UNITED STATES
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, 2002
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. 0-21858
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 23, 2002: 9,758,872
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INTERLINK ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUES)
---------------------------------------------------------------------------------------------------------------
December 31, March 31,
2001 2002
-------------- --------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 6,868 $ 8,125
Marketable securities 2,457 --
Accounts receivable, less allowance for doubtful accounts
of $914 and $913 at December 31, 2001 and March 31, 2002, respectively 5,493 5,160
Inventories 8,502 9,090
Prepaid expenses and other current assets 426 463
--------- ---------
Total current assets 23,746 22,838
--------- ---------
Property and equipment, net 1,393 1,252
Deferred tax asset 1,301 1,301
Patents and trademarks, less accumulated amortization
of $981 and $1,010 at December 31, 2001 and March 31, 2002, respectively 114 100
Other assets 87 138
--------- ---------
Total assets $ 26,641 $ 25,629
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt and capital lease obligations $ 1,923 $ 1,900
Accounts payable 1,679 1,122
Accrued payroll and related expenses 609 649
Other accrued expenses 202 279
--------- ---------
Total current liabilities 4,413 3,950
--------- ---------
Long-term debt, net of current portion 1,855 1,786
Minority interest 68 68
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, $5.00 par value (100 shares authorized,
none issued and outstanding) - -
Common stock, $0.00001 par value (50,000 shares authorized,
9,759 and 9,759 shares outstanding at December 31, 2001 and
March 31, 2002, respectively) 29,029 29,029
Due from stockholders (838) (838)
Accumulated other comprehensive income (loss) (843) (924)
Accumulated deficit (7,043) (7,442)
--------- ---------
Total stockholders' equity 20,305 19,825
--------- ---------
Total liabilities and stockholders' equity $ 26,641 $ 25,629
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
2
INTERLINK ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
-------------------------------------------------------------------------------------------------------------
Three Month Period
Ended March 31,
--------------------------
(Unaudited)
2001 2002
--------- ---------
Revenues $ 7,389 $ 5,409
Cost of revenues 4,117 3,142
--------- ---------
Gross profit 3,272 2,267
Operating expense:
Product development and research 844 865
Selling, general and administrative 1,999 1,841
--------- ---------
Total operating expense 2,843 2,706
--------- ---------
Operating income (loss) 429 (439)
--------- ---------
Other income (expense):
Minority interest (12) -
Interest income, net 59 19
Other income 63 21
--------- ---------
Total other income (expense) 110 40
--------- ---------
Income (loss) before provision (benefit) for income taxes 539 (399)
--------- ---------
Provision (benefit) for income taxes (194) -
--------- ---------
Net income (loss) $ 733 $ (399)
========= ==========
Earnings (loss) per share - basic $ 0.08 $ (0.04)
Earnings (loss) per share - diluted $ 0.07 $ (0.04)
Weighted average shares - basic 9,409 9,759
Weighted average shares - diluted 10,875 9,759
The accompanying notes are an integral part of these consolidated financial
statements.
3
INTERLINK ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
-------------------------------------------------------------------------------------------------------------
Three Month Period
Ended March 31,
--------------------------
(Unaudited)
Cash flows from operating activities: 2001 2002
--------- ---------
Net income (loss) $ 733 $ (399)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Provision for bad debt 10 -
Depreciation and amortization 182 215
Minority interest 12 -
Deferred tax asset (300) -
Changes in operating assets and liabilities:
Accounts receivable 572 333
Inventories 51 (588)
Prepaid expenses and other current assets 281 (37)
Other assets 17 (51)
Accounts payable (876) (557)
Accrued payroll and expenses (167) 117
--------- ---------
Net cash provided by (used in) operating activities 515 (967)
--------- ---------
Cash flows from investing activities:
Sales of marketable securities - 2,457
Purchases of property and equipment (205) (45)
Costs of patents and trademarks - (15)
--------- ---------
Net cash provided by (used in) investing activities (205) 2,397
--------- ---------
Cash flows from financing activities:
Principal payments on long-term debt (732) (92)
Principal payments on capital lease obligations (35) -
Proceeds from issuance of common stock, net 699 -
--------- ---------
Net cash used in financing activities (68) (92)
--------- ---------
Effect of exchange rate changes on cash (580) (81)
--------- ---------
Increase (decrease) in cash and cash equivalents (338) 1,257
Cash and cash equivalents:
Beginning of period 10,506 6,868
--------- ---------
End of period $ 10,168 $ 8,125
========= =========
Supplemental disclosures of cash flow information:
Interest paid $ 32 $ 15
Income taxes paid $ 2 $ 1
The accompanying notes are an integral part of these consolidated financial
statements.
4
INTERLINK ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED)
------------------------------------------------
1. Basis of Presentation of Interim Financial Data
The financial information as of March 31, 2002 and for the three month periods
ended March 31, 2001 and 2002 included in this report 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 related notes
included in our Annual Report on Form 10-K for the fiscal year ended December
31, 2001.
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 (Loss)
The following table provides the data required to calculate comprehensive income
(loss):
(In Thousands)
----------------------------------------
Accumulated Other
Comprehensive Comprehensive
Income (Loss) Income (Loss)
------------ ------------
Balance at December 31, 2000 $ (168)
Translation adjustment (580) $ (580)
Net income - 733
------- ---------
Balance at March 31, 2001 $ (748) $ 153
======== =========
Balance at December 31, 2001 $ (843)
Translation adjustment (81) $ (81)
Net loss - (399)
------- ---------
Balance at March 31, 2002 $ (924) $ (480)
======== =========
5
3. Segment Information
The Company has four business segments: (i) business communications (ii) home
entertainment, (iii) e-transactions and (iv) specialty components. The
accounting policies of the segments are the same as those described in the
significant accounting policies; however, the Company evaluates performance
based on revenue and gross profit. The Company does not allocate any other
income, expenses or assets to these segments. Reportable segment information for
the three months ended March 31, 2001 and 2002 is as follows (in thousands):
Specialty
---------
Business Home E- Components
-------- ---- -- ----------
Three Months Ended: Communications Entertainment Transactions and Other Total
------------------- -------------- ------------- ------------ --------- -----
March 31, 2001
Revenue ............ $5,129 $255 $150 $1,855 $7,389
Gross profit ....... 1,949 112 75 1,136 3,272
March 31, 2002
Revenue ............ $3,144 $898 $270 $1,097 $5,409
Gross profit ....... 1,136 404 175 552 2,267
4. Earnings Per Share
For all periods presented, per share information was computed pursuant
to provisions of SFAS No. 128 "Earnings Per Share." The computation of earnings
per share--basic is based upon the weighted average number of common shares
outstanding during the periods presented. Earnings per share--diluted also
includes the effect of common shares contingently issuable from options and
warrants (in periods which they have a dilutive effect).
Common stock equivalents are calculated using the treasury stock
method. Under the treasury stock method, the proceeds from the assumed
conversion of options and warrants are used to repurchase outstanding shares,
using a yearly average market price.
The following table contains information necessary to calculate
earnings per share (in thousands):
Three Months Ended March 31,
----------------------------
2001 2002
-------- --------
Weighted average shares outstanding - basic .................... 9,409 9,759
Effect of dilutive securities; options and warrants ............ 1,466/(1)/ -/(2)/
-------- --------
Weighted average shares--diluted ............................... 10,875 9,759
======== =========
_____________
(1) For the three months ended March 31, 2001, 672,000 options were
excluded from the calculation of weighted average shares-diluted
as their exercise prices were higher than the average stock price
($8.54) for the period.
(2) Due to the net loss, the diluted share calculation result was
anti-dilutive. Thus, the basic weighted average shares were used.
5. Inventories
Inventories consisted of the following (in thousands):
December 31, March 31,
2001 2002
------------ ---------
Raw material ................ $ 3,218 $ 3,682
Work in process ............. 351 344
Finished goods .............. 4,933 5,065
----------- ---------
Total inventories ........... $ 8,502 $ 9,091
=========== =========
6. Lines of Credit
We renegotiated the terms of our $5,000,000 domestic revolving line of credit
(unused at March 31, 2002) and our $1 million equipment purchases line of credit
($354,000 used at March 31, 2002). All financial covenants have been removed and
any future borrowings will be secured by cash and investments held at the bank.
The new agreements will expire on June 1, 2003.
7. Recent Pronouncements
In April 2002, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 145 "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" which among other things provide guidance in reporting gains and
losses from extinguishments of debt and accounting for leases. We will adopt
this statement in 2003 and are currently reviewing this statement to determine
its impact, however we do not expect the adoption of this standard to have a
material impact on our financial position and its result of operations.
6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Disclosure Regarding Forward Looking Statements
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, that involve
substantial risks and uncertainties and which are intended to be covered by the
safe harbors created thereby. These statements can be identified by the fact
that they do not relate strictly to historical information and may include the
words "expects", "believes", "anticipates", "plans", "may", "will", "intends",
"estimates", "continue" or other similar expressions. These forward-looking
statements are subject to various risks and uncertainties that could cause
actual results to differ materially from those currently anticipated. These
risks and uncertainties include, but are not limited to, items discussed in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001
under the heading "Forward-looking Statements", "Historical Factors Affecting
Financial Performance" and "2001 Overview". Forward-looking statements speak
only as of the date made. We undertake no obligation to publicly release or
update forward-looking statements, whether as a result of new information,
future events or otherwise.
Historical Factors Affecting Financial Performance
We were incorporated in California in February 1985 and reincorporated in
Delaware in July 1996. From 1985 to 1992, we developed and refined our Force
Sensing Resistor, or FSR, technology and sold it to customers for use in
electronic, musical, medical and other applications, which we now refer to as
the specialty components market. In 1992, we introduced our first
Interlink-branded computer-pointing device, PortaPoint, and in 1994, we
introduced our first wireless pointing device. The device, called RemotePoint,
established Interlink as a leading supplier of branded and OEM remote controls
and other products for the computerized presentation system market, which we
refer to as the business communication market. In 1999, we introduced an
electronic signature capture product, ePad, for sales to customers in the
e-transactions market. In 2000, we first demonstrated IntuiTouch technology,
which we intended to sell to customers in the home entertainment market.
Critical Accounting Policies
Material accounting policies that we believe are the most critical to an
investor's understanding of our financial results and condition and require
complex management judgment are discussed below.
Revenue Recognition. We recognize revenue in accordance with SEC Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB
101), as amended by SAB 101A and 101B. SAB 101 requires that four basic criteria
must be met before revenue can be recognized: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred or services rendered; (3) the fee
is fixed and determinable; and (4) collectibility is reasonably assured.
Determination of criteria (3) and (4) require management's judgments regarding
the fixed nature of the fee charged for services rendered and products delivered
and the collectibility
7
of those fees. Should changes in conditions cause management to determine these
criteria are not met for certain future transactions, revenue recognized for any
reporting period could be adversely affected.
Accounts Receivable. We account receivables are unsecured, and the Company is at
risk to the extent such amounts become uncollectible. The Company continually
monitors account receivable balances, and provides for an allowance of doubtful
accounts at the time collection may become questionable based on payment history
or age of the receivable and other factors related to the customers ability to
pay.
Provision for Income Tax. We first achieved profitable operations in 1995.
Because of net operating loss carryforwards available both for our U.S.-based
and Japan-based operations, we did not accrue income tax expense until 1999. In
that year, due to the expiration or full utilization of NOL carryforwards in
California and Japan, we began to record a provision for income tax expense in
those jurisdictions. By the end of 2000, we also began to accrue an income tax
benefit related to our federal NOL carryforwards to be used in future periods.
However, in mid-2001, we began to record quarterly tax losses and suspended any
further recognition of NOL carryforward tax benefits. Management believes we
will be able to utilize the deferred tax asset; however, if we do not return to
quarterly profitability by the end of 2002, it is likely that we will eliminate
this asset ($1.3 million) by recording a tax expense.
Inventory and Bad Debt Reserves. In response to the economic slowdown in
mid-2001, we streamlined our operations and increased our inventory and bad debt
reserves by $2 million and $300,000 respectively. We believe these estimates of
potential losses are adequate at March 31, 2002. However, a further
deterioration of the financial health of our customers either in the U.S. or
Japan may prove those estimates to be inadequate.
Foreign Exchange Exposure. We have established relationships with most of the
major OEMs in the business communications market. Many of these OEMs are based
in Japan and approximately 40% of our 2001 revenues came from Japanese
customers. The primary end-user market for the business communications market is
the U.S., however our Japanese customers are affected by the on-going recession
in Japan. Revenues from these customers are denominated in Japanese yen and as a
result we are subject to foreign currency exchange rate fluctuations in the
yen/dollar exchange rate. We use foreign currency forward contracts to hedge
this exposure. The gain or loss from these contracts is recorded in business
communications revenue ($750,000 gain in the year 2001 and $385,000 gain in the
first three months of 2002). These contracts typically have a six-month
duration; thus, yen/dollar fluctuations lasting more than six months will have
an impact on our revenues. In addition, as our Japan subsidiary's functional
currency is the yen, the translation of the net assets of that subsidiary into
the consolidated results will fluctuate with the yen/dollar exchange rate.
Recent Pronouncements
In April 2002, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 145 "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" which among other things provide guidance in reporting gains and
losses from extinguishments of debt and accounting for leases. We will adopt
this statement in 2003 and are currently reviewing this statement to determine
its impact, however we do not expect the adoption of this standard to have a
material impact on our financial position and our result of operations.
8
2001 and First Quarter 2002 Overview
2001 and first quarter, 2002 revenue by market segment is shown in the following
table:
--------------------------------- ----------------- ------------- -------------- --------------
Three Months
Ended March
31, 2002
2001 Revenue Percent of Revenue Percent of
Market Segment (millions) Total Sales (millions) Total Sales
--------------------------------- ----------------- ------------- -------------- --------------
Business Communications $16.2 64% $ 3.1 58%
--------------------------------- ----------------- ------------- -------------- --------------
Specialty Components 6.1 24 1.1 20
--------------------------------- ----------------- ------------- -------------- --------------
Home Entertainment 2.0 8 0.9 17
--------------------------------- ----------------- ------------- -------------- --------------
E-Transactions 1.0 4 0.3 5
--------------------------------- ----------------- ------------- -------------- --------------
Total $25.3 100% $ 5.4 100%
--------------------------------- ----------------- ------------- -------------- --------------
Our principal source of revenue continues to be our business communications
market. Sales in that market declined as a result of general economic conditions
and resulting adjustments to purchasing and inventory levels by our customers.
However, our market position continues to be very strong and we should be in a
position to benefit from any upturn in sales of presentation systems. In first
quarter 2002, business communication revenues grew 2% over fourth quarter 2001.
Specialty components, the original market into which we sold our products,
continues to be a strong contributor to revenue. In 2000 and the first three
quarters of 2001, revenue generated by sales to customers in this market was
positively affected by licensing revenue from IEE, which will not recur in 2002.
We expect sales to customers in the specialty components market to continue to
be a significant contributor to our revenue but do not anticipate significant
growth in this market. In first quarter 2002, specialty components revenue
decreased 3% from fourth quarter 2001.
Our e-transactions business was adversely affected during 2001 by a general
slowdown in new equipment purchasing. Nonetheless, we completed significant
transactions with two insurance companies and two companies in the financial
services industry and continue to build our volume of sales to customers making
smaller orders. At both large and small volumes, sales of e-transaction devices
tend to result in "one-time" revenue and therefore sales levels in this segment
can be more volatile than in other markets in which we operate. However, we
believe that the increasing installed base of our e-transactions devices can
have a positive effect on future sales by providing evidence of technological
soundness and customer acceptance. E-transaction revenues in first quarter 2002
were flat as compared to fourth quarter 2001.
Revenue from sales to customers in the home entertainment sector results
primarily from sales of an FSR-based component for use in the Microsoft Xbox
game controller. We expect that these sales will continue in 2002 but that
revenue from our IntuiTouch products will develop slowly as new technologies are
introduced by our customers and development partners. At the date of this
report, however, we do not expect meaningful revenues from IntuiTouch products
until 2003. Home entertainment revenues in first quarter 2002 continued to be
primarily driven by the Xbox program and the dollar amount of these sales
increased 21% over fourth quarter 2001.
In 2001, we recorded our first annual decline in revenue in more than a decade
and our first annual loss since 1994. We believe that these results were
significantly affected by general economic conditions that adversely affected
purchasing levels in our established business communications and specialty
components markets and slowed the penetration of our products into the
e-transactions and home entertainment markets. In the case of particular
industries, such as the insurance industry that we have targeted for our
e-transactions products, the events of September 11 further impacted our ability
to achieve penetration levels that we had originally
9
anticipated. While these factors may continue to affect our results in 2002, we
believe that our basic market positioning is sound. We continue to enjoy a
dominant share of the OEM business presentations controller market and are
having some success in developing sales channels for branded aftermarket
products. Our FSR based products and components continue to sell well in both
the specialty components and home entertainment markets, our e-transactions
business appears to be gaining traction and we believe that our technology,
products and commercial relationships addressing interactive digital remote
communication put us in a position to capitalize on any growth in this market
sector.
Despite the downturn in revenues in 2001, we chose to maintain our commitment to
research and development, spending slightly more in 2001 than in the prior year
and also increased selling, general and administrative expense. During the
second quarter of fiscal 2001, as a result of a continued decline in revenues
and customer demand, the Company provided additional reserves of $2 million for
excess and obsolete inventories. The continued industry-wide reduction in
spending and the resulting decrease in demand for the Company's products led to
significant reductions in the Company's sales forecast. The Company's regular
and ongoing reserve analysis and methodology includes a comparison of sales
forecasts and inventory levels. As a result of the analysis based on second
quarter sales forecast revisions, we recorded a charge, which was included in
the cost of revenues. Increases to the inventory reserve during the remainder of
fiscal 2001 were not significant. In addition, we recorded a $300,000 increase
in bad debt reserves in the third quarter of 2001 due to changes in certain
customers' ability to pay arising after the original sales had been made. In the
first quarter 2002, total operating expenses were flat as compared to fourth
quarter 2001. No material modification to inventory and bad debt reserves were
made.
The loss in 2001 and in first quarter 2002 resulted in modest reductions in
working capital and stockholders' equity. However, liquidity remains relatively
strong and we foresee no immediate need for additional capital or immediate risk
of capital inadequacy.
The following table presents our historical operating results for the periods
indicated as a percentage of revenues:
Three Months Ended
------------------
(Unaudited)
March 31, December 31, March 31,
2001 2001 2002
--------- ------------ --------
Revenues 100.0% 100.0% 100.0%
--------- ------------ --------
Gross profit 44.3 41.9 41.9
Operating expenses:
Product development and research 11.4 15.8 16.0
Selling, general and administrative 27.1 35.4 34.0
--------- ----------- --------
Total operating expenses 38.5 51.2 50.0
--------- ----------- --------
Operating income (loss) 5.8 (9.3) (8.1)
Other income 1.5 5 0.7
Income tax expense (benefit) (2.6) 0.0 0.0
--------- ------------ --------
Net income (loss) 9.9% (8.8)% (7.4)%
========= ============ ========
Results of Operations - Three months ended March 31, 2002 compared to three
months ended March 31, 2001
Revenues declined 27% from $7.4 million in the three month period ended March
31, 2001 to $5.4 million in the three month period ended March 31, 2002. This
revenue net decline resulted from the following factors:
. Business communications segment revenues declined 39% as compared to the
first quarter of 2001 due to the general slowdown in worldwide economies.
10
. Specialty components segment revenues declined 41% as compared to first
quarter 2001 due to the slowdown in worldwide economies coupled with the
elimination of the approximately $500,000 per quarter licensing royalty
from IEE.
. Home entertainment segment revenues increased 252% as compared to first
quarter 2001 due to the Microsoft Xbox program.
. E-transactions segment revenues increased 80% over first quarter 2001 due
to an increased customer base.
Gross profit decreased 31% from $3.3 million in the three month period ended
March 31, 2001 to $2.3 million in the three month period ended March 31, 2002.
The lower gross profit percentage in first quarter 2002 resulted from a lower
mix of licensing revenues (related to IEE) versus product revenues.
Product development and research expense increased 2% from $844,000 in the three
month period ended March 31, 2001 to $865,000 in the three month period ended
March 31, 2002. As a percentage of revenues, product development and research
expense increased from 11.4% in the three month period ended March 31, 2001 to
16.0% in the three month period ended March 31, 2002. These increases resulted
primarily from continued investment in our IntuiTouch interface technology,
which we market to companies in the Home Entertainment market, and our ePad
technology, which we market to customers in the e-transactions market.
Selling, general and administrative expense decreased 8% from $2.0 million in
the three month period ended March 31, 2001 to $1.8 million in the three month
period ended March 31, 2002. As a percentage of revenue, selling, general and
administrative expense increased from 27.1% in the three month period ended
March 1, 2001 to 34.0% in the three month period ended March 31, 2002. The
decrease in the dollar amount of SG&A is due to the streamlining of operating
costs implemented in the second quarter of 2001.
Operating income decreased from $429,000 in the three month period ended March
31, 2001 to an operating loss of $439,000 in the three month period ended March
31, 2002. The decline in operating income is the result of the revenue decline.
We recorded a $194,000 income tax benefit in the three month period ended March
31, 2001 and a zero tax provision in the three month period ended March 31,
2002. No tax benefit was recorded in the 2002 period due to lack of sufficient
probability that the potential benefit would actually be realized.
Net income decreased from $733,000 in the three month period ended March 31,
2001 to a loss of $399,000 in the three month period ended March 31, 2002.
Liquidity and Capital Resources
At March 31, 2002, working capital totaled $18.9 million as compared to $19.3
million at December 31, 2001. This decrease is a result of the negative
operating results coupled with the purchase of capital equipment.
For the quarter ended March 31, 2002 operations used $1 million. This usage of
cash is due to the buildup of inventories at our new logistics center in China,
Interlink Electronics Asia Pacific (IEAP).
For the three month period ended March 31, 2002, investing activities consisted
of the usage of $60,000 for the purchase of production and computer network
equipment which was offset by the conversion to cash of marketable securities
that matured during the period.
We believe we can fund operations for at least the next twelve months from
existing cash balances. We renegotiated our U.S. bank lines of credit to
eliminate the financial covenants; however, the agreements governing the lines
of credit now require any future borrowings to be secured by cash and
investments held at the bank. Negotiated lines of credit in Japan and the
exercise of employee stock options are also potential sources of
11
capital available to us. The Company requires liquidity to fund capital
expenditures and for working capital and other general corporate purposes.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We use six-month 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 we would not expect a sudden or significant
change in foreign exchange rates to have a material impact on future net income
or cash flows. However, a foreign exchange movement with a duration of over six
months could impact financial performance.
12
PART II: OTHER INFORMATION
Item 6. Exhibits And Reports On Form 8-K
a. Exhibits
10.1 Amendment to Credit Agreement with Wells Fargo Bank,
National Association and Registrant dated March 27,2002.
b. Reports on Form 8-K
No Reports on Form 8-K were filed during the period for which
this Quarterly Report on Form 10-Q is filed.
13
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.
INTERLINK ELECTRONICS, INC.
DATE: May 14, 2002 /s/ PAUL D. MEYER
---------------------
Paul D. Meyer
Chief Financial Officer
(Principal Financial and Accounting
Officer)
14