AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 17, 1996
REGISTRATION NO. 33-60380
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
POST-EFFECTIVE AMENDMENT
NO. 6
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INTERLINK ELECTRONICS
(Exact name of registrant as specified in its charter)
CALIFORNIA 3679 77-0056625
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification
incorporation Number)
or organization)
546 FLYNN ROAD
CAMARILLO, CALIFORNIA 93012
(805) 484-8855
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
E. MICHAEL THOBEN, III
INTERLINK ELECTRONICS
546 FLYNN ROAD
CAMARILLO, CALIFORNIA 93012
(805) 484-8855
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
COPY TO:
John J. Halle
Stoel Rives LLP
900 SW Fifth Avenue
Portland, Oregon 97204
(503) 224-3380
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box. / X /
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
INTERLINK ELECTRONICS
<TABLE>
<CAPTION>
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS IN PART I OF FORM S-1
REGISTRATION STATEMENT ITEM LOCATION IN PROSPECTUS
<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus................. Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus.................................... Inside Front and Back Cover Pages
3. Summary of Information, Risk Factors and
Ratio of Earnings to Fixed Charges..................... Prospectus Summary; Risk Factors
4. Use of Proceeds.......................................... Use of Proceeds
5. Determination of Offering Price.......................... Front Cover Page
6. Dilution................................................. Dilution
7. Selling Security Holders................................. Not Applicable
8. Plan of Distribution..................................... Front Cover
9. Description of Securities to be Registered............... Description of Securities
10. Interests of Named Experts and Counsel................... Legal Opinions; Experts
11. Information with Respect to the Registrant............... Inside Front Cover Page; Prospectus
Summary; The Company; Risk Factors;
Use of Proceeds; Market for the
Company's Equity Securities and
Dividend Policy; Dilution;
Capitalization; Selected Financial
Data; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Transactions;
Principal Shareholders; Description
of Securities; Additional
Information; Financial Statements
12. Disclosure of Commission Position on Indemnifi-
cation for Securities Act Liabilities.................... Not Applicable
</TABLE>
<PAGE>
PROSPECTUS
223,723 SHARES
INTERLINK ELECTRONICS
COMMON STOCK
The common stock ("Common Stock") of Interlink Electronics
("Interlink" or the "Company") offered hereby (the "Shares") will be sold
by the Company upon the effectiveness of the Registration Statement
Amendment of which this Prospectus is a part with respect to the exercise
of certain warrants to purchase an aggregate of 1,790,946 shares of Common
Stock. The expiration date of all such warrants was June 7, 1996, at which
time warrants ("Warrants") to purchase the 223,723 Shares offered hereby
had been validly submitted for exercise. No commission or solicitation fee
was paid in connection with any exercise of Warrants. The Common Stock is
listed on the Nasdaq National Market under the symbol LINK. On June 7,
1996, the closing price for the Common Stock was $8.38.
---------------
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 5 FOR CERTAIN FACTORS RELATED TO THIS OFFERING.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JUNE 17, 1996.
<PAGE>
PROSPECTUS SUMMARY
The following information is qualified in its entirety, and should be
read in conjunction with, the more detailed information and financial
statements and related notes appearing elsewhere in this Prospectus. Unless
otherwise indicated, references to Interlink or the Company are to
Interlink Electronics, a California corporation, and its 80% owned
subsidiary, Interlink Electronics KK, a Japanese corporation.
THE COMPANY
Interlink Electronics ("Interlink" or the "Company") uses its patented
force-sensing technology to design, manufacture and sell electronic sensor
products and systems. Its core business consists of sensor products used in
computer cursor control and other human interface devices that provide
input into consumer, business and industrial computers. The Company's
sensors and systems are currently installed in computers or computer
keyboards or used as peripheral devices to control computer operations.
Interlink is also seeking to expand its market to include devices such as
game controllers and remote controllers for televisions, VCRs, set-top
boxes and multimedia systems that increasingly require sophisticated
control functions. Interlink also manufactures and sells custom designed
sensors for use in a variety of medical, process control and other
applications.
Interlink has incorporated its proprietary technology into its
Force-Sensing Resistor ("FSR") sensors, which transform physical pressure
into corresponding electronic response. FSR sensors react to pressure
applied by any means, including human touch, a mechanical device, a fluid
or a gas. With supporting electronics, a FSR sensor can start, stop,
intensify, select, direct, detect or measure a desired response. Interlink
is also pursuing research and development projects involving other force
sensing technologies as alternatives where indicated by technological or
price considerations.
Interlink's current pointing device products are based on its
proprietary "VersaPoint" technology, which consists of a four-zone sensor
array and proprietary software and firmware. By manipulating a "button",
"pointing stick" or similar device installed over the four-zone sensor, the
operator can move a cursor to a desired location on a screen without the
use of any moving part such as are commonly found in other pointing
devices. Depending on product design, computer function selection can be
provided by "clicking" separate buttons on a computer pointing device or by
a sharp increase in pressure on the cursor button itself.
Interlink offers pointing device products both as stand-alone units
and as modules suitable for installation in computers or computer
peripheral devices made by others. Interlink's consumer product line
consists of three basic products, short-wired "mice" devices and both wired
and infrared remote pointing devices, that provide an after-sale
alternative to the trackball and the traditional mouse, as well as a
pointing solution geared to the presentation market and other remote
applications. Interlink also offers a variety of OEM products incorporating
sensors or a complete VersaPoint module to manufacturers of computers,
keyboards and other peripheral devices.
2
<PAGE>
Interlink sells its complete pointing device products directly to
large retailers, including Circuit City, Computer City, Fry's and
Incredible Universe and to a variety of smaller establishments through
distributors, including Ingram Micro Inc. OEM devices are sold directly by
Interlink or through distributors, including Logitech, Inc. Custom sensors
are sold directly to the OEM user by the Company's direct sales force.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN EVALUATING THE COMPANY AND ITS BUSINESS.
THE OFFERING
Securities offered by the Company............... 223,723 shares of Common Stock
Common Stock outstanding on the................. 4,255,113 shares(1)
date of this Prospectus
Use of net proceeds............................. For general corporate purposes.
See "Use of Proceeds."
Nasdaq Symbols:
Common Stock............................... LINK
(1) Does not include (i) 223,723 shares of Common Stock issuable as a
result of the exercise of the Warrants, or (ii) up to 1,541,787 shares
of Common Stock issuable on exercise of options granted and currently
outstanding under the Company's employee stock option plans, or (iii)
up to 270,000 shares of Common Stock issuable on the exercise of
Underwriter Stock Warrants. See "Description of Securities."
3
<PAGE>
SUMMARY FINANCIAL INFORMATION
Unless the context indicates otherwise, all share and per share
information presented herein gives retroactive effect to a one-for-five
reverse split of the Common Stock effective as of March 30, 1993. See
"Description of Securities."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------- ----------------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(IN THOUSANDS, EXPECT PER SHARE AMOUNTS)
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Revenues.................................. $4,362 $7,797 $10,741 $2,255 $2,753
Costs of revenues......................... 2,657 4,094 5,252 1,117 1,348
Gross profit.............................. 1,705 3,703 5,489 1,138 1,405
Total operating expenses.................. 4,736 4,898 5,421 1,214 1,332
Operating (loss) income................... (3,031) (1,195) 68 (76) 73
Total other income (loss)
income (expense)....................... (909) 3,498 82 5 (20)
Net income (loss)......................... $(3,940) $2,303 $150 $(71) $53
Earnings (loss) per share................. $(1.80) $0.49 $0.04 $(0.02) $0.01
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------------------
(IN THOUSANDS)
ACTUAL AS ADJUSTED<F1>
------ -----------
(UNAUDITED)
BALANCE SHEET DATA:
<S> <C> <C>
Working capital...................................... $6,626 $8,372
Total assets......................................... 10,101 11,847
Total liabilities.................................... 2,453 2,453
Shareholders' equity................................. 7,648 9,394
<FN>
<F1> Adjusted to reflect the sale of all of the Shares offered hereby less issuance expenses
of approximately $100,000.
</FN>
</TABLE>
4
<PAGE>
THE COMPANY
Interlink Electronics ("Interlink" or "the Company") uses its patented
force-sensing technology to design, manufacture and sell electronic sensor
products and systems. Its core business consists of a product incorporating
its patented Force-Sensing Resistor (FSR) technology. These products are
used in pointing and other human interface devices that provide input into
consumer, business and industrial computers. Interlink is also seeking to
expand its market to include devices such as game controllers and remote
controllers for televisions, VCRs, set-top boxes and multimedia systems
that increasingly require sophisticated control functions. Interlink also
manufactures and sells custom designed sensors for use in a variety of
medical, process control and other applications.
Interlink was incorporated in California in 1985 but remained
essentially inactive until 1987 when it purchased rights to the 26 original
patents and other proprietary rights covering its force sensing technology.
Since 1987, Interlink has been expanding its sales and marketing,
management and capitalization as it pursues new applications and marketing
strategies for its force sensing technology.
Interlink's offices are located at 546 Flynn Road, Camarillo,
California 93012 and its telephone number is (805) 484-8855.
TRADEMARKS
VersaPoint(R), RemotePoint(TM), PortaPoint(TM), DuraPoint(R),
ProPoint(TM), Super Mouse(TM), Force Sensing Resistor(R), and FSR(R) are
trademarks of Interlink. The following trade or service marks used herein
are owned by the persons indicated: "Newton" is owned by Apple Computer
Inc. ("Apple"), and "Microsoft" is owned by Microsoft Corporation
("Microsoft").
RISK FACTORS
This Prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933. Such forward-looking
statements may be found in this section and under "Management's Discussion
and Analysis of Financial Condition and Results of Operation." Actual
events or results could differ materially from those discussed in the
forward-looking statements as a result of various factors, including,
without limitation, the risk factors set forth below and elsewhere in this
Prospectus. In addition to the other information contained in this
Prospectus, the following factors should be considered carefully in
evaluating an investment in the Shares offered by this Prospectus.
Prior Losses and Accumulated Deficit. Throughout most of its history,
Interlink has operated at a loss and, as of March 31, 1996, had an
accumulated deficit of $11,232,000. While the Company has reported net
income and income from operations in each quarter
5
<PAGE>
since the second quarter of 1995, there is no assurance that the Company
will continue to operate profitably. In addition to unexpected or
uncontrollable events, a decision by management to incur significant
marketing, research and development or other expense in anticipation of
future profitability could cause the Company to incur losses over the
period of the expense and until such expenses resulted in increased
revenues. Conversely, a decision by management to forego development
expense in order to maintain profitability, could have an adverse impact on
future revenues. There is no assurance that the decisions of management
will result in profitability over either the long or the short term. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Market Acceptance, Product Enhancements and New Products. The
Company's VersaPoint technology is a comparatively recent entrant into the
pointing device market and faces market acceptance barriers that do not
affect more established technologies. To date, the Company's force sensing
technology and products have gained limited market acceptance. Moreover,
various markets in which Interlink competes are subject to rapid
technological change. Interlink's success will ultimately depend on its
ability to develop and sell new products and to enhance existing products
that address market requirements, including requirements as to timing and
price. The success of new products depends on a variety of factors,
including product selection, pricing, performance and design,
implementation of manufacturing and assembly processes, product performance
and effective sales and marketing. Because new product development
commitments must be made well in advance of sales, new product decisions
must anticipate both future demand and the technology that will be
available to supply that demand. New and enhanced products are regularly
introduced into markets in which Interlink competes and there is no
assurance that Interlink will be successful in selecting, developing,
manufacturing and marketing new and enhanced products. Further, the Company
has only recently launched certain key products, including its RemotePoint
Plus and DeskStick computer pointing devices. The Company cannot determine
at this time whether these products will be successful.
Potential Requirement for Additional Financing. The Company believes
that its existing capital resources and cash flow from operations will be
sufficient to meet its anticipated cash requirements for at least the next
twelve months, whether or not any proceeds are received from the exercise
of Warrants. However, any number of unanticipated events, over many of
which the Company will have no control, could increase the Company's
operating costs or decrease its sales. Further, the Company has no
commitment from others to provide additional capital and there is no
assurance that such additional capital will be available when and if needed
or, if available, that the terms upon which it is available will be
favorable or acceptable to the Company. There is therefore no assurance
that the Company will have sufficient funds to develop its business and
maintain profitability. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Dependence on Success of Customers. A large percentage of Interlink's
sales are to manufacturers or resellers of electronic devices that
incorporate Interlink's sensors in their products and/or offer Interlink
products as a part of an equipment package including other
6
<PAGE>
devices. Interlink has suffered adverse consequences in the past from the
failure or poor performance of major customers and expects that for the
foreseeable future its success will continue to be dependent to some degree
on the success of such customers.
Patents and Proprietary Rights. Interlink holds certain domestic and
foreign patents covering various aspects of its force sensing technology.
See "Business of the Company--Patents and Proprietary Rights." While
Interlink believes that its patents and trade secrets offer it some degree
of protection against competition, the scope and effectiveness of such
protection has not been tested and could prove to be limited. The
enforcement of patent rights can be a difficult, time-consuming and
expensive process and there is no assurance that Interlink would have the
resources required to defend such rights were they to be infringed. There
is no assurance that Interlink's patents will provide meaningful protection
from competition. Although Interlink is not aware that its activities
infringe patent rights of any other person, there is no absolute assurance
that such infringement has not occurred or will not occur. Interlink also
seeks to protect its technology by safeguarding its trade secrets. However,
there is no assurance that proprietary information of Interlink will not be
disclosed or that Interlink will have the resources to identify and protect
against any such disclosure.
Dependence on Key Personnel. The Company's success will depend to a
large extent on the abilities and continued participation of certain key
employees, including Mr. Thoben, its Chairman. The loss of Mr. Thoben or
other key employees could have a material adverse effect on the Company's
business. The Company maintains key man insurance in the amount of $1
million on Mr. Thoben, but there is no assurance that such insurance will
be available in the future or that the Company will continue to maintain
such insurance. In some cases, the Company expects that it will be unable
to provide to certain of its key employees the salaries and benefits they
could expect to receive at larger, more established businesses and will
therefore rely on the equity interest of these employees in the Company to
compete for their services. See "Management."
Dependence on Suppliers. Interlink attempts, where possible, to ensure
that it has access to multiple suppliers of key components and believes
that most of its requirements can readily be supplied from multiple
sources. However, an unexpected interruption in the supply of a key
component could have a material adverse consequence on Interlink's business
until a new source could be identified and secured. An important material
necessary for production of FSR sensors is available from a limited number
of suppliers, each of whom is a foreign entity. A disruption in the supply
could adversely affect the Company's production capacity.
Competition. The markets for the Company's products are generally
highly competitive and consist of providers of several different types of
technologies that have various advantages and disadvantages in competition
with Interlink's FSR sensors. Many of the Company's competitors have
established relationships with OEM customers and others that Interlink
targets as potential customers. Some competitors also have substantially
greater access to capital and technical resources than does the Company and
may therefore have a
7
<PAGE>
significant competitive advantage. The Company's success is dependent on
the use of force sensing technology in products made by the Company and
others. Should anyone develop a superior or more cost-effective technology
that can be used in products currently using the Company's force sensing
technology, the Company's business could be materially adversely effected.
See "Business --Competition." The Company will be required to enhance the
performance and/or reduce the cost of its core technologies in order to
remain competitive. Because new products and technologies require
commitments well in advance of sales, decisions with respect to such
commitments must accurately anticipate both future demand and the
technology that will be available to supply that demand. There is no
assurance that the Company will successfully adapt to future technological
change and failure to do so may materially adversely affect the Company's
business, financial condition and results of operations. See "--Market
Acceptance, Product Enhancements and New Products."
Potential Liability. The Company, like all manufacturers, is subject
to the risk of products liability claims related to the use of its
products. Some of the Company's products are used in medical applications.
Damage claims in products liability cases generally, and medical claims in
particular, can be large, as can defense costs, even in cases where a
defense is successful. The Company's insurance covers products liability up
to $2 million per occurrence. There is no assurance that the Company will
continue to maintain such insurance or that such coverage will be adequate
to satisfy any claims.
Foreign Operations. A significant portion of the Company's existing
business and expansion potential is in foreign markets. Consequently, the
Company is or may be exposed to various risks, including currency
fluctuations, changes in trade regulations or enforcement policies with
respect thereto, or political instability in certain regions, that affect
only international business operations.
Dividends on Common Stock Unlikely. The Company has never paid cash
dividends on its Common Stock. It is the Company's intention to retain
earnings, if any, to finance the operation and expansion of its business
and therefore it does not expect to pay cash dividends in the foreseeable
future.
Substantial Dilution to New Investors. Purchasers of the Shares will
incur substantial dilution of their investment since the pro forma net
tangible book value per share of the Common Stock as of March 31, 1996 is
less than the exercise price of the Warrants. Based upon the net pro forma
tangible book value of the Company at March 31, 1996, the dilution to
investors would be $6.30 per Share. See "Dilution."
Shares Eligible for Future Sale. Substantially all of the Common Stock
outstanding on the date of this Prospectus is, and all of the Shares
offered hereby will be, subject to resale either without restriction if
held by non-affiliates or pursuant to currently effective registration
statements. Sales of substantial amounts of Common Stock, or the potential
for such sales, could have a depressive effect on the price of the
Company's securities.
8
<PAGE>
Warrants and Options; Potential Dilution and Adverse Impact on
Additional Financing. As of March 31, 1996, there were outstanding options
and warrants to purchase an aggregate of 2,035,510 shares of Common Stock,
including the 223,723 shares of Common Stock issuable on exercise of the
Warrants but excluding warrants that expired unexercised on June 7, 1996.
See "Description of Securities--Other Securities." To the extent that the
outstanding options and warrants are exercised, dilution to the interests
of the Company's shareholders may occur. For the life of the options
described above, the holders will have the opportunity to profit from a
rise in the price of the underlying securities. The existence of such
options may adversely affect the terms on which the Company can obtain
additional financing, and the holders of such options can be expected to
exercise them at a time when the Company would, in all likelihood, be able
to obtain additional capital by an offering of its unissued capital stock
on terms more favorable to the Company than those provided by such options.
See "Management--Stock Option Plan."
Stock Market Volatility and General Market Declines. There have been
periods of extreme volatility in the stock market, which in many cases were
unrelated to the operating performance of, or announcements concerning, the
issuers of the affected stock. General market price declines or market
volatility in the future could adversely affect the price of the Common
Stock. In certain cases, volatility in the price of a given security can
result from the short-term trading strategies of certain market segments.
Such volatility can distort market value and can be particularly severe in
the case of smaller capitalization stocks and immediately before or after
an important corporate event such as a public offering. There is no
assurance that the market price of the Common Stock will be maintained
following any exercise of Warrants.
Preferred Stock. The Company is authorized to issue up to 10,000,000
shares of Preferred Stock. The Company may issue Preferred Stock in one or
more series with rights, preferences, privileges and restrictions that may
be established by the Company's Board of Directors without shareholder
approval. As a result, in the future, the Company could issue Preferred
Stock with voting, liquidation, dividend and conversion rights that could
adversely affect the voting power and other rights of holders of Common
Stock. Moreover, the issuance of Preferred Stock in certain circumstances
could have the effect of delaying, deterring or preventing a change in
control of the Company. The Company does not have a present intention to
issue Preferred Stock. See "Description of Securities--Preferred Stock."
Anti-Takeover Provisions. Certain provisions of the Company's Second
Amended and Restated Articles of Incorporation and the California General
Corporation Law could discourage a third party from attempting to acquire,
or make it more difficult for a third party to acquire control of the
Company without approval of the Company's Board of Directors. Such
provisions could also limit the price that certain investors might be
willing to pay in the for future shares of Common Stock. Certain of such
provisions allow the Board of Directors to authorize the issuance of
Preferred Stock with rights superior to those of the Common Stock. The
Company also will be subject to the provisions of Section 1203 of the
California
9
<PAGE>
General Corporation Law which requires a fairness opinion to be provided to
the Company's shareholders in connection with their consideration of any
proposed "interested party" reorganization transaction. See "Description of
Securities."
The Company is considering reincorporating in Delaware. If the Company
is reincorporated in Delaware, certain provisions of the Delaware General
Corporation Law likewise could discourage a third party from attempting to
acquire, or make it more difficult for a third party to acquire control of
the Company. See "Description of Securities--Reorganization in Delaware."
10
<PAGE>
USE OF PROCEEDS
The Company will receive approximately $1,746,000 in net proceeds from
the sale of the Shares, after deducting expenses estimated at $100,000.
These proceeds will be added to the Company's general purpose funds and
will be used for general corporate purposes.
MARKET FOR THE COMPANY'S EQUITY SECURITIES
AND DIVIDEND POLICY
Historical Market Information. On June 7, 1993 the Units sold in the
IPO were immediately separated and the underlying Common Stock and Warrants
became eligible to trade separately. From that time until September 13,
1995, the Common Stock and the Warrants were listed for trading on the
Nasdaq Small Cap market. Effective September 14, 1995, the Common Stock and
the Warrants were accepted for listing on the Nasdaq National Market. The
Warrants expired June 7, 1996 and were delisted as of that date. The
following table sets forth, for the periods shown, the high and low prices
for the Common Stock as reported on the Nasdaq Stock Market.
<TABLE>
<CAPTION>
Year Ended December 31, 1994 Low High
<S> <C> <C>
First Quarter ................................................ $ 8.00 $12.75
Second Quarter ............................................... $ 6.75 $ 9.38
Third Quarter................................................. $ 8.13 $ 9.88
Fourth Quarter................................................ $ 5.50 $ 9.13
Year Ended December 31, 1995
First Quarter................................................. $ 4.38 $ 7.62
Second Quarter................................................ $ 6.50 $14.00
Third Quarter................................................. $ 9.38 $14.38
Fourth Quarter................................................ $ 5.50 $10.78
Year Ending December 31, 1996
First Quarter................................................. $ 4.63 $ 7.25
Second Quarter (through June 7)............................... $ 5.63 $ 8.75
</TABLE>
Dividend Policy. The Company has never paid cash dividends. It is the
Company's intention to retain earnings, if any, to finance the operation
and expansion of its business and therefore it does not expect to pay cash
dividends in the foreseeable future. Payment of dividends, if any, will be
at the discretion of the Board of Directors after taking into account
various factors, including the Company's financial condition, results of
operations, current and anticipated cash needs, plans for expansion and
restrictions, if any, under the terms of any debt obligations of the
Company or equity securities issued by the Company.
11
<PAGE>
CAPITALIZATION
The following table sets forth the short-term obligations and
capitalization of the Company as of June 30, 1995 and as adjusted as of
that date to give pro forma effect to the sale of all of the Shares offered
hereby:
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------
ACTUAL AS ADJUSTED<F1>
------ -----------
(In thousands)
<S> <C> <C>
Current maturities of long-term debt.................................... $291 $291
Long term debt.......................................................... 886 886
Shareholders equity:
Preferred stock, 10,000,000 shares authorized, none
outstanding.........................................................
Common stock, 40,000,000 shares authorized, 4,255,1131
outstanding actual, 4,478,836 outstanding,
as adjusted......................................................... 18,880 20,626
Accumulated deficit................................................... (11,232) (11,232)
--------- --------
Total shareholders' equity.......................................... 7,648 9,394
--------- --------
Total capitalization.............................................. $ 8,825 $ 10,571
========= ========
<FN>
<F1> Does not include (i) 270,000 shares issuable on the exercise of
Underwriter Stock Warrants, or (ii) up to 1,541,787 shares of Common
Stock issuable on exercise of options granted and currently
outstanding under the Company's employee stock option plans. See
"Description of Securities."
</FN>
</TABLE>
12
<PAGE>
DILUTION
The pro forma net tangible book value of the Company at March 31, 1996
was $7,003,000 or $1.65 per share of Common Stock. Net tangible book value
per share represents the amount of the Company's tangible assets (total
assets less patents and trademarks, European marketing rights and
goodwill), less total liabilities, divided by the number of shares of
Common Stock outstanding. Without taking into account any further
adjustments in net tangible book value after March 31, 1996, other than to
give effect to the sale of all of the 223,723 Shares offered hereby, the
pro forma net tangible book value of the Company at March 31, 1996 would
have been $8,749,000 or $1.95 per share of Common Stock, representing an
increase in net tangible book value of $.30 per share to existing
shareholders and average dilution of $6.30 per share to new investors. The
following table illustrates per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Average public offering price per Share........................ $8.25
Net tangible book value, per share, before offering.......... $1.65
Increase per share attributable to new investors............. $ .30
-----
Pro forma net tangible book value per share after offering..... 1.95
-----
Dilution per share to new investors<F1>........................ $6.30
=====
<FN>
- ---------------
<F1> Dilution is determined by subtracting the pro forma net tangible book
value per share after the offering from the assumed public offering
price per share.
</FN>
</TABLE>
13
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with the financial statements and the related Notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein. The statement of operations data set
forth below with respect to the year ended December 31, 1993 are derived
from financial statements which have been audited by Deloitte & Touche LLP,
independent auditors, whose report thereon is included elsewhere in this
Prospectus. The statement of operations data set forth below with respect
to the years ended December 31, 1994 and 1995 and the balance sheet data at
December 31, 1994 and 1995 are derived from financial statements which have
been audited by Arthur Andersen LLP, independent public accountants, whose
report thereon is included elsewhere in this Prospectus. The statements of
operations data for the years ended December 31, 1991 and 1992 and balance
sheet data at December 31, 1991, 1992 and 1993 are derived from financial
statements, audited by Deloitte & Touche LLP, not included herein. The
selected financial data presented for the three-month periods ended March
31, 1995 and 1996 are derived from the unaudited financial statements of
the Company included elsewhere in this Prospectus, and in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of operations
for such interim periods. The results of operations at any interim period
are not necessarily indicative of results to be expected for a full year.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------- ---------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Product sales..................... $ 1,535 $ 2,577 $ 4,362 $ 7,797 $10,741 $ 2,255 $ 2,753
Contract development.............. 1,567 450 -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Total revenues.................... 3,102 3,027 4,362 7,797 10,741 2,255 2,753
------ ------ ------ ------ ------ ------ ------
Cost of revenues.................... 1,414 1,754 2,657 4,094 5,252 1,117 1,348
------ ------ ------ ------ ------ ------ ------
Gross Profit ...................... 1,688 1,273 1,705 3,703 5,489 1,138 1,405
------ ------ ------ ------ ------ ------ ------
Operating Expenses:
Product development and
research ....................... 427 443 782 1,011 897 222 242
Selling, general and
administrative.................. 2,032 2,564 3,954 3,887 4,524 992 1,090
------ ------ ------ ------ ------ ------ ------
Total operating expenses........ 2,459 3,007 4,736 4,898 5,421 1,214 1,332
------ ------ ------ ------ ------ ------ ------
Operating income (loss)............. (771) (1,734) (3,031) (1,195) 68 (76) 73
------ ------ ------ ------ ------ ------ ------
Other income (expense)
Debt conversion expense........... -- -- (450) -- -- --
Units issued in connection
with bridge loans............... -- -- (550) -- -- --
Interest expense.................. (51) (79) (84) (37) (60) (11) (22)
Licensing royalties and other..... 82 496 175 155 142 16 2
14
<PAGE>
Gain from sale of interest in
European Joint Venture.......... -- -- -- 3,380 -- -- --
------ ------ ------ ------ ------ ------ ------
Total other income (expense)...... 31 417 (909) 3,498 82 5 (20)
------ ------ ------ ------ ------ ------ ------
Net income (loss)................... $ (740) $(1,317) $(3,940) $2,303 $ 150 $ (71) $ 53
------ ------ ------
Earnings/(loss) per share(1)........ $ (2.98) $ (5.29) $ (1.80) $ .49 $ .04 $ (.02) $ .01
DECEMBER 31, MARCH 31,
--------------------------------------------- ---------
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
BALANCE SHEET DATA:
Working capital (deficiency)...... $ 477 $ (286) $ 3,631 $ 2,140 $ 6,353 $ 6,626
Total assets...................... 1,754 2,222 5,871 5,185 10,187 10,101
Short-term debt................... 175 1,174 36 251 255 291
Deferred licensing income......... -- 180 144 -- -- --
Long-term debt.................... 206 530 128 121 672 886
Shareholders' equity (deficit)...... $ 1,003 $ (313) $ 4,454 $ 3,651 $ 7,589 $ 7,648
<FN>
- ---------------
(1) The number of shares used in the per share computation gives
retroactive effect to a one-for-five reverse split that occurred March
30, 1993.
</FN>
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
From the commencement of significant operations in 1987, Interlink has
engaged in the development of its sensor business, initially through the
sale of custom FSR sensors or systems ("Custom products") and, more
recently, through internally developed consumer and industrial computer
pointing device products ("Computer Pointing Device products"). Product
sales, which have grown at an average annual rate of greater than 60% over
the past four fiscal years, were almost entirely comprised of Custom
products until 1993. In late 1992, the Company introduced its first product
based on its proprietary VersaPoint computer pointing device technology,
PortaPoint. Since then the Company has introduced DuraPoint, ProPoint,
RemotePoint, RemotePoint Plus, DeskStick and many others on an O.E.M.
basis. In 1995, Computer Pointing Device products comprised 74% of revenues
and the Company expects to continue to focus the majority of its resources
towards the further development of this product line.
The particular characteristics of the Company's force sensing
technology have required the Company to expend considerable resources in
research and development to refine the manufacturing process. Since 1992,
the Company has also engaged in the development of standardized computer
pointing device products. Given the rapid development cycles required in
the computer products industry, the Company expects to continue investing
significant resources towards the enhancement of existing computer pointing
device products and the development of new products for existing and
developing consumer and industrial markets. See "Risk Factors--Market
Acceptance, Product Enhancements and New Products" and "--Competition."
With the advent of its first consumer product in 1992, the Company has
expended substantial marketing resources in support of its consumer
computer pointing device products. In 1995, the Company launched on a
campaign to develop its own extensive computer retailer distribution
network. Thus the Company expects that in the near term its marketing costs
on a relative basis will tend to be relatively high in relation to expense
levels typical of an established sales and marketing program of comparable
size.
The Company has experienced steady growth in revenues, from
approximately $3 million in 1992 to an annualized rate of approximately $11
million in the first three months of 1996. Primarily as a result of this
growth in revenues and resulting economies of scale, income and cash flow
have shown overall positive trends. In 1994, the Company recorded net
income for the first time as a result of a one-time gain from an exchange
of stock with its former European joint venture partner in the last half of
the year. In 1995 the Company received its first profit from operations and
through the first quarter of 1996 has recorded four consecutive quarters of
profits. Except for working capital needed to fund customer receivables and
inventory, the Company is operating at a positive cash flow.
16
<PAGE>
Based on its 1996 forecasts, the Company currently anticipates that
income and cash flow will remain positive or essentially breakeven through
the remainder of the year. However, any number of unanticipated events
could have a negative impact on income or cash flow, including any
significant failure of the Company to meet sales targets as to which there
is no assurance. Receipt by the Company of the net proceeds from the sale
of all of the Shares and income from the investment of such proceeds would
have a positive impact on net income and cash flow from investing and
financing activities. However, any use of such proceeds in operations that
was expensed or depreciated over a short asset life would have a negative
impact on both operating and net income. While the Company has no explicit
plans to use such proceeds for such purposes, management may elect to
pursue a more rapid growth plan than would be possible without such
resources.
RESULTS OF OPERATIONS
The following table presents, as a percentage of total revenues, certain
selected consolidated financial data of each of the periods indicated.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Three Months Ended
Years ended December 31, March 31,
- ------------------------------------------- -------------------------- ------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Computer pointing devices 43% 66% 74% 65 79%
Custom applications 57 34 26 35 21
Total revenues 100 100 100 100 100
Gross profit 39 48 51 50 51
Operating expenses:
Research, engineering and
development 18 13 8 9 8
Selling, general and administrative
91 50 42 44 40
Total operating expenses 109 63 50 53 48
Operating income (loss) (70) (15) 1 (3) 3
Other income (expense) (21) 2 - - (1)
Sale of interest in European
Joint Venture - 43 - - -
Net income (loss) (91) 30 1 (3) 2
- -----------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Three Months Ended March 31, 1995 and 1996.
Revenues grew 22% for the first three months of 1996 as compared to
the same period in 1995. For the quarter, product sales for the Computer
Pointing Device product line recorded a 52% increase as compared to first
quarter of 1995. This growth resulted from the Company's further
penetration into the rugged portable computer and presentation system
markets, as well as, broader distribution of its Branded products in the
retail channels. Revenues for the Custom Applications products line
decreased 24% as a result of the Company's strategy to focus on the
Computer Pointing Devices product line. For the first quarter of 1996, the
Custom Applications product line accounted for 21% of total revenues, down
from 35% in the first quarter of 1995. The Company expects that the Custom
Applications product line will continue to decline as a percentage of total
revenues in succeeding periods.
For the three months ended March 31, 1996, gross profit improved to
51% of revenues as compared to 50% for the same period in the prior year.
This improvement is a result of the amortization of fixed manufacturing
costs over a greater base of product sales combined with a shift in the mix
of sales towards the Computer Pointing Device product line, which carries a
relatively higher margin.
Product development and research expenses remained relatively
unchanged at $242,000 (9% of revenues) in first quarter of 1996 versus
$222,000 (10% of revenues) for first quarter of 1995 as the Company
continued to develop products based on its proprietary VersaPoint
technology, which was developed in 1992. Given the industries the Company
participates in, management expects research and development costs to
remain at or near the current level.
For the three months ended March 31, 1996, selling, general and
administrative (SG&A) costs fell to 40% of revenues as compared to 44% for
the same period of 1995. The decrease resulted from the leveraging of fixed
SG&A costs over a higher sales base.
Years Ended December 31, 1993, 1994 and 1995
Revenues increased 38% from $7.8 million in 1994 to $10.7 million in
1995. As compared to 1993, 1994 revenues grew 78% from $4.4 million in
1993. The revenue growth is a result of the Company's focus on developing
and marketing computer pointing device products based on the Company's
VersaPoint technology. Revenues from this product line grew from $1.9
million in 1993, to $5.2 million in 1994 and to $7.9 million in 1995. The
primary products within this product line are: PortaPoint, introduced in
late 1992 (renamed SuperMouse in early 1994); DuraPoint, introduced in
early 1993, ProPoint, introduced in early 1994, the Integrated Pointing
Stick, introduced in late 1993; the MicroModule, introduced in early 1994;
RemotePoint, introduced in late 1994; RemotePoint Plus, DeskStick and IRC
introduced in late 1995. Because of the Company's focus on pointing device
products, sales in the Custom Applications product
18
<PAGE>
line have recorded nominal growth; growing 4% from $2.5 million in 1993 to
$2.6 million in 1994 and 8% to $2.8 million in 1995. The Company expects
that the Custom Applications product line will continue to show minimal
growth, possibly negative.
The improvement of gross profit to 51% in 1995 from 48% in 1994 and
39% in 1993 is a reflection of: a) the shift in revenue mix toward the
Computer Pointing Devices product line which carries a relatively higher
profit margin; b) the Company's successful efforts to develop low-cost
overseas producers of the Company's Branded Products, as volume justifies;
c) the relatively low usage of FSR manufacturing capacity, thus as revenue
has risen fixed manufacturing costs have remained relatively constant.
During the periods presented the Company has not experienced meaningful
price erosion in its Computer Pointing Devices product line.
Product development and research expense increased from $782,000 in
1993 to $1 million in 1994 and then decreased to $897,000 in 1995. The 1994
expense was spent developing RemotePoint and the MicroJoystick. The Company
was able to achieve a decrease in the 1995 expense as the products
developed in 1995; RemotePoint Plus, IRC and DeskStick are essentially line
extensions to the products developed in the previous year.
Selling, general and administrative costs decreased from $4 million in
1993 (91% of revenues) to $3.9 million in 1994 (49.9% of revenues) and then
increased to $4.5 million in 1995 (42% of revenues). The 1994 decrease was
the result of the Company's change in strategy from the previous year to
use an exclusive distributor for most of its Branded Products. Late in 1994
the Company terminated that relationship and reverted to a direct marketing
strategy. The change in selling strategy along with the introduction of
three new products caused the increase in expenses (on a dollar basis not
on a percentage basis) in 1995.
For the first time in its history, the Company recorded a profit from
operations of $68,000 in 1995 versus operating losses of $1.2 million and
$3 million for 1994 and 1993, respectively. These improvements were
achieved by strong revenue and profit margin growth from the Company's key
focus area, Computer Pointing Devices, and successful cost management of
product development and marketing costs.
In contemplation of the Company's June 1993 initial public offering,
the Company received bridge loans and negotiated the conversion of the
PortaPoint Profit Participation Interests. As a consequence of these
transactions, the Company recorded one-time, non-cash finance charges
totaling $1 million.
In September 1994, the Company sold its interest in IEE, yielding a
$3.4 million gain. The Company retained royalty rights relating to sales of
certain products by IEE in certain geographical areas. The Company expects
to record royalty income associated with this arrangement in future
periods.
19
<PAGE>
The revenue growth in the Company's Computer Pointing Device product
line, the resulting improvement in profit margin and operating cost control
all contributed to achieve 1995's net income of $150,000, a $1.2 million
improvement over 1994's net loss of $1.1 million before the one-time gain.
As a result of the gain associated with the sale of the Company's interest
in IEE and operating results improvement as compared to 1993 (detailed
above), the Company recorded net income in 1994 of $2.3 million, a $6.2
million improvement over 1993.
LIQUIDITY AND CAPITAL RESOURCES
From inception until June of 1993, the Company was financed through a
series of private financings totaling approximately $12.5 million. In June
1993, the Company completed an Initial Public Offering with net proceeds of
$7.1 million. From the IPO proceeds, the Company repaid approximately $2
million in outstanding short term debt.
Since June 30, 1993 and through the end of 1993, operations consumed
$1.8 million in available cash. For the fiscal years 1994 and 1995 and for
first three months of 1996, operations have used $1.8 million, $1.3 and
$987,000, respectively. The improvement in operating cash flow is a result
of the improved net operating results partially offset by the working
capital requirements of accelerated revenue growth.
From June 30, 1993 to March 31, 1996, investing activities have
resulted in a $1.5 million use of cash and marketable securities and are
primarily comprised of purchases of production equipment and investment in
intellectual property rights. In addition, in late 1993, the Company
purchased from its then European joint venture partner the rights to market
computer pointing devices in the European Community.
Since June 30, 1993 through March 31, 1996, net financing activities
have generated $5.5 million in cash, primarily through a $3.5 private
placement of equity securities completed in April 1995 and to a lesser
extent from the conversion of options and warrants. The Company also has a
$1.5 million bank credit line, none of which was drawn at March 31, 1996,
and a lease line of $1.8 million of which $900,000 was drawn at March 31,
1996.
At March 31, 1996, the Company had cash and cash equivalents of $2.6
million, which the Company believes will provide adequate liquid assets for
its budgeted requirements at least through the remainder of 1996 (the
period for which detailed forecasts have been prepared). Consequently, the
Company's budgeted cash requirements do not require the receipt of any
proceeds from the sale of Shares. Because the Company's capital
requirements cannot be predicted with certainty, however, there is no
assurance that the Company will not require additional financing prior to
the end of 1996. The Company has no commitments for capital expenditures in
material amounts, but expects operations in 1997 may require capital
expenditures that in turn may require additional financing. There is no
assurance that any additional financing will be available
20
<PAGE>
on terms satisfactory to the Company or not disadvantageous to the
Company's shareholders.
21
<PAGE>
BUSINESS
FORCE SENSING TECHNOLOGY
Interlink Electronics' (the "Company") force sensing technology
transforms physical pressure applied to a sensor into a corresponding
electronic response. Products incorporating a sensor using the Company's
force sensing resistor ("FSR") devices can react to pressure when applied
by any means--through human touch, a mechanical device, a fluid, or a gas.
With supporting electronics, an FSR sensor can start, stop, intensify,
select, direct, detect, or measure a desired response.
FSR sensors measure pressure and, depending on their configuration and
with supporting electronics, can measure the location at which the pressure
is applied. A "basic" FSR sensor, such as the sensor used in a foot control
device sold by Interlink Electronics and used to control a surgical
endoscopic drill, detects the pressure of a foot applied to the foot
control device and accurately measures the intensity of the pressure
applied, thereby enabling precise control of drill speed. Another type of
sensor, an FSR linear potentiometer, consists of a linear strip sensor that
can record and translate into an electronic signal the application of
pressure, the point along a line at which the pressure is applied and the
intensity of the pressure. A potential application would be a linear sensor
installed in an audio amplifier that would record a relatively hard
application of pressure anywhere on the device as an "on/off" signal and a
relatively light application of pressure at any point on the device as a
signal controlling the volume level associated with that point. A third
type of FSR sensor, known as a touch pad, consists of a two-dimensional
grid capable of measuring the location and intensity of pressure applied at
any set of coordinates on the grid. This type of device is useful for
functions such as handwriting input or computer cursor control. For
example, with appropriate interface electronics, a computer pointing device
can be driven by the movement of a finger on an FSR touch pad, while the
"click" function could be activated by a temporary increase in pressure.
Because FSR sensors can be as thin as one-hundredth of an inch thick
and measure pressure rather than movement, they can be readily incorporated
into sealed systems without moving parts. This makes FSR sensors
particularly well suited to operation in harsh or abusive environments or
where durability and long life are important. FSR sensor systems, when
packaged in sealed environments, are operationally unaffected by most
levels of moisture, environmental contaminants, vibration, or noise. In
tests conducted by the Company, FSR sensors have retained their performance
through tens of millions of actuations, even in adverse environments
involving heat, moisture, and chemical contamination.
Typical FSR sensors can be designed in any shape. The thin profile of
an FSR sensor enables easy integration into a wide variety of mechanical
and electronic devices. An FSR product can contain as many as 256
individual FSR sensors within a one-half-inch-square area, enabling a
precise measurement of the location at which the pressure is applied.
22
<PAGE>
A force sensing resistor is described scientifically as a polymer
thick film device that exhibits a decreasing electrical resistance with
increasing force applied to the device surface. FSR sensors consist of two
or more layers of plastic film, one or more layers supporting
interdigitating electrodes (conductor patterns) and one or more layers
supporting the proprietary, semiconductive polymer. The two types of
substrate layer are arranged in opposition, and the surface contact between
them creates an electrical connection. The application of pressure on the
device increases the surface area over which the electrical contact occurs
thereby decreasing electrical resistance. Any increase in pressure over a
relatively broad range causes a proportional decrease in electrical
resistance within the circuit that can be measured by standard electronic
measuring devices, thereby translating variances in pressure into
corresponding variances in an electronic signal. The ability of an FSR
sensor to measure variances in pressure is accurate and repeatable in
comparison to comparably priced products, allowing precise correlation
between the amount of pressure applied to the sensor and the result in the
operating system controlled by the sensor. In addition to its patented
technology, Interlink Electronics has developed a number of manufacturing
process improvements that, while not subject to patent protection, are
viewed as trade secrets by the Company, and are considered to have
significant proprietary value.
PRODUCT APPLICATIONS
General
The capabilities and versatility of the force sensing technology offer
opportunities in numerous markets including computer input, appliances,
consumer electronics, aerospace, automotive, and industrial control and
measurement. While this diversity of applications is viewed by the Company
as an advantage, different kinds of applications call for different
electronic or mechanical support efforts and often require separate sales
and distribution channels. Also, sales volumes and profit margins can vary
significantly from application to application. As a result, Interlink
Electronics has selected specific targeted applications based on its
assessment of market need and size, effectiveness of distribution channels,
support requirements, and potential profitability to the Company. These
applications are not limited by industry or function but rather are
determined by engineering and economic analysis that shows that force
sensing technology offers a particularly functional, cost-effective or
otherwise attractive solution to the particular product need.
Prior to 1992, the Company's principal business was the manufacture
and sale of FSR sensors made to customer specifications. During 1992, the
Company changed its product focus to concentrate on the sale of complete
sensor products and systems and now focuses in two areas, pointing device
products based on the Company's proprietary VersaPoint technology and
Custom Applications.
23
<PAGE>
VersaPoint Technology
For computer users, the two most common ways to enter data or give
commands are "keying" (using regular "text entry" keys on a keyboard) and
"pointing" (using a mouse or equivalent device, which may be stand-alone or
installed on a keyboard). As both commercial and industrial computer
systems have moved from text-based to graphics-based user interfaces, the
need for pointing devices has increased. Interlink Electronics believes
that its force sensing technology is particularly well suited to this
application because of its inherent ability to provide accurate control of
both cursor movement and speed without any requirement for movement of the
device. New computer technologies, such as multimedia, interactive CD and
the Internet, also require or support pointing and other non-text-based
interface devices. Interlink Electronics' force sensing technology,
featuring a thin sensor profile, zero travel, and broad dynamic range
characteristics, allows for the design of miniature joysticks, touch pads,
and pressure pens offering a user-friendly, cost-effective pointing
solution and data entry method.
To address these market opportunities, Interlink Electronics has
developed its proprietary VersaPoint technology. The VersaPoint technology
consists of a four-zone FSR sensor array and proprietary software and
firmware. Depending on product design, computer function selection can be
provided either by "clicking" separate buttons on the computer pointing
device, or by sharply increasing pressure on the cursor control button
itself.
Branded Products
In 1992 Interlink Electronics began the development of various
stand-alone computer pointing devices based on its VersaPoint technology.
Of these products, the SuperMouse device was introduced in November 1992,
the DuraPoint ruggedized pointing device was introduced in February 1993,
the ProPoint pointing device was introduced in February 1994, the
RemotePoint cordless pointing device was introduced in August 1994, and the
DeskStick and RemotePointPlus products were introduced in November 1995.
Interlink Electronics is continuing to develop distribution channels
for its branded products. Current distribution consists of mass
merchandiser outlets, including Circuit City Stores, Inc. ("Circuit City"),
Fry's Corporation ("Fry's"), Tandy Corporation's Incredible Universe
("Tandy's Incredible Universe") and Computer City, distributors, such as
Ingram Micro, catalogs and specialty resellers targeting corporate
accounts. Marketing to these channels is accomplished by direct sales
through Company employees and a network of independent sales
representatives which has recently been established throughout the United
States, Japan, Canada, and Mexico.
24
<PAGE>
RemotePointPlus At the Fall 1995 COMDEX show, Interlink Electronics
introduced its RemotePointPlus product, a remote control computer cursor
controller. With programmable buttons (enabling it to handle dozens of
different user-defined functions), and a range of approximately 40 feet, it
is designed to meet the needs of even the most sophisticated presenters and
Internet power users.
DeskStick Interlink Electronics' newest desktop mouse replacement, the
DeskStick product, couples the advanced pointing stick technology
previously available only in notebook computers with a very attractive
price point, designed to meet the needs both of first time mouse users, and
of those looking for a unique replacement mouse.
SuperMouse Interlink Electronics has designed and developed the
SuperMouse device, an after-market mouse for the commercial and consumer
market. It is targeted primarily at the notebook and other portable
computer market in which the Company believes it has a competitive
advantage as a result of its small size and its versatility (it can be used
as a portable, desktop, or handheld mouse). In addition, the growing
popularity of Microsoft Windows software systems is creating the need for
after-sale pointing devices. The principal solutions offered for this
after-sale market have been the trackball and the traditional mouse. Sales
of external pointing devices, for all markets, including the market for
which the SuperMouse device is primarily targeted, grew to an estimated
$283 million in revenues in 1995.
ProPoint To address the presentation and multimedia market, in
February 1994, the Company began shipping its ProPoint device, a handheld
corded pointing device used to control cursor movement and function
selection. The ProPoint product comes with 12 feet of cable and, with
optional additional connecting cables, its range can be extended to up to
40 feet, making it useful not only as a personal cursor control device, but
also as a presentation assistant for conference room size presentations.
RemotePoint In order to satisfy the need for a cordless, remote
pointing device to control desktop and conference room computer-based
presentations, Interlink Electronics introduced its RemotePoint product in
August 1994. The RemotePoint device is a handheld, infrared cordless cursor
control device that has an effective range of up to 40 feet.
25
<PAGE>
DuraPoint Increasingly, industrial, technical and scientific machinery
is being controlled by computers that incorporate pointing devices as a
means of command input. In many of the environments in which such computers
operate, resistance to moisture, chemicals and other contaminants is a
requirement. Both a traditional mouse and trackball are vulnerable to
contamination and malfunction from a variety of substances because they
have exposed moving parts and because they cannot be contained within
sealed systems. Also, machinery used in hospital operating rooms and some
industrial plants must be "scrubbable" as a part of the normal cleaning and
disinfecting process required in those environments.
To address these needs, in February 1993 Interlink Electronics began
shipping its DuraPoint ruggedized pointing device. To the best of the
Company's knowledge, its DuraPoint device was the first cursor control
device designed to NEMA 4X, 6P, and 13 standards (industry association
standards relating to the ability of an electronic device to operate under
adverse environmental conditions). Independent testing to confirm
compliance with NEMA standards has not been required by customers and has
not been requested by the Company. The DuraPoint device can withstand a
variety of harsh environments, such as direct water spray, debris,
cleansers or even prolonged submersion. Interlink Electronics offers the
DuraPoint device as either a stand-alone product or as a cursor control
module that can be incorporated into an existing or planned control panel
design. Sales channels consist primarily of industrial hardware and
software distributors and bundling arrangements with industrial and medical
equipment manufacturers.
OEM Remote Controls
Since the development of its first hand-held pointing device ProPoint,
Interlink Electronics has been selling its remote controls on an OEM basis,
i.e. direct to the system manufacturer. With the introduction of the
Interactive Remote Control ("IRC"), an infrared remote control with
VersaPoint pointing technology and up to 30 additional function buttons,
Interlink Electronics' offers many remote control solutions to the OEM. Any
of the ProPoint, RemotePoint, RemotePointPlus and IRC products can be
purchased through a private label arrangement or each has been specifically
designed to be easily customized to customer specifications. Interlink
Electronics also offers a circuit board level solution of its remote
control/ pointing device technology.
Keyboard Integration
Interlink Electronics offers a variety of alternatives to computer and
keyboard manufacturers to purchase components for a pointing device
installed in a keyboard or panel mounted. Historically, the Company has
sold the basic sensor array for use with electronics supplied by others.
More recently, however, it has focused on the sale of a complete
VersaPoint-based sensor module incorporating both the sensor array and
supporting firmware. When Interlink Electronics' proprietary firmware is a
part of the package, the actual electronic components may be sold or the
technology may be licensed to the customer for manufacture by others. The
Company's FSR sensors have been installed in keyboards for
26
<PAGE>
a variety of notebook, desktop, industrial and other computers. A computer
pointing device can be incorporated on a keyboard as a separate key or can
be installed under a regular text-entry or other function key as an
alternate function. Interlink Electronics has developed a "plug and play"
FSR pointing device, marketed under the trade name "MicroModule", that is
available as a standard integrated product for installation in notebooks or
other computers.
Interlink Electronics' MicroModule and MicroJoystick computer pointing
devices, and similar OEM systems incorporating "pointing sticks," are
designed to be incorporated into notebook (and smaller) computer
applications. Because the required FSR sensor array can be packaged in an
enclosure approximately 0.2" thick, it can be incorporated at and just
below the surface of the keyboard, and therefore it does not take up
significant amounts of space or interfere with the installation of other
components immediately below the keyboard surface.
Custom Applications
The Company's Custom Applications Product Line consists of design,
engineering and product development teams that incorporate its proprietary
technology into specific custom products for individual OEM customers.
Interlink Electronics' force sensing technology addresses many applications
in this area. Because of the required design and development time, sales
cycles typically range from four to 18 months and can be considerably
longer. On the other hand, the result of a successful custom sale is
usually a product that is regularly reordered by the customer over a
considerable period of time.
The principal advantages of force sensing technology that apply to the
Company's other business areas also apply to its Custom Applications. The
ability to produce sensors in a wide variety of shapes and sizes, detection
of both the location and the intensity of pressure applied to the sensor,
the zero-travel characteristic and the system's resistance to environmental
damage are all attractive features for the Company's Custom Applications.
In some cases, Interlink Electronics' customers have determined that force
sensing technology provides the only currently available solution to their
sensor requirements.
The Company has identified and is currently working with a variety of
Custom Applications customers that are presently concentrated in the
industrial and medical device industries: for example, it has developed a
fail-safe sensor system for Varian Associates for use in a medical imaging
device. As the heavy medical imaging device is lowered into contact with
the patient, the FSR sensor functions as a safety bumper to prevent injury
from excessive pressure of the device on the patient by halting the
movement of the device when the selected level of pressure is reached. FSR
sensors developed by Interlink Electronics for Baxter Healthcare
Corporation are incorporated in an infusion pump where the FSR sensor
functions as a safety device to endure proper placement of the intravenous
tube in the pump head.
27
<PAGE>
SALES AND MARKETING
Historically, the Company sought to establish relationships with
customers that require a sensor system for which its proprietary force
sensing technology offers a particularly attractive solution and market
advantage. As a part of such relationships, the Company would work with the
customer to design an appropriate solution which the Company would then
manufacture and supply. Over the past few years Interlink Electronics'
sales and marketing strategy has changed, as the Company has evolved from
being merely a supplier of sensors into its present position as a designer
and manufacturer of complete sensor systems. Today, the Company is focusing
on integrating its patented force sensing technology with added electronic
interfacing and mechanics in order to provide full "plug and play"
solutions. With the introduction of the initial version of its SuperMouse
device in late 1992, Interlink Electronics entered the consumer product
market. With its DuraPoint device, introduced the next year, the Company
entered the industrial pointing device market. Its ProPoint, RemotePoint,
DeskStick, and RemotePointPlus products, introduced in subsequent years,
have built upon this foundation. The Company expects to continue to sell
its products directly, as well as through distributors, value-added
resellers, system integrators, mass merchandisers, and others.
Computer Pointing Devices. Since 1990, Interlink Electronics has
worked with a variety of keyboard and other computer and computer
peripheral device manufacturers to supply sensors or sensor systems for
installation in computers or peripheral devices. The Company is continuing
to explore opportunities in this area and is in discussions with several
potential OEM customers. Sales cycles for OEM sales are relatively long--in
part because a successful sale requires Interlink Electronics' sensors to
be "designed in" to a customer product. Interlink Electronics' success with
respect to such OEM sales is also heavily dependent on the business success
of its customers or prospective customers. The Company has from time to
time experienced difficulty, when rapidly falling computer and peripheral
prices put pressure on many hardware manufacturers, including some of the
Company's customers. The Company believes that OEM sales constitute an
important part of its sales and marketing activity, and is devoting
significant management and sales time to exploring OEM opportunities.
During the past few years, manufacturers of notebook computers have
given considerable attention to the prospect of installing "pointing stick"
devices on the notebook computer keyboard, either in an area away from the
main array of keys or in between regular keys. The Company has a
distribution agreement with Logitech, Inc., the world's leading OEM
distributor of pointing devices, under which Logitech acts as one of
Interlink Electronics' non-exclusive world-wide distributor of Interlink
Electronics' proprietary computer pointing stick systems.
In early 1995, Interlink Electronics revised its distribution strategy
for its consumer end user cursor control products by replacing its former
distributor with a direct sales force consisting of both Company employees
and independent sales representatives. The Company
28
<PAGE>
has established a network of sales representatives which covers the United
States, Canada, and Mexico, and continues to closely monitor the results of
their activities. In Europe, the Company is considering marketing these
products through a non-exclusive master distributor, as well as through
regional and local sales representatives. In Japan, the Company's
subsidiary markets these products through several non-exclusive Japanese
distributors. Interlink Electronics is also actively exploring possible OEM
bundling opportunities regarding these products. The Company's advertising
expenditures regarding these products have thus far been relatively modest,
with strong reliance on retailer cooperative advertising, favorable product
reviews in leading computer publications, and word of mouth.
The Company's DuraPoint ruggedized industrial pointing device, in its
stand-alone configuration, is sold by a direct sales force, as well as
through a network of industrial electronics distributors. Interlink
Electronics supports its sales of DuraPoint products primarily through
print advertising in industrial controls magazines, direct mail and
demonstrations at trade shows.
Custom Applications. Interlink Electronics sells its custom designed
sensors through a direct sales organization. An integrated marketing
approach, consisting of a direct mail campaign, media advertising, public
relation campaigns, trade show participation, and telemarketing programs is
managed by the Director of Marketing. The sales and marketing group is
supported by a team of customer service specialists and order-entry
personnel.
An important part of the sales cycle for custom and modified standard
products typically involves product development and design. In a new market
or product application, there is often a need to design and engineer a
solution for customers prior to entering a period of manufacturing. This
process typically involves a period of four to seven months for turnkey
solutions before volume production can begin. The Company usually charges
the customer for design, development and tooling work during this period.
In an effort to compress development time, the Company develops product
lines that are readily modifiable to meet customer specific requirements.
This, in conjunction with Product and Project Management teams focused on
the Company's targeted business segments, provides an efficiently
responsive process to meet customer specific requirements.
INTERNATIONAL OPERATIONS
Interlink Electronics K.K. In April 1994, the Company acquired an 80%
ownership interest in Interlink Electronics K.K. ("IEKK"), a Japanese
company which distributes and performs value added services regarding the
Company's products in Japan. The president of IEKK is a former senior
executive with Mitsubishi Petrochemicals Company, and has a number of years
of experience working with Interlink Electronics and its products. In 1995,
IEKK's operations accounted for approximately 20% percent of Interlink
Electronics' consolidated revenues.
29
<PAGE>
LICENSEES
International Electronics & Engineering In September 1994, Interlink
Electronics entered into several agreements with InvestAR, S.a.r.l.,
pursuant to which Interlink Electronics transferred its entire ownership
interest in Interlink Electronics Europe ("IEE"), a Luxembourg-based joint
venture owned by Interlink Electronics and InvestAR, to InvestAR in
exchange for the 510,775 shares of Interlink Electronics common stock then
held by InvestAR. These shares, representing approximately 13.3% of the
Company's then-outstanding Common Stock, were returned to the Company, and
reverted to the status of authorized, but unissued, shares. In addition to
the stock transfer, the agreements also provided for continued
technological cooperation between the Company and IEE, and for the payments
of technology license royalties by IEE to the Company for sales by IEE
outside of Europe of certain FSR-based automotive safety related sensors.
Royalty revenues from IEE (which changed its name in 1995 to International
Electronics & Engineering) were not material in 1995, but are expected to
increase in the coming years.
Toshiba Silicone In an agreement entered into in 1989, Toshiba
Silicone Co., K.K. licensed from the Company the right to use Interlink
Electronics' Force Sensing Resistor technology in applications for use with
musical instruments. Thus far, the royalties from this license have not
been material to the Company's revenues.
MANUFACTURING
Production of FSR sensors is a relatively inexpensive and
non-polluting process. The flexibility of the process allows Interlink
Electronics to take advantage of changing market opportunities. FSR sensors
are manufactured using screen printing techniques. All proprietary aspects
of the manufacturing process are maintained in-house at Interlink
Electronics, and at IEE, its European licensee, to maintain quality and
protect the force sensing technology.
While electronic screen printing is a common process in various
technology industries, the quality and precision of printing required to
make high-quality FSR sensors greatly exceeds the standards applicable in
most other industries. The Company has developed significant expertise in
the manufacture of FSR sensors, and believes this experience would be
difficult to replicate over the short term. In the FSR manufacturing
process, printed sheets of FSR semiconductor material and the corresponding
conductor patterns are laminated to form the FSR sandwich structure using
inexpensive sheet adhesives. The assembled sheets are die cut, and suitable
connectors are attached.
30
<PAGE>
Readily available materials (substrates, films, polymer thick film
inks) developed for other industries have proved unsuitable for the FSR
manufacturing process. Interlink Electronics has worked closely with a
small group of manufacturers to create new materials optimized for FSR
usage; most of these materials are supplied to the Company on an exclusive
basis. The raw materials are processed into their final form on site, using
proprietary material and methods.
The Company maintains agreements with several computer chip
manufacturers pursuant to which they provide microcontrollers to it at
guaranteed prices for use in or with Interlink Electronics' pointing
devices. From time to time in the past, there have been unanticipated
shortages in the number, and/or delays in the availability, of
microcontrollers required in the Company's products. No past shortage has
had a material effect upon the Company's ability to supply its products in
commercial quantities. While the Company has taken a number of steps,
including the development of additional chip suppliers, in order to attempt
to reduce its prospective exposure, there can be no guarantee that a future
chip shortage will not occur, and that, if one occurs, that it would not
have an adverse effect upon the Company's operations.
Interlink Electronics manufactures FSR sensors in its facility in
Camarillo, California. This facility is capable of operating on a single,
double, or triple shift basis, as volume dictates. The Company acquires the
components of its FSR-based sensors from a number of sources within the
United States. Some components for its VersaPoint products as well as the
manufacture of some of these products are sourced from manufacturing
companies located in the Far East and Mexico; their cost and availability
are dependent upon a number of factors beyond the Company's control,
including future currency exchange rates, and future political conditions
in the countries in which the vendors are located.
The Company's European licensee, IEE, also has a modern and
well-equipped facility. This facility serves the European Community, and
addresses the Company's customers' need for the security of a second
possible manufacturing source.
RESEARCH
Interlink Electronics' research effort falls into four categories:
Intellectual Property, Materials and Processes, Prototype and Contract
Research, and Special Applications. The research group continues to expand
the Company's intellectual properties. The Company regularly files patent
applications and continuations thereof to cover both new and improved
methods of manufacturing FSR sensors, and new, non-FSR based technologies
developed by the Company.
31
<PAGE>
PRODUCT DEVELOPMENT
Product development for the Company is focused on developing custom,
standard, and modified standard products. Custom and modified standard
products are developed very selectively, when they are adequately funded,
and when there are obvious long-term strategic benefits to the Company.
Custom and modified standard products are primarily developed to meet the
requirements specified by OEM customers for their unique applications of
sensors using "force sensing resistor" technology. Standard or Branded
product requirements are established using market analysis, evaluation and
assessment to determine product differentiation and acceptance. Branded
products are funded as defined by the Company's business plan, and
developed to contribute to the Company's short and long-term business
objectives. The Company's VersaPoint technology is used to develop standard
products, primarily for computer pointing devices serving the OEM,
consumer, and industrial markets.
COMPETITION
In the computer pointing device market, the Company competes with a
number of sellers, including Microsoft, IBM, and Logitech (although
Logitech is also a customer of the Company for some components (pointing
sticks) of its products). A number of other companies manufacture keypads,
pointing sticks or remote control input devices, for a wide variety of
applications. Many of the Company's competitors have greater financial and
technological resources than does the Company, and may also have
established relationships with customers, and enjoy economies of scale,
that afford them a competitive advantage.
In a variety of applications incorporating FSR sensors into complete
products, the Company may also compete with the in-house capabilities of
its larger customers to design and manufacture all or portions of FSR
products. In addition, besides the major previously existing computer
cursor pointing technologies (pointing sticks, mice and trackballs), a new
"touchpad" technology has gained increased market acceptance over the last
few years; although the sales growth of the touchpad technology in the
portable and notebook computer OEM market has occurred primarily at the
expense of trackballs, several computer manufacturers which formerly used
OEM pointing sticks have switched to OEM touchpads. The long-range effect,
if any, of this trend upon the Company's OEM pointing stick business is at
this time unclear.
The Company's FSR sensors compete with comparable sensors produced
using a variety of other technologies. For applications that require only
"on/off" capability without any force sensing capability, a wide variety of
sensors exist, including membrane switches, capacitive sensors and
mechanical switches, that compete with the Company's sensors in particular
applications. Other kinds of "force sensing" technology include strain
gauges, piezo sensors and conductive rubber. Each of these technologies
have advantages and disadvantages that make it an attractive solution in
certain applications and not in others. Strain gauges are extremely
accurate but relatively expensive. Piezo sensors are generally comparable
in price and accuracy to FSR sensors but measure instantaneous impact
rather
32
<PAGE>
than force over a continuing period. Conductive rubber is a widely
established technology but deteriorates more rapidly over time than do
other force sensing technologies. The Company seeks to identify and pursue
applications in which force sensing technology is a particularly attractive
solution. Most sensors that compete with the Company's FSR sensors are
widely available from a variety of sources.
PATENTS AND PROPRIETARY RIGHTS
Aspects of Interlink Electronics' technology are protected by more
than 40 patents issued or pending in the United States and abroad, as well
as trade secret and proprietary knowledge. Products incorporating Interlink
Electronics' force sensing technology are sold under trademarks issued or
pending in the United States and various other countries. Of the initial
FSR patents granted (those covering the use of an uneven surface to produce
variable resistance), the last patent granted will expire on February 9,
1999. The Company has continued its efforts to improve the design,
formulation, and manufacture of its sensors; some of these improvements are
maintained as trade secrets, while U.S. and foreign patents have been
applied for with respect to others. Other patents, covering various
apparatus, processes and methods related to the force sensing technology
expire between 1998 and 2015. Various corresponding foreign patents will
expire between this year and 2015. Patents covering various materials and
processes used in the Company's current generation of products, as well as
new devices for angle and displacement sensing, were granted during 1995 by
the U.S. Patent Office. The Company has also filed U.S. and foreign patent
applications regarding the design, and several key operating features, of
its remote control products.
While the Company believes its patents afford it some competitive
advantage, such protection is limited by the resources available to the
Company to identify potential infringements and to defend its rights
against infringement. Furthermore, the extent of the protection offered by
any patent is subject to determinations as to its scope and validity that
would be made only in litigation. Therefore, there is no assurance that the
Company's patents will afford meaningful protection from competition.
The Company has also developed certain manufacturing processes and
other methods of applying its patented technology that it protects as trade
secrets. The Company believes these trade secrets are important for the
effective and efficient use of the patented technology and that a
competitor with a right to use the patented technology would be required to
develop comparable manufacturing and other processes to compete effectively
with the Company. The Company requires its employees to sign nondisclosure
agreements and seeks to limit access to sensitive information to the
greatest practical extent.
33
<PAGE>
EMPLOYEES
The Company had eighty-five full-time employees in the United States
as of March 31, 1996, eighty at its corporate offices and manufacturing
facilities (including seven members of management), and five sales managers
stationed at regional offices. Its Japan subsidiary had eight employees.
34
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Information with respect to the directors and executive officers of
the Company is set forth below:
<TABLE>
<CAPTION>
Name Age Position with Company
---- --- ---------------------
<S> <C> <C>
E. Michael Thoben, III 42 Chairman of the Board, President
and Director
William A. Yates 44 Senior Vice President, Sales and Marketing
David J. Arthur 47 Senior Vice President, Manufacturing
and Operations
Paul D. Meyer 37 Vice President, Finance
Wendell W. Ritchey 56 Vice President, Engineering and Product
Development
George Gu1<F1> 49 Director
Eugene F. Hovanec<F1>,<F2> 44 Director
Merritt M. Lutz<F2> 53 Director
Carolyn MacDougall<F1> 44 Director
Peter N. Vicars<F2> 48 Director
<FN>
<F1> Member of the Audit Committee.
<F2> Member of the Compensation Committee.
</FN>
</TABLE>
Directors are elected at the annual shareholders' meeting and, at the
pleasure of the shareholders, hold office for terms of up to three years,
expiring at an annual shareholders' meeting and when their successors are
elected and qualified. Officers are appointed by the Board of Directors and
serve at its discretion.
The Company maintains an Audit Committee and a Compensation Committee.
The Audit Committee oversees actions taken by the Company's independent
auditors. The Compensation Committee reviews the compensation levels of the
Company's executive
35
<PAGE>
officers, and makes recommendations to the Board of Directors regarding
changes in compensation. The Compensation Committee also administers the
Company's 1988 Stock Option Plan and the Company's 1993 Stock Incentive
Plan and recommends grants under the plan to the Board of Directors. See
"Executive Compensation--Stock Option Plan."
E. Michael Thoben, III became Chief Operating Officer and a director
of the Company in March 1990 and has been President of the Company since
June 1990 and Chairman of the Board since 1993. Prior to joining the
Company, for 11 years, Mr. Thoben was employed by Polaroid Corporation
("Polaroid"), most recently as the manager of one of Polaroid's seven
strategic business units on a worldwide basis. Mr. Thoben holds a B.S.
degree from St. Xavier University and has taken graduate management courses
at the Harvard Business School and The Wharton School of Business.
David J. Arthur has been Interlink's Vice President, Operations since
October 1990 and its Senior Vice President since June 1995. Before joining
the Company, he held senior positions in materials, purchasing and
manufacturing management with TRW Inc., North American Philips Corporation
and Amdahl Corporation. From 1987 to 1990 he served as Vice President of
Manufacturing at Harman Electronics, Inc.
William A. Yates joined Interlink as Vice President, Sales and
Marketing in 1990 from Polaroid where, for the nine prior years, he had
served in Polaroid's Industrial Products Division. Mr. Yates has over
seventeen years of sales and marketing experience with both small companies
and large businesses, the latter including Carnation Company and Ortho
Pharmaceutical Corporation. Mr. Yates holds a B.A. degree from the
University of California at Berkeley. Mr. Yates was promoted to Senior Vice
President in March 1995.
Paul D. Meyer joined Interlink in December 1989 as Controller and
became its Treasurer in October 1992 and its Vice President, Finance in
June 1994. From May 1988 to December 1989, he was Controller for Dix-See
Sales Company, a food distributor ("Dix-See"). Prior to joining Dix-See,
from September 1985 to May 1988, Mr. Meyer was Corporate Accounting Manager
for Bell Industries, an electronics distributor. Mr. Meyer was initially
employed at Price Waterhouse from 1983 to 1985. Mr. Meyer is a Certified
Public Accountant and holds a B.A. degree in economics from the University
of California at Los Angeles.
Wendell W. Ritchey joined the Company in March 1994 as its Vice
President, Engineering and Development. From May 1978 to August 1988, Mr.
Ritchey held senior management positions in research and development,
engineering and operations at ITT Power Systems. From January 1990 to
February 1994, Mr. Ritchey served as Vice President, Engineering of Digital
Sound Corporation, a developer of voice processing computers. Mr. Ritchey
holds a B.S. degree from Tri-State College.
George Gu became a director of the Company in September 1991. Since
1987, George Gu has been the President of GTM Corporation, a Taiwanese
textile manufacturer.
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<PAGE>
George Gu is the brother of Hiram Gu, an executive officer of IEE and is
the president of FSI, a principal shareholder of the Company. See "Certain
Transactions." George Gu holds an M.B.A. degree from Columbia University.
Eugene F. Hovanec became a director of the Company in December 1994.
Since December 1993, Mr. Hovanec has served as Vice President and Chief
Financial Officer of Vitesse Semiconductor Corporation. From April 1989 to
December 1993, Mr. Hovanec served as Vice President and Chief Financial
Officer of Digital Sound Corporation, a developer of voice processing
computers.
Merritt M. Lutz became a director of the Company in October 1994.
Since October 1994, Mr. Lutz has served as Managing Director of Morgan
Stanley & Company, Inc. From November 1989 to November 1993, Mr. Lutz
served as President and Chief Operating Officer of Candle Corporation, one
of the largest international systems software companies.
Carolyn MacDougall is a founder and President of Teeccino, a specialty
tea company. Ms. MacDougall has been a free-lance marketing and product
development consultant since 1980. She is a co-founder of the Company, has
been a director of Interlink since 1985 and was Executive Vice President of
the Company from 1985 to 1987.
Peter N. Vicars became a director of the Company in June 1994. Since
October 1994, Mr. Vicars has served as President and Chief Executive
Officer of Teloquent Communications Corp. From July 1987 to February 1994,
Mr. Vicars served as President and Chief Executive Officer of Tekelec, Inc.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Second Amended and Restated
Articles of Incorporation that (i) eliminate, to the fullest extent
permissible under California law, the liability of the Company's directors
to the Company and its shareholders for monetary damages and (ii) authorize
the Company to indemnify its directors, officers, employees and agents by
bylaw, agreements or otherwise, to the fullest extent permitted by law. The
Company's bylaws provide that the Company shall, to the maximum extent
permitted under California law, indemnify each of its directors and
officers. The Company may reincorporate in Delaware and, in that event, the
specific limitations with respect to the liability and indemnification of
directors may change. Management does not expect that any such change would
be likely to have a material effect in most circumstances. See "Description
of Securities -- Reincorporation in Delaware."
COMPENSATION OF DIRECTORS
Directors receive cash compensation of $500 for a meeting attended in
person and $100/hr. for participation in telephone meetings and are
reimbursed for their out-of-pocket costs of attendance at board meetings.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth cash compensation paid by the Company
to each of the Company's five most highly compensated current and former
executive officers whose cash compensation exceeded $60,000 and to all
executive officers, as a group, for services rendered in all capacities to
the Company or its subsidiaries during the year ended December 31, 1995.
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL OR CASH
NUMBER OF PERSONS IN GROUP CAPACITIES IN WHICH SERVED COMPENSATION
-------------------------- -------------------------- ------------
<S> <C> <C>
E. Michael Thoben, III................ President and Chairman of
the Board $195,312
David J. Arthur....................... Vice President, Manufacturing
and Operations 126,671
William A. Yates...................... Vice President, Sales and
Marketing 125,566
Brian T. Naylor<F1>................... Vice President, Business Develop-
ment and Corporate Counsel 130,000
Stuart Yaniger<F1>.................... Vice President and Chief
Scientist 125,566
All executive officers, as a group
(7 persons)......................... $859,858
<FN>
- ---------------
<F1> Former officer of the Company
</FN>
</TABLE>
STOCK OPTION PLANS
In 1988, the Company adopted its 1988 Stock Option Plan (the "1988
Plan") covering up to 280,000 shares of Common Stock. Under the 1988 Plan,
statutory incentive stock options, as provided in Section 422A of the Code
and/or nonstatutory options were available for grant to officers and key
employees. In addition, nonstatutory options were available for grant to
directors and independent contractors of the Company who were not also
salaried employees of the Company.
No new options have been granted under the Plan since 1992 and,
management has no current intention to make further grants under the Plan.
38
<PAGE>
In May 1993, upon recommendation of the Company's Board of Directors,
the Company's shareholders approved the 1993 Stock Incentive Plan (the
"1993 Plan") which initially provided for the issuance of up to 426,000
shares of Common Stock, of which 100,000 shares are reserved for grant to
directors and employees of the Company retained after the date of such
approval and recommendation. The 1993 Plan has subsequently been amended to
increase the number of shares subject to options issuance thereunder to
1,726,000 and to increase automatically the total number of shares subject
to options issuable thereunder by 300,000 shares annually on the first day
of each fiscal year beginning in 1997. The 1993 Plan permits the grant of
statutory incentive stock options, as provided in Section 422A of the Code,
and/or nonstatutory options to the Company's officers and key employees and
contributors.
The 1993 Plan is administered by a committee designated by the Board
of Directors, which has the authority, subject to the terms of the 1993
Plan, to determine the individuals to whom options or rights may be
granted, the exercise price and number of shares subject to each option or
right, whether the options granted to employees are to be incentive stock
options, the time or times during which all or a portion of each option may
be exercised and certain other provisions of each option or right. The 1993
Plan provides for the non-discretionary grant to non-employee directors
upon election or appointment as directors of 10-year options to purchase
20,000 shares of common stock at the then current fair market value, 33
1/3% of which vest immediately and upon each of the following two
anniversaries of the grant. This provision does not affect current
non-employee directors.
The 1993 Plan requires that the purchase price of shares of the Common
Stock subject to options qualifying as incentive stock options must be not
less than the fair market value of the Common Stock at the date of the
grant. The maximum term of an incentive stock option is ten years. The
purchase price of shares subject to incentive stock options granted to any
individual who owns shares possessing more than 10% of the combined voting
power of all classes of stock of the Company must be not less than 110% of
the fair market value of the stock subject to the options. Such options
must expire within five years of the date of grant. Incentive stock options
must be exercised by the optionee during the period of the optionee's
employment, except the exercise period may be extended for a period of 30
days to one year upon certain events of termination of employment, death,
retirement due to age and retirement due to disability. The aggregate fair
market value, on the date of grant, of the stock with respect to which
incentive stock options are exercisable for the first time by an employee
during any calendar year may not exceed $100,000. Options not qualifying as
incentive stock options must be exercised within ten years from the date of
grant.
Stock appreciation rights ("SARs"), stock bonus awards, cash bonus
rights and restricted stock may be granted under the 1993 Plan. Cash bonus
rights may be granted under the 1993 Plan in connection with options
granted or previously granted under the plan and in accordance with the
conditions for exercise of the options. A cash bonus right entitles an
optionee to a cash bonus when the option to which the bonus right relates
is exercised in whole or in part. The amount of the bonus equals the excess
of the fair market value of the
39
<PAGE>
shares subject to the option on the exercise date over the total option
price for the shares, multiplied by the bonus percentage determined by the
Board of Directors, not to exceed 75%. A SAR gives the holder the right to
payment from the Company of all amounts equal in value to the excess of the
fair market value of a share of Common Stock on the date of exercise over
its fair market value on the date of grant or, if the SAR is granted in
connection with an option, the option price per share under the option to
which the SAR relates. Stock bonus awards and grants of restricted stock
will be subject to terms, conditions and restrictions determined by the
Board of Directors at the time the stock is awarded or granted.
As of March 31, 1996 options, granted under both the 1988 Plan and the
1993 Plan, to purchase 1,229,287 shares of Common Stock were outstanding at
an average exercise price of approximately $5.00 per share, 381,456 shares
of Common Stock had been issued upon exercise of options at an average
exercise price of approximately $2.40 per share, no options had expired
unexercised, 130,907 had been canceled and 130,257 shares of Common Stock
were available for future grants under the 1993 Plan.
The following table sets forth certain information relating to options
granted (net of cancellations) under the 1988 Plan and the 1993 Plan to
executive officers of the Company as of March 31, 1996:
<TABLE>
<CAPTION>
EXERCISE PRICE
NAME NUMBER OF SHARES AVERAGE PER SHARE
- ---- ---------------- -----------------
<S> <C> <C>
E. Michael Thoben, III 320,000 $3.99
William A. Yates 145,000 $4.34
David J. Arthur 145,000 $4.34
Paul D. Meyer 57,600 $4.78
Brian T. Naylor(1) 70,000 $4.92
Wendell W. Ritchey 7,000 $4.92
Stuart I. Yaniger(1) 135,000 $4.22
- -----------------
<FN>
(1) Former officers of the Company
</FN>
</TABLE>
OTHER COMPENSATION
The Company provides certain officers with automobile allowances.
These benefits, valued at their incremental cost to the Company, did not
exceed $25,000 or 10% of the compensation reported for any individual
officer, and with respect to the executive officers as a group (eight
persons), such compensation did not exceed $25,000 times the number of
persons in the group or 10% of the cash compensation reported in the Cash
Compensation Table for the group.
CERTAIN TRANSACTIONS
Pursuant to a promissory note dated November 9, 1988, the Company
loaned Mr. Stuart Yaniger, a former officer of the Company, $45,000. The
note was fully due and payable on November 9, 1993 and bore interest at the
rate of 9% per annum. No interest
40
<PAGE>
was payable until maturity. On November 9 of each year during the term of
the note, so long as Mr. Yaniger continues to be employed by the Company,
the outstanding balance of the note will be reduced by $5,000. In March
1993, the Company and Mr. Yaniger entered into an amended note. The amended
note contains substantially the same terms as the original note, except
that the amended note is fully due and payable on November 9, 1997, bears
interest at a rate of 8% per annum and provides for the forgiveness of
accrued interest if Mr. Yaniger remains in the employ of the Company as of
November 9, 1997. As of March 31, 1996, the outstanding principal balance
on the amended note was $10,000.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership, as of March 31, 1996, and as adjusted to reflect the
sale of the Shares offered by this Prospectus, assuming all such Shares are
sold, of the Common Stock by (i) each person known by the Company to own
beneficially more than 5% of the Common Stock, (ii) each director of the
Company, (iii) the Chief Executive Officer and each of the four most highly
compensated executive officers of the Company (other than the Chief
Executive Officer) and (iv) all officers and directors as a group. Except
as otherwise noted, the Company believes that the persons listed below have
sole investment and voting power with respect to the Common Stock owned by
them.
<TABLE>
<CAPTION>
Shares Percentage of Common Stock (1)
Beneficially ---------------------------------
Name Owned (1) Before Offering After Offering
- ---- --------- --------------- --------------
<S> <C> <C> <C>
Calmont & Co. 355,000 8.3% 7.9%
201 3rd St. (11th Flr.)
San Francisco, CA 94103
E. Michael Thoben, III(2) 213,100 5.0% 4.8%
c/o Interlink Electronics
546 Flynn Road
Camarillo, CA 91361
George Gu(3) 205,574 4.8% 4.6%
c/o GTM Corporation
300 Chang Hsaio E. Rd.
Taipei, Taiwan R.O.C. 10514
Carolyn MacDougall(4) 53,606 1.3% 1.2%
Peter N. Vicars(5) 30,000 * *
Merritt M. Lutz(6) 30,000 * *
Eugene F. Hovanec(7) 31,000 * *
William A. Yates(8) 92,005 2.2% 2.1%
41
<PAGE>
David J. Arthur(9) 92,083 2.2% 2.1%
Brian T. Naylor(10) 49,095 1.2% 1.1%
Wendell W. Ritchey(11) 40,095 1.2% 1.1%
Dr. Stuart Yaniger(12) 112,761 2.7% 2.5%
All directors and officers (including those 958,319 22.5% 21.4%
listed above) as a group (11 persons)(13)
<FN>
- -----------------------------
* Less than 1%
(1) All shares are held directly with sole voting and investment power
unless otherwise indicted. Shares that the person or group has the
right to acquire within 60 days after April 2, 1996 are deemed to be
outstanding in calculating the percentage ownership of the person or
group, but are not deemed to be outstanding as to any other person or
group.
(2) Consists of options to purchase 213,100 shares of Common Stock.
(3) Includes options granted to Mr. Gu to purchase 10,000 shares of Common
Stock, 150,119 shares of Common Stock, and warrants to purchase 45,455
shares of Common Stock held by Force Sensor Investment Corporation,
which is owned by Mr. Gu's family.
(4) Consists of 33,915 shares of Common Stock, warrants to purchase 9,691
shares of Common Stock, and options to purchase 10,000 shares of
Common Stock.
(5) Consists of options to purchase 30,000 shares of Common Stock.
(6) Consists of options to purchase 30,000 shares of Common Stock.
(7) Consists of options to purchase 30,000 shares of Common Stock, and
1,000 shares of Common Stock.
(8) Consists of options to purchase 92,005 shares of Common Stock.
(9) Consists of options to purchase 92,083 shares of Common Stock.
(10) Comprises options to purchase 49,095 shares of Common Stock.
(11) Comprises options to purchase 49,095 shares of Common Stock.
(12) Includes options for purchase 90,391 shares of Common Stock.
(13) Includes warrants to purchase 55,146 shares of Common Stock and
options to purchase 729,684 shares of Common Stock.
</FN>
</TABLE>
42
<PAGE>
DESCRIPTION OF SECURITIES
REINCORPORATION IN DELAWARE
The Company's shareholders have approved the reincorporation of the
Company as a Delaware corporation, and authorized management to proceed
with such reincorporation should it deem it appropriate to do so.
Management has taken steps to implement such reincorporation and expects
the reincorporation to become effective in the current quarter. If the
Company is reincorporated in Delaware, certain characteristics of its
securities, as well as certain rights of officers, directors and
shareholders may change. Although most of these changes would be unlikely
to have a material effect on the rights of shareholders, it is possible
that, in certain circumstances, such changes could have a material effect.
If the Company is reincorporated in Delaware, certain provisions of
the Delaware General Corporation Laws (the "Delaware GCL") could discourage
a third party from attempting to acquire, or make it more difficult for a
third party to acquire control of the Company. As a Delaware corporation,
the Company would be subject to the provisions of Section 203 of the
Delaware GCL. That section provides, with certain exceptions, that a
Delaware corporation may not engage in any of a broad range of business
combinations with a person or an affiliate or associate of such person who
is an "Interested Stockholder" for a period of three years from the date
that such person became an Interested Stockholder unless (i) the
transaction or business combination that results in a person becoming an
Interested Stockholder is approved by the board of directors of the
corporation before the person becomes an Interested Stockholder, (ii) upon
consummation of the transaction that resulted in the person becoming an
Interested Stockholder, the Interested Stockholder owned 85% or more of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding shares owned by persons who are both officers and
directors of the corporation and shares held by certain employee stock
ownership plans) or (iii) on or after the date the person became an
Interested Stockholder, the business combination is approved by the
corporation's board of directors and authorized by the affirmative vote of
the holders of at least 662/3% of the corporation's outstanding voting
stock at an annual or special meeting, excluding shares owned by the
Interested Stockholder. An "Interested Stockholder" is defined in Section
203 of the Delaware GCL as any person that is (i) the owner of 15% or more
of the outstanding voting stock of the corporation or (ii) an affiliate or
associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an Interested Stockholder.
AUTHORIZED SECURITIES
The Company is authorized to issue 40 million shares of Common Stock
and 10 million shares of Preferred Stock.
43
<PAGE>
Common Stock. The holders of Common Stock are entitled to one vote per
share for each share held of record on all matters submitted to a vote of
the shareholders and are entitled to receive ratably such dividends as are
declared by the Board of Directors out of funds legally available therefor.
In the event of a liquidation, dissolution or winding up of the Company,
holders of the Common Stock have the right to a ratable portion of the
assets remaining after payment of liabilities and liquidation preferences
of any outstanding shares of Preferred Stock. The holders of Common Stock
have no preemptive rights or rights to convert their Common Stock into
other securities and are not subject to future calls or assessments by the
Company. All outstanding shares of Common Stock are, and the shares offered
hereby, upon issuance and sale, will be, fully paid and nonassessable. The
Company's Second Amended and Restated Articles of Incorporation and bylaws
contain provisions that (i) eliminate the liability of directors to the
Company and its shareholders for monetary damages to the fullest extent
permitted under California law and (ii) indemnify the officers and
directors of the Company to the fullest extent permitted by California law.
Preferred Stock. The Board of Directors may, without further action of
the shareholders, issue Preferred Stock in one or more series and fix or
alter the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption price or prices, liquidation
preferences and the number of shares constituting any series or the
designations of such series (provided that the Board of Directors has no
authority to issue more than 10 million shares of Preferred Stock.)
The rights of the holders of Common Stock will be subject to, and may
be adversely affected by, the rights of the holders of Preferred Stock, if
any. Issuance and sale of Preferred Stock, while providing desirable
flexibility in achieving corporate objectives, could have the effect of
making it more difficult for a person to acquire, or of discouraging a
person from acquiring, a majority of the voting stock of the Company.
TRANSFER AGENT AND WARRANT AGENT
American Securities Transfer, Incorporated, 1825 Lawrence Street,
Denver, Colorado 80202 is the transfer agent and registrar for the Common
Stock.
LEGAL OPINION
The validity of the shares of Common Stock being offered hereby is
being passed upon for the Company by Stoel Rives LLP, Portland, Oregon.
44
<PAGE>
EXPERTS
The financial statements and the related financial statement schedules
included in this prospectus and elsewhere in the registration statement, to
the extent and for the periods indicated in their reports, have been
audited by Arthur Andersen LLP and Deloitte & Touche LLP, independent
public accountants, as stated in their reports appearing herein and
elsewhere in the registration statement and are included in reliance upon
the authority of such firms given upon their authority as experts in
accounting and auditing in giving said reports.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto,
relating to the Shares offered hereby has been filed by the Company with
the Securities and Exchange Commission, Washington, D.C. This Prospectus
does not contain all of the information set forth in the Registration
Statement and the Exhibits and Schedules thereto. For further information
with respect to the Company and the Shares offered hereby, reference is
made to such Registration Statement, Exhibits and Schedules. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other documents filed as
an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. A copy of the Registration
Statement may be examined without charge at the Commission's principal
offices in Washington D.C., and copies of all or any part thereof may be
obtained from the Commission upon the payment of certain fees prescribed by
the Commission.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements reported on by independent public
accountants and reports for the first three quarters of each fiscal year
containing unaudited financial information.
45
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Statement Page
------------------- ----
Reports of Independent Public Accountants.................................. F-1
Consolidated Balance Sheets as of December 31, 1994 and 1995
and March 31, 1996 (unaudited)............................................. F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1993, 1994 and 1995 and for the Three-Month Periods
Ended March 31, 1995 and 1996 (unaudited).................................. F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the Years
Ended December 31, 1993, 1994 and 1995 and for the Three-Month Period
Ended March 31, 1996 (unaudited)........................................... F-5
Consolidated Statements of Cash Flows for Years Ended
December 31, 1993, 1994 and 1995 and for the Three-Month
Periods Ended March 31, 1995 and 1996 (unaudited).......................... F-6
Notes to the Consolidated Financial Statements (including Data
Applicable to Unaudited Periods)........................................... F-8
46
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Interlink Electronics:
We have audited the accompanying consolidated balance sheets of Interlink
Electronics (a California corporation) and its subsidiaries as of December
31, 1994 and 1995, and the related consolidated statements of operations,
shareholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Interlink Electronics
and its subsidiary as of December 31, 1994 and 1995, and the results of
their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
March 1, 1996
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Interlink Electronics:
We have audited the accompanying statements of operations, shareholders
equity (deficit) and cash flows of Interlink Electronics (the "Company")
for the year ended December 31, 1993. Our audit also included the financial
statement schedule for the year ended December 31, 1993 listed in the Index
at Item 14. These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion of these financial statements and financial statement
schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the results of operations and cash flows of the Company for the
year ended December 31, 1993 in conformity with generally accepted
accounting principles. Also, in our opinion, the financial statement
schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information
set forth therein.
DELOITTE & TOUCHE LLP
Woodland Hills, California
February 25, 1994
F-2
<PAGE>
INTERLINK ELECTRONICS
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------
December 31,
------------------------- March 31,
ASSETS 1994 1995 1996
------- ------- -------
(unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 636 $ 3,496 $ 2,649
Marketable securities 464 - -
Accounts receivable, less allowance for doubtful
accounts of $154 , $233 and $233 in 1994, 1995
and 1996, respectively 1,513 2,360 2,503
Due from shareholders 49 - -
Inventories 845 2,184 2,727
Prepaid expenses and other current assets 46 239 314
------- ------- -------
Total current assets 3,553 8,279 8,193
------- ------- -------
Property and equipment, net 958 1,160 1,139
Patents and trademarks, less accumulated
amortization of $315, $375 and $393
in 1994, 1995 and 1996, respectively 260 368 384
European marketing rights 300 225 206
Other assets 114 155 179
------- ------- -------
Total assets $ 5,185 $ 10,187 $ 10,101
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 200 $ - $ -
Current maturities of long-term debt
and capital lease obligations 51 255 291
Accounts payable 559 1,270 794
Accrued payroll and expenses 603 401 482
------- ------- -------
Total current liabilities 1,413 1,926 1,567
------- ------- -------
Long-term debt, net of current portion 121 159 323
Capital lease obligations, net of current portion - 513 563
Commitments and contingencies - - -
Shareholders' equity:
Common stock (40,000 shares authorized,
3,358, 4,255 and 4,255 outstanding at December 31,
1994 and 1995 and March 31, 1996, respectively) 15,014 18,880 18,880
Accumulated deficit (11,363) (11,291) (11,232)
------- ------- -------
Total shareholders' equity 3,651 7,589 7,648
------- ------- -------
Total liabilities and shareholders' equity $ 5,185 $ 10,187 $ 10,101
======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-3
<PAGE>
INTERLINK ELECTRONICS
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
- ---------------------------------------------------------------------------------------------------------
Three Months Ended
Year Ended December 31, March 31,
----------------------- ---------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues $ 4,362 $ 7,797 $10,741 $ 2,255 $ 2,753
Cost of revenues 2,657 4,094 5,252 1,117 1,348
------ ------ ------ ------ ------
Gross profit 1,705 3,703 5,489 1,138 1,405
Operating expense:
Product development and research 782 1,011 897 222 242
Selling, general and administrative 3,954 3,887 4,524 992 1,090
------ ------ ------ ------ ------
Total operating expense 4,736 4,898 5,421 1,214 1,332
------ ------ ------ ------ ------
Operating income (loss) (3,031) (1,195) 68 (76) 73
------ ------ ------ ------ ------
Other income(expense):
PortaPoint debt conversion expenses (450) - - - -
Units issued in connection with
bridge loans (550) - - - -
Interest expense (84) (37) (60) (11) (22)
Minority interest - - 41 - -
Other income 175 155 101 16 2
Gain on sale of interest in European
joint venture - 3,380 - - -
------ ------ ------ ------ ------
Total other income (expense) (909) 3,498 82 5 (20)
------ ------ ------ ------ ------
Net income (loss) $ (3,940) $ 2,303 $ 150 $ (71) $ 53
====== ====== ====== ====== ======
Earnings (loss) per share $ (1.80) $ .49 $ .04 $ (.02) $ .01
====== ====== ====== ====== ======
Weighted average number of common
shares outstanding 2,192 5,810 3,957 3,363 4,255
====== ====== ====== ====== ======
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-4
<PAGE>
INTERLINK ELECTRONICS
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------
Common Stock Preferred Stock
---------------- ------------------ Accumulated
Shares Amount Shares Amount Deficit
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 190 $ 816 4,368 $ 8,575 $ (9,705)
Issuance of shares upon exercise
of employee stock options 67 75 - - -
Issuance of shares upon exercise
of stock warrants 29 220 - - -
Units issued in connection with
bridge loans 100 550 - - -
Units issued in connection with
PortaPoint debt conversion 138 761 - - -
Conversion of Preferred Stock
to Common Stock 1,683 8,575 (4,368) (8,575) -
Proceeds from sale of Units 1,553 8,539 - - -
Stock issuance costs - (1,437) - - -
Net loss - - - - (3,940)
-------- --------- -------- --------- ---------
Balance, December 31, 1993 3,760 18,099 - - (13,645)
Issuance of shares upon exercise
of employee stock options 109 315 - - -
Surrender and retirement of shares
in conjunction with sale of
interest in European Joint Venture (511) (3,400) - - -
Cumulative translation adjustment - - - - (21)
Net income - - - - 2,303
--------- --------- -------- --------- ---------
Balance, December 31, 1994 3,358 15,014 - - (11,363)
Issuance of shares upon exercise
of employee stock options 185 609 - - -
Issuance of shares upon exercise
of stock warrants 12 92 - - -
Proceeds from private placement, net 700 3,165 - - -
Cumulative translation adjustment - - - - (78)
Net income - - - - 150
--------- --------- -------- --------- ---------
Balance, December 31, 1995 4,255 18,880 - - (11,291)
Cumulative translation adjustment - - - - 6
Net income - - - - 53
--------- --------- -------- --------- ---------
Balance, March 31, 1996 (unaudited) 4,255 $ 18,880 - $ - $ (11,232)
========= ========= ======== ========= =========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-5
<PAGE>
INTERLINK ELECTRONICS
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------
Three Months Ended
Year Ended December 31, March 31,
--------------------------- ------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
Cash flows from operating activities: (unaudited)
<S> <C> <C> <C> <C> <C>
Net income (loss) $ (3,940) $ 2,303 $ 150 $ (71) $ 53
Adjustments to reconcile net income (loss)
to net cash provided by (used
for) operating activities:
Gain from sale of interest in JV - (3,400) - - -
Units issued in connection with bridge loans 550 - - - -
PortaPoint debt conversion expense 450 - - - -
Deferred licensing income (expense) (36) (144) - - -
Provisions for bad debts 107 95 91 - -
Depreciation and amortization 247 300 445 116 140
Changes in operating assets and liabilities:
Accounts receivable (323) (179) (938) (36) (143)
Inventories (214) (295) (1,339) (291) (543)
Prepaid expenses and other current assets 7 (42) (193) (64) (75)
Other assets 51 (15) (41) 2 (24)
Accounts payable 19 (420) 711 326 (476)
Accrued payroll and expenses 435 (2) (202) 45 81
--------- -------- -------- -------- -------
Net cash provided by (used for)
operating activities (2,647) (1,799) (1,316) 27 (987)
--------- -------- -------- -------- -------
Cash flows from investing activities:
Net sales (purchases) of marketable securities (1,589) 1,125 464 (18) -
Purchases of property and equipment (288) (682) (510) (36) (83)
Purchases of European Marketing Rights (375) - - - -
Acquisition, net of cash acquired - 78 - - -
Costs of patents and trademarks (48) (61) (170) (98) (33)
--------- -------- -------- -------- -------
Net cash (used for) provided by
investing activities (2,300) 460 (216) (152) (116)
--------- -------- -------- -------- -------
Cash flows from financing activities:
Borrowings on bank line of credit - 200 100 100 -
Payments on bank line of credit (328) - (300) - -
Borrowings on note payable to bank - 48 97 4 180
Payments on note payable to bank (6) (4) (18) (1) (5)
Proceeds from sale/leaseback - - 788 - 126
Principal payments on Tech Transfer Agreement (33) (36) (38) (9) (10)
Principal payments on capital lease obligations - - (74) - (41)
Repayment of PortaPoint Profit
Participation Interests (140) - - - -
Proceeds from sale of PortaPoint Profit Participation
Interests 50 - - - -
Repayment of shareholder notes (768) - - - -
Proceeds from bridge loans 900 - - - -
Repayment of bridge loans (900) - - - -
Due from shareholders - 85 49 (5) -
Proceeds from issuance of common stock
and units, net 7,263 315 3,866 17 -
--------- -------- -------- -------- -------
Net cash provided by financing activities 6,038 608 4,470 106 250
--------- -------- -------- -------- -------
(Continued)
F-6
<PAGE>
INTERLINK ELECTRONICS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------
(Continued) Three Months Ended
Year Ended December 31, March 31,
--------------------------- ------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(unaudited)
Effect of exchange rate changes on cash - (21) (78) 21 6
--------- -------- -------- -------- -------
Increase (decrease) in cash and
cash equivalents 1,091 (752) 2,860 2 (847)
Cash and cash equivalents
at beginning of period 297 1,388 636 636 3,496
--------- -------- -------- -------- -------
Cash and cash equivalents $ 1,388 $ 636 $ 3,496 $ 638 $ 2,649
========= ======== ======== ======== =======
at end of period
Supplemental disclosures of cash flow information:
Interest paid $ 84 $ 37 $ 60 $ 11 $ 22
Income taxes paid 1 1 2 2 1
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Supplemental Disclosure Of Non-Cash Information -
In 1993, $550,000 in Units were issued in connection with bridge loans,
$761,000 in Units were issued in connection with the conversion of the
PortaPoint Participation Interests to equity and $8,600,000 in Preferred
Stock was converted to Common Stock. Additionally, in 1993, $134,000 in
notes receivable were received from certain shareholders in connection with
the exercise of common stock warrants.
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
INTERLINK ELECTRONICS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31,1993, 1994, 1995
AND UNAUDITED THREE MONTHS ENDED MARCH 31, 1996
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interlink Electronics (the "Company") was incorporated in the State of
California on February 27, 1985. The Company is engaged in the development
and manufacture of products and components incorporating Force Sensing
Resistors.
Basis of Presentation of Interim Financial Data - The financial information
herein for the three month periods ended March 31, 1995 and 1996 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 results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year.
Consolidation Policy - The consolidated financial statements include the
accounts of the Company and its majority owned Japanese subsidiary. All
material intercompany accounts and transactions have been eliminated. The
preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of asset and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates.
Foreign Currency Transactions - The accounts of the Company's foreign
subsidiary have been translated according to the provisions of Statement of
Financial Accounting Standards No. 52. Gains and losses resulting from
translations of the foreign financial statements are included in
shareholders' equity. Any gain or loss resulting from foreign currency
transactions are reflected in the consolidated statement of operations for
the period in which they occur.
Cash and Cash Equivalents - The Company considers all highly liquid
investments purchased with an original maturity of three months or less to
be cash equivalents.
Marketable Securities - Effective January 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". This change in
accounting had no significant effect on the Company's financial statements.
Marketable securities consist of short-term debt securities which are
bought and held principally for the purpose of selling them in the near
future and, as such, are classified as trading securities. The securities
are stated at the lower of cost or market with unrealized gains and losses
included in earnings.
Accounts Receivable - Increases to the allowance for doubtful accounts
totaled $107,000, $95,000 and $91,000 for the years ended December 31,
1993, 1994, and 1995, respectively. Write-offs against the allowance for
doubtful accounts totaled $62,000, $27,000 and $12,000 for the years ended
December 31, 1993, 1994 and 1995, respectively.
Inventories - Inventories are stated at the lower of cost or market and
includes material, labor, and factory overhead. Cost is determined using
the average cost method.
F-8
<PAGE>
Property and Equipment - Property and equipment are carried at cost less
accumulated depreciation and amortization. Depreciation is recorded on the
straight-line basis over the estimated useful lives of the assets which
range from three to ten years. Amortization of leasehold improvements is
made based upon the estimated useful lives of the assets or the term of the
lease, whichever is shorter.
Maintenance and repairs are charged to operations as incurred, while
significant improvements are capitalized. Upon retirement or disposition of
property, the asset and related accumulated depreciation or amortization
are removed from the accounts and any resultant gain or loss is charged to
operations.
Patents and Trademarks - The costs of acquiring patents and trademarks are
amortized on a straight-line basis over their estimated useful lives,
ranging from seven to seventeen years. Amortization expense for the years
ended December 31, 1993, 1994 and 1995 was $52,000, $52,000 and $60,000,
respectively and $18,000 for the three months ended March 31, 1996.
Income Taxes - Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
Under this statement, deferred tax assets and liabilities represent the tax
effects, calculated at currently effective rates, of future deductible
taxable amounts attributable to events that have been recognized on a
cumulative basis in the financial statements (see Note 14).
Earnings/(Loss) per share - Profit/(Loss) per share is based upon the
weighted average number of shares outstanding and common stock equivalents.
(See Note 12)
Reclassifications - Certain amounts in the 1993 and 1994 financial
statements have been reclassified to conform with the 1995 presentation.
2. INVENTORIES
<TABLE>
<CAPTION>
Inventories consist of the following: (In Thousands)
December 31, March 31,
1994 1995 1996
------ ------ -----
<S> <C> <C> <C>
Raw material $ 705 $ 1,087 $ 1,534
Work in process 32 573 478
Finished goods 108 524 715
------- ------- ---------
Total inventories $ 845 $ 2,184 $ 2,727
======= ======= =========
</TABLE>
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment consist of the following: (In Thousands)
December 31, March 31,
1994 1995 1996
------ ------ -----
<S> <C> <C> <C>
Furniture, machinery and equipment $ 1,833 $ 2,172 $ 2,255
Leasehold improvements 133 127 127
------- ------- ---------
1,966 2,299 2,382
Less accumulated depreciation and amortization (1,008) (1,139) (1,243)
------- ------ ----------
Property and equipment, net $ 958 $ 1,160 $ 1,139
======= ======= =========
</TABLE>
Depreciation expense charged to operations amounted to $173,000, $314,000
and $105,000 for the years ended 1994, 1995 and for the three months ended
March 31, 1996, respectively. Property and equipment under capital leases
had a net book value of $673,000 at December 31, 1995.
F-9
<PAGE>
4. INVESTMENT IN JOINT VENTURE
In November 1989, the Company and a Luxembourg entity ("the JV Partner")
formed a joint venture in Luxembourg for the purpose of manufacturing and
marketing Force Sensing Resistor products in the European Economic
Community. The Company contributed $2 million to Interlink Electronics
Europe (the "JV") in exchange for a 50% ownership interest in the JV.
Simultaneously, the JV purchased the rights to use the Company's technology
in Europe for $2 million. Generally accepted accounting principles required
the deferral of the investment and the related $2 million gain on the sale
of technology because of the Company's continued involvement with the JV.
Accordingly, the investment was recorded at no value.
In June 1992, December 1992, and April 1993, the JV Partner invested an
additional $1.5 million (45,000 shares), $500,000 (15,000 shares) and
$850,000 (30,000 shares) in the JV, respectively, increasing their
ownership percentage to 69%.
The Company's interest in the JV is accounted for under the equity method
of accounting. Summarized financial data for the JV are as follows:
<TABLE>
<CAPTION>
(In Thousands)
December 31,
------------------
1992 1993
---- ----
<S> <C> <C>
Net sales $ 418 $ 920
Net loss (2,114) (2,133)
Working capital (706) (2,298)
Total assets 1,496 1,314
Total liabilities 2,691 4,497
Shareholders' deficit $ (1,195) $ (3,183)
</TABLE>
Because the Company had recorded the investment at no value and the Company
was not liable for the obligations of the JV nor was it otherwise committed
to provide any further financial assistance to the JV, it was not required
to recognize any of the JV's losses.
In December of 1992, the Company sold the JV additional rights to the
technology for $500,000 in cash. Given the Company's 36% ownership interest
in the JV at that time, that portion of the gain ($180,000) was deferred
and was to be amortized over five years. The balance of $320,000 is
included in licensing, royalties and other income in the statement of
operations in 1992. Because of the Company's sale of its interest in the JV
in 1994, the remaining unamortized balance of the deferred gain was
included in other income in 1994.
In 1993, the Company repurchased from the JV the rights to market pointing
device products to the European Community for cash payment of $375,000
which is recorded as an asset and amortized over five years.
On September 26, 1994 the Company sold its interest in the JV to the JV
partner. As payment, the JV partner surrendered its 510,775 common shares
of the Company and agreed to pay a royalty to the Company on certain
product sales by the JV outside of Europe and certain other designated
territories. The shares received, which constituted approximately 13% of
the Company's outstanding shares, were appraised at $3.4 million (after
allowing for a discount for the relatively large number of shares received
in relation to the total outstanding shares) and were immediately retired.
As the Company had carried the investment in the joint venture at no value,
the Company recorded a gain of $3,380,000 (net of transaction fees). The
gain on the sale of the Joint Venture is included in other income/
(expense) in the accompanying statement of operations and represents net
income of $.58 per share for the fiscal year ended 1994.
F-10
<PAGE>
5. ACQUISITION OF JAPANESE SUBSIDIARY
On April 1, 1994, the Company acquired an 80% interest in Interlink
Electronics KK for $8,000 in cash. Interlink Electronics KK is located in
Tokyo, Japan and is a distributor and value-added manufacturer of FSR-based
products. The acquisition has been accounted for as a purchase and the
results of Interlink Electronics KK have been included in the accompanying
consolidated financial statements since the date of acquisition. The cost
of the acquisition has been allocated on the basis of the estimated fair
market value of the assets acquired ($428,000) and the liabilities assumed
($476,000). This allocation resulted in goodwill of approximately $58,000
which is being amortized over 15 years. Pro forma results of the
acquisition, assuming it had been made at the beginning of the year, would
not be materially different from the results reported.
6. SHORT-TERM BORROWINGS
The Company maintains a revolving line of credit with a bank with a maximum
amount of the lessor of $1,000,000 or 70% of eligible accounts receivable,
as defined in the agreement. The loan carries an interest rate of the
bank's interest rate plus 1% (9.50% at December 31, 1995) and matures in
May 1996. The loan is secured by all of the Company's assets and requires
the Company to meet certain financial covenants, all of which were
satisfied at December 31, 1995. At December 31, 1995, the Company was
eligible to utilize $870,000 on the loan, of which none had been drawn and
$100,000 was utilized to secure letters of credit.
Selected information regarding short-term borrowings are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Average daily borrowings (000's) $ 83 $ 68 $ 106
Maximum daily borrowings (000's) $ 250 $ 200 $ 300
Weighted average interest rate during year 8.0% 10.1% 10.7%
</TABLE>
7. BRIDGE LOANS
In February and March 1993, the Company issued nine bridge loan units, each
unit consisting of a note in the principal amount of $100,000 and an equity
right to acquire 9,091 Units. The Company also issued two additional bridge
loan units in exchange for certain promissory notes and attached Common
Stock Warrants. The bridge loan notes carried interest at 8% per annum and
were repaid in June 1993.
8. LONG-TERM DEBT AND CAPITAL LEASES
Bank loans - The Company's Japan subsidiary, Interlink Electronics KK,
maintains unsecured small business loans with three banks totaling
$125,000. The loans carry a weighted average interest rate of 2.5% and are
payable in monthly installments through the year 2000. The combined balance
outstanding as of December 31, 1994 and 1995 was $44,000 and $125,000,
respectively.
Technology Transfer Agreement - In December 1987, the Company purchased
certain patents and related technology from its founder. Under the
Technology Transfer Agreement, the Company is obligated to pay the greater
of $4,000 per month or 1% of monthly gross sales of products related to the
purchased technology. The term of the agreement is from January 1988 to
December 1997. Minimum obligations under the agreement have been recorded
at their preset value utilizing an interest rate of 8.25% ($127,000 and
$88,000 at December 31, 1994 and 1995, respectively).
Capital lease obligations - The Company has an equipment financing
agreement with a leasing company to provide for the purchase of equipment
of up to $1,108,000. As amounts are drawn on the line, the funded amount is
converted to a note payable with a standard payment schedule of up to 42
months at an imputed interest rate of 11.5%. During 1995, the Company
utilized and converted $788,000 of the line to notes payable.
F-11
<PAGE>
At December 31, 1995, scheduled maturities of long-term debt and capital
lease obligations for the next five years and thereafter are as follows (in
thousands):
<TABLE>
<CAPTION>
Debt Leases
---- ------
<C> <C> <C>
1996 $ 80 $ 272
1997 79 272
1998 30 266
1999 23 45
2000 14 -
--------- --------
226 855
Less amount representing interest (13) (141)
--------- --------
Present value of minimum payments 213 714
Current portion (54) (201)
--------- --------
Long term portion $ 159 $ 513
========= ========
</TABLE>
9. PORTAPOINT PROFIT PARTICIPATION INTERESTS
In 1992, the Company sold PortaPoint Profit Participation Interests in
rights to future profits of the PortaPoint product for $400,000
consideration. (An additional $50,000 was sold in January 1993.) Effective
with the initial public offering, the investors agreed to convert their
interests to an aggregate cash payment of $138,500 and 138,364 Units.
10. CAPITALIZATION
Preferred Stock - The Company is authorized to issue up to 10,000 shares of
Preferred Stock. As of December 31, 1992, the Company had designated six
series of Preferred Stock: Series A (2,000,000 shares authorized; 835,720
shares were issued), Series B (1,350,440 shares authorized and were
issued), Series C (800,000 shares authorized; 553,786 shares were issued),
Series D (600,000 shares authorized and were issued), Series E (1,454,545
shares authorized; 1,207,865 shares were issued), and Series F (290,909
shares authorized; no shares were issued). In March 1993, the shareholders
agreed to the conversion of preferred stock and the accumulated dividends
thereon ($2,869,249) to aggregate of 1,682,848 shares of common stock.
Pursuant to this agreement, the Company filed, concurrently with the
effectiveness of its initial public offering, amended articles of
incorporation eliminating all current series of Preferred Stock. In the
future, the Preferred Stock may be issued in one or more series with such
rights and preferences as may be fixed and determined by the Board of
Directors.
Common Stock - The Company is authorized to issue 40,000,000 shares of
Common Stock.
In March 1993, the shareholders approved a 1 for 5 reverse stock split of
the Company's Common Stock. All share and per share data have been
retroactively restated to reflect this change.
In April 1995, the Company completed a private placement of 700,000 shares
of common stock and 46,668 warrants. The warrants are exercisable at $8.25
and expire June 7, 1996. The Company received gross proceeds of $3.5
million (before offering expenses and placement agent fees totaling
$335,000). In conjunction with the offering, the placement agents also
received 60,000 warrants. These securities were registered with the
Securities and Exchange Commission under S-3 Registration Statement
effective July 17, 1995.
Units - In June 1993, the Company completed an initial public offering
raising $7,102,000 net of expenses, through the sale of 1,553,000 Units.
Each Unit consisted of one share of Common Stock and one Warrant to
purchase one share of Common Stock at $8.25.
F-12
<PAGE>
11. STOCK WARRANTS AND STOCK OPTIONS
At December 31, 1995, the Company had the following Common Stock Warrants
outstanding:
<TABLE>
<CAPTION>
Number of Exercise Expiration
Shares Price Date
------ ----- ----------
<S> <C> <C>
1,897,614 $8.25 June 7, 1996
135,000 $8.26 June 4, 1998
135,000 $6.60 June 4, 1998
</TABLE>
Under the terms of the Company's Option Plans, officers and key employees
may be granted nonqualified or incentive stock options and outside
directors and independent contractors of the Company may be granted
nonqualified stock options. The aggregate number of shares which may be
issued under the plans is 2,006,000. Outstanding options under the plans
vest in various increments through April, 1999. Information concerning
stock options under the plans is summarized as follows:
<TABLE>
<CAPTION>
(In Thousands)
Year Ended December 31, Three Months Ended
----------------------------- March 31,
1993 1994 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Options outstanding, beginning of period 237 477 1,063 1,219
Options granted (weighted average price of 319 715 1,236 17
$5.00, $7.50, $5.19 and $5.00 in 1993,
1994, 1995 and 1996, respectively )
Options exercised (weighted average price (67) (109) (185) -
of $.89, $2.84 and $3.29 in 1993,
1994 and 1995, respectively)
Options canceled (12) (20) (895) -
----- ----- ----- --------
Options outstanding, end of period 477 1,063 1,219 $1,236
==== ===== ===== ======
Options exercisable 272 464 613 722
==== ====== ====== =======
Option price $1.25 to $9.13
</TABLE>
12. EARNINGS/(LOSS) PER SHARE
The computation of earnings (loss) per share is based upon the weighted
average number of common shares outstanding during the periods presented
plus (in periods of which they have a dilutive effect) the effect of common
shares contingently issuable from options and warrants.
Common stock equivalents are calculated using the modified treasury stock
method. Under the treasury stock method, the proceeds from the assumed
conversion of options and warrants are used first to repurchase up to a
maximum of 20% of the outstanding shares, second to retire debt and third,
invested in government securities. Accordingly, interest expense and/or
interest income is adjusted on a proforma basis. This adjustment totaled
$570,000 for the year ended December 31, 1994.
F-13
<PAGE>
The following table contains information necessary to calculate
earnings/(loss) per share:
<TABLE>
<CAPTION>
(In Thousands Except Per Share Data)
------------------------------------
Three Months
Year Ended December 31, March 31,
------------------------------ ----------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Weighted average common and common equivalent shares:
Weighted average shares outstanding 2,192 3,678 3,957 3,363 4,255
Weighted average share equivalents - (1) 2,132 - (1) - (1) - (1)
------- ------- ------- ------- -------
Weighted average common and common
equivalent shares 2,192 5,810 3,957 3,363 4,255
======= ======= ======= ======= =======
Net income (loss) for per share calculation:
Net income/(loss) $ (3,940) $2,303 $ 150 (71) $ 53
Adjustment per treasury stock method
calculation - 570 - - -
------- ------- ------- ------- -------
Net income (loss) for per share calculation $(3,940) $ 2,873 $ 150 (71) $ 53
======= ======= ======= ======= =======
Earnings/(loss) per share $ (1.80) $ .49 $ .04 $ (.02) $ .01
======= ======= ======= ======= =======
<FN>
- ----------
(1) Common stock equivalents were anti-dilutive and thus were not included
in the calculation.
</FN>
</TABLE>
13. LEASE COMMITMENTS
The Company leases its main facility and certain equipment under operating
leases expiring through 1998. Rent payments totaled approximately $142,000,
$120,000 and $153,000 in 1993, 1994 and 1995, respectively.
Minimum lease commitments are summarized as follows (in thousands):
Year
----
1996 $176
1997 176
1998 102
1999 -
----
$454
====
14. INCOME TAXES
Under Section 382 of the Internal Revenue Code, net operating losses are
limited when, on a cumulative basis over a three-year period, the holdings
of certain shareholder groups owning more than 5% of the Company have
changed more than 50%. On December 23, 1987, the Company experienced a
greater than 50% change in ownership. As a result, the Company's
utilization of net operating loss carryforwards generated prior to that
date of $1,316,000 is limited to $126,000 per year, for federal income tax
purposes, through 1998. Utilization of state net operating losses generated
prior to December 23, 1987 of $706,000 is limited under the same rules.
However, for the tax years 1991 and 1992, the State of California suspended
the use of net operating loss carryforwards. As of December 31, 1995, the
Company has federal and state income tax net operating loss carryforwards
of approximately $10,924,000 expiring through 2009 and $4,677,000 expiring
through 1999, respectively.
On September 26, 1994, the Company sold its interest in Interlink
Electronics Europe (see Note 4). This transaction may have caused an
additional "change of ownership" under Section 382 of the Internal Revenue
Code. In the event that such a change is deemed to have occurred, the
Company's net operating losses will be
F-14
<PAGE>
limited. The Company has research and development tax credit caryforwards
of approximately $139,000 and $200,000 at December 31, 1994 and 1995,
respectively. The Company has total net deferred tax assets as follows:
<TABLE>
<CAPTION>
(In Thousands)
--------------
1994 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 4,297 $ 4,149
Vacation accrual 50 67
Allowance for bad debts 52 82
Other 157 114
----------- -----------
Total deferred tax assets 4,556 4,412
Deferred tax liabilities:
Other, net (3) -
----------- -----------
Total net deferred assets 4,553 4,412
Valuation allowance (4,553) (4,412)
----------- -----------
Total $ - $ -
=========== ===========
</TABLE>
A valuation allowance is recorded if the weight of available evidence
suggests it is more likely than not that if some portion or all of the
deferred tax asset will not be recognized. There is no assurance that the
Company will continue to be profitable in future periods, therefore, a
valuation allowance has been recognized for the full amount of the deferred
tax asset for 1994 and 1995.
15. RELATED PARTY TRANSACTIONS
The Company has agreement with its founder to provide consulting services
to the Company at $48,000 per year through December 1997.
In December 1994, certain shareholders exercised common stock warrants
and/or options. However, in certain instances, the cash consideration for
these exercises was not received by the Company until early the following
year. The related amounts, totaling $49,000 are shown as due from
shareholders as of December 31, 1994.
In June 1994, the former Chairman of the Board entered into a consulting
arrangement with the Company, terminating February 1995. Total consulting
expenses amounted to $143,000 in 1994.
16. SEGMENT INFORMATION
<TABLE>
<CAPTION>
Product-line Information: ( In Thousands)
---------------
Year Ended December 31, Three Months Ended
-------------------------------- March 31,
1993 1994 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Computer pointing devices $ 1,858 $ 5,221 $ 7,910 $ 2,226
Custom applications 2,504 2,576 2,831 527
--------- --------- --------- ---------
$ 4,362 $ 7,797 $ 10,741 $ 2,753
======== ======== ======== ========
Operating income (loss):
Computer pointing devices $ (1,556) $ (282) $ 397 $ 128
Custom applications (1,142) (283) 139 30
Corporate expenses (333) (630) (468) (85)
--------- --------- --------- ----------
$ (3,031) $ (1,195) $ 68 $ 73
======== ======== ========= =========
F-15
<PAGE>
(continued)
Assets:
Computer pointing devices $ 935 $ 2,427 $ 4,206 $ 5,160
Custom applications 1,158 1,195 1,478 1,210
Corporate 3,778 1,563 4,503 3,731
--------- --------- --------- ---------
$ 5,871 $ 5,185 $ 10,187 $ 10.101
========= ======== ======== ========
</TABLE>
Identifiable assets by product line are those assets that are used in the
Company's operations in each segment. Corporate assets are principally cash
and cash equivalents, marketable securities, patents and trademarks,
European marketing rights, due from shareholders and other assets.
Export Sales - The following table shows the breakdown of the Company's
export sales as a percentage of consolidated revenues.
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December, 31 March 31,
------------------------------- -----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Asia 23% 23% 29% 31% 27%
Europe and other (I) (I) 17% 16% 17%
<FN>
(I) Less than 10%
</FN>
</TABLE>
Major Customers - In 1995, sales to one customer in the medical industry
constituted 11% of the Company's sales and in 1994, sales to one customer
in the computer industry constituted 23%. Sales to two customers in the
medical industry constituted 12% and 16% of the Company's sales in 1993.
17. INFORMATION RELATED TO UNAUDITED INTERIM FINANCIAL STATEMENTS
Line of Credit - On May 5, 1996, the Company's bank renewed the existing
credit line and increased the maximum amount of the line to $1.5 million.
All other terms remained the same.
Bank Loan - In March 1996 two Japanese banks co-agreed to lend
approximately $180,000 to the Company's Japan subsidiary. The loan carries
an interest rate of 2.8% and is to be repaid over a six year period.
Equipment Lease Line - In April 1996 the Company's equipment leasing firm
increased the maximum amount available under the Company's equipment lease
line to $1.8 million. As of March 31, 1996 the Company had utilized
approximately $914,000 of the line and the remaining available amount
($886,000) must be used by December 31, 1996.
F-16
<PAGE>
================================================================================
No person has been authorized to give any information or to make any
representation in connection with the Offering being made hereby not
contained in this Prospectus, and, if given or made, such information or
representation must not be relied upon as having been authorized. This
Prospectus does not constitute an offer to sell or solicitation of an offer
to buy any of the securities offered hereby in any jurisdiction in which it
is unlawful to make such offer or solicitation in such jurisdiction.
Neither the delivery of this Prospectus nor any sale made hereunder shall
under any circumstances create an implication that information contained
herein is correct as of any time subsequent to the date hereof.
------------------
TABLE OF CONTENTS
Prospectus Summary.................................................. 2
The Company......................................................... 5
Risk Factors........................................................ 5
Use of Proceeds..................................................... 11
Market for the Company's Equity
Securities and Dividend Policy................................... 11
Capitalization...................................................... 12
Dilution............................................................ 13
Selected Financial Data............................................. 14
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations....................................................... 16
Business............................................................ 22
Management.......................................................... 35
Certain Transactions................................................ 41
Principal Shareholders.............................................. 41
Description of Securities........................................... 43
Legal Opinion....................................................... 44
Experts............................................................. 45
Additional Information.............................................. 45
Index to Financial Statements....................................... 46
================================================================================
<PAGE>
================================================================================
223,723 SHARES
OF COMMON STOCK
OF
INTERLINK
ELECTRONICS
-------------
PROSPECTUS
-------------
June 17, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses by the
Registrant in connection with the sale of the Common Stock being registered
hereby.
Legal fees and expenses............................ 25,000
Accountants' fees and expenses..................... 25,000
Miscellaneous expenses............................. 50,000
-------
Total................................... $100,000
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Amended and Restated Articles of Incorporation (the
"Articles of Incorporation") provide:
The liability of the directors of the [Company] for monetary damages
shall be eliminated to the fullest extent permissible under
California law.
As authorized by Section 204 of the California Corporations Code (the
"Code"), this provision of the Company's Articles of Incorporation
eliminates director liability to shareholders or the Company for monetary
damages arising out of a director's breach of fiduciary duty of care, which
generally concerns directors' oversight of the Company's business and the
manner in which the directors make business decisions affecting the
Company. A director of a California corporation has the fiduciary duty to
perform his or her duties as a director (i) in good faith, (ii) in an
manner he or she believes to be in the best interests of the corporation
and its shareholders and (iii) with such care, including reasonable
inquiry, as an ordinarily prudent person in a like position would use under
similar circumstances. This limitation on director liability does not
change the duty of care owed by a director to the Company and its
shareholders. It does, however, eliminate the personal liability of
directors for monetary damages in the event of litigation against the
director alleging a breach of that duty. This limitation on director
liability has no effect on the availability of equitable remedies, such as
an injunction or rescission based upon a director's breach of the duty of
care, although in certain instances such equitable relief may be
impractical, for example, due to the passage of time since the director's
alleged actions occurred.
Under Section 204 of the Code, the Company's Articles of
Incorporation cannot eliminate the liability of directors for monetary
damages for breach of the duty of care based on any of the following types
of claims:
II-1
<PAGE>
(i) acts or omissions that involve intentional misconduct or a
knowing or culpable violation of law;
(ii) acts or omissions that a director believes to be contrary to
the best interests of the Company or its shareholders or that involve
the absence of good faith on the part of the director;
(iii) any transaction from which the director derived an improper
personal benefit;
(iv) acts or omissions that show a reckless disregard of the
director's duty to the Company or its shareholders in circumstances in
which the director was aware, or should have been aware, in the
ordinary course of performing a director's duties, of a risk of
serious injury to the Company or its shareholders;
(v) acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to
the Company or its shareholders;
(vi) arising out of transactions between the Company and a
director in which the director has a material financial interest
contrary to the provisions of the Code; and
(vii) liability for improper distributions to shareholders of the
Company, and loans or guarantees to directors or officers of the
Company contrary to provisions of the Code.
The limitations on the liability of directors apply only to claims
against a director arising out of his or her role as a director and not in
the case of a director who also serves as an officer, to claims against the
person in the capacity of an officer or in any other non-director capacity,
and applies only to derivative actions and not to third party claims. This
means that actions brought by the Company's customers, discharged employees
or regulatory agencies, for example, would not be affected. This provision
does not eliminate or limit a director's liability based on a breach of the
director's duty of loyalty to the Company or its shareholders (which
generally concerns directors' self-interested dealings with respect to the
Company) or to liability arising under federal or state securities laws or
federal or state laws regulating banks or bank holding companies. At
present there is no pending or threatened litigation or proceeding of which
the Company is aware involving a director of the Company in his capacity as
such.
The Company's Articles of Incorporation also provide:
The [Company] is authorized to provide indemnification of agents
(defined as directors, officers, employees or other agents of the
[Company]) for breach of duty to the [Company] and its stockholders
through bylaw provisions or through agreements with the agents or
both, in excess of the indemnification otherwise permitted by Section
317 of the [Code], subject only to the limits on such excess
indemnification set forth in Section 204 of the [Code].
II-2
<PAGE>
The Company's bylaws provide:
The [Company] shall, to the maximum extent permitted by the General
Corporation Law of California, indemnify each of its directors and
officers against expenses, judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with any
proceeding arising by reason of the fact any such person is or was a
director or officer of the [Company] and shall advance to such
director or officer expenses incurred in defending any such
proceeding to the maximum extent permitted by such law. For purposes
of this [provision], a "director" or "officer" of the corporation
includes any person who is or was a director or officer of the
[Company], or is or was serving at the request of the [Company] as a
director or officer of another corporation, or other enterprise, or
was a director or officer of a corporation which was a predecessor
corporation of the [Company] or of another enterprise at the request
of such predecessor corporation. The Board of Directors may in its
discretion provide by resolution for such indemnification of, or
advance of expenses to, other agents of the [Company], and likewise
may refuse to provide for such indemnification or advance of expenses
except to the extent such indemnification is mandatory under the
California General Corporation law.
Any indemnification provided to officers or directors under the bylaws
must be authorized in each specific case by any one of the following: (i) a
majority vote of a quorum of directors who are not parties to the
proceeding; (ii) if such quorum is not obtainable, by independent legal
counsel in a written opinion; (iii) approval of a majority of the shares
represented and voting at a duly held meeting at which a quorum is present
with the shares owned by the person seeking indemnification not being
entitled to vote; or (iv) the court in which the proceeding is or was
pending.
The Company is also authorized to advance monies to officers and
directors to cover expenses incurred in connection with a proceeding,
provided that an officer or director must return any such advances if it is
ultimately determined that such officer or director is not entitled to
indemnification.
Section 317 of the Code sets forth the statutory framework governing
indemnification of agents of a corporation. It also provides that a
corporation may authorize broader indemnification of its agents than that
which is expressly permitted by Section 317 for a breach of duty by the
agent to the Company and its shareholders under certain circumstances and
subject to certain limitations set forth in the Code. Because the
indemnification provisions of Section 317 are nonexclusive, it is possible
that certain claims beyond the specific scope of Section 317 may be
indemnifiable.
Under Section 317 of the Code, the Company may indemnify an agent who
was or is threatened to be made a party in a third party action against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with such action. With respect to
shareholder derivative actions, the Company may indemnify an agent who was
or is a party or is threatened to be made a parry to any threatened,
pending or completed action against expenses actually and reasonably
incurred in connection with the defense or settlement of such derivative
action.
II-3
<PAGE>
In order to qualify for indemnification, the agent must have acted in
good faith and in a manner the agent believed to be in the best interests
of the Company and its shareholders. Under the Code, the Company may not
provide indemnification for any liability arising out of acts, omissions or
transactions set forth in the seven exceptions to elimination of director
liability summarized in (i) to (vii) above. In addition, the Company cannot
indemnify an agent in the following two sets of circumstances:
(i) Indemnification of expenses is prohibited in a derivative
action where the agent is found to be liable to the corporation,
unless and only to the extent that such indemnification of expenses
is expressly allowed by the court If the action is settled without
court approval, neither the settlement amount nor expenses incurred
in defending the action can be recovered through indemnification; and
(ii) In both derivative and third party actions, indemnification
is prohibited (with certain exceptions) if such indemnification would
be inconsistent with a provision of the Company's Articles of
Incorporation, bylaws, shareholders resolutions or an agreement which
prohibits or otherwise limits indemnification or would be
inconsistent with any condition expressly imposed by a court in
approving a settlement.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
(A) EXHIBITS
<S> <C>
1.1 Form of Underwriting Agreement**
1.2 Form of Agreement Among Underwriters**
3.1 Amended and Restated Articles of Incorporation*
3.1a Second Amended and Restated Articles of Incorporation. Incorporated by
reference to Exhibit 4.1 of the Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1993.
3.2 Amended and Restated Bylaws*
4.1 See Article III of Exhibit 3.1 and Article II of Exhibit 3.2*
4.2 Stock Purchase Agreement dated as of December 23, 1987, and
amendments thereto*
4.3 Stock Purchase Agreement dated as of July 28, 1988, and amendments
thereto*
4.4 Stock Purchase Agreement dated as of March 31, 1989*
4.5 Investment Agreement dated as of November 7, 1989, and amendments
thereto*
<FN>
- --------------------------
* Filed April 1, 1993
** Filed May 10, 1993
*** Filed May 28, 1993
**** Filed June 4, 1993
***** Filed January 24, 1994
(1) Filed August 1, 1995
(2) Filed herewith
+ Confidential treatment for portions of this agreement has been granted by the
Commission.
</FN>
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4.6 Series E Preferred Stock and Warrant Purchase Agreement dated as of
December 14, 1990, and amendments thereto*
4.7 Agreement to Issue Warrant dated as of June 22, 1988*
4.8 Form of Series A Preferred Stock Purchase Warrant dated as of June 22,
1988, and amendments thereto*
4.9 Agreement to Issue Warrant dated as of February 24, 1989*
4.10 Form of Series A Preferred Stock Warrant dated as of February 24, 1989,
and amendments thereto*
4.11 Form of Series F Preferred Stock Purchase Warrant dated December 14,
1990*
4.12 Form of Series F Preferred Stock Purchase Warrant dated June 30, 1992*
4.13 Co-Sale Agreement between Franklin Eventoff, the Registrant and Grace
Ventures Partnership II dated December 23, 1987, and amendments
thereto*
4.14 Registration Rights Agreement dated as of February 15, 1989, and
amendments thereto*
4.15 Form of Promissory Note and Agreement dated September 1,1992*
4.16 Form of Subscription Agreement dated December 11, 1992*
4.17 Form of Convertible Note due June 30, 1993*
4.18 Form of Subscription Agreement related to Private Placement Memorandum
dated February 22, 1993*
4.19 Form of Promissory Note due February 28, 1994*
4.20 Form of Equity Rights Certificate dated February, 1993*
4.21 Form of PortaPoint Product Investment Interest Purchase Agreement
(undated)*
4.22 Form of PortaPoint Investment Interest Conversion Agreement, dated as of
March 31, 1993**
4.23 Form of Common Stock Certificate**
4.24 Form of Warrant Agreement**
4.25 Form of Common Stock Purchase Warrant**
4.26 Form of Representative's Warrant to Purchase Common Stock**
4.27 Form of Representative's Warrant to Purchase Warrants**
4.28 Form of Representative's Warrant to Purchase Units***
4.29 Form of Waiver and Exchange Agreement dated as of February 10, 1993
among the Registrant and the Preferred Shareholders.
Incorporated by reference to Exhibit 4.2 of the
Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1993.
5.1 Opinion of Stoel Rives Boley Jones & Grey*
<FN>
- --------------------------
* Filed April 1, 1993
** Filed May 10, 1993
*** Filed May 28, 1993
**** Filed June 4, 1993
***** Filed January 24, 1994
(1) Filed August 1, 1995
(2) Filed herewith
+ Confidential treatment for portions of this agreement has been granted by the
Commission.
</FN>
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.1 1988 Stock Option Plan, as amended and restated*
10.1a 1993 Stock Incentive Plan**
10.2 Form of Nonqualified Stock Option Agreement*
10.3 Voting Agreement among the Registrant, Franklin Eventoff, Kenneth
Bitticks and Investors dated as of December 23, 1987*
10.4 Voting Agreement between the Registrant, Grace Ventures Partnership I
and Grace Ventures Partnership II dated as of November 7, 1989*
10.5 Voting Agreement between the Registrant and InvestAR s.a.r.l. dated as of
November 7, 1989*
10.6 Promissory Note from Stuart Yaniger and Amy Hielsberg dated
November 9, 1988*
10.7 Form of Promissory Note from Stuart Yaniger dated March, 1998*
10.7a Form of Amendment to Promissory Note from Stuart Yaniger***
10.8 Letter Agreement between the Registrant and Business Partners
International effective as of December 15, 1992*
10.9 Technology Transfer Agreement between the Registrant and Franklin
Eventoff dated as of December 23, 1987, and amendment thereto*
10.10 Consulting Agreement between the Registrant and Franklin Eventoff dated
as of December 23, 1987*
10.11 Letter of Intent to lease premises in Camarillo, California, dated
January 25, 1993*
10.11a Lease Agreement to lease premises in Camarillo, California dated
January 25, 1993**
10.12 Sublease Agreement to lease premises in Carpinteria, California dated
November 29, 1988*
10.13 Bank of Montecito Line of Credit Agreement dated April 12, 1992*
10.14 License Agreement between the Registrant and Toshiba Silicone Co., Ltd.
dated March 10, 1989*
10.15 Joint Venture Agreement among the Registrant, InvestAR s.a.r.l., Interlink
Electronics Europe s.a.r.l. and IEE Finance s.a.r.l. dated November 7,
1989*
10.16 Exclusive License and Distributor Agreement between the Registrant and
Interlink Electronics Europe s.a.r.l. dated as of November 7, 1989*
10.17 Manufacturing and Supply Agreement between the Registrant and Interlink
Electronics Europe s.a.r.l. dated as of November 7, 1989*
10.18 Letter Agreement between the Registrant and InvestAR s.a.r.l. dated
November 7, 1989*
<FN>
- --------------------------
* Filed April 1, 1993
** Filed May 10, 1993
*** Filed May 28, 1993
**** Filed June 4, 1993
***** Filed January 24, 1994
(1) Filed August 1, 1995
(2) Filed herewith
+ Confidential treatment for portions of this agreement has been granted by the
Commission.
</FN>
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.19 Agreement between the Government of Luxembourg, Interlink Electronics
Europe s.a.r.l., IEE Finance s.a.r.l., the Registrant and InvestAR s.a.r.l.
dated December 18, 1989*
10.20 Agreement with InvestAR s.a.r.l. and ARBED S.A. (undated)*
10.21 Agreement among the Registrant, Interlink Electronics Europe s.a.r.l. and
InvestAR s.a.r.l. dated as of December 14, 1990*
10.22 Memorandum of Agreement between Mitsubishi Petrochemical Company
Limited and the Registrant dated July 1, 1991, and amendment thereto*
10.23 Ink Technology Transfer Agreement between the Registrant and InvestAR
s.a.r.l. dated December 11, 1992**
10.24 Financing Agreement between the Registrant and InvestAR s.a.r.l. in
relation with the Ink Technology Transfer Agreement dated December 11,
1992**
10.25 Form of Confidentiality and Nondisclosure Agreement in relation with the
Ink Technology Transfer Agreement (undated)**
10.26 Form of Escrow Agreement for Technology in relation with Ink Technology
Transfer Agreement dated December 11, 1992**
10.27 Financing Agreement between the Registrant and InvestAR s.a.r.l. dated
June 15, 1992*
10.28 Interlink Europe Financing Agreement between Registrant and InvestAR
s.a.r.l. dated April 7, 1993**
10.29 Form of Security Agreement between the Registrant and Grace Ventures
Partnership II dated May 20, 1993***
10.30 Promissory Note issued by the Registrant to Grace Ventures Partnership II
dated May 21, 1993***
10.31 Form of Corporate Finance Consulting Agreement between the Registrant
and Cohig & Associates, Inc.***
10.32 Form of Corporate Consulting Agreement between the Registrant and Cohig
& Associates Inc. dated March 11, 1993***
10.33 Agreement between Lexmark International, Inc. and the Registrant dated
August 25, 1993*****(1)+
10.34 Agreement between Zilog, Inc. and the Registrant dated November 30,
1993*****(1)+
10.35 Agreement between the Registrant and Xtend Micro Products, Inc. dated
December 22, 1993*****(1)+
10.36 Employment Agreement between the Registrant and Kenneth W. Bitticks
effective as of June 1, 1993.*****
<FN>
- --------------------------
* Filed April 1, 1993
** Filed May 10, 1993
*** Filed May 28, 1993
**** Filed June 4, 1993
***** Filed January 24, 1994
(1) Filed August 1, 1995
(2) Filed herewith
+ Confidential treatment for portions of this agreement has been granted by the
Commission.
</FN>
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.37 Employment Agreement between the Registrant and E. Michael Thoben, III
effective as of June 1, 1993.*****
10.38 Employment Agreement between the Registrant and William A. Yates
effective as of June 1, 1993.*****
10.39 Employment Agreement between the Registrant and Stuart I. Yaniger
effective as of June 1, 1993*****
10.40 Employment Agreement between the Registrant and David J. Arthur
effective as of June 1, 1993*****
10.41 Distribution Agreement between the Registrant and Logitech, Inc. dated
February 28, 1994. Incorporated by reference to Exhibit 10.30 of the
Annual Report on Form 10-K for the year ended December 31, 1993.+
10.42 Agreement between the Registrant and Mr. Tamio Mori dated March 4,
1994. Incorporated by reference to Exhibit 10.31 of the Annual Report on
Form 10-K for the year ended December 31, 1993.+
10.43 Exclusive License and Distribution Agreement between the Registrant and
Interlink Electronics Europe S.a.r.l. dated September 26, 1994.
Incorporated by reference to Exhibit 10.30 of the Annual Report on Form
10-K for the year ended December 31, 1994.+
10.44 Restructuring Agreement between the Registrant and InvestAR S.a.r.l.
dated September 26, 1994. Incorporated by reference to Exhibit 10.31 of
the Annual Report on Form 10-K for the year ended December 31, 1994.+
10.45 Amended and Restated Agreement between the Registrant and Lexmark
International, Inc. dated November 13, 1994. Incorporated by reference to
Exhibit 10.32 of the Annual Report on Form 10-K for the year ended
December 31, 1994.+
11.1 Statement Regarding Computation of Loss Per Share****
14.1 Material foreign patents*
22.1 Subsidiaries of Registrant*
24.1 Consent of Deloitte & Touche LLP(2)
24.2 Consent of Arthur Anderson LLP(2)
24.3 Consent of Stoel Rives Boley Jones & Grey (included in Exhibit 5.1)*
25.1 Power of Attorney of Kenneth W. Bitticks*
25.2 Power of Attorney of E. Michael Thoben, III*
25.3 Power of Attorney of Merritt M. Lutz(1)
25.4 Power of Attorney of Eugene F. Hovanec(1)
25.5 Power of Attorney of Carolyn MacDougall*
25.6 Power of Attorney of Peter N. Vicars(1)
25.8 Power of Attorney of George Gu*
<FN>
- --------------------------
* Filed April 1, 1993
** Filed May 10, 1993
*** Filed May 28, 1993
**** Filed June 4, 1993
***** Filed January 24, 1994
(1) Filed August 1, 1995
(2) Filed herewith
+ Confidential treatment for portions of this agreement has been granted by the
Commission.
</FN>
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
27 Financial Data Schedule(2)
<FN>
- --------------------------
* Filed April 1, 1993
** Filed May 10, 1993
*** Filed May 28, 1993
**** Filed June 4, 1993
***** Filed January 24, 1994
(1) Filed August 1, 1995
(2) Filed herewith
+ Confidential treatment for portions of this agreement has been granted by the
Commission.
</FN>
</TABLE>
II-9
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in Item 14,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it
as against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the Prospectus any facts or events arising
after the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in this
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
II-10
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS
AMENDED, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF CAMARILLO, STATE OF CALIFORNIA, ON THE 17TH DAY
OF JUNE, 1996.
INTERLINK ELECTRONICS
By: E. MICHAEL THOBEN, III
------------------------------------------
E. Michael Thoben, III
Chairman, President, Chief Executive
Officer and Chief Financial Officer
Pursuant to the requirements of the Securities Act, as amended, this
amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Principal Executive and
Financial Officer:
E. MICHAEL THOBEN, III Chairman of the Board, June 17, 1996
- ----------------------------------
E. Michael Thoben, III President, Chief Executive
Officer and Chief Financial
Officer
Principal Accounting Officer:
PAUL D. MEYER Vice President, Finance June 17, 1996
- ----------------------------------
Paul D. Meyer
Directors:
E. MICHAEL THOBEN, III Director June 17, 1996
- ----------------------------------
E. Michael Thoben, III
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
GEORGE GU* Director June 17, 1996
- ----------------------------------
George Gu
CAROLYN MACDOUGALL* Director June 17, 1996
- ----------------------------------
Carolyn MacDougal
PETER N. VICARS* Director June 17, 1996
- ----------------------------------
Peter N. Vicars
MERRITT M. LUTZ* Director June 17, 1996
- ----------------------------------
Merritt M. Lutz
EUGENE F. HOVANEC* Director June 17, 1996
- ----------------------------------
Eugene F. Hovanec
*By: E. MICHAEL THOBEN, III
----------------------------
E. Michael Thoben, III
Attorney in Fact
</TABLE>
II-12
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
No. Exhibit Description Page No.
- --- ------------------- --------
<S> <C>
1.1 Form of Underwriting Agreement**
1.2 Form of Agreement Among Underwriters**
3.1 Amended and Restated Articles of Incorporation*
3.1a Second Amended and Restated Articles of Incorporation. Incorporated by
reference to Exhibit 4.1 of the Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1993.
3.2 Amended and Restated Bylaws*
4.1 See Article III of Exhibit 3.1 and Article II of Exhibit 3.2*
4.2 Stock Purchase Agreement dated as of December 23, 1987, and
amendments thereto*
4.3 Stock Purchase Agreement dated as of July 28, 1988, and amendments
thereto*
4.4 Stock Purchase Agreement dated as of March 31, 1989*
4.5 Investment Agreement dated as of November 7, 1989, and amendments
thereto*
4.6 Series E Preferred Stock and Warrant Purchase Agreement dated as of
December 14, 1990, and amendments thereto*
4.7 Agreement to Issue Warrant dated as of June 22, 1988*
4.8 Form of Series A Preferred Stock Purchase Warrant dated as of June 22,
1988, and amendments thereto*
4.9 Agreement to Issue Warrant dated as of February 24, 1989*
4.10 Form of Series A Preferred Stock Warrant dated as of February 24, 1989,
and amendments thereto*
4.11 Form of Series F Preferred Stock Purchase Warrant dated December 14,
1990*
4.12 Form of Series F Preferred Stock Purchase Warrant dated June 30, 1992*
<FN>
- --------------------------
* Filed April 1, 1993
** Filed May 10, 1993
*** Filed May 28, 1993
**** Filed June 4, 1993
***** Filed January 24, 1994
(1) Filed August 1, 1995
(2) Filed herewith
+ Confidential treatment for portions of this agreement has been granted by the
Commission.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequential
No. Exhibit Description Page No.
- --- ------------------- --------
<S> <C>
4.13 Co-Sale Agreement between Franklin Eventoff, the Registrant and Grace
Ventures Partnership II dated December 23, 1987, and amendments
thereto*
4.14 Registration Rights Agreement dated as of February 15, 1989, and
amendments thereto*
4.15 Form of Promissory Note and Agreement dated September 1,1992*
4.16 Form of Subscription Agreement dated December 11, 1992*
4.17 Form of Convertible Note due June 30, 1993*
4.18 Form of Subscription Agreement related to Private Placement Memorandum
dated February 22, 1993*
4.19 Form of Promissory Note due February 28, 1994*
4.20 Form of Equity Rights Certificate dated February, 1993*
4.21 Form of PortaPoint Product Investment Interest Purchase Agreement
(undated)*
4.22 Form of PortaPoint Investment Interest Conversion Agreement, dated as of
March 31, 1993**
4.23 Form of Common Stock Certificate**
4.24 Form of Warrant Agreement**
4.25 Form of Common Stock Purchase Warrant**
4.26 Form of Representative's Warrant to Purchase Common Stock**
4.27 Form of Representative's Warrant to Purchase Warrants**
4.28 Form of Representative's Warrant to Purchase Units***
4.29 Form of Waiver and Exchange Agreement dated as of February 10, 1993
among the Registrant and the Preferred Shareholders.
Incorporated by reference to Exhibit 4.2 of the
Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1993.
<FN>
- --------------------------
* Filed April 1, 1993
** Filed May 10, 1993
*** Filed May 28, 1993
**** Filed June 4, 1993
***** Filed January 24, 1994
(1) Filed August 1, 1995
(2) Filed herewith
+ Confidential treatment for portions of this agreement has been granted by the
Commission.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequential
No. Exhibit Description Page No.
- --- ------------------- --------
<S> <C>
5.1 Opinion of Stoel Rives Boley Jones & Grey*
10.1 1988 Stock Option Plan, as amended and restated*
10.1a 1993 Stock Incentive Plan**
10.2 Form of Nonqualified Stock Option Agreement*
10.3 Voting Agreement among the Registrant, Franklin Eventoff, Kenneth
Bitticks and Investors dated as of December 23, 1987*
10.4 Voting Agreement between the Registrant, Grace Ventures Partnership I
and Grace Ventures Partnership II dated as of November 7, 1989*
10.5 Voting Agreement between the Registrant and InvestAR s.a.r.l. dated as of
November 7, 1989*
10.6 Promissory Note from Stuart Yaniger and Amy Hielsberg dated
November 9, 1988*
10.7 Form of Promissory Note from Stuart Yaniger dated March, 1998*
10.7a Form of Amendment to Promissory Note from Stuart Yaniger***
10.8 Letter Agreement between the Registrant and Business Partners
International effective as of December 15, 1992*
10.9 Technology Transfer Agreement between the Registrant and Franklin
Eventoff dated as of December 23, 1987, and amendment thereto*
10.10 Consulting Agreement between the Registrant and Franklin Eventoff dated
as of December 23, 1987*
10.11 Letter of Intent to lease premises in Camarillo, California, dated
January 25, 1993*
10.11a Lease Agreement to lease premises in Camarillo, California dated
January 25, 1993**
<FN>
- --------------------------
* Filed April 1, 1993
** Filed May 10, 1993
*** Filed May 28, 1993
**** Filed June 4, 1993
***** Filed January 24, 1994
(1) Filed August 1, 1995
(2) Filed herewith
+ Confidential treatment for portions of this agreement has been granted by the
Commission.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequential
No. Exhibit Description Page No.
- --- ------------------- --------
<S> <C>
10.12 Sublease Agreement to lease premises in Carpinteria, California dated
November 29, 1988*
10.13 Bank of Montecito Line of Credit Agreement dated April 12, 1992*
10.14 License Agreement between the Registrant and Toshiba Silicone Co., Ltd.
dated March 10, 1989*
10.15 Joint Venture Agreement among the Registrant, InvestAR s.a.r.l., Interlink
Electronics Europe s.a.r.l. and IEE Finance s.a.r.l. dated November 7,
1989*
10.16 Exclusive License and Distributor Agreement between the Registrant and
Interlink Electronics Europe s.a.r.l. dated as of November 7, 1989*
10.17 Manufacturing and Supply Agreement between the Registrant and Interlink
Electronics Europe s.a.r.l. dated as of November 7, 1989*
10.18 Letter Agreement between the Registrant and InvestAR s.a.r.l. dated
November 7, 1989*
10.19 Agreement between the Government of Luxembourg, Interlink Electronics
Europe s.a.r.l., IEE Finance s.a.r.l., the Registrant and InvestAR s.a.r.l.
dated December 18, 1989*
10.20 Agreement with InvestAR s.a.r.l. and ARBED S.A. (undated)*
10.21 Agreement among the Registrant, Interlink Electronics Europe s.a.r.l. and
InvestAR s.a.r.l. dated as of December 14, 1990*
10.22 Memorandum of Agreement between Mitsubishi Petrochemical Company
Limited and the Registrant dated July 1, 1991, and amendment thereto*
<FN>
- --------------------------
* Filed April 1, 1993
** Filed May 10, 1993
*** Filed May 28, 1993
**** Filed June 4, 1993
***** Filed January 24, 1994
(1) Filed August 1, 1995
(2) Filed herewith
+ Confidential treatment for portions of this agreement has been granted by the
Commission.
</FN>
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequential
No. Exhibit Description Page No.
- --- ------------------- --------
<S> <C>
10.23 Ink Technology Transfer Agreement between the Registrant and InvestAR
s.a.r.l. dated December 11, 1992**
10.24 Financing Agreement between the Registrant and InvestAR s.a.r.l. in
relation with the Ink Technology Transfer Agreement dated December 11,
1992**
10.25 Form of Confidentiality and Nondisclosure Agreement in relation with the
Ink Technology Transfer Agreement (undated)**
10.26 Form of Escrow Agreement for Technology in relation with Ink Technology
Transfer Agreement dated December 11, 1992**
10.27 Financing Agreement between the Registrant and InvestAR s.a.r.l. dated
June 15, 1992*
10.28 Interlink Europe Financing Agreement between Registrant and InvestAR
s.a.r.l. dated April 7, 1993**
10.29 Form of Security Agreement between the Registrant and Grace Ventures
Partnership II dated May 20, 1993***
10.30 Promissory Note issued by the Registrant to Grace Ventures Partnership II
dated May 21, 1993***
10.31 Form of Corporate Finance Consulting Agreement between the Registrant
and Cohig & Associates, Inc.***
10.32 Form of Corporate Consulting Agreement between the Registrant and Cohig
& Associates Inc. dated March 11, 1993***
10.33 Agreement between Lexmark International, Inc. and the Registrant dated
August 25, 1993*****(1)+
10.34 Agreement between Zilog, Inc. and the Registrant dated November 30,
1993*****(1)+
10.35 Agreement between the Registrant and Xtend Micro Products, Inc. dated
December 22, 1993*****(1)+
<FN>
- --------------------------
* Filed April 1, 1993
** Filed May 10, 1993
*** Filed May 28, 1993
**** Filed June 4, 1993
***** Filed January 24, 1994
(1) Filed August 1, 1995
(2) Filed herewith
+ Confidential treatment for portions of this agreement has been granted by the
Commission.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequential
No. Exhibit Description Page No.
- --- ------------------- --------
<S> <C>
10.36 Employment Agreement between the Registrant and Kenneth W. Bitticks
effective as of June 1, 1993.*****
10.37 Employment Agreement between the Registrant and E. Michael Thoben, III
effective as of June 1, 1993.*****
10.38 Employment Agreement between the Registrant and William A. Yates
effective as of June 1, 1993.*****
10.39 Employment Agreement between the Registrant and Stuart I. Yaniger
effective as of June 1, 1993*****
10.40 Employment Agreement between the Registrant and David J. Arthur
effective as of June 1, 1993*****
10.41 Distribution Agreement between the Registrant and Logitech, Inc. dated
February 28, 1994. Incorporated by reference to Exhibit 10.30 of the
Annual Report on Form 10-K for the year ended December 31, 1993.+
10.42 Agreement between the Registrant and Mr. Tamio Mori dated March 4,
1994. Incorporated by reference to Exhibit 10.31 of the Annual Report on
Form 10-K for the year ended December 31, 1993.+
10.43 Exclusive License and Distribution Agreement between the Registrant and
Interlink Electronics Europe S.a.r.l. dated September 26, 1994.
Incorporated by reference to Exhibit 10.30 of the Annual Report on Form
10-K for the year ended December 31, 1994.+
10.44 Restructuring Agreement between the Registrant and InvestAR S.a.r.l.
dated September 26, 1994. Incorporated by reference to Exhibit 10.31 of
the Annual Report on Form 10-K for the year ended December 31, 1994.+
<FN>
- --------------------------
* Filed April 1, 1993
** Filed May 10, 1993
*** Filed May 28, 1993
**** Filed June 4, 1993
***** Filed January 24, 1994
(1) Filed August 1, 1995
(2) Filed herewith
+ Confidential treatment for portions of this agreement has been granted by the
Commission.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequential
No. Exhibit Description Page No.
- --- ------------------- --------
<S> <C>
10.45 Amended and Restated Agreement between the Registrant and Lexmark
International, Inc. dated November 13, 1994. Incorporated by reference to
Exhibit 10.32 of the Annual Report on Form 10-K for the year ended
December 31, 1994.+
11.1 Statement Regarding Computation of Loss Per Share****
14.1 Material foreign patents*
22.1 Subsidiaries of Registrant*
24.1 Consent of Deloitte & Touche LLP(2)
24.2 Consent of Arthur Anderson LLP(2)
24.3 Consent of Stoel Rives Boley Jones & Grey (included in Exhibit 5.1)*
25.1 Power of Attorney of Kenneth W. Bitticks*
25.2 Power of Attorney of E. Michael Thoben, III*
25.3 Power of Attorney of Merritt M. Lutz(1)
25.4 Power of Attorney of Eugene F. Hovanec(1)
25.5 Power of Attorney of Carolyn MacDougall*
25.6 Power of Attorney of Peter N. Vicars(1)
25.8 Power of Attorney of George Gu*
27 Financial Data Schedule(2)
<FN>
- --------------------------
* Filed April 1, 1993
** Filed May 10, 1993
*** Filed May 28, 1993
**** Filed June 4, 1993
***** Filed January 24, 1994
(1) Filed August 1, 1995
(2) Filed herewith
+ Confidential treatment for portions of this agreement has been granted by the
Commission.
</FN>
</TABLE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 5 to
Registration Statement No. 33-60380 of Interlink Electronics on Form S-1 of
our report dated February 25, 1994 appearing in the Registration Statement
and to the reference to us under the headings "Selected Financial Data" and
"Experts" in such Registration Statement.
Deloitte & Touche LLP
Woodland Hills, California
June 10, 1996
ARTHUR
ANDERSEN
ARTHUR ANDERSEN & CO, SC
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Los Angeles, California
June 12, 1996
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