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

                                    FORM 10-K

                Annual Report Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934

   [X]    Annual report  pursuant to section 13 or 15(d) of the  Securities
          Exchange Act of 1934 for the fiscal year ended  December 31, 1996
          or
   [      ]  Transition  report  pursuant  to  section  13 or  15(d) of the
          Securities  Exchange Act of 1934 for the  transition  period from
          __________ to __________.

   Commission file number:  0-21808

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

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

                   546 Flynn Road, Camarillo, California 93012
          (Address of principal executive offices, including 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 Class)  Warrants  (Title of 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. [ ]

     Aggregate  market value of Common Stock held by  nonaffiliates  of the
Registrant at March 18, 1997, based on the closing price on such date on
the NASDAQ National Market System: $29,666,793.

     Number of shares of Common Stock outstanding as of March 18, 1997:
4,564,122.

                    Documents Incorporated by Reference

                                                Part of Form 10-K into
          Document                                which incorporated

Proxy Statement for 1997 Annual                        Part III
   Meeting of Shareholders


<PAGE>

TABLE OF CONTENTS


Item of Form 10-K                                                        Page
-----------------------------------------------------------------------------

PART I

    Item 1.          Business                                               2

    Item 2.          Properties                                            12

    Item 3.          Legal Proceedings                                     13

    Item 4.          Submission of Matters to a Vote
                     of Security Holders                                   13

    Item 4(a).       Executive Officers of the Registrants                 13

PART II

    Item 5.          Market for the Registrant's Common                    14
                     Equity and Related Stockholder Matters

    Item 6.          Selected Financial Data                               15

    Item 7.          Management's Discussion and Analysis                  15
                     of Financial Condition and Results of
                     Operations

    Item 8.          Financial Statements and Supplementary                15
                     Data

    Item 9.          Changes in and Disagreements with Accountants         15
                     on Accounting and Financial Disclosure

PART III

    Item 10.         Directors and Executive Officers of                   15
                     the Registrant

    Item 11.         Executive Compensation                                16

    Item 12.         Security Ownership of Certain Beneficial              16
                     Owners and Management

    Item 13.         Certain Relationships and Related                     16
                     Transactions

PART IV

    Item 14.         Exhibits, Financial Statement Schedules               16
                     and Reports on Form 8-K



<PAGE>




                                   PART I

Item 1.  Business

Force Sensing Technology

     Interlink  Electronics,  Inc.'s (the "Company" or  "Interlink")  force
sensing technology  transforms physical pressure applied to a sensor into a
corresponding  electronic response.  Products  incorporating a sensor using
the Company's force sensing  resistor ("FSR") devices can react to pressure
when applied by any  means--through  human touch,  a mechanical  device,  a
fluid,  or a gas.  With  supporting  electronics,  an FSR sensor can start,
stop, intensify, select, direct, detect, or measure a desired response.

     FSR  sensors  measure  relative  pressure  and,   depending  on  their
configuration and with supporting electronics,  can measure the location at
which the  pressure  is applied.  A "basic" FSR sensor,  such as the sensor
used in an electronic drum device sold by the Company, detects the pressure
of a drum stick applied to the device and accurately measures the intensity
of the  pressure  applied,  thereby  enabling  precise  control of the drum
sound.  A second type of sensor is a "four zone"  sensor with four  sensors
arranged in a two-by-two  square with an actuator placed directly where the
four sensors touch. Toggling the actuator in any direction, an operator can
control the direction and speed of a cursor on a computer  screen.  A third
type of FSR sensor, known as a touchpad, consists of a two-dimensional grid
capable of measuring the location and intensity of pressure  applied at any
set of coordinates on the grid. This type of device is useful for functions
such as handwriting  input or computer  cursor control.  For example,  with
appropriate interface electronics, a computer pointing device can be driven
by the movement of a finger on an FSR touchpad,  while the "click" function
could be activated by a temporary increase in pressure.

     Because FSR sensors can be as thin as  one-hundredth  of an inch thick
and measure pressure rather than movement, they can be readily incorporated
into  sealed  systems   without  moving  parts.   This  makes  FSR  sensors
particularly  well suited to operation in harsh or abusive  environments or
where  durability and long life are  important.  FSR sensor  systems,  when
packaged  in sealed  environments,  are  operationally  unaffected  by most
levels of moisture,  environmental  contaminants,  vibration,  or noise. In
tests conducted by the Company, FSR sensors have retained their performance
through  tens of  millions  of  actuations,  even in  adverse  environments
involving heat, moisture, and chemical contamination.

     FSR sensors can be designed in any shape.  The thin  profile of an FSR
sensor  enables  easy  integration  into a wide variety of  mechanical  and
electronic  devices.  An FSR product can contain as many as 256  individual
FSR  sensors  within  a  one-half-inch-square   area,  enabling  a  precise
measurement of the location at which the pressure is applied.

     A force  sensing  resistor is  described  scientifically  as a polymer
thick film device that  exhibits a decreasing  electrical  resistance  with
increasing force applied to the device surface.  FSR sensors consist of two
or  more  layers  of  plastic   film,   one  or  more   layers   supporting
interdigitating  

                                     2

<PAGE>

electrodes  (conductor  patterns)  and one or more  layers  supporting  the
proprietary,  semiconductive  polymer. The two types of substrate layer are
arranged in  opposition,  and the surface  contact  between them creates an
electrical connection.  The application of pressure on the device increases
the  surface  area  over  which  the  electrical   contact  occurs  thereby
decreasing  electrical   resistance.   Any  increase  in  pressure  over  a
relatively  broad  range  causes  a  proportional  decrease  in  electrical
resistance  within the circuit that can be measured by standard  electronic
measuring  devices,   thereby   translating   variances  in  pressure  into
corresponding  variances  in an  electronic  signal.  The ability of an FSR
sensor to measure  variances  in  pressure is accurate  and  repeatable  in
comparison to comparably  priced  products,  allowing  precise  correlation
between the amount of pressure  applied to the sensor and the result in the
operating  system  controlled  by the sensor.  In addition to its  patented
technology,  the Company has  developed a number of  manufacturing  process
improvements  that, while not subject to patent  protection,  are viewed as
trade  secrets  by the  Company,  and are  considered  to have  significant
proprietary value.

Forward-Looking Statements

     From time to time the  Company  may issue  forward-looking  statements
that involve a number of risks and uncertainties. The following factors are
among the factors that could cause actual results to differ materially from
the  forward-looking  statements:  business  conditions  and  growth in the
electronics   industry   and   general   economies,   both   domestic   and
international;  lower than expected  customer orders,  delays in receipt of
orders or cancellation or orders;  competitive factors, including increased
competition,  new product offerings by competitors and price pressures; the
availability  of third  party  parts and  supplies  at  reasonable  prices;
changes in product mix; significant quarterly performance  fluctuations due
to the  receipt of a  significant  portion of  customer  orders and product
shipments  in  the  last  month  of  each  quarter;  and  product  shipment
interruptions due to manufacturing problems. The forward-looking statements
contained in this document  regarding industry trends,  revenue,  costs and
margin  expectations,  product  development  and  introductions  and future
business activities should be considered in light of these factors.

Product Applications
 General

     The capabilities and versatility of the force sensing technology offer
opportunities in numerous  markets  including  computer input,  appliances,
consumer  electronics,  aerospace,  automotive,  and industrial control and
measurement.  While this diversity of applications is viewed by the Company
as an  advantage,  different  kinds  of  applications  call  for  different
electronic or mechanical  support efforts and often require  separate sales
and distribution channels.  Also, sales volumes and profit margins can vary
significantly from application to application. As a result, the Company has
selected specific targeted  applications  based on its assessment of market
need  and   size,   effectiveness   of   distribution   channels,   support
requirements,   and   potential   profitability   to  the  Company.   These
applications  are not  limited  by  industry  or  function  but  rather are
determined  by  engineering  and  economic  analysis  that shows that force
sensing  technology  offers a particularly  functional,  cost-effective  or
otherwise attractive solution to the particular product need.


                                     3

<PAGE>

     Prior to 1992, the Company's  principal  business was the  manufacture
and sale of FSR sensors made to customer  specifications.  During 1992, the
Company  changed its product focus to  concentrate  on the sale of complete
sensor  products and systems and now focuses in two areas,  pointing device
products  based on the  Company's  proprietary  VersaPoint  technology  and
Custom Applications.

1. VersaPoint Technology

     For  computer  users,  the two most  common ways to enter data or give
commands are "keying"  (using  regular "text entry" keys on a keyboard) and
"pointing" (using a mouse or equivalent device, which may be stand-alone or
installed  in a  keyboard).  As both  commercial  and  industrial  computer
systems have moved from text-based to graphics-based  user interfaces,  the
need for pointing  devices has  increased.  The Company  believes  that its
force sensing  technology is particularly  well suited to this  application
because of its inherent  ability to provide accurate control of both cursor
movement  and speed  without any  requirement  for movement of the operator
other than simple finger or thumb pressure. New computer technologies, such
as computerized presentations,  multimedia software, and the Internet, also
require or support  pointing and other  non-text-based  interface  devices.
Interlink  Electronics,  Inc.' force sensing  technology,  featuring a thin
sensor  profile,  zero travel,  and broad  dynamic  range  characteristics,
allows for the  design of  miniature  joysticks,  touchpads,  and  pressure
buttons offering a user-friendly, cost-effective pointing solution and data
entry method.

     To address these market  opportunities,  the Company has developed its
proprietary  VersaPoint  and  semiconductive  touchpad  technologies.   The
VersaPoint  technology  consists  of  a  four-zone  FSR  sensor  array  and
proprietary  software and firmware that control cursor direction and speed.
Depending on product design,  computer  function  selection can be provided
either by "clicking"  separate buttons on the computer  pointing device, or
by sharply  increasing  pressure on the cursor control  button  itself.  In
November  1996  the  Company   introduced   its   semiconductive   touchpad
technology,  VersaPad.  With  proprietary  software and firmware,  the user
controls cursor  direction and speed by sliding their fingertip  across the
touchpad  surface.  Clicking is performed by separate buttons or by tapping
the touchpad surface.

Branded Products

     In 1992 the  Company  began the  development  of  various  stand-alone
computer  pointing  devices based on its  VersaPoint  technology.  Of these
products,  the  SuperMouse  device was  introduced  in November  1992,  the
DuraPoint  ruggedized  pointing device was introduced in February 1993, the
ProPoint  pointing  device was introduced in February 1994, the RemotePoint
cordless  pointing  device was introduced in August 1994, and the DeskStick
and RemotePointPlus products were introduced in November 1995.

     The Company is  continuing  to develop  distribution  channels for its
branded  products.  Current  distribution  consists  of  mass  merchandiser
outlets, including Circuit City Stores, Inc.,

                                     4

<PAGE>

Fry's  Corporation,  and Computer  City and,  distributors,  such as Ingram
Micro,  catalogs and  specialty  resellers  targeting  corporate  accounts.
Marketing to these channels is accomplished by direct sales through Company
employees  and a network of  independent  sales  representatives  which has
recently been established  throughout the United States, Japan, Canada, and
Mexico.

     SuperMouse  The Company has  designed  and  developed  the  SuperMouse
device, an after-market mouse for the commercial and consumer market. It is
targeted  primarily at the notebook and other portable  computer  market in
which the Company  believes it has a  competitive  advantage as a result of
its small size and its versatility (it can be used as a portable,  desktop,
or handheld  mouse).  The principal  solutions  offered for this after-sale
market have been the trackball and the traditional mouse.

     ProPoint  To  address  the  presentation  and  multimedia  market,  in
February 1994, the Company began shipping its ProPoint  device,  a handheld
corded  pointing  device  used to  control  cursor  movement  and  function
selection.  The  ProPoint  product  comes with 12 feet of cable  and,  with
optional  additional  connecting cables, its range can be extended to up to
40 feet, making it useful not only as a personal cursor control device, but
also as a presentation assistant for conference room size presentations.

     RemotePoint  In order to  satisfy  the  need  for a  cordless,  remote
pointing  device to control  desktop  and  conference  room  computer-based
presentations, Interlink introduced its RemotePoint product in August 1994.
The  RemotePoint  device is a handheld,  infrared  cordless  cursor control
device that has an effective range of up to 40 feet.

     RemotePointPlus At the Fall 1995 COMDEX show, Interlink introduced its
RemotePointPlus product, a remote control computer cursor controller.  With
programmable   buttons   (enabling   it  to  handle   dozens  of  different
user-defined  functions),  and a range  of  approximately  40  feet,  it is
designed to meet the needs of even the most sophisticated presenters.

     DeskStick Interlink's newest desktop mouse replacement,  the DeskStick
product,   couples  the  advanced  pointing  stick  technology   previously
available only in notebook  computers with a very  attractive  price point,
designed  to meet the needs both of first time  mouse  users,  and of those
looking for a unique replacement mouse.

     DuraPoint Increasingly, industrial, technical and scientific machinery
is being  controlled by computers that  incorporate  pointing  devices as a
means of command input. In many of the environments in which such computers
operate,  resistance  to moisture,  chemicals and other  contaminants  is a
requirement.  Both a  traditional  mouse and  trackball  are  vulnerable to
contamination  and  malfunction  from a variety of substances  because they
have  exposed  moving  parts and because  they cannot be  contained  within
sealed systems.  Also,  machinery used in hospital operating rooms and some
industrial plants must be "scrubbable" as a part of the normal cleaning and
disinfecting process required in those environments.

     To address these needs, in February 1993 Interlink, began shipping its
DuraPoint  ruggedized  pointing  device.  To  the  best  of  the  Company's
knowledge, its DuraPoint device was

                                     5

<PAGE>

the first cursor control  device  designed to NEMA 4X, 6P, and 13 standards
(industry  association  standards  relating to the ability of an electronic
device to operate  under  adverse  environmental  conditions).  Independent
testing to confirm  compliance with NEMA standards has not been required by
customers and has not been requested by the Company.  The DuraPoint  device
can withstand a variety of harsh environments,  such as direct water spray,
debris,  cleansers  or even  prolonged  submersion.  Interlink  offers  the
DuraPoint  device as either a  stand-alone  product or as a cursor  control
module that can be  incorporated  into an existing or planned control panel
design.  Sales  channels  consist  primarily  of  industrial  hardware  and
software distributors and bundling arrangements with industrial and medical
equipment manufacturers.

OEM Remote Controls

     Since the development of its first hand-held pointing device ProPoint,
Interlink has been selling its remote controls on an OEM basis, i.e. direct
to the system manufacturer. With the introduction of the Interactive Remote
Control  ("IRC"),  an infrared  remote  control  with  VersaPoint  pointing
technology and up to 30 additional function buttons, Interlink Electronics,
Inc.' offers many remote control solutions to the OEM. Any of the ProPoint,
RemotePoint,  RemotePointPlus  and IRC products can be purchased  through a
private  label  arrangement  or each has been  specifically  designed to be
easily customized to customer specifications.  Interlink Electronics,  Inc.
also offers a circuit board level solution of its remote control/  pointing
device technology.

Keyboard Integration

     Interlink  offers a variety of  alternatives  to computer and keyboard
manufacturers  to purchase  components for a pointing device installed in a
keyboard  or panel  mounted.  Historically,  the Company has sold the basic
sensor array for use with  electronics  supplied by others.  More recently,
however, it has focused on the sale of a complete  VersaPoint-based  sensor
module  incorporating both the sensor array and supporting  firmware.  When
Interlink Electronics, Inc.' proprietary firmware is a part of the package,
the  actual  electronic  components  may be sold or the  technology  may be
licensed to the customer  for  manufacture  by others.  The  Company's  FSR
sensors  have  been  installed  in  keyboards  for a variety  of  notebook,
desktop,  industrial and other computers. A computer pointing device can be
incorporated  in a keyboard  as a separate  component  or can be  installed
under a regular text-entry or function key. Interlink Electronics, Inc. has
developed a "plug and play" FSR pointing  device,  marketed under the trade
name "MicroModule",  that is available as a standard integrated product for
installation in notebooks or other computers.

     Interlink's MicroModule,  MicroJoystick and VersaPad computer pointing
devices,  and  similar OEM systems  are  designed to be  incorporated  into
notebook  (and  smaller)  computer  applications.  Because the required FSR
sensor array can be packaged in an enclosure  approximately  0.2" thick, it
can be  incorporated  at and just below the  surface of the  keyboard,  and
therefore  it does not take up  significant  amounts of space or  interfere
with the  installation of other components  immediately  below the keyboard
surface.

                                     6

<PAGE>


2. Custom Applications

     The  Company's  Custom  Applications  Product Line consists of design,
engineering and product  development teams that incorporate its proprietary
technology  into specific  custom  products for  individual  OEM customers.
Interlink's  force sensing  technology  addresses many applications in this
area.  Because of the required  design and development  time,  sales cycles
typically range from four to 18 months and can be considerably  longer.  On
the other hand, the result of a successful custom sale is usually a product
that is regularly  reordered by the customer over a considerable  period of
time.

     The principal advantages of force sensing technology that apply to the
Company's other business areas also apply to its Custom  Applications.  The
ability to produce sensors in a wide variety of shapes and sizes, detection
of both the location and the  intensity of pressure  applied to the sensor,
the zero-travel characteristic and the system's resistance to environmental
damage are all attractive  features for the Company's Custom  Applications.
In some cases, Interlink Electronics,  Inc.' customers have determined that
force sensing technology  provides the only currently available solution to
their sensor requirements.

     The Company has identified and is currently  working with a variety of
Custom  Applications  customers  that  are  presently  concentrated  in the
industrial and medical device industries:  for example,  it has developed a
fail-safe sensor system for Varian  Associates for use in a medical imaging
device.  As the heavy medical  imaging  device is lowered into contact with
the patient,  the FSR sensor functions as a safety bumper to prevent injury
from  excessive  pressure  of the  device on the  patient  by  halting  the
movement of the device when the selected level of pressure is reached.  FSR
sensors  developed by  Interlink  Electronics,  Inc. for Baxter  Healthcare
Corporation  are  incorporated  in an  infusion  pump  where the FSR sensor
functions as a safety device to ensure proper  placement of the intravenous
tube in the pump head.

Sales and Marketing

     Historically,  the  Company  sought to  establish  relationships  with
customers  that  require a sensor  system for which its  proprietary  force
sensing  technology  offers a particularly  attractive  solution and market
advantage. As a part of such relationships, the Company would work with the
customer to design an  appropriate  solution  which the Company  would then
manufacture  and  supply.  Over the past few years  Interlink  Electronics,
Inc.' sales and marketing strategy has changed,  as the Company has evolved
from being  merely a supplier  of sensors  into its  present  position as a
designer and manufacturer of complete sensor systems. Today, the Company is
focusing on integrating  its patented force sensing  technology  with added
electronic  interfacing  and  mechanics  in order to provide full "plug and
play"  solutions.  With the  introduction  of the  initial  version  of its
SuperMouse  device in late 1992,  Interlink  Electronics,  Inc. entered the
consumer  product market.  With its DuraPoint  device,  introduced the next
year,  the Company  entered the  industrial  pointing  device  market.  Its
ProPoint, RemotePoint,  DeskStick, and RemotePointPlus products, introduced
in subsequent years,  have built upon this foundation.  The Company expects
to continue to sell its products directly, as well as through distributors,
value-added resellers, system integrators, mass merchandisers, and others.

                                     7

<PAGE>

     Computer  Pointing  Devices.  Since 1990,  Interlink has worked with a
variety of keyboard  and other  computer  and  computer  peripheral  device
manufacturers  to supply  sensors or sensor  systems  for  installation  in
computers or peripheral devices.  Sales cycles for OEM sales are relatively
long--in part because a successful sale requires  Interlink's sensors to be
"designed in" to a customer  product.  Interlink's  success with respect to
such OEM sales is also heavily  dependent  on the  business  success of its
customers  or  prospective  customers.  The  Company  has from time to time
experienced difficulty, when rapidly falling computer and peripheral prices
put  pressure  on  many  hardware  manufacturers,  including  some  of  the
Company's  customers.  The Company  believes  that OEM sales  constitute an
important  part  of its  sales  and  marketing  activity,  and is  devoting
significant management and sales time to exploring OEM opportunities.

     In early 1995,  Interlink  revised its  distribution  strategy for its
branded  products by replacing its former  distributor  with a direct sales
force   consisting  of  both  Company   employees  and  independent   sales
representatives.   The   Company  has   established   a  network  of  sales
representatives  which covers the United States,  Canada,  and Mexico,  and
continues to closely  monitor the results of their  activities.  In Europe,
the Company is considering marketing these products through a non-exclusive
master   distributor,   as  well  as  through   regional  and  local  sales
representatives.  Interlink  Electronics,  Inc. is also actively  exploring
possible OEM bundling opportunities regarding these products. The Company's
advertising  expenditures  regarding  these  products  have  thus  far been
relatively   modest,   with  strong   reliance   on  retailer   cooperative
advertising,  favorable  product reviews in leading computer  publications,
and word of mouth.

     The Company's DuraPoint ruggedized  industrial pointing device, in its
stand-alone  configuration,  is sold by a direct  sales  force,  as well as
through  a  network  of  industrial  electronics  distributors.   Interlink
supports  its  sales  of  DuraPoint   products   primarily   through  print
advertising   in   industrial   controls   magazines,   direct   mail   and
demonstrations at trade shows.

     Custom  Applications.  Interlink  sells its  custom  designed  sensors
through a direct sales  organization.  An  integrated  marketing  approach,
consisting of a direct mail campaign,  media  advertising,  public relation
campaigns, trade show participation,  and telemarketing programs is managed
by the Director of Marketing. The sales and marketing group is supported by
a team of customer service specialists and order-entry personnel.

     An important part of the sales cycle for custom and modified  standard
products typically involves product development and design. In a new market
or  product  application,  there is often a need to design  and  engineer a
solution for customers  prior to entering a period of  manufacturing.  This
process  typically  involves a period of four to seven  months for  turnkey
solutions  before volume  production can begin. The Company usually charges
the customer for design,  development  and tooling work during this period.
In an effort to compress  development  time, the Company  develops  product
lines that are readily  modifiable to meet customer specific  requirements.
This, in conjunction  with Product and Project  Management teams focused on
the  Company's   targeted  business   segments,   provides  an  efficiently
responsive process to meet customer specific requirements.

                                     8

<PAGE>


International Operations

     Interlink  Electronics K.K. In April 1994, the Company acquired an 80%
ownership  interest in  Interlink  Electronics  K.K.  ("IEKK"),  a Japanese
company which  distributes and performs value added services  regarding the
Company's  products  in Japan.  The  president  of IEKK is a former  senior
executive with Mitsubishi Petrochemicals Company, and has a number of years
of experience working with Interlink Electronics, Inc. and its products. In
1996,  IEKK's  operations   accounted  for  approximately  20%  percent  of
Interlink Electronics, Inc.' consolidated revenues.

Licensees

     International  Electronics & Engineering In September 1994,  Interlink
entered into several agreements with InvestAR,  S.a.r.l., pursuant to which
Interlink  Electronics,  Inc.  transferred its entire ownership interest in
Interlink  Electronics,  Inc.  Europe  ("IEE"),  a  Luxembourg-based  joint
venture owned by Interlink  Electronics,  Inc. and InvestAR, to InvestAR in
exchange  for the 510,775  shares of  Interlink  common  stock then held by
InvestAR. These shares,  representing  approximately 13.3% of the Company's
then-outstanding  Common Stock, were returned to the Company,  and reverted
to the status of authorized, but unissued, shares. In addition to the stock
transfer,   the  agreements  also  provided  for  continued   technological
cooperation between the Company and IEE, and for the payments of technology
license  royalties by IEE to the Company for sales by IEE outside of Europe
of certain FSR-based  automotive  safety related sensors.  Royalty revenues
from IEE (which  changed its name in 1995 to  International  Electronics  &
Engineering)  were  not  material  in 1995 or  1996.

     Toshiba  Silicone  In an  agreement  entered  into  in  1989,  Toshiba
Silicone Co., K.K.  licensed from the Company the right to use  Interlink's
Force  Sensing  Resistor  technology in  applications  for use with musical
instruments.  Thus  far,  the  royalties  from this  license  have not been
material to the Company's revenues.

Manufacturing

     Production   of  FSR   sensors  is  a   relatively   inexpensive   and
non-polluting  process.  The flexibility of the process allows Interlink to
take  advantage  of  changing   market   opportunities.   FSR  sensors  are
manufactured using screen printing  techniques.  All proprietary aspects of
the manufacturing process are maintained in-house at Interlink, and at IEE,
its European  licensee,  to maintain  quality and protect the force sensing
technology.

     While  electronic  screen  printing  is a common  process  in  various
technology  industries,  the quality and precision of printing  required to
make  high-quality FSR sensors greatly exceeds the standards  applicable in
most other industries.  The Company has developed  significant expertise in
the  manufacture  of FSR sensors,  and believes  this  experience  would be
difficult  to  replicate  over the  short  term.  In the FSR  manufacturing
process, printed sheets of FSR semiconductor material and the corresponding
conductor patterns are laminated to form the FSR

                                     9


<PAGE>

sandwich structure using inexpensive sheet adhesives.  The assembled sheets
are die cut, and suitable connectors are attached.

     Readily available  materials  (substrates,  films,  polymer thick film
inks)  developed for other  industries  have proved  unsuitable for the FSR
manufacturing  process.  Interlink has worked closely with a small group of
manufacturers  to create new  materials  optimized  for FSR usage;  most of
these materials are supplied to the Company on an exclusive  basis. The raw
materials are processed  into their final form on site,  using  proprietary
material and methods.

     The  Company   maintains   agreements   with  several   computer  chip
manufacturers  pursuant  to which they  provide  microcontrollers  to it at
guaranteed  prices for use in or with Interlink's  pointing  devices.  From
time to time in the past,  there have been  unanticipated  shortages in the
number, and/or delays in the availability,  of microcontrollers required in
the Company's products. No past shortage has had a material effect upon the
Company's  ability to supply its products in commercial  quantities.  While
the  Company  has taken a number of steps,  including  the  development  of
additional  chip  suppliers,  in order to attempt to reduce its prospective
exposure,  there can be no guarantee  that a future chip  shortage will not
occur,  and that, if one occurs,  that it would not have an adverse  effect
upon the Company's operations.

     Interlink  manufactures  FSR  sensors in its  facility  in  Camarillo,
California.  This facility is capable of operating on a single,  double, or
triple shift basis, as volume dictates. The Company acquires the components
of its FSR-based sensors from a number of sources within the United States.
Some  components for its VersaPoint  products as well as the manufacture of
some of these products are sourced from manufacturing  companies located in
the Far East and Mexico;  their cost and  availability are dependent upon a
number of factors beyond the Company's  control,  including future currency
exchange rates, and future  political  conditions in the countries in which
the vendors are located.

     The  Company's  European   licensee,   IEE,  also  has  a  modern  and
well-equipped  facility.  This facility serves the European Community,  and
addresses  the  Company's  customers'  need  for the  security  of a second
possible manufacturing source.

Research

     Interlink's  research effort falls into four categories:  Intellectual
Property,  Materials and Processes,  Prototype and Contract  Research,  and
Special Applications.  The research group continues to expand the Company's
intellectual  properties.  The Company regularly files patent  applications
and  continuations  thereof  to cover  both  new and  improved  methods  of
manufacturing FSR sensors, and new, non-FSR based technologies developed by
the Company.

Product Development

     Product  development for the Company is focused on developing  custom,
standard,  and modified  standard  products.  Custom and modified  standard
products are developed very selectively,  when they are adequately  funded,
and when there are obvious long-term strategic

                                    10


<PAGE>

benefits  to  the  Company.  Custom  and  modified  standard  products  are
primarily developed to meet the requirements specified by OEM customers for
their  unique  applications  of  sensors  using  "force  sensing  resistor"
technology.  Standard or Branded product requirements are established using
market   analysis,   evaluation   and   assessment  to  determine   product
differentiation  and acceptance.  Branded products are funded as defined by
the Company's  business  plan, and developed to contribute to the Company's
short  and  long-term  business   objectives.   The  Company's   VersaPoint
technology  is used to develop  standard  products,  primarily for computer
pointing devices serving the OEM, consumer, and industrial markets.

Competition

     In the computer  pointing device market,  the Company  competes with a
number  of  sellers,  including  Microsoft,  IBM,  and  Logitech  (although
Logitech is also a customer of the  Company for some  components  (pointing
sticks)  of  its  products).   A  number  of  other  companies  manufacture
touchpads,  pointing  sticks or remote  control input  devices,  for a wide
variety of  applications.  Many of the Company's  competitors  have greater
financial and technological  resources than does the Company,  and may also
have  established  relationships  with  customers,  and enjoy  economies of
scale, that afford them a competitive advantage.

     In a variety of applications  incorporating  FSR sensors into complete
products,  the Company may also compete with the in-house  capabilities  of
its larger  customers  to design and  manufacture  all or  portions  of FSR
products.  In  addition,  besides the major  previously  existing  computer
cursor pointing technologies (pointing sticks, mice and trackballs),  a new
touchpad  technology has gained increased  market  acceptance over the last
few years; several computer  manufacturers which formerly used OEM pointing
sticks have switched to OEM touchpads.

     The Company's FSR sensors  compete with  comparable  sensors  produced
using a variety of other  technologies.  For applications that require only
"on/off" capability without any force sensing capability, a wide variety of
sensors  exist,   including  membrane  switches,   capacitive  sensors  and
mechanical switches,  that compete with the Company's sensors in particular
applications.  Other kinds of "force  sensing"  technology  include  strain
gauges,  piezo sensors and conductive  rubber.  Each of these  technologies
have advantages and  disadvantages  that make it an attractive  solution in
certain  applications  and  not in  others.  Strain  gauges  are  extremely
accurate but relatively  expensive.  Piezo sensors are generally comparable
in price and  accuracy  to FSR sensors  but  measure  instantaneous  impact
rather than force over a continuing  period.  Conductive rubber is a widely
established  technology  but  deteriorates  more  rapidly over time than do
other force sensing technologies.  The Company seeks to identify and pursue
applications in which force sensing technology is a particularly attractive
solution.  Most sensors that  compete  with the  Company's  FSR sensors are
widely available from a variety of sources.

Patents and Proprietary Rights

     Aspects  of  Interlink's  technology  are  protected  by more  than 55
patents issued or pending in the United States and abroad, as well as trade
secret and  proprietary  knowledge.  Products  incorporating  the Company's
force sensing technologies are sold under trademarks issued or


                                    11


<PAGE>

pending in the United  States and various other  countries.  Of the initial
FSR patents granted (those covering the use of an uneven surface to produce
variable  resistance),  the last patent  granted will expire on February 9,
1999.  The  Company  has  continued  its  efforts  to improve  the  design,
formulation, and manufacture of its sensors; some of these improvements are
maintained  as trade  secrets,  while U.S.  and foreign  patents  have been
applied  for with  respect  to  others.  Other  patents,  covering  various
apparatus,  processes and methods  related to the force sensing  technology
expire between 1998 and 2015.  Various  corresponding  foreign patents will
expire between this year and 2015.  Patents covering various  materials and
processes used in the Company's current generation of products,  as well as
new devices for angle and displacement sensing, were granted during 1995 by
the U.S. Patent Office.  The Company has also filed U.S. and foreign patent
applications  regarding the design, and several key operating features,  of
its remote control products.

     While the  Company  believes  its patents  afford it some  competitive
advantage,  such  protection is limited by the  resources  available to the
Company  to  identify  potential  infringements  and to defend  its  rights
against infringement.  Furthermore, the extent of the protection offered by
any patent is subject to  determinations  as to its scope and validity that
would be made only in litigation. Therefore, there is no assurance that the
Company's patents will afford meaningful protection from competition.

     The Company has also  developed  certain  manufacturing  processes and
other methods of applying its patented technology that it protects as trade
secrets.  The Company  believes  these trade  secrets are important for the
effective  and  efficient  use  of  the  patented  technology  and  that  a
competitor with a right to use the patented technology would be required to
develop comparable manufacturing and other processes to compete effectively
with the Company.  The Company requires its employees to sign nondisclosure
agreements  and  seeks to limit  access  to  sensitive  information  to the
greatest practical extent.

Employees

     The Company had eighty-five  full-time  employees in the United States
as of December 31, 1996,  eighty at its corporate offices and manufacturing
facilities (including seven members of management), and five sales managers
stationed at regional offices. Its Japan subsidiary had eight employees.

Item 2.  Properties

     The  Company's  corporate  offices and  manufacturing  facilities  are
located in a 26,000 square foot leased  facility in Camarillo,  California.
The lease on the Camarillo premises runs until August 1998 and provides for
an average  monthly rent payment of $12,772.00.  The Company  believes that
this facility will be adequate to meet its requirements. Its three regional
sales  offices  operate  out of leased  facilities.  Its Japan  subsidiary,
Interlink Electronics, Inc. K.K., leases office space in Tokyo.


                                    12

<PAGE>

Item 3.  Legal Proceedings

     Not applicable.

Item 4.  Submission of Matters to a Vote of Security Holders

     Not applicable.

Item 4(a).        Executive Officers of the Registrant

Name                              Age        Position with Company

E. Michael Thoben, III            43         Chairman of the Board,
                                             President, Chief Executive
                                             Officer, and Director

David J. Arthur                   48         Senior Vice President--
                                             Operations

William A. Yates                  45         Senior Vice President--Sales
                                             and Marketing

Paul D. Meyer                     37         Chief Financial Officer,
                                             Secretary

Wendell W. Ritchey                57         Vice President--Product
                                             Development/Engineering
---------------

          E.  Michael  Thoben,  III became  Chief  Operating  Officer and a
director of the Company in March 1990 and has been President of the Company
since June 1990, Chief Executive  Officer since February 1994, and Chairman
of its Board of Directors  since August  1994.  Prior to that time,  for 11
years,  Mr. Thoben was employed by Polaroid  Corporation,  most recently as
the  manager  of one of  Polaroid's  seven  strategic  business  units on a
worldwide basis. Mr. Thoben holds a B.S. degree from St. Xavier  University
and has taken graduate  management  courses at the Harvard  Business School
and The Wharton School of Business.

          David J. Arthur has been Interlink Electronics, Inc.' Senior Vice
President--Operations  since  May,  1995;  prior to that,  he served as the
Company's Vice President,  Manufacturing and Operations. Before joining the
Company in October 1990, he held senior positions in materials,  purchasing
and  manufacturing   management  with  TRW  Inc.,  North  American  Philips
Corporation,  and Amdahl Corporation.  From 1987 to 1990, he served as Vice
President of Manufacturing at Harman Electronics, Inc.

                                    13

<PAGE>

          William A. Yates became Interlink Electronics,  Inc.' Senior Vice
President--Sales  and Marketing in May, 1995.  Prior to joining the Company
in 1990 as its Vice  President,  Sales and Marketing in 1990, Mr. Yates had
served for nine years in increasingly  senior sales positions with Polaroid
Corporation's  Industrial Products Division. Mr. Yates has over 23 years of
sales  and  marketing  experience  with  both  small  companies  and  large
businesses, the latter including Carnation Company and Ortho Pharmaceutical
Corporation.  Mr.  Yates  holds  a  B.A.  degree  from  the  University  of
California at Berkeley.

          Paul D. Meyer joined Interlink Electronics, Inc. in December 1989
as Controller,  became its Vice  President--Finance  in June, 1994, and its
Chief  Financial  Officer in December 1996. From May 1988 to December 1989,
he was  Controller  for Dix-See Sales  Company.  From September 1985 to May
1988, Mr. Meyer was Corporate  Accounting Manager for Bell Industries.  Mr.
Meyer was initially  employed at Price  Waterhouse  from 1983 to 1985.  Mr.
Meyer holds a B.A. degree in economics from the University of California at
Los Angeles.

          Wendell  W.  Ritchey,   the  Company's  Vice   President--Product
Development/Engineering, joined Interlink Electronics, Inc. in March 1994.
Prior to joining  the  Company,  he held  senior  management  positions  in
research  and  development,  engineering,  and  operations  with ITT  Power
Systems.  From 1991 to 1993, he served as Vice President,  Engineering with
Digital Sound Corporation,  a developer of voice processing computers.  Mr.
Ritchey holds a B.S. degree from Tri-State College.

                                  PART II
Item 5.   Market for the Registrant's Common Equity and Related
          Shareholder Matters

          Historical Market  Information.  From its initial public offering
on June 7, 1993 until  September 14, 1995,  the Company's  Common Stock and
Warrants were listed under the symbols "LINK" and "LINKW,"  respectively on
the Nasdaq  Small Cap Market.  Since  September  14,  1995,  the  Company's
securities  have been  listed for  trading on the  Nasdaq  National  Market
System under the same symbols.

The following  table sets forth,  for the periods  shown,  the high and low
Nasdaq sales prices for the Common Stock:

     Year Ended December 31, 1996                   Low              High

     First Quarter..............................  $ 4.63           $  7.25
     Second Quarter.............................  $ 5.75           $  8.38
     Third Quarter..............................  $ 5.06           $  7.38
     Fourth Quarter.............................  $ 4.63           $  6.31

On February  25, 1997 the last  reported  sale price of the Common Stock on
Nasdaq National Market was $7.375.

                                    14


<PAGE>

Number  of  Shareholders.   As  of  February  25,  1997,  the  Company  had
approximately 1,600 holders of record. The Company believes that the number
of  beneficial  owners is  substantially  greater than the number of record
holders because a large portion of the Company's  outstanding  Common Stock
is held of record in broker  "street  names" for the benefit of  individual
investors.

Dividend  Policy.  The  Company  has never paid cash  dividends.  It is the
Company's  intention to retain  earnings,  if any, to finance the operation
and  expansion of its business and therefore it does not expect to pay cash
dividends in the foreseeable future. Payment of dividends,  if any, will be
at the  discretion  of the Board of  Directors  after  taking into  account
various factors,  including the Company's financial  condition,  results of
operations,  current and  anticipated  cash needs,  plans for expansion and
restrictions,  if any,  under  the  terms  of any debt  obligations  of the
Company or equity securities issued by the Company.

Item 6.   Selected Financial Data

     The information  required by this item is included on page F-1 of this
Report on Form 10-K.

Item 7.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations

     The information  required by this item is included at pages F-2 to F-3
of this Report on Form 10-K.

Item 8.   Financial Statements and Supplementary Data

     The information required by this item is included at pages F-4 to F-16
     of this  Report  on Form  10-K and as  listed in Item 14 of Part IV of
     this Report.

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 directors of the Company is included under
"Election of Directors" in the Company's definitive proxy statement for its
1997 Annual Meeting of Shareholders filed or 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 executive
officers  of the  Company  is  included  under  Item 4(a) of Part I of this
Report on Form 10-K.  Information  with respect to compliance  with Section
16(a) of the  Securities  Exchange  Act is included  under  "Section  16(a)
beneficial  ownership  reporting  compliance"  in the Company's  definitive
proxy statement for its 1997 Annual Meeting of Shareholders  filed or 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.


                                    15

<PAGE>

Item 11.  Executive Compensation

     Information  with respect to executive  compensation is included under
"Executive  Compensation"  in the Company's  definitive proxy statement for
its 1997 Annual Meeting of Shareholders filed or to be filed not later than
120 days after the end of the fiscal  year  covered by this  Report on Form
10-K 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  is included  under  "Security  Ownership Of Certain
Beneficial  Owners  And  Management"  in  the  Company's  definitive  proxy
statement for its 1997 Annual Meeting of Shareholders  filed or to be filed
not later than 120 days after the end of the  fiscal  year  covered by this
Report on Form 10-K and is incorporated herein by reference.

Item 13.  Certain Relationships and Related Transactions

     Not applicable

                                  PART IV

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

     (a)(1) Financial Statements and Schedules

     The  following  documents  are included in this Report on Form 10-K at
the pages indicated:

                                                                 Page

Report of Independent Public Accountants                         F-4

Consolidated Balance Sheets at December 31, 1995 and 1996        F-5

Consolidated Statements of Operations for years ended
December 31, 1994, 1995 and 1996                                 F-6

Consolidated  Statements  of  Shareholders'  Equity  for  years  F-7
ended December 31, 1994, 1995 and 1996

Consolidated Statements of Cash Flows for years ended
December 31, 1994, 1995 and 1996                                 F-8

Notes to Consolidated Financial Statements                       F-9-16


                                    16

<PAGE>

     No other schedules are included because the required information is
inapplicable or is presented in the financial statements or related notes
thereto.

     (a)(2) Exhibits

     3.1    Certificate of Incorporation of the Company. Incorporated by
            reference to Exhibit 3.1b of Post-Effective Amendment No. 8 to
            Registrant's Registration Statement on Form S-1, Registration No.
            33-60380 (the "Form S-1 Registration Statement").

     3.2    Bylaws of the Company. Incorporated by reference to Exhibit
            3.2a of Post-Effective Amendment No. 8 to Registrant's Form S-1
            Registration Statement.

     10.1   1988 Stock Option Plan, as amended and  restated.  Incorporated
            by  reference  to  Exhibit  10.1 of the Form  S-1  Registration
            Statement.**

     10.2   1993 Stock Incentive Plan. Incorporated by reference to Exhibit
            10.1a of the Form S-1 Registration Statement.**

     10.3   1996 Stock Incentive Plan.**

     10.4   Description of Interlink Electronics, Inc. Management
            Compensation Program.**

     10.5   Form of Promissory  Note from Stuart  Yaniger dated March 1993.
            Incorporated  by  reference  to  Exhibit  10.7 of the  Form S-1
            Registration Statement.

     10.6   Form of  Amendment  to  Promissory  Note from  Stuart  Yaniger.
            Incorporated  by  reference  to  Exhibit  10.7a of the Form S-1
            Registration Statement.

     10.7   Technology   Transfer  Agreement  between  the  Registrant  and
            Franklin  Eventoff dated as of December 23, 1987, and amendment
            thereto.  Incorporated by reference to Exhibit 10.9 of the Form
            S-1 Registration Statement.

     10.8   Lease  Agreement  to lease  premises in  Camarillo,  California
            dated  January 25, 1993.  Incorporated  by reference to Exhibit
            10.11a of the Form S-1 Registration Statement.

     10.9   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.

     10.10  Joint  Venture   Agreement  among  the   Registrant,   InvestAR
            s.a.r.l.,  Interlink Electronics,  Inc. Europe s.a.r.l. and IEE
            Finance  s.a.r.l.  dated  November  7,  1989.  Incorporated  by
            reference  to  Exhibit  10.15  of  the  Form  S-1  Registration
            Statement.

     10.11  Exclusive   License  and  Distributor   Agreement  between  the
            Registrant  and Interlink  Electronics,  Inc.  Europe  s.a.r.l.
            dated as of  November 7, 1989.  Incorporated  by  reference  to
            Exhibit 10.16 of the Form S-1 Registration Statement.


                                    17

<PAGE>

     10.12  Manufacturing  and Supply  Agreement  between the  Registrant and
            Interlink  Electronics,   Inc.  Europe  s.a.r.l.  dated  as  of
            November 7, 1989. Incorporated by reference to Exhibit 10.17 of
            the Form S-1 Registration Statement.

     10.13  Letter Agreement  between the Registrant and InvestAR  s.a.r.l.
            dated  November 7, 1989.  Incorporated  by reference to Exhibit
            10.18 of the Form S-1 Registration Statement.

     10.14  Agreement  between  the  Government  of  Luxembourg,  Interlink
            Electronics,  Inc. 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.

     10.15  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.

     10.16  Agreement among the  Registrant,  Interlink  Electronics,  Inc.
            Europe s.a.r.l. and InvestAR s.a.r.l.  dated as of December 14,
            1990.  Incorporated  by reference to Exhibit  10.21 of the Form
            S-1 Registration Statement.

     10.17  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.

     10.18  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.

     10.19  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.

     10.20  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.

     10.21  Financing   Agreement   between  the  Registrant  and  InvestAR
            s.a.r.l.  dated June 15,  1992.  Incorporated  by  reference to
            Exhibit 10.27 of the Form S-1 Registration Statement.

     10.22  Interlink Europe Financing Agreement between the Registrant and
            InvestAR  s.a.r.l.   dated  April  7,  1993.   Incorporated  by
            reference  to  Exhibit  10.28  of  the  Form  S-1  Registration
            Statement.


                                    18

<PAGE>

     10.23  Agreement  between Zilog, Inc. and the Registrant date November
            30, 1993.  Incorporated  by  reference to Exhibit  10.34 of the
            Form S-1 Registration Statement.*

     10.24  Employment  Agreement  between the  Registrant  and E.  Michael
            Thoben, III effective as of April 1, 1996.

     10.25  Employment  Agreement  between  the  Registrant  and William A.
            Yates effective as of April 1, 1996.

     10.26  Employment Agreement between the Registrant and David J. Arthur
            effective as of April 1, 1996.

     21.1   Subsidiaries  of the  Registrant.

     24.1   Consent of Arthur Andersen.

     25.1   Power of Attorney (see page 20).

     27     Financial Data Schedule.

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

*    Confidential Treatment for portions of this agreement has been granted
by the Commission.

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

     (b) Reports on Form 8-K

     Not applicable.


                                    19


<PAGE>
                                 SIGNATURES

         Pursuant to the requirements of Sections 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.

                                        INTERLINK ELECTRONICS, INC.


                                        By: E. MICHAEL THOBEN, III
                                           ------------------------------------
                                        E. Michael Thoben, III
                                        Chairman of the Board, President,
                                        Chief Executive Officer

Dated: March 20, 1997

                             POWER OF ATTORNEY

         KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below appoints E. Michael Thoben, III and Paul D. Meyer as his or
her true and lawful attorneys-in-fact and agents, 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 Form 10-K,
and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities 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, as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents,
or their substitute or substitutes, may 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 by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.


Signature                          Title                       Date

E. MICHAEL THOBEN, III
-----------------------------      Chairman of the Board,      March 20, 1997
E. Michael Thoben, III             President, Chief
                                   Executive Officer
PAUL D. MEYER
-----------------------------      Chief Financial Officer     March 20, 1997
Paul D. Meyer                      and Secretary

GEORGE GU
-----------------------------      Director                    March 20, 1997
George Gu

EUGENE F. HOVANEC
-----------------------------      Director                    March 20, 1997
Eugene F. Hovanec

CAROLYN MACDOUGALL
-----------------------------      Director                    March 20, 1997
Carolyn MacDougall

MERRITT LUTZ                       Director                    March 20, 1997
-----------------------------
Merritt Lutz

                                    20
<PAGE>

INTERLINK ELECTRONICS, INC.

SELECTED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)
The following  selected  financial data should be read in conjunction  with
the financial  statements and the related Notes thereto,  and  Management's
Discussion  and Analysis of Financial  Condition  and Results of Operations
included elsewhere herein:
<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                                     ----------------------------------------------------
                                                      1992       1993        1994         1995     1996
                                                     ------     ------      ------       ------   ------
<S>                                                   <C>        <C>         <C>      <C>        <C>
Statement Of Operations Data:
Revenues:
   Product sales                                      $2,577     $4,362      $7,797   $ 10,741   $ 13,485
   Contract development                                  450          -           -          -          -
                                                    --------    -------     -------    -------    -------

     Total revenues                                    3,027      4,362       7,797     10,741     13,485
                                                     -------    -------     -------    -------    -------

Cost of revenues                                       1,754      2,657       4,094      5,252      7,028
                                                     -------    -------     -------    -------    -------
     Gross profit                                      1,273      1,705       3,703      5,489      6,457
                                                     -------    -------     -------    -------    -------

Operating expenses:
   Product development and research                      443        782       1,011        897      1,234
   Selling, general and administrative                 2,564      3,954       3,887      4,524      4,617
                                                     -------    -------     -------    -------    -------
     Total operating expenses                          3,007      4,736       4,898      5,421      5,851
                                                     -------    -------     -------    -------    -------

Operating income (loss)                               (1,734)    (3,031)     (1,195)        68        606
                                                     -------    -------     -------    -------    -------

Other income (expense):
   Debt conversion expense                                 -       (450)          -           -         -
   Units issued in connection with bridge loans            -       (550)          -           -         -
   Interest expense                                      (79)       (84)        (37)       (60)      (118)
   Minority interest                                       -          -           -         41          -
   Other                                                 496        175         155        101         27
   Gain from sale of interest in European
     Joint Venture                                         -          -       3,380          -          -
                                                     -------    -------     -------    -------    -------

     Total other income (expense)                        417       (909)      3,498         82        (91)

Net income (loss)                                    $(1,317)   $(3,940)    $ 2,303    $   150    $   515
                                                     =======    =======     =======    =======    =======

Earnings (loss) per share                            $ (5.29)   $ (1.80)    $   .49    $   .04    $   .12



                                                                          December 31,
                                                     ----------------------------------------------------
                                                      1992       1993        1994         1995     1996
                                                     ------     ------      ------       ------   ------
Balance Sheet Data:
Working capital (deficiency)                         $  (286)   $ 3,631     $ 2,140    $ 6,353    $ 8,969
Total assets                                           2,222      5,871       5,185     10,187     13,185
Short term debt                                        1,174         36         251        255        403
Deferred licensing income                                180        144           -          -          -
Long term debt and capital lease obligations             530        128         121        672        850
Shareholders' equity (deficit)                       $  (313)   $ 4,454     $ 3,651    $ 7,589    $ 9,969

</TABLE>

                                    F-1

<PAGE>

                        INTERLINK ELECTRONICS, INC.
                  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
               FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

The following  table presents,  as a percentage of total revenues,  certain
selected  consolidated  financial  data of each of the  three  years in the
period ended December 31, 1996.

-------------------------------------------------------------------------------
                                      1994              1995            1996
-------------------------------------------------------------------------------
Revenues:
  Computer  pointing devices           66%               74%             86%
  Custom applications                  34                26              14
    Total revenues                    100               100             100

Gross profit                           48                51              48

Operating expenses:
  Product development and              13                 8               9
    research
  Selling, general and                 50                42              34
    administrative
    Total  operating expenses          63                50              43

Operating income(loss)                (15)                1               5

Other income (expense)                  2                 -              (1)
Sale of interest in European JV        43                 -               -

Net income                             30                 1               4

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

     Revenues  increased 26% from $10.7 million in 1995 to $13.5 million in
1996.  As compared to 1994,  1995  revenues  grew 38% from $7.8  million in
1994. The revenue  growth is a result of the Company's  focus on developing
and marketing  computer  pointing  device  products  based on the Company's
VersaPoint  technology.  Revenues  from  this  product  line grew from $5.2
million in 1994 to $7.9 million in 1995 and to $11.6  million in 1996.  The
primary  products within this product line are:  PortaPoint,  introduced in
late 1992  (renamed  SuperMouse  in early 1994);  DuraPoint,  introduced in
early 1993,  ProPoint,  introduced in early 1994, the  Integrated  Pointing
Stick, introduced in late 1993; the MicroModule,  introduced in early 1994;
RemotePoint,  introduced in late 1994;  RemotePoint Plus, DeskStick and IRC
introduced in late 1995.  Because of the Company's focus on pointing device
products,  sales in the  Custom  Applications  product  line have  recorded
nominal  growth;  growing 10% from $2.6  million in 1994 to $2.8 million in
1995 and  recorded a decline of 33% to $1.9  million in 1996.  The  Company
expects that the Custom  Applications  product  line will  continue to show
minimal or negative growth.

     The  improvement of gross profit to 51% in 1995 from 48% in 1994 was a
reflection  of: a) the shift in revenue  mix toward the  Computer  Pointing
Devices  product line which carries a relatively  higher profit margin;  b)
the Company's  successful efforts to develop low-cost overseas producers of
the Company's Branded Products, as volume justifies;  c) the relatively low
usage of FSR  manufacturing  capacity,  thus as  revenue  has  risen  fixed
manufacturing  costs have remained relatively  constant.  In 1996 the gross
profit  margin  declined  to 48% due to a greater mix of high  volume,  OEM
sales as  compared  to prior  periods.  During the  periods  presented  the
Company  has not  experienced  meaningful  price  erosion  in its  Computer
Pointing Devices product line.

     Product  development and research expense decreased from $1 million in
1994 to $897,000 in 1995 and  increased in 1996 to $1.2  million.  The 1994
expense was spent developing RemotePoint and the

                                    F-2
<PAGE>

MicroJoystick.  The  Company  was able to  achieve a  decrease  in the 1995
expense  as the  products  developed  in 1995,  RemotePoint  Plus,  IRC and
DeskStick are essentially line extensions to the products  developed in the
previous year. In 1996  development  costs increased to support greater OEM
sales,  which  require  more  engineering  resources,  and to  develop  the
touchpad technology.

     On a percentage of sales basis,  the Company has achieved a decline in
SG&A costs from 50% in 1994,  to 42% in 1995 to 34% in 1996.  This  decline
results from  amortization of fixed SG&A costs over a greater base of sales
and the shift in product mix toward OEM sales.

     The Company  recorded a profit from  operations of $68,000 in 1995 and
$606,000 in 1996 versus an operating  loss of $1.2  million in 1994.  These
improvements  were achieved by strong revenue and profit margin growth from
the Company's key focus area, Computer Pointing Devices and successful cost
management of product development and marketing costs.

     The revenue growth in the Company's  Computer  Pointing Device product
line, and operating cost control  contributed to achieve 1996 net income of
$515,000, a $365,000  improvement over 1995 net income of $150,000.  1994's
results  included a one time gain of $3.4 million  associated with the sale
of the Company's  interest in IEE.  Thus,  without that gain,  1995 results
showed a $1.2 million improvement as compared to 1994.

Liquidity and Capital Resources

     Working  capital at December  31, 1996,  was $8.9 million  versus $6.4
million at the end of 1995.  The $2.5  million  increase  results  from the
positive  results  from  operations  and from  proceeds of the  exercise of
Warrants.

     In 1996  operations  consumed  $1.3 million of  available  cash due to
increased customer receivables and inventory  requirements  necessitated by
the revenue growth.

     1996's  investing  activities  consisted of purchases of manufacturing
equipment and the upgrade of computer hardware for the Company's management
information system.

     In 1996 the Company negotiated an increase in the maximum available on
its bank line of credit to $1.5  million  (the line was unused at  December
31, 1996).  Additionally,  the Company has a $1.8 million  equipment  lease
line from a leasing  company of which  approximately  $1.3 million had been
drawn by year  end.  A  secondary  offering  of  equity  securities  or the
exercise of  outstanding  warrants  and options  are  potential  sources of
equity  capital that may be available to the Company.  Management  believes
that  forecasted  cash  requirements  for the next twelve months can be met
from  existing  cash and invested  cash  balances.  However,  an unforeseen
downturn of results in  sufficient  magnitude  could  effect the  Company's
ability to meet that forecast.

                                    F-3

<PAGE>


                  Report of Independent Public Accountants


To the Board of Directors of 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, 1995 and 1996,  and the related  consolidated  statements  of
operations,  shareholders'  equity and cash flows for the three  years then
ended.  These financial  statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those  standards  require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material  misstatement.  An audit includes  examining,  on a test basis,
evidence   supporting   the  amounts  and   disclosures  in  the  financial
statements. An audit also includes assessing the accounting principles used
and  significant  estimates made by  management,  as well as evaluating the
overall  financial  statement  presentation.  We  believe  that our  audits
provide a reasonable basis for our opinion.

In our opinion,  the financial statements referred to above present fairly,
in all material respects,  the financial position of Interlink Electronics,
Inc. and its  subsidiary as of December 31, 1995 and 1996,  and the results
of their  operations and their cash flows for the three years then ended in
conformity with generally accepted accounting principles.


                                                       ARTHUR ANDERSEN LLP

Los Angeles, California
February 12, 1997


                                    F-4
<PAGE>

INTERLINK ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
                                                               December 31,
                                                             1995        1996
                                                           --------    --------
Assets

Current assets:
   Cash and cash equivalents                               $  3,496    $  3,767
   Accounts receivable, less allowance for doubtful
     accounts of  $233 and $310 in 1995
     and 1996, respectively                                   2,360       3,649
   Inventories                                                2,184       3,634
   Prepaid expenses and other current assets                    239         285
                                                           --------    --------

     Total current assets                                     8,279      11,335
                                                           --------    --------

Property and equipment, net                                   1,160       1,143
Patents and trademarks, less accumulated
   amortization of $375 and $453
   in 1995 and 1996, respectively                               368         439
European marketing rights                                       225         150
Other assets                                                    155         118
                                                           --------    --------

Total assets                                               $ 10,187    $ 13,185
                                                           ========    ========
Liabilities And Shareholders' Equity
Current liabilities:
   Current maturities of long-term debt
      and capital lease obligations                        $    255    $    403
   Accounts payable                                           1,270       1,146
   Accrued payroll and expenses                                 401         817
                                                           --------    --------

     Total current liabilities                                1,926       2,366
                                                           --------    --------

Long-term debt, net of current portion                          159         235
Capital lease obligations, net of current portion               513         615

Commitments and contingencies                                  --          --

Shareholders' equity:
   Common stock (40,000 shares authorized,
    4,255 and 4,515 outstanding at December 31,
     1995 and 1996, respectively)                            18,880      20,768
   Accumulated deficit                                      (11,291)    (10,799)
                                                           --------    --------

     Total shareholders' equity                               7,589       9,969
                                                           --------    --------
Total liabilities and shareholders' equity                 $ 10,187    $ 13,185
                                                           ========    ========



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


                                    F-5


<PAGE>


<TABLE>
<CAPTION>
INTERLINK ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)

                                                      Year Ended December 31,
                                             ------------------------------------------
                                                  1994          1995            1996
                                                -------        ------          ------
<S>                                          <C>            <C>             <C>
Revenues                                     $     7,797    $    10,741     $    13,485

Cost of revenues                                   4,094          5,252           7,028
                                             -----------    -----------     -----------

Gross profit                                       3,703          5,489           6,457

Operating expenses:
   Product development and research                1,011            897           1,234
   Selling, general and administrative             3,887          4,524           4,617
                                             -----------    -----------     -----------

     Total operating expenses                      4,898          5,421           5,851
                                             -----------    -----------     -----------

Operating income (loss)                           (1,195)            68             606
                                             -----------    -----------     -----------

Other income (expense):
   Interest expense                                  (37)           (60)           (118)
   Minority interest                                   -             41               -
   Other income                                      155            101              27
   Gain on sale of interest in European
     joint venture                                 3,380              -               -
                                             -----------    -----------     -----------

     Total other income (expense)                  3,498             82             (91)
                                             -----------    -----------     -----------


Net income                                   $    2,303     $       150     $       515
                                             ==========     ===========     ===========

Earnings per share                           $       .49    $       .04     $       .12
                                             ===========    ===========     ===========

Weighted average number of common
shares outstanding                                 5,810          3,957           4,387
                                             ===========    ===========     ===========

</TABLE>

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

                                    F-6


<PAGE>

INTERLINK ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>

                                                Common Stock         Accumulated         Total Shareholders'
                                              Shares      Amount       Deficit                  Equity
                                             --------    --------    -----------         -------------------

<S>                                             <C>      <C>         <C>                       <C>
Balance, December 31, 1993                      3,760    $ 18,099    $   (13,645)              $  4,454
     Issuance of shares upon exercise
       of employee stock options                  109         315              -                    315
     Surrender and retirement of shares
       in conjunction with sale of
       interest in European Joint Venture        (511)     (3,400)             -                 (3,400)
       Cumulative translation adjustment            -           -            (21)                   (21)
     Net income                                     -           -          2,303                  2,303
                                                -----    --------    -----------               --------

Balance, December 31, 1994                      3,358      15,014        (11,363)                 3,651

     Issuance of shares upon exercise
        of employee stock options                 185         609              -                    609
     Issuance of shares upon exercise
        of stock warrants                          12          92              -                     92
     Proceeds from private placement, net         700       3,165              -                  3,165
     Cumulative translation adjustment              -           -            (78)                   (78)
       Net income                                   -           -            150                    150
                                                -----    --------    -----------               --------

Balance, December 31, 1995                      4,255      18,880        (11,291)                 7,589

     Issuance of shares upon exercise
        of employee stock options                  36         152              -                    152
     Issuance of shares upon exercise
        of stock warrants                         224       1,736              -                  1,736
     Cumulative translation adjustment              -           -            (23)                   (23)
       Net income                                   -           -            515                    515
                                                -----    --------    -----------               --------

Balance, December 31, 1996                      4,515    $20,768     $   (10,799)              $  9,969
                                                =====    ========    ===========               ========


</TABLE>

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

                                    F-7

<PAGE>

<TABLE>
<CAPTION>
INTERLINK ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
                                                                            Year Ended December 31,
                                                                 -----------------------------------------
                                                                    1994             1995         1996

<S>                                                               <C>              <C>          <C>
Cash flows from operating activities:
     Net income                                                   $  2,303         $   150      $    515
     Adjustments to reconcile net income to
       net cash used for operating activities:
         Gain from sale of interest in JV                           (3,400)              -             -
         Deferred licensing income                                    (144)              -             -
         Provisions for bad debts                                       95              91            77
         Depreciation and amortization                                 300             445           602
         Changes in operating assets and liabilities:
           Accounts receivable                                        (179)           (938)       (1,366)
           Inventories                                                (295)         (1,339)       (1,450)
           Prepaid expenses and other current assets                   (42)           (193)          (46)
           Other assets                                                (15)            (41)           37
           Accounts payable                                           (420)            711          (124)
           Accrued payroll and expenses                                 (2)           (202)          416
                                                                  --------         -------      --------

           Net cash used for operating activities                   (1,799)         (1,316)       (1,339)
                                                                  --------         -------      --------

Cash flows from investing activities:
     Net sales of marketable securities                              1,125             464             -
     Purchases of property and equipment                              (682)           (510)         (432)
     Acquisition, net of cash acquired                                  78               -             -
     Costs of patents and trademarks                                   (61)           (170)         (149)
                                                                  --------         -------      --------

           Net cash (used for) provided by
                    investing activities                               460            (216)         (581)
                                                                  --------         -------      --------

Cash flows from financing activities:
     Borrowings on bank line of credit                                 200             100             -
     Payments on bank line of credit                                     -            (300)            -
     Borrowings on note payable to bank                                 48              97           180
     Payments on note payable to bank                                   (4)            (18)          (57)
     Proceeds from sale/leaseback                                        -             788           478
     Principal payments on Tech Transfer Agreement                     (36)            (38)          (43)
     Principal payments on capital lease obligations                     -             (74)         (232)
     Due from shareholders                                              85              49             -
     Proceeds from issuance of common stock, net                       315           3,866         1,888
                                                                  --------         -------      --------
              Net cash provided by financing activities                608           4,470         2,214
                                                                  --------         -------      --------

Effect of exchange rate changes on cash                                (21)            (78)          (23)
                                                                  --------         -------      --------
Increase (decrease) in cash and cash equivalents                      (752)          2,860           271
Cash and cash equivalents
   at beginning of period                                            1,388             636         3,496
                                                                  --------         -------      --------
Cash and cash equivalents
   at end of period                                               $    636         $ 3,496      $  3,767
                                                                  ========         =======      ========
Supplemental disclosures of cash flow information:
    Interest paid                                                       37              60           111
    Income taxes paid                                                    1               2             1


</TABLE>


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


                                    F-8
<PAGE>

INTERLINK ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31,1993, 1994 and 1995

1.   Summary of Significant Accounting Policies

Interlink  Electronics  (the  "Company") was  incorporated  in the State of
California on February 27, 1985 and reincorporated in the State of Delaware
on July 10, 1996. The Company is engaged in the development and manufacture
of products and components incorporating Force Sensing Resistors.

Consolidation  Policy - The consolidated  financial  statements include the
accounts of the Company and its majority  owned  Japanese  subsidiary.  All
material intercompany  accounts and transactions have been eliminated.  The
preparation  of  consolidated   financial  statements  in  conformity  with
generally  accepted  accounting  principles  requires  management  to  make
estimates and  assumptions  that affect the reported  amounts of 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.

Foreign  Currency  Transactions  - The  accounts of the  Company's  foreign
subsidiary have been translated according to the provisions of Statement of
Financial  Accounting  Standards  No. 52. Gains and losses  resulting  from
translation   of  the  foreign   financial   statements   are  included  in
shareholders'  equity.  Any gain or loss  resulting  from foreign  currency
transactions are reflected in the consolidated  statement of operations for
the period in which they occur.

Cash and  Cash  Equivalents  - The  Company  considers  all  highly  liquid
investments  purchased with an original maturity of three months or less to
be cash equivalents.

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
made based upon the estimated useful lives of the assets or the term of the
lease,  whichever  is  shorter.  Maintenance  and  repairs  are  charged to
operations as incurred,  while  significant  improvements  are capitalized.
Upon  retirement  or  disposition  of  property,   the  asset  and  related
accumulated  depreciation or amortization are removed from the accounts and
any 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, 1994,  1995 and 1996 was,  $52,000,  $60,000  $78,000,
respectively.

Income Taxes - The Company  accounts for taxes under Statement of Financial
Accounting  Standards No. 109,  "Accounting  for Income Taxes".  Under this
statement,  deferred tax assets and liabilities  represent the tax effects,
calculated  at currently  effective  rates,  of future  deductible  taxable
amounts  attributable  to events that have been  recognized on a cumulative
basis in the financial statements (see Note 12).

Earnings Per Share - Earnings per share is based upon the weighted  average
number of shares outstanding and common stock equivalents. (See Note 10)

Accounts  Receivable - Increases  to the  allowance  for doubtful  accounts
totaled $95,000,  $91,000 and 77,000 for the years ended December 31, 1994,
1995 and 1996, respectively.  Write-offs against the allowance for doubtful
accounts totaled $27,000, $12,000 and none for the years ended December 31,
1994, 1995 and 1996, respectively.


                                    F-9

<PAGE>

Reclassifications  - Certain amounts in the 1995 financial  statements have
been reclassified to conform with the 1996 presentation.

2.   Inventories

Inventories consisted of the following (in thousands):

                                                   December 31,
                                         ----------------------------
                                             1995             1996
                                         -----------      -----------
Raw material                               $   1,087       $    2,120
Work in process                                  573              529
Finished goods                                   524              985
                                           ---------       ----------

Total inventories                          $   2,184       $    3,634
                                           =========       ==========

3.   Property And Equipment

Property and equipment consisted of the following (in thousands):

                                                           December 31,
                                                    --------------------------
                                                       1995            1996
                                                    ---------       ----------
Furniture, machinery and equipment                  $   2,172       $    2,588
Leasehold improvements                                    127              143
                                                    ---------       ----------
                                                        2,299            2,731
Less accumulated depreciation and amortization         (1,139)          (1,588)
                                                    ---------       ----------

Property and equipment, net                         $   1,160       $    1,143
                                                    =========       ==========

Depreciation  and  amortization  expense charged to operations  amounted to
$173,000,  $314,000 and 449,000 for the years ended 1994,  1995,  and 1996,
respectively.  Property and equipment  under capital  leases had a net book
value of $673,000 and $991,000 at December 31, 1995 and 1996 respectively.

4.   Investment In Joint Venture

In November  1989,  the Company and a Luxembourg  entity ("the JV Partner")
formed a joint venture in Luxembourg for the purpose of  manufacturing  and
marketing  Force  Sensing  Resistor   products  in  the  European  Economic
Community.  The Company  contributed  $2 million to  Interlink  Electronics
Europe  (the "JV") in  exchange  for a 50%  ownership  interest  in the JV.
Simultaneously, the JV purchased the rights to use the Company's technology
in Europe for $2 million. Generally accepted accounting principles required
the deferral of the  investment and the related $2 million gain on the sale
of technology because of the Company's  continued  involvement with the JV.
Accordingly, the investment was recorded at no value.

In June 1992,  December 1992,  and April 1993,  the JV Partner  invested an
additional  $1.5 million  (45,000  shares),  $500,000  (15,000  shares) and
$850,000  (30,000  shares)  in  the  JV,  respectively,   increasing  their
ownership percentage to 69%.

The Company's  interest in the JV was accounted for under the equity method
of accounting. Summarized financial data for the JV were as follows:

                                         (In Thousands)
                                          December 31,
                                   ---------------------------
                                     1992               1993
                                   ---------         ---------
Net sales                          $     418         $     920
Net loss                              (2,114)           (2,133)

Working capital                         (706)           (2,298)
Total assets                           1,496              1,314
Total liabilities                      2,691              4,497
Shareholders' deficit              $  (1,195)        $   (3,183)

                                   F-10

<PAGE>

Because the Company had recorded the investment at no value and the Company
was not liable for the obligations of the JV nor was it otherwise committed
to provide any further financial  assistance to the JV, it was not required
to recognize any of the JV's losses.

In  December  of 1992,  the Company  sold the JV  additional  rights to the
technology for $500,000 in cash. Given the Company's 36% ownership interest
in the JV at that time,  that portion of the gain  ($180,000)  was deferred
and was to be  amortized  over five  years.  The  balance  of  $320,000  is
included in  licensing,  royalties  and other  income in the  statement  of
operations in 1992. Because of the Company's sale of its interest in the JV
in  1994,  the  remaining  unamortized  balance  of the  deferred  gain was
included in other income in 1994.

In 1993, the Company  repurchased from the JV the rights to market pointing
device  products to the  European  Community  for cash  payment of $375,000
which is recorded as an asset and amortized over five years.

On  September  26, 1994 the Company  sold its  interest in the JV to the JV
partner.  As payment,  the JV partner surrendered its 510,775 common shares
of the  Company  and  agreed to pay a royalty  to the  Company  on  certain
product  sales by the JV  outside of Europe and  certain  other  designated
territories.  The shares received,  which constituted  approximately 13% of
the Company's  outstanding  shares,  were  appraised at $3.4 million (after
allowing for a discount for the relatively  large number of shares received
in relation to the total outstanding shares) and were immediately  retired.
As the  Company  had  carried  the  investment  in the JV at no value,  the
Company  recorded a gain of $3,380,000 (net of transaction  fees). The gain
on  the  sale  of the JV is  included  in  other  income  (expense)  in the
accompanying  statement of operations and represents net income of $.58 per
share for the fiscal year ended 1994.

5.   Acquisition Of Japanese Subsidiary

On April 1,  1994,  the  Company  acquired  an 80%  interest  in  Interlink
Electronics KK for $8,000 in cash.  Interlink  Electronics KK is located in
Tokyo, Japan and is a distributor and value-added manufacturer of FSR-based
products.  The  acquisition  has been  accounted  for as a purchase and the
results of Interlink  Electronics KK have been included in the accompanying
consolidated  financial statements since the date of acquisition.  The cost
of the  acquisition  has been  allocated on the basis of the estimated fair
market value of the assets acquired  ($428,000) and the liabilities assumed
($476,000).  This allocation resulted in goodwill of approximately  $58,000
which  is  being  amortized  over  15  years.  Pro  forma  results  of  the
acquisition,  assuming it had been made at the beginning of the year, would
not be materially different from the results reported.

6.   Short-Term Borrowings

The Company maintains a revolving line of credit agreement with a bank with
a maximum  amount of the lessor of $1,500,000  or 70% of eligible  accounts
receivable,  as defined in the agreement. The loan carries an interest rate
of the  bank's  interest  rate  plus 1% (9.25% at  December  31,  1996) and
matures in May 1997. The loan is secured by all of the Company's assets and
requires the Company to meet certain financial covenants, all of which were
satisfied  at December 31,  1996.  At December  31,  1996,  the Company was
eligible to utilize $1,300,000 on the loan, of which none had been drawn.
Selected information regarding short-term borrowings are as follows:

                                                       Year Ended December 31,
                                                       -----------------------
                                                        1995             1996
                                                       ------           ------
Average daily borrowings (000's)                        $  106           $   0
Maximum daily borrowings (000's)                        $  300           $   0
Weighted average interest rate during year                10.7%            N/A


                                   F-11


<PAGE>

7.   Long-Term Debt and Capital Leases

Bank loans - The Company's  Japan  subsidiary,  Interlink  Electronics  KK,
maintains   unsecured  small  business  loans  with  three  banks  totaling
$248,000.  The loans carry a weighted average interest rate of 2.5% and are
payable in monthly installments through the year 2002. The combined balance
outstanding  as of December 31, 1995 and 1996 was  $125,000  and  $248,000,
respectively.

Technology  Transfer  Agreement - In December 1987,  the Company  purchased
certain  patents  and  related  technology  from  its  founder.  Under  the
Technology Transfer Agreement,  the Company is obligated to pay the greater
of $4,000 per month or 1% of monthly gross sales of products related to the
purchased  technology.  The term of the  agreement  is from January 1988 to
December 1997.  Minimum  obligations under the agreement have been recorded
at their  present value  utilizing an interest  rate of 8.25%  ($88,000 and
$46,000 at December 31, 1995 and 1996, respectively).

Capital  lease  obligations  -  The  Company  has  an  equipment  financing
agreement  with a leasing  company to provide for the purchase of equipment
of up to $1.8 million.  As amounts are drawn on the line, the funded amount
is converted to a note payable with a standard payment schedule of up to 42
months at an imputed  interest rate of 11.5%.  As of December 31, 1996, the
Company had utilized and converted $1,266,000 of the line to notes payable.

At December 31, 1996,  scheduled  maturities of long-term  debt and capital
lease obligations for the next five years and thereafter are as follows (in
thousands):
                                                      Debt          Leases
                                                    --------       -------
1997                                                $    100       $   436
1998                                                      57           436
1999                                                      58           207
2000                                                      49            35
2001                                                      23             -
There after                                               27             -
                                                    --------       -------
                                                         314         1,114
Less amount representing interest                        (21)         (154)
                                                    --------       -------
Present value of minimum payments                        293           960
Current portion                                          (58)         (345)
                                                    --------       -------
Long term portion                                   $    235       $   615
                                                    ========       =======

8.   Capitalization

Preferred  Stock - The  Company  is  authorized  to issue up to  10,000,000
shares of Preferred Stock. As of December 31, 1996, none were  outstanding.
In the future, the Preferred Stock may be issued in one or more series with
such rights and  preference as may be fixed and  determined by the Board of
Directors.

Common  Stock - The Company is  authorized  to issue  40,000,000  shares of
Common Stock.

In March 1993, the  shareholders  approved a 1 for 5 reverse stock split of
the  Company's  Common  Stock.  All  share  and per  share  data  have been
retroactively restated to reflect this change.

In April 1995, the Company  completed a private placement of 700,000 shares
of common stock and 46,668 warrants.  The warrants are exercisable at $8.25
and expired on June 7, 1996.  The Company  received  gross proceeds of $3.5
million  (before  offering  expenses  and  placement  agent  fees  totaling
$335,000).  In  conjunction  with the offering,  the placement  agents also
received  60,000  warrants.  These  securities  were  registered  with  the
Securities  and Exchange  Commission  under an S-3  Registration  Statement
effective July 17, 1995.

In June 1996,  223,723  warrants,  with an  exercise  price of $8.25,  were
exercised.  The  Company  received  net  proceeds  of $1.74  million  after
deducting offering costs. The remaining  1,673,891 warrants from this class
expired in accordance with their terms.


                                   F-12

<PAGE>

Units - In June 1993,  the Company  completed  an initial  public  offering
raising  $7,102,000 net of expenses,  through the sale of 1,553,000  Units.
Each  Unit  consisted  of one  share of Common  Stock  and one  Warrant  to
purchase one share of Common Stock at $8.25.

9.   Stock Warrants And Stock Options

At December 31, 1996,  the Company had the following  Common Stock Warrants
outstanding:

Number of                     Exercise                          Expiration
 Shares                        Price                               Date

135,000                         $6.60                          June 4, 1998
135,000                          8.26                          June 4, 1998

Under the terms of the Company's  Option Plans,  officers and key employees
may  be  granted  nonqualified  or  incentive  stock  options  and  outside
directors  and  independent  contractors  of the  Company  may  be  granted
nonqualified  stock  options.  The aggregate  number of shares which may be
issued under the plans is  2,006,000.  Outstanding  options under the plans
vest in various increments through December,  1997.  Information concerning
stock options under the plans is summarized as follows:
<TABLE>
<CAPTION>

                                                                             (In Thousands)
                                                                 --------------------------------------
                                                                           Year Ended December 31,
                                                                 --------------------------------------
                                                                   1994            1995          1996
                                                                  ------          ------        ------
<S>                                                                  <C>           <C>           <C>
Options outstanding, beginning of period                             477           1,063         1,219
   Options granted (weighted average price of                        715           1,236           393
     $7.50, $5.19 and $5.76 in 1994, 1995 and
     1996, respectively )
   Options exercised (weighted average price                        (109)           (185)          (36)
    of $2.84, $3.29 and $4.23 in 1994, 1995 and
    1996, respectively)
   Options canceled                                                  (20)           (895)         (144)
                                                                ---------       --------      --------

Options outstanding, end of period                                  1,063          1,219         1,432
                                                                =========       ========      ========

Options exercisable                                                   464            613           958
                                                                =========       ========      ========

Option price                                                                    $1.25 to $9.13

</TABLE>

The Company accounts for the plan under Accounting Principles Board Opinion
No. 25 under which no  compensation  cost is recognized  for employee stock
option  grants.  If  the  Company  had  recognized  compensation  cost  for
stock-based  employee  compensation  in  accordance  with SFAS No. 123, the
Company's net income (loss) would have been as follows:

                                           (In Thousands Except Per Share Data)
                                                  1995              1996
         Net income (loss):
           As reported                           $   150            $  515
           Pro forma                              (2,166)             (213)

         Earnings (loss) per share:
           As reported                           $   .04            $   .12
           Pro forma                                (.55)              (.05)

The fair value of each option grant is estimated on the date of grant using
an option  pricing model with the following  weighted  average  assumptions
used in 1995 and 1996:  risk-free  interest rates of 6.3 percent;  expected
life of four years; no expected dividend yield; and a volatility measure of
59%.


                                   F-13

<PAGE>

10.  Earnings Per Share

The  computation  of earnings per share is based upon the weighted  average
number of common shares  outstanding  during the periods presented plus (in
periods of which they have a dilutive  effect) the effect of common  shares
contingently issuable from options and warrants.

Common stock  equivalents are calculated using the modified  treasury stock
method.  Under the modified  treasury  stock method,  the proceeds from the
assumed  conversion of options and warrants are used first to repurchase up
to a maximum of 20% of the  outstanding  shares,  second to retire debt and
third,  invested in government  securities.  Accordingly,  interest expense
and/or interest income is adjusted on a proforma basis.

The following table contains  information  necessary to calculate  earnings
per share:
<TABLE>
<CAPTION>
                                                                 (In Thousands Except Per Share Data)
                                                                -------------------------------------
                                                                         Year Ended December 31,
                                                                -------------------------------------
                                                                    1994        1995         1996
                                                                   ------      ------       ------
<S>                                                                 <C>          <C>          <C>
Weighted average common and common equivalent shares:
   Weighted average shares outstanding                              3,678        3,957        4,388
   Weighted average share equivalents                               2,132            - (1)        -(1)
                                                                ---------    ---------    ---------
     Weighted average common and common
       equivalent shares                                            5,810        3,957        4,388
                                                                =========    =========    =========

Net income for per share calculation:
     Net income                                                 $   2,303    $     150    $     515
     Adjustment per modified  treasury stock method
           calculation                                                570            -            -
                                                                ---------    ---------    ---------

       Net income for per share calculation                     $   2,873    $     150    $     515
                                                                =========    =========    =========

     Earnings per share                                         $     .49    $     .04    $     .12
                                                                =========    =========    =========

<FN>
------------------------------
(1) Common stock equivalents were  anti-dilutive and thus were not included
in the calculation.
</FN>
</TABLE>

11.  Lease Commitments

The Company leases its main facility and certain  equipment under operating
leases expiring through 1999. Rent payments totaled approximately $120,000,
$153,000 and $227,000 in 1994, 1995 and 1996, respectively.

Minimum lease commitments are summarized as follows (in thousands):

Year
----
1997                          $  228
1998                             109
1999                               1
                              ------
                              $  338


12.  Income Taxes

Under Section 382 of the Internal  Revenue Code,  net operating  losses are
limited when, on a cumulative basis over a three-year  period, the holdings
of certain  shareholder  groups  owning  more than 5% of the  Company  have
changed  more than 50%. On December  23, 1987,  the Company  experienced  a
greater  than  50%  change  in  ownership.   As  a  result,  the  Company's
utilization of net operating  loss  carryforwards  generated  prior to that
date of $1,316,000 is limited to $126,000 per year,  for federal income tax
purposes,


                                   F-14

<PAGE>

through 1998.  Utilization of state net operating losses generated prior to
December 23, 1987 of $706,000 is limited under the same rules. However, for
the tax years 1991 and 1992,  the State of California  suspended the use of
net operating loss carryforwards.  As of December 31, 1996, the Company has
federal  and  state  income  tax  net  operating  loss   carryforwards   of
approximately  $10,489,000  expiring  through 2009 and $3,544,000  expiring
through 1999, respectively.

On  September  26,  1994,  the  Company  sold  its  interest  in  Interlink
Electronics  Europe  (see  Note 4).  This  transaction  may have  caused an
additional  "change of ownership" under Section 382 of the Internal Revenue
Code.  In the event  that such a change  is  deemed to have  occurred,  the
Company's  net operating  losses will be limited.  The Company has research
and  development tax credit  carryforwards  of  approximately  $200,000 and
$260,000 at December 31, 1995 and 1996, respectively. The Company has total
net deferred tax assets as follows:

                                                  (In Thousands)
                                               -------------------
                                                 1995        1996
                                                ------      ------
Deferred tax assets:
   Net operating loss carryforward             $  4,149   $  3,896
   Vacation accrual                                  67         59
   Allowance for bad debts                           82        114
   Other                                            114        306
                                               --------   --------
     Total deferred tax assets                    4,412      4,375

Deferred tax liabilities:
   Other, net                                         -          -
                                               --------   --------

Total net deferred assets                         4,412      4,375
Valuation allowance                              (4,412)    (4,375)
                                               --------   --------

     Total                                     $      -   $      -
                                               ========   ========

A  valuation  allowance  is recorded  if the weight of  available  evidence
suggests  it is more  likely  than not that if some  portion  or all of the
deferred tax asset will not be  recognized.  There is no assurance that the
Company will  continue to be  profitable in future  periods,  therefore,  a
valuation allowance has been recognized for the full amount of the deferred
tax asset for 1995 and 1996.


13.  Related Party Transactions

The  Company  has an  agreement  with its  founder  to  provide  consulting
services to the Company at $48,000 per year through December 1997.

In June 1994,  the former  Chairman of the Board  entered into a consulting
arrangement with the Company,  terminating  February 1995. Total consulting
expenses amounted to $143,000 in 1994.

                                   F-15


<PAGE>

14. Segment Information

Product Line Information
                                                       (In Thousands)
                                              ---------------------------------
                                                   Year Ended December 31,
                                              ---------------------------------
                                               1994        1995          1996
                                              ------      ------        ------
Revenues:
   Computer pointing devices                 $  5,221    $  7,910      $ 11,585
   Custom applications                          2,576       2,831         1,900
                                             --------    --------      --------

                                             $  7,797    $ 10,741      $ 13,485
                                             ========    ========      ========
Operating income (loss):
   Computer pointing devices                 $   (282)   $    397      $  1,004
   Custom applications                           (283)        139           164
   Corporate expenses                            (630)       (468)         (562)
                                             --------    --------      --------

                                             $ (1,195)   $     68      $    606
                                             ========    ========      ========
Assets:
   Computer pointing devices                 $  2,427    $  4,206      $  7,246
   Custom applications                          1,195       1,478         1,180
   Corporate                                    1,563       4,503         4,759
                                             --------    --------      --------

                                             $  5,185    $ 10,187      $ 13,185
                                             ========    ========      ========

Identifiable  assets by product  line are those assets that are used in the
Company's operations in each segment. Corporate assets are principally cash
and  cash  equivalents,  marketable  securities,  patents  and  trademarks,
European marketing rights, due from shareholders and other assets.

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

                                                   Year Ended December 31,
                                             ----------------------------------
                                              1994          1995          1996
                                             ------        ------        ------
                  Asia                         23%           29%           26%
                  Europe and other                (1)        17%           13%

(1) Less than 10%

Major Customers - In 1996,  sales to one customer in the computer  industry
constituted 15% of the Company's  sales. In 1995,  sales to one customer in
the medical  industry  constituted  11% of the Company's sales and in 1994,
sales to one customer in the computer industry constituted 23%.

                                   F-16

<PAGE>

                               EXHIBIT INDEX

Exhibit

3.1    Certificate of Incorporation of the Company. Incorporated by
       reference to Exhibit 3.1b of Post-Effective Amendment No. 8 to
       Registrant's Registration Statement on Form S-1, Registration No.
       33-60380 (the "Form S-1 Registration Statement").

3.2    Bylaws of the Company. Incorporated by reference to Exhibit 3.2a of
       Post-Effective Amendment No. 8 to Registrant's Form S-1 Registration
       Statement.

10.1   1988 Stock Option Plan, as amended and restated. Incorporated by
       reference to Exhibit 10.1 of the Form S-1 Registration Statement.**

10.2   1993 Stock Incentive Plan. Incorporated by reference to Exhibit
       10.1a of the Form S-1 Registration Statement.**

10.3   1996 Stock Incentive Plan.**

10.4   Description of Interlink Electronics, Inc. Management Compensation
       Program.**

10.5   Form of Promissory Note from Stuart Yaniger dated March 1993.
       Incorporated by reference to Exhibit 10.7 of the Form S-1
       Registration Statement.

10.6   Form of Amendment to Promissory Note from Stuart Yaniger.
       Incorporated by reference to Exhibit 10.7a of the Form S-1
       Registration Statement.

10.7   Technology Transfer Agreement between the Registrant and Franklin
       Eventoff dated as of December 23, 1987, and amendment thereto.
       Incorporated by reference to Exhibit 10.9 of the Form S-1
       Registration Statement.

10.8   Lease Agreement to lease premises in Camarillo, California dated
       January 25, 1993. Incorporated by reference to Exhibit 10.11a of the
       Form S-1 Registration Statement.

10.9   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.

10.10  Joint Venture Agreement among the Registrant, InvestAR s.a.r.l.,
       Interlink Electronics, Inc. Europe s.a.r.l. and IEE Finance s.a.r.l.
       dated November 7, 1989. Incorporated by reference to Exhibit 10.15
       of the Form S-1 Registration Statement.

10.11  Exclusive License and Distributor Agreement between the Registrant
       and Interlink Electronics, Inc. Europe s.a.r.l. dated as of November
       7, 1989. Incorporated by reference to Exhibit 10.16 of the Form S-1
       Registration Statement.




<PAGE>

10.12  Manufacturing and Supply Agreement between the Registrant and
       Interlink Electronics, Inc. Europe s.a.r.l. dated as of November 7,
       1989. Incorporated by reference to Exhibit 10.17 of the Form S-1
       Registration Statement.

10.13  Letter Agreement between the Registrant and InvestAR s.a.r.l. dated
       November 7, 1989. Incorporated by reference to Exhibit 10.18 of the
       Form S-1 Registration Statement.

10.14  Agreement between the Government of Luxembourg, Interlink
       Electronics, Inc. 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.

10.15  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.

10.16  Agreement among the Registrant, Interlink Electronics, Inc. Europe
       s.a.r.l. and InvestAR s.a.r.l. dated as of December 14, 1990.
       Incorporated by reference to Exhibit 10.21 of the Form S-1
       Registration Statement.

10.17  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.

10.18  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.

10.19  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.

10.20  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.

10.21  Financing Agreement between the Registrant and InvestAR s.a.r.l.
       dated June 15, 1992. Incorporated by reference to Exhibit 10.27 of
       the Form S-1 Registration Statement.

10.22  Interlink Europe Financing Agreement between the Registrant and
       InvestAR s.a.r.l. dated April 7, 1993. Incorporated by reference to
       Exhibit 10.28 of the Form S-1 Registration Statement.




<PAGE>

10.23  Agreement between Zilog, Inc. and the Registrant date November 30,
       1993. Incorporated by reference to Exhibit 10.34 of the Form S-1
       Registration Statement.*

10.24  Employment Agreement between the Registrant and E. Michael Thoben,
       III effective as of April 1, 1996.

10.25  Employment Agreement between the Registrant and William A. Yates
       effective as of April 1, 1996.

10.26  Employment Agreement between the Registrant and David J. Arthur
       effective as of April 1, 1996.

21.1   Subsidiaries of the Registrant.

24.1   Consent of Arthur Andersen.

25.1   Power of Attorney (see page 20).

27     Financial Data Schedule.

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

*    Confidential Treatment for portions of this agreement has been granted
by the Commission.

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