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<SEC-DOCUMENT>0001021408-02-006972.txt : 20020515
<SEC-HEADER>0001021408-02-006972.hdr.sgml : 20020515
ACCESSION NUMBER:		0001021408-02-006972
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		2
CONFORMED PERIOD OF REPORT:	20020331
FILED AS OF DATE:		20020515

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-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-21858
		FILM NUMBER:		02648285

	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-Q
<SEQUENCE>1
<FILENAME>d10q.txt
<DESCRIPTION>10-Q FOR QUARTERLY PERIOD ENDED MARCH 31, 2002
<TEXT>
<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q


     [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
          SECURITIES EXCHANGE ACT OF 1934

          For the quarterly period ended March 31, 2002

                                       or

     [_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
          SECURITIES EXCHANGE ACT OF 1934

          For the transition period from ____ to ____


                           Commission File No. 0-21858

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

                Delaware                                    77-0056625
     (State or other jurisdiction of                     (I.R.S. Employer
      incorporation or organization)                  Identification Number)

                  546 Flynn Road
               Camarillo, California                          93012
     (Address of principal executive offices)              (Zip Code)


                                 (805) 484-8855
              (Registrant's telephone number, including area code)

                                 Not applicable.
               (Former name, former address and former fiscal year
                          if changed since last report)


     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days.

         Yes X       No __
             -


Shares of Common Stock Outstanding, at April 23, 2002: 9,758,872

<PAGE>

PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements

<TABLE>
<CAPTION>
INTERLINK ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUES)
- ---------------------------------------------------------------------------------------------------------------
                                                                                  December 31,      March 31,
                                                                                      2001            2002
                                                                                 --------------  --------------
Assets                                                                                             (Unaudited)
<S>                                                                                <C>              <C>
Current assets:
   Cash and cash equivalents                                                       $   6,868        $   8,125
   Marketable securities                                                               2,457               --
   Accounts receivable, less allowance for doubtful accounts
     of $914 and $913 at December 31, 2001 and March 31, 2002, respectively            5,493            5,160
   Inventories                                                                         8,502            9,090
   Prepaid expenses and other current assets                                             426              463
                                                                                   ---------        ---------

     Total current assets                                                             23,746           22,838
                                                                                   ---------        ---------

Property and equipment, net                                                            1,393            1,252
Deferred tax asset                                                                     1,301            1,301
Patents and trademarks, less accumulated amortization
   of $981 and $1,010 at December 31, 2001 and March 31, 2002, respectively              114              100
Other assets                                                                              87              138
                                                                                   ---------        ---------

Total assets                                                                       $  26,641        $  25,629
                                                                                   =========        =========
Liabilities and Stockholders' Equity
Current liabilities:
   Current maturities of long-term debt and capital lease obligations              $   1,923        $   1,900
   Accounts payable                                                                    1,679            1,122
   Accrued payroll and related expenses                                                  609              649
   Other accrued expenses                                                                202              279
                                                                                   ---------        ---------
     Total current liabilities                                                         4,413            3,950
                                                                                   ---------        ---------

Long-term debt, net of current portion                                                 1,855            1,786
Minority interest                                                                         68               68
Commitments and contingencies                                                              -                -
Stockholders' equity:
  Preferred stock, $5.00 par value (100 shares authorized,
    none issued and outstanding)                                                           -                -
  Common stock, $0.00001 par value (50,000 shares authorized,
   9,759 and 9,759 shares outstanding at December 31, 2001 and
   March 31, 2002, respectively)                                                      29,029           29,029
   Due from stockholders                                                                (838)            (838)
 Accumulated other comprehensive income (loss)                                          (843)            (924)
 Accumulated deficit                                                                  (7,043)          (7,442)
                                                                                   ---------        ---------

     Total stockholders' equity                                                       20,305           19,825
                                                                                   ---------        ---------

Total liabilities and stockholders' equity                                         $  26,641        $  25,629
                                                                                   =========        =========
</TABLE>

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

                                       2

<PAGE>

<TABLE>
<CAPTION>
INTERLINK ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------------------------------------
                                                                                       Three Month Period
                                                                                         Ended March 31,
                                                                                   --------------------------
                                                                                          (Unaudited)
                                                                                      2001             2002
                                                                                   ---------        ---------
<S>                                                                                <C>              <C>
Revenues                                                                           $   7,389        $   5,409
Cost of revenues                                                                       4,117            3,142
                                                                                   ---------        ---------
Gross profit                                                                           3,272            2,267

Operating expense:
   Product development and research                                                      844              865
   Selling, general and administrative                                                 1,999            1,841
                                                                                   ---------        ---------
     Total operating expense                                                           2,843            2,706
                                                                                   ---------        ---------

Operating income (loss)                                                                  429             (439)
                                                                                   ---------        ---------

Other income (expense):
   Minority interest                                                                     (12)               -
   Interest income, net                                                                   59               19
   Other income                                                                           63               21
                                                                                   ---------        ---------
     Total other income (expense)                                                        110               40
                                                                                   ---------        ---------

Income (loss) before provision (benefit) for income taxes                                539             (399)
                                                                                   ---------        ---------

Provision (benefit) for income taxes                                                    (194)               -
                                                                                   ---------        ---------

Net income (loss)                                                                  $     733        $    (399)
                                                                                   =========        ==========

Earnings (loss) per share - basic                                                  $    0.08        $   (0.04)
Earnings (loss) per share - diluted                                                $    0.07        $   (0.04)

Weighted average shares - basic                                                        9,409            9,759
Weighted average shares - diluted                                                     10,875            9,759
</TABLE>

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

                                       3

<PAGE>

<TABLE>
<CAPTION>
INTERLINK ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------
                                                                                       Three Month Period
                                                                                         Ended March 31,
                                                                                   --------------------------
                                                                                          (Unaudited)
Cash flows from operating activities:                                                 2001             2002
                                                                                   ---------        ---------
<S>                                                                                <C>              <C>
   Net income (loss)                                                               $     733        $    (399)
   Adjustments to reconcile net income (loss) to net cash provided by
   (used in) operating activities:
       Provision for bad debt                                                             10                -
       Depreciation and amortization                                                     182              215
       Minority interest                                                                  12                -
       Deferred tax asset                                                               (300)               -
       Changes in operating assets and liabilities:
           Accounts receivable                                                           572              333
           Inventories                                                                    51             (588)
           Prepaid expenses and other current assets                                     281              (37)
           Other assets                                                                   17              (51)
           Accounts payable                                                             (876)            (557)
           Accrued payroll and expenses                                                 (167)             117
                                                                                   ---------        ---------
               Net cash provided by (used in) operating activities                       515             (967)
                                                                                   ---------        ---------

Cash flows from investing activities:
   Sales of marketable securities                                                          -            2,457
   Purchases of property and equipment                                                  (205)             (45)
   Costs of patents and trademarks                                                         -              (15)
                                                                                   ---------        ---------
           Net cash provided by (used in) investing activities                          (205)           2,397
                                                                                   ---------        ---------

Cash flows from financing activities:
   Principal payments on long-term debt                                                 (732)             (92)
   Principal payments on capital lease obligations                                       (35)               -
   Proceeds from issuance of common stock, net                                           699                -
                                                                                   ---------        ---------
               Net cash used in financing activities                                     (68)             (92)
                                                                                   ---------        ---------

Effect of exchange rate changes on cash                                                 (580)             (81)
                                                                                   ---------        ---------

Increase (decrease) in cash and cash equivalents                                        (338)           1,257
Cash and cash equivalents:
   Beginning of period                                                                10,506            6,868
                                                                                   ---------        ---------
   End of period                                                                   $  10,168        $   8,125
                                                                                   =========        =========

Supplemental disclosures of cash flow information:
   Interest paid                                                                   $      32        $      15
   Income taxes paid                                                               $       2        $       1
</TABLE>

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

                                       4

<PAGE>

INTERLINK ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED)
- ------------------------------------------------

1.   Basis of Presentation of Interim Financial Data

The financial information as of March 31, 2002 and for the three month periods
ended March 31, 2001 and 2002 included in this report is unaudited; however,
such information reflects all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of results for the interim periods. The interim statements should
be read in conjunction with the financial statements and the related notes
included in our Annual Report on Form 10-K for the fiscal year ended December
31, 2001.

The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.

2.   Comprehensive Income (Loss)

The following table provides the data required to calculate comprehensive income
(loss):

<TABLE>
<CAPTION>
                                                                             (In Thousands)
                                                              ----------------------------------------
                                                              Accumulated Other
                                                                Comprehensive           Comprehensive
                                                                Income (Loss)            Income (Loss)
                                                                ------------             ------------
                  <S>                                          <C>                     <C>
                  Balance at December 31, 2000                    $  (168)
                  Translation adjustment                             (580)                  $    (580)
                  Net income                                            -                         733
                                                                  -------                   ---------

                  Balance at March 31, 2001                       $  (748)                  $     153
                                                                  ========                  =========

                  Balance at December 31, 2001                    $  (843)
                  Translation adjustment                              (81)                  $     (81)
                  Net loss                                              -                        (399)
                                                                  -------                   ---------

                  Balance at March 31, 2002                       $  (924)                  $    (480)
                                                                  ========                  =========
</TABLE>

                                       5

<PAGE>

3.   Segment Information

The Company has four business segments: (i) business communications (ii) home
entertainment, (iii) e-transactions and (iv) specialty components. The
accounting policies of the segments are the same as those described in the
significant accounting policies; however, the Company evaluates performance
based on revenue and gross profit. The Company does not allocate any other
income, expenses or assets to these segments. Reportable segment information for
the three months ended March 31, 2001 and 2002 is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                        Specialty
                                                                                        ---------
                                         Business              Home             E-     Components
                                         --------              ----             --     ----------
        Three Months Ended:        Communications     Entertainment   Transactions      and Other     Total
        -------------------        --------------     -------------   ------------      ---------     -----
         <S>                       <C>                 <C>            <C>              <C>            <C>
        March 31, 2001
           Revenue ............            $5,129              $255           $150         $1,855    $7,389
           Gross profit .......             1,949               112             75          1,136     3,272
        March 31, 2002
           Revenue ............            $3,144              $898           $270         $1,097    $5,409
           Gross profit .......             1,136               404            175            552     2,267
</TABLE>

4.   Earnings Per Share

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

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

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

<TABLE>
<CAPTION>
                                                                  Three Months Ended March 31,
                                                                  ----------------------------
                                                                      2001             2002
                                                                    --------         --------
<S>                                                                    <C>              <C>
Weighted average shares outstanding - basic ....................       9,409            9,759
Effect of dilutive securities; options and warrants ............       1,466/(1)/           -/(2)/
                                                                    --------         --------
Weighted average shares--diluted ...............................      10,875            9,759
                                                                    ========         =========
</TABLE>

_____________

         (1)  For the three months ended March 31, 2001, 672,000 options were
              excluded from the calculation of weighted average shares-diluted
              as their exercise prices were higher than the average stock price
              ($8.54) for the period.
         (2)  Due to the net loss, the diluted share calculation result was
              anti-dilutive. Thus, the basic weighted average shares were used.

5.   Inventories

         Inventories consisted of the following (in thousands):

                                                   December 31,      March 31,
                                                       2001            2002
                                                   ------------      ---------
                  Raw material ................     $     3,218      $   3,682
                  Work in process .............             351            344

                  Finished goods ..............           4,933          5,065
                                                    -----------      ---------
                  Total inventories ...........     $     8,502      $   9,091
                                                    ===========      =========

6.   Lines of Credit

We renegotiated the terms of our $5,000,000 domestic revolving line of credit
(unused at March 31, 2002) and our $1 million equipment purchases line of credit
($354,000 used at March 31, 2002). All financial covenants have been removed and
any future borrowings will be secured by cash and investments held at the bank.
The new agreements will expire on June 1, 2003.

7.   Recent Pronouncements

In April 2002, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 145 "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" which among other things provide guidance in reporting gains and
losses from extinguishments of debt and accounting for leases. We will adopt
this statement in 2003 and are currently reviewing this statement to determine
its impact, however we do not expect the adoption of this standard to have a
material impact on our financial position and its result of operations.

                                       6

<PAGE>

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

Disclosure Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, that involve
substantial risks and uncertainties and which are intended to be covered by the
safe harbors created thereby. These statements can be identified by the fact
that they do not relate strictly to historical information and may include the
words "expects", "believes", "anticipates", "plans", "may", "will", "intends",
"estimates", "continue" or other similar expressions. These forward-looking
statements are subject to various risks and uncertainties that could cause
actual results to differ materially from those currently anticipated. These
risks and uncertainties include, but are not limited to, items discussed in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001
under the heading "Forward-looking Statements", "Historical Factors Affecting
Financial Performance" and "2001 Overview". Forward-looking statements speak
only as of the date made. We undertake no obligation to publicly release or
update forward-looking statements, whether as a result of new information,
future events or otherwise.

Historical Factors Affecting Financial Performance

We were incorporated in California in February 1985 and reincorporated in
Delaware in July 1996. From 1985 to 1992, we developed and refined our Force
Sensing Resistor, or FSR, technology and sold it to customers for use in
electronic, musical, medical and other applications, which we now refer to as
the specialty components market. In 1992, we introduced our first
Interlink-branded computer-pointing device, PortaPoint, and in 1994, we
introduced our first wireless pointing device. The device, called RemotePoint,
established Interlink as a leading supplier of branded and OEM remote controls
and other products for the computerized presentation system market, which we
refer to as the business communication market. In 1999, we introduced an
electronic signature capture product, ePad, for sales to customers in the
e-transactions market. In 2000, we first demonstrated IntuiTouch technology,
which we intended to sell to customers in the home entertainment market.

Critical Accounting Policies

Material accounting policies that we believe are the most critical to an
investor's understanding of our financial results and condition and require
complex management judgment are discussed below.

Revenue Recognition. We recognize revenue in accordance with SEC Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB
101), as amended by SAB 101A and 101B. SAB 101 requires that four basic criteria
must be met before revenue can be recognized: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred or services rendered; (3) the fee
is fixed and determinable; and (4) collectibility is reasonably assured.
Determination of criteria (3) and (4) require management's judgments regarding
the fixed nature of the fee charged for services rendered and products delivered
and the collectibility

                                       7

<PAGE>

of those fees. Should changes in conditions cause management to determine these
criteria are not met for certain future transactions, revenue recognized for any
reporting period could be adversely affected.

Accounts Receivable. We account receivables are unsecured, and the Company is at
risk to the extent such amounts become uncollectible. The Company continually
monitors account receivable balances, and provides for an allowance of doubtful
accounts at the time collection may become questionable based on payment history
or age of the receivable and other factors related to the customers ability to
pay.

Provision for Income Tax. We first achieved profitable operations in 1995.
Because of net operating loss carryforwards available both for our U.S.-based
and Japan-based operations, we did not accrue income tax expense until 1999. In
that year, due to the expiration or full utilization of NOL carryforwards in
California and Japan, we began to record a provision for income tax expense in
those jurisdictions. By the end of 2000, we also began to accrue an income tax
benefit related to our federal NOL carryforwards to be used in future periods.
However, in mid-2001, we began to record quarterly tax losses and suspended any
further recognition of NOL carryforward tax benefits. Management believes we
will be able to utilize the deferred tax asset; however, if we do not return to
quarterly profitability by the end of 2002, it is likely that we will eliminate
this asset ($1.3 million) by recording a tax expense.

Inventory and Bad Debt Reserves. In response to the economic slowdown in
mid-2001, we streamlined our operations and increased our inventory and bad debt
reserves by $2 million and $300,000 respectively. We believe these estimates of
potential losses are adequate at March 31, 2002. However, a further
deterioration of the financial health of our customers either in the U.S. or
Japan may prove those estimates to be inadequate.

Foreign Exchange Exposure. We have established relationships with most of the
major OEMs in the business communications market. Many of these OEMs are based
in Japan and approximately 40% of our 2001 revenues came from Japanese
customers. The primary end-user market for the business communications market is
the U.S., however our Japanese customers are affected by the on-going recession
in Japan. Revenues from these customers are denominated in Japanese yen and as a
result we are subject to foreign currency exchange rate fluctuations in the
yen/dollar exchange rate. We use foreign currency forward contracts to hedge
this exposure. The gain or loss from these contracts is recorded in business
communications revenue ($750,000 gain in the year 2001 and $385,000 gain in the
first three months of 2002). These contracts typically have a six-month
duration; thus, yen/dollar fluctuations lasting more than six months will have
an impact on our revenues. In addition, as our Japan subsidiary's functional
currency is the yen, the translation of the net assets of that subsidiary into
the consolidated results will fluctuate with the yen/dollar exchange rate.

Recent Pronouncements

In April 2002, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 145 "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" which among other things provide guidance in reporting gains and
losses from extinguishments of debt and accounting for leases. We will adopt
this statement in 2003 and are currently reviewing this statement to determine
its impact, however we do not expect the adoption of this standard to have a
material impact on our financial position and our result of operations.

                                       8

<PAGE>


2001 and First Quarter 2002 Overview

2001 and first quarter, 2002 revenue by market segment is shown in the following
table:

<TABLE>
<CAPTION>
             --------------------------------- ----------------- ------------- -------------- --------------
                                                                               Three Months
                                                                                Ended March
                                                                                 31, 2002
                                                 2001 Revenue     Percent of      Revenue       Percent of
             Market Segment                       (millions)     Total Sales    (millions)      Total Sales
             --------------------------------- ----------------- ------------- -------------- --------------
<S>                                                  <C>              <C>          <C>              <C>
             Business Communications                 $16.2            64%          $ 3.1            58%
             --------------------------------- ----------------- ------------- -------------- --------------
             Specialty Components                      6.1            24             1.1            20
             --------------------------------- ----------------- ------------- -------------- --------------
             Home Entertainment                        2.0             8             0.9            17
             --------------------------------- ----------------- ------------- -------------- --------------
             E-Transactions                            1.0             4             0.3             5
             --------------------------------- ----------------- ------------- -------------- --------------
             Total                                   $25.3           100%          $ 5.4           100%
             --------------------------------- ----------------- ------------- -------------- --------------
</TABLE>

Our principal source of revenue continues to be our business communications
market. Sales in that market declined as a result of general economic conditions
and resulting adjustments to purchasing and inventory levels by our customers.
However, our market position continues to be very strong and we should be in a
position to benefit from any upturn in sales of presentation systems. In first
quarter 2002, business communication revenues grew 2% over fourth quarter 2001.

Specialty components, the original market into which we sold our products,
continues to be a strong contributor to revenue. In 2000 and the first three
quarters of 2001, revenue generated by sales to customers in this market was
positively affected by licensing revenue from IEE, which will not recur in 2002.
We expect sales to customers in the specialty components market to continue to
be a significant contributor to our revenue but do not anticipate significant
growth in this market. In first quarter 2002, specialty components revenue
decreased 3% from fourth quarter 2001.

Our e-transactions business was adversely affected during 2001 by a general
slowdown in new equipment purchasing. Nonetheless, we completed significant
transactions with two insurance companies and two companies in the financial
services industry and continue to build our volume of sales to customers making
smaller orders. At both large and small volumes, sales of e-transaction devices
tend to result in "one-time" revenue and therefore sales levels in this segment
can be more volatile than in other markets in which we operate. However, we
believe that the increasing installed base of our e-transactions devices can
have a positive effect on future sales by providing evidence of technological
soundness and customer acceptance. E-transaction revenues in first quarter 2002
were flat as compared to fourth quarter 2001.

Revenue from sales to customers in the home entertainment sector results
primarily from sales of an FSR-based component for use in the Microsoft Xbox
game controller. We expect that these sales will continue in 2002 but that
revenue from our IntuiTouch products will develop slowly as new technologies are
introduced by our customers and development partners. At the date of this
report, however, we do not expect meaningful revenues from IntuiTouch products
until 2003. Home entertainment revenues in first quarter 2002 continued to be
primarily driven by the Xbox program and the dollar amount of these sales
increased 21% over fourth quarter 2001.

In 2001, we recorded our first annual decline in revenue in more than a decade
and our first annual loss since 1994. We believe that these results were
significantly affected by general economic conditions that adversely affected
purchasing levels in our established business communications and specialty
components markets and slowed the penetration of our products into the
e-transactions and home entertainment markets. In the case of particular
industries, such as the insurance industry that we have targeted for our
e-transactions products, the events of September 11 further impacted our ability
to achieve penetration levels that we had originally

                                       9

<PAGE>

anticipated. While these factors may continue to affect our results in 2002, we
believe that our basic market positioning is sound. We continue to enjoy a
dominant share of the OEM business presentations controller market and are
having some success in developing sales channels for branded aftermarket
products. Our FSR based products and components continue to sell well in both
the specialty components and home entertainment markets, our e-transactions
business appears to be gaining traction and we believe that our technology,
products and commercial relationships addressing interactive digital remote
communication put us in a position to capitalize on any growth in this market
sector.

Despite the downturn in revenues in 2001, we chose to maintain our commitment to
research and development, spending slightly more in 2001 than in the prior year
and also increased selling, general and administrative expense. During the
second quarter of fiscal 2001, as a result of a continued decline in revenues
and customer demand, the Company provided additional reserves of $2 million for
excess and obsolete inventories. The continued industry-wide reduction in
spending and the resulting decrease in demand for the Company's products led to
significant reductions in the Company's sales forecast. The Company's regular
and ongoing reserve analysis and methodology includes a comparison of sales
forecasts and inventory levels. As a result of the analysis based on second
quarter sales forecast revisions, we recorded a charge, which was included in
the cost of revenues. Increases to the inventory reserve during the remainder of
fiscal 2001 were not significant. In addition, we recorded a $300,000 increase
in bad debt reserves in the third quarter of 2001 due to changes in certain
customers' ability to pay arising after the original sales had been made. In the
first quarter 2002, total operating expenses were flat as compared to fourth
quarter 2001. No material modification to inventory and bad debt reserves were
made.

The loss in 2001 and in first quarter 2002 resulted in modest reductions in
working capital and stockholders' equity. However, liquidity remains relatively
strong and we foresee no immediate need for additional capital or immediate risk
of capital inadequacy.

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

<TABLE>
<CAPTION>
                                                                         Three Months Ended
                                                                         ------------------
                                                                             (Unaudited)
                                                                March 31,    December 31,      March 31,
                                                                  2001           2001            2002
                                                                ---------    ------------      --------
<S>                                                                  <C>             <C>            <C>
                  Revenues                                          100.0%          100.0%        100.0%
                                                                ---------    ------------      --------
                  Gross profit                                       44.3            41.9          41.9
                  Operating expenses:
                     Product development and research                11.4            15.8          16.0
                     Selling, general and administrative             27.1            35.4          34.0
                                                                ---------     -----------      --------
                  Total operating expenses                           38.5            51.2          50.0
                                                                ---------     -----------      --------
                  Operating income (loss)                             5.8            (9.3)         (8.1)
                  Other income                                        1.5               5           0.7
                  Income tax expense (benefit)                       (2.6)            0.0           0.0
                                                                ---------    ------------      --------
                  Net income (loss)                                   9.9%           (8.8)%        (7.4)%
                                                                =========    ============      ========
</TABLE>

Results of Operations - Three months ended March 31, 2002 compared to three
months ended March 31, 2001

Revenues declined 27% from $7.4 million in the three month period ended March
31, 2001 to $5.4 million in the three month period ended March 31, 2002. This
revenue net decline resulted from the following factors:

     . Business communications segment revenues declined 39% as compared to the
       first quarter of 2001 due to the general slowdown in worldwide economies.

                                       10

<PAGE>

     . Specialty components segment revenues declined 41% as compared to first
       quarter 2001 due to the slowdown in worldwide economies coupled with the
       elimination of the approximately $500,000 per quarter licensing royalty
       from IEE.
     . Home entertainment segment revenues increased 252% as compared to first
       quarter 2001 due to the Microsoft Xbox program.
     . E-transactions segment revenues increased 80% over first quarter 2001 due
       to an increased customer base.

Gross profit decreased 31% from $3.3 million in the three month period ended
March 31, 2001 to $2.3 million in the three month period ended March 31, 2002.
The lower gross profit percentage in first quarter 2002 resulted from a lower
mix of licensing revenues (related to IEE) versus product revenues.

Product development and research expense increased 2% from $844,000 in the three
month period ended March 31, 2001 to $865,000 in the three month period ended
March 31, 2002. As a percentage of revenues, product development and research
expense increased from 11.4% in the three month period ended March 31, 2001 to
16.0% in the three month period ended March 31, 2002. These increases resulted
primarily from continued investment in our IntuiTouch interface technology,
which we market to companies in the Home Entertainment market, and our ePad
technology, which we market to customers in the e-transactions market.

Selling, general and administrative expense decreased 8% from $2.0 million in
the three month period ended March 31, 2001 to $1.8 million in the three month
period ended March 31, 2002. As a percentage of revenue, selling, general and
administrative expense increased from 27.1% in the three month period ended
March 1, 2001 to 34.0% in the three month period ended March 31, 2002. The
decrease in the dollar amount of SG&A is due to the streamlining of operating
costs implemented in the second quarter of 2001.

Operating income decreased from $429,000 in the three month period ended March
31, 2001 to an operating loss of $439,000 in the three month period ended March
31, 2002. The decline in operating income is the result of the revenue decline.

We recorded a $194,000 income tax benefit in the three month period ended March
31, 2001 and a zero tax provision in the three month period ended March 31,
2002. No tax benefit was recorded in the 2002 period due to lack of sufficient
probability that the potential benefit would actually be realized.

Net income decreased from $733,000 in the three month period ended March 31,
2001 to a loss of $399,000 in the three month period ended March 31, 2002.

Liquidity and Capital Resources

At March 31, 2002, working capital totaled $18.9 million as compared to $19.3
million at December 31, 2001. This decrease is a result of the negative
operating results coupled with the purchase of capital equipment.

For the quarter ended March 31, 2002 operations used $1 million. This usage of
cash is due to the buildup of inventories at our new logistics center in China,
Interlink Electronics Asia Pacific (IEAP).

For the three month period ended March 31, 2002, investing activities consisted
of the usage of $60,000 for the purchase of production and computer network
equipment which was offset by the conversion to cash of marketable securities
that matured during the period.

We believe we can fund operations for at least the next twelve months from
existing cash balances. We renegotiated our U.S. bank lines of credit to
eliminate the financial covenants; however, the agreements governing the lines
of credit now require any future borrowings to be secured by cash and
investments held at the bank. Negotiated lines of credit in Japan and the
exercise of employee stock options are also potential sources of

                                       11

<PAGE>

capital available to us. The Company requires liquidity to fund capital
expenditures and for working capital and other general corporate purposes.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

We use six-month foreign exchange forward contracts to hedge certain revenue
exposures against future movements in foreign exchange rates. Gains and losses
on the forward contracts are largely offset by gains and losses on the
underlying exposure and consequently we would not expect a sudden or significant
change in foreign exchange rates to have a material impact on future net income
or cash flows. However, a foreign exchange movement with a duration of over six
months could impact financial performance.

                                       12

<PAGE>

PART II:  OTHER INFORMATION

Item 6.   Exhibits And Reports On Form 8-K

          a.   Exhibits

               10.1   Amendment to Credit Agreement with Wells Fargo Bank,
                      National Association and Registrant dated March 27,2002.

          b.   Reports on Form 8-K

               No Reports on Form 8-K were filed during the period for which
               this Quarterly Report on Form 10-Q is filed.

                                       13

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                             INTERLINK ELECTRONICS, INC.


DATE: May 14, 2002                           /s/ PAUL D. MEYER
                                             ---------------------
                                             Paul D. Meyer

                                             Chief Financial Officer
                                             (Principal Financial and Accounting
                                             Officer)

                                       14

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>dex101.txt
<DESCRIPTION>AMEND. TO CREDIT AGREEMENT WITH WELLS FARGO BANK
<TEXT>
<PAGE>

                                                                    EXHIBIT 10.1

                                             March 27, 2002



  Interlink Electronics, Inc.
  546 Flynn Road
  Camarillo, CA 93012

  Gentlemen:

          This letter amendment (this "Amendment") is to confirm the changes
agreed upon between WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") and
INTERLINK ELECTRONICS, INC. ("Borrower") to the terms and conditions of that
certain letter agreement between Bank and Borrower dated as of September 1, 2000
as amended from time to time (the "Agreement"). For valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Bank and Borrower
hereby agree that the Agreement shall be amended as follows to reflect said
changes.

          1. All reference herein to the Exhibit A (Line of Credit Note), shall
hereinafter be replaced by the New Exhibit A (Line of Credit Note) attached
hereto.

          2. Paragraph 2. of the first page of the Agreement is hereby deleted
in its entirety, and the following substituted therefor:

                    "2. A commitment under which Bank will make advances to
             Borrower from time to time up to and including June 1, 2002, not to
             exceed the aggregate principal amount of One Million Dollars
             ($1,000,000.00) ("Term Commitment"), the proceeds of which shall be
             used to finance Borrower's working capital requirements and which
             shall be converted on June 1, 2002, to a term loan, as described
             more fully below."

          3. Paragraph 1.2. is hereby deleted in its entirety, and the following
substituted therefor:

                    "2. TERM COMMITMENT:

                    (a) Term Commitment Note. Borrower's obligation to repay
                        --------------------
             advances under the Term Commitment shall be evidenced by a
             promissory note substantially in the form of Exhibit B attached
             hereto ("Term Commitment Note"), all terms of which are
             incorporated herein by this reference.

                    (b) Limitation on Borrowinqs. Notwithstanding any other
                        ------------------------
             provision of this letter, the aggregate amount of all outstanding
             borrowings under the Term Commitment shall not at

<PAGE>

Interlink Electronics, Inc.
March 27, 2002
Page 2

                    any time exceed a maximum of eighty percent (80%) of the
                    cost of each item of new equipment purchased and
                    seventy-five percent (75%) of the cost of each item of used
                    equipment purchased with the proceeds thereof, as evidenced
                    by the seller's invoice.

                             (c) Borrowing and Repayment. Borrower may from time
                                 -----------------------
                    to time during the period in which Bank will make advances
                    under the Term Commitment borrow and partially or wholly
                    repay its outstanding borrowings, provided that amounts
                    repaid may not be reborrowed, subject to all the
                    limitations, terms and conditions contained herein; provided
                    however, that the total outstanding borrowings under the
                    Term Commitment shall not exceed the maximum principal
                    amount available thereunder, as set forth above. The
                    principal amount of the Term Commitment shall be repaid in
                    accordance with the provisions of the Term Commitment Note.

                             (d) Prepayment. Borrower may prepay principal on
                                 ----------
                    the Term Commitment at any time, in any amount and without
                    penalty."

          4.        Paragraph 11.3. is hereby deleted in its entirety, and the
following substituted therefor:

                             "3. Unused Commitment Fee. Borrower shall pay to
                                 ---------------------
                    Bank a fee equal to one-eighth quarter percent (0.125%) per
                    annum (computed on the basis of a 360-day year, actual days
                    elapsed) on the average daily unused amount of the Line of
                    Credit, which fee shall be calculated on a quarterly basis
                    by Bank and shall be due and payable by Borrower in arrears
                    on each March 31, June 30, September 30 and December 31."

          5.        Paragraph V.9. is hereby deleted in its entirety, without
                    substitution,

          6.        Except as specifically provided herein, all terms and
conditions of the Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Agreement shall have the same meaning
when used herein. This Amendment and the Agreement shall be read together, as
one document.

          7.        Borrower hereby remakes all representations and warranties
contained in the Agreement and reaffirms all covenants set forth therein.
Borrower further certifies that as of the date of Borrower's acknowledgment set
forth below there exists no default or defined event of default under the
Agreement or any promissory note or other contract, instrument or document
executed in connection therewith, nor any condition, act or event which with the
giving of notice or the passage of time or both would constitute such a default
or defined event of default.

<PAGE>


Interlink Electronics, Inc.
March 27,2002
Page 3

           Your acknowledgment of this Amendment shall constitute acceptance of
the foregoing terms and conditions.

                                            Sincerely,

                                            WELLS FARGO BANK,
                                             NATIONAL ASSOCIATION

                                            By: /s/ John Ray
                                               ------------------
                                               John Ray
                                               Vice President


Acknowledged and accepted as of 3/29/02:
                                -------

INTERLINKS ELECTRONICS, INC.


By: /s/ [ILLEGIBLE]
   ----------------

Title: CFO
       ------------

<PAGE>

                                                                       EXHIBIT A

WELLS FARGO BANK                                   REVOLVING LINE OF CREDIT NOTE
- --------------------------------------------------------------------------------



$5,000,000.00                                         Woodland Hills, California
                                                                   April 1, 2002

     FOR VALUE RECEIVED, the undersigned Interlink Electronics, Inc.
("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank") at its office at Warner Ranch RCBO, 6001 Topanga Cyn Blvd
Ste 205, Woodland Hills, CA 91367, or at such other place as the holder hereof
may designate, in lawful money of the United States of America and in
immediately available funds, the principal sum of $5,000,000.00, or so much
thereof as may be advanced and be outstanding, with interest thereon, to be
computed on each advance from the date of its disbursement as set forth herein.

DEFINITIONS:

     As used herein, the following terms shall have the meanings set forth after
each, and any other term defined in this Note shall have the meaning set forth
at the place defined:

     (a)    "Business Day" means any day except a Saturday, Sunday or any other
day on which commercial banks in California are authorized or required by law to
close.

     (b)    "Fixed Rate Term" means a period commencing on a Business Day and
continuing for 1, 2, 3, 6 or 12 months, as designated by Borrower, during which
all or a portion of the outstanding principal balance of this Note bears
interest determined in relation to LIBOR; provided however, that no Fixed Rate
Term may be selected for a principal amount less than $100,000.00; and provided
further, that no Fixed Rate Term shall extend beyond the scheduled maturity date
hereof. If any Fixed Rate Term would end on a day which is not a Business Day,
then such Fixed Rate Term shall be extended to the next succeeding Business Day.

     (c)    "LIBOR" means the rate per annum (rounded upward, if necessary, to
the nearest whole l/8 of 1%) determined by dividing Base LIBOR by a percentage
equal to 100% less any LIBOR Reserve Percentage.

         (i)    "Base LIBOR" means the rate per annum for United States dollar
deposits quoted by Bank as the inter-Bank Market Offered Rate, with the
understanding that such rate is quoted by Bank for the purpose of calculating
effective rates of interest for loans making reference thereto, on the first day
of a Fixed Rate Term for delivery of funds on said date for a period of time
approximately equal to the number of days in such Fixed Rate Term and in an
amount approximately equal to the Principal amount to which such Fixed Rate Term
applies. Borrower understands and agrees that Bank may base its quotation of the
Inter-Bank Market Offered Rate upon such offers or other market indicators of
the Inter-Bank Market as Bank in its discretion deems appropriate including, but
not limited to, the rate offered for U.S. dollar deposits on the London
Inter-Bank Market.

         (ii)   "LIBOR Reserve Percentage" means the reserve percentage
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the
Federal Reserve Board, as amended), adjusted by Bank for expected changes in
such reserve percentage during the applicable Fixed Rate Term.

     (d)    "Prime Rate" means at any time the rate of interest most recently
announced within Bank at its principal office as its Prime Rate, with the
understanding that the Prime Rate is one of Bank's base rates and serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof after its
announcement in such internal publication or publications as Bank may designate.

INTEREST:

                                                                          Page 1

<PAGE>

     (a)    Interest. The outstanding principal balance of this Note shall bear
            --------
interest (computed on the basis of a 360-day year, actual days elapsed) either
(i) at a fluctuating rate per annum equal to the Prime Rate in effect from time
to time, or (ii) at a fixed rate per annum determined by Bank to be 2.00000%
above LIBOR in effect on the first day of the applicable Fixed Rate Term. When
interest is determined in relation to the Prime Rate, each change in the rate of
interest hereunder shall become effective on the date each Prime Rate change is
announced within Bank. With respect to each LIBOR selection option selected
hereunder, Bank is hereby authorized to note the date, principal amount,
interest rate and Fixed Rate Term applicable thereto and any payments made
thereon on Bank's books and records (either manually or by electronic entry)
and/or on any schedule attached to this Note, which notations shall be prima
facie evidence of the accuracy of the information noted.

     (b)    Selection of Interest Rate Options. At any time any portion of this
            ----------------------------------
Note bears interest determined in relation to LIBOR, it may be continued by
Borrower at the end of the Fixed Rate Term applicable thereto so that all or a
portion thereof bears interest determined in relation to the Prime Rate or to
LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion
of this Note bears interest determined in relation to the Prime Rate, Borrower
may convert all or a portion thereof so that it bears interest determined in
relation to LIBOR for a Fixed Rate Term designated by Borrower. At such time as
Borrower requests an advance hereunder or wishes to select a LIBOR option for
all or a portion of the outstanding principal balance hereof, and at the end of
each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the
interest rate option selected by Borrower; (ii) the principal amount subject
thereto; and (iii) for each LIBOR selection, the length of the applicable Fixed
Rate Term. Any such notice may be given by telephone (or such other electronic
method as Bank may permit) so long as, with respect to each LIBOR selection, (A)
if requested by Bank, Borrower provides to Bank written confirmation thereof not
later than three (3) Business Days after such notice is given, and (B) such
notice is given to Bank prior to 10:00 a.m. on the first day of the Fixed Rate
Term, or at a later time during any Business Day if Bank, at it's sole option
but without obligation to do so, accepts Borrower's notice and quotes a fixed
rate to Borrower. If Borrower does not immediately accept a fixed rate when
quoted by Bank, the quoted rate shall expire and any subsequent LIBOR request
from Borrower shall be subject to a redetermination by Bank of the applicable
fixed rate. If no specific designation of interest is made at the time any
advance is requested hereunder or at the end of any Fixed Rate Term, Borrower
shall be deemed to have made a Prime Rate interest selection for such advance or
the principal amount to which such Fixed Rate Term applied.

     (c)    Taxes and Regulatory Costs. Borrower shall pay to Bank immediately
            --------------------------
upon demand, in addition to any other amounts due or to become due hereunder,
any and all (i) withholdings, interest equalization taxes, stamp taxes or other
taxes (except income and franchise taxes) imposed by any domestic or foreign
governmental authority and related in any manner to LIBOR, and (ii) future,
supplemental, emergency or other changes in the LIBOR Reserve Percentage,
assessment rates imposed by the Federal Deposit Insurance Corporation, or
similar requirements or costs imposed by any domestic or foreign governmental
authority or resulting from compliance by Bank with any request or directive
(whether or not having the force of law) from any central bank or other
governmental authority and related in any manner to LIBOR to the extent they are
not included in the calculation of LIBOR. In determining which of the foregoing
are attributable to any LIBOR option available to Borrower hereunder, any
reasonable allocation made by Bank among its operations shall be conclusive and
binding upon Borrower.

     (d)    Payment of Interest. Interest accrued on this Note shall be payable
            -------------------
on the 1st day of each month, commencing May 1, 2002.

     (e)    Default Interest. From and after the maturity date of this Note, or
            ----------------
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to 4% above the rate of
interest from time to time applicable to this Note.

BORROWING AND REPAYMENT:

     (a)    Borrowing and Repayment. Borrower may from time to time during the
            -----------------------
term of this Note borrow, partially or wholly repay its outstanding borrowings,
and reborrow, subject to all of the limitations, terms and

                                                                          Page 2

<PAGE>

conditions of this Note and of any document executed in connection with or
governing this Note; provided however, that the total outstanding borrowings
under this Note shall not at any time exceed the principal amount stated above.
The unpaid principal balance of this obligation at any time shall be the total
amounts advanced hereunder by the holder hereof less the amount of principal
payments made hereon by or for any Borrower, which balance may be endorsed
hereon from time to time by the holder. The outstanding principal balance of
this Note shall be due and payable in full on June 1, 2003.

     (b)    Advances. Advances hereunder, to the total amount of the principal
            --------
sum available hereunder, may be made by the holder at the oral or written
request of (i) Pad Meyer or Sharon McCraken, any one acting alone, who are
authorized to request advances and direct the disposition of any advances until
written notice of the revocation of such authority is received by the holder at
the office designated above, or (ii) any person, with respect to advances
deposited to the credit of any deposit account of any Borrower, which advances,
when so deposited, shall be conclusively presumed to have been made to or for
the benefit of each Borrower regardless of the fact that persons other than
those authorized to request advances may have authority to draw against such
account. The holder shall have no obligation to determine whether any person
requesting an advance is or has been authorized by any Borrower.

     (c)    Application of Payments. Each payment made on this Note shall be
            -----------------------
credited first, to any interest then due and second, to the outstanding
principal balance hereof. All payments credited to principal shall be applied
first, to the outstanding principal balance of this Note which bears interest
determined in relation to the Prime Rate, if any, and second, to the outstanding
principal balance of this Note which bears interest determined in relation to
LIBOR, with such payments applied to the oldest Fixed Rate Term first.

PREPAYMENT:

     (a)    Prime Rate. Borrower may prepay principal on any portion of this
            ----------
Note which bears interest determined in relation to the Prime Rate at any time,
in any amount and without penalty.

     (b)    LIBOR. Borrower may prepay principal on any portion of this Note
            -----
which bears interest determined in relation to LIBOR at any time and in the
minimum amount of $100,000.00; provided however, that if the outstanding
principal balance of such portion of this Note is less than said amount, the
minimum prepayment amount shall be the entire outstanding principal balance
thereof. In consideration of Bank providing this prepayment option to Borrower,
or if any such portion of this Note shall become due and payable at any time
prior to the last day of the Fixed Rate Term applicable thereto by acceleration
or otherwise, Borrower shall pay to Bank immediately upon demand a fee which is
the sum of the discounted monthly differences for each month from the month of
prepayment through the month in which such Fixed Rate Term matures, calculated
as follows for each such month:

         (i)    Determine the amount of interest which would have accrued each
                ---------
month on the amount prepaid at the interest rate applicable to such amount had
it remained outstanding until the last day of the Fixed Rate Term applicable
thereto.

         (ii)   Subtract from the amount determined in (i) above the amount of
                --------
interest which would have accrued for the same month on the amount prepaid for
the remaining term of such Fixed Rate Term at LIBOR in effect on the date of
prepayment for new loans made for such term and in a principal amount equal to
the amount prepaid.

         (iii)  If the result obtained in (ii) for any month is greater than
zero, discount that difference by LIBOR used in (ii) above.

Each Borrower acknowledges that prepayment of such amount may result in Bank
incurring additional costs, expenses and/or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses and/or
liabilities. Each Borrower, therefore, agrees to pay the above-described
prepayment fee and agrees that said amount represents a reasonable estimate of
the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to
pay any prepayment fee when due, the amount of such prepayment fee shall
thereafter bear interest until paid at a rate per annum 2.000% above the Prime
Rate in effect from time to time (computed on

                                                                          Page 3

<PAGE>

the basis of a 360-day year, actual days elapsed). Each change in the rate of
interest on any such past due prepayment fee shall become effective on the date
each Prime Rate change is announced within Bank.

EVENTS OF DEFAULT:

     The occurrence of any of the following shall constitute an "Event of
Default" under this Note:

     (a)    The failure to pay any principal, interest, fees or other charges
when due hereunder or under any contract, instrument or document executed in
connection with this Note.

     (b)    The filing of a petition by or against any Borrower, any guarantor
of this Note or any general partner or joint venturer in any Borrower which is a
partnership or a joint venture (with each such guarantor, general partner and/or
joint venturer referred to herein as a "Third Party Obliger") under any
provisions of the Bankruptcy Reform Act, Title 11 of the United States Code, as
amended or recodified from time to time, or under any similar or other law
relating to bankruptcy, insolvency, reorganization or other relief for debtors;
the appointment of a receiver, trustee, custodian or liquidator of or for any
part of the assets or property of any Borrower or Third Party Obligor; any
Borrower or Third Party Obligor becomes insolvent, makes a general assignment
for the benefit of creditors or is generally not paying its debts as they become
due; or any attachment or like levy on any property of any Borrower or Third
Party Obligor.

     (c)    The death or incapacity of any individual Borrower or Third Party
Obligor, or the dissolution or liquidation of any Borrower or Third Party
Obligor which is a corporation, partnership, joint venture or other type of
entity.

     (d)    Any default in the payment or performance of any obligation, or any
defined event of default, under any provisions of any contract, instrument or
document pursuant to which any Borrower or Third Party Obligor has incurred any
obligation for borrowed money, any purchase obligation, or any other liability
of any kind to any person or entity, including the holder.

     (e)    Any financial statement provided by any Borrower or Third Party
Obligor to Bank proves to be incorrect, false or misleading in any material
respect.

     (f)    Any sale or transfer of all or a substantial or material part of the
assets of any Borrower or Third Party Obligor other than in the ordinary course
of its business.

     (g)    Any violation or breach of any provision of, or any defined event of
default under, any addendum to this Note or any loan agreement, guaranty,
security agreement, deed of trust, mortgage or other document executed in
connection with or securing this Note.

MISCELLANEOUS:

     (a)    Remedies. Upon the occurrence of any Event of Default, the holder of
            --------
this Note, at the holder's option, may declare all sums of principal and
interest outstanding hereunder to be immediately due and payable without
presentment, demand, notice of nonperformance, notice of protest, protest or
notice of dishonor, all of which are expressly waived by each Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder shall
immediately cease and terminate. Each Borrower shall pay to the holder
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of the holder's in-house counsel), expended
or incurred by the holder in connection with the enforcement of the holder's
rights and/or the collection of any amounts which become due to the holder under
this Note, and the prosecution or defense of any action in any way related to
this Note, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.

                                                                          Page 4

<PAGE>


     (b)    Obligations Joint and Several. Should more than one person or entity
            -----------------------------
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.

     (c)    Governing Law. This Note shall be governed by and construed in
            -------------
accordance with the laws of the State of California.

     IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.

By:      /s/ [ILLEGIBLE]
   ---------------------------------
Title:      CFO
      ------------------------------

                                                                          Page 5

<PAGE>
                                                                       Exhibit B

                              TERM COMMITMENT NOTE


$1,000,000.00                                         Woodland Hills, California
                                                                  March 27, 2001

     FOR VALUE RECEIVED, the undersigned INTERLINK ELECTRONICS, INC.
("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank") at its office at Warner Ranch Regional Commercial Banking
Office, 6001 Topanga Cyn Blvd., Suite 205, Woodland Hills, California, or at
such other place as the holder hereof may designate, in lawful money of the
United States of America and in immediately available funds, the principal sum
of One Million Dollars ($1,000,000.00), or so much thereof as may be advanced
and be outstanding, with interest thereon, to be computed on each advance from
the date of its disbursement as set forth herein.

INTEREST:

     (a) Interest. The outstanding principal balance of this Note shall bear
         --------
interest (computed on the basis of a 360-day year, actual days elapsed) at a
rate per annum equal to the Prime Rate in effect from time to time. The "Prime
Rate" is a base rate that Bank from time to time establishes and which serves as
the basis upon which effective rates of interest are calculated for those loans
making reference thereto. Each change in the rate of interest hereunder shall
become effective on the date each Prime Rate change is announced within Bank.

     (b) Payment of Interest. Interest accrued on this Note shall be payable on
         -------------------
the 1st day of each month, commencing April 1, 2002.

     (c) Default Interest. From and after the maturity date of this Note, or
         ----------------
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to four percent (4%) above
the rate of interest from time to time applicable to this Note.

BORROWING AND REPAYMENT:

     (a) Borrowing and Repayment. Borrower may from time to time from the date
         -----------------------
of this Note up to and including June 1, 2002, borrow and partially or wholly
repay its outstanding borrowings, subject to all of the limitations, terms and
conditions of this Note and of any document executed in connection with or
governing this Note; provided however, that amounts repaid may not be
reborrowed; and provided further, that the total borrowings under this Note
shall not exceed the principal amount stated above. The unpaid principal balance
of this obligation at any time shall be the total amounts advanced hereunder by
the holder hereof less the amount of principal payments made hereon by or for
any Borrower, which balance may be endorsed hereon from time to time by the
holder.

     (b) Required Principal Payments. The outstanding principal balance of this
         ---------------------------
Note on June 1, 2002 shall be amortized over forty-eight (48) months, and
thereafter principal shall be payable on the 1st day of each month in equal
successive installments over said amortization

                                      -1-

<PAGE>

term, commencing July 1, 2002, and continuing up to and including May 1, 2006,
with a final installment consisting of all remaining unpaid principal due and
payable in full on June 1, 2066.

     (c) Advances. Advances hereunder, to the total amount of the principal sum
         --------
stated above and up to and including the final advance date set forth above, may
be made by the holder at the oral or written request of (i) Paul Meyer or Sharon
McCraken, any one acting alone, who are authorized to request advances and
direct the disposition of any advances until written notice of the revocation of
such authority is received by the holder at the office designated above, or (ii)
any person, with respect to advances deposited to the credit of any deposit
account of any Borrower, which advances, when so deposited, shall be
conclusively presumed to have been made to or for the benefit of each Borrower
regardless of the fact that persons other than those authorized to request
advances may have authority to draw against such account. The holder shall have
no obligation to determine whether any person requesting an advance is or has
been authorized by any Borrower.

     (d) Application of Payments. Each payment made on this Note shall be
         -----------------------
credited first, to any interest then due and second, to the outstanding
principal balance.

  EVENTS OF DEFAULT:

     The occurrence of any of the following shall constitute an "Event of
Default" under this Note:

     (a) The failure to pay any principal, interest, fees or other charges when
due hereunder or under any contract, instrument or document executed in
connection with this Note.

     (b) The filing of a petition by or against any Borrower, any guarantor of
this Note or any general partner or joint venturer in any Borrower which is a
partnership or a joint venture (with each such guarantor, general partner and/or
joint venturer referred to herein as a "Third Party Obligor") under any
provisions of the Bankruptcy Reform Act, Title 11 of the United States Code, as
amended or recodified from time to time, or under any similar or other law
relating to bankruptcy, insolvency, reorganization or other relief for debtors;
the appointment of a receiver, trustee, custodian or liquidator of or for any
part of the assets or property of any Borrower or Third Party Obligor; any
Borrower or Third Party Obligor becomes insolvent, makes a general assignment
for the benefit of creditors or is generally not paying its debts as they become
due; or any attachment or like levy on any property of any Borrower or Third
Party Obligor.

     (c) The death or incapacity of any individual Borrower or Third Party
Obligor, or the dissolution or liquidation of any Borrower or Third Party
Obligor which is a corporation, partnership, joint venture or other type of
entity.

     (d) Any default in the payment or performance of any obligation, or any
defined event of default, under any provisions of any contract, instrument or
document pursuant to which any Borrower or Third Party Obligor has incurred any
obligation for borrowed money, any purchase obligation, or any other liability
of any kind to any person or entity, including the holder.

     (e) Any financial statement provided by any Borrower or Third Party Obligor
to Bank proves to be incorrect, false or misleading in any material respect.

                                      -2-

<PAGE>


     (f) Any sale or transfer of all or a substantial or material part of the
assets of any Borrower or Third Party Obligor other than in the ordinary course
of its business.

     (g) Any violation or breach of any provision of, or any defined event of
default under, any addendum to this Note or any loan agreement, guaranty,
security agreement, deed of trust, mortgage or other document executed in
connection with or securing this Note.

  MISCELLANEOUS:

     (a) Remedies. Upon the occurrence of any Event of Default, the holder of
         --------
this Note, at the holder's option, may declare all sums of principal and
interest outstanding hereunder to be immediately due and payable without
presentment, demand, notice of nonperformance, notice of protest, protest or
notice of dishonor, all of which are expressly waived by each Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder shall
immediately cease and terminate. Each Borrower shall pay to the holder
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of the holder's in-house counsel), expended
or incurred by the holder in connection with the enforcement of the holders
rights and/or the collection of any amounts which become due to the holder under
this Note, and the prosecution or defense of any action in any way related to
this Note, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.

     (b) Obligations Joint and Several. Should more than one person or entity
         -----------------------------
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.

     (c) Governing Law. This Note shall be governed by and construed in
         -------------
accordance with the laws of the State of California.


     IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.

INTERLINK ELECTRONICS, INC.

By: /s/ [Illegible]
   -------------------
Title: CFO
      ----------------

                                      -3-



</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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