Interlink Electronics(LINK) - 2021 Q3 - Quarterly Report

PART I -- FINANCIAL INFORMATION Item 1. Financial Statements (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 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 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 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 - 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] Condensed Consolidated Statements of Cash Flows 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 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][21] - 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] - 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][69] - 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - 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][115] Liquidity and Capital Resources 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] - 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] - A $186 thousand Paycheck Protection Program (PPP) loan received in 2020 was fully forgiven in the first quarter of 2021[127] Cash Flow Analysis 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] Item 3. Quantitative and Qualitative Disclosures about Market Risk 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] Item 4. Controls and Procedures 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] - 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] PART II -- OTHER INFORMATION Item 1A. Risk Factors 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] Item 6. Exhibits 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] 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]