dates Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :-------------------------------- | :------------ | :------------------ | | Total assets | $9,903 | $10,022 | | Total current assets | $8,469 | $8,496 | | Cash and cash equivalents | $6,245 | $6,120 | | Total liabilities | $1,015 | $1,182 | | Total current liabilities | $928 | $1,042 | | PPP loan payable | $— | $186 | | Total stockholders' equity | $8,888 | $8,840 | - Total assets decreased slightly from **$10,022 thousand** at December 31, 2020, to **$9,903 thousand** at June 30, 2021[7](index=7&type=chunk) - Total liabilities decreased from **$1,182 thousand** to **$1,015 thousand**, primarily due to the forgiveness of the PPP loan[7](index=7&type=chunk) [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's financial performance, including revenue, gross profit, and net income Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 | | :---------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue, net | $2,064 | $1,702 | $3,632 | $3,393 | | Gross profit | $1,127 | $998 | $2,001 | $1,957 | | Income (loss) from operations | $133 | $41 | $73 | $(31) | | Net income (loss) | $63 | $13 | $20 | $(5) | | Earnings (loss) per share – basic and diluted | $0.01 | $0.00 | $0.00 | $(0.00) | - Net revenue increased by **21.3%** for the three months ended June 30, 2021, compared to the prior year, and by **7.0%** for the six months ended June 30, 2021[9](index=9&type=chunk)[102](index=102&type=chunk) - The company reported net income of **$63 thousand** for the three months ended June 30, 2021, a significant increase from **$13 thousand** in the prior year[9](index=9&type=chunk) - For the six months ended June 30, 2021, the company achieved a net income of **$20 thousand**, reversing a net loss of **$5 thousand** in the prior year[9](index=9&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) This section presents the company's comprehensive income or loss, including net income and other items Condensed Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands) | Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 | | :---------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $63 | $13 | $20 | $(5) | | Foreign currency translation adjustments | $35 | $5 | $23 | $(15) | | Comprehensive income (loss) | $98 | $18 | $43 | $(20) | - Comprehensive income for the three months ended June 30, 2021, was **$98 thousand**, up from **$18 thousand** in the prior year, driven by increased net income and positive foreign currency translation adjustments[11](index=11&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section outlines changes in the company's stockholders' equity, reflecting net income and adjustments Condensed Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :-------------------------- | :------------ | :------------------ | | Total Stockholders' Equity | $8,888 | $8,840 | | Accumulated Deficit | $(49,150) | $(49,170) | | Accumulated Other Comprehensive Income | $60 | $37 | | Additional Paid-in-Capital | $57,971 | $57,966 | - Total stockholders' equity increased to **$8,888 thousand** as of June 30, 2021, from **$8,840 thousand** at December 31, 2020, primarily due to net income and foreign currency translation adjustments[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section details the company's cash flows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Six months ended June 30, 2021 | Six months ended June 30, 2020 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $234 | $130 | | Net cash (used in) investing activities | $(142) | $(48) | | Net cash provided by financing activities | $— | $186 | | Net increase in cash and cash equivalents | $125 | $253 | | Cash, cash equivalents and restricted cash, end of period | $6,250 | $6,097 | - Net cash provided by operating activities increased to **$234 thousand** for the six months ended June 30, 2021, from **$130 thousand** in the prior year[16](index=16&type=chunk) - Net cash used in investing activities increased to **$142 thousand**, primarily due to purchases of property, plant, and equipment related to the Global Product Development and Materials Science Center[16](index=16&type=chunk)[124](index=124&type=chunk) - No cash was provided by or used in financing activities in the current six-month period, compared to **$186 thousand** provided in the prior year from the PPP loan[16](index=16&type=chunk)[126](index=126&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the consolidated financial statements - Interlink Electronics, Inc. designs, develops, manufactures, and sells force-sensing technologies, including sensor components, subassemblies, modules, and products for HMI platforms in consumer electronics, automotive, industrial, and medical markets[18](index=18&type=chunk) - The company operates globally with headquarters in Irvine, California, a Global Product Development and Materials Science Center in Camarillo, California, an IoT application development center in Singapore, and a manufacturing facility in Shenzhen, China[19](index=19&type=chunk) - Revenue recognition follows ASC 606, recognizing revenue when a customer obtains control of promised goods or services, typically upon shipment[27](index=27&type=chunk)[29](index=29&type=chunk) - The company accounts for leases under ASC 842, recording ROU assets and lease liabilities for operating and financing leases, excluding short-term leases[49](index=49&type=chunk)[50](index=50&type=chunk) Inventories (in thousands) | Category | June 30, 2021 | December 31, 2020 | | :--------------- | :------------ | :------------------ | | Raw materials | $500 | $520 | | Work-in-process | $251 | $246 | | Finished goods | $127 | $100 | | Total inventories | $878 | $866 | Intangible Assets, Net (in thousands) | Category | June 30, 2021 | December 31, 2020 | | :-------------------- | :------------ | :------------------ | | Patents and trademarks | $658 | $658 | | Less: accumulated amortization | $(496) | $(463) | | Total intangible assets, net | $162 | $195 | - Amortization expense for intangible assets was **$34 thousand** for the six months ended June 30, 2021, compared to **$28 thousand** in the prior year[59](index=59&type=chunk) Accrued Liabilities (in thousands) | Category | June 30, 2021 | December 31, 2020 | | :-------------------- | :------------ | :------------------ | | Accrued warranty | $7 | $7 | | Accrued wages and benefits | $165 | $180 | | Accrued vacation | $79 | $110 | | Accrued other | $49 | $46 | | Total accrued liabilities | $300 | $343 | Net Revenues from Significant Customers (as % of total net revenues) | Customer | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 | | :--------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Customer A | 22% | 15% | 25% | 13% | | Customer B | 14% | * | * | 15% | | Customer C | 10% | 10% | * | * | | Customer D | * | 12% | 12% | 11% | Net Revenues by Geographic Area (in thousands) | Geographic Area | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | United States | $590 | $680 | $860 | $1,422 | | Asia and Middle East | $1,378 | $871 | $2,490 | $1,642 | | Europe and other | $96 | $151 | $282 | $329 | | Total Revenue, net | $2,064 | $1,702 | $3,632 | $3,393 | - Two customers accounted for **45%** and **12%** of total accounts receivable at June 30, 2021[64](index=64&type=chunk) - The company has related party transactions with Qualstar Corporation and BKF Capital Group, both controlled by Steven N. Bronson, involving shared facilities and consulting services[66](index=66&type=chunk)[67](index=67&type=chunk) - Income tax expense as a percentage of income before income taxes was **39.4%** for the three months ended June 30, 2021, and **63.0%** for the six months ended June 30, 2021[68](index=68&type=chunk) - The weighted average incremental borrowing rate used for lease liabilities was **5.50%** for the six months ended June 30, 2021[72](index=72&type=chunk) Future Minimum Lease Payments (in thousands) | Years ending December 31, | Amount | | :------------------------ | :----- | | 2021 (remainder of year) | $109 | | 2022 | $144 | | 2023 | $38 | | Total undiscounted future non-cancelable minimum lease payments | $291 | | Less: imputed interest | $(15) | | Present value of lease liabilities | $276 | - Operating lease costs for the six months ended June 30, 2021, totaled approximately **$166 thousand**, including **$59 thousand** in cost of revenue and **$107 thousand** in operating expenses[80](index=80&type=chunk) - The company is not party to any legal proceedings as of June 30, 2021, and historically, warranty returns have not been material[82](index=82&type=chunk)[83](index=83&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition, operating results, revenue trends, expenses, and liquidity - Interlink Electronics is a leader in the printed electronics industry for over **30 years**, commercializing Force-Sensing Resistor (FSR®) technology for Human Machine Interface (HMI) solutions[93](index=93&type=chunk)[94](index=94&type=chunk) - The company's HMI technology platforms are deployed in consumer electronics, automotive, industrial, and medical markets, with applications including vehicle entry, multi-media control, rugged touch controls, and biological monitoring[92](index=92&type=chunk) - Interlink is expanding its product portfolio to incorporate complementary sensing technologies for applications in the rapidly growing Internet-of-Things (IoT)[96](index=96&type=chunk) Revenue, Net by Market (Three Months Ended June 30, in thousands) | Market | 2021 Amount | 2021 % of Net Revenue | 2020 Amount | 2020 % of Net Revenue | $ Change | % Change | | :--------- | :---------- | :-------------------- | :---------- | :-------------------- | :------- | :------- | | Industrial | $434 | 21.0% | $493 | 29.0% | $(59) | (12.0)% | | Medical | $285 | 13.8% | $120 | 7.0% | $165 | 137.5% | | Consumer | $449 | 21.8% | $262 | 15.4% | $187 | 71.4% | | Standard | $896 | 43.4% | $827 | 48.6% | $69 | 8.3% | | Total | $2,064 | 100.0% | $1,702 | 100.0% | $362 | 21.3% | Revenue, Net by Market (Six Months Ended June 30, in thousands) | Market | 2021 Amount | 2021 % of Net Revenue | 2020 Amount | 2020 % of Net Revenue | $ Change | % Change | | :--------- | :---------- | :-------------------- | :---------- | :-------------------- | :------- | :------- | | Industrial | $973 | 26.8% | $885 | 26.1% | $88 | 9.9% | | Medical | $328 | 9.0% | $524 | 15.4% | $(196) | (37.4)% | | Consumer | $897 | 24.7% | $449 | 13.2% | $448 | 99.8% | | Standard | $1,434 | 39.5% | $1,535 | 45.3% | $(101) | (6.6)% | | Total | $3,632 | 100.0% | $3,393 | 100.0% | $239 | 7.0% | - Medical and consumer market revenues increased significantly for the three months ended June 30, 2021, due to increased purchasing levels, while industrial market revenue decreased due to timing of purchasing volume[104](index=104&type=chunk) - Gross profit increased by **12.9%** for the three months ended June 30, 2021, and by **2.2%** for the six months ended June 30, 2021, driven by increased revenues, though gross margin percentage was impacted by product/customer mix and production costs[105](index=105&type=chunk)[113](index=113&type=chunk) - Engineering, research and development expenses decreased by **20.8%** and **22.3%** for the three and six months ended June 30, 2021, respectively, due to cost reductions and headcount transfer at the Singapore R&D center[106](index=106&type=chunk)[114](index=114&type=chunk) - Selling, general and administrative expenses increased due to increases in personnel and costs associated with relisting with Nasdaq, partially offset by a **$186 thousand** gain from PPP loan forgiveness for the six-month period[107](index=107&type=chunk)[115](index=115&type=chunk) - As of June 30, 2021, the company had **$6.250 million** in cash and cash equivalents and **$7.541 million** in working capital, with no indebtedness[117](index=117&type=chunk) - The full amount of the **$186 thousand** PPP loan principal and interest was forgiven in February 2021[118](index=118&type=chunk) - Management believes existing cash and cash equivalents will be sufficient for current operations, but may seek additional capital if circumstances change[119](index=119&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=28&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section confirms no applicable market risk disclosures for the company - The company has no applicable quantitative and qualitative disclosures about market risk[128](index=128&type=chunk) [Item 4. Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms effective disclosure controls and no material changes in internal controls - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2021[130](index=130&type=chunk) - There were no material changes in internal control over financial reporting during the period ended June 30, 2021[131](index=131&type=chunk) - Controls and procedures, regardless of design, can only provide reasonable assurance due to inherent limitations and resource constraints[132](index=132&type=chunk) [PART II – OTHER INFORMATION](index=28&type=section&id=PART%20II%20--%20OTHER%20INFORMATION) This section contains other required information, including risk factors and exhibits [Item 1A. Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the Annual Report on Form 10-K risk factors, noting no material changes - No material changes to the risk factors outlined in the Annual Report on Form 10-K occurred during the six months ended June 30, 2021[134](index=134&type=chunk) [Item 6. Exhibits](index=29&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Quarterly Report on Form 10-Q, including corporate documents - Exhibits include Articles of Incorporation, Bylaws, Certifications of Principal Executive Officer and Principal Financial Officer (31.1, 31.2, 32.1), and XBRL Instance and Taxonomy Extension Documents[136](index=136&type=chunk) [Signatures](index=30&type=section&id=Signatures) This section contains the signature of Interlink Electronics, Inc. by its Chief Financial Officer - The report is signed by Ryan J. Hoffman, Chief Financial Officer of Interlink Electronics, Inc., on August 10, 2021[138](index=138&type=chunk)