Interlink Electronics, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed March 16, 2021. This is an annual report, not a standalone fourth-quarter report. Interlink designs and manufactures force-sensing and other human-machine-interface technologies for consumer electronics, industrial, medical and automotive applications.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Net revenue | $6.888 million | $7.305 million |
| Gross profit / margin | $3.902 million / 56.6% | $3.310 million / 45.3% |
| Operating income (loss) | $110,000 | $(214,000) |
| Net income (loss) | $113,000 | $(457,000) |
| Diluted earnings (loss) per share | $0.02 | $(0.07) |
| Operating cash flow | $39,000 | $2,000 |
| Cash used in investing activities | $(90,000) | $(233,000) |
At year-end, cash and cash equivalents were $6.120 million, plus $5,000 of restricted cash; working capital was $7.454 million. The company reported no debt other than its $186,000 Paycheck Protection Program (PPP) loan, which was forgiven in February 2021. Total liabilities were $1.182 million, including lease liabilities of $359,000. Total assets were $10.022 million and stockholders’ equity was $8.840 million.
Material changes versus 2019
- Revenue fell 5.7%. Medical revenue declined 59.7% to $1.082 million, principally because the largest medical customer could not install products in hospitals amid COVID-19 restrictions. Industrial revenue fell 15.0% to $1.681 million.
- Consumer revenue rose 196.0% to $1.196 million; standard-product revenue rose 31.1% to $2.929 million, partly reflecting bulk and cyclical customer purchases.
- Gross margin improved 11.3 percentage points to 56.6%, primarily due to product and customer mix, partly offset by tariffs on China-manufactured goods.
- SG&A increased 10.2% to $2.874 million, reflecting additional personnel and costs associated with public-company reporting. R&D expense was essentially unchanged at $918,000.
- Operating results turned positive, but operating cash flow remained modest. Cash increased by $281,000, including PPP proceeds and a favorable $146,000 foreign-exchange effect.
Outlook, risks and other notable items
- Management said orders had begun to stabilize and did not anticipate further significant declines in product sales, while cautioning that COVID-19’s effects were not over. The filing provides no quantified revenue or earnings guidance.
- Management plans to shift much of R&D and product development from Singapore to a Camarillo, California center, expected to be operational in early 2021, with a focus on materials science and printed electronics.
- Key risks include COVID-related demand and operating disruption; dependence on a small number of customers without firm long-term purchase commitments; reliance on China manufacturing and certain single-source materials; tariffs and international trade exposure; competition, pricing pressure and technology adoption; and protection of intellectual property.
- Customer concentration remains significant: the top three customers represented 17.4%, 15.8% and 11.6% of 2020 revenue. International sales were 59.0% of revenue. Two customers accounted for 47% and 22% of year-end receivables.
- The company reported no pending legal proceedings. It has customer and manufacturer intellectual-property indemnities with no stated maximum exposure, and executive indemnification obligations whose potential losses cannot be quantified. Related-party cost-sharing and services arrangements with Qualstar and BKF Capital are disclosed.
- The financial-statement auditor issued an unqualified opinion and identified deferred-tax-asset realizability as a critical audit matter. No auditor attestation on internal control was required, and management’s ICFR assessment was omitted under the transition rules for newly public companies; management reported effective disclosure controls.
- CEO Steven Bronson beneficially owned approximately 82.5% of outstanding common stock at year-end. Shares traded on OTC Pink, and the company said it did not anticipate paying dividends.
Most important facts to verify
- Whether the reported order stabilization and recovery in medical-customer demand occurred after year-end, and whether bulk standard-product shipments are repeatable.
- How customer concentration and receivables concentration have changed since December 31, 2020.
- Whether gross-margin improvement is sustainable given product mix, tariffs, manufacturing costs and pricing pressure.
- That the PPP loan forgiveness was recorded in the first quarter of 2021, as disclosed, and how it affected subsequent results.
- The filing gives cash and cash equivalents of $6.120 million on the balance sheet but describes $6.125 million as cash and cash equivalents in the liquidity discussion; the latter amount corresponds to cash plus restricted cash. Confirm the distinction when comparing liquidity.