<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C. 20549


                                   FORM 10-Q


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

          For the quarterly period ended June 30, 2001

                                      OR

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

          For the transition period from _____________ to _______________


                          Commission File No. 0-21858

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

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

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


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

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


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

     Yes  X     No __
         ---

Shares of Common Stock Outstanding, at July 30, 2001: 9,738,759
<PAGE>

PART I - FINANCIAL INFORMATION
Item 1.   Financial Statements

<TABLE>
<CAPTION>
INTERLINK ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
----------------------------------------------------------------------------------------------
                                                                          December 31,    June 30,
                                                                              2000          2001
                                                                          ------------   ----------
                                                                                         (Unaudited)
<S>                                                                       <C>            <C>
Assets
Current assets:
 Cash and cash equivalents                                                 $10,506        $ 9,704
 Accounts receivable, less allowance for doubtful accounts
  of $722 and $771 in 2000 and 2001, respectively                            8,613          6,693
 Inventories                                                                 9,435          8,294
 Deferred tax asset                                                            600          1,301
 Prepaid expenses and other current assets                                     661            496
                                                                           -------        -------

   Total current assets                                                     29,815         26,488
                                                                           -------        -------

 Property and equipment, net                                                 1,632          1,736
 Patents and trademarks, less accumulated amortization
  of $860 and $920 in 2000 and 2001, respectively                              235            175
 Other assets                                                                   92            536
                                                                           -------        -------

 Total assets                                                              $31,774        $28,935
                                                                           =======        =======
Liabilities and Stockholders' Equity
Current liabilities:
 Current maturities of long-term debt and capital lease obligations        $ 2,079        $ 1,504
 Accounts payable                                                            3,305          2,214
 Accrued payroll and related expenses                                          936            940
 Other accrued expenses                                                        367            303
                                                                           -------        -------

   Total current liabilities                                                 6,687          4,961
                                                                           -------        -------

Minority interest                                                               56             68
Long-term debt, net of current portion                                       2,547          2,099
Capital lease obligations, net of current portion                               51              -
Commitments and contingencies                                                    -              -
Stockholders' equity:
 Common stock, $0.00001 par value (50,000 shares authorized
    9,249 and 9,740 shares outstanding at December 31, 2000 and
    June 30, 2001, respectively)                                            27,630         28,591
Accumulated other comprehensive income (loss)                                 (168)          (670)
Accumulated deficit                                                         (5,029)        (6,114)
                                                                           -------        -------

   Total stockholders' equity                                               22,433         21,807
                                                                           -------        -------

 Total liabilities and stockholders' equity                                $31,774        $28,935
                                                                           =======        =======
</TABLE>

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

                                       2
<PAGE>

<TABLE>
<CAPTION>
INTERLINK ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
---------------------------------------------------------------------------------
                                            Three Month Period        Six Month Period
                                              Ended June 30,           Ended June 30,
                                            ------------------       ------------------
                                              2000      2001           2000      2001
                                            -------   --------       --------  --------
<S>                                         <C>       <C>            <C>       <C>
Revenues                                     $ 8,257   $ 6,539        $15,942   $13,928
Cost of revenues                               4,661     5,685          9,432     9,802
                                             -------   -------        -------   -------
Gross profit                                   3,596       854          6,510     4,126

Operating expense:
   Product development and research              955     1,001          1,574     1,845
   Selling, general and administrative         1,790     2,183          3,301     4,182
                                             -------   -------        -------   -------
      Total operating expense                  2,745     3,184          4,875     6,027
                                             -------   -------        -------   -------

Operating income (loss)                          851    (2,330)         1,635    (1,901)
                                             -------   -------        -------   -------

Other income (expense):
   Interest income (expense), net                 12        56             21       115
   Cost of cancelled equity offering            (769)        -           (769)        -
   Other income (expense)                        (26)        1             37        52
                                             -------   -------        -------   -------
      Total other income (expense)              (783)       57           (711)      167
                                             -------   -------        -------   -------

Income (loss) before provision for
 income taxes                                     68    (2,273)           924    (1,734)
                                             -------   -------        -------   -------

Provision (benefit) for income taxes               -      (455)           144      (649)
                                             -------   -------        -------   -------

Net income (loss)                            $    68   $(1,818)       $   780   $(1,085)
                                             =======   =======        =======   =======

Earnings (loss) per share - basic            $   .01    $ (.19)       $   .09   $  (.11)
Earnings (loss) per share - diluted          $   .01    $ (.19)       $   .07   $  (.11)

Weighted average shares - basic                8,778     9,640          8,677     9,525
Weighted average shares - diluted             11,311     9,640         11,250     9,525
</TABLE>

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

                                       3
<PAGE>

<TABLE>
<CAPTION>
INTERLINK ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
---------------------------------------------------------------------------------------------------
                                                                          Six Month Period
                                                                            Ended June 30,
                                                                          -----------------
Cash flows from operating activities:                                       2000      2001
                                                                          --------  -------
<S>                                                                       <C>       <C>
  Net income (loss)                                                        $   780   $(1,085)
  Adjustments to reconcile net income (loss) to net cash provided by
   (used in) operating activities:
    Provision for bad debts                                                     20        49
    Depreciation and amortization                                              430       352
    Minority interest                                                            -        12
    Deferred tax asset                                                           -      (701)
      Changes in operating assets and liabilities:
        Accounts receivable                                                  1,117       763
        Inventories                                                         (1,365)    1,141
        Prepaid expenses and other current assets                             (829)      165
        Other assets                                                            98       (41)
        Accounts payable                                                      (215)       17
        Accrued payroll and expenses                                           (84)      (59)
                                                                           -------   -------
          Net cash provided by (used in) operating activities                  (48)      613

Cash flows from investing activities:
    Purchases of property and equipment                                       (503)     (397)
    Costs of patents and trademarks                                            (38)        -
                                                                           -------   -------
          Net cash used in investing activities                               (541)     (397)

Cash flows from financing activities:
    Borrowings on notes payable to bank                                      1,305         -
    Principal payments on notes payable to bank                               (215)   (1,007)
    Principal payments on capital lease obligations                           (105)      (67)
    Proceeds from issuance of common stock, net                                530       961
    Due from stockholder                                                         -      (403)
                                                                           -------   -------
          Net cash provided by (used in) financing activities                1,515      (516)
                                                                           -------   -------

Effect of exchange rate changes on cash                                       (260)     (502)
                                                                           -------   -------

Increase (decrease) in cash and cash equivalents                               666      (802)
Cash and cash equivalents:
   Beginning of period                                                       7,492    10,506
                                                                           -------   -------
   End of period                                                           $ 8,158   $ 9,704
                                                                           =======   =======

Supplemental disclosures of cash flow information:
   Interest paid                                                           $    42   $    70
   Income taxes paid                                                       $     1   $    29
</TABLE>

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

                                       4
<PAGE>

INTERLINK ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR SIX MONTHS ENDED JUNE 30,2001 (UNAUDITED)
---------------------------------------------

1.   Basis of Presentation of Interim Financial Data

The financial information for the three and six month periods ended June 30,
2000 and 2001 included in this report is unaudited; however, such information
reflects all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of results
for the interim periods.  The interim statements should be read in conjunction
with the financial statements and the related notes included in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2000.

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

2.   Comprehensive Income

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

                                                      (In Thousands)
                                            ---------------------------------
                                            Accumulated Other
                                              Comprehensive     Comprehensive
                                                 Income             Income
                                            -----------------   -------------
     Balance at December 31, 2000                 $(168)
     Translation adjustment                        (502)           $  (502)
     Net loss                                                       (1,085)
                                                  -----            -------

     Balance at June 30, 2001                     $(670)           $(1,587)
                                                  =====            =======

3.   Due From Stockholders

In May 2001, the Company advanced an aggregate total of $403,000 to certain of
its officers and directors to purchase shares of the Company's common stock on
the public market.  Each of the loans, which carry interest rates of 5% per
annum and are due on November 1, 2002, is secured by the shares of stock
purchased by the officer or director.

                                       5
<PAGE>

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

Overview

We are a leader in the development of intuitive interface devices for a variety
of home and business applications. We were incorporated in California in
February 1985 and reincorporated in Delaware in July 1996. From 1985 to 1992, we
developed and refined our Force Sensing Resistor, or FSR, technology and sold it
to customers for electronic, musical, medical and other applications, which we
now refer to as the Specialty Components market. In 1992, we introduced our
first branded computer pointing device, PortaPoint, and in 1994, we introduced
our first wireless pointing device, RemotePoint. With the advent of this latter
device, we established ourselves as a leading supplier to OEMs in the
computerized presentation system market, which we now call the Business
Communications market. In 1999, we introduced the ePad product for E-
Transactions applications and IntuiTouch technology for the Home Entertainment
market.

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

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

Sales of business communications intuitive interface devices accounted for 61%
of our total sales in 2000 and 62% of our total sales in the three years ended
December 31, 2000. Our business communications sales in dollars grew at an
average annualized rate of 20% in 2000. Because our market share for business
communications interface devices is approximately 80%, we expect that our
ability to achieve further revenue growth in this market will largely depend on
growth in the market itself.  The Home Entertainment and E-Transactions segments
accounted for 8% and 3% of 2000 consolidated revenue respectively and will
become a greater contributor to consolidated revenue growth as we penetrate
those markets.

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

We have licensed certain technology related to the production of FSR sensors to
International Electronics and Engineering, a former affiliate based in
Luxembourg, for use in connection with sales of sensors to the automotive
industry. We are entitled to royalties in connection with sales of automotive
sensors outside Europe through the third quarter of 2001. We have occasionally
licensed other aspects of our technology in connection with the settlement of
intellectual property disputes and expect to continue to do so in the future.

                                       6
<PAGE>

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

In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
No. 101).  SAB No. 101 expresses the views of the SEC staff in applying
accounting principles generally accepted in the United Sates to certain revenue
recognition issues.  We adopted the provisions of SAB No. 101 in the fourth
quarter of fiscal 2000 and its adoption did not have a material impact on our
financial position or results of operations.

Results of Operations

Revenues declined 21% from $8.3 million in the three month period ended June 30,
2000 to $6.5 million in the three month period ended June 30, 2001 and declined
13% from $15.9 million in the six month period ended June 30, 2000 to $13.9
million in the six month period ended June 30, 2001. The revenue decline
resulted from the general slowdown in the global economy, especially in the U.S.
and Japan.  Our Business Communications segment, which consisted 67% of second
quarter 2001 consolidated revenues, was additionally impacted by the devaluation
of the Japanese Yen in relation to the U.S. Dollar.  Our other segments,
Specialty Components, Home Entertainment and E-Transactions equaled 22%, 5% and
6% of consolidated revenues respectively.

Gross profit decreased from $3.6 million in the three month period ended June
30, 2000 to $854,000 in the same period in 2001 and declined 37% from $6.5
million in the six month period ended June 30, 2000 to $4.1 million in the six
month period ended June 30, 2001.  As a percentage of revenues, gross profit
decreased from 43.5% for the three month period ended June 30, 2000 to 13.0% for
the same period in 2001 and decreased from 40.8% for the six month period ended
June 30, 2000 to 29.6% for the same period in 2001.  In second quarter 2001, we
increased our inventory reserves by $2 million to anticipate potential write-
offs as a result of the worldwide economic downturn.  Excluding the reserve
adjustment, gross profit percentages were consistent with the prior year.

Product development and research expense increased 5% from $955,000 for the
three month period ended June 30, 2000 to $1 million for the same period in 2001
and increased 17% from $1.6 million for the six month period ended June 30, 2000
to $1.8 million for the same period in 2001.  As a percent of revenues, product
development and research expense increased from 11.5% for the three month period
ended June 30, 2000 to 15.3% for the same period in 2001 and from 9.9% for the
six month period ended June 30, 2000 to 13.2% for the same period in 2001.
These increases resulted primarily from continued investment in our IntuiTouch
interface technology, which we market to companies in the Home Entertainment
market, and our VersaPad technology, which we sell to customers in the E-
Transaction market.

Selling, general and administrative expense increased from $1.8 million for the
three month period ended June 30, 2000 to $2.2 million for the same period in
2001 and increased from $3.3 million for the six month period ended June 30,
2000 to $4.2 million for the same period in 2001. As a percent of revenue, SG&A
expense increased from 21.7% for the three month period ended June 30, 2000 to
33.4% for the same period in 2001 and increased from 20.7% for the six month
period ended June 30, 2000 to 30.0% for the same period in 2001.  The increase
is the result of establishing sales and marketing teams for products we sell to
customers in the E-Transaction and Home Entertainment markets coupled with the
decrease in revenues.

Operating income decreased from $851,000 for the three month period ended June
30, 2000 to an operating loss of $2.3 million for the same period of 2001 and
decreased from $1.6 million for the first six months of 2000 to an operating
loss of $1.9 million for the same period in 2001. The decline in operating
income is the result of the revenue decline coupled with the inventory reserve
adjustment.

                                       7
<PAGE>

Income taxes decreased from a zero expense for the three month period ended June
30, 2000 to a benefit of $455,000 for the same period in 2001 as a result of the
negative operating results.

Net income decreased from $68,000 for the three month period ended June 30, 2000
to a loss of $1.8 million for the same period in 2001 and decreased from income
of $780,000 for the six month period ended June 30, 2000 to a loss of $1.1
million for the same period in 2001 due to the factors discussed above.


Liquidity and Capital Resources

At June 30, 2001, working capital totaled $21.5 million as compared to $23.1
million at December 31, 2000. This decrease is a result of the negative
operating results coupled with the purchase of capital equipment.

For the six month period ended June 30, 2001, investing activities consumed
$397,000 in cash, consisting primarily of the purchase of production equipment.

For the six month period ended June 30, 2001, financing activities consumed
$516,000. Our U.S. line of credit was unused at June 30, 2001 and had $5 million
of availability as of that date. We have a $1 million equipment lease line,
unused at June 30, 2001. The exercise of outstanding stock options is a
potential source of equity capital that may be available to us. We believe that
our current cash balances and lines of credit will allow us to fund our
operations for at least the next 12 months. However, an unforeseen downturn in
our results of sufficient magnitude could adversely affect our ability to meet
that forecast.

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

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

Forward-Looking Statements

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

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

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

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

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

     .    International sales and manufacturing risks.

     .    Fluctuations in the value of foreign currencies.

                                       8
<PAGE>

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

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

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

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

     .    Failure to manage our growth effectively.

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

     .    Changing standards or regulations.

     .    Interruption of our contract manufacturing arrangements.

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

     .    Performance, reliability or quality problems with our products.

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

     .    Failure to protect our intellectual property.

     .    Proprietary technologies of our competitors creating barriers to
          entry.

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

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

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

     .    Industry downturns in the markets we serve.

     .    Volatility in our stock price.

                                       9
<PAGE>

PART II:  OTHER INFORMATION

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

On June 19, 2001 at the Company's Annual Meeting of Stockholders, the holders of
the Company's outstanding common stock took the actions described below.  At
April 16, 2001, the record date, 9,556,651 shares of common stock were
outstanding and eligible to vote at the Annual Meeting of Stockholders.

     1.   By the vote indicated below, the stockholders re-elected Eugene F.
          Hovanec to the Company's Board of Directors to serve for a three year
          term:

               For Eugene F. Hovanec:

                    8,451,216           Shares in favor
                            0           Shares against
                        9,226           Shares withheld

     2.   By the vote indicated below, the stockholders ratified the appointment
          of Arthur Andersen LLP as the Company's independent auditors for the
          fiscal year ending December 31, 2001.

                    8,443,076           Shares in Favor
                       15,046           Shares against
                        2,320           Shares withheld

Item 6.   Exhibits And Reports On Form 8-K

          a.   Exhibits

               None.

          b.   Reports on Form 8-K

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

                                       10
<PAGE>

                                  SIGNATURES

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

                                       INTERLINK ELECTRONICS, INC.



DATE:  August 10, 2001                 /s/ Paul D. Meyer
                                       -----------------------------------------
                                       Paul D. Meyer
                                       Chief Financial Officer
                                       (Principal Financial and Accounting
                                       Officer)

                                       11