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 September 30, 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 (Zip Code)
executive offices)
(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 November 5, 1999: 5,389,891
1
INTERLINK ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
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September 30, December 31,
Assets 1999 1998
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(Unaudited)
Current assets:
Cash and cash equivalents $ 6,619 $ 3,900
Accounts receivable, less allowance for doubtful
accounts of $628 and $462 in 1999 and 1998, respectively 6,616 6,758
Inventories 6,954 6,796
Prepaid expenses and other current assets 907 174
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Total current assets 21,096 17,628
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Property and equipment, net 1,217 1,561
Patents and trademarks, less accumulated
amortization of $714 and $640
in 1999 and 1998, respectively 203 277
Other assets 137 111
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Total assets $ 22,653 $ 19,577
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Liabilities and Stockholders' Equity
Current liabilities:
Bank line of credit $ - $ 132
Current maturities of long-term debt
and capital lease obligations 379 498
Accounts payable 2,018 2,220
Accrued payroll and expenses 2,272 639
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Total current liabilities 4,669 3,489
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Long term debt, net of current portion 1,439 1,074
Capital lease obligations, net of current portion 202 349
Commitments and contingencies - -
Stockholders' equity:
Common stock (40,000 shares authorized
5,373 and 5,216 outstanding at September 30, 1999
and December 31, 1998, respectively) 25,144 24,694
Accumulated other comprehensive income (18) 216
Accumulated deficit (8,783) (10,245)
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Total stockholders' equity 16,343 14,665
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Total liabilities and stockholders' equity $ 22,653 $ 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 Nine Month Period
Ended September 30, Ended September 30,
1999 1998 1999 1998
-------- --------- --------- ---------
Revenues $ 7,207 $ 5,231 $ 20,668 $ 15,739
Cost of revenues 4,573 3,307 12,967 9,851
-------- --------- --------- ---------
Gross profit 2,634 1,924 7,701 5,888
Operating expense:
Product development and research 543 403 1,629 1,207
Selling, general and administrative 1,431 1,264 4,373 4,193
-------- --------- --------- ---------
Total operating expense 1,974 1,667 6,002 5,400
-------- --------- --------- ---------
Operating income 660 257 1,699 488
-------- --------- --------- ---------
Other income (expense):
Interest income (expense) (9) (18) 47 (24)
Income taxes (105) - (252) -
Other expense - (375) (32) (415)
-------- ---------- --------- ----------
Total other expense (114) (393) (237) (439)
-------- --------- --------- ----------
Net income $ 546 $ (136) $ 1,462 $ 49
======== ========= ========= =========
Earnings per share - basic $ .10 $ .03 $ .28 $ .01
======== ========= ========= =========
Earnings per share - diluted $ .08 $ .03 $ .23 $ .01
======== ========= ========= =========
Weighted average shares - basic 5,341 5,215 5,261 5,211
======== ========= ========= =========
Weighted average shares - diluted 6,821 5,215 6,481 5,211
======== ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements.
3
INTERLINK ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
- --------------------------------------------------------------------------------
Nine Month Period
Ended September 30,
-------------------
Cash flows from operating activities: 1999 1998
------- -------
Net income $ 1,462 $ 49
Adjustments to reconcile net income to net cash
used for operating activities:
Provisions for bad debts 166 45
Depreciation and amortization 583 472
Changes in operating assets and liabilities:
Accounts receivable (24) 371
Inventories (158) (1,899)
Prepaid expenses and other current assets (733) (113)
Other assets (26) 40
Accounts payable (202) (125)
Accrued payroll and expenses 1,633 47
------- -------
Net cash provided by (used for) operating activities 2,701 (1,113)
Cash flows from investing activities:
Purchases of property and equipment (165) (308)
------- -------
Net cash used for investing activities (165) (308)
Cash flows from financing activities:
Borrowings on credit line - 548
Payments on credit line (132) (804)
Borrowings on notes payable to bank 556 796
Principal payments on notes payable to bank (191) (52)
Proceeds from sale/leaseback - 332
Principal payments on capital lease obligations (266) (415)
Proceeds from issuance of common stock, net 450 62
------- -------
Net cash provided by financing activities 417 467
------- -------
Effect of exchange rate changes on cash (234) 191
------- -------
Increase (decrease) in cash and cash equivalents 2,719 (763)
Cash and cash equivalents
at beginning of period 3,900 4,176
------- -------
Cash and cash equivalents
at end of period $ 6,619 $ 3,413
======= =======
Supplemental disclosures of cash flow information:
Interest paid $ 81 $ 89
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 NINE MONTHS ENDED SEPTEMBER 30, 1999
- ------------------------------------------------------
1. Basis of Presentation of Interim Financial Data
The financial information herein for the three month and nine month periods
ended September 30, 1999 and 1998 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 $ 216 -
Translation adjustment (234) $ (234)
Net income - 1,462
----------------- -----------------
Balance at September 30, 1999 $ (18) $ 1,228
================= =================
5
INTERLINK ELECTRONICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
For the three and nine month periods ended September 30, 1999, revenues grew 38%
and 31%, respectively as compared to the same periods of 1998. This revenue
growth is a result of the Company's focus on developing and marketing computer
pointing devices based on the Company's patented technologies, primarily in the
computerized presentation projector market. 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 was 37% for both the third quarter of
1999 and 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 8% of revenues for the third
quarter of 1999, as compared to 8% for the same period in 1998, as the Company
continues to develop products based on its proprietary VersaPoint, VersaPad 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 third quarter ending September 30, 1999, selling, general and
administrative costs (SG&A) declined to 20% of revenues, as compared to 24% for
the same period of 1998. The decrease resulted from the leveraging of fixed SG&A
costs over a higher sales base and the greater mix of OEM sales which carry a
relatively lower SG&A requirement.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, working capital totaled $16.3 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, additional bank debt and proceeds
from the exercise of employee stock options.
For the nine months ended September 30, 1999, operations generated $2.7 million
in cash due primarily to positive results from operations and improved accounts
receivable management.
For the first nine months of 1999, investing activities consisted of the
purchase of production equipment.
For the nine months ended September 30, 1999, financing activities primarily
consisted of borrowings from Japanese banks, partially offset by the repayment
of capital lease and other debt obligations. Additional cash inflows were
derived from the exercise of employee stock options.
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.
6
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.
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. To date, the Company has not received
notice of or become aware of any material Year 2000 deficiency by a significant
vendor, financial institution or customer.
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, foreign currency exchange risk, year 2000
compliance 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.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
27 Financial Data Schedule
b) Reports on From 8-K
7
No Reports on Form 8-K have been 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 November 15, 1999.
INTERLINK ELECTRONICS, INC.
(Registrant)
PAUL D. MEYER
- -------------
Paul D. Meyer
Chief Financial Officer