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<SEC-DOCUMENT>0000912057-01-506374.txt : 20010409
<SEC-HEADER>0000912057-01-506374.hdr.sgml : 20010409
ACCESSION NUMBER:		0000912057-01-506374
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		6
CONFORMED PERIOD OF REPORT:	20001231
FILED AS OF DATE:		20010402

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			INTERLINK ELECTRONICS INC
		CENTRAL INDEX KEY:			0000828146
		STANDARD INDUSTRIAL CLASSIFICATION:	COMPUTER PERIPHERAL EQUIPMENT, NEC [3577]
		IRS NUMBER:				770056625
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		
		SEC FILE NUMBER:	000-21858
		FILM NUMBER:		1590891

	BUSINESS ADDRESS:	
		STREET 1:		546 FLYNN RD
		CITY:			CAMARILLO
		STATE:			CA
		ZIP:			93012
		BUSINESS PHONE:		8054848855

	MAIL ADDRESS:	
		STREET 1:		546 FLYNN ROAD
		CITY:			CAMARILLO
		STATE:			CA
		ZIP:			93012

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	INTERLINK ELECTRONICS
		DATE OF NAME CHANGE:	19940525
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>a2042924z10-k.txt
<DESCRIPTION>FORM 10-K
<TEXT>

<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

 (MARK ONE)

 /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                    FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                       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 NUMBER 0-21858


                            INTERLINK ELECTRONICS, INC.
             (Exact name of registrant as specified in its charter)

                 DELAWARE                                     77-0056625
       (State or other jurisdiction                        (I.R.S. Employer
    of incorporation or organization)                    Identification No.)

              546 FLYNN ROAD
          CAMARILLO, CALIFORNIA                                 93012
 (Address of principal executive offices)                     (Zip Code)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 484-8855

                               -----------

       SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                  None

       SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                               Common Stock

                            (TITLE OF EACH CLASS)

         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 / /

         Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. / /

         As of March 9, 2001 the aggregate market value of the registrant's
Common Stock held by non-affiliates of the registrant was $68,618,314. Solely
for purposes of this calculation, the registrant has treated its Board of
Directors and executive officers as the only affiliates.

         As of March 9, 2001, the number of shares of the registrant's Common
Stock outstanding was 9,538,170.

                      DOCUMENTS INCORPORATED BY REFERENCE:

         Portions of Registrant's Proxy Statement for its 2001 Annual Meeting
of Stockholders are incorporated by reference into Part III of this report.

<PAGE>

                           INTERLINK ELECTRONICS, INC.
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

  ITEM                                                                                             PAGE
   NO.                                                                                              NO.
- -------                                                                                            -----
<S>                                                                                               <C>
                                                      PART I

   1. Business.................................................................................       3
   2. Properties...............................................................................      13
   3. Legal Proceedings........................................................................      13
   4. Submission of Matters to a Vote of Security Holders......................................      13
4(A). Executive Officers of the Registrant.....................................................      13

                                                      PART II

   5. Market for Registrant's Common Equity and Related Stockholder Matters....................      15
   6. Selected Financial Data..................................................................      16
   7. Management's Discussion and Analysis of Financial Condition and Results of
      Operations...............................................................................      17
7(A). Quantitative and Qualitative Disclosures About Market Risk...............................      21
   8. Financial Statements and Supplemental Data...............................................      22
   9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.....      22

                                                      PART III

  10. Directors and Executive Officers of the Registrant.......................................      22
  11. Executive Compensation...................................................................      22
  12. Security Ownership of Certain Beneficial Owners and Management...........................      22
  13. Certain Relationships and Related Transactions...........................................      22

                                                      PART IV

  14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.........................      23

</TABLE>


<PAGE>

                           FORWARD-LOOKING STATEMENTS

         This Annual Report on Form 10-K contains statements that constitute
"forward-looking statements" within the meaning of section 27A of the
Securities Act of 1933 and section 21E of the Securities Exchange Act of
1934. These forward-looking statements may be adversely affected by a number
of factors. These factors may include the following:

         o        Our inability to predict the amount or timing of growth in
                  markets where we expect our future revenue growth to occur.

         o        Our operating results continuing to fluctuate and not meeting
                  published analyst forecasts.

         o        Our sales being concentrated with one or more customers or in
                  limited market or geographic areas.

         o        Our business strategy of developing products for the home
                  entertainment and e-transactions markets not being
                  successfully implemented.

         o        International sales and manufacturing risks.

         o        Fluctuations in the value of foreign currencies.

         o        Our inability to develop and introduce new products to respond
                  to evolving industry requirements in a timely manner.

         o        The home entertainment and e-transactions markets not adopting
                  our technology.

         o        Our markets being intensely competitive and many of our
                  potential competitors having resources that exceed our own.

         o        Failure to attract and retain qualified individuals for
                  critical positions.

         o        Failure to manage our growth effectively.

         o        Our inability to overcome price advantages of low-cost remote
                  control products that compete with our products.

         o        Changing standards or regulations.

         o        Interruption of our contract manufacturing arrangements.

         o        Interruption in the supply of any significant Force Sensing
                  Resistor sensor or other component causing us to miss shipment
                  deadlines.

         o        Performance, reliability or quality problems with our
                  products.

         o        Federal, state and international legislation and regulations
                  affecting e-commerce.

                                       1
<PAGE>

         o        Failure to protect our intellectual property.

         o        Proprietary technologies of our competitors creating barriers
                  to entry.

         o        Adoption of technologies and standards by electronics
                  manufacturers and service providers.

         o        Risks associated with manufacturing certain of our products at
                  a single facility.

         o        Reliance on others for significant aspects of our technology
                  development.

         o        Industry downturns in the markets we serve.

         o        Volatility in our stock price.

                                       2
<PAGE>

                                     PART I

ITEM 1. BUSINESS

OVERVIEW

         We are a leader in the development of intuitive interface devices
for a variety of home and business applications. Our products enable a user
to control and communicate with various products such as digital set-top
boxes, digital televisions and other electronic products, which we refer to
as appliances, by providing an intuitive device on which the user can
remotely input a variety of commands. Our products incorporate patented
sensor and wireless communication technologies and proprietary applications
and ergonomic designs. We recently began to use our collection of intuitive
interface technologies for two new markets: home entertainment and
electronic transactions. By building partnerships with providers of
complementary software and hardware technologies, we market these products
for use with appliances as digital interface technology is incorporated into
them.

         In the past year, we began marketing a prototype device that will
enable users to easily control the various applications emerging in the home
entertainment market, such as interactive television. For the workflow
automation and business-to-business electronic commerce markets, which we
refer to collectively as the e-transactions market, we introduced our EPAD
electronic signature capture device. The EPAD captures signatures
electronically and permits these signatures to be bound to an electronic
document, allowing a recipient to verify that an electronic document has not
been tampered with since the signature was recorded.

         We are the leading supplier of intuitive interface devices and
components for the business presentation market, where we sell both to OEMs
and directly to consumers through reseller channels. Our original equipment
manufacturer, or OEM, customers include computer, computer peripheral and
presentation appliance manufacturers, such as inFocus, Inc., Koninklijke
Philips Electronics N.V., NEC Corporation, Sharp Corporation, Sony
Corporation and Toshiba Corporation. We also design, manufacture, license and
sell a broad variety of specialty components incorporating our technologies,
such as pointing devices and industrial sensor products for the computer,
automotive and medical device markets.

MARKET BACKGROUND

         The widespread adoption of the Internet and the proliferation of
business and home computing information and entertainment appliances have
prompted an increase in the amount of interactive content and the number of
entertainment and business applications available in the home and business
environments. The emergence of new technologies and the appliances that
support them is enabling business and home users to use high-speed
communications to access media and interactive services, such as
entertainment program guides, e-commerce, chat, games, e-mail and interactive
television. These technologies are expanding the infrastructure for viewing
content and interacting with applications beyond the television and the
personal computer. Business and home users currently interact with these
applications and access content through an array of appliances, including
digital set-top boxes, game consoles, DVD players and business presentation
projectors.

         CONVERGENCE OF TELEVISION, COMPUTER TECHNOLOGY AND THE INTERNET. The
Internet has grown

                                       3
<PAGE>

rapidly over the past several years and is now used by millions of people for
entertainment, education and e-commerce. Jupiter Communications projects that
by 2002, more than 60 million U.S. households will have access to the
Internet. The increasing popularity of the Internet and the established
popularity of television have led a growing number of home computer users to
simultaneously access Internet content while they watch television. This
convergence of television and computer technologies has enabled a wide range
of new communication and entertainment applications. Digital cable networks
will be able to offer consumers electronic program guides, voice telephony,
e-mail, e-commerce and other services through the television. For example, a
television viewer may, after viewing a movie, wish to order a copy on DVD, or
the viewer of a news program or television commercial may wish to obtain
additional information by visiting a related website. These new applications
are creating a need for interactive appliances in the home entertainment,
e-transactions and business communications markets.

         HOME ENTERTAINMENT MARKET. We believe that the home entertainment
market offers a new, large market opportunity for multi-functional, intuitive
interface devices. The advent of digital cable, satellite TV and similar
broadband delivery systems is increasing programming choices. It is widely
anticipated that computer and television technologies will continue to
converge and that the consumer will be able, through a single electronic
appliance, to view television programming, control other entertainment
components, access the Internet, participate in on-line commerce, send and
receive e-mail and participate in audio and video telephone calls.

         We believe the market for intuitive interface devices will develop
as cable subscribers have increased access to digital set-top boxes.
Forrester Research, Inc. estimated that 15.3% of U.S. households had digital
set-top boxes by year-end 2000, growing to 26.5% in 2002 and 55.3% in 2005.
We believe that, as digital set-top boxes are deployed and broadband services
such as Internet access become available, consumers will seek new control
devices that are more sophisticated, flexible, and intuitive than traditional
television remotes or the combination of a remote and wireless keyboard.

         E-TRANSACTIONS MARKET. The rapid growth of the workflow automation
and business-to-business e-commerce markets has created a need for electronic
document and approval authentication methods that can serve as an electronic
substitute for the signature on paper documents. For the recipient of an
electronic document to have confidence that the document was approved in the
form in which it appears on his or her computer screen, it is necessary to
have a reliable mechanism that captures a signature, binds the signature to
the document, and verifies the identity of the approving person and the
integrity of the document in the form in which it was approved.

         We believe there is a sizeable market for an e-transactions product
in workflow automation applications, particularly in large business
organizations where there is a need to rapidly circulate documents for
approval by one or a series of people. We expect that e-transactions products
will be deployed in this market as the dollar value of business-to-business
e-commerce grows from $406 billion in 2000 to $2.7 trillion in 2004, as
forecast by Forrester.

         BUSINESS COMMUNICATIONS MARKET. As computer technology has replaced
traditional presentation devices such as slide and overhead projectors, the
need to control the presentation process has undergone a similar evolution.
According to Pacific Media Associates, the business communications market is
growing at an average annual rate of 23% with unit volumes expected to
increase from 540,000 units in 1998 to 3 million units in 2003. Our OEM
customers have recently introduced business communications hardware that will
significantly reduce the size and weight and increase the resolution and
brightness of presentation devices such as projectors and the processing
power of computers that support them.

                                       4
<PAGE>

Increased portability will enable many users to travel with a complete
presentation system capable of fitting in a standard computer bag.

THE NEED FOR INTUITIVE INTERFACE DEVICES

         In recent years, the number and types of computing, information and
entertainment appliances both in the home and in business have increased
dramatically. For example, a typical household may contain separate control
devices for the television, cable set-top box, DVD player, stereo system,
game console and PC. The convergence of television, computer technology and
the Internet has created interactive applications on both the PC and the
television. As a result, traditional application interface devices, such as a
standard keyboard, are no longer intuitive or capable of interacting across
multiple appliances.

         We believe traditional remote control devices are not well suited
for evolving user requirements. In the home environment, entertainment
appliances are increasing in complexity, more applications and content can be
accessed on each appliance, and multiple appliances are often used
simultaneously. However, the remote control devices that consumers typically
use to control applications and appliances in the home environment are not
intuitive and are often difficult to use. They typically contain many
buttons, which require users to memorize or look up each function of each
button. Users often need several control devices, such as a remote and a
wireless keyboard, to access multiple applications, such as digital TV
content, Internet-based communication and commerce, and the telephone.

         Moreover, the typical remote control device operates on infrared, or
IR, technology, which does not work well over long distances or if there are
intervening objects, such as furniture. IR signals also interfere with each
other, which prevents the use of multiple IR signals in a single room,
significantly limiting interactivity between the remote and the multiple
devices it controls and making bi-directional communication impossible.
Finally, IR technology limits speed and bandwidth, limiting the complexity of
data that can be transmitted.

         In the e-transactions market, businesses seeking to automate
workflow or conduct e-commerce transactions need a hardware and software
solution that can be used to capture signatures, bind them to documents, and
authenticate and verify them. There are few cost-effective turnkey solutions
commercially available that can be deployed, requiring businesses to develop
proprietary software and hardware solutions.

         In the business communications market, users need a highly reliable
wireless device to control their presentation or videoconferencing system.
Users must be able to move untethered to interact with their audience while
simultaneously controlling their equipment. Advanced presenters require the
ability to annotate on a slide or to modify their presentation during the
actual presentation.

THE INTERLINK SOLUTION

         We use our collection of proprietary intuitive interface
technologies to create devices that enable users to operate and control
computers, televisions, projectors and other complex electronic appliances.
By enabling interactivity between interface devices and the appliances they
control, we allow users to interact directly with menu-driven application
programs resident in the controlled appliance through an on-screen display.
Our devices will allow users to use high bandwidth applications such as
telephony and

                                       5
<PAGE>

provide an intuitive interface for applications encompassing the functions
typically associated with computers, such as browsing the Internet and
sending and receiving e-mail. For instance, our new interface device for next
generation digital set-top boxes will integrate cursorless navigation, text
entry, freehand writing and drawing and voice transmission capabilities
within a single lightweight, hand-held platform. The device will enable total
control of various home entertainment options available yet retain a highly
intuitive user interface and a sleek ergonomic design.

         Our interface devices offer a number of benefits not available on
traditional remote controls:

         EASY-TO-USE TOUCHPAD TECHNOLOGY. All of our products include our
patented VERSAPAD touchpad technology. The touchpad incorporates our patented
FORCE SENSING RESISTOR, or FSR, and other technologies to create a pointing
device that responds to pressure and can accept input from a finger or a pen.
The VERSAPAD also consumes minimal power, making it ideal for use in a
battery powered interface device. In conjunction with pad-to-screen mapping
and gestures technology, our touchpads provide an intuitive means of
communicating with a wide array of applications and appliances.

         INTUITIVE PAD-TO-SCREEN MAPPING. Our pad-to-screen, or PTS, mapping
technology, for which we have a patent pending, allows a user to touch a
point on a touchpad based on VERSAPAD technology to activate a button or menu
item in a corresponding on-screen location. This capability eliminates the
need to click or cursor through various intervening menu items. Using PTS
mapping, a user can easily and quickly perform a number of complex functions
without looking at the remote device, including the operation of a virtual
keyboard activated through the touchpad but appearing on the monitor.

         INNOVATIVE GESTURE CONTROL. Our "gesture" technology, for which we
have a patent pending, allows the user to input or write commands on a screen
by touching and moving a finger or pen on a touchpad. For example, a channel
can be changed by tracing the channel number on the touchpad or, if a higher
or lower channel is desired, by swiping to the right or left, as applicable,
and continuing to touch the touchpad to scroll through the channel numbers.
Other commands, such as play, record or pause are accomplished by making
gestures that mimic the standard symbols for those functions appearing on
VCRs, DVD players and other playback and recording devices.

         ENHANCED WIRELESS COMMUNICATIONS TECHNOLOGY. Our patented REMOTELINK
wireless communications technology retains the IR technology necessary to
communicate with most of today's appliances and combines it with radio
frequency, or RF, technology to overcome most of the shortcomings of
traditional IR technology. REMOTELINK permits our intuitive interface devices
to:

         o        send signals having sufficient speed and bandwidth to support
                  applications such as handwriting input, stereo quality
                  streaming audio and telephony;

         o        support bi-directional and multiple signals, thereby enabling
                  true interactive communication and/or the simultaneous use of
                  multiple remote devices in a single room; and

         o        send sufficiently robust signals to eliminate the need to
                  point the remote device at the receiver for the controlled
                  device.

         FUNCTIONAL AND ERGONOMIC DESIGN. Our intuitive interface devices
reflect our strong focus on functionality and ergonomics. We maintain an
active product design effort and devote considerable

                                       6
<PAGE>

attention to issues related to ease of use of our products. An example of the
results of these efforts is our patented CLICKTRIGGER button incorporated in
a number of our products, which enables the user to click on an icon on a
monitor by squeezing a button with his or her index finger in a motion
similar to pulling a trigger on a gun.

THE INTERLINK STRATEGY

         We intend to use our collection of technologies to become the
leading provider of intuitive interface devices for the home and business
markets through the implementation of the following strategies:

         DEVELOP INTUITIVE INTERFACE DEVICES THAT ARE COMPATIBLE WITH MOST
HOME ENTERTAINMENT APPLIANCES. We will introduce intuitive interface devices
for the home entertainment market that will enable users to take full
advantage of the many interactive applications that are starting to become
widely available. We are building technology partnerships with a variety of
other technology providers, such as multiple service operators, manufacturers
of digital set-top boxes and developers of software applications, to promote
the compatibility of our devices with as many different interactive home
entertainment appliances and systems as possible. In order to support this
compatibility, we will develop or partner with others to develop
communication protocols that enable our interface devices to function with
the various applications available to consumers in the home entertainment
market and the appliances on which these applications will run. Because many
of our OEM customers in the business communications market are also
participants in the market for home entertainment appliances, we expect to
use our relationships with them to facilitate the widespread adoption of our
intuitive interface devices in this market.

         AGGRESSIVELY MARKET OUR EPAD PRODUCT TO THE E-TRANSACTIONS MARKET.
We will foster adoption of our recently introduced EPAD product in the
e-transactions market by expanding distribution channels and building
strategic relationships with key software and systems integrators to develop
turnkey solutions for deployment in large-scale corporate settings. To foster
adoption of the EPAD in the workflow automation market, we are working with
electronic signature software companies like Silanis Technology, Inc. and
Communication Intelligence Corporation, or CIC. For example, our EPAD
APPROVEIT product is bundled with software from Silanis Technology, Inc. We
also are working with companies like Hewlett Packard/VeriFone and Cardiff
Software, Inc that are interested in promoting the widespread use of
electronic documents, rather than paper, in business-to-business commerce.

         MAINTAIN OUR LEADERSHIP POSITION IN THE BUSINESS COMMUNICATIONS
MARKET. We will seek to maintain our leadership position in the business
communications market by continuing to provide our OEM and reseller customers
with innovative products that are responsive to consumer needs. We also
expect to introduce products for related ancillary markets, such as
conference room and video conferencing controllers and conferencing
automation products.

         DEVELOP PROPRIETARY APPLICATIONS TO FACILITATE OUR ENTRY INTO NEW
MARKETS. We will develop either for ourselves or in partnership with other
companies, software applications that enhance the functionality of our
intuitive interface devices and will seek to license such applications where
possible. We are entering into strategic relationships with companies, such
as Power TV, that can assist us in developing such software applications. We
intend to work with our customers and development partners to identify and
develop applications that will meet actual customer needs and, where
appropriate, to license these applications to appliance manufacturers, system
operators and others.

                                       7
<PAGE>

         ENHANCE OUR CURRENT TECHNOLOGY AND DEVELOP OR ACQUIRE NEW TECHNOLOGY
AND APPLICATIONS. We will maintain an active technology development program
that will enable us to enhance our current touchpad and wireless
communication technologies and develop new technologies and applications for
them. We believe this continuing development will allow us to increase our
market share in the markets in which we compete and identify new markets
where our technologies can provide us with a competitive advantage. Where
appropriate, we may acquire technologies from others or acquire companies
that own or are developing technologies that we believe would allow us to
enhance our product offerings.

PRODUCTS

         We have four principal product lines targeted at the business
communications, home entertainment, e-transactions and specialty components
markets.

          BUSINESS COMMUNICATION PRODUCTS. Our intuitive interface devices
are used by the business communications market to control presentation
appliances such as projectors. Our traditional interface devices incorporate
a pointing button to control the cursor and one or more function selection
buttons. These products range from a simple interface device with only a
pointing device and a single click button to devices with 30 function keys.
Most of these products incorporate our patented CLICKTRIGGER button.
Additionally, we have introduced interface devices based on our REMOTELINK
technology incorporating a touchpad and permitting the user, in addition to
the normal presentation control functions, to write over or highlight
material appearing in the formal presentation.

         We sell interface devices principally to OEMs and, to a lesser
extent, as branded products through a variety of distributors and value added
resellers. Our current customers include some of the largest presentation
device OEMs, including; Hitachi, Ltd., inFocus, Inc., Mitsubishi Electronics
America, Inc., NEC Corporation, Sanyo Electric Co., Ltd., Sony Corporation
and Toshiba Corporation. Although most business presentation devices are made
by Japanese companies, the United States represents the largest market for
these products. Accordingly, our OEM sales are concentrated in Japan and
managed by our Japanese subsidiary while our branded sales are primarily
U.S.-based.

          HOME ENTERTAINMENT PRODUCTS. The INTUITOUCH product, our prototype
intuitive interface device for home entertainment appliances such as digital
set-top boxes, is based on a technological platform similar to our most
advanced business communications devices. The pad-centric remote device
integrates mouse pointing, text entry, freehand writing and drawing and voice
transmission capabilities. The device enables total control of the variety of
home entertainment options available yet retains a highly intuitive user
interface and an ergonomic design.

         E-TRANSACTIONS PRODUCTS. Our EPAD product consists of a FSR-based,
VERSAPAD touchpad mounted in a plastic case and connected by a cable to a
computer. Like all of our FSR-based touchpads, it is actuated using a finger,
electronic pen or any other device capable of exerting pressure at a given
point on the sensor. The EPAD captures and binds signatures to electronic
documents. We work with major electronic signature software application
developers to provide turnkey solutions to end-users. Depending on the
software used with it, the ePad device can perform a variety of document
authentication functions, such as alerting a reader if any change has been
made to a document since it was transmitted by the sender. Other potential
functions include signature verification.

         SPECIALTY COMPONENTS. Our specialty components business consists
primarily of two segments. We sell integrated pointing solutions to
manufacturers of notebook computers and industrial computers.

                                       8
<PAGE>

We also sell a diverse assortment of custom-designed sensors for non-computer
applications, such as for use in medical devices as safety switches and
automotive components, such as car seats.

TECHNOLOGIES

         Our core technologies are FORCE SENSING RESISTORS and REMOTELINK,
our wireless communication protocol.

         FORCE SENSING RESISTORS. All of our products incorporate one or more
FSRs. A basic FSR sensor can detect and accurately measure a force applied to
it, thereby enabling precise control of the process applying the force. A
more complex sensor, known as a "four zone" sensor, has four sensors arranged
in a two-by-two square with an actuator placed directly where the four
sensors touch. By toggling the actuator in any direction, an operator can
control the direction and speed of a cursor on a computer screen. An FSR
sensor can also serve as a touchpad by incorporating a two-dimensional grid
capable of measuring the location and intensity of pressure applied at any
set of coordinates on the grid. In contrast to most standard touchpads, FSR
touchpads can also measure the amount of pressure applied at any point on the
grid, thereby creating a three-dimensional matrix that can characterize an
input along X, Y and Z axes. This type of device is useful for functions such
as handwriting input, where not only the outline of the signature but the
pressure applied in writing it can be measured, or computer cursor control,
where variable cursor speed is desirable.

         Our FSR sensors can be as thin as one-hundredth of an inch, making
them particularly well suited for use where space is a critical issue, as in
notebook and sub-notebook keyboards. In touchpad applications, they consume
significantly less power than do capacitive touchpads, the principal
competing technology. FSRs are therefore an appropriate choice for wireless
applications. Also, unlike capacitive touchpads which react to the electrical
capacitance in a human finger, FSRs react to pressure from any object and
therefore support pen input. FSR sensors have no moving parts and can be
packaged in a sealed environment. They are therefore highly reliable,
retaining their performance through tens of millions of actuations, even in
adverse environments involving heat, moisture, and chemical contamination.

         FSR sensors are manufactured using screen printing techniques. All
proprietary aspects of the manufacturing process are conducted in-house at
Interlink 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. We have developed significant expertise in the manufacture
of FSR sensors, and believe 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.

         REMOTELINK. Our REMOTELINK technology uses a proprietary optical
carrier design to provide a relatively high speed, multi-channel, digital or
analog, optical communications link that does not interfere with, or become
contaminated by, signals from IR remote controls. REMOTELINK can be
configured to support multiple users and simultaneous channels operating over
a number of carrier frequency spectrums, including the 1 to 6 megahertz
range. REMOTELINK'S bandwidth supports wireless data transmissions of up to
100 kilobits per second and a 6 kilohertz bandwidth analog transmission at
distances of up to 10 meters. REMOTELINK technology can simultaneously
transmit data, voice and legacy

                                       9
<PAGE>

IR codes. REMOTELINK technology's ability to transmit legacy IR codes makes
it compatible with existing remote controls.

         APPLICATIONS. We have created a number of applications that allow
our hardware technologies to support specific functions. These applications,
for example, enable our FSR-based touchpads to support PTS mapping and
gesture control. We expect to develop, or work with others to develop, new
applications that will allow our intuitive interface devices to control an
ever increasing number of interactive functions.

SALES AND MARKETING

         We employ a direct sales team of nine people in the U.S. and five in
Japan. Each sales team is supported by inside sales personnel, product
managers and application engineers. For our branded products, we also use
value-added resellers, system integrators and distributors throughout the
U.S. and Europe.

         For OEM sales, we use public relations activity, direct advertising
and trade show participation to generate product awareness. Promising sales
leads and known industry targets are followed up with sales visits. Depending
on forecast volume and required lead times, we may sell component solutions,
ready-to-integrate modules, complete solutions or totally custom products. As
necessary, application engineers support and visit customers to promote ease
of integration. A successful OEM sale will generally take from 6 to 18 months
from the initial visit to the first shipment. However, once obtained, an OEM
customer usually offers us a more predictable revenue stream.

         For branded products, we use public relations, third-party product
reviews, trade shows and direct advertising to generate customer awareness.
Direct sales calls are made to potential distributors and specialty
resellers. Once a customer relationship is established, we support these
customers with co-op advertising, sales "spiffs," end-user rebates and other
promotions.

         Current distribution channels for our branded products consist of
distributors such as Ingram Micro, catalogs and specialty resellers targeting
corporate accounts. We market to these channels with direct sales through our
employees. In Europe we use distributors and specialty resellers. We use
these distribution channels not only to increase branded product sales but
also to establish customer demand for new products that generate OEM sales.

         We are using our relationships with our OEM customers to facilitate
the introduction of our products in the home entertainment market. We also
are forming relationships with software developers, digital set-top box
manufacturers and cable and satellite television providers to enhance that
market's acceptance of our products and technologies. We anticipate using
similar sales and marketing techniques as those described above once we
become established in this market.

         We are conducting a variety of pilot projects with several potential
corporate purchasers of our EPAD product. Because we expect that the EPAD
sales channels will be different from those for our other principal products,
we are evaluating various sales and marketing options, including partnership
or licensing arrangements with third parties.

                                       10
<PAGE>

CUSTOMERS

         Our ten largest customers by revenue in 2000 were:

<TABLE>

<S>                                                     <C>
1. NEC Corporation                                      6. Microsoft Corporation
2. inFocus, Inc.                                        7. Hitachi, Ltd.
3. International Engineering and Electronics            8. Mitsubishi Electronics America, Inc.
4. Sony Corporation                                     9. Toshiba Corporation
5. Sharp Corporation                                    10. Varian, Inc.

</TABLE>

         In 2000, no single customer exceeded 10% of consolidated revenues.

MANUFACTURING

         We manufacture FSR sensors at our facility in Camarillo, California.
This facility is capable of operating on a single, double, or triple shift
basis, as volume dictates. We acquire raw materials and components from a
number of sources, mostly within the United States. We have worked closely
with a small group of manufacturers to create new materials optimized for FSR
usage; most of these materials are supplied to us on an exclusive basis. The
raw materials are processed into their final form using proprietary material
and methods. We contract with a manufacturer in China to conduct most of our
high volume, non-FSR manufacturing operations.

COMPETITION

         We face competition from larger, more established companies that can
produce lower cost products using more mature technologies. Many of these
companies have greater financial, engineering and manufacturing resources
than we do and have long-standing customer relationships with key potential
customers. While we believe our technologies are superior, these competitors
may develop or acquire enhanced technologies sufficient to maintain or
improve their market share. Moreover, competitive pricing pressures on our
OEM customers' products may force them to choose lower cost, less
sophisticated solutions from our competitors.

         In the business communications market, our competitors include
Hoshiden and SMK Corporation. In the home entertainment and e-transactions
markets, we will face competition from Koninklijke Philips Electronics N.V.,
Universal Electronics Inc., Wacom Technology Co. and other smaller companies.

         We believe we can continue to compete effectively by continuing to
develop patented technologies that increase the functionality of the products
of our OEM customers. To maintain our patented technology advantage, we will
continue to invest heavily in product and advanced technology development. By
manufacturing most of our non-FSR components in countries with lower labor
costs, we can continue to offer high volume, low cost solutions.

RESEARCH AND DEVELOPMENT

         The business communications, home entertainment and e-transactions
markets are characterized by rapid and continuous technological development
of the appliances with which our products interface. For example, in the
business communications market, the computerized projector has rapidly become
a powerful, lightweight machine that is easily portable by its user. To
maintain our competitive position, we

                                       11
<PAGE>

believe we must develop, in a timely manner, new interface technologies and
products and enhance our existing technologies and products. Accordingly, we
allocate a significant amount of our financial resources to engineering,
product and advanced technology development. We also maintain close
relationships with our customers, which helps us anticipate their product
needs.

         We employ 32 people in our product design, engineering support and
advanced technology departments in the US and in Japan. As appropriate, we
engage outside software development firms to facilitate the integration of
our products into our customers' appliances.

         Most of our current research and development efforts are focused on
further development of our intellectual property surrounding PTS mapping,
gesture control and the REMOTELINK communication protocol. Ongoing efforts
are directed at enhancing the ergonomics of our interface designs, such as
touchpad input and our CLICKTRIGGER control. Future efforts will be directed
toward providing a single chip solution for the REMOTELINK technology and
software integration of our home entertainment solution to next-generation
digital set-top boxes. We do not anticipate the development of technology
unrelated to our customers' evolving needs.

PATENTS AND INTELLECTUAL PROPERTY

         We regularly file patent applications and continuations to cover
both new and improved methods of manufacturing FSR sensors and non-FSR based
technologies.

         Aspects of our technology are protected by more than 65 patents
issued or pending in the United States and abroad, as well as by trade
secrets and proprietary knowledge. Products incorporating our force sensing
technologies are sold under trademarks issued or pending in the United States
and various other countries. Of the initial FSR patents granted, those which
cover certain aspects of the use of an uneven surface to produce variable
resistance, the first of these patents expired on September 24, 1999. We have
continued our efforts to improve the design, formulation, and manufacture of
our 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 will expire between 2001 and 2015. Various
corresponding foreign patents will expire between 2001 and 2015. U.S. patents
covering various materials and processes used in our current generation of
products, as well as new devices for angle and displacement sensing, were
granted during 1995 and our CLICKTRIGGER design was afforded patent
protection in 1997. We have also filed U.S. and foreign patent applications
regarding the design, and several key operating features, of our REMOTELINK
technology.

         We have also developed certain manufacturing processes and other
methods of applying our patented technology that we protect as trade secrets.
We believe 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. We require our employees to sign
nondisclosure agreements and seek to limit access to sensitive information to
the greatest practical extent.

         We actively enforce our patents. When a potential infringing company
is identified, we first seek to notify the company of our patent rights.
Historically, we have been successful in negotiating license arrangements. If
an agreement cannot be reached, we will pursue legal remedies.

                                       12
<PAGE>

         While we believe our patents afford some competitive advantage, such
protection is limited by the resources available to us to identify potential
infringements and to defend our rights against infringement. 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. We cannot be sure
that our patents will afford meaningful protection from competition.

EMPLOYEES

         We had 118 full-time employees in the United States as of December
31, 2000; 109 at our corporate offices and manufacturing facilities, and nine
at our regional sales offices. Our Japanese subsidiary had 34 employees on
that date.

ITEM 2.  PROPERTIES

         Our corporate offices and principal manufacturing facilities are
located in a 35,333 square foot leased facility in Camarillo, California. The
lease on the Camarillo premises runs until August 2003 and provides for an
average monthly rent payment of $20,681. We believe that this facility will
be adequate to meet its requirements for at least the next 12 months. Our two
regional sales offices operate out of leased facilities. Our Japanese
subsidiary, Interlink Electronics, K.K., leases office space in Tokyo.

ITEM 3.  LEGAL PROCEEDINGS

         We are not engaged in any litigation that we expect will have a
material adverse effect on our business, financial condition or results of
operation.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of security holders during the
fourth quarter of 2000.

ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT

         The following table contains information as of March 9, 2001 with
respect to each person who is an executive officer of Interlink:

<TABLE>
<CAPTION>

NAME                               AGE    POSITION
- ----                               ---    --------
<S>                                <C>    <C>
E. Michael Thoben, III..........    47    President, Chief Executive Officer and Chairman of the Board
Paul D. Meyer...................    41    Chief Financial Officer and Secretary
Tamio Mori......................    54    President and General Manager, Interlink Electronics K.K.
Michael W. Ambrose..............    41    Vice President--Engineering

</TABLE>

                                       13
<PAGE>

         E. MICHAEL THOBEN, III has served as Interlink's president, chief
executive officer and chairman of the board of directors since 1994. From
1990 to 1994, he served as Interlink's president and a director. Prior to
joining Interlink in 1990, Mr. Thoben was employed by Polaroid Corporation
for 11 years, most recently as the manager of one of Polaroid's seven
strategic business units on a worldwide basis. Mr. Thoben is currently a
director of the American Electronics Association. 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.

         PAUL D. MEYER has served as Interlink's chief financial officer
since December 1996. From 1994 to 1996, he served as vice president--finance,
and from 1989 to 1994 he served as controller. From May 1988 to December
1989, Mr. Meyer served as controller for Dix-See Sales Company. From
September 1985 to May 1988, he served as corporate accounting manager for
Bell Industries. Mr. Meyer was 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, Los Angeles.

         TAMIO MORI has served as the president and general manager of
Interlink Electronics K.K., Interlink's 80% owned Japanese subsidiary, since
1993. Prior to Interlink, Mr. Mori served in increasingly senior positions
for 22 years with Mitsubishi Petrochemical Corporation, most recently as
Assistant General Manager of New Business Development. He has a Master of
Chemical Engineering and a Bachelor of Science in Organic Chemistry from
Waseda University.

         MICHAEL W. AMBROSE has served as Interlink's vice
president--engineering since June 1999. Between March 1998 and June 1999, he
was director of engineering. From August 1995 to February 1998, he served as
the director of marketing of Communication Intelligence Corp., a computer
software company specializing in software for mobile computing, e-signatures
and computer security. Prior to August 1995, he was employed by Logitech
Inc., a computer peripherals company, as the general manager of its Gazelle
Business Unit and as vice president of product marketing for Gazelle Graphic
Systems. Mr. Ambrose holds a B.S. degree in electrical engineering from
Washington State University.

                                       14
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Our common stock was traded on the Nasdaq Small Cap Market System
from June 7, 1993 to September 14, 1995 and since then on the Nasdaq National
Market System under the symbol "LINK." The following table sets forth the
high and low closing prices for the common stock as reported on the Nasdaq
National Market for the quarters indicated. These prices do not include
retail markups, markdowns or commissions. The number of shares and the prices
reflect a three-for-two stock split effected as a stock dividend on shares of
our common stock outstanding on March 20, 2000.

<TABLE>
<CAPTION>
                                                       LOW        HIGH
                                                      ------     ------
<S>                                                   <C>        <C>
YEAR ENDED DECEMBER 31, 1999
   First Quarter...............................       $ 2.67     $ 4.17
   Second Quarter..............................         3.13       7.09
   Third Quarter...............................         4.52       9.50
   Fourth Quarter..............................         5.25      41.34

YEAR ENDED DECEMBER 31, 2000
   First Quarter...............................       $25.33     $69.17
   Second Quarter..............................        17.31      62.67
   Third Quarter...............................        15.00      50.00
   Fourth Quarter..............................         8.50      31.73

YEAR ENDING DECEMBER 31, 2001
   First Quarter (through March 9, 2001).......       $ 5.81     $15.69

</TABLE>


         On March 9, 2001, the closing price of the common stock on the
Nasdaq National Market was $7.469. As of March 9, 2001 there were
approximately 83 shareholders of record of our common stock. We believe the
number of beneficial owners is substantially greater than the number of
record holders because a large portion of Interlink's outstanding common
stock is held of record in broker "street names" for the benefit of
individual investors. As of March 9, 2001 there were 9,538,170 shares
outstanding.

         We have never declared or paid cash dividends on our common stock.
Payment of any cash dividends will depend on the results of our operations,
our financial condition and our capital expenditure plans, as well as other
factors our board of directors may consider relevant. We presently intend to
retain any earnings for use in our business and, therefore, do not anticipate
paying any cash dividends in the foreseeable future.

                                       15
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

         The following selected financial data should be read with our
consolidated financial statements and the notes to those statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Form 10-K. The consolidated statements
of operations data for the years ended December 31, 1998, 1999 and 2000 and
the consolidated balance sheet data at December 31, 1999 and 2000 are derived
from our consolidated financial statements which have been audited by Arthur
Andersen LLP, our independent public accountants, and are included elsewhere
in this Form 10-K. The statements of operations data for the years ended
December 31, 1996 and 1997 and the consolidated balance sheets dated as of
December 31, 1996, 1997 and 1998 are derived from our consolidated financial
statements which have been audited by Arthur Andersen LLP and are not
included in this Form 10-K.

<TABLE>
<CAPTION>
                                                                               YEAR ENDED DECEMBER 31,

                                                            1996          1997           1998        1999          2000
                                                          ---------     ----------   ----------    ----------   ---------
                                                                       (IN THOUSANDS, EXCEPT PER-SHARE DATA)
<S>                                                       <C>           <C>          <C>           <C>          <C>
STATEMENT OF OPERATIONS DATA:
Revenues                                                   $ 13,485      $  19,153    $  22,095     $  28,106   $  33,870
Cost of revenues                                              7,028         11,829       13,954        17,640      19,453
                                                          ---------     ----------   ----------    ----------   ---------
  Gross profit                                                6,457          7,324        8,141        10,466      14,417

Operating expenses:
  Product development and research                            1,234          1,600        1,416         2,225       3,222
  Selling, general and administrative                         4,617          5,555        5,837         5,799       7,612
                                                          ---------     ----------   ----------    ----------   ---------
     Total operating expenses                                 5,851          7,155        7,253         8,024      10,834
                                                          ---------     ----------   ----------    ----------   ---------
     Operating income                                           606            169          888         2,442       3,583
                                                          ---------     ----------   ----------    ----------   ---------
Other income (expense):
     Minority interest                                           --             --           --           (31)        (25)
     Interest income (expense)                                 (118)          (152)        (127)           35          94
     Cost of cancelled equity offering                           --             --           --            --        (769)
     Other                                                       27             13         (359)          (86)        (49)
                                                          ---------     ----------   ----------    ----------   ---------
            Total other income (expense)                        (91)          (139)        (486)          (82)       (749)
                                                          ---------     ----------   ----------    ----------   ---------
Income before provision (benefit)
  for income taxes                                              515             30          402         2,360       2,834
Provision (benefit) for income taxes                             --             --           --           252        (274)
                                                          ---------     ----------   ----------    ----------   ---------
Net income                                                 $    515      $      30    $     402     $   2,108   $   3,108
                                                          =========     ==========   ==========    ==========   =========
Earnings per share--basic(1)                               $   0.08      $    0.00    $    0.05     $    0.26   $    0.35
Earnings per share--diluted(1)                             $   0.07      $    0.00    $    0.05     $    0.21   $    0.28

<CAPTION>
                                                                                      DECEMBER 31,
                                                            1996           1997         1998          1999         2000
                                                          ---------     ----------   ----------    ----------   ---------
                                                                                          (in thousands)
<S>                                                       <C>           <C>          <C>           <C>          <C>
BALANCE SHEET DATA:
Working capital                                            $  8,969      $  12,461    $  14,139     $  17,644   $  23,128
Total assets                                                 13,185         17,555       19,577        24,707      31,774
Short term debt                                                 403          1,090          630           518       2,079
Long term debt and capital lease obligations                    850            724        1,423         1,424       2,598
Stockholders' equity                                          9,969         13,453       14,665        18,247      22,433
- -----------
</TABLE>

(1)  As adjusted for the three-for-two stock split effected as a stock dividend
     to stockholders of record on March 20, 2000.

                                       16
<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS OVERVIEW

         We are a leader in the development of intuitive interface devices
for a variety of home and business applications. We were incorporated in
California in February 1985 and reincorporated in Delaware in July 1996. From
1985 to 1992, we developed and refined our FORCE SENSING RESISTOR, or FSR,
technology and sold it to customers for electronic, musical, medical and
other applications, which we now refer to as the specialty components market.
In 1992, we introduced our first branded computer pointing device,
PORTAPOINT, and in 1994, we introduced our first wireless pointing device,
REMOTEPOINT. With the advent of this latter device, we established ourselves
as a leading supplier to OEMs in the computerized presentation system market,
which we now call the business communications market. In 1999, we introduced
the ePad product for e-transactions applications and IntuiTouch technology
for the home entertainment market.

         Revenue, net of allowances for returns and warranty, is recognized
upon shipment of product. Royalty revenue is recorded when earned. Revenues
have increased steadily during the last six years as we have established
ourselves in new markets and built a base of OEM customers in the computer,
computer peripheral and business communications industry. Gross profit, as a
percentage of revenues, varies depending on product and licensing revenue
mix. Product development and research expenditures, which includes
engineering, contract engineering and development and material costs of
development, have generally increased as revenue has increased but has
remained relatively consistent as a percentage of revenues, reflecting our
continuing commitment to the technological and design innovation required to
maintain a leadership position in existing markets and to develop new ones.
Selling, general and administrative expense, which includes sales, marketing
and administrative personnel, advertising, sales commissions, reseller
incentives, tradeshow costs and other sales expenses, declined through 1999,
stabilized in 2000, as a percentage of sales, reflecting the amortization of
a relatively fixed expense requirement over a larger revenue base. Because of
net operating loss carryforwards available both for our U.S.-based and
Japan-based operations, we historically have not paid income tax. Beginning
in 1999, some of these loss carryforwards began to expire or became fully
utilized; therefore income taxes are expected to increase on both a
percentage and absolute dollar basis. Other income (expense) was significant
in 1998 and 2000 as the result of a non-recurring legal settlement expense
and the cancelled offering cost.

         Prior to 1999, operations was a net user of cash and we funded this
through existing cash balances, private placements of equity and to a lesser
extent, bank and lease financing. In 1999, operations was a net provider of
cash, generating $2.9 million and was essentially break-even in 2000.

         Sales of business communications intuitive interface devices
accounted for 61% of our total sales in 2000 and 62% of our total sales in
the three years ended December 31, 2000. Our business communications sales in
dollars grew at an average annualized rate of 20% in 2000. Because our market
share for business communications interface devices is approximately 80%, we
expect that our ability to achieve further revenue growth in this market will
largely depend on growth in the market itself.

         We have established relationships with most of the major OEMs in the
business communications

                                       17
<PAGE>

market. Many of these OEMs are based in Japan and approximately 43% of our
2000 revenues came from Japanese customers. As a result we are subject to
foreign currency exchange rate fluctuations, primarily in the yen/dollar
exchange rate.

         We have licensed certain technology related to the production of FSR
sensors to International Electronics and Engineering, a former affiliate
based in Luxembourg, for use in connection with sales of sensors to the
automotive industry. We are entitled to royalties in connection with sales of
automotive sensors outside Europe. We have occasionally licensed other
aspects of our technology in connection with the settlement of intellectual
property disputes and expect to continue to do so in the future.

         In June 1998 and June 1999, the AICPA issued Statement of Financial
Accounting Standards, or SFAS, No. 133 "Accounting for Derivative Instruments
and Hedging Activities" and SFAS No. 137, which delayed the effective date of
SFAS No. 133 and required its adoption beginning January 1, 2001. We adopted
this standard in January 2001, however, we do not expect its implementation
to have a significant impact on our financial position or results of
operations.

RESULTS OF OPERATIONS

         The following table presents our historical operating results for
the periods indicated as a percentage of revenues:

<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                           1998         1999           2000
                                                         ---------    ---------    ---------
<S>                                                      <C>          <C>          <C>
Revenues                                                       100%         100%         100%
                                                         ---------    ---------    ---------
Gross profit                                                    37           37           42
Operating expenses:
Product development and research                                 7            8           10
Selling, general and administrative                             26           20           22
                                                         ---------    ---------    ---------
Total operating expenses                                        33           28           32
                                                         ---------    ---------    ---------
Operating income                                                 4            9           10
Other income (expense)                                          (2)          --           (2)
Income tax                                                      --            1           (1)
                                                         ---------    ---------    ---------
Net income                                                       2%           8%           9%
                                                         =========    =========    =========
</TABLE>


FISCAL YEAR ENDED DECEMBER 31, 2000 COMPARED WITH FISCAL YEAR ENDED
DECEMBER 31, 1999

         Revenues increased 21% from $28.1 million in 1999 to $33.9 million
in 2000. This revenue growth is a result primarily of growth in sales to the
business communications market and, to a lesser extent, from a twofold
increase in home entertainment sales to $2.9 million reflecting our initial
penetration of that market.

         Gross profit as a percent of sales improved to 42% in 2000 from 37%
in 1999 due to growth in home entertainment and $2.6 million in licensing
revenues.

         Product development and research expense increased 45% from $2.2
million in 1999 to $3.2 million in 2000 while increasing marginally as a
percentage of sales. The increase reflects our continuing commitment to
develop products that will support our leadership position in our existing
and

                                       18
<PAGE>

targeted markets.

         Selling, general and administrative expense increased 31% from $5.8
million in 1999 to $7.6 million in 2000 and increased as a percentage of
sales from 20% in 1999 to 22% in 2000 . The percentage increase reflects the
creation of sales and marketing teams for the home entertainment and
e-transaction markets.

         In 2000, we recorded a nonrecurring expense of $769,000 related to a
cancelled public stock offering.

         In 2000, we recorded a deferred tax asset of $600,000 related to our
$12.8 million in federal net operating loss carryforwards.

         Operating income was $3.6 million and net income was $3.1 million in
2000, the increases over 1999 were primarily attributable to increased sales.

FISCAL YEAR ENDED DECEMBER 31, 1999 COMPARED WITH FISCAL YEAR ENDED DECEMBER
31, 1998

         Revenues increased 27% from $22.1 million in 1998 to $28.1 million
in 1999. This revenue growth is a result primarily of growth in sales to the
business communications market and, to a lesser extent, from a threefold
increase in home entertainment sales to $1.5 million reflecting our initial
penetration of that market.

         Gross profit as a percent of sales did not change appreciably.

         Product development and research expense increased 57% from $1.4
million in 1998 to $2.2 million in 1999 while increasing marginally as a
percentage of sales. The increase reflects our continuing commitment to
develop products that will support our leadership position in our existing
and targeted markets.

         Selling, general and administrative expense was $5.8 million in 1998
and 1999 but declined as a percentage of sales from 26% in 1998 to 20% in
1999. The percentage decrease represents the amortization of a relatively
stable general and administrative burden over increased sales.

         Operating income was $2.4 million and net income was $2.1 million in
1999, the increases over 1998 were primarily attributable to increased sales.

         Income taxes were significant for the first time in 1999 at
$252,000, as our Japanese subsidiary fully utilized its tax loss
carryforwards and began to accrue tax on income.

                                       19
<PAGE>

QUARTERLY RESULTS OF OPERATIONS

         The following table presents unaudited consolidated statement of
operations data for each of the eight quarters ended December 31, 2000, as
well as such data expressed as a percentage of revenue. We believe that all
necessary adjustments have been included to fairly present the quarterly
information when read in conjunction with the consolidated financial
statements. The operating results for any quarter are not necessarily
indicative of the results for any subsequent quarter.

<TABLE>
<CAPTION>
                                                                      QUARTER ENDED (UNAUDITED)
                                                                            (IN THOUSANDS)
                                       March 31,   June 30,   Sept 30,   Dec 31,  March 31,   June 30,  Sept 30,   Dec 31,
                                         1999        1999       1999       1999      2000      2000       2000      2000
                                      ----------  ---------  ---------  --------- ---------  ---------  --------  --------
<S>                                   <C>         <C>        <C>        <C>       <C>        <C>        <C>       <C>
 Revenue                              $    6,503  $   6,958  $  7,207   $  7,438  $  7,685   $  8,257   $ 8,625   $ 9,303

 Cost of revenues                          4,107      4,287     4,573      4,673     4,771      4,661     4,833     5,188
                                      ----------  ---------  ---------  --------- ---------  ---------  --------  --------

 Gross profit                              2,396      2,671     2,634      2,765     2,914      3,596     3,792     4,115
 Operating expenses:
 Product development
   and research                              483        565       543        634       619        955       725       923
 Selling, general
   and administrative                      1,448      1,532     1,431      1,388     1,511      1,790     2,207     2,104
                                      ----------  ---------  ---------  --------- ---------  ---------  --------  --------
 Total operating expenses                  1,931      2,097     1,974      2,022     2,130      2,745     2,932     3,027
 Operating income                            465        574       660        743       784        851       860     1,088
 Other income (expense)                       15          9        (9)       (97)       72       (783)       43       (81)
                                      ----------  ---------  ---------  --------- ---------  ---------  --------  --------
 Income before
   income taxes                              480        583       651        646       856         68       903     1,007
 Income tax expense (benefit)                 72         75       105         --       144         --       106      (524)
                                      ----------  ---------  ---------  --------- ---------  ---------  --------  --------
 Net income                           $      408  $     508  $    546   $    646  $    712   $     68   $   797   $ 1,531
                                      ==========  =========  =========  ========= =========  =========  ========  ========
<CAPTION>
                                       March 31,   June 30,   Sept 30,   Dec 31,  March 31,   June 30,  Sept 30,   Dec 31,
                                         1999        1999       1999       1999      2000      2000       2000      2000
                                      ----------  ---------  ---------  --------- ---------  ---------  --------  --------
<S>                                   <C>         <C>        <C>        <C>       <C>        <C>        <C>       <C>
 Revenue                                     100%       100%      100%       100%      100%       100%      100%      100%
 Cost of revenues                           63.2       61.6      63.5       62.8      62.1       56.5      56.0      55.8
                                      ----------  ---------  ---------  --------- ---------  ---------  --------  --------
 Gross profit                               36.8       38.4      36.5       37.2      37.9       43.5      44.0      44.2
 Operating expenses:
 Product development
   and research                              7.3        8.1       7.5        8.5       8.0       11.5       8.4       9.9
 Selling, general
   and administrative                       22.3       22.0      19.9       18.7      19.7       21.7      25.6      22.6
                                      ----------  ---------  ---------  --------- ---------  ---------  --------  --------
 Total operating expenses                   29.6       30.1      27.4       27.2      27.7       33.2      34.0      32.5
                                      ----------  ---------  ---------  --------- ---------  ---------  --------  --------
 Operating income                            7.2        8.3       9.1       10.0      10.2       10.3      10.0      11.7
 Other income (expense)                      0.2        0.1       0.0       (1.3)      0.9       (9.5)      0.5      (0.9)
                                      ----------  ---------  ---------  --------- ---------  ---------  --------  --------
 Income before income taxes                  7.4        8.4       9.1        8.7      11.1        0.8      10.5      10.8
 Income tax expense (benefit)                1.1        1.1       1.5         --       1.9         --       1.3      (5.6)
                                      ----------  ---------  ---------  --------- ---------  ---------  --------  --------
 Net income                                  6.3%       7.3%      7.6%       8.7%      9.2%       0.8%      9.2%     16.4%
                                      ==========  =========  =========  ========= =========  =========  ========  ========

</TABLE>

                                       20
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         Working capital at December 31, 2000 was $23.1 million versus $17.6
million at the end of 1999. This increase resulted from positive results from
operations, proceeds from debt agreements obtained through Japanese banks and
cash received from the exercises of employee stock options.

         Operations was essentially break-even from a cash standpoint in 2000
as compared to a cash provider of $2.9 million in 1999. Our growth into two
new business sectors as well as the inventory investment required for the
transition to a new contract manufacturer resulted in the cash flow
difference.

         We spent $529,000 in 1999 and $640,000 in 2000 to purchase
additional manufacturing equipment and computer equipment related to our
internal computer network. We invested $104,000 in new patents in 1999 and
$74,000 in 2000.

         We have a maximum amount available under our Japanese bank line of
credit to $1.1 million, none of which was used as of December 31, 2000. Our
U.S. line of credit was unused at December 31, 2000 and had $5 million of
availability as of that date. We have a $1 million equipment lease line,
unused at December 31, 2000. The exercise of outstanding stock options is a
potential source of equity capital that may be available to us. We believe
that our current cash balances and lines of credit will allow us to fund our
operations for at least the next 12 months. However, an unforeseen downturn
of results in sufficient magnitude could adversely affect our ability to meet
that forecast.

ITEM 7(A).   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN CURRENCY EXCHANGE RISK

         Our Japanese subsidiary, Interlink Electronics K.K., generally
transacts its sales and collects its accounts receivable in Japanese yen. To
hedge these revenues against future movements in exchange rates, we will from
time to time purchase foreign exchange forward contracts. Gains or losses on
the forward contracts are then offset by gains or losses on the underlying
exposure and consequently a sudden or significant change of foreign exchange
rates would not have a material impact on net income or cash flows to the
extent future revenues are protected by forward currency contracts. During
2000, the Company entered into foreign currency exchange contracts in the
normal course of business to manage its exposure against foreign currency
fluctuations on revenues denominated in foreign currencies. The principle
objective of such contracts is to minimize the risks and costs associated
with financial and global operating activities. The Company does not utilize
financial instruments for trading or other speculative purposes. The fair
value of foreign currency exchange contracts is estimated by obtaining quotes
from brokers. At December 31, 2000, the Company had foreign currency exchange
contracts outstanding with a notional value of $7.0 million. During fiscal
2000, the Company recognized $601,000 of gains on foreign currency exchange
contracts which is reflected in income in the accompanying consolidated
statements of operations.

                                       21
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

         The information required by this item is included at pages F-1 to
F-14 and as listed in Item 14 of Part IV.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE

         Not applicable.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Information with respect to our directors will be included under
"Election of Directors" in our definitive proxy statement for our 2001 annual
meeting of stockholders (the "2001 Proxy Statement") to be filed not later
than 120 days after the end of the fiscal year covered by this Report and is
incorporated herein by reference. Information with respect to our executive
officers will be included under Item 4(A) of Part I of this Report.
Information with respect to compliance with Section 16(a) of the Securities
Exchange Act of 1934 will be included under "Section 16(a) Beneficial
Ownership Reporting Compliance" in the 2001 Proxy Statement and is
incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

         Information with respect to executive compensation will be included
under "Executive Compensation" in the 2001 Proxy Statement and is
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information with respect to security ownership of certain beneficial
owners and management will be included under "Security Ownership of Certain
Beneficial Owners and Management" in the 2001 Proxy Statement and is
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information with respect to certain relationships and related
transactions with management will be included under "Certain Transactions" in
the 2001 Proxy Statement and is incorporated herein by reference.

                                       22
<PAGE>

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

         (a) 1. FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                          PAGE IN THIS
                                                                                              REPORT
                                                                                          ------------
<S>                                                                                       <C>
Interlink Electronics, Inc.--Consolidated Financial Statements......................            F-1
Report of Independent Public Accountants...........................................             F-2
Consolidated Balance Sheets as of December 31, 1999 and December 31, 2000..........             F-3
Consolidated Statements of Operations for each of the years in the period
   ended December 31, 2000.........................................................             F-4
Consolidated Statements of Stockholders' Equity for each of the years
   in the period ended December 31, 2000...........................................             F-5
Consolidated Statements of Cash Flows for each of the years in
   the period ended December 31, 2000..............................................             F-6
Notes to Consolidated Financial Statements.........................................             F-7

</TABLE>

         2. EXHIBITS

         The exhibits listed below are filed as part of this report.

<TABLE>
<CAPTION>

       EXHIBIT
        NUMBER
       -------
<S>            <C>
           3.1 Certificate of Incorporation as amended.

           3.2 Bylaws.

          10.1 1993 Stock Incentive Plan (incorporated by reference to Exhibit 10.1a
               of the Post-Effective Amendment No. 8 to Registrant's Registration
               Statement on Form S-1 (Registration No. 333-60380) (the Form S-1
               Registration Statement).*

          10.2 1996 Stock Incentive Plan as amended.*

          10.3 Description of Registrant's Management Compensation Program (incorporated
               by reference to Exhibit 10.4 to the Registrant's Annual Report
               on Form 10-K for the year ended December 31, 1996).

          10.4 Lease Agreement dated August 15, 1998 (incorporated by reference
               to the Registrant's Annual Report on Form 10- K for the year
               ended December 31, 1998).

          10.5 License Agreement between the Registrant and Toshiba Silicone Co., Ltd.
               dated March 10, 1989 (incorporated by reference to Exhibit 10.14 of the
               Form S-1 Registration Statement).

          10.6 Restructuring Agreement, entered into and effective as of September 7, 1994,
               by and between InvestAR S.a.r.l., Interlink Electronics Europe, S.a.r.l.,
               and IEE Finance, S.a.r.l. (incorporated by reference to Exhibit 10.6 of the
               Registrant's Annual Report on Form 10-K for the year ended December 31, 1999).

          10.7 Exclusive License and Distributor Agreement between the Registrant and
               Interlink Electronics Europe S.a.r.l., Amended and Restated as of September 7, 1994
               (incorporated by reference to Exhibit 10.7 of the Registrant's Annual Report on
               Form 10-K for the year ended December 31, 1999).

          10.8 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
               (incorporated by reference to Exhibit 10.19 of the Form S-1 Registration Statement).

          10.9 Agreement with InvestAR S.a.r.l. and ARBED S.A. (undated) (incorporated by reference
               to Exhibit

                                       23
<PAGE>

               10.20 of the Form S-1 Registration Statement).

         10.10 Ink Technology Transfer Agreement between the Registrant and InvestAR S.a.r.l.
               dated December 11, 1992 (incorporated by reference to Exhibit 10.23 of the
               Form S-1 Registration Statement).

         10.11 Financing Agreement between the Registrant and InvestAR S.a.r.l. in relation with the
               Ink Technology Transfer Agreement dated December 11, 1992 (incorporated by reference
               to Exhibit 10.24 of the Form S-1 Registration Statement).

         10.12 Form of Confidentiality and Nondisclosure Agreement in relation with the Ink Technology
               Transfer Agreement (undated) (incorporated by reference to Exhibit 10.25 of the Form S-1
               Registration Statement).

         10.13 Form of Escrow Agreement for Technology in relation with the Ink Technology Transfer
               Agreement dated December 11, 1992 (incorporated by reference to Exhibit 10.26 of the
               Form S-1 Registration Statement).

         10.14 Credit Agreement between Wells Fargo Bank, National Association, and the Registrant
               dated September 1, 2000 (incorporated by reference to the Registrant's Quarterly
               Report on Form 10-Q for the quarter ended September 30, 2000).+

          21.1 Subsidiaries of the Registrant.

          23.1 Consent of Arthur Andersen LLP.

          24.1 Power of Attorney (see signature page).
- -----------
</TABLE>

*        This exhibit constitutes a management contract or compensatory plan or
         arrangement.

+        Exhibits for which Registrant has received confidential treatment for
         certain portions. The confidential material in such exhibits has been
         redacted and separately filed with the Securities and Exchange
         Commission as part of Registrant's Quarterly Report on Form 10-Q for
         the quarter ended September 30, 2000.

(b)      REPORTS ON FORM 8-K

         No reports on Form 8-K were filed during the quarter ended December
31, 2000.



                                       24
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Camarillo, State of California on March 29, 2001.

                      INTERLINK ELECTRONICS, INC.
                      By:
                            E. MICHAEL THOBEN, III
                            ----------------------------------------------------
                            E. MICHAEL THOBEN, III
                            CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT


                           POWER OF ATTORNEY

         KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints E. Michael Thoben, III and Paul D.
Meyer, and each of them, his or her attorneys-in-fact and agents, each with
full power of substitution, for him or her and in his or her name, place and
stead, in any and all capacities, to sign any and all amendments to this
Report, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to
do and perform each and every act and thing requisite and necessary to be
done in connection with this Report, as fully to all intents and purposes as
he or she might or could do in person, hereby ratifying and confirming all
that any of said attorneys-in-fact and agents, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on March 29, 2001
on behalf of the Registrant and in the capacities indicated:

<TABLE>
<CAPTION>

SIGNATURES                                                    TITLE
- ----------                                                    -----
<S>                                                           <C>

E. MICHAEL THOBEN, III                                        President, Chief Executive Officer and
- ------------------------------------                          Chairman of the Board of Directors
E. MICHAEL THOBEN, III                                        (Principal Executive Officer)


PAUL D. MEYER                                                 Chief Financial Officer and Secretary
- ------------------------------------                          (Principal Financial Officer and
PAUL D. MEYER                                                 Principal Accounting Officer)


GEORGE GU                                                     Director
- ------------------------------------
GEORGE GU


EUGENE F. HOVANEC                                             Director
- ------------------------------------
EUGENE F. HOVANEC


MERRITT M. LUTZ                                               Director
- ------------------------------------
MERRITT M. LUTZ


                                                              Director
- ------------------------------------
JOHN A. BUCKETT, II

</TABLE>

                                       25
<PAGE>

                           INTERLINK ELECTRONICS, INC.
                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                             PAGE
<S>                                                                          <C>
Interlink Electronics, Inc.--Consolidated Financial Statements............... F-1
      Report of Independent Public Accountants............................... F-2
      Consolidated Balance Sheets............................................ F-3
      Consolidated Statements of Operations.................................. F-4
      Consolidated Statements of Stockholders' Equity........................ F-5
      Consolidated Statements of Cash Flows.................................. F-6
      Notes to Consolidated Financial Statements............................. F-7

</TABLE>

                                       F-1
<PAGE>

                     REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Interlink Electronics, Inc.:

We have audited the accompanying consolidated balance sheets of Interlink
Electronics, Inc. (a Delaware corporation) and its subsidiary as of December
31, 1999 and 2000, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audits 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, Inc.
and its subsidiary as of December 31, 1999 and 2000, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States.

ARTHUR ANDERSEN LLP

Los Angeles, California
February 14, 2001

                                       F-2
<PAGE>

INTERLINK ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT PAR VALUE)
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>

ASSETS                                                             DECEMBER 31,
Current assets:                                              1999             2000
                                                          ----------       ----------
<S>                                                       <C>              <C>
  Cash and cash equivalents                               $    7,492       $   10,506
  Accounts receivable, less allowance for
    doubtful accounts of $620 and $722
    in 1999 and 2000, respectively                             7,056            8,613
  Inventories                                                  7,928            9,435
  Deferred tax asset                                               -              600
  Prepaid expenses and other current assets                      173              661
                                                          ----------       ----------
    Total current assets                                      22,649           29,815
                                                          ----------       ----------
  Property and equipment, net                                  1,559            1,632
  Patents and trademarks, less accumulated
     amortization of $739 and $860
     in 1999 and 2000, respectively                              282              235
  Other assets                                                   217               92
                                                          ----------       ----------
       Total Assets                                       $   24,707       $   31,774
                                                          ==========       ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current maturities of long-term debt
     and capital lease obligations                        $      518       $    2,079
  Accounts payable                                             3,041            3,305
  Accrued payroll and related expenses                           957              936
  Other accrued expenses                                         489              367
                                                          ----------       ----------
   Total current liabilities                                   5,005            6,687
                                                          ----------       ----------
Minority interest                                                 31               56
Long-term debt, net of current portion                         1,261            2,547
Capital lease obligations, net of current portion                163               51
Commitments and contingencies                                     --               --
Stockholders' equity:
 Preferred stock, $5.00 par value
     (100 shares authorized, none issued
     and outstanding)                                             --               --
 Common stock $0.00001 par value
     (50,000 shares authorized, 8,553
     and 9,249 issued and outstanding
     at December 31, 1999 and 2000, respectively)             26,197           27,630
 Accumulated other comprehensive income (loss)                   187             (168)
 Accumulated deficit                                          (8,137)          (5,029)
                                                          ----------       ----------
     Total stockholders' equity                               18,247           22,433
                                                          ----------       ----------

         Total Liabilities and Stockholders' Equity       $   24,707       $   31,774
                                                          ==========       ==========
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

                                       F-3
<PAGE>

INTERLINK ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                        YEARS ENDED DECEMBER 31,
                                                  1998            1999           2000
                                               -----------    -----------    -----------
<S>                                            <C>            <C>            <C>
Revenues                                       $    22,095    $    28,106    $    33,870
Cost of revenues                                    13,954         17,640         19,453
                                               -----------    -----------    -----------
Gross profit                                         8,141         10,466         14,417
Operating expenses:
   Product development and research                  1,416          2,225          3,222
   Selling, general and administrative               5,837          5,799          7,612
                                               -----------    -----------    -----------
      Total operating expenses                       7,253          8,024         10,834
                                               -----------    -----------    -----------
Operating income                                       888          2,442          3,583
                                               -----------    -----------    -----------
Other income (expense):
   Minority interest                                    --            (31)           (25)
   Interest income (expense)                          (127)            35             94
   Cost of cancelled equity offering                    --             --           (769)
   Other (expense)                                    (359)           (86)           (49)
                                               -----------    -----------    -----------
      Total other income (expense)                    (486)           (82)          (749)
                                               -----------    -----------    -----------
Income before provision (benefit) for
     income taxes                                      402          2,360          2,834
Provision (benefit) for income taxes                    --            252           (274)
                                               -----------    -----------    -----------
Net income                                     $       402    $     2,108    $     3,108
                                               ===========    ===========    ===========
Earnings per share--basic                      $      0.05    $      0.26    $      0.35
Earnings per share--diluted                    $      0.05    $      0.21    $      0.28

Weighted average shares--basic                       7,818          8,016          8,892
Weighted average shares--diluted                     7,818         10,014         11,130

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                       F-4
<PAGE>

INTERLINK ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                  ACCUMULATED
                                                          COMMON STOCK               OTHER
                                                      ----------------------     COMPREHENSIVE     ACCUMULATED
                                                       SHARES       AMOUNT       INCOME (LOSS)       DEFICIT        TOTAL
                                                      ---------    ---------    ---------------    ------------   -------
<S>                                                   <C>          <C>          <C>                <C>            <C>
Balance, December 31, 1997                                7,803    $  24,629    $       (529)      $ (10,647)     $13,453
  Comprehensive income:
    Net income                                               --           --              --             402          402
    Foreign currency translation adjustment                  --           --             745              --          745
                                                                                                                  -------
      Comprehensive income                                                                                          1,147
  Exercise of options                                        21           65              --              --           65
                                                      ---------    ---------    ---------------    ------------   -------
Balance, December 31, 1998                                7,824       24,694             216         (10,245)      14,665
  Comprehensive income:
    Net income                                               --           --              --           2,108        2,108
    Foreign currency translation adjustment                  --           --             (29)             --          (29)
                                                                                                                  -------
      Comprehensive income                                                                                          2,079
  Exercise of options                                       729        1,503              --              --        1,503
                                                      ---------    ---------    ---------------    ------------   -------
Balance, December 31, 1999                                8,553       26,197             187          (8,137)      18,247
  Comprehensive income:
    Net income                                               --           --              --           3,108        3,108
    Foreign currency translation adjustment                  --           --            (355)             --         (355)
                                                                                                                  -------
      Comprehensive income                                                                                          2,753
  Exercise of options                                       696        1,433              --              --        1,433
                                                      ---------    ---------    ---------------    ------------   -------
Balance, December 31, 2000                                9,249    $  27,630    $       (168)      $  (5,029)     $22,433
                                                      =========    =========    ===============    ============   =======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                       F-5
<PAGE>

INTERLINK ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                 YEARS ENDED DECEMBER 31,
                                                           1998           1999         2000
                                                        -----------   ----------    -----------
<S>                                                     <C>            <C>          <C>
Cash flows from operating activities:
  Net income                                             $     402      $  2,108      $   3,108
  Adjustments to reconcile net income to
      net cash provided by (used in)
      operating activities:
    Provision for bad debts                                    110           183            133
    Depreciation and amortization                              533           630            688
    Minority interest                                           --            31             25
    Deferred tax asset                                          --            --           (600)
    Changes in operating assets and liabilities:
      Accounts receivable                                   (1,184)         (481)        (1,764)
      Inventories                                           (1,335)       (1,132)        (1,507)
      Prepaid expenses and other current assets                344             1           (488)
      Other assets                                              80          (106)           125
      Accounts payable                                         285           821            264
      Accrued payroll and related expenses                     286           807            (69)
                                                        -----------   ----------    -----------
      Net cash provided by (used in)
       operating activities                                   (479)        2,862            (85)
                                                        -----------   ----------    -----------
Cash flows from investing activities:
    Purchases of property and equipment                       (846)         (529)          (640)
    Costs of patents and trademarks                             --          (104)           (74)
                                                        -----------   ----------    -----------
    Net cash used in investing activities                     (846)         (633)          (714)
                                                        -----------   ----------    -----------
Cash flows from financing activities:
    Borrowing on credit line                                   548            --             --
    Payments on credit line                                   (992)         (132)            --
    Borrowings on notes payable to bank                        880           583          3,967
    Principal payments on notes payable to bank                (42)         (231)        (1,049)
    Proceeds from sales/leaseback                              332            --             --
    Principal payments on capital lease
      obligations                                             (487)         (331)          (183)
    Proceeds from issuance of common stock, net                 65         1,503          1,433
                                                        -----------   ----------    -----------
       Net cash provided by financing activities               304         1,392          4,168
                                                        -----------   ----------    -----------
    Effect of exchange rate changes on cash                    745           (29)          (355)
                                                        -----------   ----------    -----------
       Increase (decrease) in cash and cash
         equivalents                                          (276)        3,592          3,014
    Cash and cash equivalents:
       Beginning of year                                     4,176         3,900          7,492
                                                        -----------   ----------    -----------
       End of year                                        $  3,900      $  7,492      $  10,506
                                                        ===========   ==========    ===========

Supplemental disclosure of cash flow information:
    Interest paid                                         $    127      $     93      $     128
    Income taxes paid                                            1             2             --

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                       F-6
<PAGE>

INTERLINK ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Interlink Electronics, Inc. (the "Company") is engaged in the
development of intuitive interface technologies and solutions for a variety
of business and home applications. Our products enable a user to control and
communicate with various products such as digital set-top boxes, digital
televisions and other electronic products, which we refer to as appliances,
by providing an intuitive device on which the user can remotely input a
variety of commands. Our products incorporate patented sensor and wireless
communication technologies and proprietary applications and ergonomic
designs. Products include interactive remote controls, pen input pads,
wireless keyboards and integrated mouse pointing devices. Force Sensing
Resistors are a key component of the Company's products.

         CONSOLIDATION POLICY--The consolidated financial statements include
the accounts of the Company and its 80 percent owned Japanese subsidiary. All
material intercompany accounts and transactions have been eliminated.

         REVENUE RECOGNITION--The Company generally recognized product
revenue, net of allowances for returns and warranty, when persuasive evidence
of an arrangement exists, delivery has occurred, the fee is fixed or
determinable, and collectibility is probable. The Company generally warrants
its products against defects in materials and workmanship for 1 year. The
estimated cost of warranty obligations is recognized at the time of revenue
recognition. Royalty revenue is recorded when earned.

         FOREIGN CURRENCY TRANSLATION/TRANSACTIONS--The accounts of the
Company's foreign subsidiary have been translated according to the provisions
of Statement of Financial Accounting Standards, or SFAS, No. 52, "Foreign
Currency Translation." Management has determined that the functional currency
of its foreign subsidiary is the Japanese Yen. Thus all foreign translation
gains or losses are reflected as other comprehensive income in the
consolidated statement of stockholders' equity. The foreign subsidiary's
balance sheets are translated into U.S. dollars using the year-end exchange
rate except for stockholders' equity accounts, which are translated at rates
in effect when these balances were originally recorded. Revenues and expenses
are translated at average rates during the year. Any gain or loss resulting
from foreign currency transactions are reflected in the consolidated
statements 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. Cash and cash equivalents are stated at cost, which
approximates market. At December 31, 1999 and 2000, the Company had $5.8
million and $8.2 million, respectively, of cash in excess of federally
insured limits.

         FINANCIAL INSTRUMENTS--The carrying amounts of the Company's line of
credit, long-term debt and capital lease obligations approximate their fair
value as interest rates approximate market rates for similar instruments.
During 2000 and 1999, the Company entered into foreign currency exchange
contracts in the normal course of business to manage its exposure against
foreign currency fluctuations on revenues denominated in foreign currencies.
The principle objective of such contracts was to minimize the risks and costs
associated with financial and global operating activities. The Company does
not utilize financial instruments for trading or other speculative purposes.
There were no off balance sheet

                                       F-7
<PAGE>

derivatives during 1998. The fair value of foreign currency contracts is
estimated by obtaining quotes from brokers. At December 31, 1999 and 2000,
the Company had foreign currency contracts outstanding with a notional and
fair value of $5.4 million and $7 million respectively. During fiscal 1999
and 2000, the Company recognized $440,000 of losses and $601,000 of gains,
respectively, on foreign exchange contracts which are included in income in
the accompanying consolidated statements of operations.

         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.

         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
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 resulting 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, 1998, 1999 and 2000 was $98,000, $99,000 and
$121,000, respectively.

         INCOME TAXES--The Company accounts for taxes under SFAS 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.

         EARNINGS PER SHARE--Earnings per share-basic is based upon the
weighted average number of shares outstanding. Earnings per share-diluted is
based on the weighted average shares outstanding including the dilutive
effect of common stock equivalents. (See Note 8)

         ACCOUNTS RECEIVABLE--Increases to the allowance for doubtful
accounts totaled $177,000, $183,000 and $133,000 for the years ended December
31, 1998, 1999 and 2000, respectively. Write-offs against the allowance for
doubtful accounts totaled $67,000, $25,000 and $31,000 for the years ended
December 31, 1998, 1999 and 2000, respectively.

         USE OF ESTIMATES--The preparation of consolidated financial
statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that
affect the reported amounts of assets 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.

         RECENT PRONOUNCEMENTS--In June 1998 and June 1999, the AICPA issued
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities"
and SFAS No.137, which delayed the effective date of SFAS No. 133 and
required its adoption beginning January 1, 2001. The Company adopted this
standard in January 2001; however, the Company does not expect its
implementation to have a significant impact on the Company's financial
position or results

                                       F-8
<PAGE>

of operations.

         In December 1999, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" (SAB No. 101). SAB No. 101 expresses the views of the SEC staff
in applying accounting principles generally accepted in the United States to
certain revenue recognition issues. The Company will adopt the provisions of
SAB No. 101 in the first quarter of fiscal 2001 and expects that its adoption
will have no material impact on its financial position or its results of
operations.

         RECLASSIFICATIONS--Certain prior year balances have been
reclassified to conform to the current year presentation.

2. INVENTORIES

         Inventories consisted of the following (in thousands):

<TABLE>
<CAPTION>

                                                           DECEMBER 31,
                                                  ------------------------------
                                                      1999                2000
                                                  ------------       -----------
                 <S>                              <C>                <C>
                  Raw material................... $      3,705       $     3,345
                  Work in process................          645               582
                  Finished goods.................        3,578             5,508
                                                  ------------       -----------
                  Total inventories.............. $      7,928       $     9,435
                                                  ============       ===========
</TABLE>

3. PROPERTY AND EQUIPMENT

         Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>

                                                           DECEMBER 31,
                                                  ------------------------------
                                                      1999                2000
                                                  ------------       -----------
                 <S>                              <C>                <C>
                  Furniture, machinery and
                      equipment.................. $      4,450       $     5,090
                  Leasehold improvements.........          212               212
                                                  ------------       -----------
                                                         4,662             5,302

                  Less accumulated depreciation
                      and amortization...........       (3,103)           (3,670)
                                                  ------------       -----------
                  Property and equipment, net.... $      1,559       $     1,632
                                                  ============       ===========

</TABLE>

         Depreciation and amortization expense charged to operations amounted
to $436,000, $531,000 and $567,000 for the years ended 1998, 1999, and 2000,
respectively. Included in property and equipment are assets financed under
capital leases with a net book value of $412,000 and $267,000 at December 31,
1999 and 2000 respectively.

4. LINES OF CREDIT

         The Company maintains a $5,000,000 domestic revolving line of credit
with Wells Fargo Bank, N.A. at a fluctuating rate per annum equal to the
prime rate in effect from time to time or at a fixed rate per annum
determined by the bank to be 2.0% above LIBOR in effect on the first day of
the applicable fixed rate term (8.5% at December 31, 2000). This commitment
will expire on June 1, 2002

         The Company also has a $1,000,000 non-revolving commitment from
Wells Fargo Bank, N.A. to be used to finance the Company's purchases of
equipment. This line carries a fluctuating interest rate per annum equal to
the prime rate in effect from time to time or at a fixed rate per annum
determined by Wells Fargo to

                                       F-9
<PAGE>

be 2.25% above LIBOR in effect on the first day of the applicable fixed rate
term (8.5% at December 31, 2000). This commitment will expire on June 1, 2001.

         Both commitments are secured by all of the Company's assets and
require the Company to meet certain financial covenants, all of which were
satisfied at December 31, 2000.

         The Company had no borrowings on any of the above-mentioned lines in
the current year.

5. LONG-TERM DEBT AND CAPITAL LEASES

         BANK LOANS--The Company's Japanese subsidiary, Interlink
Electronics, KK, maintains unsecured loans with four banks. The loans carry a
weighted average interest rate of 2.6% and are payable in monthly
installments through the year 2006. The combined balance outstanding as of
December 31, 1999 and 2000 was $1,596,000 and $4,515,000, respectively.

         CAPITAL LEASE OBLIGATIONS--The Company had an equipment lease
financing agreement for the purchase of equipment. Terms include a standard
payment schedule of up to 48 months at an effective interest rate of 8.35%.

         At December 31, 2000, 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
                                                           -----------       -----------
                  <S>                                      <C>               <C>
                  2001...................................  $     2,049       $       120
                  2002...................................          687                52
                  2003...................................          707                --
                  2004...................................          550                --
                  2005...................................          390                --
                  Thereafter.............................          327                --
                                                           -----------       -----------
                                                                 4,710               172
                  Less amount representing interest......         (195)              (10)
                                                           -----------       -----------
                  Present value of minimum payments......        4,515               162
                                                           -----------       -----------
                  Less current portion...................       (1,968)             (111)
                                                           -----------       -----------
                  Long term portion......................  $     2,547       $        51
                                                           ===========       ===========

</TABLE>

6. CAPITALIZATION

         PREFERRED STOCK--The Company is authorized to issue up to 100,000
shares of Preferred Stock. As of December 31, 1999 and 2000, none were issued
or outstanding. 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 50,000,000 shares
of Common Stock.

         On March 20, 2000, the Company effected a three-for-two stock split
by means of a stock dividend to its stockholders. All share information in
these financial statements give retroactive effect to the stock split.

                                       F-10
<PAGE>

7. STOCK OPTIONS

         Under the terms of the Company's Option Plans, officers and key
employees may be granted non-qualified or incentive stock options and outside
directors and independent contractors of the Company may be granted
non-qualified stock options. The aggregate number of shares which may be
issued under the plans is 7,026,225.

         Information concerning stock options under the plans is summarized
as follows (in thousands, except per share information):

<TABLE>
<CAPTION>

                                                         1998                      1999                      2000
                                               ------------------------    ---------------------    ----------------------
                                                              WTD. AVG.                WTD. AVG.                  WTD. AVG.
                                                              EXERCISE                 EXERCISE                   EXERCISE
                                                 SHARES        PRICE       SHARES        PRICE        SHARES       PRICE
                                               ---------     ----------    -------    ----------    ---------     --------
<S>                                            <C>           <C>           <C>        <C>           <C>           <C>
       Outstanding beginning of year.........      2,122     $     3.75      3,082    $     1.83        2,881     $   2.19
       Granted...............................      3,729           2.14        583          3.71          960        24.50
       Exercised.............................        (21)          3.09       (729)         2.06         (696)        2.06
       Forfeited and expired.................     (2,748)          3.75        (55)         2.21         (151)       14.98
                                               ---------     ----------    -------    ----------    ---------     --------
       Outstanding end of year...............      3,082     $     1.83      2,881    $     2.19        2,994     $   8.81
                                               =========     ==========    =======    ==========    =========     ========

       Exercisable end of year...............      1,474     $     1.83      1,817    $     2.03        2,132     $   4.52
                                               =========     ==========    =======    ==========    =========     ========

</TABLE>

         The following table summarizes information about options outstanding at
December 31, 2000 (in thousands, except per share information):

<TABLE>
<CAPTION>

                                                     OPTIONS OUTSTANDING            OPTIONS EXERCISABLE
                                           -------------------------------------   ----------------------
                                                         WTD. AVG.
                                                         REMAINING      WTD. AVG.               WTD. AVG.
                                                        CONTRACTUAL     EXERCISE                EXERCISE
RANGE OF EXERCISE PRICES                     NUMBER        LIFE          PRICE      NUMBER        PRICE
- ------------------------                   ---------     --------      ---------   ---------    ---------
<S>                                        <C>           <C>           <C>         <C>          <C>
       $1.83............................       1,661          2.7      $    1.83       1,649    $    1.83
       3.08 - 3.83......................         334          3.2           3.23         220         3.21
       5.50 - 5.67......................         102          3.7           5.50          52         5.50
       15.50 - 20.00....................         359          4.7          16.96          45        17.93
       29.00............................         538          4.1          29.00         166        29.00
                                           ---------     --------      ---------   ---------    ---------
                                               2,994          3.3      $    8.81       2,132    $    4.52
                                           =========     ========      =========   =========    =========
</TABLE>

         The weighted average fair value at date of grant for options granted
during 1998, 1999 and 2000 was $1.33, $1.91 and $17.88 per option,
respectively. The fair value of options at the date of grant was estimated
using the Black-Scholes model with the following weighted average assumptions:

<TABLE>
<CAPTION>

                                             1998      1999      2000
                                             ----      ----      ----
<S>                                          <C>       <C>       <C>
Expected life (years)...............           4         4         4
Interest rate.......................         6.0%      5.8%      6.2%
Volatility..........................          79%       60%       95%
Dividend yield......................           0%        0%        0%

</TABLE>

         The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations in
accounting for its stock option plans. Accordingly, no

                                       F-11
<PAGE>

compensation cost has been recognized for these plans. Had compensation cost
for the Company's plans been determined based on the fair value at the grant
dates for awards under the plans consistent with the method of SFAS No. 123,
"Accounting for Stock-Based Compensation", the Company would have recorded
stock-based compensation expense as follows (in thousands except per share
information):

<TABLE>
<CAPTION>

                                                                1998             1999        2000
                                                             -----------     -----------  -----------
<S>                                                          <C>             <C>          <C>
Net income (loss) - as reported............................   $     402       $   2,108    $   3,108
                  - pro forma..............................      (1,198)            294       (3,180)
Basic earnings (loss) per share - as reported..............   $    0.05       $    0.26    $    0.35
                  - pro forma..............................       (0.15)           0.04        (0.36)
Diluted earnings (loss) per share - as reported............   $    0.05       $    0.21    $    0.28
                  - pro forma..............................       (0.15)           0.03        (0.36)

</TABLE>

8. EARNINGS PER SHARE

         For all periods presented, per share information was computed
pursuant to provisions of SFAS No. 128 "Earnings Per Share." The computation
of earnings per share--basic is based upon the weighted average number of
common shares outstanding during the periods presented. Earnings per
share--diluted also includes the effect of common shares contingently
issuable from options and warrants (in periods which they have a dilutive
effect).

         Common stock equivalents are calculated using the treasury stock
method. Under the treasury stock method, the proceeds from the assumed
conversion of options and warrants are used to repurchase outstanding shares,
using a yearly average market price.

         The following table contains information necessary to calculate
earnings per share (in thousands):

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                                                      ------------------------------------
                                                                        1998           1999         2000
                                                                      ---------     ----------   ---------
         <S>                                                          <C>           <C>          <C>
         Weighted average shares outstanding........................      7,818          8,016       8,892
         Effect of diluted securities; options and warrants.........         -- (1)      1,998       2,238
                                                                      ---------     ----------   ---------
         Weighted average shares--diluted...........................      7,818         10,014      11,130
                                                                      =========     ==========   =========
- -----------
</TABLE>

(1)  The diluted share calculation result was anti-dilutive.  Thus, the
     primary weighted average shares were used.

9. COMMITMENTS AND CONTINGENCIES

         OPERATING LEASES--The Company leases its main facility and certain
equipment under operating leases expiring through 2003. Rent payments totaled
approximately $239,000, $357,000 and $470,000 for 1998, 1999 and 2000,
respectively. Minimum lease commitments at December 31, 2000 are summarized
as follows (in thousands):

<TABLE>
         <S>                             <C>
         2001..........................  $    452
         2002..........................       284
         2003..........................       168
                                         --------
                                         $    904
                                         ========
</TABLE>

                                       F-12
<PAGE>

         LEGAL MATTERS--From time to time, the Company is involved in various
legal actions which arise in the ordinary course of business. The Company
does not believe that losses incurred, if any, will have a significant impact
on the Company's financial position or results of operations.

10. INCOME TAXES

         As of December 31, 2000, the Company had federal income tax net
operating loss carryforwards of approximately $12.8 million expiring through
2020.

         The Company has total net deferred tax assets as follows (in
thousands):

<TABLE>
<CAPTION>

                                                1999          2000
                                            -----------    -----------
<S>                                         <C>            <C>
Deferred tax assets:
  Net operating loss carryforward           $    5,317     $   10,064
  Credits                                          120            168
  Accruals                                         179             39
  Reserves                                         483            581
   Depreciation on Amortization                    418            367
   Other                                          (148)             6
                                            ----------     ----------
     Total deferred tax assets                   6,369         11,225
   Valuation allowance                          (6,369)       (10,625)
                                            ----------     ----------
     Net deferred tax assets                $       --     $      600
                                            ==========     ==========
</TABLE>

         A valuation allowance is recorded if the weight of available
evidence suggests it is more likely than not that some portion or all of the
deferred tax asset will not be recognized.

         The provision (benefit) for income taxes for the years ended
December 31, 1998, 1999 and 2000 are as follows (in thousands):

<TABLE>
<CAPTION>

                                                1998         1999         2000
                                              --------     --------     ---------
         <S>                                  <C>          <C>          <C>
         Current taxes:
         Federal.........................     $   --       $   --       $    48
         State...........................         --           --            89
         Foreign.........................         --          252           189
                                              --------     --------     ---------
                Sub Total................         --          252           326
         Deferred taxes:
         Federal.........................         --           --          (408)
         State...........................         --           --          (192)
                                              --------     --------     ---------
         Provision (benefit) for income
                taxes....................     $   --       $  252       $  (274)
                                              ========     ========     =========
</TABLE>

         Differences between the provision for income taxes and income taxes
at statutory federal income tax rate for the years ended December 31, 1998,
1999 and 2000 are as follows (in thousands):

<TABLE>
<CAPTION>

                                                                    1998         1999         2000
                                                                  --------     --------     ---------
         <S>                                                      <C>          <C>          <C>
         Income taxes at the statutory federal rate............   $    137     $    802     $     964
         State income taxes, net of federal income tax effect..         24          142           170
         Foreign taxes at rates different than U.S. taxes......         --           12            14
         Utilization of net operating losses...................       (161)        (704)       (1,422)
                                                                  --------     ---------    ---------
                      Total provision for income taxes.........   $     --     $    252     $    (274)
                                                                  ========     ========     =========
</TABLE>

                                       F-13
<PAGE>

11. REVENUE INFORMATION

         EXPORT SALES--The following table shows the breakdown of the
Company's export sales as a percentage of consolidated revenues.

<TABLE>
<CAPTION>

                                      YEAR ENDED DECEMBER 31,
                                      -----------------------
                                         1999        2000
                                      ----------   ----------
         <S>                          <C>          <C>
         Asia.........................   62%          57%
         Europe and other.............    7%          15%

</TABLE>

         MAJOR CUSTOMERS-- In 1998, sales to three customers constituted
approximately 15%, 14% and 10% of total revenues . In 1999, three customers
constituted approximately 14%, 12% and 11%, of total revenues. In 2000, no
single customer exceeded 10% of total revenues.

12. SEGMENT INFORMATION

         The Company has two separately managed business segments: (i)
Business Communications and (ii) Specialty Components and Other. The
accounting policies of the segments are the same as those described in the
significant accounting policies; however, the Company evaluates performance
based on gross profit. The Company does not allocate any other income,
expenses or assets to these segments. Reportable segment information for the
years ended December 31, 1998, 1999 and 2000 is as follows (in thousands):

<TABLE>
<CAPTION>

                                                              SPECIALTY
                      BUSINESS COMMUNICATIONS      COMPONENTS AND OTHER            TOTAL
                      -----------------------      --------------------          -------
<S>                   <C>                          <C>                           <C>
1998
   Revenue............                $13,547                    $8,548          $22,095
   Gross profit.......                  4,722                     3,419            8,141
1999
   Revenue............                $17,693                   $10,413          $28,106
   Gross profit.......                  6,139                     4,327           10,466
2000
   Revenue............                $20,540                   $13,330          $33,870
   Gross profit.......                  6,171                     8,246           14,417

</TABLE>

                                       F-14
<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>

       EXHIBIT
        NUMBER
       -------
       <S>     <C>
           3.1 Certificate of Incorporation as amended.

           3.2 Bylaws.

          10.1 1993 Stock Incentive Plan (incorporated by reference to Exhibit 10.1a
               of the Post-Effective Amendment No. 8 to Registrant's Registration
               Statement on Form S-1 (Registration No. 333-60380) (the Form S-1
               Registration Statement).*

          10.2 1996 Stock Incentive Plan as amended.*

          10.3 Description of Registrant's Management Compensation Program (incorporated
               by reference to Exhibit 10.4 to the Registrant's Annual Report
               on Form 10-K for the year ended December 31, 1996).

          10.4 Lease Agreement dated August 15, 1998 (incorporated by reference
               to the Registrant's Annual Report on Form 10- K for the year
               ended December 31, 1998).

          10.5 License Agreement between the Registrant and Toshiba Silicone Co., Ltd.
               dated March 10, 1989 (incorporated by reference to Exhibit 10.14 of the
               Form S-1 Registration Statement).

          10.6 Restructuring Agreement, entered into and effective as of September 7, 1994,
               by and between InvestAR  S.a.r.l., Interlink Electronics Europe, S.a.r.l.,
               and IEE Finance, S.a.r.l. (incorporated by reference to Exhibit 10.6 of the
               Registrant's Annual Report on Form 10-K for the year ended December 31, 1999).

          10.7 Exclusive License and Distributor Agreement between the Registrant and
               Interlink Electronics Europe S.a.r.l., Amended and Restated as of September 7, 1994
               (incorporated by reference to Exhibit 10.7 of the Registrant's Annual
               Report on Form 10-K for the year ended December 31, 1999).

          10.8 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
               (incorporated by reference to Exhibit 10.19 of the Form S-1 Registration Statement).

          10.9 Agreement with InvestAR S.a.r.l. and ARBED S.A. (undated) (incorporated by reference
               to Exhibit 10.20 of the Form S-1 Registration Statement).

         10.10 Ink Technology Transfer Agreement between the Registrant and InvestAR S.a.r.l.
               dated December 11, 1992 (incorporated by reference to Exhibit 10.23 of the
               Form S-1 Registration Statement).

         10.11 Financing Agreement between the Registrant and InvestAR S.a.r.l. in relation
               with the Ink Technology Transfer Agreement dated December 11, 1992 (incorporated
               by reference to Exhibit 10.24 of the Form S-1 Registration Statement).

         10.12 Form of Confidentiality and Nondisclosure Agreement in relation
               with the Ink Technology Transfer Agreement (undated) (incorporated by reference
               to Exhibit 10.25 of the Form S-1 Registration Statement).

         10.13 Form of Escrow Agreement for Technology in relation with the Ink Technology Transfer
               Agreement dated December 11, 1992 (incorporated by reference to Exhibit 10.26 of
               the Form S-1 Registration Statement).

         10.14 Credit Agreement between Wells Fargo Bank, National Association, and the Registrant
               dated September 1, 2000 (incorporated by reference to the Registrant's Quarterly
               Report on Form 10-Q for the quarter ended September 30, 2000).+

          21.1 Subsidiaries of the Registrant.

          23.1 Consent of Arthur Andersen LLP.

          24.1 Power of Attorney (see signature page).
</TABLE>


<PAGE>

- -----------

*        This exhibit constitutes a management contract or compensatory plan or
         arrangement.

+        Exhibits for which Registrant has received confidential treatment for
         certain portions. The confidential material in such exhibits has been
         redacted and separately filed with the Securities and Exchange
         Commission as part of Registrant's Quarterly Report on Form 10-Q for
         the quarter ended September 30, 2000.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1
<SEQUENCE>2
<FILENAME>a2042924zex-3_1.txt
<DESCRIPTION>CERTIFICATE OF INCORPORATION, AS AMENDED
<TEXT>

<PAGE>

                          CERTIFICATE OF INCORPORATION

                                       OF

                           INTERLINK ELECTRONICS, INC.

         The undersigned, in order to form a corporation for the purpose
hereinafter stated, under and pursuant to the General Corporation Law of
Delaware (the "Law"), hereby certifies that:

                                    ARTICLE I

         The name of the Corporation is Interlink Electronics, Inc.

                                   ARTICLE II

         The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Law.

                                   ARTICLE III

     A.   The Corporation is authorized to issue a total of 15,100,000 shares of
two classes of stock: 15,000,000 shares of Common Stock ($.00001 par value) and
100,000 shares of Preferred Stock ($5.00 par value).

     B.   Holders of Common Stock are entitled to one vote per share on any
matter submitted to the stockholders. On dissolution of the Corporation, after
any preferential amount with respect to the Preferred and any other class or
series of Preferred Stock has been paid or set aside, the holders of Common
Stock and the holders of any series of Preferred Stock entitled to participate
in such distribution of assets are entitled to receive the net assets of the
Corporation.

     C.   The Board of Directors is authorized, subject to limitations
prescribed by the Law, and by the provisions of this Article, to provide for the
issuance of shares of Preferred Stock in series, to establish from time to time
the number of shares to be included in each series and to determine the
designations, relative rights, preferences and limitations of the shares of each
series. The authority of the Board of Directors with respect to each series
includes determination of the following:

         (1) The number of shares in and the distinguishing designation of that
series;


<PAGE>

         (2) Whether shares of that series shall have full, special,
conditional, limited or no voting rights, except to the extent otherwise
provided by the Law;

         (3) Whether shares of that series shall be convertible and the terms
and conditions of the conversion, including provision for adjustment of the
conversion rate in circumstances determined by the Board of Directors;

         (4) Whether shares of that series shall be redeemable and the terms and
conditions of redemption, including the date or dates upon or after which they
shall be redeemable and the amount per share payable in case of redemption,
which amount may vary under different conditions or at different redemption
dates;

         (5) The dividend rate, if any, on shares of that series, the manner of
calculating any dividends and the preferences of any dividends;

         (6) The rights of shares of that series in the event of
voluntary or involuntary dissolution of the Corporation and the rights of
priority of that series relative to the Common Stock and any other series of
Preferred Stock on the distribution of assets on dissolution; and

         (7) Any other rights, preferences and limitations of that series that
are permitted by law.

                                   ARTICLE IV

         No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for conduct as a director,
provided that this Article shall not eliminate the liability of a director for
any act or omission for which such elimination of liability is not permitted
under the Law. No amendment to the Law that further limits the acts or omissions
for which elimination of liability is permitted shall affect the liability of a
director for any act or omission which occurs prior to the effective date of the
amendment.

                                    ARTICLE V

         The Corporation shall indemnify any current or former director or
officer and may indemnify any current or former employee or agent of the
Corporation to the fullest extent not prohibited by law, who is made, or
threatened to be made, a party to an action, suit or proceeding, whether civil,
criminal, administrative, investigative or other (including an action, suit or
proceeding by or in the right of the Corporation), by reason of the fact that
such person is or was a director, officer, employee or agent of the Corporation
or a fiduciary within the meaning of the Employee Retirement Income Security Act
of 1974 with respect to any employee benefit plan of the Corporation, or serves
or served at the request of the Corporation as a director, officer, employee or
agent,


                                       2
<PAGE>

or as a fiduciary of an employee benefit plan, of another corporation,
partnership, joint venture, trust or other enterprise. The Corporation shall pay
for or reimburse the reasonable expenses incurred by any such current or former
director or officer and may pay for or reimburse the reasonable expenses
incurred by any such current or former employee or agent, in any such proceeding
in advance of the final disposition of the proceeding if the person sets forth
in writing (i) the person's good faith belief that the person is entitled to
indemnification under this Article and (ii) the person's agreement to repay all
advances if it is ultimately determined that the person is not entitled to
indemnification under this Article. No amendment to this Article that limits the
Corporation's obligation to indemnify any person shall have any effect on such
obligation for any act or omission that occurs prior to the later of the
effective date of the amendment or the date notice of the amendment is given to
the person. This Article shall not be deemed exclusive of any other provisions
for indemnification or advancement of expenses of directors, officers,
employees, agents and fiduciaries that may be included in any statute, bylaw,
agreement, general or specific action of the Board of Directors, vote of
shareholders or other document or arrangement.

                                   ARTICLE VI

         Pursuant to Section 109 of the Law, the Board of Directors is
authorized to the maximum extent permitted under the Law to adopt, amend or
repeal from time to time any or all of the bylaws of the Corporation.

                                   ARTICLE VII

         The directors of the Corporation shall be divided into three classes,
to be known as Class I, Class II and Class III. The number of directorships of
each class shall be as nearly equal as possible. The initial term of office of
each Class III director shall expire at the annual meeting of the stockholders
of the Corporation held in 1997; the initial term of office of each Class II
director shall expire at the annual meeting of the stockholders of the
Corporation held in 1998; the initial term of office of each Class I director
shall expire at the annual meeting of the stockholders of the Corporation held
in 1999. Except as provided above with respect to the initial terms of directors
of the Corporation, and except that directors appointed to fill any vacancy or
newly created directorship shall hold office until the next election of the
class for which such director has been chosen, directors shall hold office until
the annual meeting of the stockholders of the Corporation for the year three
years after the year of their election and until their successors have been
elected and qualified.


                                       3
<PAGE>

                                  ARTICLE VIII

         The street address and the mailing address of the Corporation's
registered office in the State of Delaware is 15 E North Street, P.O. Box 899,
Dover, Kent County, Delaware 19901 and the name of its registered agent at that
address is Incorporating Services, Ltd.

                                   ARTICLE IX

         The name and address of the incorporator is John R. Thomas, 900 SW
Fifth Avenue, Suite 2300, Portland, Oregon 97204.

         IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Incorporation on April 29, 1996.

                                                      /s/ John R. Thomas
                                                     ------------------------
                                                     John R. Thomas


                                       4
<PAGE>

         [As filed with the Delaware Secretary of State on July 26, 1996.]

                              CERTIFICATE OF MERGER

         Pursuant to Section 252(c) of the Delaware General Corporation Law,
Interlink Electronics, Inc., the surviving corporation in the merger described
below, states as follows:

         1. The name and state of incorporation of each constituent corporation
are as follows:

                 NAME                              STATE OF INCORPORATION
        Interlink Electronics                             California
        Interlink Electronics, Inc.                         Delaware

         2. An agreement and plan of merger has been approved, certified,
executed and acknowledged by each of the constituent corporations in accordance
with Section 252 of the Delaware General Corporation Law.

         3. The name of the surviving corporation is Interlink Electronics, Inc.

         4. Effective as of the merger, the Certificate of Incorporation of the
surviving corporation shall be the Certificate of Incorporation of Interlink
Electronics, Inc.

         5. The executed agreement and plan of merger is on file at the
principal place of business of the surviving corporation at 546 Flynn Road,
Camarillo, California 93012.

         6. A copy of the agreement and plan of merger will be furnished on
request and without cost to any stockholder of any constituent corporation.

         7. Interlink Electronics, the constituent California corporation, is
authorized to issue 40,000,000 shares of common stock and 10,000,000 shares of
preferred stock. The par value for the common stock is $ .00001 per share, and
preferred stock is $5.00 per share.

                                          INTERLINK ELECTRONICS, INC.


                                          By: /s/ E. Michael Thoben, III
                                             ------------------------
                                             E. Michael Thoben, III
                                             President

                                      and By: /s/ Paul D. Meyer
                                             ------------------------
                                             Paul D. Meyer, Secretary

<PAGE>


                            CERTIFICATE OF AMENDMENT
                                       OF
                          CERTIFICATE OF INCORPORATION
                                       OF
                           INTERLINK ELECTRONICS, INC.


         Pursuant to Section 242 of the Delaware General Corporation Law (the
"DGCL") Interlink Electronics, Inc., a Delaware corporation (the "Company"),
does hereby certify that:

         1. At a meeting of the Board of Directors of the Company, resolutions
were duly adopted setting forth a proposed amendment of the Certificate of
Incorporation of the Company declaring that amendment to be advisable and
directing that the amendment be proposed to be considered at the annual meeting
of stockholders. The amendment amends Article III, paragraph A to read as
follows:

         "The Corporation is authorized to issue a total of 50,100,000 shares of
         two classes of stock: 50,000,000 shares of Common Stock ($.00001 par
         value) and 100,000 shares of Preferred Stock ($5.00 par value)."

         2. The amendment was duly adopted by the stockholders of the Company at
the annual meeting of the stockholders duly called and held, upon notice in
accordance with Section 222 of the DGCL.

         3. The amendment was duly adopted in accordance with the provisions of
Section 242 of the DGCL.

         IN WITNESS WHEREOF, Interlink Electronics, Inc. has caused this
certificate to be signed by Paul D. Meyer, its Chief Financial Officer, this
29th day of June, 2000.

                                                     INTERLINK ELECTRONICS, INC.


                                                     By   /s/ Paul D. Meyer
                                                        ------------------------
                                                         Paul D. Meyer
                                                         Chief Financial Officer



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.2
<SEQUENCE>3
<FILENAME>a2042924zex-3_2.txt
<DESCRIPTION>BYLAWS
<TEXT>

<PAGE>

                                  EXHIBIT 3.2

                                     BYLAWS
                                       OF
                           INTERLINK ELECTRONICS, INC.

                                    ARTICLE I
                                  STOCKHOLDERS

         1.1 ANNUAL MEETING. Unless another date is fixed by the directors, the
annual meeting of the stockholders shall be held on the second Tuesday in June
of each year for the purpose of electing directors and transacting such other
business as may come before the meeting. If the day fixed for the annual meeting
is a legal holiday, the meeting shall be held on the next succeeding business
day.

         1.2 FAILURE TO HOLD ANNUAL MEETING. If the annual meeting is not held
at the designated time, the directors shall cause the meeting to be held as soon
thereafter as convenient. If there is a failure to hold an annual meeting for a
period of 30 days after the date designated, any stockholder or director may
apply to the Court of Chancery to summarily order a meeting held.

         1.3 SPECIAL MEETINGS. Special meetings of the stockholders may be
called by the President or by the Board of Directors or by such other persons as
may be authorized by law to call a special meeting of the stockholders.

         1.4 PLACE OF MEETINGS. Meetings of the stockholders shall be held at
the principal business office of the corporation or at such other place as may
be determined by the Board of Directors.

         1.5 NOTICE OF MEETINGS. Written or printed notice stating the place,
day and hour of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be mailed to each stockholder
entitled to vote at the meeting at the stockholder's address as it appears on
the stock transfer records of the corporation, with postage thereon prepaid, not
less than 10 nor more than 60 days before the date of the meeting, by or at the
direction of the President, the Secretary or the Board of Directors.

         1.6 WAIVER OF NOTICE. Whenever any notice is required to be given to
any stockholder of the corporation, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice. The
attendance of a stockholder at a meeting shall constitute a waiver of notice of
such meeting, except where a stockholder attends a meeting for the express
purpose of objecting to the transaction of any business because the meeting is
not lawfully called or convened.



<PAGE>




         1.7      FIXING OF RECORD DATE.
                  ---------------------

                  (a) In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than 60 nor less than 10 days before the date of such
meeting, nor more than 60 days prior to any other action.

                  (b)      If no record date is fixed:

                           (1) The record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held;

                           (2) The record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors is necessary. shall be the day on
which the first written consent is expressed;

                           (3) The record date for determining stockholders for
any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.

                  (c) A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.

         1.8      VOTING RECORDS.
                  --------------

                  (a) The officer who has charge of the stock ledger of the
corporation shall make, at least 10 days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.

                  (b) Upon the willful neglect or refusal of the directors to
produce such a list at any meeting for the election of directors they shall be
ineligible for election to any office at such meeting.


                                        2
<PAGE>



                  (c) The stock ledger shall be the only evidence as to who are
the stockholders entitled to examine the stock ledger, the stockholder list or
the books of the corporation, or to vote in person or by proxy at any meeting of
stockholders.

         1.9 QUORUM. A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of stockholders. If a quorum is present at a meeting, a majority
may adjourn the meeting from time to time to a different time and place without
further notice if the time and place thereof are announced at the meeting at
which the adjournment is taken. At such adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at the
meeting as originally called. If the adjournment is for more than 30 days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. The stockholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.

         1.10 MAJORITY VOTE; ACTION WITHOUT A MEETING. The vote of the holders
of a majority of the shares present and entitled to vote at any duly organized
meeting shall decide any question unless the vote of a greater number shall be
required by law, the Certificate of Incorporation or these Bylaws. Any action
which the stockholders could take at a meeting may be taken without a meeting if
a consent in writing setting forth the action so taken is signed by the holders
of outstanding stock having not less than the minimum number of shares that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing
and the consent shall be filed with the minutes of the corporation.

         1.11 PROXIES. At all meetings of stockholders, a stockholder may vote
by proxy executed in writing by the stockholder or by a duly authorized attorney
in fact. The proxy shall be filed with the Secretary of the corporation before
or at the time of the meeting. No proxy shall be valid after three years from
the date of its execution, unless otherwise provided in the proxy.





                                        3
<PAGE>



         1.12     VOTING OF SHARES BY CERTAIN HOLDERS.
                  -----------------------------------

                  (a) Persons holding stock in a fiduciary capacity shall be
entitled to vote the shares so held. Persons whose stock is pledged shall be
entitled to vote, unless in the transfer by the pledgor on the books of the
corporation he or she has expressly empowered the pledgee to vote thereon, in
which case only the pledgee, or his or her proxy, may represent such stock and
vote thereon.

                  (b) If shares or other securities having voting power stand of
record in the names of two or more persons, or if two or more persons have the
same fiduciary relationship respecting the same shares, unless the Secretary is
given written notice to the contrary and is furnished with a copy of the
instrument or order appointing them or creating the relationship wherein it is
so provided, their acts with respect to voting shall have the following effect:

                           (1) If only one votes, the act of such person binds
all;

                           (2) If more than one vote, the act of the majority so
voting binds all;

                           (3) If more than one vote and if the vote is evenly
split on any particular matter, each faction may vote the securities in question
proportionally, or any person voting the shares, or a beneficiary, if any, may
apply to the Court of Chancery or such other court as may have jurisdiction to
appoint an additional person to act with the person so voting the shares, which
shall then be voted as determined by a majority of such persons and the person
appointed by the court. If the instrument so filed shows that any such tenancy
is held in unequal interests, a majority or even split for the purpose of this
subsection shall be a majority or even split in interest.

                                   ARTICLE II

                               BOARD OF DIRECTORS

         2.1 GENERAL POWERS. The business and affairs of the corporation shall
be managed by its Board of Directors.

         2.2 NUMBER, TENURE AND QUALIFICATION. Except as otherwise provided in
this Section 2.2, the number of directors of the corporation shall be six and
shall be divided into three classes, known as Class I, Class II and Class III,
each class consisting of two directors. The terms of office of each of the
directors shall be as provided in Article VII of the corporation's Certificate
of Incorporation. The number of directors permitted under the Bylaws may be
increased or decreased from time to time by amendment to the Bylaws and may
consist of a number of Directors less than six if, for any reason, the full
complement of six Directors is not in office. In the event of any increase or
decrease in the number of directors by amendment to the Bylaws, the number of
directors of each class shall be adjusted so that the number of directorships of
each class shall be as nearly equal as possible. Directors need not be residents
of the State of Delaware or stockholders of the corporation.



                                        4
<PAGE>



         2.3 REGULAR MEETINGS. A regular meeting of the Board of Directors shall
be held without other notice than this Bylaw immediately after, and at the same
place as, the annual meeting of stockholders. The Board of Directors may
provide, by resolution, the time and place, either within or without the State
of Delaware, for the holding of additional regular meetings without other notice
than the resolution.

         2.4 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called by or at the request of the Chairman or the President or by one-third of
the directors. The person or persons authorized to call special meetings of the
Board of Directors may fix any place, either within or without the State of
Delaware, as the place for holding any special meeting of the Board of Directors
called by them.

         2.5 NOTICE. Written notice of any special meeting of the Board of
Directors shall be given at least two days prior to the meeting by personal
delivery, by mail or by telegram. If mailed, notice shall be deemed to be given
when deposited in the United States mails addressed to the director at the
director's business address, with postage thereon prepaid. If by telegram,
notice shall be deemed to be given when the telegram is delivered to the
telegraph company. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where the director attends a meeting
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice or waiver of notice of such
meeting.

         2.6 WAIVER OF NOTICE. Whenever any notice is required to be given to
any director of the corporation, waiver thereof in writing, signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.

         2.7 QUORUM; MAJORITY VOTE. A majority of the number of directors fixed
by Section 2.2 of this Article II, or such lesser number of directors as shall
then be in office, shall constitute a quorum for the transaction of business at
any meeting of the Board of Directors. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless a different number is provided by law, the Certificate of
Incorporation or these Bylaws.




                                        5
<PAGE>



         2.8 MEETING BY TELEPHONE CONFERENCE; CONSENT IN LIEU OF MEETING.


                  (a) Members of the Board of Directors may hold a board meeting
by conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other. Participation in
such a meeting shall constitute presence in person at the meeting.

                  (b) Any action which is required or permitted to be taken by
the directors at a meeting may be taken without a meeting if a consent in
writing setting forth the action so taken is signed by all of the directors
entitled to vote on the matter. Such consent, which shall have the same effect
as a unanimous vote of the directors, shall be filed with the minutes of the
corporation.

         2.9 VACANCIES. Except as otherwise provided by law, and subject to any
agreement among stockholders of the Corporation relating to the composition of
the Board of Directors of the Corporation, vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by affirmative vote of a majority of the remaining directors
though less than a quorum of the Board of Directors, or by a sole remaining
director. Any such directorship not so filled by the directors shall be filled
by election at the next annual meeting of stockholders or at a special meeting
of stockholders called for that purpose. A director elected to fill a vacancy
shall be designated a member of the class of directors in which such vacancy has
occurred and shall serve until the next annual meeting of stockholders at which
directors of that class are elected and until a successor shall have been
elected and qualified.

         2.10 COMPENSATION. By resolution of the Board of Directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors, and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.

         2.11 PRESUMPTION OF ASSENT. A director of the corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
the director's dissent to the action is entered in the minutes of the meeting or
unless a written dissent to the action is filed with the person acting as the
secretary of the meeting before the adjournment thereof or forwarded by
certified or registered mail to the Secretary of the corporation immediately
after the adjournment of the meeting. The right to dissent shall not apply to a
director who voted in favor of the action.

         2.12     TRANSACTIONS WITH DIRECTORS.
                  ---------------------------

                  (a) Any contract or other transaction or determination between
the corporation and one or more of its directors, or between the corporation and
another party in which one or more of its directors are interested, shall be
valid notwithstanding the relationship or interest or the presence or
participation of such director or directors in a meeting of the Board of
Directors or a committee thereof which acts upon or in reference to such
contract, transaction or determination, if:




                                        6

<PAGE>



                           (1) The material facts as to such relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or committee and it authorizes the contract or transaction by
the affirmative vote of a majority of the disinterested directors, even though
the disinterested directors are less than a quorum; or

                           (2) The material facts as to such relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote, and the con tract or transaction is specifically
approved in good faith by vote of the stockholders; or

                           (3) The contract or transaction is fair as to the
corporation as of the time it is authorized, approved or ratified, by the Board
of Directors, a committee thereof or the stockholders.

                  (b) None of the provisions of this section shall invalidate
any contract, transaction or determination which would otherwise be valid under
applicable law.

         2.13 REMOVAL. All or any number of the directors may, subject to any
agreement among stockholders of the Corporation, be removed, with or without
cause, by a vote of the holders of a majority of the shares then entitled to
vote at an election of directors.

         2.14 RESIGNATION. Any director may resign by delivering his or her
resignation, in writing, to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective on receipt unless it
is specified to be effective at some other time or upon the happening of some
other event.

                                   ARTICLE III

                                   COMMITTEES

         3.1 DESIGNATION. The Board of Directors may designate from among its
members an executive committee and/or one or more other committees, each
consisting of one or more directors. The designation of a committee, and the
delegation of authority to it, shall not operate to relieve the Board of
Directors, or any member thereof, of any responsibility imposed by law. No
member of any committee shall continue to be a member thereof after ceasing to
be a director of the corporation. The Board of Directors shall have the power at
any time to increase or decrease the number of members of any committee, to fill
vacancies thereon, to change any member thereof and to change the functions or
terminate the existence thereof.

         3.2 POWERS. Any such committee, to the extent provided by resolution of
the Board of Directors, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation; adopting an
agreement of merger or consolidation; recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets; recommending to the stockholders a


                                        7

<PAGE>



dissolution Of the corporation or a revocation of a dissolution; or amending the
Bylaws of the corporation; and, unless the resolution expressly so provides, no
such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock or to adopt a certificate of ownership and
merger with respect to the merger into the corporation of a subsidiary of which
at least 90 percent of the outstanding shares of each class are owned by the
corporation.

         3.3      PROCEDURES; MEETINGS; QUORUM.
                  ----------------------------

                  (a) The Board of Directors shall appoint Chairman and the
committee shall appoint a secretary who may, but need not, be a member of the
committee. The chairman shall preside at all committee meetings and the
secretary of the committee shall keep a record of its acts and proceedings.

                  (b) Regular meetings of a committee, of which no notice shall
be necessary, shall be held on such days and at such places as shall be fixed by
resolution adopted by the committee. Special meetings of a committee shall be
called at the request of the Chairman or the President or of any member of the
committee, and shall be held upon such notice as is required by these Bylaws for
special meetings of the Board of Directors, provided that notice by word of
mouth or telephone shall be sufficient if received in the city where the meeting
is to be held not later than the day immediately preceding the day of the
meeting. A waiver of notice of a meeting, signed by the person or persons
entitled to such notice, whether before or after the event stated therein, shall
be deemed equivalent to the giving of such notice.

                  (c) Attendance of any member of a committee at a meeting shall
constitute a waiver of notice of the meeting. A majority of a committee, from
time to time, shall be necessary to constitute a quorum for the transaction of
any business, and the act of a majority of the members present at a meeting at
which a quorum is present shall be the act of the committee. Members of a
committee may hold a meeting of such committee by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in such a meeting shall
constitute presence in person at the meeting.


                  (d) Any action which may be taken at a meeting of a committee
may be taken without a meeting if a consent in writing setting forth the actions
so taken shall be signed by all members of the committee entitled to vote with
respect to the subject matter thereof. The consent shall have the same effect as
a unanimous vote of the committee.

                  (e) The Board of Directors may vote to the members of any
committee a reasonable fee as compensation for attendance at meetings of the
committee.


                                        8

<PAGE>


                                   ARTICLE IV

                                    OFFICERS

         4.1 NUMBER. The officers of the corporation shall be a Chairman, a
President, one or more Vice Presidents, a Secretary and a Treasurer. Such other
officers and assistant officers as may be deemed necessary may be elected or
appointed by the Board of Directors and shall have such powers and duties as may
be prescribed by the Board of Directors. Any two or more offices may be held by
the same person.

         4.2 ELECTION AND TERM OF OFFICE. The officers of the corporation shall
be elected annually by the Board of Directors at the first meeting of the Board
of Directors held after the annual meeting of the stockholders. If the election
of officers shall not be held at the meeting, it shall be held as soon
thereafter as is convenient. Each officer shall hold office until a successor
shall have been duly elected and shall have qualified or until the officer's
death, resignation or removal in the manner hereinafter provided.

         4.3 REMOVAL. Any officer or agent elected or appointed by the Board of
Directors may be removed by the Board of Directors whenever in its judgment the
best interests of the corporation would be served thereby.

         4.4 VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or otherwise may be filled by the Board of Directors
for the unexpired portion of the term.

         4.5 CHAIRMAN. The Chairman shall be the chief executive officer of the
corporation and shall be in general charge of its business and affairs, subject
to the control of the Board of Directors. The Chairman shall, if present,
preside at all meetings of stockholders and of directors. The Chairman may
execute on behalf of the corporation all contracts, agreements, stock
certificates and other instruments. The Chairman shall from time to time report
to the Board of Directors all matters within the Chairman's knowledge affecting
the corporation which should be brought to the attention of the Board. The
Chairman may vote all shares of stock in other corporations owned by the
corporation, and shall be empowered to execute proxies, waivers of notice,
consents and other instruments in the name of the corporation with respect to
such stock. The Chairman shall perform such other duties as may be required by
the Board of Directors.

         4.6 PRESIDENT. The President shall be the chief operating officer of
the corporation and shall be in general charge of its operations, subject to the
control of Chairman and the Board of Directors. In the absence of the Chairman,
the President shall preside at all meetings of stockholders and at all meetings
of directors. The President may execute on behalf of the corporation all
contracts, agreements, stock certificates and other instruments. The President
may vote all shares of stock in other corporations owned by the corporation, and
shall be empowered to execute proxies, waivers of notice, consents and other
instruments in the name of the corporation with respect to such stock. The
President shall perform such other duties as may be required by the Chairman or
the Board of Directors. In the event of the Chairman's death or inability or
refusal to


                                        9
<PAGE>


act, the President shall perform the duties of the Chairman and, when so
acting, shall have all the powers of and be subject to all the restrictions
upon the Chairman.

         4.7 SECRETARY. The Secretary shall keep the minutes of all meetings
of the directors and stockholders, and shall have custody of the minute books
and other records pertaining to the corporate business. The Secretary shall
countersign all stock certificates and other instruments requiring the seal
of the corporation and shall perform such other duties as may be required by
the Board of Directors.

         4.8 VICE PRESIDENTS. In the event of the death or inability or refusal
to act, of both the Chairman and the President, a Vice President (selected as
provided below) shall perform the duties of the Chairman and the President and,
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Chairman and the President. In the event the Board of
Directors has appointed more than one Vice President, the duties of the
President and Chairman shall be undertaken by the most senior Vice President
able to undertake such duties. Seniority shall be determined based on any
classifications among Vice Presidents established by the Board of Directors and,
within any such classification, based on the date of appointment to that
position. Any Vice President shall perform such other duties assigned by the
Chairman or the President or by the Board of Directors.

         4.9 TREASURER. The Treasurer shall be the chief financial and
accounting officer of the corporation. The Treasurer shall keep correct and
complete records of accounts showing the finan cial condition of the
corporation. The Treasurer shall be legal custodian of all moneys, notes,
securities and other valuables that may come into the possession of the
corporation. The Treasurer shall deposit all funds of the corporation that come
into the Treasurer's hands in depositories that the Board of Directors may
designate. The Treasurer shall pay the funds out only on the check of the
corporation signed in the manner authorized by the Board of Directors. The
Treasurer shall perform such other duties as assigned by the Board of Directors
may require.

         4.10 SALARIES. The salaries of the officers shall be fixed from time to
time by the Board of Directors and no officer shall be prevented from receiving
such salary because the officer is also a director of the corporation.

                                    ARTICLE V

                                    INDEMNITY

         5.1 GRANT OF INDEMNITY. The Corporation shall indemnify to the fullest
extent then permitted by the law any person who is made, or threatened to be
made, a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, investigative or otherwise
(including an action, suit or proceeding by or in the right of the Corporation)
by reason of the fact that the person is or was a director or officer of the
Corporation, or serves or served at the request of the Corporation as a director
or officer of another corporation, partnership, joint venture, trust or other
enterprise against all expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement, actually and reasonably incurred in connection
therewith. Expenses


                                       10

<PAGE>


incurred by an officer or director in defending a civil or criminal action,
suit or proceeding shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking
by or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that he or she is not entitled to be indemnified by
the Corporation as authorized in this Article. The indemnification provided
hereby shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any statute, bylaw, agreement, vote of
stockholders or directors or otherwise, both as to action in any official
capacity and as to action in another capacity while holding an office, and
shall continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such
person.

                  Any person other than a director or officer who is or was an
employee or agent of the Corporation, or fiduciary within the meaning of the
Employee Retirement Income Security Act of 1974 with respect to any employee
benefit plans of the Corporation, or is or was serving at the request of the
Corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise may be indemnified to such extent as the
board of directors in its discretion at any time or from time to time may
authorize.

         5.2 NO LIABILITY OF DIRECTORS. No director of the Corporation shall be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director; provided that the liability of a
director shall not be eliminated (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for
any transaction from which the director derived an improper personal benefit.

                                   ARTICLE VI

                   CERTIFICATES FOR SHARES AND THEIR TRANSFER

         6.1 CERTIFICATES FOR SHARES.

                  (a) Certificates representing shares of the corporation shall
be in such form as shall be determined by the Board of Directors. Such
certificates shall be signed by the President or a Vice President and by the
Secretary or an Assistant Secretary and may be sealed with the seal of the
corporation or a facsimile thereof. All certificates for shares shall be
consecutively numbered or otherwise identified.

                  (b) The name and address of the person to whom the shares
represented by each certificate are issued, with the number of shares and date
of issue, shall be entered on the stock transfer books of the corporation. All
certificates surrendered to the corporation for transfer shall be canceled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and cancelled, except that in case
of a lost, destroyed or mutilated certificate a new one may be issued therefor
upon such terms and indemnity to the corporation as the Board of Directors may
prescribe.


                                       11

<PAGE>


         6.2 TRANSFER OF SHARES. Transfer of shares of the corporation shall
be made only on the stock transfer books of the corporation by the holder of
record thereof or by the holder's legal representative, who shall furnish
proper evidence of authority to transfer, or by the holder's attorney
thereunto authorized by power of attorney duly executed and filed with the
Secretary of the corporation. The person in whose name shares stand on the
books of the corporation shall be deemed by the corporation to be the owner
thereof for all purposes.

         6.3 TRANSFER AGENT AND REGISTRAR. The Board of Directors may from time
to time appoint one or more transfer agents and one or more registrars for the
shares of the corporation, with such powers and duties as the Board of Directors
shall determine by resolution. The signatures of the President or Vice President
and the Secretary or Assistant Secretary upon a certificate may be facsimiles if
the certificate is manually signed on behalf of such officers by a transfer
agent or a registrar other than the corporation itself.

         6.4 OFFICER CEASING TO ACT. In case any officer who has signed or whose
facsimile signature has been placed upon a stock certificate shall have ceased
to be such officer before such certificate is issued, it may be issued by the
corporation with the same effect as if the signer were such officer at the date
of its issuance.

         6.5 FRACTIONAL SHARES. The corporation shall not issue certificates for
fractional shares.


                                   ARTICLE VII

                       LOANS, CHECKS AND OTHER INSTRUMENTS

         7.1 CONTRACTS. The Board of Directors may authorize any officer or
officers and agent or agents to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.

         7.2 LOANS. No loans shall be contracted on behalf of the corporation
and no evidence of indebtedness for money borrowed shall be issued in its name
unless authorized by a resolution of the Board of Directors; provided, however,
that the foregoing prohibitions shall not apply to trade credit in the ordinary
course of business. Such authority may be general or confined to specific
instances.

         7.3 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money and notes or other evidences of indebtedness issued in the name
of the corporation shall be signed by such officer or officers and agent or
agents of the corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.



                                       12

<PAGE>


                                  ARTICLE VIII

                                      SEAL

         8.1 SEAL. The seal of the corporation shall be circular in form and
shall have inscribed thereon the name of the corporation and the state of
incorporation and the words "Corporate Seal."

         8.2 SEVERABILITY. Any determination that any provision of these Bylaws
is for any reason inapplicable, invalid, illegal or otherwise ineffective shall
not affect or invalidate any other provision of these Bylaws.

         8.3 EVIDENCE OF AUTHORITY. A certificate by the Secretary or an
Assistant Secretary as to any action taken by the stockholders, directors, any
committee or any officer or representative of the corporation shall as to all
persons who rely on the certificate in good faith be conclusive evidence of such
action.




                                   ARTICLE IX

                                   AMENDMENTS

                  These Bylaws may be altered, amended or repealed and new
bylaws may be adopted by the Board of Directors or by the stockholders at any
regular or special meeting.


                                       13
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>4
<FILENAME>a2042924zex-10_2.txt
<DESCRIPTION>1996 STOCK INCENTIVE PLAN, AS AMENDED
<TEXT>

<PAGE>

                           INTERLINK ELECTRONICS, INC.

                      1996 STOCK INCENTIVE PLAN, AS AMENDED

     1.   PURPOSE. The purpose of this Stock Incentive Plan (the "Plan") is to
enable Interlink Electronics, Inc. (the "Company") to attract and retain the
services of (1) selected employees, officers and directors of the Company or of
any subsidiary of the Company and (2) selected nonemployee agents, consultants,
advisors, persons involved in the sale or distribution of the Company's products
and independent contractors of the Company or any subsidiary.

     2.   SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided below
and in paragraph 13, the shares to be offered under the Plan shall consist of
Common Stock of the Company, and the total number of shares of Common Stock that
may be issued under the Plan shall not exceed 4,500,000 shares. The shares
issued under the Plan may be authorized and unissued shares or reacquired
shares. If an option, stock appreciation right or performance unit granted under
the Plan expires, terminates or is canceled, the unissued shares subject to such
option, stock appreciation right or performance unit shall again be available
under the Plan. If shares sold or awarded as a bonus under the Plan are
forfeited to the Company or repurchased by the Company, the number of shares
forfeited or repurchased shall again be available under the Plan.

     3.   EFFECTIVE DATE AND DURATION OF PLAN.

          (a) EFFECTIVE DATE. The Plan shall become effective as of April 30,
1996. No option, stock appreciation right or performance unit granted under the
Plan to an officer who is subject to Section 16(b) of the Securities Exchange
Act of 1934, as amended (an "Officer") or a director, and no incentive stock
option, shall become exercisable, however, until the Plan is approved by the
affirmative vote of the holders of a majority of the shares of Common Stock
represented at a shareholders meeting at which a quorum is present and any such
awards under the Plan prior to such approval shall be conditioned on and subject
to such approval. Subject to this limitation, options, stock appreciation rights
and performance units may be granted and shares may be awarded as bonuses or
sold under the Plan at any time after the effective date and before termination
of the Plan.

          (b) DURATION. The Plan shall continue in effect until all shares
available for issuance under the Plan have been issued and all restrictions on
such shares have lapsed. The Board of Directors may suspend or terminate the
Plan at any time except with respect to options, performance units and shares
subject to restrictions then outstanding under the Plan. Termination shall not
affect any outstanding options, any right of the Company to repurchase shares or
the forfeitability of shares issued under the Plan.


<PAGE>

     4.   ADMINISTRATION.

          (a) BOARD OF DIRECTORS. The Plan shall be administered by the Board of
Directors of the Company, which shall determine and designate from time to time
the individuals to whom awards shall be made, the amount of the awards and the
other terms and conditions of the awards. Subject to the provisions of the Plan,
the Board of Directors may from time to time adopt and amend rules and
regulations relating to administration of the Plan, advance the lapse of any
waiting period, accelerate any exercise date, waive or modify any restriction
applicable to shares (except those restrictions imposed by law) and make all
other determinations in the judgment of the Board of Directors necessary or
desirable for the administration of the Plan. The interpretation and
construction of the provisions of the Plan and related agreements by the Board
of Directors shall be final and conclusive. The Board of Directors may correct
any defect or supply any omission or reconcile any inconsistency in the Plan or
in any related agreement in the manner and to the extent it shall deem expedient
to carry the Plan into effect, and it shall be the sole and final judge of such
expediency.

          (b) COMMITTEE. The Board of Directors may delegate to a committee of
the Board of Directors or specified officers of the Company, or both (the
"Committee") any or all authority for administration of the Plan. If authority
is delegated to a Committee, all references to the Board of Directors in the
Plan shall mean and relate to the Committee except (i) as otherwise provided by
the Board of Directors and (ii) that only the Board of Directors may amend or
terminate the Plan as provided in paragraphs 3 and 14.

     5.   TYPES OF AWARDS; ELIGIBILITY. The Board of Directors may, from time to
time, take the following actions, separately or in combination, under the Plan:
(i) grant Incentive Stock Options, as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), as provided in paragraphs 6(a)
and 6(b); (ii) grant options other than Incentive Stock Options ("Non-Statutory
Stock Options") as provided in paragraphs 6(a) and 6(c); (iii) award stock
bonuses as provided in paragraph 7; (iv) sell shares subject to restrictions as
provided in paragraph 8; (v) grant stock appreciation rights as provided in
paragraph 9; (vi) grant cash bonus rights as provided in paragraph 10; (vii)
grant performance units as provided in paragraph 11 and (viii) grant foreign
qualified awards as provided in paragraph 12. Any such awards may be made to
employees, including employees who are officers or directors, and to other
individuals described in paragraph 1 who the Board of Directors believes have
made or will make an important contribution to the Company or any subsidiary of
the Company; provided, however, that only employees of the Company shall be
eligible to receive Incentive Stock Options under the Plan. The Board of
Directors shall select the individuals to whom awards shall be made and shall
specify the action taken with respect to each individual to whom an award is
made. At the discretion of the Board of Directors, an individual may be given an
election to surrender an award in exchange for the grant of a new award. No
employee may be granted options or stock appreciation rights under the Plan for
more than an aggregate of 200,000 shares of Common


                                       2
<PAGE>

Stock in connection with the hiring of the employee or 100,000 shares of Common
Stock in any calendar year otherwise.

     6.   OPTION GRANTS.

          (a) GENERAL RULES RELATING TO OPTIONS.

               (i) TERMS OF GRANT. The Board of Directors may grant options
     under the Plan. With respect to each option grant, the Board of Directors
     shall determine the number of shares subject to the option, the option
     price, the period of the option, the time or times at which the option may
     be exercised and whether the option is an Incentive Stock Option or a
     Non-Statutory Stock Option. At the time of the grant of an option or at any
     time thereafter, the Board of Directors may provide that an optionee who
     exercised an option with Common Stock of the Company shall automatically
     receive a new option to purchase additional shares equal to the number of
     shares surrendered and may specify the terms and conditions of such new
     options.

               (ii) EXERCISE OF OPTIONS. Except as provided in paragraph
     6(a)(iv) or as determined by the Board of Directors, no option granted
     under the Plan may be exercised unless at the time of such exercise the
     optionee is employed by or in the service of the Company or any subsidiary
     of the Company and shall have been so employed or provided such service
     continuously since the date such option was granted. Absence on leave or on
     account of illness or disability under rules established by the Board of
     Directors shall not, however, be deemed an interruption of employment or
     service for this purpose. Unless otherwise determined by the Board of
     Directors, vesting of options shall not continue during an absence on leave
     (including an extended illness) or on account of disability. Except as
     provided in paragraphs 6(a)(iv) and 13, options granted under the Plan may
     be exercised from time to time over the period stated in each option in
     such amounts and at such times as shall be prescribed by the Board of
     Directors, provided that options shall not be exercised for fractional
     shares. Unless otherwise determined by the Board of Directors, if the
     optionee does not exercise an option in any one year with respect to the
     full number of shares to which the optionee is entitled in that year, the
     optionee's rights shall be cumulative and the optionee may purchase those
     shares in any subsequent year during the term of the option.

               (iii) NONTRANSFERABILITY. Each Incentive Stock Option and, unless
     otherwise determined by the Board of Directors with respect to an option
     granted to a person who is neither an Officer nor a director of the
     Company, each other option granted under the Plan by its terms shall be
     nonassignable and nontransferable by the optionee, either voluntarily or by
     operation of law, except by will or by the laws of descent and distribution
     of the state or country of the optionee's domicile at the time of death.


                                       3
<PAGE>




               (iv) TERMINATION OF EMPLOYMENT OR SERVICE.

                    (A) GENERAL RULE. Unless otherwise determined by the Board
          of Directors, in the event the employment or service of the optionee
          with the Company or a subsidiary terminates for any reason other than
          because of physical disability or death as provided in subparagraphs
          6(a)(iv)(B) and (C), the option may be exercised at any time prior to
          the expiration date of the option or the expiration of 30 days after
          the date of such termination, whichever is the shorter period, but
          only if and to the extent the optionee was entitled to exercise the
          option at the date of such termination.

                    (B) TERMINATION BECAUSE OF TOTAL DISABILITY. Unless
          otherwise determined by the Board of Directors, in the event of the
          termination of employment or service because of total disability, the
          option may be exercised at any time prior to the expiration date of
          the option or the expiration of 12 months after the date of such
          termination, whichever is the shorter period, but only if and to the
          extent the optionee was entitled to exercise the option at the date of
          such termination. The term "total disability" means a medically
          determinable mental or physical impairment which is expected to result
          in death or which has lasted or is expected to last for a continuous
          period of 12 months or more and which causes the optionee to be
          unable, in the opinion of the Company and two independent physicians,
          to perform his or her duties as an employee, director, officer or
          consultant of the Company and to be engaged in any substantial gainful
          activity. Total disability shall be deemed to have occurred on the
          first day after the Company and the two independent physicians have
          furnished their opinion of total disability to the Company.

                    (C) TERMINATION BECAUSE OF DEATH. Unless otherwise
          determined by the Board of Directors, in the event of the death of an
          optionee while employed by or providing service to the Company or a
          subsidiary, the option may be exercised at any time prior to the
          expiration date of the option or the expiration of 12 months after the
          date of death, whichever is the shorter period, but only if and to the
          extent the optionee was entitled to exercise the option at the date of
          death and only by the person or persons to whom such optionee's rights
          under the option shall pass by the optionee's will or by the laws of
          descent and distribution of the state or country of domicile at the
          time of death.

                    (D) AMENDMENT OF EXERCISE PERIOD APPLICABLE TO TERMINATION.
          The Board of Directors, at the time of grant or, with respect to an
          option that is not an Incentive Stock Option, at any time thereafter,
          may


                                       4
<PAGE>

          extend the 30-day and 12-month exercise periods any length
          of time not longer than the original expiration date of the option,
          and may increase the portion of an option that is exercisable, subject
          to such terms and conditions as the Board of Directors may determine.

                    (E) FAILURE TO EXERCISE OPTION. To the extent that the
          option of any deceased optionee or of any optionee whose employment or
          service terminates is not exercised within the applicable period, all
          further rights to purchase shares pursuant to such option shall cease
          and terminate.

               (v) PURCHASE OF SHARES. Unless the Board of Directors determines
     otherwise, shares may be acquired pursuant to an option granted under the
     Plan only upon receipt by the Company of notice in writing from the
     optionee of the optionee's intention to exercise, specifying the number of
     shares as to which the optionee desires to exercise the option and the date
     on which the optionee desires to complete the transaction, and if required
     in order to comply with the Securities Act of 1933, as amended, containing
     a representation that it is the optionee's present intention to acquire the
     shares for investment and not with a view to distribution. Unless the Board
     of Directors determines otherwise, on or before the date specified for
     completion of the purchase of shares pursuant to an option, the optionee
     must have paid the Company the full purchase price of such shares in cash
     (including, with the consent of the Board of Directors, cash that may be
     the proceeds of a loan from the Company (provided that, with respect to an
     Incentive Stock Option, such loan is approved at the time of option grant))
     or, with the consent of the Board of Directors, in whole or in part, in
     Common Stock of the Company valued at fair market value, restricted stock,
     performance units or other contingent awards denominated in either stock or
     cash, promissory notes and other forms of consideration. The fair market
     value of Common Stock provided in payment of the purchase price shall be
     determined by the Board of Directors. If the Common Stock of the Company is
     not publicly traded on the date the option is exercised, the Board of
     Directors may consider any valuation methods it deems appropriate and may,
     but is not required to, obtain one or more independent appraisals of the
     Company. If the Common Stock of the Company is publicly traded on the date
     the option is exercised, the fair market value of Common Stock provided in
     payment of the purchase price shall be the closing price of the Common
     Stock as reported in THE WALL STREET JOURNAL on the last trading day
     preceding the date the option is exercised, or such other reported value of
     the Common Stock as shall be specified by the Board of Directors. No shares
     shall be issued until full payment for the shares has been made. With the
     consent of the Board of Directors (which, in the case of an Incentive Stock
     Option, shall be given only at the time of option grant), an optionee may
     request the Company to apply automatically the shares to be received upon
     the exercise of a portion of a stock option (even though stock certificates
     have not yet been issued) to satisfy the purchase price for additional
     portions of the option. Each optionee who has


                                       5
<PAGE>

     exercised an option shall immediately upon notification of the
     amount due, if any, pay to the Company in cash amounts necessary to satisfy
     any applicable federal, state and local tax withholding requirements. If
     additional withholding is or becomes required beyond any amount deposited
     before delivery of the certificates, the optionee shall pay such amount to
     the Company on demand. If the optionee fails to pay the amount demanded,
     the Company may withhold that amount from other amounts payable by the
     Company to the optionee, including salary, subject to applicable law. With
     the consent of the Board of Directors an optionee may satisfy this
     obligation, in whole or in part, by having the Company withhold from the
     shares to be issued upon the exercise that number of shares that would
     satisfy the withholding amount due or by delivering to the Company Common
     Stock to satisfy the withholding amount. Upon the exercise of an option,
     the number of shares reserved for issuance under the Plan shall be reduced
     by the number of shares issued upon exercise of the option.

          (b) INCENTIVE STOCK OPTIONS. Incentive Stock Options shall be subject
to the following additional terms and conditions:

               (i) LIMITATION ON AMOUNT OF GRANTS. No employee may be granted
     Incentive Stock Options under the Plan if the aggregate fair market value,
     on the date of grant, of the Common Stock with respect to which Incentive
     Stock Options are exercisable for the first time by that employee during
     any calendar year under the Plan and under all incentive stock option plans
     (within the meaning of Section 422 of the Code) of the Company or any
     parent or subsidiary of the Company exceeds $100,000.

               (ii) LIMITATIONS ON GRANTS TO 10 PERCENT SHAREHOLDERS. An
     Incentive Stock Option may be granted under the Plan to an employee
     possessing more than 10 percent of the total combined voting power of all
     classes of stock of the Company or of any parent or subsidiary of the
     Company only if the option price is at least 110 percent of the fair market
     value, as described in paragraph 6(b)(iv), of the Common Stock subject to
     the option on the date it is granted and the option by its terms is not
     exercisable after the expiration of five years from the date it is granted.

               (iii) DURATION OF OPTIONS. Subject to paragraphs 6(a)(ii) and
     6(b)(ii), Incentive Stock Options granted under the Plan shall continue in
     effect for the period fixed by the Board of Directors, except that no
     Incentive Stock Option shall be exercisable after the expiration of 10
     years from the date it is granted.

               (iv) OPTION PRICE. The option price per share shall be determined
     by the Board of Directors at the time of grant. Except as provided in
     paragraph 6(b)(ii), the option price shall not be less than 100 percent of
     the fair market value of the Common Stock covered by the Incentive Stock
     Option at the date


                                       6
<PAGE>

     the option is granted. The fair market value shall be determined by the
     Board of Directors. If the Common Stock of the Company is not publicly
     traded on the date the option is granted, the Board of Directors may
     consider any valuation methods it deems appropriate and may, but is not
     required to, obtain one or more independent appraisals of the Company. If
     the Common Stock of the Company is publicly traded on the date the option
     is granted, the fair market value shall be deemed to be the closing price
     of the Common Stock as reported in THE WALL STREET JOURNAL on the day
     preceding the date the option is granted, or, if there has been no sale on
     that date, on the last preceding date on which a sale occurred or such
     other value of the Common Stock as shall be specified by the Board of
     Directors.

               (v) LIMITATION ON TIME OF GRANT. No Incentive Stock Option shall
     be granted on or after the tenth anniversary of the last action by the
     Board of Directors approving an increase in the number of shares available
     for issuance under the Plan, which action was subsequently approved within
     12 months by the stockholders.

               (vi) CONVERSION OF INCENTIVE STOCK OPTIONS. The Board of
     Directors may at any time without the consent of the optionee convert an
     Incentive Stock Option to a Non-Statutory Stock Option.

          (c) NON-STATUTORY STOCK OPTIONS. Non-Statutory Stock Options shall be
subject to the following terms and conditions in addition to those set forth in
Section 6(a) above:

               (i) OPTION PRICE. The option price for Non-Statutory Stock
     Options shall be determined by the Board of Directors at the time of grant
     and may be any amount determined by the Board of Directors.

               (ii) DURATION OF OPTIONS. Non-Statutory Stock Options granted
     under the Plan shall continue in effect for the period fixed by the Board
     of Directors.

     7.   STOCK BONUSES. The Board of Directors may award shares under the Plan
as stock bonuses. Shares awarded as a bonus shall be subject to the terms,
conditions, and restrictions determined by the Board of Directors. The
restrictions may include restrictions concerning transferability and forfeiture
of the shares awarded, together with such other restrictions as may be
determined by the Board of Directors. The Board of Directors may require the
recipient to sign an agreement as a condition of the award, but may not require
the recipient to pay any monetary consideration other than amounts necessary to
satisfy tax withholding requirements. The agreement may contain any terms,
conditions, restrictions, representations and warranties required by the Board
of Directors. The certificates representing the shares awarded shall bear any
legends required by the Board of Directors. The Company may require any
recipient of a stock bonus to pay to the Company in cash upon demand amounts
necessary to satisfy any applicable federal, state or local tax


                                       7
<PAGE>

withholding requirements. If the recipient fails to pay the amount demanded, the
Company may withhold that amount from other amounts payable by the Company to
the recipient, including salary or fees for services, subject to applicable law.
With the consent of the Board of Directors, a recipient may deliver Common Stock
to the Company to satisfy this withholding obligation. Upon the issuance of a
stock bonus, the number of shares reserved for issuance under the Plan shall be
reduced by the number of shares issued.

     8.   RESTRICTED STOCK. The Board of Directors may issue shares under the
Plan for such consideration (including promissory notes and services) as
determined by the Board of Directors. Shares issued under the Plan shall be
subject to the terms, conditions and restrictions determined by the Board of
Directors. The restrictions may include restrictions concerning transferability,
repurchase by the Company and forfeiture of the shares issued, together with
such other restrictions as may be determined by the Board of Directors. All
Common Stock issued pursuant to this paragraph 8 shall be subject to a purchase
agreement, which shall be executed by the Company and the prospective recipient
of the shares prior to the delivery of certificates representing such shares to
the recipient. The purchase agreement may contain any terms, conditions,
restrictions, representations and warranties required by the Board of Directors.
The certificates representing the shares shall bear any legends required by the
Board of Directors. The Company may require any purchaser of restricted stock to
pay to the Company in cash upon demand amounts necessary to satisfy any
applicable federal, state or local tax withholding requirements. If the
purchaser fails to pay the amount demanded, the Company may withhold that amount
from other amounts payable by the Company to the purchaser, including salary,
subject to applicable law. With the consent of the Board of Directors, a
purchaser may deliver Common Stock to the Company to satisfy this withholding
obligation. Upon the issuance of restricted stock, the number of shares reserved
for issuance under the Plan shall be reduced by the number of shares issued.

     9.   STOCK APPRECIATION RIGHTS.

          (a) GRANT. Stock appreciation rights may be granted under the Plan by
the Board of Directors, subject to such rules, terms, and conditions as the
Board of Directors prescribes.

          (b) EXERCISE.

               (i) Each stock appreciation right shall entitle the holder, upon
     exercise, to receive from the Company in exchange therefor an amount equal
     in value to the excess of the fair market value on the date of exercise of
     one share of Common Stock of the Company over its fair market value on the
     date of grant (or, in the case of a stock appreciation right granted in
     connection with an option, the excess of the fair market value of one share
     of Common Stock of the Company over the option price per share under the
     option to which the stock appreciation right


                                       8
<PAGE>

     relates), multiplied by the number of shares covered by the stock
     appreciation right or the option, or portion thereof, that is surrendered.
     Payment by the Company upon exercise of a stock appreciation right may be
     made in Common Stock valued at fair market value, in cash, or partly in
     Common Stock and partly in cash, all as determined by the Board of
     Directors.

               (ii) A stock appreciation right shall be exercisable only at the
     time or times established by the Board of Directors. If a stock
     appreciation right is granted in connection with an option, the following
     rules shall apply: (1) the stock appreciation right shall be exercisable
     only to the extent and on the same conditions that the related option could
     be exercised; (2) the stock appreciation right shall be exercisable only
     when the fair market value of the stock exceeds the option price of the
     related option; (3) the stock appreciation right shall be for no more than
     100 percent of the excess of the fair market value of the stock at the time
     of exercise over the option price; (4) upon exercise of the stock
     appreciation right, the option or portion thereof to which the stock
     appreciation right relates terminates; and (5) upon exercise of the option,
     the related stock appreciation right or portion thereof terminates.

               (iii) The Board of Directors may withdraw any stock appreciation
     right granted under the Plan at any time and may impose any conditions upon
     the exercise of a stock appreciation right or adopt rules and regulations
     from time to time affecting the rights of holders of stock appreciation
     rights. Such rules and regulations may govern the right to exercise stock
     appreciation rights granted prior to adoption or amendment of such rules
     and regulations as well as stock appreciation rights granted thereafter.

               (iv) For purposes of this paragraph 9, the fair market value of
     the Common Stock shall be determined as of the date the stock appreciation
     right is exercised, under the methods set forth in paragraph 6(b)(iv).

               (v) No fractional shares shall be issued upon exercise of a stock
     appreciation right. In lieu thereof, cash may be paid in an amount equal to
     the value of the fraction or, if the Board of Directors shall determine,
     the number of shares may be rounded downward to the next whole share.

               (vi) Each stock appreciation right granted in connection with an
     Incentive Stock Option, and unless otherwise determined by the Board of
     Directors, each other stock appreciation right granted under the Plan by
     its terms shall be nonassignable and nontransferable by the holder, either
     voluntarily or by operation of law, except by will or by the laws of
     descent and distribution of the state or country of the holder's domicile
     at the time of death, and each stock appreciation right by its terms shall
     be exercisable during the holder's lifetime only by the holder.


                                       9
<PAGE>

               (vii) Each participant who has exercised a stock appreciation
     right shall, upon notification of the amount due, pay to the Company in
     cash amounts necessary to satisfy any applicable federal, state and local
     tax withholding requirements. If the participant fails to pay the amount
     demanded, the Company may withhold that amount from other amounts payable
     by the Company to the participant including salary, subject to applicable
     law. With the consent of the Board of Directors a participant may satisfy
     this obligation, in whole or in part, by having the Company withhold from
     any shares to be issued upon the exercise that number of shares that would
     satisfy the withholding amount due or by delivering Common Stock to the
     Company to satisfy the withholding amount.

               (viii) Upon the exercise of a stock appreciation right for
     shares, the number of shares reserved for issuance under the Plan shall be
     reduced by the number of shares issued. Cash payments of stock appreciation
     rights shall not reduce the number of shares of Common Stock reserved for
     issuance under the Plan.

     10.  CASH BONUS RIGHTS.

          (a) GRANT. The Board of Directors may grant cash bonus rights
under the Plan in connection with (i) options granted or previously granted,
(ii) stock appreciation rights granted or previously granted, (iii) stock
bonuses awarded or previously awarded and (iv) shares sold or previously sold
under the Plan. Cash bonus rights will be subject to rules, terms and conditions
as the Board of Directors may prescribe. Unless otherwise determined by the
Board of Directors, each cash bonus right granted under the Plan by its terms
shall be nonassignable and nontransferable by the holder, either voluntarily or
by operation of law, except by will or by the laws of descent and distribution
of the state or country of the holder's domicile at the time of death. The
payment of a cash bonus shall not reduce the number of shares of Common Stock
reserved for issuance under the Plan.

          (b) CASH BONUS RIGHTS IN CONNECTION WITH OPTIONS. A cash bonus right
granted in connection with an option will entitle an optionee to a cash bonus
when the related option is exercised (or terminates in connection with the
exercise of a stock appreciation right related to the option) in whole or in
part if, in the sole discretion of the Board of Directors, the bonus right will
result in a tax deduction that the Company has sufficient taxable income to use.
If an optionee purchases shares upon exercise of an option and does not exercise
a related stock appreciation right, the amount of the bonus, if any, shall be
determined by multiplying the excess of the total fair market value of the
shares to be acquired upon the exercise over the total option price for the
shares by the applicable bonus percentage. If the optionee exercises a related
stock appreciation right in connection with the termination of an option, the
amount of the bonus, if any, shall be determined by multiplying the total fair
market value of the shares and cash received pursuant to the exercise of the
stock appreciation right by the applicable bonus percentage. The bonus
percentage applicable to a bonus right, including a previously granted bonus
right, may be


                                       10
<PAGE>

changed from time to time at the sole discretion of the Board of Directors but
shall in no event exceed 75 percent.

          (c) CASH BONUS RIGHTS IN CONNECTION WITH STOCK BONUS. A cash bonus
right granted in connection with a stock bonus will entitle the recipient to a
cash bonus payable when the stock bonus is awarded or restrictions, if any, to
which the stock is subject lapse. If bonus stock awarded is subject to
restrictions and is repurchased by the Company or forfeited by the holder, the
cash bonus right granted in connection with the stock bonus shall terminate and
may not be exercised. The amount and timing of payment of a cash bonus shall be
determined by the Board of Directors.

          (d) CASH BONUS RIGHTS IN CONNECTION WITH STOCK PURCHASES. A cash bonus
right granted in connection with the purchase of stock pursuant to paragraph 8
will entitle the recipient to a cash bonus when the shares are purchased or
restrictions, if any, to which the stock is subject lapse. Any cash bonus right
granted in connection with shares purchased pursuant to paragraph 8 shall
terminate and may not be exercised in the event the shares are repurchased by
the Company or forfeited by the holder pursuant to applicable restrictions. The
amount of any cash bonus to be awarded and timing of payment of a cash bonus
shall be determined by the Board of Directors.

          (e) TAXES. The Company shall withhold from any cash bonus paid
pursuant to paragraph 10 the amount necessary to satisfy any applicable federal,
state and local withholding requirements.

     11. PERFORMANCE UNITS. The Board of Directors may grant performance
units consisting of monetary units which may be earned in whole or in part if
the Company achieves certain goals established by the Board of Directors over a
designated period of time, but not in any event more than 10 years. The goals
established by the Board of Directors may include earnings per share, return on
shareholders' equity, return on invested capital, and such other goals as may be
established by the Board of Directors. In the event that the minimum performance
goal established by the Board of Directors is not achieved at the conclusion of
a period, no payment shall be made to the participants. In the event the maximum
corporate goal is achieved, 100 percent of the monetary value of the performance
units shall be paid to or vested in the participants. Partial achievement of the
maximum goal may result in a payment or vesting corresponding to the degree of
achievement as determined by the Board of Directors. Payment of an award earned
may be in cash or in Common Stock or in a combination of both, and may be made
when earned, or vested and deferred, as the Board of Directors determines.
Deferred awards shall earn interest on the terms and at a rate determined by the
Board of Directors. Unless otherwise determined by the Board of Directors, each
performance unit granted under the Plan by its terms shall be nonassignable and
nontransferable by the holder, either voluntarily or by operation of law, except
by will or by the laws of descent and distribution of the state or country of
the holder's domicile at the time of death. Each participant who has been
awarded a


                                       11
<PAGE>

performance unit shall, upon notification of the amount due, pay to the Company
in cash amounts necessary to satisfy any applicable federal, state and local tax
withholding requirements. If the participant fails to pay the amount demanded,
the Company may withhold that amount from other amounts payable by the Company
to the participant, including salary or fees for services, subject to applicable
law. With the consent of the Board of Directors a participant may satisfy this
obligation, in whole or in part, by having the Company withhold from any shares
to be issued that number of shares that would satisfy the withholding amount due
or by delivering Common Stock to the Company to satisfy the withholding amount.
The payment of a performance unit in cash shall not reduce the number of shares
of Common Stock reserved for issuance under the Plan. The number of shares
reserved for issuance under the Plan shall be reduced by the number of shares
issued upon payment of an award.

     12.  FOREIGN QUALIFIED GRANTS. Awards under the Plan may be granted to such
officers and employees of the Company and its subsidiaries and such other
persons described in paragraph 1 residing in foreign jurisdictions as the Board
of Directors may determine from time to time. The Board of Directors may adopt
such supplements to the Plan as may be necessary to comply with the applicable
laws of such foreign jurisdictions and to afford participants favorable
treatment under such laws; provided, however, that no award shall be granted
under any such supplement with terms which are more beneficial to the
participants than the terms permitted by the Plan.

     13.  CHANGES IN CAPITAL STRUCTURE.

          (a) STOCK SPLITS; STOCK DIVIDENDS. If the outstanding Common
Stock of the Company is hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of any stock split, combination of shares or dividend payable
in shares, recapitalization or reclassification appropriate adjustment shall be
made by the Board of Directors in the number and kind of shares available for
grants under the Plan and in all other share amounts set forth in the Plan. In
addition, the Board of Directors shall make appropriate adjustment in the number
and kind of shares as to which outstanding options, or portions thereof then
unexercised, shall be exercisable, so that the optionee's proportionate interest
before and after the occurrence of the event is maintained. Notwithstanding the
foregoing, the Board of Directors shall have no obligation to effect any
adjustment that would or might result in the issuance of fractional shares, and
any fractional shares resulting from any adjustment may be disregarded or
provided for in any manner determined by the Board of Directors. Any such
adjustments made by the Board of Directors shall be conclusive.

          (b) MERGERS, REORGANIZATIONS, ETC. In the event of a merger,
consolidation, plan of exchange, acquisition of property or stock, spin-off,
split-off, reorganization or liquidation to which the Company or a subsidiary is
a party or a sale of all or substantially all of the Company's assets (each, a
"Transaction"), the Board of Directors shall, in its sole


                                       12
<PAGE>

discretion and to the extent possible under the structure of the Transaction,
select one of the following alternatives for treating outstanding options under
the Plan:

               (i) Outstanding options shall remain in effect in accordance with
     their terms.

               (ii) Outstanding options shall be converted into options to
     purchase stock in one or more corporations, including the Company, that are
     surviving or acquiring corporations in the Transaction. The amount, type of
     securities subject thereto and exercise price of the converted options
     shall be determined by the Board of Directors of the Company, taking into
     account the relative values of the companies involved in the Transaction
     and the exchange rate, if any, used in determining shares of the surviving
     corporation(s) to be held by holders of shares of the Company following the
     Transaction. Unless otherwise determined by the Board of Directors, the
     converted options shall be vested only to the extent that the vesting
     requirements relating to options granted hereunder have been satisfied.

               (iii) The Board of Directors shall provide a 30-day period prior
     to the consummation of the Transaction during which outstanding options may
     be exercised to the extent then exercisable, and upon the expiration of
     such 30-day period, all unexercised options shall immediately terminate.
     The Board of Directors may, in its sole discretion, accelerate the
     exercisability of options so that they are exercisable in full during such
     30-day period.

          (c) DISSOLUTION OF THE COMPANY. In the event of the dissolution of the
Company,options shall be treated in accordance with paragraph 13(b)(iii).

          (d) RIGHTS ISSUED BY ANOTHER CORPORATION. The Board of Directors may
also grant options, stock appreciation rights, performance units, stock bonuses
and cash bonuses and issue restricted stock under the Plan having terms,
conditions and provisions that vary from those specified in this Plan provided
that any such awards are granted in substitution for, or in connection with the
assumption of, existing options, stock appreciation rights, stock bonuses, cash
bonuses, restricted stock and performance units granted, awarded or issued by
another corporation and assumed or otherwise agreed to be provided for by the
Company pursuant to or by reason of a Transaction.

     14.  AMENDMENT OF PLAN. The Board of Directors may at any time, and from
time to time, modify or amend the Plan in such respects as it shall deem
advisable because of changes in the law while the Plan is in effect or for any
other reason. Except as provided in paragraphs 6(a)(iv), 9, 10 and 13, however,
no change in an award already granted shall be made without the written consent
of the holder of such award.


                                       13
<PAGE>

     15.  APPROVALS. The obligations of the Company under the Plan are subject
to the approval of state and federal authorities or agencies with jurisdiction
in the matter. The Company will use its best efforts to take steps required by
state or federal law or applicable regulations, including rules and regulations
of the Securities and Exchange Commission and any stock exchange on which the
Company's shares may then be listed, in connection with the grants under the
Plan. The foregoing notwithstanding, the Company shall not be obligated to issue
or deliver Common Stock under the Plan if such issuance or delivery would
violate applicable state or federal securities laws.

     16.  EMPLOYMENT AND SERVICE RIGHTS. Nothing in the Plan or any award
pursuant to the Plan shall (i) confer upon any employee any right to be
continued in the employment of the Company or any subsidiary or interfere in any
way with the right of the Company or any subsidiary by whom such employee is
employed to terminate such employee's employment at any time, for any reason,
with or without cause, or to decrease such employee's compensation or benefits,
or (ii) confer upon any person engaged by the Company any right to be retained
or employed by the Company or to the continuation, extension, renewal, or
modification of any compensation, contract, or arrangement with or by the
Company.

     17.  RIGHTS AS A SHAREHOLDER. The recipient of any award under the Plan
shall have no rights as a shareholder with respect to any Common Stock until the
date of issue to the recipient of a stock certificate for such shares. Except as
otherwise expressly provided in the Plan, no adjustment shall be made for
dividends or other rights for which the record date occurs prior to the date
such stock certificate is issued.

     18.  OPTION GRANTS TO NON-EMPLOYEE DIRECTORS.

          (a) INITIAL BOARD GRANTS. Each person who becomes a
Non-Employee Director after the Plan is adopted shall be automatically granted
an option to purchase 20,000 shares of Common Stock on the he or she becomes a
Non-Employee Director. A "Non-Employee Director" is a director who is not an
employee of the Company or any of its subsidiaries.

          (b) ADDITIONAL GRANTS. Each Non-Employee Director shall be
automatically granted an option to purchase additional shares of Common Stock in
each calendar year subsequent to the year in which such Non-Employee Director
was granted an option pursuant to paragraph 18(a), such option to be granted as
of the date of the Company's annual meeting of shareholders held in such
calendar year, provided that the Non-Employee Director continues to serve in
such capacity as of such date. The number of shares subject to each additional
grant shall be 5,000 shares for each Non-Employee Director.


                                       14
<PAGE>

          (c) EXERCISE PRICE. The exercise price of all options granted pursuant
to this paragraph 18 shall be equal to 100 percent of the fair market value of
the Common Stock determined pursuant to paragraph 6(b)(iv).

          (d) TERM OF OPTION. The term of each option granted pursuant to this
paragraph 18 shall be 10 years from the date of grant.

          (e) EXERCISABILITY. Until an option expires or is terminated and
except as provided in paragraphs 18(f) and 13, an option granted under this
paragraph 18 shall be exercisable according to the following schedule: 33 1/3%
for each complete year of continuous service after the date of grant, rounded up
to the next full share, until fully vested.

          For purposes of this paragraph 18(e), a complete year shall be deemed
to be the period which starts on the day of grant and ends on the same day of
the following calendar year, so that each successive "complete year" ends on the
same day of each successive calendar year.

          (f) TERMINATION AS A DIRECTOR. If an optionee ceases to be a director
of the Company for any reason, including death, the option may be exercised at
any time prior to the expiration date of the option or the expiration of 30 days
(or 12 months in the event of death) after the last day the optionee served as a
director, whichever is the shorter period, but only if and to the extent the
optionee was entitled to exercise the option as of the last day the optionee
served as a director.

          (g) NONTRANSFERABILITY. Except as otherwise determined by the
Board of Directors, each option by its terms shall be nonassignable and
nontransferable by the optionee, either voluntarily or by operation of law,
except by will or by the laws of descent and distribution of the state or
country of the optionee's domicile at the time of death, and each option by its
terms shall be exercisable during the optionee's lifetime only by the optionee.

          (h) EXERCISE OF OPTIONS. Options may be exercised upon payment of
either cash or shares of Common Stock of the Company previously acquired by the
optionee and held for at least six months, and otherwise in accordance with
paragraph 6(a)(v).


Adopted: April 30, 1996
Amended: May 25, 1999
Amended: June 27, 2000

                                       15
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>5
<FILENAME>a2042924zex-21_1.txt
<DESCRIPTION>LIST OF SUBSIDIARIES
<TEXT>

<PAGE>

                                                                    EXHIBIT 21.1


                              LIST OF SUBSIDIARIES

          The Company owns 80% of the outstanding voting stock of the following
subsidiary:

          SUBSIDIARY NAME                    JURISDICTION OF INCORPORATION

          Interlink Electronics K.K.                     Japan


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>6
<FILENAME>a2042924zex-23_1.txt
<DESCRIPTION>CONSENT OF ARTHUR ANDERSEN LLP
<TEXT>

<PAGE>

                                                                    EXHIBIT 23.1


                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS


As independent public accountants, we hereby consent to the incorporation in
this Form 10-K of our report dated February 14, 2001 included in Registration
Statements File Nos. 033-93066, 333-39371 and 333-53870. It should be noted
that we have not audited any financial statements of the Company subsequent
to December 31, 2000 or performed any audit procedures subsequent to the date
of our report.

ARTHUR ANDERSEN LLP

Arthur Andersen LLP

Los Angeles, California
March 28, 2001

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
