<PAGE>

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


                                   FORM 10-Q


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

          For the quarterly period ended September 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)
<TABLE>
<CAPTION>
          <S>                                      <C>
                Delaware                              77-0056625
     (State or other jurisdiction of               (I.R.S. Employer
     incorporation or organization)             Identification Number)


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


                                (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 October 22, 2001: 9,758,772
<PAGE>

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

INTERLINK ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                    December 31,   September 30,
                                                                                      2000             2001
                                                                                   -----------     -------------
                                                                                                    (Unaudited)
<S>                                                                                <C>             <C>
Assets
Current assets:
   Cash and cash equivalents                                                        $10,506           $10,360
   Accounts receivable, less allowance for doubtful accounts
      of $722 and $940 in 2000 and 2001, respectively                                 8,613             5,925
   Inventories                                                                        9,435             8,533
   Deferred tax asset                                                                   600             1,301
   Prepaid expenses and other current assets                                            661               626
                                                                                    -------           -------

      Total current assets                                                           29,815            26,745
                                                                                    -------           -------

Property and equipment, net                                                           1,632             1,648
Patents and trademarks, less accumulated amortization of $860 and
   $950 in 2000 and 2001, respectively                                                  235               145
Other assets                                                                             92               524
                                                                                    -------           -------

Total assets                                                                        $31,774           $29,062
                                                                                    =======           =======
Liabilities and Stockholders' Equity
Current liabilities:
   Current maturities of long-term debt and capital lease obligations               $ 2,079           $ 2,147
   Accounts payable                                                                   3,305             2,112
   Accrued payroll and related expenses                                                 936               842
   Other accrued expenses                                                               367               279
                                                                                    -------           -------

      Total current liabilities                                                       6,687             5,380
                                                                                    -------           -------

Minority interest                                                                        56                68
Long-term debt, net of current portion                                                2,547             2,042
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 9,759 shares outstanding at December 31, 2000 and
      September 30, 2001, respectively)                                              27,630            28,625
Accumulated other comprehensive loss                                                   (168)             (477)
Accumulated deficit                                                                  (5,029)           (6,576)
                                                                                    -------           -------

      Total stockholders' equity                                                     22,433            21,572
                                                                                    -------           -------

Total liabilities and stockholders' equity                                          $31,774           $29,062
                                                                                    =======           =======
</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      Nine Month Period
                                           Ended September 30,    Ended September 30,
                                           -------------------    -------------------
                                             2000       2001        2000       2001
                                            -------     ------     -------    -------
<S>                                       <C>         <C>        <C>         <C>
Revenues                                    $ 8,625     $6,036     $24,567    $19,964
Cost of revenues                              4,833      3,572      14,265     13,374
                                            -------     ------     -------    -------
Gross profit                                  3,792      2,464      10,302      6,590

Operating expense:
   Product development and research             725        839       2,299      2,684
   Selling, general and administrative        2,207      2,218       5,508      6,400
                                            -------     ------     -------    -------
      Total operating expense                 2,932      3,057       7,807      9,084
                                            -------     ------     -------    -------

Operating income (loss)                         860       (593)      2,495     (2,494)
                                            -------     ------     -------    -------

Other income (expense):
   Interest income, net                          44         35          65        150
   Cost of cancelled equity offering              -          -        (769)         -
   Other income (expense)                        (1)       (19)         36         33
                                            -------     ------     -------    -------
      Total other income (expense)               43         16        (668)       183
                                            -------     ------     -------    -------

Income (loss) before provision for
  income taxes                                  903       (577)      1,827     (2,311)
                                            -------     ------     -------    -------

Provision (benefit) for income taxes            106       (115)        250       (764)
                                            -------     ------     -------    -------

Net income (loss)                           $   797     $ (462)    $ 1,577    $(1,547)
                                            =======     ======     =======    =======

Earnings (loss) per share - basic           $  0.09     $(0.05)    $  0.18    $ (0.16)
Earnings (loss) per share - diluted         $  0.07     $(0.05)    $  0.14    $ (0.16)

Weighted average shares - basic               9,029      9,744       8,794      9,606
Weighted average shares - diluted            11,225      9,744      11,242      9,606
</TABLE>

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

                                       3
<PAGE>

INTERLINK ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                       Nine Month Period
                                                                      Ended September 30,
                                                                      -------------------
                                                                        2000       2001
                                                                      -------    -------
<S>                                                                   <C>       <C>
Cash flows from operating activities:
   Net income (loss)                                                  $ 1,577    $(1,547)
   Adjustments to reconcile net income (loss) to net cash provided by
     (used in) operating activities:
         Provision for bad debts                                           36        218
         Depreciation and amortization                                    585        560
         Minority interest                                                (20)        12
         Deferred tax asset                                                 -       (701)
         Changes in operating assets and liabilities:
            Accounts receivable                                           332      1,362
            Inventories                                                (1,896)       902
            Prepaid expenses and other current assets                    (774)        35
            Other assets                                                  134         36
            Accounts payable                                             (745)       (85)
            Accrued payroll and expenses                                  184       (182)
                                                                      -------    -------
              Net cash provided by (used in) operating activities        (587)       610

Cash flows from investing activities:
   Purchases of property and equipment                                   (584)      (486)
   Costs of patents and trademarks                                        (73)         -
                                                                      -------    -------
              Net cash used in investing activities                      (657)      (486)

Cash flows from financing activities:
   Borrowings on notes payable to bank                                  2,232        833
   Principal payments on notes payable to bank                           (632)    (1,232)
   Principal payments on capital lease obligations                       (144)       (89)
   Proceeds from issuance of common stock, net                          1,155        995
   Due from stockholders                                                    -       (468)
                                                                      -------    -------
              Net cash provided by financing activities                 2,611         39
                                                                      -------    -------

Effect of exchange rate changes on cash                                  (244)      (309)
                                                                      -------    -------

Increase (decrease) in cash and cash equivalents                        1,123       (146)
Cash and cash equivalents:
   Beginning of period                                                  7,492     10,506
                                                                      -------    -------
   End of period                                                      $ 8,615    $10,360
                                                                      =======    =======

Supplemental disclosures of cash flow information:
   Interest paid                                                      $    66    $    89
   Income taxes paid                                                  $     1    $     1
</TABLE>

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

                                       4
<PAGE>

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

1. Basis of Presentation of Interim Financial Data

The financial information as of September 30, 2001 and for the three and nine
month periods ended September 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:

<TABLE>
<CAPTION>

                                            (In Thousands)
                                  ----------------------------------
                                  Accumulated Other
                                    Comprehensive     Comprehensive
                                        Income            Income
                                  ------------------  --------------
<S>                               <C>                 <C>
Balance at December 31, 2000           $  (168)
Translation adjustment                    (309)           $  (309)
Net loss                                                   (1,547)
                                       -------            -------

Balance at September 30, 2001          $  (477)           $(1,856)
                                       =======            =======
</TABLE>

3. Due From Stockholders

In May 2001, the Company advanced an aggregate total of $468,000 to certain of
its officers and directors to purchase shares of the Company's common stock in
the open 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 original equipment
manufacturers, or OEMs, in the computerized presentation system market, which we
now call the Business Communications market. In 1999, we introduced the ePad
product for the E-Transactions market 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. Prior to the second quarter
of 2001, revenues increased steadily during the last six years as we 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 technology and design innovation required to maintain a leadership position
in existing markets and to successfully enter 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 markets.
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 intuitive interface devices to customers in the Business Communications
market 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.  Sales to customers in the Home
Entertainment and E-Transactions markets accounted for 8% and 3% of 2000
consolidated revenue respectively and we expect that these sales 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. Through September, 2001, we were entitled to royalties in connection
with sales of

                                       6
<PAGE>

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, respectively, 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 and it did not 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 States 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 30% from $8.6 million in the three month period ended
September 30, 2000 to $6.0 million in the three month period ended September 30,
2001 and declined 19% from $24.6 million in the nine month period ended
September 30, 2000 to $20.0 million in the nine month period ended September 30,
2001. The revenue decline resulted from the general slowdown in the global
economy, especially in the U.S. and Japan.  Sales to the customers in the
Business Communications market, which constituted 61% of third quarter 2001
consolidated revenues, were additionally impacted by the devaluation of the
Japanese yen in relation to the U.S. dollar.  Sales to customers in our other
markets, Specialty Components, Home Entertainment and E-Transactions,
constituted 26%, 11% and 2% of third quarter 2001 consolidated revenues
respectively.

Gross profit decreased 35% from $3.8 million in the three month period ended
September 30, 2000 to $2.5 million in the three month period ended September 30,
2001 and declined 36% from $10.3 million in the nine month period ended
September 30, 2000 to $6.6 million in the nine month period ended September 30,
2001.  As a percentage of revenues, gross profit decreased from 44.0% in the
three month period ended September 30, 2000 to 40.8% in the three month period
ended September 30, 2001 and decreased from 41.9% in the nine month period ended
September 30, 2000 to 33.0% in the nine month period ended September 30, 2001.
In the second quarter of 2001, we increased our inventory reserves by $2 million
in anticipation of potential write-offs as a result of the worldwide economic
downturn.  Excluding the reserve adjustment, gross profit percentages declined
due to a lower amount of licensing revenues in proportion to product revenues.

Product development and research expense increased 16% from $725,000 in the
three month period ended September 30, 2000 to $839,000 in the three month
period ended September 30, 2001 and increased 17% from $2.3 million in the nine
month period ended September 30, 2000 to $2.7 million in the nine month period
ended September 30, 2001.  As a percentage of revenues, product development and
research expense increased from 8.4% in the three month period ended September
30, 2000 to 13.9% in the three month period ended September 30, 2001 and from
9.4% in the nine month period ended September 30, 2000 to 13.4% in the nine
month period ended September 30, 2001.  These increases resulted primarily from
continued investment in our IntuiTouch interface technology, which we market to
companies in the Home Entertainment market, our VersaPad technology, which we
market to customers in the E-Transaction market and the development of our
FreeBeam(TM) technology, a wireless whiteboard conversion product that we
introduced in the third quarter of 2001 and that we expect to market to the
Business Communications market.

Selling, general and administrative expense was $2.2 million in the three month
periods ended September 30, 2000 and 2001 and increased from $5.5 million in the
nine month period ended September 30, 2000 to $6.4 million in the nine month
period ended September 30, 2001. As a percentage of revenue, selling, general
and administrative expense increased from 25.6% in the three month period ended
September 30,

                                       7
<PAGE>

2000 to 36.7% in the three month period ended September 30, 2001 and increased
from 22.4% in the nine month period ended September 30, 2000 to 32.1% in the
nine month period ended September 30, 2001. The increase is the result of
establishing sales and marketing teams for products we sell to customers in the
E-Transactions and Home Entertainment markets coupled with the decrease in
revenues. In addition, we increased our reserve for bad debts by $300,000 in the
third quarter of 2001 in response to continued poor economic conditions.

Operating income decreased from $860,000 in the three month period ended
September 30, 2000 to an operating loss of $593,000 in the three month period
ended September 30, 2001 and decreased from $2.5 million in the nine month
period ended September 30, 2000 to an operating loss of $2.5 million in the nine
month period ended September 30, 2001. The decline in operating income is the
result of the revenue decline coupled with the inventory and bad debt reserve
adjustments.

Income taxes decreased from a $106,000 expense in the three-month period ended
September 30, 2000 to a benefit of $115,000 in the three month period ended
September 30, 2001 as a result of the negative operating results.

Net income decreased from $797,000 in the three month period ended September 30,
2000 to a loss of $462,000 in the three month period ended September 30, 2001
and decreased from income of $1.6 million in the nine month period ended
September 30, 2000 to a loss of $1.5 million in the nine month period ended
September 30, 2001 due to the factors discussed above.


Liquidity and Capital Resources

At September 30, 2001, working capital totaled $21.4 million as compared to
$23.1 million at December 31, 2000. This decrease is a result of negative
operating results coupled with the purchase of capital equipment.

For the nine month period ended September 30, 2001, operating activities created
a positive cash flow of $610,000. This reflects the positive result from
operations when material non-cash items, principally consisting of inventory
reserve adjustment, allowance for bad debt adjustment, and additions to the
deferred tax asset, are added back to the net loss.

For the nine month period ended September 30, 2001, investing activities
consumed $486,000 in cash, consisting primarily of the purchase of production
equipment.

For the nine month period ended September 30, 2001, financing activities
provided $39,000. Our U.S. line of credit was unused at September 30, 2001 and
had $5 million of availability as of that date. We have a $1 million equipment
lease line, unused at September 30, 2001. The exercise of outstanding stock
options is a potential source of equity capital that may be available to us,
although we do not rely on this as a source of income. 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 use six-month foreign exchange forward contracts to hedge certain revenue
exposures against future movements in foreign exchange rates.  Gains and losses
on the forward contracts are largely offset by gains and losses on the
underlying exposure and consequently we would not expect a sudden or significant
change in foreign exchange rates to have a material impact on future net income
or cash flows. However, a foreign exchange movement with a duration of over six
months could impact financial performance.

                                       8
<PAGE>

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 statements appear in a
number of places in this report (see, for example, "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Overview,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Results of Operations" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital Resources").
Such statements can be identified by the use of forward looking terminology such
as "believes," "expects," "may," "estimates," "will," "should," "plans," or
"anticipates" or comparable terminology, or by discussions of strategy.  Readers
are cautioned that any such forward-looking statements are not guarantees of
future performance and involve significant risks and uncertainties, and that
actual results may vary materially from those in the forward-looking statements
as a result of various 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, especially the
          Japanese yen.

     .    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.

                                       9
<PAGE>

     .    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.

The following, in addition to the risk factors described above, are among the
factors that could cause actual results to differ materially from the forward-
looking statements: a continued downturn in the electronics industry and general
economy, both domestic and international; lower than expected customer orders,
delays in receipt of orders or cancellation of orders; competitive factors,
including increased competition, new product offerings by competitors and price
pressures; 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 Report on Form 10-Q
regarding industry trends, revenue and product mix, costs and gross profit
expectations, income taxes, revenue growth, product development and marketing
and sales expenses, cash flow, foreign currency exchange risk and future
business activities should be considered in light of these factors.

                                       10
<PAGE>

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.

                                       11
<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:  November 14, 2001          PAUL D. MEYER
                                  -------------
                                  Paul D. Meyer

                                  Chief Financial Officer
                                  (Principal Financial and Accounting
                                  Officer)

                                       12