Interlink Electronics, Inc. — FY2023 Form 10-K
Business and reporting period. Interlink designs, manufactures and sells force/touch and human-machine-interface products, printed electronics, and gas and environmental sensors. Its markets include industrial, medical, consumer, automotive and environmental monitoring. This annual report covers the fiscal year ended December 31, 2023; comparisons are with FY2022. The company acquired Calman Technology in March 2023, following its December 2022 acquisitions of SPEC Sensors and KWJ Engineering.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $13.940 million | $7.493 million |
| Gross profit / margin | $6.559 million / 47.1% | $3.861 million / 51.5% |
| Operating expenses | $6.998 million | $4.529 million |
| Operating loss | $0.439 million | $0.668 million |
| Other income, net | $0.164 million | $2.611 million |
| Net income (loss) | $(0.383) million | $1.672 million |
| Net loss/income applicable to common stockholders | $(0.783) million | $1.272 million |
| Basic and diluted EPS | $(0.08) | $0.13 |
Cash flow and liquidity. Operating cash use was $0.116 million, compared with $0.915 million in FY2022. Investing cash use was $4.885 million, mainly reflecting the Calman acquisition; financing cash use was $0.750 million, including $0.400 million of preferred dividends and $0.350 million of common-stock repurchases. Cash and cash equivalents were $4.304 million at year-end, down from $10.091 million; working capital was $8.0 million. The company reported no indebtedness. Cash held by foreign subsidiaries was $2.3 million.
Balance sheet and capital. Total assets were $15.062 million and total liabilities were $2.034 million. The company has $5.0 million of Series A preferred stock liquidation preference, pays cumulative preferred dividends at an 8% annual rate when declared, and has no stated common-stock dividend plans. On March 22, 2024, it paid a 50% common-stock dividend, reflected retroactively in per-share and share data in the filing.
Changes versus FY2022
- Revenue increased 86.0%, with reported growth attributed mainly to the acquired SPEC/KWJ and Calman businesses and higher shipments of existing force-sensing products.
- Medical revenue rose to $5.210 million from $1.865 million; industrial revenue rose to $4.141 million from $2.269 million. Standard-product revenue increased to $4.012 million from $2.996 million.
- Gross margin declined 4.4 percentage points, which management attributed to product and customer mix, particularly acquisition-related mix, and higher material and component costs on certain orders.
- Operating expenses rose to $6.998 million, including increased headcount, acquisition-related costs and acquired-intangible amortization.
- FY2022 included $2.449 million of gains on marketable securities in other income; FY2023 did not. This substantially affected the comparison in reported net results.
Outlook, risks and unusual items
- The filing provides no quantified revenue, earnings or cash-flow guidance. Management says existing cash is expected to support current operations, but notes that changed circumstances could require additional capital or expense reductions.
- Strategy centers on expanding current and adjacent markets, developing multi-technology sensing solutions, growing customer relationships and evaluating acquisitions. These plans depend on customer adoption, design wins and successful integration of acquired businesses.
- Key risks include reliance on a small number of customers (the three largest represented 22%, 12% and 10% of FY2023 revenue), cancellable or delayable purchase orders, supplier concentration, manufacturing and geopolitical disruption, foreign operations, pricing pressure, product quality, competition and technology-market acceptance.
- International sales were 52% of revenue. Two customers represented 35% and 16% of year-end accounts receivable, increasing collection concentration exposure.
- Liquidity-related considerations include the decline in cash, recurring preferred dividends, the preferred stock’s $5.0 million liquidation preference and potential dilution from conversion into 600,000 common shares. The company also repurchased 48,180 shares under its program and 8,250 shares in a private transaction during 2023.
- The company reported no material legal proceedings and no critical audit matters. Management concluded disclosure controls and internal control over financial reporting were effective at year-end; the auditor did not provide an internal-control attestation because of the company’s smaller-reporting-company exemption.
- Other notable items: Calman acquisition accounting included a final valuation allocation and additional amortization recorded in the fourth quarter; acquired Calman goodwill was not expected to be tax-deductible. The filing also discloses related-party cost-sharing and consulting arrangements involving Qualstar and BKF Capital, entities connected to senior management.
Important facts for investors to verify
- How much of revenue growth reflects acquired businesses versus organic demand, and whether acquired operations can sustain or improve margins.
- Cash generation and working-capital trends, including collection of receivables concentrated among two customers and the level and composition of inventory.
- Customer concentration, order cancellations or delays, and the durability of key customer programs and design wins.
- Cash available for U.S. use, preferred-dividend obligations and the impact of any future financing or preferred-stock conversion.
- Integration progress and performance of SPEC/KWJ and Calman, including acquisition accounting, amortization and goodwill assumptions.
- Related-party arrangements, executive time commitments to affiliated companies, and the effect of concentrated voting control and limited trading liquidity.