Business context and reporting period
Interlink Electronics, Inc. (Nasdaq: LINK) designs and manufactures force-sensing and other human-machine-interface technologies for consumer electronics, automotive, industrial and medical applications. This Form 10-K reports the fiscal year ended December 31, 2021, with comparisons to 2020; it is an annual report, not a standalone fourth-quarter report.
Financial performance
Amounts below are in millions of dollars unless otherwise noted.
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $7.478 | $6.888 |
| Gross profit / margin | $4.058 / 54.3% | $3.902 / 56.6% |
| Operating income (loss) | $(0.079) | $0.110 |
| Net income (loss) | $(0.734) | $0.113 |
| Net loss per common share, basic and diluted | $(0.12) | $0.02 |
| Cash from operating activities | $0.231 | $0.039 |
| Cash and cash equivalents at year-end | $10.777 | $6.120 |
Revenue increased 8.6%, led by industrial sales, up 30.3% to $2.191 million; consumer revenue rose 6.3% to $1.271 million. Medical revenue was nearly flat at $1.102 million, while standard-product revenue declined 1.0% to $2.900 million. Automotive revenue was $14,000, compared with none reported in 2020.
Gross profit rose 4.0%, but gross margin fell 2.3 percentage points, which management attributed primarily to product and customer mix. Operating expenses increased 9.1% to $4.137 million: SG&A rose 12.9% to $3.244 million, while R&D declined 2.7% to $0.893 million, partly because a Singapore research incentive grant reduced expense. The company moved from operating income to an operating loss.
The $0.605 million income tax expense, despite a $0.129 million pretax loss, was driven substantially by a valuation allowance against U.S. deferred tax assets following recent domestic losses. Net loss attributable to common stockholders was $0.782 million after $48,000 of preferred dividends.
Liquidity, cash flow and capital structure
At December 31, 2021, working capital was $12.0 million and the company reported no indebtedness. Current assets were $13.067 million and current liabilities $1.037 million. Operating cash flow was $231,000; investing activities used $159,000, primarily for the Camarillo product-development and materials-science center. Financing provided $4.520 million net, mainly from the preferred-stock offering.
In October and November 2021, Interlink issued 200,000 shares of 8.0% Series A convertible preferred stock for $5.0 million gross proceeds and approximately $4.6 million net proceeds. The preferred shares carry cumulative dividends, a $25-per-share liquidation preference and are convertible into 400,000 common shares. The board began paying monthly dividends in November 2021. Year-end operating lease liabilities totaled $175,000. After year-end, the company used approximately $1.9 million of cash to purchase marketable securities.
Outlook, risks and other notable items
Management gave no quantified revenue or earnings guidance. It said existing cash was expected to support current operations, while noting that changed circumstances could require additional financing or expense reductions. Strategy includes expanding in existing and new markets, broadening sensing technologies, investing in R&D and evaluating acquisitions; a U.K. engineering and R&D center was expected to launch in 2022.
- Customer and geographic concentration: Three customers generated approximately 17.0%, 14.7% and 14.7% of 2021 revenue. International sales were 71% of revenue on a bill-to basis; China, Japan and Taiwan represented 29%, 16% and 12%, respectively.
- Supply and operating exposure: Manufacturing is concentrated in Shenzhen, China, with certain materials sourced from single suppliers. The company reported shipping and supply-chain delays in 2021 and disclosed that Shenzhen’s March 2022 COVID-related lockdown disrupted factory operations.
- Preferred-stock and control considerations: Preferred stock has an 8% cumulative dividend and liquidation priority, and conversion could dilute common holders. CEO Steven Bronson beneficially owned approximately 82.5% of common shares at year-end; the filing also cites limited trading liquidity and shared executive responsibilities at other companies.
- Tax and contingencies: A $629,000 valuation allowance was recorded against domestic deferred tax assets. The company reported no material legal proceedings, but disclosed customer and manufacturer IP indemnities with no stated maximum exposure.
- Reporting and audit: Management concluded disclosure controls and internal control over financial reporting were effective at year-end; the auditor did not attest to internal-control effectiveness. The 2021 financial statements received an unqualified audit opinion, with no critical audit matters reported. The company changed auditors during 2021.
Investor verification priorities
- Check whether revenue growth persists and whether customer, product mix and concentrated customer exposure affect gross margin.
- Review the preferred-stock dividend, conversion, redemption and liquidation terms, including potential dilution and cash requirements.
- Assess the recoverability of deferred tax assets and whether the valuation allowance or tax expense may change.
- Monitor China manufacturing continuity, supplier availability, freight constraints and international revenue concentration.
- Review related-party arrangements and governance implications of concentrated ownership and executives’ outside roles.