SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File No. 0-21808
INTERLINK ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0056625
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
546 Flynn Road
Camarillo, California 93012
(Address of principal executive offices) (Zip Code)
(805) 484-8855
(Registrant's telephone number, including area code)
Not applicable.
(Former name, former address and former fiscal year
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports); and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Shares of Common Stock Outstanding, at August 7, 1996: 4,481,048
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<CAPTION>
INTERLINK ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
- - ------------------------------------------------------------------------------------------------------------------------------
December 31, June 30,
ASSETS 1995 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,496 $ 4,055
Accounts receivable, less allowance for doubtful 2,360 2,948
accounts of $233 in 1995 and 1996, respectively
Inventories 2,184 2,861
Prepaid expenses and other current assets 239 312
---------- ----------
Total current assets 8,279 10,176
---------- ----------
Property and equipment, net 1,160 1,183
Patents and trademarks, less accumulated
amortization of $375 and $411
in 1995 and 1996, respectively 368 411
European marketing rights 225 188
Other assets 155 181
---------- ----------
Total assets $ 10,187 $ 12,139
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Current maturities of long-term debt $ 255 299
Accounts payable 1,270 914
Accrued payroll and expenses 401 452
---------- ----------
Total current liabilities 1,926 1,665
---------- ----------
Long term debt, net of current portion 159 368
Capital lease obligations, net of current portion 513 562
Commitments and contingencies - -
Shareholders' equity:
Common stock (40,000 shares authorized
4,255 and 4,481 outstanding at December 31, 1995
and June 30, 1996, respectively) 18,880 20,633
Accumulated deficit (11,291) (11,089)
---------- -----------
Total shareholders' equity 7,589 9,544
---------- ----------
Total liabilities and shareholders' equity $ 10,187 $ 12,139
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
2
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<TABLE>
<CAPTION>
INTERLINK ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
- - ----------------------------------------------------------------------------------------------------------------------------
Three Month Period Six Month Period
Ended June 30, Ended June 30,
-------------------------- ------------------------
1995 1996 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 2,806 $ 3,255 $ 5,061 $ 6,008
Cost of revenues 1,385 1,639 2,502 2,987
---------- ---------- ---------- ----------
Gross profit 1,421 1,616 2,559 3,021
Operating expense:
Product development and research 250 264 472 506
Selling, general and administrative 1,140 1,166 2,132 2,256
---------- ---------- ---------- ----------
Total operating expense 1,390 1,430 2,604 2,762
---------- ---------- ---------- ----------
Operating income (loss) 31 186 (45) 259
----------- ---------- ----------- ----------
Other income (expense):
Interest expense (13) (31) (24) (53)
Other income (expense) 75 (15) 91 (13)
---------- ---------- ---------- ----------
Total other income (expense) 62 (46) 67 (66)
---------- ---------- ---------- ----------
Net income $ 93 $ 140 $ 22 $ 193
========== ========== ========== ==========
Earnings per share $ .02 $ .03 $ .01 $ .05
========== ========== ========== ==========
Weighted average number of common
shares outstanding 3,980 4,312 3,671 4,262
========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
3
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<TABLE>
<CAPTION>
INTERLINK ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
- - -------------------------------------------------------------------------------------------------------
Six Month Period
Ended June 30,
Cash flows from operating activities: 1995 1996
-------- --------
<S> <C> <C>
Net income $ 22 $ 193
Adjustments to reconcile net income to net cash provided by (used
for) operating activities:
Depreciation and amortization 161 282
Changes in operating assets and liabilities:
Accounts receivable (638) (588)
Inventories (304) (677)
Prepaid expenses and other current assets (84) (73)
Other assets (55) (26)
Accounts payable 79 (356)
Accrued payroll and expenses (105) 51
--------- ---------
Net cash used for operating activities (924) (1,194)
Cash flows from investing activities:
Net sale of marketable securities 374 -
Purchases of property and equipment (100) (232)
Costs of patents and trademarks (81) (79)
--------- ---------
Net cash provided by (used for) investing activities 193 (311)
Cash flows from financing activities:
Payments on bank line of credit (200) -
Borrowings on notes payable to bank 61 180
Payments on notes payable to bank (2) (26)
Principal payments on long term debt (19) (21)
Proceeds from sale/leaseback 547 263
Principal payments on capital lease obligations (9) (94)
Due from shareholders (9) -
Proceeds from issuance of common stock, net 3,669 1,753
--------- ---------
Net cash provided by financing activities 4,038 2,055
--------- ---------
Effect of exchange rate changes on cash 20 9
--------- ---------
Increase in cash and cash equivalents 3,327 559
Cash and cash equivalents
at beginning of period 636 3,496
--------- ---------
Cash and cash equivalents
at end of period $ 3,963 $ 4,055
========= =========
Supplemental disclosures of cash flow information:
Interest paid $ 42 $ 53
Income taxes $ 2 $ 1
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
4
<PAGE>
INTERLINK ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE UNAUDITED SIX MONTHS ENDED JUNE 30, 1996
- - ------------------------------------------------
1. BASIS OF PRESENTATION OF INTERIM FINANCIAL DATA
The financial information herein for the three month periods ended June 30,
1995 and 1996 and for the six month periods ended June 30, 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 interim statements should be read in conjuntion with the
financial statements and the notes thereto included in the Interlink
Electronics, Inc. Form 10-K for the fiscal year ended December 31, 1995.
The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the full year.
2. EXERCISE AND EXPIRATION OF WARRANTS
As of December 31, 1995 the Company had the following Common Stock Warrants
outstanding:
Number of Shares Exercise Price Expiration Date
- - ---------------- -------------- ---------------
1,897,614 $8.25 June 7, 1996
135,000 $8.25 June 7, 1998
135,000 $6.60 June 7, 1998
Of the Warrants expiring in June 1996, 223,723 Warrants were exercised just
prior to the expiration date and the remaining 1,673,891 warrants expired.
As a result of the exercise, the Company received net proceeds of $1.75
million (after deducting offering costs of approximately $100,000).
3. LINE OF CREDIT
In May 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.
4. 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.
5. 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 June 30, 1996 the Company had used approximately $914,000 of the
line.
5
<PAGE>
INTERLINK ELECTRONICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the three months and the six months ended June 30, 1996, revenues
increased 16% and 19%, respectively, as compared to the same periods of
1995. Revenues for the Computer Pointing Devices product line increased 48%
for the six months ended June 30, 1996 as compared to the same period of
1995. The growth in this product line 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 retail
channels. Revenues for the Custom Applications products line decreased 18%
as a result of the Company's strategy to focus on the Computer Pointing
Devices product line for the six months ended June 30, 1996 as compared to
the same period of 1995. For the first half of 1996, the Custom
Applications product line accounted for 16% of total revenues, down from
33% in the first half 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 and the six months ended June 30, 1996, gross
profit decreased to 50% of revenues as compared to 51% for the same periods
in the prior year. The Company expects gross profit margins to fluctuate
slightly above or below 50% depending on the mix of high volume OEM
business (which carries a relatively lower profit margin) versus lower
volume OEM business and non-OEM business.
Product development and research expenses remained relatively
unchanged at 8% of revenues in the second quarter and the first half of
1996 versus 9% of revenues for same periods of 1995 as the Company
continues to develop products based on its proprietary VersaPoint
technology, which was developed in 1992. Given the industries the Company
participates in, management expects minimum research and development costs
to remain at or near the current level.
For the three months and the six months ended June 30, 1996, selling,
general and administrative costs fell to 36% and 38% of revenues,
respectively, as compared to 41% and 42% for the same periods of 1995. The
decrease resulted from the leveraging of fixed S,G & A costs over a higher
sales base.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996 working capital totaled $8.5 million as compared to
$6.4 million at December 31, 1995. This increase was primarily a result of
the Company's positive operating results in the first half and the receipt
of $2 million from the exercise of outstanding warrants and use of the
Company's equipment lease line.
For the six months ended June 30, 1996, operations used $1.2 million
in cash due to an increase in accounts receivable and inventory required by
the revenue growth. Because the Company is aggressively seeking customers
in the computer retailer industry and in Japan, both areas known for
extended payment policies, operations may, in the near term, continue to be
a net user of cash despite profitable results.
For the first six months of 1996, investing activities comprised the
purchase of production equipment and the furtherance of intellectual
property.
For the six months ended June 30, 1996, financing activities resulted
in proceeds of approximately $200,000 from a loan from two Japanese banks,
additional use of the Company's equipment lease line and $1.8 million from
the exercise of outstanding warrants.
6
<PAGE>
FORWARD LOOKING STATEMENTS
From time to time the Company may issue forward-looking statements
that involve a number of risks and uncertainties. The following are among
the factors that could cause actual results to differ materially from the
forward-looking statements: business conditions and growth in the
electronics industry and general economies, both domestic and
international; lower than expected customer orders, delays in receipt of
orders or cancellation of orders; competitive factors, including increased
competition, new product offerings by competitors and price pressures; the
availability of third party parts and supplies at reasonable prices;
changes in product mix; significant quarterly performance fluctuations due
to the receipt of a significant portion of customer orders and product
shipments in the last month of each quarter; and product shipment
interruptions due to manufacturing problems. The forward looking statements
contained in this document regarding industry trends, revenue, costs and
margin expectations, product development and introductions and future
business activities should be considered in light of these factors.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On May 28, 1996 at the Company's Annual Meeting, the holders of the
Company's outstanding Common Stock took the action described below. At May
28, 1996, 4,265,113 shares of common stock were outstanding and eligible to
vote at the Annual Meeting.
1. The shareholders elected each of George Gu, Eugene F. Hovanec,
Merritt M. Lutz, Carolyn MacDougall, E. Michael Thoben, III and Peter N.
Vicars to the Company's Board of Directors, by the votes indicated below,
to serve for the ensuing year.
George Gu
3,093,158 shares in favor
71,808 shares against or withheld
0 abstentions
0 broker nonvotes
Eugene F. Hovanec
3,093,158 shares in favor
71,808 shares against or withheld
0 abstentions
0 broker nonvotes
Merritt M. Lutz
3,093,158 shares in favor
71,808 shares against or withheld
0 abstentions
0 broker nonvotes
Carolyn MacDougall
3,089,658 shares in favor
75,308 shares against or withheld
0 abstentions
0 broker nonvotes
7
<PAGE>
E. Michael Thoben
3,093,158 shares in favor
71,808 shares against or withheld
0 abstentions
0 broker nonvotes
Peter N. Vicars
3,093,158 shares in favor
71,808 shares against or withheld
0 abstentions
0 broker nonvotes
2. The shareholders approved, by the vote indicated below, an
amendment to the Company's 1993 Stock Incentive Plan to increase the number
of authorized shares of Common Stock available under the Plan from
1,426,000 shares to 1,726,000 shares.
906,546 shares in favor
244,655 shares against or withheld
39,125 abstentions
1,974,640 broker nonvotes
3. The shareholders approved, by the vote indicated below, an
amendment to the Company's 1993 Stock Incentive Plan to provide for an
automatic increase in the number of authorized shares of the Common Stock
available under the Plan of 300,000 shares annually for each fiscal year
during which the plan remains in effect.
871,164 shares in favor
289,602 shares against or withheld
42,245 abstentions
1,962,955 broker nonvotes
4. The shareholders ratified, by the vote indicated below, the
appointment of Arthur Andersen LLP as the Company's independent accountants
for the fiscal year ending December 31, 1996.
3,122,234 shares in favor
14,051 shares against or withheld
28,861 abstentions
0 broker nonvotes
Item 5. Other Information
The Company entered into an Agreement and Plan of Merger, dated
effective July 10, 1996 (the "Merger Agreement ) with Interlink
Electronics, Inc., a Delaware corporation ("Interlink Delaware ), providing
for the statutory reincorporation merger of the Company with an into
Interlink Delaware (the "Merger ), with Interlink Delaware becoming the
surviving coporation.
Under the terms of the Merger Agreement, upon consummation of the
Merger each outstanding share of Common Stock of the Company was converted
into one share of Interlink Delaware Common Stock, par value $.01.
8
<PAGE>
The Merger Agreement was previously approved by the shareholders of
the Company and the stockholder of Interlink Delaware. The Merger Agreement
contemplates that the Merger will be tax free to the shareholders of the
Company.
The foregoing description of the Merger Agreement does not purport to
be complete and is qualified in its entirety by reference to the Merger
Agreement, which is attached hereto as an exhibit and incorporated herein
by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Agreement and Plan of Merger dated July 10, 1996 between the
Company and Interlink Electronics, Inc.
27 Financial Data Schedule
(b) Reports on From 8-K
No reports on From 8-K have been filed during the period for which
this report is filed.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
INTERLINK ELECTRONICS, INC.
(Registrant)
PAUL D. MEYER
Dated: August 14, 1996 -----------------------------------
Paul D. Meyer
Vice President, Finance
9
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger is dated effective July 10, 1996
and is by and between Interlink Electronics, a California corporation ("Old
Interlink") and Interlink Electronics, Inc., a Delaware corporation ("New
Interlink").
Old Interlink is an operating corporation engaged in the
development, manufacture and sale of products incorporating force sensing
resistors. New Interlink has been formed for the purpose of the merger
contemplated hereby (the "Merger") and has no operations. It is
contemplated that, at the Effective Time (defined below), Old Interlink
will merge with and into New Interlink with the results set forth herein.
In order to establish the terms on which Old Interlink will merge
with and into New Interlink, with New Interlink to be the surviving
corporation, the parties enter into this agreement.
1. Merger
1.1 Merger of Old Interlink Into New Interlink
Pursuant to the laws of the States of Delaware and California, and
in accordance with this Agreement and Plan of Merger, at the Effective
Time, Old Interlink shall be merged with and into New Interlink, with New
Interlink being the surviving corporation. The outstanding equity
securities of Old Interlink shall be converted into corresponding equity
securities of New Interlink, as described in Section 1.4. The Merger is
intended to qualify as a tax-free reorganization under Section 368(a)(1)(F)
of the Internal Revenue Code of 1986, as amended.
1.2 "Effective Time" of Merger
Old Interlink and New Interlink shall execute a Certificate of
Merger, to be filed with the Secretary of State of the States of Delaware
and California. The Merger shall take effect at the earliest time at which
such Certificate of Merger has been filed in both Delaware and California.
1.3 Effect of Merger
At the Effective Time, Old Interlink shall be merged with and into
New Interlink as provided by the Delaware General Corporation Law and the
California General Corporation Law, the separate corporate existence of Old
Interlink shall cease and all of Old Interlink and New Interlink shall be a
single corporation subject to the Certificate of Incorporation and the
Bylaws of New Interlink. The outstanding equity securities of Old Interlink
shall be converted into corresponding equity securities of New Interlink as
provided in Section 1.4.
<PAGE>
1.4 Conversion of Shares
The manner and basis of converting the equity securities of Old
Interlink into shares of New Interlink shall be as follows:
(a) Conversion of Common Stock of Old Interlink. Each
share of common stock of Old Interlink ("Old Interlink Common") outstanding
immediately before the Effective Time shall automatically cease to exist
and be converted into and become one share of New Interlink common stock
("New Interlink Common").
(b) Conversion of Common Stock Options of Old Interlink.
Each option to purchase shares of common stock of Old Interlink outstanding
immediately before the Effective Time ("Old Options") shall automatically
cease to exist and be converted into and become an option to purchase the
same number of shares of New Interlink Common ("New Options") in the manner
and with the effect provided in the option agreements under which the Old
Interlink options were issued.
(c) Surrender of Certificates and Payment of Additional
Consideration. After the Effective Time, each holder of Old Interlink
Common or Old Options outstanding immediately before the Effective Time
shall surrender for cancellation the certificate or certificates
representing such shares to New Interlink or its designated agent. Such
holder shall then be entitled to receive a certificate representing the
shares of New Interlink Common or New Options, as the case may be, into
which the securities represented by the surrendered certificates shall have
been converted under Section 1.4(a) or (b).
(d) Capital Stock of New Interlink Existing Before the
Effective Time. At the Effective Time, all shares of common stock of New
Interlink issued and outstanding prior to the Effective Time shall be
canceled.
2. Closing
The closing of the merger shall take place at the offices of
New Interlink and Old Interlink, 546 Flynn Road, Camarillo, California
93012 at 10:00 a.m. on July 10, 1996 or at such other time and place agreed
to by the parties.
2
<PAGE>
3. General
3.1 Further Documents
The parties agree to execute all such further instruments or
documents as may be reasonably necessary to effectuate the purposes of this
agreement.
3.2 Counterparts
This agreement may be executed in any number of counterparts and
all executed counterparts will constitute one binding agreement.
INTERLINK ELECTRONICS
By: E. MICHAEL THOBEN, III
-----------------------------------------
E. Michael Thoben, III
Chairman of the Board, President
and Chief Executive Officer
Executed July 10, 1996
INTERLINK ELECTRONICS, INC.
By: E. MICHAEL THOBEN, III
-----------------------------------------
E. Michael Thoben, III
Chairman of the Board, President
and Chief Executive Officer
Executed July 10, 1996
3
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,055
<SECURITIES> 0
<RECEIVABLES> 2,948
<ALLOWANCES> 233
<INVENTORY> 2,861
<CURRENT-ASSETS> 10,176
<PP&E> 1,183
<DEPRECIATION> 411
<TOTAL-ASSETS> 12,139
<CURRENT-LIABILITIES> 1,665
<BONDS> 0
0
0
<COMMON> 20,633
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 12,139
<SALES> 6,008
<TOTAL-REVENUES> 6,008
<CGS> 2,987
<TOTAL-COSTS> 2,987
<OTHER-EXPENSES> 2,762
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53
<INCOME-PRETAX> 193
<INCOME-TAX> 0
<INCOME-CONTINUING> 193
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 193
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
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