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, 1998 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
    incorporation or organization)                           Number)

                      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 15, 1999 based on the closing price of $5.25 on such date on
the NASDAQ NMS: $27,384,877. 

   Number of shares of Common Stock outstanding as of March 15, 1999: 5,216,167

Documents Incorporated by Reference
-----------------------------------
                                                   Part of Form 10-K into
           Document                                  which incorporated
           --------                                ----------------------

     Proxy Statement for 1999 Annual                     Part III
        Meeting of Stockholders

<PAGE>
TABLE OF CONTENTS
-----------------

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

PART I

    Item 1.      Business                                                      1

    Item 2.      Properties                                                   12

    Item 3.      Legal Proceedings                                            12

    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


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, operating cost
improvements and trends and future business activities should be considered in
light of these factors.

Item 1. Business

     Interlink Electronics, Inc. (the "Company" or "Interlink") designs,
manufactures and sells input devices for computers and other electronic products
based on the Company's portfolio of proprietary technologies, including its
Force Sensing Resistor ("FSR") technology. The Company sells a full spectrum of
value-added products and components ranging from FSR sensors, to modules
incorporating one or more FSR sensors and related electronics mounted on a
printed circuit board ("PCB"), to complete products such as remote controls
ready for use by an end-user, which Interlink offers on a branded or generic
basis. Interlink also designs, manufactures and sells a broad variety of
non-computer products ("Custom Products") based on its FSR technology.
Interlink's customers include the leading computer, computer peripheral and
presentation device manufacturers, such as NEC, Sharp, Toshiba, In Focus
Systems, IBM, Sony and Logitech.

Input Devices

The original IBM personal computer and others built on that model used a
text-based operating system in which the user input data to the computer using a
keyboard not substantially different from the keyboard found on a typewriter. As
computer systems have moved from textbased to graphics-based user interfaces,
the keyboard has been supplemented and, in some applications, replaced by
alternative input devices such as mice, trackballs, pointing sticks, touchpads,
touchscreens and a variety of other single or multipurpose input devices
designed to input, alter or transfer data other than text. At the same time, the
range and complexity of electronic devices available for both household and
business use has increased dramatically, thus increasing the complexity of the
choices afforded to the user. This has created a market for input devices, such
as television remote controls, that allow the user of the device to select from
among

                                       1
<PAGE>
the many options available. For example, the traditional television had an
on-off switch that often doubled as a volume control, a channel selector and a
series of rarely used knobs that adjusted picture quality. The remote control
for a modern television set and related electronics such as VCRs, DVD players
and the like may be required to select a signal from any of a variety of
sources, determine whether the program is to be selected for immediate or
deferred viewing, choose from several audio playback options, select the
language in which the chosen program will be viewed, determine whether to watch
or suppress subtitles, fast forward or rewind the program and enable or disable
the audio channel, all in addition to selecting the channel and adjusting
volume. The rapid development of internet resources, video games and the
convergence of computer and television applications have also added to demand
for complex devices that allow the user to select from a menu of choices and/or
to control the function of complex electronic devices.

     In the world of commerce, the pervasive use of electronic communication and
the advent of the "paperless office" have led to a need for computer equivalents
to traditional hard copy documents. For example, input devices allowing the user
to convert handwritten data either to computer text (as with some personal
digital assistants "PDA's") or to graphic representations (as with signature
input) are rapidly becoming standard elements of business communication and data
processing. Electronic systems such as presentation devices, complex
telecommunication systems and specialized audiovisual equipment present the same
complex range of options as do their consumer counterparts and demand the same
complexity in input devices.

     All of these developments in the computer and communications industries
have created a rapidly expanding market for input devices of many different
types, from traditional mice or pointing sticks installed in or wired to a
computer to remote input devices using infrared signals to control a computer,
television, presentation device, videoconferencing system or other electronic
product. Not only is the market for such devices expanding in absolute terms but
the variety and complexity of the various devices has grown as the devices
themselves have become more varied and more complex. It is now common in both
the home and the business environment for several different electronic systems
to be used at the same time, often causing their control devices to compete with
one another.

     The Company believes that it has developed a portfolio of technologies that
is particularly well suited to the input device market. The Company's FSR
technology is particularly applicable 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. The Company's 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.

     The Company has developed a number of technologies including its
proprietary VersaPoint and Semiconductive touchpad technologies. The VersaPoint
technology consists of a

                                       2
<PAGE>
four-zone FSR sensor array and proprietary software and firmware that control
cursor direction and speed. 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 or pen across the touchpad surface. Clicking is performed by separate
buttons or by tapping the touchpad surface. The Company has received a design
patent for the integration of a thumb-activated "mouse" button combined with an
index finger activated "Trigger" click button, trade named "ClickTrigger". In
addition the Company has filed patent applications for proprietary infrared
communication protocols. See "Business - Technology."

Input Devices - Products

OEM Interactive Remote Controls

     With the advent of computer driven presentation systems and software, the
larger screen size of multimedia computer systems and the greater use of
televisions for Internet access and other computer related functions, a need has
been created for wireless remote controls with computer mouse functionality. To
address this need Interlink has created a line of interactive remote controls
("IRC") to be sold on an OEM basis. All these products use infrared technology,
incorporate a VersaPoint pointing button to control the cursor and the Company's
patented ClickTrigger design for "clicking". These products range from a simple
remote with only VersaPoint and ClickTrigger technology to remotes with 30
function keys to control various functions of the computer and/or presentation
projector. Interlink had developed standard case designs that allow for easy
customization of the button configuration and function by the OEM customer.
Examples of OEM customers purchasing IRC's from Interlink include InFocus
Systems, NEC, Sharp and Toshiba.

     Depending on the OEM's requirement, the Company may sell an accompanying
receiver that, by cable, attaches to the OEM's central processing unit (CPU) and
receives the signal from the remote control. In most cases however, the receiver
electronics are integrated into the CPU.

     To date the preponderance of Interlink's IRC's have been sold to the
presentation projector manufacturer market, however the Company believes a
substantial future market opportunity lies with video conferencing, "WebTV" type
systems and other systems targeted for home internet access.

OEM Keyboard Integration


     With the proliferation of icon-based computer operating systems such as
Microsoft Windows and the Apple Macintosh, computer mouse driven systems have
now moved into many environments where a traditional mouse is impractical.
Examples include mobile computing and industrial environments. In addition, many
keyboard manufacturers see the value of incorporating the mouse functions
directly into the keyboard to save the end-user the expense and inconvenience of
a separate peripheral. Because of the thin profile of an FSR, the Company's
integrated pointing solutions can be built into keyboards easily. In addition
the exceptional ruggedness of the FSR technology makes it an ideal solution for
harsh environments.

                                       3
<PAGE>
     The Company offers several solutions to OEM's for keyboard integration:

-  The MicroJoystick which is similar to the "eraser head" type pointing device
   most notably found in IBM's ThinkPad notebook computer.

-  The MicroModule that uses a circular rubber button as the actuator and is
   offered mounted to a PCB assembly.

-  The OEM VersaPad which utilizes the Company's patented Semiconductive
   touchpad technology.

     Depending on the OEM's expertise, each of these solutions can be sold with
just the sensor and a microcontroller with the Company's proprietary firmware or
as a full module with the actuator, sensor and microcontroller mounted on a PCB
assembly.

     Historically Interlink's principal OEM integrated pointing product was its
MicroJoystick, which it sold primarily to manufacturers of notebook computer
keyboards and to a lesser extent manufacturers of aftermarket keyboards. Within
the past two years the notebook computer market has transitioned to touchpads as
the dominant choice for integrated pointing devices. As a result the Company has
developed the OEM VersaPad. The OEM VersaPad differs from competitive touchpad
products in that it uses pressure as its method of activation. By contrast,
touchpads using capacitive technology (the most widely used touchpad technology)
require an electrically conductive object to touch the pad for activation. Since
human skin is conductive, the finger is the primary method of using a capacitive
touchpad. However, the VersaPad can be used when it detects pressure from any
source. Thus a gloved finger will work as will a common pen or stylus. With the
advent of reliable handwriting recognition software, Interlink expects to
capitalize on the VersaPad's ability to receive pen input to create a
competitive advantage. Interlink will market the VersaPad to notebook computer
manufacturers, aftermarket keyboard manufacturers and manufacturers of specialty
peripherals that require pen input capability as well as standard mouse
functions.

     Historically the Company has been one of the dominant suppliers of
integrated pointing devices for the rugged and industrial computing markets. The
FSR characteristics of environmental stability and ability to be sealed make it
an optimal solution for these markets. These FSR characteristics plus the rubber
overlay of the MicroModule make it the Company's most popular products for these
markets. To a lesser extent, the Company also sells the MicroJoystick, the
VersaPad and an OEM version of its DuraPoint ruggedized pointing device to these
markets.

Branded Products

     Approximately 85% of the Company's revenues are generated from OEM sales.
However, in order to generate OEM sales, the Company has often found it
expedient to develop a complete, functional prototype or sales sample
demonstrating the Company's unique technology. In many cases the Company has
chosen to further develop these products into stand-alone peripheral products
that are available for sale either as branded or generic products.

                                       4
<PAGE>
     The Company is continuing to develop distribution channels for its branded
products. Current distribution consists of mass merchandiser outlets, including
Best Buy, Inc., Fry's Corporation, 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. In Europe the Company uses
distributors such as Ingram Micro.

     The Company's stand-alone peripheral products, referred to below by their
branded names, are:

     VersaPad. In September 1997, the Company shipped VersaPad, a stand-alone
touchpad peripheral, incorporating the Company's Semiconductive technology.
Similar to touchpads found in most notebook computers today, cursor control is
performed by simple finger pressure on the touchpad surface. The VersaPad also
includes several function bars adding many productivity enhancing tools.

     VersaPoint Wireless Keyboard. In June 1997, the Company shipped the
VersaPoint Wireless keyboard. With an infrared range of 50 feet, the VersaPoint
keyboard has all the functions of a wired keyboard. It also incorporates the
Company's touchpad technology and its unique design is especially well suited
for use on one's lap.

     RemotePoint. In order to satisfy the need for a cordless, remote pointing
device to control desktop and conference room computer-based presentations, the
Company 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. In Fall 1995, Interlink introduced its RemotePoint Plus
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 the most
sophisticated presenters.

     ProPoint. To address the presentation and multimedia market, the ProPoint
device is a handheld corded pointing device used to control cursor movement and
function selection. The ProPoint product comes with 6 feet of cable and, with
optional additional connecting cables, its range can be extended to up to 12
feet, making it useful not only as a personal cursor control device, but also as
a presentation assistant for conference room size presentations.

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

     SuperMouse. The Company designed and developed the SuperMouse device as an
aftermarket mouse for the commercial and consumer markets. It is targeted
primarily at the notebook

                                       5
<PAGE>
and other portable computers because of its small size and its versatility (it
can be used as a portable, desktop, or handheld mouse).

     DuraPoint. To address the needs of industrial users, in February 1993,
Interlink began shipping its DuraPoint ruggedized pointing device. To the best
of the Company's knowledge, its DuraPoint device was the first cursor control
device designed to NEMA 4X, 6P, and 13 standards (industry association standards
relating to the ability of an electronic device to operate under adverse
environmental conditions). The DuraPoint device can withstand a variety of harsh
environments, such as direct water spray, debris, cleansers or even prolonged
submersion. Sales channels consist primarily of industrial hardware and software
distributors and bundling arrangements with industrial and medical equipment
manufacturers.

     FreedomWriterPRO. In December 1998, the Company began shipping
FreedomWriterPRO. The product is a remote control that includes both the
Company's semiconductive touchpad and RemoteLink Technologies. Using the
touchpad's pen input capabilities, a presenter can now draw or annotate on a
slide from a computerized presentation. Through software, the product can
convert handwriting to digital text; a functionality the company plans to market
to the video conference and home internet access markets.

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
the Company's 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 for Baxter
Healthcare Corporation are incorporated in an infusion pump where the FSR sensor
functions as a safety device to ensure

                                       6
<PAGE>
proper placement of the intravenous tube in the pump head.

Sales and Marketing

     Interlink employs a direct sales team of five people in the U.S. and four
in Japan. Each sales team is supported by inside sales personnel, product
managers and application engineers. For the branded products, the Company also
uses manufacturer representatives and distributors, covering the U.S. and
Europe.

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

     For branded products, the Company uses public relations, third-party
product reviews and limited direct advertising to generate customer awareness.
Direct sales calls are made to potential distributors and specialty resellers.
Manufacturer representatives call on potential retail accounts. Once a customer
relationship is established, the Company supports these customers with co-op
advertising, sales "spiffs", end-user rebates, etc. As necessary, branded
customers may also negotiate cash discounts, extended billing or right of return
privileges.

Technology

     Interlink has developed a diverse portfolio of technologies related to a
variety of remote and wired input devices. These technologies include the basic
FSR and Semiconductive touchpad technologies and refinements thereon, the
ClickTrigger technology and proprietary infrared communication protocols. In
general, Interlink seeks to develop new technologies in order to enhance and
create competitive advantages for its products rather than to develop entirely
new products.

     FSR Technology. Force sensing technology transforms physical pressure
applied to a sensor into a corresponding electronic response. Interlink's FSR
sensors 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 can detect and accurately measure a force
applied to it, thereby enabling precise control of the process applying the
force. A more complex sensor, known as a "four zone" sensor, has four

                                       7
<PAGE>
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. An FSR sensor
can also serve as a touchpad by incorporating a two-dimensional grid capable of
measuring the location and intensity of pressure applied at any set of
coordinates on the grid. This type of device is useful for functions such as
handwriting input or computer cursor control.

     Because FSR sensors can be as thin as one-hundredth of an inch, they are
particularly well suited for use where space is a critical issue, as in laptop
and sub-laptop keyboards. FSR sensors have also demonstrated impressive
reliability, retaining their performance through tens of millions of actuations,
even in adverse environments involving heat, moisture, and chemical
contamination.

     ClickTrigger. In October 1997, the Company received patent protection for
its ClickTrigger remote control design. With the ClickTrigger configuration, the
user controls the cursor by thumb pressure on the round button on the top of the
remote control and operates mouse clicks by squeezing the mouse button
underneath the remote control, similar to the trigger on a gun. This
configuration allows for one-handed "click and drag" mouse functions. This
design is already an industry standard and the Company is actively pursuing
license arrangements.

     RemoteLink Technology. As a result of developing sophisticated remote
controls for the presentation projector industry, the Company has become a
leader in infrared communication innovation. In 1997 the Company introduced the
VersaPoint wireless keyboard - the only wireless keyboard that communicates both
keyboard and touchpad mouse protocols effectively. Late in 1997 the Company
announced RemoteLink, a new infrared protocol. This unique technology allows for
multiple users simultaneously, full two-way communication and high bandwidth.
Potential products are wireless simultaneous game controllers, wireless infrared
telephones, wireless speakers and wireless handwriting recognition capable
PDA's.

International Operations

     In 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 Petrochemical Company, and has
a number of years of experience working with Interlink and its products. In
1998, IEKK's operations accounted for approximately 50% percent of Interlink's
consolidated revenues.

Licensees

     International Electronics & Engineering In September 1994, Interlink
entered into several agreements with InvestAR, S.a.r.l., pursuant to which
Interlink transferred its entire ownership interest in Interlink Electronics,
Inc. Europe ("IEE"), a Luxembourg-based joint venture owned by Interlink 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%

                                       8
<PAGE>
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 1996, 1997 or 1998.

     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.

     ClickTrigger. In 1998, the Company entered into license agreements for the
ClickTrigger remote control design with Panasonic, Seiko Epson, and Sanyo. Each
licensee pays a quarterly per-unit license fee. The Company believes additional
companies also infringe on its ClickTrigger patents and is actively pursuing
these companies to enter into license agreements or to cease use of the
proprietary design.

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 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

                                       9
<PAGE>
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;
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.

Research and Product Development

     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 for the Company is focused on developing custom,
standard, and modified standard products. Custom and modified standard products
are developed very selectively, when they are adequately funded, and when there
are obvious long-term strategic benefits to the Company. Custom and modified
standard products are primarily developed to meet the requirements specified by
OEM customers for their unique applications. 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

                                       10
<PAGE>
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), 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 65 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 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 first of these
patents expired 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 will
expire between 1999 and 2015. Various corresponding foreign patents will expire
between 1999 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

                                       11
<PAGE>
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.

     The Company actively defends its patents. When a potential infringing
company is identified, Interlink first seeks to notify the company of
Interlink's patent rights. Historically, the Company has been successful in
negotiating license arrangements. If an agreement cannot be reached, the Company
will pursue legal remedies. In June 1996, the Company brought an action in the
United States District Court in the Central District of California against
InControl Corporation ("InControl") for infringement of certain FSR patents. The
Company seeks a court order enjoining InControl from further infringement. In
February 1997, the court granted summary judgment in favor of InControl and
dismissed the Company's action. The Company is currently appealing the decision
and the Company does not believe the outcome of this action will have a material
effect on 1999 results.

Employees

     The Company had ninety-two full-time employees in the United States as of
December 31, 1998; eighty-nine at its corporate offices and manufacturing
facilities (including five members of management), and three sales managers
stationed at regional offices. Its Japan subsidiary had twenty-eight employees.

Item 2. Properties

     The Company's corporate offices and manufacturing facilities are located in
a 35,333 square foot leased facility in Camarillo, California. The lease on the
Camarillo premises runs until August 2003 and provides for an average monthly
rent payment of $20,681. The Company believes that this facility will be
adequate to meet its requirements. Two regional sales offices operate out of
leased facilities. Its Japan subsidiary, Interlink Electronics, Inc. K.K.,
leases office space in Tokyo.

Item 3. Legal Proceedings

     In June 1996, the Company brought an action in Federal Court against
InControl for infringement of certain FSR patents. The Company seeks a court
order enjoining InControl from further infringement. In February 1997, the court
granted summary judgment in favor of InControl and dismissed the Company's
action. The Company is currently appealing the decision and the Company does not
believe the outcome of this action will have a material effect on 1999 results.

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

     Not applicable.

                                       12
<PAGE>
Item 4(a). Executive Officers of the Registrant

Name                               Age              Position with Company
----                               ---              ---------------------

E. Michael Thoben, III             45               Chairman of the Board,

                                                    President, Chief Executive
                                                    Officer and Director

David J. Arthur                    50               Senior Vice President,
                                                    Operations

William A. Yates                   47               Senior Vice President,
                                                    Sales

Paul D. Meyer                      39               Chief Financial Officer
                                                    and Secretary

Roger Moore                        38               Vice President, Marketing
                                                    and 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's 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.

     William A. Yates became Interlink's Senior Vice President--Sales and
Marketing in May 1995. Prior to joining the Company in 1990 as its Vice
President, Sales and Marketing, Mr. Yates 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.

                                       13
<PAGE>
     Paul D. Meyer joined Interlink 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 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.

     Roger P. Moore, II joined Interlink in July 1997. Prior to joining the
Company, he held senior management positions in sales and marketing with
American Power Conversion Corporation and Anova Technologies LLC. From 1996 to
1997 he served as President of echoMEDIA, Inc. Mr. Moore holds a Master of
Management from Yale University, a Master of Science in Aeronautics from
Stanford University and a Bachelor of Science in Aerospace Engineering from the
University of California at Los Angeles.

                                     PART II

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

<TABLE>
<CAPTION>

     Year Ended December 31, 1998                  Low              High
     ----------------------------                  ---              ----
     <S>                                         <C>              <C>    
     First Quarter.............................  $ 4.438          $ 6.375
     Second Quarter............................  $ 4.000          $ 6.375
     Third Quarter.............................  $ 2.250          $ 5.125
     Fourth Quarter............................  $ 1.625          $ 4.750

</TABLE>

On March 15, 1999,  the last  reported  sale price of the Common Stock on Nasdaq
National Market was $5.25.

     Number of Stockholders. As of March 15, 1999, 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

                                       14
<PAGE>
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-4 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-5 to F-15 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 1999
Annual Meeting of Stockholders 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 1999 Annual
Meeting of Stockholders 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.

Item 11. Executive Compensation

     Information with respect to executive compensation is included under
"Executive Compensation" in the Company's definitive proxy statement for its
1999 Annual Meeting of Stockholders filed or to be filed not later than 120 days
after the end of the fiscal year covered by

                                       15
<PAGE>
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 1999
Annual Meeting of Stockholders 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-5

                                                                            Page
                                                                            ----
Consolidated Balance Sheets at December 31, 1998 and 1997                    F-6

Consolidated Statements of Operations for years ended December 31, 1998,     F-7
1997 and 1996

Consolidated Statements of Stockholders' Equity for years ended              F-8
December 31, 1998, 1997 and 1996

Consolidated Statements of Cash Flows for years ended December 31, 1998,     F-9
1997 and 1996

Notes to Consolidated Financial Statements                               F-10-15

     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

                                       16
<PAGE>
          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
          the 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. Incorporated by reference to Exhibit 10.3
          of the Registrants' Annual Report on From 10-K for the year ended
          December 31, 1996.**

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


     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
          August 15, 1998.


     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.

                                       17
<PAGE>
     10.10 Joint Venture Agreement among the Registrant, InvestAR s.a.r.l.,
           Interlink Electronics Europe s.a.r.l. and IEE Finance s.a.r.l. dated
           November 7, 1989. 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 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.


     10.12 Manufacturing and Supply Agreement between the Registrant and
           Interlink Electronics 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
           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 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.

                                       18
<PAGE>
     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 Registration and
           InvestAR s.a.r.l. dated April 7, 1993. Incorporated by reference to
           Exhibit 10.28 of the Form S-1 Registration Statement.


     10.23 Agreement between Zilog, Inc. and the Registrant dated 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. Incorporated by reference to
           Exhibit 10.22 of the Registrant's Annual Report on Form 10-K for the
           year ended December 31, 1996.**

     10.25 Employment Agreement between the Registrant and William A. Yates
           effective as of April 1, 1996. Incorporated by reference to Exhibit
           10.23 of Registrant's Annual Report on Form 10-K for the year ended
           December 31, 1996.**

     10.26 Employment Agreement between the Registrant and David J. Arthur
           effective as of April 1, 1996. Incorporated by reference to Exhibit
           10.24 of the Registrant's Annual Report on Form 10-K for the year
           ended December 31, 1996.**

                                       19
<PAGE>
     21.1  Subsidiaries of the Registrant.


     23.1  Consent of Arthur Andersen LLP.


     24.1  Power of Attorney.


     27.1  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.

                                       20
<PAGE>
                                   Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Camarillo,
State of California, on the 27th day of March, 1998.

                             INTERLINK ELECTRONICS, INC.

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


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

      Signature                 Title                            Date
      ---------                 -----                            ----

   Principal Executive Officer:


E. MICHAEL THOBEN, III          Chairrman of the Board, Chief     March 27, 1999
---------------------------     Executive Officer, President
E. Michael Thoben, III               


   Principal Financial Officer:

PAUL D. MEYER                   Chief Financial Officer,          March 27, 1999
----------------------------
Paul D. Meyer                   Secretary


   Directors:

GEORGE GU*                      Director                          March 27, 1999
----------------------------
George Gu


EUGENE F. HOVANEC*              Director                          March 27, 1999
----------------------------
Eugene F. Hovanec


MERRITT M. LUTZ*                Director                          March 27, 1999
----------------------------
Merritt M. Lutz


CAROLYN MACDOUGALL*             Director                          March 27, 1999
----------------------------
Carolyn MacDougall


E. MICHAEL THOBEN, III          Director                          March 27, 1999
----------------------------
E. Michael Thoben, III


* By: E. MICHAEL THOBEN, III
      ---------------------------
      E. Michael Thoben, III
      Attorney in Fact

                                       21
<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
            the 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. Incorporated by reference to Exhibit 10.3
            of the Registrant's Annual Report on From 10-K for the year ended
            December 31, 1996.**

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

     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
            August 15, 1998.

     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 Europe s.a.r.l. and IEE Finance s.a.r.l. dated
            November 7, 1989.

<PAGE>
            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 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.

     10.12  Manufacturing and Supply Agreement between the Registrant and
            Interlink Electronics 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 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 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,

<PAGE>
            1992. Incorporated by reference to Exhibit 10.27 of the Form S-1
            Registration Statement.

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

     10.23  Agreement between Zilog, Inc. and the Registrant dated 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. Incorporated by reference to
            Exhibit 10.22 on the Registrant's Annual Report on Form 10-K for the
            year ended December 31, 1996.**

     10.25  Employment Agreement between the Registrant and William A. Yates
            effective as of April 1, 1996. Incorporated by reference to Exhibit
            10.23 on the Registrant's Annual Report on Form 10-K for the year
            ended December 31, 1996.**

     10.26  Employment Agreement between the Registrant and David J. Arthur
            effective as of April 1, 1996. Incorporated by reference to Exhibit
            10.24 on the Registrant's Annual Report on Form 10-K for the year
            ended December 31, 1996.**

     21.1   Subsidiaries of the Registrant.

     23.1   Consent of Arthur Andersen LLP.

     24.1   Power of Attorney.

     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.

<PAGE>
<TABLE>
<CAPTION>
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:


                                                                Year Ended December 31, 
                                               ------------------------------------------------------
                                                  1998       1997        1996        1995        1994
                                               -------    -------    --------    --------    --------
<S>                                            <C>        <C>        <C>         <C>         <C>     
Statement of Operations Data:
Revenues                                       $22,095    $19,153    $ 13,485    $ 10,741    $  7,797

Cost of revenues                                13,954     11,829       7,028       5,252       4,094
                                               -------    -------    --------    --------    --------
   Gross profit                                  8,141      7,324       6,457       5,489       3,703
                                               -------    -------    --------    --------    --------

Operating expenses:
   Product development and research              1,416      1,600       1,234         897       1,011
   Selling, general and administrative           5,837      5,555       4,617       4,524       3,887
                                               -------    -------    --------    --------    --------

     Total operating expenses                    7,253      7,155       5,851       5,421       4,898
                                               -------    -------    --------    --------    --------

Operating income (loss)                            888        169         606          68      (1,195)
                                               -------    -------    --------    --------    --------

Other income (expense):
  Interest expense                                (127)      (152)      (118)         (60)        (37)
  Minority interest                                  -          -          -           41           -
  Other                                           (359)        13          27         101         155
  Gain from sale of interest in European
    Joint Venture                                    -          -           -           -       3,380
                                               -------    -------    --------    --------    --------

    Total other income (expense)                  (486)      (139)        (91)         82       3,489
                                               -------    -------    --------    --------    --------


Net income                                     $   402    $    30    $    515    $    150    $  2,303
                                               =======    =======    ========    ========    ========

Earnings per share - basic                     $   .08    $   .01    $    .12    $    .04    $    .49
Earnings per share - diluted                   $   .08    $   .01    $    .11    $    .03    $    .38

                                                                     December 31, 
                                               ------------------------------------------------------
                                                  1998       1997        1996        1995        1994
                                               -------    -------    --------    --------    --------
Balance Sheet Data:
Working capital                                $14,139   $ 12,461    $  8,969    $  6,353    $  2,140
Total assets                                    19,577     17,555      13,185      10,187       5,185
Short term debt                                    629        514         403         255         251
Long term debt and capital lease obligations     1,423        724         850         672         121
Stockholders' equity                            14,665     13,453       9,969       7,589       3,651

</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, 1998.

<TABLE>
<CAPTION>
================================================================================
                                        1998              1997             1996
--------------------------------------------------------------------------------
<S>                                     <C>               <C>              <C> 
Revenues:                               100%              100%             100%

Gross profit                             37                38               48

Operating expenses:
      Product development and
    research                              7                 8                9
      Selling, general and
    administrative                       26                29               34
    Total  operating expenses            33                37               43

Operating income                          4                 1                5

Other expense                            (2)               (1)              (1)

Net income                                2                 -                4

================================================================================
</TABLE>

     In 1998, revenues grew 15% to $22.1 million as compared to $19.2 million in
1997. Revenues increased 42% in 1997 from $13.5 million in 1996. This revenue
growth is a result of the Company's focus on developing and marketing the
computer pointing device product line based on the Company's patented
technologies, primarily in the computerized presentation projector market.
Revenues from this product line grew from $7.9 million in 1995 to $11.6 million
in 1996, $16.9 million in 1997 and $19.4 million in 1998. The Company has
established relationships with most of the major Original Equipment
Manufacturers (OEM's) in the computerized presentation projector market and
currently derives approximately two-thirds of its revenue from that market. Many
of these OEM's reside in Japan (however the majority of the end-user customer
base is in the US) and accordingly approximately 50% of the Company's revenues
come from Japanese customers. As a result the Company is subject to foreign
currency exchange rate fluctuations, primarily yen/dollar. Because of the
Company's focus on pointing device products, the Company expects that the Custom
Applications product line will show minimal or negative growth in the future.

     In 1998, gross profit as a percent of sales was 37% as compared to 38% in
1997 and 48% in 1996. This decline is a result of the growth of the Company's
sales to OEM customers, which typically carry a lower gross profit percentage as
compared to non-OEM sales. Additionally the computerized presentation projector
industry now is experiencing the rapid product development and price competition
expectations typically experienced in the computer hardware industry. The drop
in gross profit percentage from 1996 to 1997 was also impacted by a one-time
manufacturing yield problem.

     Product development and research expense increased from $1.2 million in
1996, to $1.6 million in 1997 and $1.4 million in 1998. During 1997, development
costs increased primarily due to the development costs, both internal and
external, relating to the introduction of the Company's VersaPad technology and
the development of RemoteLink technology. In 1998 resources were added to
support the increased OEM business both in the US and Japan and to develop the
new product FreedomWriter (first shipped in December 1998) and a new touchpad
peripheral to be introduced in 1999.

                                      F - 2
<PAGE>
     On a percent of sales basis, the Company has achieved a decline in SG&A
costs from 34% in 1996, to 29% in 1997 and 26% in 1998. This decline results
from the amortization of fixed SG&A costs over a greater base of sales and the
shift in product mix towards OEM sales.

     The Company recorded a profit from operations of $606,000 in 1996, $169,000
in 1997 and $888,000 in 1998. The decline in 1997 as compared to 1996 was caused
by a one-time write-off due to yield problems related to the new VersaPad
technology that more than offset continued strong revenue growth and cost
containment efforts. The improvement in 1998 as compared to 1997 is a result of
continued growth from the OEM business which allowed for strong cost containment
that offset the lower gross margin percentage.

     Other expense, relatively minor in prior years, reached $486,000 in 1998
due to a one-time legal settlement expense of $355,000.

     The revenue growth in the Company's Computer Pointing Device product line,
and operating cost control contributed to achieve 1996, 1997, and 1998 net
income of $515,000, $30,000 and $402,000. The decline in 1997 as compared to
1996 was caused by a one-time write-off due to yield problems related to the new
VersaPad technology that more than offset continued strong revenue growth and
cost containment efforts. 1998 results were negatively impacted by a one-time
charge related to a legal settlement of $355,000.

Liquidity and Capital Resources

     Working capital at December 31, 1998 was $14.1 million versus $12.5 million
at the end of 1997. This $1.6 million increase resulted from positive results
from operations and from the proceeds from debt agreements obtained through
Japanese banks.

     In 1998, operations consumed approximately $479,000 in cash due to the
growth in accounts receivable and inventory necessitated by revenue growth. As
the Company continues to pursue its branded products and Japan-based businesses,
both markets known for extended payment policies, operations may continue to be
a net user of cash.

     In 1998 the Company spent approximately $846,000 to purchase additional
manufacturing equipment and computer equipment, related to the Company's
internal computer network.

     In 1998, the Company negotiated an increase in the maximum available on its
Japanese bank line of credit to $1.1 million ($132,000 was used as of December
31, 1998). Also the Company's US line of credit was unused at December 31, 1998
($3 million availability). Additionally, the company believes there are a number
of sources available for the leasing of equipment. A secondary offering of
equity securities or the exercise of outstanding stock 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.

Year 2000 Issues

The Company has assessed the Year 2000 compliance of each of the products it
currently manufactures and sells. The Company believes each of those products
and their component parts is Year 2000 compliant.

The Company has assessed the sensitivity of its internal manufacturing control,
accounting and information management systems and determined that a majority of
its systems have no material Year 2000 deficiencies. The Company has developed
and is implementing a strategy to identify and eliminate any remaining system
deficiencies. The Company believes that the total cost of eliminating such
deficiencies will not exceed $100,000. Completion of this program is expected by
mid-1999.

                                      F - 3
<PAGE>
In the fourth quarter of 1998 the Company requested each of its suppliers of
critical parts and services to provide information to the Company about the
entity's anticipated Year 2000 compliance. Until that information is received,
the Company cannot complete that phase of the Company's Year 2000 assessment. In
1999 the Company expects to complete plans for risk management and any
contingency plans determined to be necessary.

At this time, the Company believes costs incurred in responding to other
parties' Year 2000 computer system deficiencies, together with the cost of any
required modifications to the Company's ancillary systems, will not have a
material impact on the Company's results of operations or financial condition.
This analysis may be modified as the Company receives responses from its parts
and services suppliers. Deficiencies not cured could severely impact the
Company's ability to meet the above cost estimate, timeline and its ability to
operate efficiently beyond January 1, 2000.

In its analysis, the Company has assumed that basic public utilities such as
gas, electric and telephone services will continue to be available for
operations of the Company on and after January 1, 2000. If this assumption
proves incorrect, the operations of the affected location would be materially
adversely affected for the duration of the interruption.

Foreign Currency Exchange Risk

The Company enters into foreign exchange forward contracts to hedge certain
revenue exposures against future movements in foreign exchange rates. Gains and
losses on the forward contracts are largely offset by gains and losses on the
underlying exposure and consequently a sudden or significant change in foreign
exchange rates would not have a material impact on future net income or cash
flows.

                                      F - 4
<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
31,1997 and 1998, 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Interlink Electronics, Inc. and
its subsidiary as of December 31, 1997 and 1998, 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 11, 1999

                                      F - 5
<PAGE>
<TABLE>
<CAPTION>
INTERLINK ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
-----------------------------------------------------------------------------------------------------
                                                                                     December 31,
                                                                         ----------------------------
                                                                                1998             1997
                                                                         -----------      -----------
<S>                                                                      <C>              <C>        
Assets
Current assets:
   Cash and cash equivalents                                             $     3,900      $     4,176
   Accounts receivable, less allowance for doubtful
     accounts of $462 and $352 in 1998
     and 1997, respectively                                                    6,758            5,684
   Inventories                                                                 6,796            5,461
   Prepaid expenses and other current assets                                     174              518
                                                                         -----------      -----------

     Total current assets                                                     17,628           15,839
                                                                         -----------      -----------

Property and equipment, net                                                    1,561            1,150
Patents and trademarks, less accumulated
   amortization of $640 and $542
   in 1998 and 1997, respectively                                                277              375
Other assets                                                                     111              191
                                                                         -----------      -----------

Total assets                                                             $    19,577      $    17,555
                                                                         ===========      ===========
Liabilities And Stockholders' Equity
Current liabilities:
   Bank line of credit                                                   $       132      $       576
   Current maturities of long-term debt
      and capital lease obligations                                              498              514
   Accounts payable                                                            2,220            1,935
   Accrued payroll and expenses                                                  639              353
                                                                         -----------      -----------

      Total current liabilities                                                3,489            3,378
                                                                         -----------      -----------

Long-term debt, net of current portion                                         1,074              337
Capital lease obligations, net of current portion                                349              387

Commitments and contingencies                                                      -                -

Stockholders' equity:
   Common stock (40,000 shares authorized,
    5,216 and 5,202 issued and outstanding at December 31,
    1998 and 1997, respectively)                                              24,694           24,629
   Accumulated other comprehensive income                                        216             (529)
   Accumulated deficit                                                       (10,245)         (10,647)
                                                                         -----------      -----------

     Total stockholders' equity                                               14,665           13,453
                                                                         -----------      -----------
Total liabilities and stockholders' equity                               $    19,577      $    17,555
                                                                         ===========      ===========
 

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

</TABLE>

                                      F - 6
<PAGE>
<TABLE>
<CAPTION>
INTERLINK ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
-------------------------------------------------------------------------------------------------------
                                                                          Year Ended December 31,
                                                              -----------------------------------------
                                                                     1998           1997           1996
                                                              -----------    -----------    -----------

<S>                                                           <C>            <C>            <C>        
Revenues                                                      $    22,095    $    19,153    $    13,485

Cost of revenues                                                   13,954         11,829          7,028
                                                              -----------    -----------    -----------

Gross profit                                                        8,141          7,324          6,457

Operating expenses:
  Product development and research                                  1,416          1,600          1,234
  Selling, general and administrative                               5,837          5,555          4,617
                                                              -----------    -----------    -----------

Total operating expenses                                            7,253          7,155          5,851
                                                              -----------    -----------    -----------

Operating income                                                      888            169            606
                                                              -----------    -----------    -----------

Other income (expense):
  Interest expense                                                   (127)          (152)          (118)
  Other income (expense)                                             (359)            13             27
                                                              -----------    -----------    -----------

Total other income (expense)                                         (486)          (139)           (91)
                                                              -----------    -----------    -----------


Net income                                                    $       402    $        30    $       515
                                                              ===========    ===========    ===========

Earnings per share - basic                                    $       .08    $       .01    $       .12
Earnings per share - diluted                                  $       .08    $       .01    $       .11

Weighted average shares - basic                                     5,212          4,764          4,387
Weighted average shares - diluted                                   5,212          5,020          4,602


The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>

                                      F - 7
<PAGE>
<TABLE>
<CAPTION>
INTERLINK ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
-----------------------------------------------------------------------------------------------------------------------


                                                                                      Accum-
                                                                                      ulated
                                                                                       Other        Total
                                               Common Stock           Accum-         Compre-        Stock-      Compre-
                                               ------------           ulated         hensive      holders'      hensive
                                          Shares         Amount      Deficit          Income        Equity       Income
                                          ------      ---------    ---------     -----------     ---------    ---------
<S>                                        <C>        <C>          <C>           <C>             <C>          <C>
Balance, December 31, 1995                 4,255      $  18,880    $ (11,192)    $       (99)    $   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)   $     (23)
  Net income                                                             515                           515          515
                                          ------      ---------    ---------     -----------     ---------    ---------

Balance, December 31, 1996                 4,515         20,768      (10,677)           (122)        9,969    $     49
                                                                                                              =========

  Issuance of shares upon
  exercise of employee
  stock options                              363          1,711                                      1,711
  Issuance of shares in private
  placement                                  324          2,150                                      2,150
  Cumulative translation
  adjustment                                                                            (407)         (407)   $    (407)
  Net income                                                              30                            30           30
                                          ------      ---------    ---------     -----------     ---------    ---------

Balance, December 31, 1997                 5,202         24,629      (10,647)           (529)       13,453    $     377
                                                                                                              =========

  Issuance of shares upon
  exercise of employee
  stock options                               14             65                                         65
  Cumulative translation
  adjustment                                                                             745           745         $745
  Net income                                                             402                           402          402
                                          ------      ---------    ---------     -----------     ---------    ---------

Balance, December 31, 1998                 5,216      $  24,694    $ (10,245)    $       216     $  14,665    $   1,147
                                          ======      =========    =========     ===========     =========    =========

The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>

                                       F - 8
<PAGE>
<TABLE>
<CAPTION>
INTERLINK ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
----------------------------------------------------------------------------------------------------
                                                                       Year Ended December 31, 
                                                               -------------------------------------
                                                                    1998          1997          1996
                                                               ---------     ---------     ---------
<S>                                                            <C>           <C>           <C>      
Cash flows from operating activities:
   Net income                                                  $     402     $      30     $     515
   Adjustments to reconcile net income to
    net cash used in operating activities:
     Provision for bad debts                                         110           119            77
     Depreciation and amortization                                   533           712           602
     Changes in operating asets and liabilities:
      Accounts receivable                                         (1,184)       (2,154)       (1,366)
      Inventories                                                 (1,335)       (1,827)       (1,450)
      Prepaid expenses and other current assets                      344          (233)          (46)
      Other assets                                                    80             2            37
      Accounts payable                                               285           789          (124)
      Accrued payroll and expenses                                   286          (464)          416
                                                               ---------     ---------     ---------

      Net cash used in operating activities                         (479)       (3,026)       (1,339)
                                                               ---------     ---------     ---------

Cash flows from investing activities:
   Purchases of property and equipment                              (846)         (555)         (432)
   Costs of patents and trademarks                                     -           (25)         (149)
                                                               ---------     ---------     ---------

      Net cash used in investing activities                         (846)         (580)         (581)
                                                               ---------     ---------     ---------

Cash flows from financing activities: 
  Borrowings on bank line of credit                                  548         1,576             -
   Payments on bank line of credit                                  (992)       (1,000)            -
   Borrowings on note payable                                        880           237           180
   Payments on note payable                                          (42)          (79)          (57)
   Proceeds from sale/leaseback                                      332           225           478
   Principal payments on capital lease obligations                  (487)         (353)         (232)
   Principal payments on Tech Transfer Agreement                       -           (45)          (43)
   Proceeds from issuance of common stock, net                        65         3,861         1,888
                                                               ---------     ---------     ---------
          Net cash provided by financing activities                  304         4,422         2,214
                                                               ---------     ---------     ---------

Effect of exchange rate changes on cash                              745          (407)          (23)
                                                               ---------     ---------     ---------
Increase (decrease) in cash and cash equivalents                    (276)          409           271
Cash and cash equivalents:
 beginning of period                                               4,176         3,767         3,496
                                                               ---------     ---------     ---------
 end of period                                                 $   3,900     $   4,176     $   3,767
                                                               =========     =========     =========
Supplemental disclosures of cash flow information:
  Interest paid                                                $     127     $     152     $     111
  Income taxes paid                                                    1            33             1

The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>

                                       F - 9
<PAGE>
INTERLINK ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

1. Summary of Significant Accounting Policies

Interlink Electronics, Inc. (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 consolidated stockholders' 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, 1998, 1997 and 1996 was $98,000, $90,000 and $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 11).

Earnings Per Share - Earnings per share-basic is based upon the weighted average
number of shares outstanding. Earnings per share-diluted is based on the
weighted average shares outstanding including the dilutive effect of common
stock equivalents. (See Note 9)

Accounts Receivable - Increases to the allowance for doubtful accounts totaled
$177,000, $42,000 and $77,000 for the years ended December 31, 1998, 1997 and
1996, respectively. Write-offs against the allowance for doubtful accounts
totaled, $67,000, $139,000 and none for the years ended December 31, 1998, 1997
and 1996, respectively.

Reclassifications - Certain prior year balances have been reclassified to
conform with the 1998 presentation.

                                     F - 10
<PAGE>
Recent Pronouncements - In June 1998, the AICPA issued Statement of Financial
Accounting Standards #133 "Accounting for Derivative Instruments and Hedging
Activities." The Company will adopt this standard in the third quarter of 1999.
The Company has not yet determined the impact of this new standard.

2. Inventories

<TABLE>
<CAPTION>
Inventories consisted of the following (in thousands):                December 31,
                                                              ------------------------
                                                                   1998           1997
                                                              ---------      ---------
<S>                                                           <C>            <C>      
Raw material                                                  $   3,130      $   2,666
Work in process                                                     618          1,107
Finished goods                                                    3,048          1,688
                                                              ---------      ---------
Total inventories                                             $   6,796      $   5,461
                                                              =========      =========

</TABLE>

3. Property And Equipment

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

<TABLE>
<CAPTION>
                                                                      December 31,
                                                              -------------------------
                                                                   1998            1997
                                                              ---------      ----------
<S>                                                           <C>            <C>       
Furniture, machinery and equipment                            $   3,956      $    3,139
Leasehold improvements                                              177             147
                                                              ---------      ----------
                                                                  4,133           3,286
Less accumulated depreciation and amortization                   (2,572)        (2,136)
                                                              ---------      ----------

Property and equipment, net                                   $   1,561      $    1,150
                                                              =========      ==========
</TABLE>

Depreciation and amortization expense charged to operations amounted to
$436,000, $534,000 and $449,000 for the years ended 1998, 1997, and 1996,
respectively. Property and equipment under capital leases had a net book value
of $656,000 and $1,046,000 at December 31, 1998 and 1997 respectively.

4. 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.

5. Short-Term Borrowings

The Company maintains a domestic revolving line of credit with a maximum amount
of $3,000,000, none of which had been drawn as of December 31, 1998. The loan
carries an interest rate of the bank's interest rate (7.75% at December 31,
1998) and matures in May 1999. 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, 1998.

The Company's Japan subsidiary maintains an unsecured line of credit with a bank
with a maximum amount of $1,124,000, of which, $132,000 was drawn at December
31, 1998. This line carries an interest rate of 1.3%.

                                     F - 11
<PAGE>
Selected information regarding short-term borrowings is as follows:

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                                              -------------------------
                                                                   1998            1997
                                                              ---------      ----------
<S>                      <C>                                  <C>            <C>       
Average daily borrowings (000's)                              $     594      $      743
Maximum daily borrowings (000's)                              $   1,124      $    1,576
Weighted average interest rate during year                         1.3%            7.0%
</TABLE>


6 . Long-Term Debt and Capital Leases

Bank loans - The Company's Japan subsidiary, Interlink Electronics KK, maintains
unsecured loans with five banks. The loans carry a weighted average interest
rate of 2.7% and are payable in monthly installments through the year 2004. The
combined balance outstanding as of December 31, 1998 and 1997 was $1,244,000 and
$406,000, respectively.

Capital lease obligations - The Company had an equipment financing agreement
with a leasing company to provide for the purchase of equipment. As amounts were
drawn, the funded amount was converted to a note payable with a standard payment
schedule of up to 48 months at an effective interest rate of 8.35%. As of
December 31, 1998, the Company had utilized and converted $1,825,000 to notes
payable.

At December 31, 1998, scheduled maturates of long-term debt and capital lease
obligations for the next five years and thereafter are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                          Debt                   Leases
                                                      --------                ---------
<S>                                                   <C>                     <C>      
1999                                                  $    195                $     372
2000                                                       253                      207
2001                                                       268                      120
2002                                                       252                       52
2003                                                       201                        -
Thereafter                                                 161                        -
                                                      --------                ---------
                                                         1,330                      751
Less amount representing interest                          (86)                     (74)
                                                      --------                ---------
Present value of minimum payments                        1,244                      677

                                                      --------                ---------
Current portion                                           (170)                    (328)
Long term portion                                     $  1,074                $     349
                                                      ========                =========
</TABLE>

7. Capitalization

Preferred Stock - The Company is authorized to issue up to 10,000,000 shares of
Preferred Stock. As of December 31, 1998, 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 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.

In September 1997, the Company completed a private placement of 324,348 shares
of common stock. The Company received gross proceeds of $2,250,000 prior to fees
totaling $100,000.

8. Stock Warrants And Stock Options

On June 4, 1998, the Company's  remaining  outstanding stock warrants  (270,000)
expired by their terms.

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
3,184,150. Outstanding options under the plans vest in various increments
through October 2002. Information concerning stock options under the plans is
summarized as follows:

                                     F - 12
<PAGE>
<TABLE>
<CAPTION>
                                 1998                            1997                           1996
                          --------------------------     ---------------------------     ---------------------------
                                    Weighted-Average                Weighted-Average                Weighted-Average
                          Shares     Exercise Price      Shares      Exercise Price      Shares      Exercise Price
                          ------    ----------------     ------     ----------------     ------     ----------------
<S>                        <C>           <C>              <C>             <C>             <C>            <C>  
Outstanding beg year       1,415         $5.50            1,432           $5.25           1,219          $4.63
Granted                    2,486          3.21              434            6.50             393           5.76
Exercised                    (14)         4.63             (363)           4.71             (36)          4.23
Forfeited and expired     (1,832)         5.62              (88)           5.62            (144)          5.62
                          ------         -----            ------          -----           -----          -----
Outstanding end year       2,055         $2.75            1,415           $5.62           1,432          $5.38
                          ------         -----            ------          -----           -----          -----
Exercisable end year         983         $2.75              884           $5.50             958          $5.25
                          ------         -----            ------          -----           -----          -----
</TABLE>

As of December 31, 1998, the stock options outstanding under the plans had an
average exercise price of $2.75 and a weighted average remaining contractual
life of five years.

The weighted average fair value at date of grant for options granted during
1998, 1997 and 1996 was $3.21, $6.50 and $5.76 per option, respectively. The
fair value of options at date of grant was estimated using the Black Scholes
model with the following weighted average assumptions:

<TABLE>
<CAPTION>
                                    1998                       1997                     1996
<S>                                  <C>                        <C>                      <C>
Expected life (years)                 4                          4                        4
Interest rate                         6.0%                       6.3%                     6.3%
Volatility                           79%                        64%                      59%
Dividend yield                        0%                         0%                       0%
</TABLE>

The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related Interpretations in accounting for its
stock option plans. Accordingly, no compensation cost has been recognized for
these plans. Had compensation cost for the Company's plans been determined based
on the fair value at the grant dates for awards under the plans consistent with
the method of SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company would have recorded stock-based compensation expense of $1.6 million in
1998, $1.2 million in 1997 and $213,000 in 1996.

9. Earnings Per Share

For all periods presented, per share information was computed pursuant to
provisions of SFAS 128. The computation of earnings per share - basic is based
upon the weighted average number of common shares outstanding during the periods
presented. Earnings per share - diluted also includes the effect of common
shares contingently issuable from options and warrants (in periods which they
have a dilutive effect).

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

                                     F - 13
<PAGE>
The following table contains information necessary to calculate earnings per
share:

<TABLE>
<CAPTION>
                                                                          (In Thousands)
                                                                  -------------------------------
                                                                      Year Ended December 31,
                                                                  -------------------------------
                                                                    1998         1997        1996
                                                                  ------       ------      ------
     <S>                                                           <C>          <C>         <C>  
     Weighted average shares outstanding                           5,212        4,764       4,388

     Assumed conversion of options and warrants                    - (1)        1,685       1,702

     Assumed repurchase of shares                                  - (1)       (1,429)     (1,487)
                                                                  ------       ------      ------

     Weighted average shares - diluted                             5,212        5,020       4,602
                                                                  ======       ======      ======

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

10. Commitments and Contingencies

The Company leases its main facility and certain equipment under operating
leases expiring through 2003.

Rent payments totaled approximately $239,000, $236,000 and $227,00 for 1998,
1997 and 1996, respectively.

Minimum lease commitments at December 31, 1998 are summarized as follows (in
thousands):

1999             $   330
2000                 267
2001                 273
2002                 283
2003                 185
                 -------
                 $ 1,338
                 =======

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

11. Income Taxes

As of December 31, 1998, the Company had federal and state income tax net
operating loss carryforwards of approximately $11,674,000 expiring through 2017
and $80,000 expiring through 1999, respectively.

The Company has research and development tax credit carryforwards of
approximately $260,000 and $270,000 at December 31, 1997 and 1998, respectively.
The Company has total net deferred tax assets as follows:

<TABLE>
<CAPTION>
                                                                     (In Thousands)
                                                           ----------------------------
                                                                1998               1997
                                                           ---------          ---------
<S>                                                        <C>                <C>      
Deferred tax assets:
     Net operating loss carryforward                       $   3,976          $   3,852
     Vacation accrual                                             70                 54
     Allowance for bad debts                                     187                105
     Other                                                       456                316

     Total deferred tax assets                                 4,689              4,327

Valuation allowance                                           (4,689)            (4,327)
                                                           ---------          ---------
     Total                                                 $       -          $       -
                                                           =========          =========
</TABLE>

A valuation allowance is recorded if the weight of available evidence suggests
it is more likely than not that if some portion or all of the deferred tax asset
will not be recognized. There is no assurance that the Company will continue to
be profitable in future periods, therefore, a valuation allowance has been
recognized for the full amount of the deferred tax asset for 1998 and 1997.

                                     F - 14
<PAGE>
12. Related Party Transaction

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

13. Revenue Information

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

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                                       --------------------------------
                                                           1998        1996        1997
                                                       --------    --------    --------
     <S>                                                  <C>          <C>         <C>
     Asia                                                 59%          26%         30%
     Europe and other                                     11%          13%         20%
</TABLE>

Major Customers - In 1998, sales to three customers in the computer industry
exceeded 10% of the Company's sales. Their sales constituted over 15%, 14% and
10%. In 1997, sales to one customer in the computer industry constituted 13% of
the Company's sales and in 1996, sales to one customer in the computer industry
constituted 15% of the Company's sales.

                                     F - 15