SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 0-21808
INTERLINK ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0056625
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
546 Flynn Road
Camarillo, California 93012
(Address of principal executive offices) (Zip Code)
(805) 484-8855
(Registrant's telephone number, including area code)
Not applicable.
(Former name, former address and former fiscal year
if changed since last report.)
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 [ X ] No [ ]
Shares of Common Stock Outstanding, at April 19, 1999: 5,226,813
INTERLINK ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------
March 31, December 31,
Assets 1999 1998
----------- -----------
(Unaudited)
Current assets:
Cash and cash equivalents $ 4,516 $ 3,900
Accounts receivable, less allowance for doubtful
accounts of $515 and $462 in 1999 and 1998, respectively 6,437 6,758
Inventories 7,307 6,796
Prepaid expenses and other current assets 285 174
----------- -----------
Total current assets 18,545 17,628
----------- -----------
Property and equipment, net 1,431 1,561
Patents and trademarks, less accumulated
amortization of $664 and $640
in 1999 and 1998, respectively 253 277
Other assets 117 111
----------- -----------
Total assets $ 20,346 $ 19,577
=========== ===========
Liabilities and Stockholders' Equity Current liabilities:
Bank line of credit $ 126 $ 132
Current maturities of long-term debt
and capital lease obligations 456 498
Accounts payable 2,200 2,220
Accrued payroll and expenses 895 639
----------- -----------
Total current liabilities 3,677 3,489
----------- -----------
Long term debt, net of current portion 1,385 1,074
Capital lease obligations, net of current portion 291 349
Commitments and contingencies - -
Stockholders' equity:
Common stock (40,000 shares authorized
5,219 and 5,216 outstanding at March 31, 1999
and December 31, 1998, respectively) 24,695 24,694
Accumulated other comprehensive income 135 216
Accumulated deficit (9,837) (10,245)
----------- -----------
Total stockholders' equity 14,993 14,665
----------- -----------
Total liabilities and stockholders' equity $ 20,346 $ 19,577
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
2
INTERLINK ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
- ------------------------------------------------------------------------------------------
Three Month Period
Ended March 31,
---------------------
1999 1998
-------- --------
Revenues $ 6,503 $ 5,157
Cost of revenues 4,107 3,248
-------- --------
Gross profit 2,396 1,909
Operating expense:
Product development and research 483 356
Selling, general and administrative 1,448 1,488
-------- --------
Total operating expense 1,931 1,844
-------- --------
Operating income 465 65
-------- --------
Other income (expense):
Taxes and interest (57) (30)
Other income - 15
-------- --------
Total other income (expense) (57) (15)
-------- --------
Net income $ 408 $ 50
======== ========
Earnings per share - basic $ .08 $ .01
Earnings per share - diluted $ .07 $ .01
Weighted average shares - basic 5,219 5,012
Weighted average shares - diluted 6,132 5,207
The accompanying notes are an integral part of these consolidated financial
statements.
3
INTERLINK ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------
Three Month Period
Ended March 31,
---------------------
1999 1998
-------- --------
Net income $ 408 $ 50
Adjustments to reconcile net income to net cash
used for operating activities:
Provisions for bad debts 53 9
Depreciation and amortization 198 157
Changes in operating assets and liabilities:
Accounts receivable 268 (702)
Inventories (511) (674)
Prepaid expenses and other current assets (111) 243
Other assets (6) 33
Accounts payable (20) (241)
Accrued payroll and expenses 256 (20)
-------- --------
Net cash provided by/used for operating activities 535 (1,145)
Cash flows from investing activities:
Purchases of property and equipment (44) (399)
-------- --------
Net cash used for investing activities (44) (399)
Cash flows from financing activities:
Borrowings on bank line of credit - 228
Payments on bank line of credit (6) (6)
Borrowings on note payable 413 -
Payments on note payable (102) (19)
Proceeds from sale/leaseback - -
Principal payments on capital lease obligations (100) (107)
Proceeds from issuance of common stock, net 1 32
-------- --------
Net cash provided by financing activities 206 128
Effect of exchange rate changes on cash (81) -
-------- --------
Increase (decrease) in cash and cash equivalents 616 (1,416)
Cash and cash equivalents:
at beginning of period 3,900 4,176
-------- --------
at end of period $ 4,516 $ 2,760
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 12 $ 30
Income taxes paid $ 1 $ 1
The accompanying notes are an integral part of these consolidated financial
statements.
4
INTERLINK ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE UNAUDITED THREE MONTHS ENDED MARCH 31, 1999
- --------------------------------------------------------------------------------
1. Basis of Presentation of Interim Financial Data
The financial information herein for the three month periods ended March 31,
1998 and 1999 is unaudited; however, such information reflects all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of results for the interim
periods. The interim statements should be read in conjunction with the financial
statements and the notes thereto included in the Interlink Electronics, Inc.
Form 10-K for the fiscal year ended December 31, 1998.
The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.
2. Comprehensive Income
The following table provides the data required to calculate comprehensive
income:
(In Thousands)
----------------------------------------
Accumulated Other
Comprehensive Comprehensive
Income Income
----------------- -------------
Balance at December 31, 1998
Translation adjustment $ 216 $ (81)
Net Income (81) 408
------ ------
Balance at March 31, 1999 $ 135 $ 327
====== ======
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INTERLINK ELECTRONICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
For the three-month period ended March 31, 1999, revenues grew 26% as compared
to the same period of 1998. This revenue growth is a result of the Company's
focus on developing and marketing the computer pointing device product line
based on the Company's patented technologies, primarily in the computerized
presentation projector market. Revenues from this product line grew to $6.0
million in 1999 from $4.6 million in the first quarter of 1998. The Company has
established relationships with most of the major Original Equipment
Manufacturers (OEM's) in the computerized presentation projector market and
currently derives approximately two-thirds of its revenue from that market. Many
of these OEM's reside in Japan (however the majority of the end-user customer
base is in the United States) and accordingly approximately 50% of the Company's
revenues come from Japanese customers. As result the Company is subject to
foreign currency exchange rate fluctuations, primarily yen/dollar.
As a percent of revenues, gross profit remained at 37% for the first quarter of
1999 as compared to the same period of 1998. The Company expects gross profit
percentages to vary slightly from the current level depending on the mix of high
volume OEM business versus low volume OEM business or non OEM business.
Product development and research expenses were 7% of revenues for the first
quarter of 1999, as compared to 7% for the same period in 1998 as the Company
continues to develop products based on its proprietary VersaPoint and RemoteLink
Technologies. Given the industries the Company participates in, management
expects research and development costs, as a percent of revenues, to remain at
or near the current level.
For the three months ended March 31, 1999, selling, general and administrative
costs (S,G&A) declined to 22% of revenues, as compared to 29% for the same
period of 1998. The decrease resulted from the leveraging of fixed S,G&A costs
over a higher sales base and the greater mix of OEM sales which carry a
relatively lower S,G&A requirement.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, working capital totaled $14.9 million as compared to $14.1
million at December 31, 1998. This increase is primarily a result of the
Company's positive results from operations and additional bank debt.
For the three months ended March 31, 1999, operations generated $500,000 in cash
due primarily to positive results from operations. As the Company is seeking
customers in the computer retail industry and in Japan, both areas known for
extended payment policies, operations may be a net user of cash, despite
profitable results, in future periods.
For the first three months of 1999, investing activities consisted of the
purchase of production equipment.
For the three months ended March 31, 1999, financing activities constituted,
primarily, borrowings from Japanese banks partially offset by the repayment of
capital lease and other debt obligations.
6
Year 2000 Issues
The Company has assessed the Year 2000 compliance of each of the products it
currently manufactures and sells. The Company believes each of those products
and their component parts is Year 2000 compliant.
The Company has assessed the sensitivity of its internal manufacturing control,
accounting and information management systems and determined that a majority of
its systems have no material Year 2000 deficiencies. The Company has developed
and is implementing a strategy to identify and eliminate any remaining system
deficiencies. The Company believes that the total cost of eliminating such
deficiencies will not exceed $100,000. Completion of this program is expected by
mid-1999.
In the fourth quarter of 1998 the Company requested each of its suppliers of
critical parts and services to provide information to the Company about the
entity's anticipated Year 2000 compliance. Until that information is received,
the Company cannot complete that phase of the Company's Year 2000 assessment. In
1999 the Company expects to complete plans for risk management and any
contingency plans determined to be necessary.
At this time, the Company believes costs incurred in responding to other
parties' Year 2000 computer system deficiencies, together with the cost of any
required modifications to the Company's ancillary systems, will not have a
material impact on the Company's results of operations or financial condition.
This analysis may be modified as the Company receives responses from its parts
and services suppliers. Deficiencies not cured could severely impact the
Company's ability to meet the above cost estimate, timeline and its ability to
operate efficiently beyond January 1, 2000.
In its analysis, the Company has assumed that basic public utilities such as
gas, electric and telephone services will continue to be available for
operations of the Company on and after January 1, 2000. If this assumption
proves incorrect, the operations of the affected location would be materially
adversely affected for the duration of the interruption.
FORWARD LOOKING STATEMENTS
From time to time the Company may issue forward-looking statements that involve
a number of risks and uncertainties. The following are among the factors that
could cause actual results to differ materially from the forward-looking
statements: business conditions and growth in the electronics industry and
general economies, both domestic and international; lower than expected customer
orders, delays in receipt of orders or cancellation of orders; competitive
factors, including increased competition, new product offerings by competitors
and price pressures; the availability of third party parts and supplies at
reasonable prices; changes in product mix; significant quarterly performance
fluctuations due to the receipt of a significant portion of customer orders and
product shipments in the last month of each quarter; and product shipment
interruptions due to manufacturing problems. The forward looking statements
contained in this document regarding industry trends, revenue and product mix,
costs and gross profit expectations, product development costs, operating
expense improvements, cash flow and future business activities should be
considered in light of these factors.
Foreign Currency Exchange Risk
The Company enters into foreign exchange forward contracts to hedge certain
revenue exposures against future movements in foreign exchange rates. Gains and
losses on the forward contracts are largely offset by gains and losses on the
underlying exposure and consequently a sudden or significant change in foreign
exchange rates would not have a material impact on future net income or cash
flows.
7
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period for which this
report is filed.
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on May 3, 1999.
INTERLINK ELECTRONICS, INC.
(Registrant)
PAUL D. MEYER
- ----------------------------------
Paul D. Meyer
Chief Financial Officer
8