<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 March 31, 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
 incorporation or organization)                 Number)


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


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

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


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

     Yes X     No
        ---      ---

Shares of Common Stock Outstanding, at May 1, 2001:  9,606,369
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PART I:  FINANCIAL INFORMATION
Item 1:  Financial Statements


INTERLINK ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
                                                                      December 31,    March 31,
                                                                          2000          2001
                                                                         -------       -------
                                                                                     (Unaudited)
<S>                                                                    <C>            <C>
Assets
Current assets:
  Cash and cash equivalents                                              $10,506       $10,168
  Accounts receivable, less allowance for doubtful accounts
   of $722 and $732 in 2000 and 2001, respectively                         8,613         8,031
  Inventories                                                              9,435         9,384
  Deferred tax asset                                                         600           900
  Prepaid expenses and other current assets                                  661           380
                                                                         -------       -------
        Total current assets                                              29,815        28,863
                                                                         -------       -------
Property and equipment, net                                                1,632         1,685
Patents and trademarks, less accumulated amortization
    of $860 and $890 in 2000 and 2001, respectively                          235           205
Other assets                                                                  92            75
                                                                         -------       -------
Total assets                                                             $31,774       $30,828
                                                                         =======       =======
Liabilities and Stockholders' Equity
Current liabilities:
    Current maturities of long-term debt and capital
      lease obligations                                                  $ 2,079       $ 1,677
    Accounts payable                                                       3,305         2,429
    Accrued payroll and related expenses                                     936           847
    Other accrued expenses                                                   367           289
                                                                         -------       -------
        Total current liabilities                                          6,687         5,242
                                                                         -------       -------
Minority interest                                                             56            68
Long term debt, net of current portion                                     2,547         2,205
Capital lease obligations, net of current portion                             51            28
Commitments and contingencies                                                 --            --
Stockholders' equity:
  Common stock $0.00001 par value (50,000 shares
    authorized, 9,249 and 9,607 outstanding at December 31,
    2000 and March 31, 2001, respectively)                                27,630        28,329
  Accumulated other comprehensive income                                    (168)         (748)
  Accumulated deficit                                                     (5,029)       (4,296)
                                                                         -------       -------
         Total stockholders' equity                                       22,433        23,285
                                                                         -------       -------
Total liabilities and stockholders' equity                               $31,774       $30,828
                                                                         =======       =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

                                       2
<PAGE>

INTERLINK ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
                                                                                 Three Month Period
                                                                                  Ended March 31,
                                                                       ----------------------------------
                                                                            2000                2001
                                                                       --------------      --------------
<S>                                                                  <C>                 <C>
Revenues                                                               $        7,685      $        7,389
Cost of revenues                                                                4,771               4,117
                                                                       --------------      --------------
Gross profit                                                                    2,914               3,272

Operating expense:
 Product development and research                                                 619                 844
 Selling, general and administrative                                            1,511               1,999
                                                                       --------------      --------------
  Total operating expense                                                       2,130               2,843
                                                                       --------------      --------------
Operating income                                                                  784                 429
                                                                       --------------      --------------
Other income (expense):
 Minority interest                                                                  -                 (12)
 Interest income                                                                    9                  59
 Other income                                                                      63                  63
                                                                       --------------      --------------
  Total other income (expense)                                                     72                 110
                                                                       --------------      --------------
Income before provision for income taxes                                          856                 539
Provision (benefit) for income taxes                                              144                (194)
                                                                       --------------      --------------
Net income                                                             $          712      $          733
                                                                       ==============      ==============
Earnings per share - basic                                             $          .08      $          .08
Earnings per share - diluted                                           $          .06      $          .07

Weighted average shares - basic                                                 8,576               9,409
Weighted average shares - diluted                                              11,189              10,875
</TABLE>

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

                                       3
<PAGE>

INTERLINK ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
                                                                                 Three Month Period
                                                                                   Ended March 31,
                                                                       -----------------------------------
                                                                            2000                 2001
                                                                       --------------       --------------
<S>                                                                  <C>                 <C>
Cash flows from operating activities:
 Net income                                                            $          712       $          733
 Adjustments to reconcile net income to net cash provided by
  (used in) operating activities:
  Provisions for bad debts                                                         10                   10
  Depreciation and amortization                                                   234                  182
  Minority interest                                                                --                   12
  Deferred tax asset                                                               --                 (300)
  Changes in operating assets and liabilities:
   Accounts receivable                                                            205                  572
   Inventories                                                                 (1,304)                  51
   Prepaid expenses and other current assets                                     (480)                 281
   Other assets                                                                  (298)                  17
   Accounts payable                                                               235                 (876)
   Accrued payroll and expenses                                                  (216)                (167)
                                                                       --------------       --------------
     Net cash provided by (used in) operating activities                         (902)                 515

Cash flows from investing activities:
 Purchases of property and equipment                                             (152)                (205)
 Costs of patents and trademarks                                                  (37)                  --
                                                                       --------------       --------------
     Net cash used in investing activities                                       (189)                (205)
                                                                       --------------       --------------
Cash flows from financing activities:
 Borrowings on note payable to bank                                               352                   --
 Principal payments on note payable to bank                                      (109)                (732)
 Principal payments on capital lease obligations                                  (57)                 (35)
 Proceeds from issuance of common stock, net                                      266                  699
                                                                       --------------       --------------
     Net cash provided by (used in) financing activities                          452                  (68)

Effect of exchange rate changes on cash                                           (70)                (580)
                                                                       --------------       --------------
Decrease in cash and cash equivalents                                            (709)                (338)
Cash and cash equivalents:
 Beginning of period                                                            7,492               10,506
                                                                       --------------       --------------
 End of period                                                         $        6,783       $       10,168
                                                                       ==============       ==============
Supplemental disclosures of cash flow information:
 Interest paid                                                         $           12       $           32
 Income taxes paid                                                     $            1       $            2
</TABLE>

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

                                       4
<PAGE>

INTERLINK ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2001 (UNAUDITED)
--------------------------------------------------------------------------------

1. Basis of Presentation of Interim Financial Data

The financial information herein for the three month periods ended March 31,
2000 and 2001 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 notes thereto 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:
<TABLE>
<CAPTION>

                                                           (In Thousands)
                                               ------------------------------------
                                               Accumulated Other
                                                 Comprehensive        Comprehensive
                                                    Income               Income
                                               -----------------      -------------
           <S>                                      <C>                 <C>
           Balance at December 31, 2000              $(168)
           Translation adjustment                     (580)              $(580)
           Net Income                                    -                 733
                                                     -----               -----
           Balance at March 31, 2001                 $(748)              $ 153
                                                     =====               =====
</TABLE>

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<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 includes engineering, contract engineering and
development and material costs of development, have generally increased as
revenue has increased but has remained relatively consistent as a percentage of
revenues, reflecting our continuing commitment to the technological and design
innovation required to maintain a leadership position in existing markets and to
develop new ones. Selling, general and administrative expense, which includes
sales, marketing and administrative personnel, advertising, sales commissions,
reseller incentives, tradeshow costs and other sales expenses, declined through
1999 and stabilized in 2000 as a percentage of sales, reflecting the
amortization of a relatively fixed expense requirement over a larger revenue
base. Because of net operating loss carryforwards available both for our U.S.-
based and Japan-based operations, we historically have not paid income tax.
Beginning in 1999, some of these loss carryforwards began to expire or became
fully utilized; therefore income taxes are expected to increase on both a
percentage and absolute dollar basis. Other income (expense) was significant in
1998 and 2000 as the result of a non-recurring legal settlement expense and 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.

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. We have occasionally licensed other aspects of our
technology in connection with the settlement of intellectual property disputes
and expect to continue to do so in the future.

In June 1998 and June 1999, the AICPA issued Statement of Financial Accounting
Standards, or SFAS, No. 133 "Accounting for Derivative Instruments and Hedging
Activities" and SFAS No. 137, which delayed

                                       6
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the effective date of SFAS No. 133 and required its adoption beginning January
1, 2001. We adopted this standard in January 2001, however, we do not expect its
implementation to have a significant impact on our financial position or results
of operations.

Results of Operations

Revenues declined 4% from $7.7 million in the three month period ended March 31,
2000 to $7.4 million in the three month period ended March 31, 2001.  This
revenue decrease is a result of lower sales to customers in the e-transaction
and broadband home entertainment markets.  Sales to customers in those markets
accounted for 3% and 2% of revenues for the 2001 quarter, respectively.  Sales
to customers in the other two market segments, business communications and
specialty components, accounted for 70% and 25% of consolidated revenues,
respectively.

Gross profit increased 12% from $2.9 million in the three month period ended
March 31, 2000 to $3.3 million in the same period in 2001.  As a percentage of
revenues, gross profit increased from 37.9% for the three month period ended
March 31, 2000 to 44.3% for the same period in 2001.  These increases reflect
increased sales of higher margin products to customers in the home entertainment
market and increased licensing revenues.

Product development and research expense increased 36% from $619,000 for the
three month period ended March 31, 2000 to $844,000 for the same period in 2001.
As a percentage of revenues, product development and research expense increased
from 8.1% for the three month period ended March 31, 2000 to 11.4% 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
broadband home entertainment market, and our VersaPad technology, which we sell
to customers in the e-transaction market.

Selling, general and administrative expense increased from $1.5 million for the
three month period ended March 31, 2000 to $2.0 million for the same period in
2001.  As a percentage of revenues, SG&A increased from 19.7% for the three
month period ended March 31, 2000 to 27.1% 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 broadband home entertainment markets.

Operating income decreased from $784,000 for the three month period ended March
31, 2000 to $429,000 for the same period in 2001. The decrease is the result of
lower revenues and higher operating costs partially offset by improved gross
margins.

Income taxes decreased from an expense of $144,000 for the three month period
ended March 31, 2000 to a benefit of $194,000 for the same period in 2001.  The
net tax benefit is due to a higher probability that we will be able to utilize
our net operating loss carryforwards.

Net income increased from $712,000 for the three month period ended March 31,
2000 to $733,000 for the same period in 2001 due to the factors discussed above.

Liquidity and Capital Resources

At March 31, 2001, working capital totaled $23.6 million as compared to $23.1
million at December 31, 2000. This increase is primarily a result of the
positive results from operations.

For the three month period ended March 31, 2001, investing activities consumed
$205,000 in cash, consisting primarily of the purchase of production equipment.

For the three month period ended March 31, 2001, financing activities were
essentially break even. Our U.S. line of credit was unused at March 31, 2001 and
had $5 million of availability as of that date. We have a $1 million equipment
lease line, unused at March 31, 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

                                       7
<PAGE>

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.

     .    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.

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<PAGE>

     .    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.

PART II:  OTHER INFORMATION


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.

                                       9
<PAGE>

                                   SIGNATURES

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

                                    INTERLINK ELECTRONICS, INC.



DATE: May 11, 2001                  /S/ Paul D. Meyer
                                    --------------------------
                                    Paul D. Meyer
                                    Chief Financial Officer
                                    (Principal Financial and Accounting
                                    Officer)

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