# Interlink Electronics Inc: Form 10-Q for the period ended Jun 30, 2023

- Company: [Interlink Electronics Inc](/companies/link.md) (CIK 828146)
- Form: 10-Q
- Filed: 2023-08-10
- Accepted by EDGAR: Aug 10, 2023, 16:05 ET
- Period: 2023-06-30
- Accession: 0001104659-23-089776
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/828146/000110465923089776/link-20230630x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/828146/000110465923089776/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $4.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $7.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-04-01 to 2023-06-30 | $2.0m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2023-01-01 to 2023-06-30 | $3.7m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-04-01 to 2023-06-30 | $2.1m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2023-01-01 to 2023-06-30 | $3.6m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-04-01 to 2023-06-30 | $650.0k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2023-01-01 to 2023-06-30 | $1.2m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-04-01 to 2023-06-30 | $1.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2023-01-01 to 2023-06-30 | $2.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | $406.0k | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | $233.0k | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $89.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $171.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | $381.0k | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | $190.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.04 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | $0.00 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.04 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | $0.00 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 6,600,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 6,610,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | −$245.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $32.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 6 months, 2023-01-01 to 2023-06-30 | $177.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-06-30 | $5.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $10.4m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $16.1m | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $2.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-06-30 | $2.2m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-06-30 | $13.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 32,370 characters.

*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, 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 15707 Rockfield Boulevard, Suite 105, 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.

### 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.

*(in thousands, except percentages)*

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Three Months Ended June 30, 2023 $% | ​ | ​ ​ ​ | ​ ​ 2022 $% | ​ | ​ ​ ​ ​ | ​ ​ Six Months Ended June 30, 2023 $% | ​ | ​ ​ ​ | ​ ​ 2022 $% | ​ | ​ ​ |
| --- | --- | --- | --- | ---: | --- | --- | ---: | ---: | --- | ---: | ---: | --- | ---: |
| Revenue, net | ​ | $4,049 | ​ | 100.0% | $2,040 | ​ | 100.0% | $7,327 | ​ | 100.0% | $4,031 | ​ | 100.0% |
| Cost of revenue | ​ | ​ 1,988 | ​ | 49.1% | ​ 1,088 | ​ | 53.3% | 3,679 | ​ | 50.2% | 1,838 | ​ | 45.6% |
| Gross profit | ​ | ​ 2,061 | ​ | 50.9% | ​ 952 | ​ | 46.7% | 3,648 | ​ | 49.8% | 2,193 | ​ | 54.4% |
| Operating expenses: | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ | ​ ​ | ​ | ​ | ​ ​ |
| Engineering, research and development | ​ | ​ 650 | ​ | 16.1% | ​ 330 | ​ | 16.2% | 1,177 | ​ | 16.1% | 593 | ​ | 14.7% |
| Selling, general and administrative | ​ | ​ 1,005 | ​ | 24.8% | ​ 773 | ​ | 37.9% | 2,238 | ​ | 30.5% | 1,733 | ​ | 43.0% |
| Total operating expenses | ​ | ​ 1,655 | ​ | 40.9% | ​ 1,103 | ​ | 54.1% | 3,415 | ​ | 46.6% | 2,326 | ​ | 57.7% |
| Income (loss) from operations | ​ | ​ 406 | ​ | 10.0% | ​ (151) | ​ | (7.4)% | 233 | ​ | 3.2% | (133) | ​ | (3.3)% |
| Other income (expense): | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ | ​ ​ | ​ | ​ | ​ ​ |
| Other income (expense), net | ​ | ​ 64 | ​ | 1.6% | ​ 342 | ​ | 16.8% | 128 | ​ | 1.7% | 497 | ​ | 12.3% |
| Income (loss) before income taxes | ​ | ​ 470 | ​ | 11.6% | ​ 191 | ​ | 9.4% | 361 | ​ | 4.9% | 364 | ​ | 9.0% |
| Income tax expense (benefit) | ​ | ​ 89 | ​ | 2.2% | ​ 79 | ​ | 3.9% | 171 | ​ | 2.3% | 110 | ​ | 2.7% |
| Net income (loss) | ​ | $381 | ​ | 9.4% | $112 | ​ | 5.5% | $190 | ​ | 2.6% | $254 | ​ | 6.3% |

### Comparison of Three Months Ended June 30, 2023 and 2022

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

*(in thousands, except percentages)*

| ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ Three Months Ended June 30, 2023 ​ ​ Amount | ​ ​ | ​ ​ ​ % of ​ Revenue | ​ ​ 2022 ​ ​ Amount | ​ ​ | ​ ​ ​ ​ % of ​ Revenue | ​ ​ ​ ​ ​ ​ $ Change | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ % Change |
| --- | --- | ---: | --- | ---: | ---: | --- | ---: | ---: | --- | ---: |
| Industrial | ​ | $1,227 |  | 30.3% | $967 |  | 47.4% | $260 |  | 26.9% |
| Medical | ​ | 1,690 |  | 41.7% | 541 |  | 26.5% | 1,149 |  | 212.4% |
| Consumer | ​ | 66 |  | 1.6% | 186 |  | 9.1% | (120) |  | (64.5)% |
| Automotive | ​ | ​ — | ​ | —% | ​ 11 | ​ | 0.5% | ​ (11) | ​ | (100.0)% |
| Standard | ​ | 1,066 |  | 26.3% | 335 |  | 16.4% | 731 |  | 218.2% |
| Revenue, net | ​ | $4,049 |  | 100.0% | $2,040 |  | 100.0% | $2,009 |  | 98.5% |

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. Products for the industrial, medical and automotive markets 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 June 30, 2023 compared to the same quarter in 2022 in the industrial and medical markets, and for our standard products, and were down in the consumer and automotive markets. 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 due to sales to new industrial market customers resulting from our acquisitions of SPEC/KWJ and Calman. 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 due to sales to new medical 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.

*(in thousands, except percentages)*

| ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ Three Months Ended June 30, 2023 ​ ​ Amount | ​ ​ ​ ​ ​ % of ​ Revenue | ​ ​ 2022 ​ ​ Amount | ​ ​ ​ ​ ​ % of ​ Revenue | ​ ​ ​ ​ ​ ​ $ Change | ​ ​ ​ ​ ​ ​ ​ ​ % Change |
| --- | --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Gross profit | ​ | $2,061 | 50.9% | $952 | 46.7% | $1,109 | 116.5% |

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 and gross margin percentage during the three months ended June 30, 2023 were up compared to the three months ended June 30, 2022 due primarily to higher revenues (resulting in large part from our acquisitions of SPEC/KWJ and Calman), lower materials and components costs on certain orders, and favorable changes in product and customer mix.

*(in thousands, except percentages)*

| ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ Three Months Ended June 30, 2023 ​ ​ Amount | ​ ​ | ​ ​ ​ % of ​ Revenue | ​ ​ 2022 ​ ​ Amount | ​ ​ | ​ ​ ​ ​ % of ​ Revenue | ​ ​ ​ ​ ​ ​ $ Change | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ % Change |
| --- | --- | ---: | --- | ---: | ---: | --- | ---: | ---: | --- | ---: |
| Engineering, research and development | ​ | $650 | ​ | 16.1% | $330 | ​ | 16.2% | $320 | ​ | 97.0% |

Engineering and R&D expenses consist primarily of compensation expenses for employees engaged in research, design and product development activities, and 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 standard sensor 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 June 30, 2023 were up compared to the three months ended June 30, 2022 in absolute amounts but approximately the same as a percentage of revenue; the increase was due to increased engineering employee headcount following our acquisition of SPEC/KWJ in December 2022, approximately $82,000 of non-cash amortization expense on intangible assets acquired in the SPEC/KWJ acquisition in the current year period, and increased prototyping and product-development activities this year as compared to the prior year.

*(in thousands, except percentages)*

| ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ Three Months Ended June 30, 2023 ​ ​ Amount | ​ ​ ​ ​ ​ % of ​ Revenue | ​ ​ 2022 ​ ​ Amount | ​ ​ ​ ​ ​ ​ % of ​ Revenue | ​ ​ ​ ​ ​ ​ ​ ​ $ Change | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % Change |
| --- | --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Selling, general and administrative | ​ | $1,005 | 24.8% | $773 | 37.9% | $232 | 30.0% |

Selling, general and administrative expenses consist primarily of compensation expenses for employees in the sales, marketing, finance and executive functions, legal and other professional fees, communication expenses and facilities costs. Selling, general and administrative expenses for the three months ended June 30, 2023 were up compared to the three months ended June 30, 2022 due to increased employee headcount following our acquisitions of SPEC/KWJ in December 2022 and Calman in March 2023, and increased legal and other professional fees.

*(in thousands, except percentages)*

| ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Three Months Ended June 30, 2023 ​ ​ Amount | ​ ​ ​ ​ ​ % of ​ Revenue | ​ ​ 2022 ​ ​ Amount | ​ ​ ​ ​ ​ ​ % of ​ Revenue | ​ ​ ​ ​ ​ ​ ​ ​ $ Change | ​ ​ ​ ​ ​ ​ ​ ​ ​ % Change |
| --- | --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Other income (expense), net | ​ | $64 | 1.6% | $342 | 16.8% | $(278) | (81.3)% |

Other income (expense), net 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), net for the three months ended June 30, 2023 was comprised of $27,000 of foreign currency transaction gains, $31,000 of interest income, and $6,000 of other non-operating income, while other income (expense), net for the three months ended June 30, 2022 was comprised of $225,000 of gains on marketable securities, and $117,000 of foreign currency transaction gains.

*(in thousands, except percentages)*

| ​ ​ ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ | ​ ​ Three Months Ended June 30, 2023 ​ ​ ​ ​ ​ ​ Amount | ​ ​ ​ ​ ​ ​ % of ​ ​ Pre-tax ​ ​ Income ​ | ​ ​ 2022 ​ ​ ​ ​ ​ ​ Amount | ​ ​ ​ ​ ​ ​ ​ % of ​ ​ Pre-tax ​ ​ Income ​ | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ Change | ​ ​ ​ ​ ​ ​ ​ Change ​ in % of ​ ​ Pre-tax ​ ​ Income |
| --- | --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Income tax expense | ​ | $89 | 18.9% | $79 | 41.4% | $10 | (22.4)% |

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 earnings and losses in the jurisdictions in which we operate, including our current limitation on realizing tax benefits on domestic losses due to the valuation allowance on our domestic net operating loss carryforward. Based on the expected mix of domestic and foreign earnings and losses, we anticipate our effective tax rate to generally remain higher than the U.S. statutory rate of 21% primarily due to a significant portion of our consolidating earnings being recorded in the jurisdictions of China (25% tax rate) and the United Kingdom (25% tax rate), and to a lesser extent in Singapore (17% tax rate), and Hong Kong (21% tax rate), while our domestic losses do not benefit our effective tax rate due to the valuation allowance. 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.

### Comparison of Six Months Ended June 30, 2023 and 2022

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

*(in thousands, except percentages)*

| ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ Six Months Ended June 30, 2023 ​ Amount | ​ ​ | ​ ​ ​ % of Revenue ​ | ​ ​ 2022 ​ Amount | ​ ​ | ​ ​ ​ ​ % of Revenue ​ | ​ ​ ​ ​ ​ $ Change | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ % Change ​ ​ |
| --- | --- | ---: | --- | ---: | ---: | --- | ---: | ---: | --- | ---: |
| Industrial | ​ | $2,185 |  | 29.8% | $1,583 |  | 39.3% | $602 |  | 38.0% |
| Medical | ​ | 3,040 |  | 41.5% | 1,326 |  | 32.9% | 1,714 |  | 129.3% |
| Consumer | ​ | 294 |  | 4.0% | 456 |  | 11.3% | (162) |  | (35.5)% |
| Automotive | ​ | ​ — | ​ | —% | ​ 14 | ​ | 0.3% | ​ (14) | ​ | (100.0)% |
| Standard | ​ | 1,808 |  | 24.7% | 652 |  | 16.2% | 1,156 |  | 177.3% |
| Revenue, net | ​ | $7,327 |  | 100.0% | $4,031 |  | 100.0% | $3,296 |  | 81.8% |

Revenues were up in the six months ended June 30, 2023 compared to the first half of 2022 in the industrial, and medical markets, and for our standard products, and were down in the consumer and automotive markets. 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 due to sales to new industrial market customers resulting from our acquisitions of SPEC/KWJ and Calman. 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 due to sales to new medical 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.

*(in thousands, except percentages)*

| ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ Six Months Ended June 30, 2023 ​ ​ Amount | ​ ​ ​ ​ % of ​ Revenue ​ | ​ ​ 2022 ​ ​ Amount | ​ ​ ​ ​ ​ % of ​ Revenue ​ | ​ ​ ​ ​ ​ ​ ​ ​ $ Change | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % Change ​ ​ |
| --- | --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Gross profit | ​ | $3,648 | 49.8% | $2,193 | 54.4% | $1,455 | 66.3% |

Gross profit during the six months ended June 30, 2023 was up compared to the six months ended June 30, 2022 due to higher revenues (resulting in large part from our acquisitions of SPEC/KWJ and Calman), while gross margin percentage was down due to higher materials and components costs on certain orders and unfavorable changes in product and customer mix.

*(in thousands, except percentages)*

| ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ Six Months Ended June 30, 2023 ​ Amount | ​ ​ ​ ​ % of ​ Revenue ​ | ​ ​ 2022 ​ Amount | ​ ​ ​ ​ ​ % of ​ Revenue ​ | ​ ​ ​ ​ ​ ​ ​ ​ $ Change | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % Change ​ ​ |
| --- | --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Engineering, research and development | ​ | $1,177 | 16.1% | $593 | 14.7% | $584 | 98.5% |

Engineering and R&D costs for the six months ended June 30, 2023 were up compared to the six months ended June 30, 2022 due to increased engineering employee headcount following our acquisition of SPEC/KWJ in December 2022, approximately $82,000 of non-cash amortization expense on intangible assets acquired in the SPEC/KWJ acquisition in the current year period, and increased prototyping and product-development activities this year as compared to the prior year.

*(in thousands, except percentages)*

| ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ Six Months Ended June 30, 2023 ​ Amount | ​ ​ ​ ​ % of ​ Revenue ​ | ​ ​ 2022 ​ Amount | ​ ​ ​ ​ ​ % of ​ Revenue ​ | ​ ​ ​ ​ ​ $ Change | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % Change ​ ​ |
| --- | --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Selling, general and administrative | ​ | $2,238 | 30.5% | $1,733 | 43.0% | $505 | 29.1% |

Selling, general and administrative expenses for the six months ended June 30, 2023 were up compared to the six months ended June 30, 2022 due to increased employee headcount following our acquisitions of SPEC/KWJ in December 2022 and Calman in March 2023, and increased legal and other professional fees.

*(in thousands, except percentages)*

| ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Six Months Ended June 30, 2023 ​ ​ Amount | ​ ​ ​ ​ ​ % of ​ Revenue | ​ ​ 2022 ​ ​ Amount | ​ ​ ​ ​ ​ ​ % of ​ Revenue | ​ ​ ​ ​ ​ ​ ​ ​ $ Change | ​ ​ ​ ​ ​ ​ ​ ​ ​ % Change |
| --- | --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Other income (expense), net | ​ | $128 | 1.7% | $497 | 12.3% | $(369) | (74.2)% |

Other income (expense), net for the six months ended June 30, 2023 was comprised of $24,000 of foreign currency transaction gains, and $98,000 of interest income, and $6,000 of other non-operating income, while other income (expense), net for the six months ended June 30, 2022 was comprised of $381,000 of gains on marketable securities, $115,000 of foreign currency transaction gains, and $1,000 of other non-operating income.

*(in thousands, except percentages)*

| ​ ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ Six Months Ended June 30, 2023 ​ ​ ​ Amount | ​ ​ ​ ​ % of ​ Pre-tax ​ ​ Income ​ | ​ ​ 2022 ​ ​ ​ Amount | ​ ​ ​ ​ ​ % of ​ Pre-tax ​ ​ Income ​ | ​ ​ ​ ​ ​ ​ ​ ​ ​ $ Change | ​ ​ ​ ​ ​ ​ Change in % of ​ Pre-tax ​ ​ Income |
| --- | --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Income tax expense | ​ | $171 | 47.4% | $110 | 30.2% | $61 | 17.1% |

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 earnings and losses in the jurisdictions in which we operate, including our current limitation on realizing tax benefits on domestic losses due to the valuation allowance on our domestic net operating loss carryforward.

### 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 June 30, 2023, we had cash and cash equivalents of $5.1 million, working capital of $8.3 million and no indebtedness. Cash and cash equivalents consist of cash and money market funds. Of our $5.1 million of cash, $1.3 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. We pay, when, as and if declared by our board of directors, monthly cumulative cash dividends on the Preferred Stock 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 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:

*(in thousands)*

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Six Months Ended June 30, 2023 | ​ | ​ ​ 2022 |
| --- | --- | ---: | --- | ---: |
| Net cash provided by (used in) operating activities | ​ | $(245) | ​ | $28 |
| Net cash (used in) investing activities | ​ | (4,310) | ​ | (6,036) |
| Net cash (used in) financing activities | ​ | (377) | ​ | (200) |

#### Net Cash Provided By (Used In) Operating Activities

For the six months ended June 30, 2023, the $245,000 of cash used in operating activities was attributable to net income of $190,000, adjusted for non-cash charges of $194,000 and offset by cash used in changes in operating assets and liabilities of $629,000.

Accounts receivable increased from $1.2 million at December 31, 2022 to $2.1 million at June 30, 2023 due to higher shipments during the second quarter of 2023 compared to the second 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 are generally related to the most recent shipments. Inventories increased from $2.1 million at December 31, 2022 to $2.9 million at June 30, 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 decreased from $321,000 at December 31, 2022 to $252,000 at June 30, 2023 due primarily to the receipt of the amount 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 $1,566,000 at June 30, 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 to the addition of Calman’s accounts payable and accrued liabilities to our consolidated balances.

For the six months ended June 30, 2022, the $28,000 of cash provided by operating activities was attributable to net income of $254,000, adjusted for non-cash charges of $126,000 and unrealized gains on marketable securities of $381,000 and cash provided by changes in operating assets and liabilities of $29,000.

#### Net Cash Used In Investing Activities

Net cash used in investing activities of $4.3 million for the six months ended June 30, 2023 consisted of $4.3 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 $6.0 million for the six months ended June 30, 2022 consisted of purchases of $6.0 million of marketable securities and $9,000 of property, plant, and equipment.

#### Net Used In Financing Activities

Net cash used in financing activities of $377,000 for the six months ended June 30, 2023 consisted of $177,000 used for repurchases of 19,403 shares of common stock and $200,000 used for payments of dividends on our Preferred Stock. Net cash used in financing activities of $200,000 for the six months ended June 30, 2022 was for payments of dividends on our Preferred Stock.

### Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

## Controls and procedures

As filed, 3,692 characters.

### 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 June 30, 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 June 30, 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 June 30, 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.

## Risk factors

As filed, 549 characters.

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 June 30, 2023.

Filed Aug 10, 2023.
Source: SEC EDGAR, the filing index for accession 0001104659-23-089776. Last ingested by Listed: Oct 24, 2026, 14:57 ET. No prices; not investment advice.