Form 10-Q - Quarterly report [Sections 13 or 15(d)]

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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, 2023

☐ 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 charter)


Nevada		77-0056625
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

15707 Rockfield Boulevard, Suite 105

Irvine, California 92618

(Address of principal executive offices, zip code)

(805) 484-8855

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.001 par value per share	LINK	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:


Large accelerated filer ☐		Accelerated filer ☐
Non-accelerated filer ☒		Smaller reporting company ☒
		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 10, 2023, the issuer had 6,591,787 shares of common stock issued and outstanding.

Table of Contents

INTERLINK ELECTRONICS, INC.

TABLE OF CONTENTS


		Page No.

PART I -- FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Balance Sheets	3

	Condensed Consolidated Statements of Operations	4

	Condensed Consolidated Statements of Comprehensive Income (Loss)	5

	Condensed Consolidated Statements of Stockholders’ Equity	6

	Condensed Consolidated Statements of Cash Flows	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30

Item 4.	Controls and Procedures	31

PART II -- OTHER INFORMATION

Item 1A.	Risk Factors	32

Item 6.	Exhibits	32

Signatures		33

Table of Contents

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

INTERLINK ELECTRONICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)


	June 30,		December 31,
	2023		2022

	(in thousands, except par value)
ASSETS
Current assets
Cash and cash equivalents	$	5,106	$	10,091
Accounts receivable, net		2,147		1,178
Inventories		2,940		2,112
Prepaid expenses and other current assets		252		321
Total current assets		10,445		13,702
Property, plant and equipment, net		337		184
Intangible assets, net		324		76
Goodwill		4,545		650
Right-of-use assets		225		172
Deferred tax assets		129		134
Other assets		74		65
Total assets	$	16,079	$	14,983

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	1,090	$	273
Accrued liabilities		476		568
Lease liabilities, current		157		131
Accrued income taxes		423		117
Total current liabilities		2,146		1,089

Long-term liabilities
Lease liabilities, long term		77		46
Total long-term liabilities		77		46
Total liabilities		2,223		1,135

Commitments and contingencies (Note 10)		—		—

Stockholders’ equity
Preferred stock, $0.01 par value: 1,000 shares authorized, 200 shares of Series A Convertible Preferred Stock issued and outstanding at both June 30, 2023 and December 31, 2022 ($5.0 million liquidation preference)		2		2
Common stock, $0.001 par value: 30,000 shares authorized, 6,591 shares issued and outstanding at June 30, 2023; 6,610 shares issued and outstanding at December 31, 2022		7		7
Additional paid-in-capital		62,440		62,617
Accumulated other comprehensive income (loss)		97		(98)
Accumulated deficit		(48,690)		(48,680)
Total stockholders’ equity		13,856		13,848
Total liabilities and stockholders’ equity	$	16,079	$	14,983

See accompanying notes to these unaudited condensed consolidated financial statements.

Table of Contents

INTERLINK ELECTRONICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

	(in thousands, except per share data)
Revenue, net	$	4,049	$	2,040	$	7,327	$	4,031
Cost of revenue		1,988		1,088		3,679		1,838
Gross profit		2,061		952		3,648		2,193
Operating expenses:
Engineering, research and development		650		330		1,177		593
Selling, general and administrative		1,005		773		2,238		1,733
Total operating expenses		1,655		1,103		3,415		2,326
Income (loss) from operations		406		(151)		233		(133)
Other income (expense):
Other income (expense), net		64		342		128		497
Income before income taxes		470		191		361		364
Income tax expense		89		79		171		110
Net income	$	381	$	112	$	190	$	254

Net income (loss) applicable to common stockholders	$	281	$	12	$	(10)	$	54
Earnings (loss) per common share – basic and diluted	$	0.04	$	0.00	$	0.00	$	0.01
Weighted average common shares outstanding – basic and diluted		6,600		6,602		6,610		6,602

See accompanying notes to these unaudited condensed consolidated financial statements.

Table of Contents

INTERLINK ELECTRONICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

	(in thousands)
Net income	$	381	$	112	$	190	$	254
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		13		(156)		195		(149)
Comprehensive income (loss)	$	394	$	(44)	$	385	$	105

See accompanying notes to these unaudited condensed consolidated financial statements.

Table of Contents

INTERLINK ELECTRONICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)


									Accumulated
							Additional		Other				Total
	Preferred Stock			Common Stock			Paid-in-		Comprehensive		Accumulated		Stockholders’
Three Months Ended June 30, 2023	Shares	Amount		Shares	Amount		Capital		Income (Loss)		Deficit		Equity
(in thousands)
Balance at March 31, 2023	200	$	2	6,610	$	7	$	62,617	$	84	$	(48,971)	$	13,739
Net income	—		—	—		—		—		—		381		381
Preferred stock dividends	—		—	—		—		—		—		(100)		(100)
Foreign currency translation adjustment	—		—	—		—		—		13		—		13
Repurchases of common stock	—		—	(19)		—		(177)		—		—		(177)
Balance at June 30, 2023	200	$	2	6,591	$	7	$	62,440	$	97	$	(48,690)	$	13,856


									Accumulated
							Additional		Other				Total
	Preferred Stock			Common Stock			Paid-in-		Comprehensive		Accumulated		Stockholders’
Six Months Ended June 30, 2023	Shares	Amount		Shares	Amount		Capital		Income (Loss)		Deficit		Equity
(in thousands)
Balance at December 31, 2022	200	$	2	6,610	$	7	$	62,617	$	(98)	$	(48,680)	$	13,848
Net income	—		—	—		—		—		—		190		190
Preferred stock dividends	—		—	—		—		—		—		(200)		(200)
Foreign currency translation adjustment	—		—	—		—		—		195		—		195
Repurchases of common stock	—		—	(19)		—		(177)		—		—		(177)
Balance at June 30, 2023	200	$	2	6,591	$	7	$	62,440	$	97	$	(48,690)	$	13,856


									Accumulated
							Additional		Other				Total
	Preferred Stock			Common Stock			Paid-in-		Comprehensive		Accumulated		Stockholders’
Three Months Ended June 30, 2022	Shares	Amount		Shares	Amount		Capital		Income (Loss)		Deficit		Equity
(in thousands)
Balance at March 31, 2022	200	$	2	6,602	$	7	$	62,552	$	103	$	(49,910)	$	12,754
Net income	—		—	—		—		—		—		112		112
Preferred stock dividends	—		—	—		—		—		—		(100)		(100)
Foreign currency translation adjustment	—		—	—		—		—		(156)		—		(156)
Balance at June 30, 2022	200	$	2	6,602	$	7	$	62,552	$	(53)	$	(49,898)	$	12,610


									Accumulated
							Additional		Other				Total
	Preferred Stock			Common Stock			Paid-in-		Comprehensive		Accumulated		Stockholders’
Six Months Ended June 30, 2022	Shares	Amount		Shares	Amount		Capital		Income (Loss)		Deficit		Equity
(in thousands)
Balance at December 31, 2021	200	$	2	6,602	$	7	$	62,552	$	96	$	(49,952)	$	12,705
Net income	—		—	—		—		—		—		254		254
Preferred stock dividends	—		—	—		—		—		—		(200)		(200)
Foreign currency translation adjustment	—		—	—		—		—		(149)		—		(149)
Balance at June 30, 2022	200	$	2	6,602	$	7	$	62,552	$	(53)	$	(49,898)	$	12,610

See accompanying notes to these unaudited condensed consolidated financial statements.

Table of Contents

INTERLINK ELECTRONICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Six Months Ended June 30,
	2023		2022

	(in thousands)
Cash flows from operating activities:
Net income	$	190	$	254
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		189		131
Unrealized and realized (gains) on marketable securities		—		(381)
Adjustment to reconcile operating lease expense to cash paid		5		(5)
Changes in operating assets and liabilities:
Accounts receivable		(273)		361
Inventories		(189)		(226)
Prepaid expenses and other assets		74		(56)
Accounts payable		85		74
Accrued liabilities		(198)		(210)
Accrued income taxes		(128)		86
Net cash provided by (used in) operating activities		(245)		28
Cash flows from investing activities:
Acquisition of Calman Technology Limited, net of cash acquired		(4,278)		—
Purchases of marketable securities		—		(6,027)
Purchases of property, plant and equipment		(32)		(9)
Net cash used in investing activities		(4,310)		(6,036)
Cash flows from financing activities:
Payment of dividends on preferred stock		(200)		(200)
Repurchases of common stock		(177)		—
Net cash used in financing activities		(377)		(200)

Effect of exchange rate changes on cash, cash equivalents and restricted cash		(53)		(167)
Net (decrease) in cash, cash equivalents and restricted cash		(4,985)		(6,375)
Cash, cash equivalents and restricted cash, beginning of period		10,091		10,782
Cash, cash equivalents and restricted cash, end of period	$	5,106	$	4,407

Reconciliation of cash, cash equivalents and restricted cash, end of period:
Cash and cash equivalents, end of period	$	5,106	$	4,402
Restricted cash, end of period		—		5
Cash, cash equivalents and restricted cash, end of period	$	5,106	$	4,407

Supplemental disclosure of cash flow information:
Income taxes paid	$	327	$	160
Interest paid		—		—

Supplemental disclosure of non-cash investing and financing activities:
Lease liabilities arising from obtaining right-of-use assets	$	55	$	178

See accompanying notes to these unaudited condensed consolidated financial statements.

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INTERLINK ELECTRONICS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1 – The Company and its Significant Accounting Policies

Description of Business

Interlink Electronics, Inc. (“we,” “us,” “our,” “Interlink” or the “Company”) operates in two principal sensor technology divisions: force/touch sensors, and gas sensors. Our Force-Sensing Resistor (FSR®) and related technologies, including membrane keypads, graphic overlays and printed electronics, are used extensively in human-machine interface (“HMI”) devices, while our gas sensors and instruments are used in environmental and air quality monitoring across a broad range of applications.

We design, develop, manufacture and sell a range of technologies that incorporate our proprietary materials technology, firmware and software into a portfolio of standard products and custom solutions. Our force-sensing products and solutions include sensor components, subassemblies, modules and products that support effective, efficient cursor control and novel three-dimensional user inputs. Our HMI technology platforms are deployed in a wide range of markets including consumer electronics, automotive, industrial, and medical. Our membrane keypads, graphic overlays and other printed circuits are also deployed in HMI markets and integrated into products such as medical devices and defense systems. Our electrochemical gas-sensing technology products and solutions are deployed in industry, community, health and home settings, with uses in fields such as carbon monoxide and ozone detection and air quality monitoring.

We serve our world-wide customer base from our corporate headquarters in Irvine, California; our Global Product Development and Materials Science Center and distribution and logistics center in Camarillo, California; our printed electronics manufacturing facilities in Shenzhen, China, and Irvine, Scotland; our advanced and proprietary production and product development facility in Newark, California; our engineering, research and development center in Singapore; and our distribution and logistics center in Hong Kong. We also maintain a technical and sales office in Japan. Our principal executive office is located at 15707 Rockfield Boulevard, Suite 105, Irvine, California 92618 and our telephone number is (805) 484-8855. Our website address is www.interlinkelectronics.com.

Fiscal Year

Our fiscal year is the calendar year reporting cycle beginning January 1 and ending December 31.

Basis of Presentation

The accompanying unaudited interim consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intra-entity transactions and balances have been eliminated in consolidation.

The accompanying unaudited interim consolidated financial statements for the Company and its subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting. Accordingly, certain information and footnote disclosures normally included in annual consolidated financial statements have been condensed or omitted in accordance with Rule 10-01 of Regulation S-X. In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments and the elimination of intra-entity accounts) considered necessary for a fair presentation of all periods presented. The results of the Company’s operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year. These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes included in our Annual Report on Form 10-K, which was filed the Securities and Exchange Commission on March 29, 2023.

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Use of Estimates

The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and disclosures made in the accompanying notes to the consolidated financial statements. Management regularly evaluates estimates and assumptions related to revenue recognition, allowances for doubtful accounts, warranty reserves, inventory valuation reserves, stock-based compensation, purchased intangible asset valuations and useful lives, asset retirement obligations, and deferred income tax asset valuation allowances. These estimates and assumptions are based on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. The actual results we experience may differ materially and adversely from our original estimates. To the extent there are material differences between the estimates and the actual results, our future results of operations will be affected.

Revenue Recognition

We recognize revenue in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that are within the scope of ASC 606, we perform the following five steps; (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations; and (v) recognize revenue when (or as) we satisfy a performance obligation. The five-step model is applied to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services transferred to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize revenue in the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Delivery occurs when goods are shipped and title and risk of loss transfer to the customer, in accordance with the terms specified in the arrangement with the customer. Revenue recognition is deferred until the earnings process is complete.

We (i) input orders based upon receipt of a customer purchase order, (ii) confirm pricing through the customer purchase order record, (iii) validate creditworthiness through past payment history, credit agency reports and other financial data, and (iv) recognize revenue upon shipment of goods or when risk of loss and title transfer to the buyer. All customers have warranty rights, and some customers also have explicit or implicit rights of return. We establish reserves for potential customer returns or warranty repairs based on historical experience and other factors that enable us to reasonably estimate the obligation.

A portion of our product sales is made through distributors under agreements allowing for right of return. Our past history with these sell-through right of return provisions allow us to reasonably estimate the amount of inventory that could be returned pursuant to these agreements, and revenue is recognized accordingly.

Shipping and Handling Fees and Costs

Amounts billed to customers for shipping and handling fees are presented in revenues. Costs incurred for shipping and handling are included in cost of revenues.

Engineering, Research and Development Costs

Engineering, research and development (“R&D”) costs are expensed when incurred. R&D expenses consist primarily of compensation expenses for employees engaged in research, design and development activities. R&D expenses also include depreciation and amortization, and overhead, including facilities expenses.

Marketing and Advertising Costs

All of the costs related to marketing and advertising our products are expensed as incurred or at the time the marketing or advertising takes place.

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Stock-Based Compensation

All stock-based payments to employees, including grants of employee stock options and employee stock purchase rights, are recognized in the financial statements based on their respective grant date (measurement date) fair values. We calculate the compensation cost of full-value awards, such as restricted stock, based on the market value of the underlying stock at the date of the grant. We estimate the expected life of a stock award as the period of time that the award is expected to be outstanding. We are required to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service periods. We estimate the fair value of each option award as of the date of grant using the Black-Scholes option pricing model, which was developed for use in estimating the value of traded options that have no vesting restrictions and that are freely transferable. The Black-Scholes option pricing model considers, among other factors, the expected life of the award and the expected volatility of our stock price. Although the Black-Scholes option pricing model meets the accounting guidance requirements, the fair values generated by the Black-Scholes option pricing model may not be indicative of the actual fair values of our awards, as it does not consider other factors important to those stock-based payment awards, such as continued employment, periodic vesting requirements, and limited transferability.

We have elected to recognize compensation expense for all stock-based awards on a straight-line basis over the requisite service period for the entire award. The amount of compensation expense recognized through the end of each reporting period is equal to the portion of the grant-date value of the awards that have vested, or for partially vested awards, the value of the portion of the award that is ultimately expected to vest for which the requisite services have been provided. The benefits of tax deductions in excess of recognized compensation cost are reported as a financing cash flow.

As of June 30, 2023, there were no stock-based compensation awards outstanding.

Other Income (Expense)

Other income (expense), net, consists of interest income, foreign currency exchange gains and losses, gains and losses on marketable securities, and other non-operating income and expenses.

Income Taxes

We account for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not determinable beyond a “more likely than not” standard, we establish a valuation allowance. To the extent we establish a valuation allowance or increase or decrease this allowance in a period, we include an expense or benefit within the tax provision in the statement of operations. We also utilize a “more likely than not” recognition threshold and measurement analysis for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We recognize potential accrued interest and penalties related to unrecognized tax benefits within the consolidated statements of operations as income tax expense.

We operate within multiple tax jurisdictions and are subject to audit in these jurisdictions. Our foreign subsidiaries are subject to foreign income taxes on earnings in their respective jurisdictions. Earnings of our foreign subsidiaries are included in our U.S. federal income tax return as they are earned.

Foreign Currency Translation

The functional currency of our Chinese subsidiary is the Chinese Yuan Renminbi. The functional currency of our United Kingdom subsidiaries is the British pound sterling. The functional currency for our Hong Kong and Singapore subsidiaries is the United States dollar. Assets and liabilities are translated into United States dollars at the exchange rate in effect on the balance sheet date. Revenues and expenses are translated at the average exchange rate prevailing during the respective periods.

Comprehensive Income (Loss)

Comprehensive income (loss) includes all components of comprehensive income (loss), including net income (loss) and any changes in equity during the period from transactions and other events and circumstances generated by non-owner sources.

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Segment Reporting

We operate in one reportable segment: the manufacture and sale of force/touch sensors and gas sensors.

Earnings Per Share

Basic earnings per share is computed by dividing net income (loss) applicable to common stockholders (i.e., net income (loss) adjusted for preferred stock dividends declared or accumulated) by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income (loss) by the weighted average number of diluted common shares, which is inclusive of common stock equivalents from unexercised stock options, unvested restricted stock units, and shares issuable upon conversion of convertible preferred stock. Unexercised stock options, unvested restricted stock units, and convertible preferred stock are considered to be common stock equivalents if, using the treasury stock method, they are determined to be dilutive.

Under the two-class method of determining earnings for each class of stock, we consider the dividend rights and participating rights in undistributed earnings for each class of stock.

Leases

We account for our leases under ASC 842. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or our incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For finance leases, interest on the lease liability and the amortization of the right of use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred.

In calculating the right of use and lease liability, we have elected to combine lease and non-lease components. We exclude short-term leases having an initial term of 12 months or less from the new guidance as an accounting policy election, and recognize rent expense on a straight-line basis over the lease term.

Risk and Uncertainties

Our future results of operations involve a number of risks and uncertainties. Factors that could affect our business or future results and cause actual results to vary materially from historical results include, but are not limited to, the rapid change in our industry; problems with the performance, reliability or quality of our products; loss of customers; impacts of doing business internationally, including foreign currency fluctuations, changes in the trade policies of countries in which we or our customers do business, and political instability; potential shortages of the supplies we use to manufacture our products; disruptions in our manufacturing facilities; changes in environmental directives impacting our manufacturing process or product lines; the development of new proprietary technology and the enforcement of intellectual property rights by or against us; our ability to attract and retain qualified employees; and our ability to raise additional capital.

Our operations and financial results may be adversely affected by outbreaks of viruses, widespread illness, infectious diseases, contagions and unforeseen epidemics (such as the COVID-19 coronavirus) in countries in which our products are manufactured and sold. We experienced delays in the receipt of certain goods and the supply of our products from international and domestic shipping origins as a result of the COVID-19 pandemic and more general global supply chain constraints in fiscal 2021, and to a lesser extent in fiscal 2022 and so far in fiscal 2023. Depending on the continued extent and duration of these and similar constraints and disruptions, our supply chain, results of operations (including sales) or future business may be materially and adversely impacted. These and other issues affecting our international suppliers or internationally manufactured merchandise could have a material adverse effect on our business, results of operations and financial condition.

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Fair Value Measurements

We determine fair value measurements based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, we follow the following fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) our own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs):

Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets;

Level 2: Other inputs observable directly or indirectly, such as quoted prices for similar assets or liabilities or market-corroborate inputs; and

Level 3: Unobservable inputs for which there is little or no market data and which requires the owner of the assets or liabilities to develop its own assumptions about how market participants would price these assets or liabilities.

Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy.

Recently Issued Accounting Pronouncements

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

Subsequent Events

We have evaluated subsequent events through August 10, 2023, being the date these condensed consolidated financial statements were issued.

Note 2 – Details of Certain Financial Statement Components

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


	June 30,		December 31,
	2023		2022

Inventories	(in thousands)
Raw materials	$	2,539	$	1,635
Work-in-process		200		192
Finished goods		201		285
Total inventories	$	2,940	$	2,112

Property, plant and equipment, net, consisted of the following:


	June 30,		December 31,
	2023		2022

Property, plant and equipment, net	(in thousands)
Furniture, machinery and equipment	$	1,905	$	1,688
Leasehold improvements		405		417
		2,310		2,105
Less: accumulated depreciation		(1,973)		(1,921)
Total property, plant and equipment, net	$	337	$	184

Depreciation expense totaled $46,000 and $50,000 for the three months ended June 30, 2023 and 2022, respectively. Depreciation expense totaled $83,000 and $102,000 for the six months ended June 30, 2023 and 2022, respectively.

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Intangible assets, net consisted of the following:


	June 30,		December 31,
	2023		2022

Intangible assets, net	(in thousands)
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		—
		1,012		658
Less: accumulated amortization		(688)		(582)
Total intangible assets, net	$	324	$	76

Amortization expense totaled $94,000 and $13,000 for the three months ended June 30, 2023 and 2022, respectively. Amortization expense totaled $106,000 and $28,000 for the six months ended June 30, 2023 and 2022, respectively. Future amortization expense on existing intangible assets is as follows:


Years ending December 31,	(in thousands)
2023 (remainder of year)	$	70
2024		125
2025		48
2026		27
2027		25
Thereafter		29
	$	324

Accrued liabilities consisted of the following:


	June 30,		December 31,
	2023		2022

Accrued liabilities	(in thousands)
Accrued compensation and benefits	$	188	$	320
Accrued vacation		209		223
Other accrued liabilities		79		25
Total accrued liabilities	$	476	$	568

Note 3 – Acquisitions

Acquisition of Assets of SPEC Sensors and KWJ Engineering

On December 16, 2022, we acquired substantially all of the assets of SPEC Sensors, LLC (“SPEC”), and KWJ Engineering, Inc. (“KWJ”) (collectively, “SPEC/KWJ”), two designers and manufacturers of gas, air and environmental quality sensors that were under common ownership, pursuant to an Asset Purchase Agreement, dated as of December 16, 2022 (the “Asset Purchase Agreement”), by and among the Company, SPEC/KWJ, and the respective equity holders of SPEC and KWJ. The Asset Purchase Agreement contains customary representations, warranties and covenants, including non-competition covenants. Under the terms of the Asset Purchase Agreement, the purchase price for both companies’ assets is $2,000,000 plus the amount by which the combined companies’ net working capital at closing is more than $1,350,000. At closing, the purchase price was preliminarily calculated as $2,269,000, of which $1,519,000 was paid to SPEC/KWJ, and $750,000 was paid into escrow against purchase price adjustments and potential claims for breaches of representations and warranties by SPEC/KWJ or the equity holders. Subsequent to the closing, the parties reached an agreement pursuant to which (i) the purchase price was reduced to $2,102,313 resulting from the determination that the closing date net working capital was $166,687 lower than was preliminarily calculated, with such funds having been distributed back to the Company from the escrow account in May 2023, and (ii) the remaining funds in the escrow account were released to SPEC/KWJ in May 2023 without prejudice to the Company’s rights in respect of breaches of representations, warranties or covenants.

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The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date, giving effect to the post-closing purchase price adjustment (in thousands).


Cash	$	541
Accounts receivable		306
Inventories		952
Prepaid expenses and other current assets		52
Property and equipment		50
Deposits		16
Accounts payable and accrued liabilities		(415)
Net identifiable assets acquired		1,502
Developed technology		134
Customer relationships		96
Tradenames and trademarks		47
In-process research and development		29
Non-compete agreements		26
Order backlog		22
Goodwill		246
Net assets acquired	$	2,102

After our December 31, 2022 and March 31, 2023 financial statements were issued, the valuation report for the acquired intangible assets was completed. Based on the results of that valuation report, we have revised the preliminarily allocated $650,000 of goodwill to be allocated as follows: $50,000 property and equipment, $134,000 developed technology, $96,000 customer relationships, $47,000 trademarks and tradenames, $29,000 in-process research and development, $26,000 non-compete agreements, $22,000 order backlog, and $246,000 goodwill. In addition, the changes in these provisional amounts resulted in an increase in amortization expense and accumulated amortization of $82,000 recorded in the three months ended June 30, 2023, of which $12,000 relates to the three months ended December 31, 2022, and $37,000 relates to the three months ended March 31, 2023.

The fair value of accounts receivable is equal to the $306,000 gross contractual amount, as we expect the entire balance to be collectible.

The goodwill recognized is attributable primarily to expected synergies and the assembled workforces of SPEC/KWJ. The goodwill is expected to be deductible for income tax purposes.

Acquisition of Calman Technology Limited

On March 17, 2023, we acquired all of the outstanding shares in Calman Technology Limited (“Calman”), a Scotland-based designer and manufacturer of membrane keypads, graphic overlays and printed electronics, pursuant to a Share Purchase Agreement (the “Share Purchase Agreement”) by and among the Company’s wholly owned United Kingdom subsidiary, Interlink Electronics Limited, and the shareholders of Calman. The Share Purchase Agreement contains customary representations, warranties and covenants, including non-competition covenants on the part of the sellers, who continue to be employed by Calman. Under the terms of the Share Purchase Agreement, the purchase price is GB£4,127,000 (approximately $4,912,000), of which GB£3,627,000 (approximately $4,317,000) was paid at closing and the remaining GB£500,000 (approximately $595,000) is being held back for up to nine months against potential claims for breaches of representations and warranties (subject to certain deductibles and caps). The purchase price was subject to adjustment based on the extent, if any, to which Calman’s net working capital at closing was more or less than GB£600,000 (approximately $714,000), which resulted in additional purchase consideration of approximately GB£1,292,000 (approximately $1,538,000).

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The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands). We are in the process of identifying and measuring the fair value of certain property and equipment assets, intangible assets, and working capital balances, and accordingly the following measurements of these assets and goodwill are provisional and subject to change.


Cash	$	1,577
Accounts receivable		656
Inventories		622
Prepaid expenses and other current assets		12
Property, plant, and equipment		146
Right-of-use assets		91
Accounts payable and accrued liabilities		(615)
Lease liabilities		(91)
Net identifiable assets acquired		2,398
Goodwill		4,052
Net assets acquired	$	6,450

The fair value of accounts receivable is equal to the $656,000 gross contractual amount, as we expect the entire balance to be collectible.

The goodwill recognized is attributable primarily to expected synergies and the assembled workforce of Calman. The goodwill is not expected to be deductible for income tax purposes.

The following represents the pro forma consolidated statement of operations as if both SPEC/KWJ and Calman had been included in our consolidated results for the periods ended June 30, 2023 and 2022 (unaudited):


	Pro Forma				Pro Forma
	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

	(in thousands)
Revenue	$	4,049	$	3,978	$	8,088	$	8,177
Net income (loss)	$	381	$	86	$	677	$	908

Note 4 – Marketable Securities

Our marketable securities consist of equity securities classified as available-for-sale (“AFS”). AFS securities are carried at fair value on the condensed consolidated balance sheets. Realized and unrealized gains and losses are reported in earnings within “other income (expense), net”. The specific identification method is used to determine realized gains and losses on AFS securities. During the three months ended June 30, 2023 and 2022, we purchased $0 and $3.8 million of marketable securities, respectively, and we sold $0 of marketable equity securities in each period. During the six months ended June 30, 2023 and 2022, we purchased $0 and $6.0 million of marketable securities, respectively, and we sold $0 of marketable equity securities in each period. During the three months ended June 30, 2023 and 2022, gross realized and unrealized gains were $0 and $318,000, respectively, and gross realized and unrealized losses were $0 in each period. During the six months ended June 30, 2023 and 2022, gross realized and unrealized gains were $0 and $225,000, respectively, and gross realized and unrealized losses were $0 in each period. As of June 30, 2023, we had no marketable equity securities.

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Note 5 – Earnings Per Share

Basic earnings per share is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period, plus the dilutive effect of outstanding stock options, restricted stock units, and common shares issuable upon conversion of convertible preferred stock using the treasury stock method. The following table sets forth the computation of basic and diluted earnings per share:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022

	(in thousands, except per share data)
Net income	$	381	$	112	$	190	$	254
Less: Preferred stock dividends		(100)		(100)		(200)

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