Interlink Electronics, Inc. — Q1 2022 Form 10-Q
Business and period: Interlink designs, manufactures and sells force-sensing technology and human-machine-interface products for consumer electronics, automotive, industrial and medical applications. This unaudited filing covers the three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. Amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $1.991 million | $1.568 million; up 27.0% |
| Gross profit / margin | $1.241 million / 62.3% | $874,000 / 55.7% |
| Operating income (loss) | $18,000 | $(60,000) |
| Other income, net | $155,000 | $10,000 |
| Net income (loss) | $142,000 | $(43,000) |
| Net income (loss) applicable to common stockholders | $42,000; $0.01 per share | $(43,000); $(0.01) per share |
| Operating cash flow | $(367,000) | $(1,000) |
- Cash and cash equivalents were $8.130 million at March 31, 2022, versus $10.777 million at year-end; restricted cash was $5,000. The company also held $2.335 million of marketable securities. Working capital was $12.2 million, and management reported no indebtedness.
- Cash decreased by $2.647 million during the quarter, including $2.179 million used to purchase marketable securities and $100,000 in preferred dividends. Operating cash use included a $220,000 increase in accounts receivable and a $256,000 decrease in accrued liabilities.
- Total assets were $13.532 million and total liabilities $778,000. Lease liabilities totaled $128,000 ($114,000 current); the company reported no other debt.
- Gross margin improved 6.6 percentage points. Operating expenses rose to $1.223 million from $934,000, including higher R&D and SG&A.
Material changes and management commentary
- Medical revenue rose to $703,000 from $43,000, primarily on increased orders from the largest medical customer as hospital installation restrictions eased. Standard-product revenue increased 32.2% to $711,000; industrial revenue increased 6.7% to $574,000.
- Consumer revenue fell to zero from $449,000, primarily due to a design change by a major customer. Automotive revenue was $3,000, with sales resuming for a program pursued with an automotive manufacturer.
- Management attributed higher gross profit and margin to revenue growth, favorable product and customer mix, and production efficiencies. R&D expense increased 21.2% to $263,000 on increased engineering headcount and development activity. SG&A rose 33.9% to $960,000, reflecting higher professional-services costs and the prior-year $186,000 PPP loan-forgiveness benefit.
- Q1 2022 other income included a $156,000 unrealized gain on marketable equity securities; the securities’ quarter-end fair value was $2.335 million against $2.179 million cost. The filing does not provide a formal revenue or earnings guidance range.
Outlook, risks and contingencies
- Management said existing cash and cash equivalents should be sufficient for current operations, while noting additional capital could be needed if circumstances change. The company expected to continue declaring and paying monthly cash dividends on its 8.0% Series A Convertible Preferred Stock, subject to legal limitations. Q1 preferred dividends were $100,000; the shares have a $5.0 million aggregate liquidation preference.
- Risks highlighted include customer and order timing variability, customer concentration, supply shortages and manufacturing disruption, international operations and currency exposure, public-health disruptions, product quality, competition, intellectual-property matters, and the ability to retain employees or raise capital. Management reported no material changes to the risk factors in the 2021 Form 10-K.
- One customer represented 35% of Q1 revenue, and one customer represented 55% of quarter-end accounts receivable. No allowance for doubtful accounts was recorded. The company also disclosed related-party facilities, consulting and expense-reimbursement arrangements with Qualstar and BKF Capital, whose leadership overlaps with Interlink’s.
- No legal proceedings were pending at March 31, 2022. The company disclosed uncapped intellectual-property indemnities and executive indemnification obligations; potential maximum losses could not be determined. Management concluded disclosure controls were effective at a reasonable-assurance level and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the medical and standard-product revenue gains persist, and the duration and scale of the resumed automotive program.
- Customer concentration in revenue and receivables, including collection timing and the credit exposure represented by the customer holding 55% of receivables.
- The composition and performance of the marketable equity securities, and the effect of investment gains or losses on reported earnings and liquidity.
- Operating cash use, working-capital movements, and cash needs alongside ongoing preferred-stock dividends and the $5.0 million liquidation preference.
- Related-party transaction terms and governance oversight, as well as potential exposure under indemnities and executive agreements.