Interlink Electronics(LINK) - 2021 Q4 - Annual Report

Special Note Regarding Forward-Looking Statements 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] - 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] - 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] PART I Item 1. Business Interlink Electronics designs and sells force-sensing HMI solutions for diverse markets, focusing on global expansion and new technology development Our Company 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][14] - 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] - 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][14] Our Industry 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] - 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] - 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] Our Strategy 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] - 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] - The company also intends to pursue inorganic growth opportunities through potential acquisitions that provide relevant new technologies[28] Our Technology Platforms and Products 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][30] - 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] - 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] Intellectual Property 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] 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] 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] - 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] - 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] Sales and Marketing 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] - 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][44][48] - Sales personnel have extensive engineering backgrounds and receive substantial support from internal engineering resources, engaging early in the development phase with customers[25][42] Our Customers 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] 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 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] - The company sources materials from outside suppliers, including multinational conglomerates, and relies on single-suppliers for certain components, which increases supply chain risk[53] - All products are RoHS and REACH compliant, and the company monitors suppliers to eliminate Conflict Minerals[52] Engineering, Research and Development 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] - 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] - 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] Our Employees 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