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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 March 31, 2023

or

☐ 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.)

​

1 Jenner, Suite 200

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 May 11, 2023, the issuer had 6,609,798 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 | 22
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 28
Item 4. | Controls and Procedures | 28
PART II -- OTHER INFORMATION
Item 1A. | Risk Factors | 29
Item 6. | Exhibits | 29
Signatures | 30

​

​

​

2

Table of Contents

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

INTERLINK ELECTRONICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | March 31, | ​ | December 31,
​ |  | 2023 |  | 2022
​ |  | (in thousands, except par value)
ASSETS | ​ | ​ | ​ | ​ | ​ | ​
Current assets | ​ | ​ | ​ | ​ | ​ | ​
Cash and cash equivalents |  | $ | 6,690 |  | $ | 10,091
Accounts receivable, net | ​ | ​ | 2,263 | ​ | ​ | 1,178
Inventories | ​ | ​ | 2,976 | ​ | ​ | 2,112
Prepaid expenses and other current assets | ​ | ​ | 505 | ​ | ​ | 321
Total current assets | ​ | ​ | 12,434 | ​ | ​ | 13,702
Property, plant and equipment, net | ​ | ​ | 309 | ​ | ​ | 184
Intangible assets, net | ​ | ​ | 64 | ​ | ​ | 76
Goodwill | ​ | ​ | 4,856 | ​ | ​ | 650
Right-of-use assets | ​ | ​ | 224 | ​ | ​ | 172
Deferred tax assets | ​ | ​ | 135 | ​ | ​ | 134
Other assets | ​ | ​ | 73 | ​ | ​ | 65
Total assets |  | $ | 18,095 |  | $ | 14,983
​ | ​ | ​ | ​ | ​ | ​ | ​
LIABILITIES AND STOCKHOLDERS’ EQUITY | ​ | ​ | ​ | ​ | ​ | ​
Current liabilities | ​ | ​ | ​ | ​ | ​ | ​
Accounts payable |  | $ | 2,969 |  | $ | 273
Accrued liabilities | ​ | ​ | 530 | ​ | ​ | 568
Lease liabilities, current | ​ | ​ | 144 | ​ | ​ | 131
Accrued income taxes | ​ | ​ | 630 | ​ | ​ | 117
Total current liabilities | ​ | ​ | 4,273 | ​ | ​ | 1,089
​ | ​ | ​ | ​ | ​ | ​ | ​
Long-term liabilities | ​ | ​ | ​ | ​ | ​ | ​
Lease liabilities, long term | ​ | ​ | 83 | ​ | ​ | 46
Total long-term liabilities | ​ | ​ | 83 | ​ | ​ | 46
Total liabilities | ​ | ​ | 4,356 | ​ | ​ | 1,135
​ | ​ | ​ | ​ | ​ | ​ | ​
Commitments and contingencies (Note 8) | ​ | ​ | — | ​ | ​ | —
​ | ​ | ​ | ​ | ​ | ​ | ​
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 March 31, 2023 and December 31, 2022 ($5.0 million liquidation preference) | ​ | ​ | 2 | ​ | ​ | 2
Common stock, $0.001 par value: 30,000 shares authorized, 6,610 shares issued and outstanding at both March 31, 2023 and December 31, 2022 | ​ | ​ | 7 | ​ | ​ | 7
Additional paid-in-capital | ​ | ​ | 62,617 | ​ | ​ | 62,617
Accumulated other comprehensive income (loss) | ​ | ​ | 84 | ​ | ​ | (98)
Accumulated deficit | ​ | ​ | (48,971) | ​ | ​ | (48,680)
Total stockholders’ equity | ​ | ​ | 13,739 | ​ | ​ | 13,848
Total liabilities and stockholders’ equity |  | $ | 18,095 |  | $ | 14,983

​

See accompanying notes to these unaudited condensed consolidated financial statements.

​

3

Table of Contents

INTERLINK ELECTRONICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three months ended March 31,
​ |  | 2023 |  | 2022
​ |  | (in thousands, except per share data)
Revenue, net |  | $ | 3,278 |  | $ | 1,991
Cost of revenue | ​ | ​ | 1,691 | ​ | ​ | 750
Gross profit | ​ | ​ | 1,587 | ​ | ​ | 1,241
Operating expenses: | ​ | ​ | ​ | ​ | ​ | ​
Engineering, research and development | ​ | ​ | 527 | ​ | ​ | 263
Selling, general and administrative | ​ | ​ | 1,233 | ​ | ​ | 960
Total operating expenses | ​ | ​ | 1,760 | ​ | ​ | 1,223
Income (loss) from operations | ​ | ​ | (173) | ​ | ​ | 18
Other income (expense): | ​ | ​ | ​ | ​ | ​ | ​
Other income (expense), net | ​ | ​ | 64 | ​ | ​ | 155
Income (loss) before income taxes | ​ | ​ | (109) | ​ | ​ | 173
Income tax expense | ​ | ​ | 82 | ​ | ​ | 31
Net income (loss) | ​ | $ | (191) | ​ | $ | 142
​ | ​ | ​ | ​ | ​ | ​ | ​
Net income (loss) applicable to common stockholders |  | $ | (291) |  | $ | 42
Earnings (loss) per common share – basic and diluted | ​ | $ | (0.04) | ​ | $ | 0.01
Weighted average common shares outstanding – basic and diluted | ​ | ​ | 6,610 | ​ | ​ | 6,602

​

​

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4

Table of Contents

INTERLINK ELECTRONICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three months ended March 31,
​ |  | 2023 |  | 2022
​ | ​ | (in thousands)
Net income (loss) | ​ | $ | (191) | ​ | $ | 142
Other comprehensive income (loss), net of tax: | ​ |  | ​ | ​ |  | ​
Foreign currency translation adjustments | ​ |  | 182 | ​ |  | 7
Comprehensive income (loss) | ​ | $ | (9) | ​ | $ | 149

​

See accompanying notes to these unaudited condensed consolidated financial statements.

​

​

5

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 March 31, 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 (loss) |  | — | ​ | ​ | — | ​ | — | ​ |  | — | ​ |  | — | ​ |  | — | ​ |  | (191) | ​ |  | (191)
Preferred stock dividends |  | — | ​ | ​ | — | ​ | — | ​ |  | — | ​ |  | — | ​ |  | — | ​ |  | (100) | ​ |  | (100)
Foreign currency translation adjustment |  | — | ​ | ​ | — | ​ | — | ​ |  | — | ​ |  | — | ​ |  | 182 | ​ |  | — | ​ |  | 182
Balance at March 31, 2023 |  | 200 | ​ | $ | 2 | ​ | 6,602 | ​ | $ | 7 | ​ | $ | 62,617 | ​ | $ | 84 | ​ | $ | (48,971) | ​ | $ | 13,739

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | ​ | ​ | ​ | ​ | ​ |  |  |  | ​ |  |  | ​ |  | Accumulated |  |  | ​ |  |  | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Additional | ​ | Other | ​ | ​ | ​ | ​ | Total
​ | ​ | Preferred Stock | ​ | Common Stock | ​ | Paid-in- | ​ | Comprehensive | ​ | Accumulated | ​ | Stockholders’
Three months ended March 31, 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 | ​ | — | ​ | ​ | — | ​ | — | ​ |  | — | ​ |  | — | ​ |  | — | ​ |  | 142 | ​ |  | 142
Preferred stock dividends | ​ | — | ​ | ​ | — | ​ | — | ​ |  | — | ​ |  | — | ​ |  | — | ​ |  | (100) | ​ |  | (100)
Foreign currency translation adjustment | ​ | — | ​ | ​ | — | ​ | — | ​ |  | — | ​ |  | — | ​ |  | 7 | ​ |  | — | ​ |  | 7
Balance at March 31, 2022 | ​ | 200 | ​ | $ | 2 | ​ | 6,602 | ​ | $ | 7 | ​ | $ | 62,552 | ​ | $ | 103 | ​ | $ | (49,910) | ​ | $ | 12,754

​

See accompanying notes to these unaudited condensed consolidated financial statements.

​

​

6

Table of Contents

INTERLINK ELECTRONICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three months ended March 31,
​ |  | 2023 |  | 2022
​ | ​ | (in thousands)
Cash flows from operating activities: | ​ | ​ | ​ | ​ | ​ | ​
Net income (loss) |  | $ | (191) |  | $ | 142
Adjustments to reconcile net income (loss) to net cash (used in) operating activities: | ​ | ​ | ​ | ​ | ​ | ​
Depreciation and amortization | ​ | ​ | 49 | ​ | ​ | 67
Unrealized (gains) on marketable securities | ​ | ​ | — | ​ | ​ | (156)
Adjustment to reconcile operating lease expense to cash paid | ​ | ​ | (1) | ​ | ​ | (3)
Changes in operating assets and liabilities: | ​ | ​ | ​ | ​ | ​ | ​
Accounts receivable | ​ | ​ | (396) | ​ | ​ | (220)
Inventories | ​ | ​ | (208) | ​ | ​ | 17
Prepaid expenses and other assets | ​ | ​ | (179) | ​ | ​ | 35
Accounts payable | ​ | ​ | 375 | ​ | ​ | (4)
Accrued liabilities | ​ | ​ | (149) | ​ | ​ | (256)
Accrued income taxes | ​ | ​ | 80 | ​ | ​ | 11
Net cash (used in) operating activities | ​ | ​ | (620) | ​ | ​ | (367)
Cash flows from investing activities: | ​ | ​ | ​ | ​ | ​ | ​
Acquisition of Calman Technology Limited, net of cash acquired | ​ | ​ | (2,740) | ​ | ​ | —
Purchases of marketable securities | ​ | ​ | — | ​ | ​ | (2,179)
Purchases of property, plant and equipment | ​ | ​ | (10) | ​ | ​ | (6)
Net cash (used in) investing activities | ​ | ​ | (2,750) | ​ | ​ | (2,185)
Cash flows from financing activities: | ​ | ​ | ​ | ​ | ​ | ​
Payment of dividends on preferred stock | ​ | ​ | (100) | ​ | ​ | (100)
Net cash (used in) financing activities | ​ | ​ | (100) | ​ | ​ | (100)
​ | ​ | ​ | ​ | ​ | ​ | ​
Effect of exchange rate changes on cash | ​ | ​ | 69 | ​ | ​ | 5
Net decrease in cash and cash equivalents | ​ | ​ | (3,401) | ​ | ​ | (2,647)
Cash and cash equivalents, beginning of period | ​ | ​ | 10,091 | ​ | ​ | 10,782
Cash and cash equivalents, end of period | ​ | $ | 6,690 | ​ | $ | 8,135
​ | ​ | ​ | ​ | ​ | ​ | ​
Supplemental disclosure of cash flow information: | ​ | ​ | ​ | ​ | ​ | ​
Income taxes paid, net |  | $ | 19 |  | $ | 8
Interest paid | ​ | ​ | — | ​ | ​ | —
​ | ​ | ​ | ​ | ​ | ​ | ​

​

See accompanying notes to these unaudited condensed consolidated financial statements.

​

​

7

Table of Contents

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 1 Jenner, Suite 200, 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 March 31, 2023, there were no stock-based compensation awards outstanding.

Other Income (Expense)

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

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 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 may be adversely affected by health concerns regarding the outbreak of viruses, widespread illness, infectious diseases, contagions and the occurrence of unforeseen epidemics (including the outbreak of the COVID-19 coronavirus and its potential impact on our financial results) 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 May 11, 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:

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | March 31, | ​ | December 31,
​ |  | 2023 |  | 2022
Inventories |  | (in thousands)
Raw materials |  | $ | 2,531 |  | $ | 1,635
Work-in-process | ​ | ​ | 242 | ​ | ​ | 192
Finished goods | ​ | ​ | 203 | ​ | ​ | 285
Total inventories |  | $ | 2,976 |  | $ | 2,112

​

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

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | March 31, | ​ | December 31,
​ |  | 2023 |  | 2022
Property, plant and equipment, net | ​ | (in thousands)
Furniture, machinery and equipment | ​ | $ | 1,857 | ​ | $ | 1,688
Leasehold improvements | ​ |  | 420 | ​ |  | 417
​ | ​ |  | 2,277 | ​ |  | 2,105
Less: accumulated depreciation | ​ |  | (1,968) | ​ |  | (1,921)
Total property, plant and equipment, net | ​ | $ | 309 | ​ | $ | 184

​

Depreciation expense totaled $37,000 and $52,000 for the three months ended March 31, 2023 and 2022, respectively.

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Intangible assets, net, consisted of the following:

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | March 31, | ​ | December 31,
​ |  | 2023 |  | 2022
Intangible assets, net | ​ | (in thousands)
Patents and trademarks | ​ | $ | 658 | ​ | $ | 658
Less: accumulated amortization | ​ |  | (594) | ​ |  | (582)
Total intangible assets, net | ​ | $ | 64 | ​ | $ | 76

​

Amortization expense totaled $12,000 and $15,000 for the three months ended March 31, 2023 and 2022, respectively. Future amortization expense on existing intangible assets is as follows:

​

​ | ​ | ​ | ​
Years ending December 31, |  | (in thousands)
2023 (remainder of year) | ​ | $ | 30
2024 | ​ |  | 27
2025 | ​ |  | 7
2026 | ​ |  | —
2027 | ​ |  | —
Thereafter | ​ | ​ | —
​ | ​ | $ | 64

​

Accrued liabilities consisted of the following:

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | March 31, | ​ | December 31,
​ |  | 2023 |  | 2022
Accrued liabilities | ​ | (in thousands)
Accrued wages and benefits | ​ | $ | 177 | ​ | $ | 320
Accrued vacation | ​ |  | 228 | ​ |  | 223
Other accrued liabilities | ​ |  | 125 | ​ |  | 25
Total accrued liabilities | ​ | $ | 530 | ​ | $ | 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 was $2,000,000 plus the amount by which the combined companies’ net working capital at closing was more than $1,350,000; at closing, the purchase price was 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 a $166,687 reduction in closing date net working capital, with such funds having being distributed 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 (in thousands), giving effect to the post-closing purchase price adjustment. 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 |  | $ | 541
Accounts receivable | ​ |  | 306
Inventories | ​ |  | 952
Prepaid expenses and other current assets | ​ |  | 52
Deposits | ​ |  | 16
Accounts payable and accrued liabilities | ​ |  | (415)
Net identifiable assets acquired | ​ |  | 1,452
Goodwill | ​ |  | 650
Net assets acquired | ​ | $ | 2,102

​

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

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 balance 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 is subject to adjustment based on the extent if any to which Calman’s net working capital is more or less than GB£600,000 (approximately $714,000), which is expected to result in additional consideration of approximately GB£1,297,000 (approximately $1,544,000).

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 | ​ |  | 663
Inventories | ​ |  | 622
Prepaid expenses and other current assets | ​ |  | 12
Property, plant, and equipment | ​ |  | 146
Right-of-use assets | ​ |  | 91
Accounts payable and accrued liabilities | ​ |  | (616)
Lease liabilities | ​ |  | (91)
Net identifiable assets acquired | ​ |  | 2,404
Goodwill | ​ |  | 4,052
Net assets acquired | ​ | $ | 6,456

​

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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 fair value of accounts receivable is equal to the $663,000 gross contractual amount, as we expect the entire balance to be collectible.

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 March 31, 2023 and 2022 (unaudited):

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Pro Forma
​ | ​ | Three Months Ended March 31,
​ |  | 2023 |  | 2022
​ | ​ | (in thousands)
Revenue | ​ | $ | 4,039 | ​ | $ | 4,193
Net income (loss) | ​ | $ | 296 | ​ | $ | 818

​

​

​

​

Note 4 – 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
​ | ​ | March 31,
​ |  | 2023 |  | 2022
​ | ​ | (in thousands, except per share data)
Net income (loss) |  | $ | (191) |  | $ | 142
Less: Preferred stock dividends | ​ | ​ | (100) | ​ | ​ | (100)
Net income (loss) applicable to common stockholders | ​ | $ | (291) | ​ | $ | 42
​ | ​ | ​ | ​ | ​ | ​ | ​
Weighted average common shares outstanding – basic | ​ | ​ | 6,610 | ​ | ​ | 6,602
Dilutive potential common shares from convertible preferred stock | ​ | ​ | — | ​ | ​ | —
Weighted average common shares outstanding – diluted | ​ | ​ | 6,610 | ​ | ​ | 6,602
​ | ​ | ​ | ​ | ​ | ​ | ​
Earnings (loss) per common share, basic |  | $ | (0.04) |  | $ | 0.01
Earnings (loss) per common share, diluted | ​ | $ | (0.04) | ​ | $ | 0.01
​ | ​ | ​ | ​ | ​ | ​ | ​
Shares subject to anti-dilutive Series A Convertible Preferred Stock excluded from calculation | ​ | ​ | 400 | ​ | ​ | 400

​

​

Note 5 – Significant Customers, Concentrations of Credit Risk, and Geographic Information

We manage and operate our business through one operating segment.

Net revenues from customers equal to or greater than 10% of total net revenues are as follows:

​

​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three months ended March 31, | ​
​ |  | 2023 |  | 2022 |
Customer A |  | 32 | % | 35 | %
Customer B |  | * | % | 15 | %
Customer C | ​ | * | % | 11 | %

* Less than 10% of total net revenues

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Net revenues by geographic area are as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three months ended March 31,
​ |  | 2023 |  | 2022
​ |  | (in thousands)
United States | ​ | $ | 2,153 | ​ | $ | 1,001
Asia and Middle East | ​ |  | 826 | ​ |  | 811
Europe and other | ​ |  | 299 | ​ |  | 179
Revenue, net | ​ | $ | 3,278 | ​ | $ | 1,991

​

Revenues by geographic area are based on the country of shipment destination. The geographic location of distributors and third-party manufacturing service providers may be different from the geographic location of the purchasers and/or ultimate end users.

We provide credit only to creditworthy third parties who are subject to our credit verification procedures. Accounts receivable balances are monitored on an ongoing basis, and accounts deemed to have credit risk are fully reserved. At March 31, 2023, two customers accounted for 45% and 17% of total accounts receivable. At December 31, 2022, two customers accounted for 20% and 13% of total accounts receivable. Our allowance for doubtful accounts was $0 at both March 31, 2023 and December 31, 2022.

Our long-lived assets were geographically located as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | March 31, |  | December 31,
​ |  | 2023 |  | 2022
​ |  | (in thousands)
United States | ​ | $ | 900 | ​ | $ | 935
Europe | ​ | ​ | 4,448 | ​ | ​ | —
Asia | ​ |  | 313 | ​ |  | 344
Total long-lived assets | ​ | $ | 5,661 | ​ | $ | 1,279

​

​

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Note 6 – Related Party Transactions

Qualstar Corporation (OTCMKTS:QBAK)

Qualstar Corporation (OTCMKTS:QBAK) (“Qualstar”) is a related party. Steven N. Bronson, our Chairman of the Board, President and Chief Executive Officer, is also the President, Chief Executive Officer and a director of Qualstar. Ryan J. Hoffman, our Chief Financial Officer, is also the Chief Financial Officer of Qualstar. Mr. Bronson, together with BKF Capital Group, Inc. (OTCMKTS:BKFG) which he controls, has a controlling interest in both Interlink and Qualstar. We have a facilities agreement with Qualstar to allow Qualstar to use of a portion of our Irvine, California and Los Angeles, California office facilities, for which we have agreed to split substantially all rent and lease-related costs on an apportioned basis according to the approximate relative usage levels by each entity. Qualstar also has a facilities agreement with us to allow us to use of a portion of its Camarillo, California office and warehouse facility, for which we have agreed to split substantially all rent and lease-related costs on an apportioned basis according to the approximate relative usage levels by each entity. In addition, we have various consulting agreements with Qualstar for certain of our respective employees and/or independent contractors that provide certain operational, sales, marketing, general and administrative services to the other entity. Interlink and Qualstar also agree to reimburse, or be reimbursed by, one another for expenses paid by one company on behalf of the other. Transactions with Qualstar and its subsidiaries are as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three months ended March 31,
​ |  | 2023 | ​ | 2022
​ |  | Due from |  | Due to |  | Due from |  | Due to
​ | ​ | Qualstar | ​ | Qualstar | ​ | Qualstar | ​ | Qualstar
​ |  | (in thousands)
Balance at January 1, | ​ | $ | 6 | ​ | — | ​ | $ | 85 | ​ | $ | 8
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Billed (or accrued) to Qualstar by Interlink | ​ |  | 225 | ​ | — | ​ |  | 185 | ​ |  | —
Paid by Qualstar to Interlink | ​ |  | (210) | ​ | — | ​ |  | (251) | ​ |  | —
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Billed (or accrued) to Interlink by Qualstar | ​ |  | — | ​ | 25 | ​ |  | — | ​ |  | 22
Paid by Interlink to Qualstar | ​ |  | — | ​ | (25) | ​ |  | — | ​ |  | (22)
Balance at March 31, | ​ | $ | 21 | ​ | — | ​ | $ | 19 | ​ | $ | 8

​

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BKF Capital Group (OTCMKTS:BKFG)

BKF Capital Group, Inc. (OTCMKTS:BKFG) (“BKF Capital”) is a related party. Steven N. Bronson, our Chairman of the Board, President and Chief Executive Officer, is also the Chief Executive Officer and Chairman of BKF Capital. Ryan J. Hoffman, our Chief Financial Officer, is also the Chief Financial Officer of BKF Capital. Mr. Bronson, together with BKF Capital, has a controlling interest in Interlink. We have a facilities agreement with BKF Capital to allow BKF Capital to use a portion of our Irvine, California office facility, for which we have agreed to split substantially all rent and lease-related costs on an apportioned basis according to the approximate relative usage levels by each entity. In addition, we have consulting agreements with BKF Capital for certain of our respective employees and/or independent contractors that provide certain operational and general and administrative services to the other entity. We entered into a M&A advisory consulting services agreement with Bronson Financial LLC (“BF”), a wholly owned subsidiary of BKF Capital, in which BF provides M&A advisory consulting services to us. Interlink and BKF Capital also agree to reimburse, or be reimbursed by, one another for expenses paid by one company on behalf of the other. Transactions with BKF Capital and its subsidiaries are as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three months ended March 31,
​ | ​ | 2023 | ​ | 2022
​ |  | Due from |  | Due to |  | Due from |  | Due to
​ | ​ | BKF Capital | ​ | BKF Capital | ​ | BKF Capital | ​ | BKF Capital
​ | ​ | (in thousands)
Balance at January 1, | ​ | $ | 2 | ​ | — | ​ | $ | 12 | ​ | $ | —
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Billed (or accrued) to BKF Capital by Interlink | ​ |  | 23 | ​ | — | ​ |  | 39 | ​ |  | —
Paid by BKF Capital to Interlink | ​ |  | (8) | ​ | — | ​ |  | (48) | ​ |  | —
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Billed (or accrued) to Interlink by BKF Capital | ​ |  | — | ​ | 50 | ​ |  | — | ​ |  | 30
Paid by Interlink to BKF Capital | ​ |  | — | ​ | (50) | ​ |  | — | ​ |  | (30)
Balance at March 31, | ​ | $ | 17 | ​ | — | ​ | $ | 3 | ​ | $ | —

​

​

Note 7 – Income Taxes

Income taxes as a percentage of pre-tax income was an expense of 75.2% for the three months ended March 31, 2023 versus expense of 17.9% for the comparable period in the prior year. Our income tax expense is primarily impacted by the mix of domestic and foreign pre-tax earnings, permanent differences between book income/loss and taxable income/loss, and our ability to utilize prior net operating loss carryovers (“NOLs”). The effective tax rate for the three months ended March 31, 2023 was impacted by having incurred tax expense on our foreign pre-tax income while not realizing a benefit on our domestic pre-tax loss due to the valuation allowance on our domestic NOLs.

We experienced an ownership change under IRC Section 382 in 2010. In general, a Section 382 ownership change occurs if there is a cumulative change in our ownership by “5% shareholders” (as defined in the Internal Revenue Code of 1986, as amended) that exceeds 50 percentage points over a rolling three-year period. An ownership change generally affects the rate at which NOLs and potential other deferred tax assets are permitted to offset future taxable income. Certain state jurisdictions within which we operate contain similar provisions and limitations. As of March 31, 2023, all of the remaining federal and state NOLs are subject to annual limitations due to the 2010 ownership change.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. We analyzed our need to record a valuation allowance against our otherwise recognizable net deferred tax assets in the federal, state and foreign jurisdictions, and we determined that a valuation allowance on federal and state deferred tax assets was necessary at both March 31, 2023 and December 31, 2022, while no valuation allowance on foreign deferred tax assets was necessary at both March 31, 2023 and December 31, 2022. The amount of deferred tax assets considered realizable could be adjusted in future periods if estimates of future taxable income during the carryforward period are reduced or increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for future profitability.

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The Internal Revenue Code includes a provision, referred to as Global Intangible Low-Taxed Income (“GILTI”), which provides for a 10.5% tax on certain income of controlled foreign corporations. We have elected to account for GILTI as a period cost if and when occurred, rather than recognizing deferred taxes for basis differences expected to reverse.

Of the $6.7 million of cash balances on hand at March 31, 2023, $2.7 million was held by our foreign subsidiaries. If these funds are needed for our operations in the U.S., we have several methods to repatriate the funds without significant tax effects, including repayment of intercompany loans or distributions of previously taxed income. Other distributions may require us to incur U.S. or foreign taxes to repatriate these funds. However, our intent is to permanently reinvest these funds outside the U.S. and our current plans do not demonstrate a need to repatriate cash to fund our U.S. operations.

​

Note 8 – Commitments and Contingencies

Lease Agreements

We lease facilities under non-cancellable operating leases. The leases expire at various dates through fiscal 2024 and frequently include renewal provisions for varying periods of time, provisions which require us to pay taxes, insurance and maintenance costs, and provisions for minimum rent increases. Minimum leases payments, including scheduled rent increases are recognized as rent expenses on a straight-line basis over the term of the lease.

The rate implicit in each lease is not readily determinable, and we therefore use our incremental borrowing rate to determine the present value of the lease payments. No new right-of-use (“ROU”) assets were capitalized during the three months ended March 31, 2023 or 2022.

ROU assets for operating leases are periodically reduced by impairment losses. We use the long-lived assets impairment guidance in ASC Subtopic 360-10, Property, Plant and Equipment – Overall, to determine whether a ROU asset is impaired, and if so, the amount of the impairment loss to recognize. As of March 31, 2023, we have not recognized any impairment losses for our ROU assets.

We monitor for events or changes in circumstances that require a reassessment of our leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in profit or loss.

In June 2020, we entered into a sublease agreement to lease 4,351 square feet of office space located in Irvine, California for approximately $6,000 per month with 3 percent annual increases, plus common area maintenance costs. The lease term began July 1, 2020 and ends May 31, 2023. The space is used for executive offices, sales, finance and administration.

We lease a 14,476 square-foot manufacturing facility and administrative office in Shenzhen, China. In May 2022, we renewed this lease for the period June 1, 2022 through May 31, 2024 for approximately $8,000 per month.

We lease a 10,635 square-foot manufacturing facility and administrative offices in Newark, California. In February 2023, we renewed this lease for the period March 1, 2023 through February 28, 2024 for approximately $18,000 per month.

We lease an approximately 9,800 square-foot manufacturing facility and administrative offices in Irvine, Scotland for approximately $5,000 per month (with a 50% discount through October 2023). This lease term ends February 2028, with an option for us to terminate the lease in February 2025.

We lease a 275 square-foot engineering and administrative office in Singapore for approximately $1,000 per month. This lease term ends May 2024.

We lease a 3,000 square-foot logistics and distribution facility in Hong Kong for approximately $2,000 per month. This lease term ends April 2025.

We lease a 500 square-foot sales office in Tokyo, Japan for approximately $1,000 per month. This lease term ends November 2024.

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We sublease on a month-to-month basis approximately 1,000 square-feet of office space in Los Angeles, California for approximately $1,000 per month.

As of March 31, 2023, we had current and long-term lease liabilities of $144,000 and $83,000, respectively, and right-of-use assets of $224,000. As of December 31, 2022, we had current and long-term lease liabilities of $131,000 and $46,000, respectively, and right of use assets of $172,000. Future imputed interest as of March 31, 2023 totaled $15,000. The weighted average remaining lease term of our leases as of March 31, 2023 is 1.2 years.

Future minimum lease payments under non-cancellable operating leases that have remaining non-cancellable lease terms in excess of one year are as follows:

​

​ | ​ | ​ | ​
Years ending December 31, |  | (in thousands)
2023 (remainder of year) | ​ | $ | 116
2024 |  | ​ | 103
2025 |  | ​ | 23
2026 | ​ | ​ | —
2027 | ​ | ​ | —
Thereafter | ​ | ​ | —
Total undiscounted future non-cancelable minimum lease payments |  | ​ | 242
Less: imputed interest | ​ | ​ | (15)
Present value of lease liabilities | ​ | $ | 227

​

During the three months ended March 31, 2023, we incurred approximately $119,000 in operating lease costs. Operating lease costs of $41,000 are included in cost of revenue, and $78,000 are included in operating expenses in our condensed consolidated statements of operations for the three months ended March 31, 2023.

During the three months ended March 31, 2022, we incurred approximately $61,000 in operating lease costs. Operating lease costs of $32,000 are included in cost of revenue, and $29,000 are included in operating expenses in our condensed consolidated statements of operations for the three months ended March 31, 2022.

Litigation

We are not party to any legal proceedings as of March 31, 2023. We are occasionally involved in legal proceedings in the ordinary course of business, including actions against us which assert or may assert claims or seek to impose fines and penalties in substantial amounts. Related legal defense costs are expensed as incurred.

Warranties

We establish reserves for future product warranty costs that are expected to be incurred pursuant to specific warranty provisions with our customers. We generally warrant our products against defects for one year from date of shipment, with certain exceptions in which the warranty period can extend to more than one year based on contractual agreements. Our warranty reserves are established at the time of sale and updated throughout the warranty period based upon numerous factors including historical warranty return rates and expenses over various warranty periods. Historically, our warranty returns have not been material.

Intellectual Property Indemnities

We indemnify certain customers and our contract manufacturers against liability arising from third-party claims of intellectual property rights infringement related to our products. These indemnities appear in development and supply agreements with our customers as well as manufacturing service agreements with our contract manufacturers, are not limited in amount or duration and generally survive the expiration of the contract. Given that the amount of any potential liabilities related to such indemnities cannot be determined until an infringement claim has been made, we are unable to determine the maximum amount of losses that we could incur related to such indemnifications.

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Director and Officer Indemnities and Contractual Guarantees

Pursuant to our bylaws, we will indemnify our directors and executive officers to the fullest extent permitted by Nevada law, without limitation as to amount or duration, in the event of any actual or threatened lawsuit or proceeding. Certain costs incurred in connection with such indemnifications may be recovered under certain circumstances under various insurance policies. Given that the amount of any potential liabilities related to such indemnities cannot be determined until a lawsuit or proceeding has been threatened or filed, we are unable to determine the maximum amount of losses that we could incur relating to such indemnities.

We have also entered into an employment agreement with Steven N. Bronson, our Chairman of the Board, President and Chief Executive Officer. This agreement contains certain severance and change in control obligations. Under the agreement, if Mr. Bronson’s employment is terminated due to his death or disability (as such terms are defined in the agreement), Mr. Bronson or his beneficiaries will be entitled to receive: (i) his base compensation to the end of the monthly pay period immediately following the date of termination; (ii) accrued bonus payments; and (iii) immediate and full vesting of all unvested equity and/or options issued by the Company. If Mr. Bronson’s employment is terminated by him for good reason (as such term is defined in the agreement), or by us without cause, then Mr. Bronson will be entitled to receive: (i) his base compensation to the date of termination; (ii) a severance payment equal to twelve months of his base compensation; (iii) any earned bonus compensation; (iv) employee benefits for twelve months following the date of termination; (v) any vested company match 401(k) or other retirement contribution; and (vi) immediate and full vesting of all unvested equity and/or options issued by the Company.

In the event of a change in control of the Company (as such term is defined in the agreement), Mr. Bronson is entitled to receive: (i) a change in control payment in an amount equal to twelve months of his base compensation, payable as of the date the change in control occurs; and (ii) immediate and full vesting of all unvested equity and/or options issued by the Company.

Guarantees and Indemnities

In the normal course of business, we are occasionally required to undertake indemnification for which we may be required to make future payments under specific circumstances. We review our exposure under such obligations no less than annually, or more frequently as required. The amount of any potential liabilities related to such obligations cannot be accurately determined until a formal claim is filed. Historically, any such amounts that become payable have not had a material negative effect our business, financial condition or results of operations. We maintain general and product liability insurance which may provide a source of recovery to us in the event of an indemnification claim.

​

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

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements. These forward-looking statements speak only as of the date of this Form 10-Q and are subject to uncertainties, assumptions and business and economic risks. As such, our actual results could differ materially from those set forth in the forward-looking statements as a result of the factors set forth below in Part II, Item 1A, “Risk Factors,” and in our other reports filed with the Securities and Exchange Commission. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances described in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Form 10-Q to conform these statements to actual results or to changes in our expectations, except as required by law.

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

Overview

We operate 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.

Force/Touch Sensors

HMI and Force-Sensing Technology. Our HMI and force-sensing technology is used in sensor components, subassemblies, modules and products that support effective, efficient cursor control and novel three-dimensional user inputs and is deployed in a wide range of markets, including consumer electronics, automotive, industrial, and medical. The application of our HMI technology platforms includes vehicle entry, vehicle multi-media control interface, rugged touch controls, presence detection, collision detection, speed and torque controls, pressure mapping, biological monitoring and others. Interlink has been a leader in the printed electronics industry for over 38 years with the commercialization of our patented FSR® technology that has enabled rugged and reliable HMI solutions. Our solutions have focused on handheld user input, menu navigation, cursor control, and other intuitive interface technologies for the world’s top electronics manufacturers.

Membrane Keypads, Graphic Overlays and Printed Electronics. Through our acquisition in March 2023 of Calman Technology Limited, we offer membrane keypads, graphic overlays and printed electronics for use in fields such as medical devices and defense systems.

Gas-Sensing Technology

Through our acquisition in December 2022 of the business assets of SPEC Sensors, LLC and KWJ Engineering, Inc., early pioneers in miniaturized, low-cost gas-sensing technologies, we also offer electrochemical gas-sensing technology products and solutions for industry, community, health and home, with uses in fields such as carbon monoxide and ozone detection and air quality monitoring.

We sell our products and solutions globally to a diverse array of customers that include the Fortune 500 as well as start-ups, design houses, original design manufacturers, OEMs and universities. Our customers are some of the world’s largest companies and most recognizable brands. Our technology has been deployed in the consumer electronics, industrial automation, automotive, medical, defense and environmental monitoring markets. Our global presence in the United States, China, United Kingdom, Hong Kong, Singapore and Japan allows us to provide local sales and engineering support services to our existing and future customers. We manufacture our products in a state-of-the-art facility in Shenzhen, China, and in our advanced and proprietary facilities in Newark,

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California and Irvine, Scotland. We control 100% of the manufacturing and shipping process which enables us to respond quickly to customer product demand and design requirements.

We have invested significantly in the expansion of our technology platforms through our own internal development to ensure we provide the market with leading-edge solutions that are seamless to deploy and perform flawlessly. Having built a research and development (R&D) organization in Singapore to develop new product offerings that will meet the market’s growing demand for touch technology and smart surfaces, in 2020 we made the strategic decision to relocate a majority of R&D and product development efforts to Camarillo, California, where we have established a Global Product Development and Materials Science Center. Combined with the advanced and proprietary facilities in Silicon Valley and Scotland that were acquired in connection with the SPEC/KWJ and Calman transactions, we believe this will allow us to grow our business and be more closely aligned with current and future large-tier customers. We also plan to explore potential strategic relationships with companies and technology institutes that will support our growth initiatives.

We were incorporated in California in 1985. In 1996, we re-incorporated into a Delaware corporation and, in 2012, we again changed our domicile from Delaware to Nevada by completing a merger with a newly formed Nevada corporation named Interlink Electronics, Inc. Our principal executive office is located at 1 Jenner, Suite 200, Irvine, California 92618 and our telephone number is (805) 484-8855. Our website address is www.interlinkelectronics.com. We make available our annual financial statements, quarterly financial statements, and other significant reports and amendments to such reports, free of charge, on our website as soon as reasonably practicable after such reports are prepared.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statements presentation, financial condition, results of operations, and cash flows will be affected.

A description of our critical accounting policies that represent the more significant judgments and estimates used in the preparation of our financial statements was provided in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2023. There have been no changes to our critical accounting policies and estimates described in the Form 10-K that have had a material impact on our condensed consolidated financial statements and related notes.

Recently Issued and Adopted Accounting Pronouncements

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

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Results of Operations

The following table sets forth certain unaudited condensed consolidated statements of operations data for the periods indicated. The percentages in the table are based on net revenues.

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Three months ended March 31 | ​
​ | ​ | 2023 | ​ | 2022 | ​
​ | ​ | $ |  | % |  | $ |  | % |
​ | ​ | (in thousands, except percentages) | ​
Revenue, net | ​ | $ | 3,278 | ​ | 100.0 | % | $ | 1,991 | ​ | 100.0 | %
Cost of revenue | ​ | ​ | 1,691 | ​ | 51.6 | % | ​ | 750 | ​ | 37.7 | %
Gross profit | ​ | ​ | 1,587 | ​ | 48.4 | % | ​ | 1,241 | ​ | 62.3 | %
Operating expenses: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Engineering, research and development | ​ | ​ | 527 | ​ | 16.1 | % | ​ | 263 | ​ | 13.2 | %
Selling, general and administrative | ​ | ​ | 1,233 | ​ | 37.6 | % | ​ | 960 | ​ | 48.2 | %
Total operating expenses | ​ | ​ | 1,760 | ​ | 53.7 | % | ​ | 1,223 | ​ | 61.4 | %
Income (loss) from operations | ​ | ​ | (173) | ​ | (5.3) | % | ​ | 18 | ​ | 0.9 | %
Other income (expense): | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Other income (expense), net | ​ | ​ | 64 | ​ | 2.0 | % | ​ | 155 | ​ | 7.8 | %
Income (loss) before income taxes | ​ | ​ | (109) | ​ | (3.3) | % | ​ | 173 | ​ | 8.7 | %
Income tax expense | ​ | ​ | 82 | ​ | 2.5 | % | ​ | 31 | ​ | 1.6 | %
Net income (loss) | ​ | $ | (191) | ​ | (5.8) | % | $ | 142 | ​ | 7.1 | %

​

Comparison of Three Months Ended March 31, 2023 and 2022

Revenue, net, by the markets we serve is as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Three months ended March 31, | ​ | ​ | ​ | ​ |
​ | ​ | 2023 | ​ | 2022 | ​ | ​ | ​ | ​ |
​ | ​ | ​ | ​ | ​ | % of | ​ | ​ | ​ | ​ | % of | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Amount |  | Revenue |  | Amount |  | Revenue |  | $ Change |  | % Change |
​ | ​ | (in thousands, except percentages) |
Industrial | ​ | $ | 1,027 |  | 31.3 | % | $ | 616 |  | 30.9 | % | $ | 411 |  | 66.7 | %
Medical | ​ |  | 1,351 |  | 41.2 | % |  | 786 |  | 39.5 | % |  | 565 |  | 71.9 | %
Consumer | ​ |  | 228 |  | 7.0 | % |  | 271 |  | 13.6 | % |  | (43) |  | (15.9) | %
Automotive | ​ | ​ | — | ​ | 0.0 | % | ​ | 3 | ​ | 0.2 | % | ​ | (3) | ​ | (100.0) | %
Standard | ​ |  | 672 |  | 20.5 | % |  | 315 |  | 15.8 | % |  | 357 |  | 113.3 | %
Revenue, net | ​ | $ | 3,278 |  | 100.0 | % | $ | 1,991 |  | 100.0 | % | $ | 1,287 |  | 64.6 | %

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We sell our custom products into the industrial, medical, consumer and automotive markets. We sell our standard products through various distribution networks. The ultimate customer for standard products may come from different markets which are often unknown to us at the time of sale. Each market has different product design cycles. Products with longer design cycles often have much longer product life-cycles. Industrial and medical products generally have longer design and life-cycles than consumer products. We currently have products with life-cycles that have exceeded twenty years and are ongoing.

Revenues were up in the three months ended March 31, 2023 compared to the three months ended March 31, 2022 in the medical and industrial markets and for our standard products, and were down in the consumer market. The increase in revenue from our medical market customers is primarily due to a continued increase in orders from and shipments to our largest medical customer, whose purchasing volume has increased as demand for installations of their products in hospital settings has continued to increase following the COVID-19 pandemic, and also in part to sales to new medical market customers resulting from our acquisitions of SPEC/KWJ and Calman. The increase in revenue from our industrial market customers is due to increased shipments to these customers for use in their ongoing product lines resulting from increased demand by their customers, and also in part to sales to new industrial market customers resulting from our acquisitions of SPEC/KWJ and Calman. The increase in revenue for our standard products is primarily due to the addition of new customers resulting from our acquisitions of SPEC/KWJ and Calman. In all markets, the timing of orders from our customers is not always predictable and can be concentrated in varying periods during the year to coincide with their demand and production plans.

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Three months ended March 31, |  |  | ​ |  |  |
​ | ​ | 2023 | ​ | 2022 | ​ | ​ | ​ | ​ |
​ | ​ | ​ | ​ | ​ | % of | ​ | ​ | ​ | ​ | % of | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Amount |  | Revenue |  | Amount |  | Revenue |  | $ Change |  | % Change |
​ | ​ | (in thousands, except percentages) |
Gross profit | ​ | $ | 1,587 |  | 48.4 | % | $ | 1,241 |  | 62.3 | % | $ | 346 |  | 27.9 | %

​

Our gross profit and gross margin percentage are impacted by various factors including product mix, customer mix, sales volume, and fluctuations in our cost of revenues, which are comprised of material costs, direct and indirect production labor costs, warehousing and logistics costs, facilities costs, and other costs related to production activities. Gross profit was up during the the three month ended March 31, 2023 compared to the three months ended March 31, 2022 due to increased revenues, while gross margin percentage was down in the current year compared to the prior year due primarily to changes in product and customer mix.

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Three months ended March 31, | ​ | ​ | ​ | ​ |
​ | ​ | 2023 | ​ | 2022 | ​ | ​ | ​ | ​ |
​ | ​ | ​ | ​ | ​ | % of | ​ | ​ | ​ | ​ | % of | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Amount |  | Revenue |  | Amount |  | Revenue |  | $ Change |  | % Change |
​ | ​ | (in thousands, except percentages) |
Engineering, research and development | ​ | $ | 527 | ​ | 16.1 | % | $ | 263 | ​ | 13.2 | % | $ | 264 | ​ | 100.4 | %

​

Engineering and R&D expenses consist primarily of compensation expenses for employees engaged in research, design and development activities, plus the cost of those employees’ indirect supplies and allocation of facilities expenses. Our R&D team focuses both on internal design development in order to develop our products and solutions, as well as custom design development aimed at addressing our customers’ unique design challenges. Engineering and R&D costs for the three months ended March 31, 2023 were up compared to the three months ended March 31, 2022 due to increased engineering headcount resulting from the December 2022 acquisition of SPEC/KWJ.

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Three months ended March 31, | ​ | ​ | ​ | ​ | ​ |
​ | ​ | 2023 | ​ | 2022 | ​ | ​ | ​ | ​ | ​ |
​ | ​ | ​ | ​ | ​ | % of | ​ | ​ | ​ | ​ | % of | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Amount |  | Revenue |  | Amount |  | Revenue |  | Change |  | % Change |
​ | ​ | (in thousands, except percentages) |
Selling, general and administrative | ​ | $ | 1,233 |  | 37.6 | % | $ | 960 |  | 48.2 | % | $ | 273 |  | 28.4 | %

​

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Selling, general and administrative expenses consist primarily of compensation expenses for sales and administrative employees, legal and other professional fees, facilities expenses and communication expenses. Selling, general and administrative costs for the three months ended March 31, 2023 were up compared to the three months ended March 31, 2022 due to increased selling, general and administrative headcount resulting from the December 2022 acquisition of SPEC/KWJ and, to a lesser extent, the March 2023 acquisition of Calman, increased professional services costs associated with the acquisition of Calman, and the additional facilities and other operating costs of these incremental operations.

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Three months ended March 31, | ​ | ​ | ​ | ​ | ​ |
​ | ​ | 2023 | ​ | 2022 | ​ | ​ | ​ | ​ | ​ |
​ | ​ | ​ | ​ | ​ | % of | ​ | ​ | ​ | ​ | % of | ​ | ​ | ​ | ​ | ​ |
​ |  | Amount |  | Revenue |  | Amount |  | Revenue |  | $ Change |  | % Change |
​ | ​ | (in thousands, except percentages) |
Other income (expense), net | ​ | $ | 64 |  | 2.0 | % | $ | 155 |  | 7.8 | % | $ | (91) |  | (58.7) | %

​

Other income (expense) consists of non-operating income and expenses, such as gains and losses on marketable securities, foreign currency transaction gains and losses, interest income and expense, and other non-operating income and expenses. Other income (expense) for the three months ended March 31, 2023 was comprised of $67,000 of interest income, and $3,000 of foreign currency transaction losses, while other income (expense) for the three months ended March 31, 2022 was comprised of $156,000 of gains on marketable securities, $2,000 of foreign currency transaction losses, and $1,000 of other non-operating income items.

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Three months ended March 31, | ​ | ​ | ​ | ​ | ​ |
​ | ​ | 2023 | ​ | 2022 | ​ | ​ | ​ | ​ | ​ |
​ | ​ | ​ | ​ |  | ​ |  | ​ | ​ |  | ​ |  | ​ | ​ |  | Change |
​ | ​ | ​ | ​ | ​ | % of | ​ | ​ | ​ | ​ | % of | ​ | ​ | ​ | ​ | in % of | ​
​ | ​ | ​ | ​ | ​ | Pre-tax | ​ | ​ | ​ | ​ | Pre-tax | ​ | ​ | ​ | ​ | Pre-tax | ​
​ | ​ | Amount | ​ | Income | ​ | Amount | ​ | Income | ​ | Change | ​ | Income |
​ | ​ | (in thousands, except percentages) |
Income tax expense | ​ | $ | 82 |  | 75.2 | % | $ | 31 |  | 17.9 | % | $ | 51 |  | 57.3 | %

​

Income tax expense reflects statutory tax rates in the jurisdictions in which we operate adjusted for permanent book/tax differences. Our effective tax rate is directly affected by the relative proportions of our pre-tax earnings and losses in the jurisdictions in which we operate. The effective tax rate for the three months ended March 31, 2023 was impacted by having incurred tax expense on our foreign pre-tax income while not realizing a benefit on our domestic pre-tax loss due to the valuation allowance on our domestic NOLs. Based on the expected mix of domestic and foreign earnings and losses, we anticipate our effective tax rate to remain similar to the U.S. statutory rate of 21% primarily due to a significant portion of our earnings originating in the higher rate China jurisdiction (25%), offset by lower rate jurisdictions in the United Kingdom (19%), Singapore (17%) and Hong Kong (16.5%). State income taxes also have an impact in the U.S.

Discrete tax events may cause our effective rate to fluctuate on a quarterly basis. Certain events, including, for example, acquisitions and other business changes, which are difficult to predict, may also cause our effective tax rate to fluctuate. We are subject to changing tax laws, regulations, and interpretations in multiple jurisdictions. Corporate tax reform continues to be a priority in the U.S. and other jurisdictions. Additional changes to the tax system in the U.S. could have significant effects, positive and negative, on our effective tax rate, and on our deferred tax assets and liabilities.

Liquidity and Capital Resources

Cash requirements for working capital and capital expenditures have been funded from cash balances on hand, cash generated from operations, and sales of equity securities. As of March 31, 2023, we had cash and cash equivalents of $6.7 million, working capital of $8.2 million and no indebtedness. Cash and cash equivalents consist of cash and money market funds. Of the $6.7 million of cash balances on hand, $2.7 million was held by foreign subsidiaries. If these funds are needed for our operations in the U.S., we have several methods to repatriate without significant tax effects, including repayment of intercompany loans or distributions of previously taxed income. Other distributions may require us to incur U.S. or foreign taxes to repatriate these funds.

We have outstanding 200,000 shares of our 8.0% Series A Convertible Preferred Stock (the “Preferred Stock”) that have an aggregate liquidation preference of $5.0 million, for which we pay, when, as and if declared by our board of directors, monthly cumulative cash dividends at an annual rate of 8.0%; this is equivalent to $0.16667 per month and $2.00 per annum per share, based on a per share liquidation preference of $25.00. Dividends on the Preferred Stock are payable monthly in arrears on the 15th day of each calendar

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month. Our board of directors has declared cash dividends on the Preferred Stock each month since the Preferred Stock was issued in October 2021, and we expect that the board will continue to declare, and we will continue to pay, cash dividends on the Preferred Stock each month while the Preferred Stock is outstanding, subject to applicable limitations under Nevada law.

We believe that our existing cash and cash equivalents balance will be sufficient to maintain our current operations considering our current financial condition, obligations, and other expected cash flows. If our circumstances change, however, we may require additional cash. If we require additional cash, we may attempt to raise additional capital through equity, equity-linked or debt financing arrangements. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by the incurrence of indebtedness, we could be subject to fixed payment obligations and could also be subject to restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. If we are unable to raise additional needed funds, we may also take measures to reduce expenses to offset any shortfall.

Cash Flow Analysis

Our cash flows from operating, investing and financing activities are summarized as follows:

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​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Three Months Ended
​ | ​ | March 31,
​ | ​ | 2023 |  | 2022
​ | ​ | (in thousands)
Net cash (used in) operating activities | ​ | $ | (620) | ​ | $ | (367)
Net cash (used in) investing activities | ​ |  | (2,750) | ​ |  | (2,185)
Net cash (used in) financing activities | ​ |  | (100) | ​ |  | (100)

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Net Cash (Used In) Operating Activities

For the three months ended March 31, 2023, the $620,000 of cash used in operating activities was attributable to net loss of $191,000, adjusted for non-cash charges of $48,000 and cash used in changes in operating assets and liabilities of $477,000.

For the three months ended March 31, 2022, the $367,000 of cash used in operating activities was attributable to net income of $142,000, adjusted for non-cash charges of $64,000, unrealized gains on marketable securities of $156,000, and cash used in changes in operating assets and liabilities of $417,000.

Accounts receivable increased from $1.2 million at December 31, 2022 to $2.3 million at March 31, 2023 due to higher shipments during the first quarter of 2023 compared to the fourth quarter of 2022, and the addition of accounts receivable from our March 2023 acquisition of Calman. Many of our customers pay promptly and accounts receivable is generally related to the most recent shipments. Inventories increased from $2.1 million at December 31, 2022 to $3.0 million at March 31, 2023. Inventory balances fluctuate depending on the timing of materials purchases and product shipments, and also increased due to our March 2023 acquisition of Calman. Prepaid expenses and other current assets increased from $321,000 at December 31, 2022 to $505,000 at March 31, 2023 due primarily to the increase in the amount to be collected from the SPEC/KWJ acquisition escrow resulting from the reduction in the purchase price upon finalization of their closing-date working capital. Accounts payable and accrued liabilities increased from $841,000 at December 31, 2022 to $3.5 million at March 31, 2023, primarily due to purchase consideration that remains payable to the prior owners of Calman, and also due to the timing of payment for purchases of materials, compensation accruals, and other outside services, and the addition of Calman’s accounts payable and accrued liabilities to our consolidated balances.

Net Cash (Used In) Investing Activities

Net cash used in investing activities of $2.8 million for the three months ended March 31, 2023 consisted of $2.7 million used to acquire the equity interests of Calman (which is net of $1.6 million of cash acquired), and a minor amount of purchases of property, plant, and equipment. Net cash used in investing activities of $2.2 million for the three months ended March 31, 2022 consisted of purchases of $2.2 million of marketable securities and a minor amount of purchases of property, plant, and equipment.

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Net Cash (Used In) Financing Activities

Net cash used in financing activities of $100,000 for the each of the three months ended March 31, 2023 and 2022 consisted of payment of dividends on our Preferred Stock.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not Applicable.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The phrase “disclosure controls and procedures” refers to controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended, or the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission, or SEC. Disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our chief executive officer, or CEO, and chief financial officer, or CFO, as appropriate to allow timely decision regarding required disclosure.

Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of March 31, 2023, the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our CEO and CFO had concluded that as of March 31, 2023, our disclosure controls and procedures were designed at a reasonable assurance level and were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Controls over Financial Reporting

There was no change in our internal control over financial reporting during the period ended March 31, 2023 that materially affected, or is reasonable likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

The Company’s internal control over financial reporting includes policies and procedures that (1) pertain to maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Our management, including our CEO and CFO, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. In addition, the design of any system of controls is based in part on certain assumptions about the likelihood of future events, and controls may become inadequate if conditions change. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

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PART II: OTHER INFORMATION

Item 1A. Risk Factors

This Quarterly Report on Form 10-Q contains forward-looking statements, which are subject to a variety of risks and uncertainties. Other actual results could differ materially from those anticipated in those forward-looking statements as a result of various factors, including those set forth in the risk factors relating to our business and common stock contained in Item 1A of our Annual Report on Form 10-K filed with the SEC on March 29, 2023. There have been no material changes to such risk factors during the three months ended March 31, 2023.

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Item 6. Exhibits

Exhibit |  |  |  | Incorporated by Reference |  | Filed
Number |  | Exhibit Description |  | Form |  | File Number |  | Exhibit |  | Filing Date |  | Herewith
3.1 |  | Articles of Incorporation of the Registrant |  | 10 |  | 000-21858 |  | 3.1 |  | February 17, 2016 |  |
3.2 | ​ | Certificate of Designations of Series A Preferred Stock | ​ | 8-K | ​ | 001-37659 | ​ | 3.1 | ​ | October 25, 2021 | ​ | ​
3.3 |  | Bylaws of the Registrant |  | 10 |  | 000-21858 |  | 3.2 |  | February 17, 2016 |  |
3.4 |  | Amendment to Bylaws of the Registrant |  | 10 |  | 000-21858 |  | 3.3 |  | February 17, 2016 |  |
31.1 |  | Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |  |  |  |  |  |  |  |  |  | X
31.2 |  | Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |  |  |  |  |  |  |  |  |  | X
32.1* |  | Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  |  |  |  |  |  |  |  |  | X
101.INS |  | XBRL Instance Document |  |  |  |  |  |  |  |  |  | X
101.SCH |  | XBRL Taxonomy Extension Schema Document |  |  |  |  |  |  |  |  |  | X
101.CAL |  | XBRL Taxonomy Extension Calculation Linkbase Document |  |  |  |  |  |  |  |  |  | X
101.DEF |  | XBRL Taxonomy Extension Definition Linkbase Document |  |  |  |  |  |  |  |  |  | X
101.LAB |  | XBRL Taxonomy Extension Label Linkbase Document |  |  |  |  |  |  |  |  |  | X
101.PRE |  | XBRL Taxonomy Extension Presentation Linkbase Document |  |  |  |  |  |  |  |  |  | X
104 | ​ | The cover page from Interlink Electronics, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language) and contained in Exhibit 101. | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | X

*The information in this exhibit is furnished and deemed not filed with the Securities and Exchange Commission for purposes of section 18 of the Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of Interlink Electronics, Inc. under the Securities Act of 1933, as amended, or the Exchange Act of 1934, as amended, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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Date: May 11, 2023 |  | Interlink Electronics, Inc.
​ | ​ | (Registrant)
​ | ​ | ​
​ | ​ | By: | /s/ Ryan J. Hoffman
​ | ​ |  | Ryan J. Hoffman
​ | ​ |  | Chief Financial Officer
​ | ​ |  | (Principal Financial and Accounting Officer)

​

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