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, 2005

                                       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
incorporation or organization)                            Identification 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 [_]    No [X]

         Indicate by check mark whether the  registrant  is a large  accelerated
filer,  an accelerated  filer,  or a  non-accelerated  filer.  See definition of
"accelerated  filer and large  accelerated  filer" in Rule 12b-2 of the Exchange
Act. (Check one):

Large accelerated filer [_]    Accelerated filer [X]   Non-accelerated filer [_]

         Indicate by check mark whether the  registrant  is a shell  company (as
defined in Rule 12b-2 of the Exchange Act).

                              Yes [_]    No [X]

Shares of Common Stock Outstanding, at June 30, 2006: 13,774,126


<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

<TABLE>
INTERLINK ELECTRONICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT PAR VALUE)

<CAPTION>
                                                                       September   December
                                                                       30, 2005    31,2004(1)
                                                                       --------    --------
<S>                                                                    <C>         <C>
ASSETS
Current assets:
   Cash and cash equivalents .......................................   $  5,167    $  6,067
   Short-term investments, available for sale ......................     10,000      13,000
   Accounts receivable, less allowance for doubtful accounts and
     product returns of $113 and $198 at 2005 and 2004, respectively      9,850       8,249
   Inventories, net of reserves of $2,476 and $412 at 2005 and
     2004, respectively (see Note 1) ...............................      8,350      10,256
   Prepaid expenses and other current assets .......................        243         335
                                                                       --------    --------

     Total current assets ..........................................     33,610      37,907

Property and equipment, net ........................................      1,017       1,669
Patents and trademarks, less accumulated amortization
   of $1,197 and $1,144 at 2005 and 2004, respectively .............        327         265
Other assets .......................................................         75         107
                                                                       --------    --------

Total assets .......................................................   $ 35,029    $ 39,948
                                                                       ========    ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Current maturities of long-term debt ............................   $    244    $    491
   Accounts payable ................................................      4,507       5,641
   Accrued payroll and related expenses ............................      1,175       1,031
   Deferred revenue ................................................        879         188
    Other accrued expenses .........................................        685         101
                                                                       --------    --------
     Total current liabilities .....................................      7,490       7,452
                                                                       --------    --------

Long-term debt, net of current portion .............................        241         405
Commitments and contingencies
Stockholders' equity:
  Preferred stock, $5.00 par value (100 shares authorized,
      none issued and outstanding) .................................       --          --
  Common stock, $0.00001 par value (50,000 shares authorized,
      13,754 and 13,676 shares issued and outstanding at
      2005 and 2004, respectively) .................................     50,738      50,413
Due from stockholders ..............................................       (429)       (429)
Accumulated other comprehensive loss ...............................       (446)       (377)
Accumulated deficit ................................................    (22,565)    (17,516)
                                                                      --------    --------

     Total stockholders' equity ....................................     27,298      32,091
                                                                       --------    --------

Total liabilities and stockholders' equity .........................   $ 35,029    $ 39,948
                                                                       ========    ========
</TABLE>

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


----------
(1)      As restated. See Note 1 to the consolidated financial statements.


                                       2
<PAGE>


<TABLE>
INTERLINK ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<CAPTION>
                                              THREE MONTH PERIOD       NINE MONTH PERIOD
                                              ENDED SEPTEMBER 30,     ENDED SEPTEMBER 30,
                                             --------------------    --------------------
                                               2005       2004(1)      2005       2004(1)
                                             --------    --------    --------    --------
<S>                                          <C>         <C>         <C>         <C>
Revenues .................................   $ 10,223    $  9,556    $ 29,756    $ 25,724
Cost of revenues .........................      8,931       7,468      23,389      17,319
                                             --------    --------    --------    --------
Gross profit .............................      1,292       2,088       6,367       8,405

Operating expenses:
   Product development and research ......      1,128       1,169       3,337       3,075
   Selling, general and administrative ...      2,930       2,610       8,307       7,020
                                             --------    --------    --------    --------
     Total operating expenses ............      4,058       3,779      11,644      10,095
                                             --------    --------    --------    --------

Operating loss ...........................     (2,766)     (1,691)     (5,277)     (1,690)
                                             --------    --------    --------    --------

Other income (expense):
   Interest income (expense), net ........        106          (6)        296         (37)
   Other income (expense) ................        (29)         (9)        (67)         25
                                             --------    --------    --------    --------
     Total other income (expense) ........         77         (15)        229         (12)
                                             --------    --------    --------    --------

Loss before provision (benefit) for
   income taxes ..........................     (2,689)     (1,706)     (5,048)     (1,702)

Provision (benefit) for income tax expense       --           (16)       --             1
                                             --------    --------    --------    --------

Net loss .................................   $ (2,689)   $ (1,690)   $ (5,048)   $ (1,703)
                                             ========    ========    ========    ========

Loss per share - basic ...................   $  (0.20)   $  (0.15)   $  (0.37)   $  (0.15)
                                             ========    ========    ========    ========
Loss per share - diluted .................   $  (0.20)   $  (0.15)   $  (0.37)   $  (0.15)
                                             ========    ========    ========    ========

Weighted average shares - basic ..........     13,734      11,622      13,710      11,436
                                             ========    ========    ========    ========
Weighted average shares - diluted ........     13,734      11,622      13,710      11,436
                                             ========    ========    ========    ========
</TABLE>

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

----------
(1)      As restated. See Note 1 to the consolidated financial statements.


                                       3
<PAGE>


INTERLINK ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
                                                             Nine Month Period
                                                            Ended September 30,
                                                           --------------------
                                                             2005       2004(1)
                                                           --------    --------
Cash flows from operating activities:
     Net loss ..........................................   $ (5,048)   $ (1,703)
     Adjustments to reconcile net loss to net cash
       used in operating activities:
         Provision for (recovery of) allowance for
            doubtful accounts receivable ...............         54         (30)
         Increase in reserves for excess inventories ...      2,310         345
         Stock-based compensation ......................        106         220
         Depreciation and amortization .................        858         417
         Changes in operating assets and liabilities:
           Accounts receivable .........................     (1,655)        215
           Prepaid expenses and other current assets ...         92          42
           Inventories .................................       (405)     (2,207)
           Other assets ................................         32         (74)
           Accounts payable ............................     (1,135)      1,381
           Deferred revenue ............................        690          49
           Accrued payroll and other accrued expenses ..        728         230
                                                           --------    --------
              Net cash used in operating activities ....     (3,373)     (1,115)
                                                           --------    --------

Cash flows from investing activities:
     Sales (purchase) of marketable securities .........      3,000     (11,001)
     Purchases of property and equipment ...............       (152)       (405)
     Costs of patents and trademarks ...................       (114)        (93)
                                                           --------    --------
              Net cash used in investing activities ....      2,734     (11,499)
                                                           --------    --------

Cash flows from financing activities:
     Net proceeds from public stock offering ...........       --        13,168
     Principal payments on debt ........................       (411)       (451)
     Proceeds from exercise of employee/director
       stock options ...................................        220       1,811
     Due from shareholders .............................       --            86
                                                           --------    --------
              Net cash provided by (used in)
                financing activities ...................       (191)     14,614
                                                           --------    --------

Effect of exchange rate changes on cash and cash
     equivalents .......................................        (70)        (28)
                                                           --------    --------

Increase (decrease) in cash and cash equivalents .......       (900)      1,972

Cash and cash equivalents:
     Beginning of period ...............................      6,067       4,062
                                                           --------    --------
     End of period .....................................   $  5,167    $  6,034
                                                           ========    ========

Supplemental disclosures of cash flow information:
     Interest paid .....................................   $     17    $     64
                                                           ========    ========
     Income taxes paid .................................   $      1    $      1
                                                           ========    ========

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


----------
(1)      As restated. See Note 1 to the consolidated financial statements.


                                       4
<PAGE>


INTERLINK ELECTRONICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 (UNAUDITED)

1.       BASIS OF PRESENTATION OF INTERIM FINANCIAL DATA

         The financial  information  as of September 30, 2005, and for the three
and nine month  periods  ended  September  30,  2005 and 2004,  included in this
report,  is  unaudited.  Such  information,  however,  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.

         On November 2, 2005, the Company  announced that it intended to restate
its  financial  results for the years ended  December  31, 2003 and December 31,
2004 and the first two  quarters  of 2005 to reflect a matter  that the  Company
identified in a recent  reconciliation of accounts with a key vendor in China, a
second matter related to double-counting  of inventory,  a third matter relating
to unrecorded  licensing  costs and a fourth matter  relating to a balance sheet
reclassification for certain cash prepayments.
 The  first  matter  relates  to a net  write-off  of $1.1  million  of  certain
receivables  primarily  originating in the fourth quarter of 2003, with $167,000
of that amount  originating in the fourth quarter of 2002, due from a key vendor
in China and the  recording  of $1.0 million in payables due to that same vendor
that were not properly recorded in the Company's accounting system for the third
and fourth  quarters  of 2004 and the first and second  quarters  of 2005 in the
amounts of $249,000, $224,000, $205,000 and $331,000,  respectively.  The second
matter relates to the  understatement  of cost of sales in the second quarter of
2005  of  $372,000   as  a  result  of  certain   inventory   components   being
double-counted  and thus  overstated in inventory as of June 30, 2005. The third
matter  relates  to an  understatement  of cost of sales in the first and second
quarters of 2005 of $51,000 and $565,000,  respectively,  as a result of certain
licensing  charges  that  were  not  properly  recorded  in  cost of  sales  and
inventory. The fourth matter relates to a balance sheet reclassification of $1.3
million  in cash  payments  made by a  customer  during  the  second  and fourth
quarters of 2004 as well as the first and second  quarters of 2005 in advance of
future  shipments of product.  These payments were  incorrectly  applied against
accounts  receivable  rather  than  recorded  as  deferred  revenue.   The  cash
prepayments have been properly reclassified to deferred revenue.

         On March 30, 2006,  the Company  announced  that it had  discovered two
additional  discrepancies  in its  historical  financial  statements.  The first
matter  relates to  accounting  for stock  options of  terminated  employees and
resulted in an unrecorded, non-cash expense of $2.4 million in 2001, $220,000 in
2004 and  $108,000  in 2005,  $106,000  of which was in the first nine months of
2005. The second matter relates to overstated  valuation of certain inventory in
transit  between the parent company and its Hong Kong  subsidiary as of December
31,  2004.  This  matter  resulted  in the  understatement  of cost of  sales of
$837,000  in 2004,  none of which was in the first nine  months of 2004,  and an
overstatement of cost of sales of $748,000 in 2005, $441,000 of which was in the
first nine months of 2005, for a net increase in cost of sales of $89,000.

         In November  2005,  the  Company's  audit  committee  began an internal
investigation  into the matters disclosed in the November 2, 2005  announcement.
In  connection  with the  restatement  issues  identified  in November the audit
committee hired outside legal counsel to conduct an internal investigation. They
in turn retained the services of an independent  accounting  firm to assist with
various forensic accounting and electronic procedures performed in the course of
the investigation.

         For the items discovered  subsequent to the November 2005 announcement,
the  Committee,  seeing no evidence  suggesting  the  involvement of any current
employees,  instructed  senior  company  management and outside legal counsel to
conduct investigations into these matters.

         Based on the findings of the independent and company investigations, as
well as senior  management's  evaluation of the  effectiveness of the design and
operation of the company's  controls and  procedures,  the Committee  determined
that inadequate  internal controls  contributed to the restatement  issues.  The
primary control deficiencies are identified on pages 27 to 29 of this Form 10-Q.


                                       5
<PAGE>


         The information  included herein  reflects the  restatements  discussed
above  and  should  be read  in  conjunction  with  the  consolidated  financial
statements and the related notes, as restated,  which are included in our Annual
Report on Form 10-K for the year ended  December 31, 2005,  which is being filed
concurrently with this Report.

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

2.       SIGNIFICANT ACCOUNTING POLICIES

         REVENUE RECOGNITION.  The Company recognizes revenue in accordance with
SEC Staff Accounting  Bulletin ("SAB") No. 104,  "Revenue  Recognition." SAB No.
104  requires  that  four  basic  criteria  must be met  before  revenue  can be
recognized:  (1) persuasive  evidence of an arrangement exists; (2) delivery has
occurred or services  rendered;  (3) the fee is fixed and determinable;  and (4)
collectibility  is  reasonably  assured.  Determination  of criteria (3) and (4)
require management's judgments regarding the fixed nature of the fee charged for
services rendered and products  delivered and the  collectibility of those fees.
To satisfy the criteria,  the Company: (1) inputs orders based upon receipt of a
customer  purchase  order;  (2) records  revenue upon shipment of goods and when
risk of loss and  title  has  transferred;  (3)  confirms  pricing  through  the
customer purchase order; and (4) validates creditworthiness through past payment
history,  credit agency  reports and other  financial  data.  All customers have
warranty  rights and some  customers  also have  explicit or implicit  rights of
return. We comply with Statement of Financial  Accounting  Standards No. 48 with
respect to  sell-through  and returns and the related  recording of revenues for
potential  customer  returns.  Should changes in conditions  cause management to
determine  the  revenue  recognition  criteria  are not met for  certain  future
transactions,  such as a determination  that  collectibility  was not reasonably
assured,  revenue  recognized  for  any  reporting  period  could  be  adversely
affected.

         ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS.  The Company's
accounts  receivable are  unsecured,  and are at risk to the extent such amounts
become  uncollectible.  The  Company  continually  monitors  individual  account
receivable  balances,  and provides for an allowance of doubtful accounts at the
time collection may become  questionable based on payment  performance or age of
the receivable and other factors related to the customer's ability to pay.

         RESERVE FOR ESTIMATED  PRODUCT  RETURNS.  While not an explicit part of
the Company's  terms and conditions of product sales except for some  customers,
it does, on a discretionary  basis, grant product exchanges for its distribution
and reseller customers in its branded business communications market for similar
products of equal value if these  exchanges  meet certain  other  criteria.  The
Company  estimates  future  product  returns  based on  recent  return  history,
inventory status and product  "sell-through"  statistics received from its major
distributors,  discussions  regarding  product  sales  activity  with its  major
reseller  customers,   and  current  industry  product  and  technology  trends.
Management  judgment is required in evaluating the relative  significance of the
aforementioned  data  and in the  determination  of the  estimated  value of the
returns reserve.  If actual returns are greater than management's  estimate then
revenues in the subsequent period will be adversely affected.

         INVENTORY  RESERVE.  At each balance sheet date, the Company  evaluates
its ending  inventories for excess quantities and obsolescence.  This evaluation
includes analyses of forecast sales levels by product and historical demand. The
Company writes off inventories that are considered obsolete. Remaining inventory
balances are adjusted to  approximate  the lower of our cost or market value and
result in a new cost basis in such  inventory  until sold.  If future  demand or
market  conditions  are less favorable than  projections,  additional  inventory
write-downs  may be  required,  and would be  reflected  in cost of sales in the
period the revision is made. Based on lowered  expectations for future demand in
the Business  Communications-OEM  segment as well as  limitations  on the use of
certain  restricted raw materials  prompted by early adoption of the Restriction
of Hazardous  Substances Act of 2002 by many of our customers,  we increased our
reserve for excess and obsolete  inventory by approximately  $1.9 million in the
third  quarter of 2005.  The  reserve  is  discussed  in detail in the  BUSINESS
SEGMENT OVERVIEW under Business Communications.


                                       6
<PAGE>


         PROVISION  FOR INCOME  TAX.  As part of the  process of  preparing  the
Company's financial statements, as required by Statement of Financial Accounting
Standards ("SFAS") No. 109, the Company is required to estimate its income taxes
in each of the  jurisdictions  in  which  it  operates.  This  process  involves
estimating  the Company's  actual  current tax exposure  together with assessing
temporary  differences  resulting from differing  treatment of items for tax and
accounting  purposes.  These  differences  result in  deferred  tax  assets  and
liabilities, which are included in the Company's balance sheet. The Company must
then assess the  likelihood  that its deferred tax assets will be recovered from
future  taxable  income and to the extent the Company  believes that recovery is
not likely,  it must  establish a valuation  reserve.  To the extent the Company
establishes a reserve or increases this reserve in a period,  it must include an
expense within the tax provision in the statements of operations.

         Significant   management   judgment  is  required  in  determining  the
Company's provision for income taxes, deferred tax asset and liabilities and any
valuation  reserve  recorded  against the  Company's  net  deferred  tax assets.
Management  continually  evaluates  its  deferred  tax asset as to whether it is
likely that the deferred tax asset will be realized.

         Based on historical and prospective evidence, the Company has concluded
that it did not have sufficient  evidence to be able to recognize any of its net
tax assets,  primarily its net  operating  loss (NOL)  carryforward  benefits as
assets and thus it has recorded a 100% valuation allowance against the Company's
net deferred tax asset balance. If the Company achieves profitable operations in
the future,  it will reevaluate its deferred tax asset balance and may reduce or
eliminate the valuation allowance.

         As of December 31, 2004, the Company had NOL carryforwards for federal,
state and foreign income tax purposes of $36.5  million,  $18.8 million and $2.4
million,  respectively,  which are available to offset future  taxable income in
those jurisdictions through 2024.

         FOREIGN EXCHANGE  EXPOSURE.  The Company has established  relationships
with most of the major OEMs in the business communications market. Many of these
OEMs are  based in Japan and  approximately  21%,  28% and 23% of the  Company's
revenues  for the  first  nine  months  of 2005 and the  years  2004  and  2003,
respectively,  came from Japanese  customers.  Revenues from these customers are
denominated  in  Japanese  yen and as a result the Company is subject to foreign
currency exchange rate  fluctuations in the yen/dollar  exchange rate. From time
to time,  the Company  uses  foreign  currency  forward and average  rate option
contracts to hedge this  exposure.  The Company uses revenue  forecasts from its
Japanese  subsidiary to determine  the amount of forward or option  contracts to
purchase and the Company attempts to enter into these contracts when it believes
the yen value is relatively  strong against the U.S. dollar.  To the extent that
the Company's  revenue  forecast may be inaccurate or the timing of  forecasting
the yen's strength is wrong,  the Company's actual hedge gains or losses may not
necessarily  correlate with the effect of foreign currency rate  fluctuations on
its revenues.  The Company marks these contracts to market value and the gain or
loss from these contracts is recorded in business  communications revenue. These
hedge  transactions  are  classified  as economic  hedges and do not qualify for
hedge accounting under Statement of Financial  Accounting  Standards No. 133. In
addition, because the Company's Japanese subsidiary's functional currency is the
yen, the translation of the net assets of that subsidiary into the  consolidated
results will fluctuate with the yen/dollar exchange rate.

         The  following  table   illustrates  the  impact  of  foreign  currency
fluctuations on the Company's  yen-denominated revenues and the effectiveness of
its foreign currency hedging activity (in thousands).

                                                               Nine Months
                                                            Ended September 30,
                                                             ----------------
                                                             2005        2004
                                                             -----      -----
Increase (decrease) in revenues resulting from
    foreign currency fluctuations .......................    $ 118      $(116)
Hedging gains ...........................................       39        127
                                                             -----      -----
        Net revenue impact ..............................    $ 157      $  11
                                                             =====      =====

         The Company  calculates the "increase  (decrease) in revenues resulting
from foreign currency fluctuations" by calculating the U.S. dollar equivalent of
its yen-denominated revenues using the yen/dollar


                                       7
<PAGE>


exchange rate at the beginning of the period.  The resulting product is compared
to the Company's yen-denominated revenues converted to U.S. dollars according to
GAAP and the difference is shown in the table above.

         STOCK-BASED  COMPENSATION.  The Company applies  Accounting  Principles
Board ("APB")  Opinion No. 25,  "Accounting  for Stock Issued to Employees," and
related  interpretations  in accounting  for its 1996 Stock  Incentive  Plan, as
amended (the "Plan").  Accordingly, no compensation cost has been recognized for
the Plan. Had  compensation  cost for the Plan been determined based on the fair
value at the grant dates for awards under the Plan consistent with the method of
SFAS No. 123R, "Accounting for Stock-Based Compensation," the Company would have
recorded stock-based  compensation expense as follows (in thousands,  except per
share information):

                                                             Nine Months
                                                         Ended September 30,
                                                         ------------------
                                                           2005      2004(1)
                                                         -------    -------
Net loss - as reported.................................  $(5,048)   $(1,703)
Stock-based compensation expense included in
   reported net loss, net of related tax effects.......      106        220
Total stock-based compensation expense determined under
   net of related tax fair value based method
   for all awards, effects.............................   (2,373)    (1,914)
                                                         -------    -------
                  Net loss - pro forma.................  $(7,315)   $(3,397)
                                                         =======    =======
  Basic and diluted loss per share - as reported.......  $ (0.37)   $ (0.15)
                  - pro forma .........................    (0.53)     (0.30)

(1)      As restated. See Note 1.

         The weighted  average fair value at the date of grant for stock options
granted  during the nine months ended  September 30, 2005 and 2004 was $4.21 and
$5.08 per option,  respectively.  The fair value of options at the date of grant
was estimated using the Black-Scholes  model with the following weighted average
assumptions:
                                              Nine Months
                                                 Ended
                                             September 30,
                                             -------------
                                              2005    2004
                                             -----   -----
                      Expected life (years)     3      4
                      Interest rate .......   3.4%   3.0%
                      Volatility ..........   114%    69%
                      Dividend yield ......     0%     0%

3.       EARNINGS PER SHARE

         For all periods presented,  per share information was computed pursuant
to provisions of the Statement of Financial  Accounting  Standards  ("SFAS") No.
128,  "Earnings Per Share," issued by the Financial  Accounting  Standards Board
("FASB").  The  computation  of  earnings  per  share--basic  is based  upon the
weighted  average  number  of  common  shares  outstanding  during  the  periods
presented.  Earnings per share--diluted also include the effect of common shares
contingently  issuable from options and warrants in periods in which they have a
dilutive effect.

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


                                       8
<PAGE>


         The  following  table  contains  information   necessary  to  calculate
earnings per share (in thousands):

                                                Three Month       Nine Months
                                                   Ended             Ended
                                               September 30,     September 30,
                                              ---------------   ---------------
                                               2005     2004     2005     2004
                                              ------   ------   ------   ------
Weighted average shares outstanding - basic   13,734   11,622   13,710   11,436
Effect of dilutive securities
  (employee/director stock options) ........    --(1)    --(1)    --(1)    --(1)
                                              ------   ------   ------   ------
Weighted average shares - diluted ..........  13,734   11,622   13,710   11,436
                                              ======   ======   ======   ======

(1)      Due to the  net  loss  for the  three  and  nine  month  periods  ended
September 30, 2005 and 2004  respectively,  the diluted share calculation result
was anti-dilutive.  Thus, the basic weighted average shares were used and shares
of common stock  equivalents of approximately 4.1 million and 3.6 million shares
for 2005 and 2004, respectively, were excluded from the calculations.

4.       LINE OF CREDIT

         At  September  30,  2005,  the Company had a $3.0  million bank line of
credit which was secured by cash investments at the bank. The line was unused at
September 30, 2005. In May 2006, the Company terminated the line of credit.

5.       COMMITMENTS AND CONTINGENCIES

         LEGAL  MATTERS  -  On  November  15,  2005,  a  class  action  alleging
violations of federal  securities  laws was filed against the Company and two of
its current  and former  officers in the United  States  District  Court for the
Central District of California.  The complaint  alleges that,  between April 24,
2003 and  November  1,  2005,  the  Company  and two of its  current  and former
officers made false and misleading  statements  and failed to disclose  material
information   regarding  the  Company's  results  of  operations  and  financial
condition.  The complaint  includes claims under the Securities Act and Exchange
Act and seeks unspecified damages and legal expenses.

         To date,  the  Court  has not  certified  a class,  and the  litigation
remains in its early stages.

         On  January  24,  2006,  a  shareholder's  derivative  action was filed
against two of the Company's  current and former officers and the members of its
Board of  Directors  in the  Central  District  of  California.  The  derivative
complaint  contains the same factual  allegations as the class action  complaint
and  sought to  recover  unspecified  damages  from the  defendants,  as well as
forfeiture of their equity-based  compensation and contribution from them in the
event that the Company is found to have  violated the federal  securities  laws.
Following a motion made by the  defendants  to dismiss,  or in the  alternative,
stay the derivative action, the plaintiff  voluntarily  dismissed the derivative
action without prejudice on June 14, 2006.

         In  connection  with the class  action and the  derivative  proceedings
described above, an independent investigation was undertaken at the direction of
the Audit  Committee  by Dorsey & Whitney,  LLP.  Dorsey & Whitney  retained the
services  of  PricewaterhouseCoopers   LLP  with  respect  to  various  forensic
accounting   and   electronic   procedures   performed  in  the  course  of  the
investigation.  Related to this internal investigation, the Company has recorded
approximately  $147,000 in expense for 2005 and  $690,000 in expense for 2006 to
date for amounts not covered by insurance.

         In  connection  with the  class  action  proceeding,  the  Company  has
recorded  approximately  $127,000  in expense  for 2006 to date for  amounts not
covered by insurance.

         Other than the amounts described above, the Company cannot estimate the
possible loss or range of loss, if any,  associated  with the  resolution of the
class action and derivative  proceedings.  While it intends to vigorously defend
against these  allegations,  the Company cannot predict the final disposition of
these  matters or whether the Company  will be liable for amounts not covered by
insurance. There is no


                                       9
<PAGE>


assurance,  however,  that the  ultimate  resolution  of these  matters will not
result  in a  material  adverse  effect  on the  Company's  business,  financial
condition or results of operations.

In addition to the matters  identified  above, from time to time, the Company is
involved in various legal actions that arise in the ordinary course of business.

6.       COMPREHENSIVE INCOME (LOSS)

         The   following   table   provides  the  data   required  to  calculate
comprehensive loss in thousands:

                                                   Accumulated
                                                      Other
                                                  Comprehensive    Comprehensive
                                                      Loss               Loss
                                                    ----------       ----------
Balance at December 31, 2003 ..............         $     (391)
Translation adjustment ....................                (28)      $      (28)
Net loss (1) ..............................             (1,703)
                                                    ----------       ----------

Balance at September 30, 2004 .............         $     (419)      $   (1,731)
                                                    ==========       ==========

Balance at December 31, 2004 ..............         $     (377)

Translation adjustment ....................                (70)      $      (70)
Net loss ..................................                              (5,048)
                                                    ----------       ----------

Balance at September 30, 2005 .............         $     (447)      $   (5,118)
                                                    ==========       ==========

(1)      As restated. See Note 1.

7.       SEGMENT INFORMATION

         The Company has four business  segments:  (i) business  communications;
(ii) home entertainment;  (iii)  e-transactions;  and (iv) specialty components.
The  accounting  policies of the  segments  are the same as those  described  in
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations  -  Application  of  Critical  Accounting  Policies  and  Estimates";
however,  the Company  evaluates  performance based on revenue and gross profit.
The Company  does not  allocate  any other  income,  expenses or assets to these
segments nor does it track revenue by product.  Reportable  segment  information
for the  nine  months  ended  September  30,  2005 and  2004 is as  follows  (in
thousands):

<TABLE>
<CAPTION>
                                    BUSINESS           HOME              E-           SPECIALTY
                                 COMMUNICATIONS   ENTERTAINMENT     TRANSACTIONS      COMPONENTS          TOTAL
                                 --------------   --------------   --------------   --------------   --------------
<S>                              <C>              <C>              <C>              <C>              <C>
NINE MONTHS ENDED:
September 30, 2005
   Revenue ....................  $       14,390   $        4,630   $        6,480   $        4,256   $       29,756
   Gross profit ...............           1,407              821            2,180            1,959            6,367
September 30, 2004(1)
   Revenue ....................  $       15,399   $        2,650   $        4,008   $        3,667   $       25,724
   Gross profit ...............           4,495             (600)           2,205            2,305            8,405
</TABLE>
(1)      As restated. See Note 1

         The Business  Communications  business  segment consists of branded and
OEM products.  Beginning in the fourth quarter of 2005, the Company will combine
its Business  Communications OEM and Home Entertainment  segments.  As a result,
the Business Communications segment will consist of Branded products only.


                                       10
<PAGE>


         GEOGRAPHIC  INFORMATION--The  Company attributes  revenues to different
geographic  areas on the basis of the location of the  customer.  The  Company's
revenues and long-lived  assets by geographic area for the nine months ended and
as of September 30, 2005 are as follows (in thousands):

                                           NINE MONTHS ENDED AND AS OF
                                                   SEPTEMBER 30,
                                 -----------------------------------------------
                                          2005                      2004
                                 ---------------------     ---------------------
                                                LONG                      LONG
                                               LIVED                     LIVED
                                 REVENUES      ASSETS      REVENUES      ASSETS
                                 --------     --------     --------     --------
United States ..............     $ 12,381     $  1,158     $  8,925     $    869
Japan ......................        6,302          125        7,676          584
Asia (other than Japan) ....        7,333           61        5,278           75
Europe and other ...........        3,740         --          3,845         --
                                 --------     --------     --------     --------
                                 $ 29,756     $  1,344     $ 25,724     $  1,528
                                 ========     ========     ========     ========

         MAJOR  CUSTOMERS-- In the first nine months of 2005 and 2004, no single
customer exceeded 10% of total revenues. Two customers accounted for 19% and 10%
of the accounts  receivable at September 30, 2005 and one customer accounted for
16% of the accounts receivable at September 30, 2004.

8.       INVENTORIES

         Net inventories consisted of the following (in thousands):

                                                 SEPTEMBER 30,      DECEMBER 31,
                                                     2005              2004(1)
                                                  ----------         ----------
Raw material ...........................          $    4,332         $    5,217
Work in process ........................               1,695              1,908
Finished goods .........................               4,799              3,543
 Reserve for excess and
  obsolete inventory ...................              (2,476)              (412)
                                                  ----------         ----------
Total inventories ......................          $    8,350         $   10,256
                                                  ==========         ==========

(1)      As restated. See Note 1.

9.       STOCK OPTIONS

         Under the terms of the Plan,  officers and key employees may be granted
non-qualified  or incentive stock options and outside  directors and independent
contractors  of the  Company may be granted  non-qualified  stock  options.  The
aggregate number of shares which may be issued under the Plan is 7,250,000.  New
options are granted at fair market value on the date of grant and generally vest
ratably  over 36  months  and have a  ten-year  term but  terminate  earlier  if
employment is terminated. As of September 30, 2005, options for 6,827,000 shares
of stock have been granted  (4,062,000 are  outstanding  and 2,765,000 have been
exercised,  forfeited or expired) and there were 423,000  options  available for
grant.

         In 2006, the Company  determined it had improperly  accounted for stock
option exercises of certain terminated  employees during 2001 through 2005. When
the Company was in an internally  defined blackout period, it allowed terminated
employees  to extend their stock option  exercise  privileges  beyond the Plan's
stated 30 days. The Company evaluated all stock options that have been exercised
from 2001 through 2005 and  determined  who exercised  stock options  beyond the
30-day period as specified in the Plan. It was determined  that the  termination
date constituted a re-measurement date, as defined under stock option accounting
rules which  require a  revaluation  of any stock  options  that were given this
benefit.

         The amount of expense related to certain stock options  exercised after
the 30-day period was $2,400,000 in 2001,  $220,000 in 2004 and $106,000 for the
nine months  ended  September  30,  2005.  These  amounts are  reflected  in our
financial statements in the appropriate periods.


                                       11
<PAGE>


         Activity under the Plan for the first nine months of 2005 is summarized
as follows (in thousands, except per share information):

                                                                       Wgt. Avg.
                                                                       Exercise
                                                       Options           Price
                                                       --------        --------
Outstanding - beginning of period ................        3,563        $   6.08
Granted ..........................................          812            5.89
Exercised ........................................          (78)           2.81
Forfeited or expired .............................         (235)           8.26
                                                       --------
Outstanding - end of period ......................        4,062            5.98
                                                       ========
Exercisable - end of period ......................        2,739            5.43
                                                       ========

         The  following  table  summarizes   information   about  stock  options
outstanding  under  the Plan as of  September  30,  2005 (in  thousands,  except
contractual life and exercise price per share information):


                               Months
                             Remaining
Exercise          # of           On
Price Per       Options     Contractual     Options          Options
Share         Outstanding       Life      Exercisable    Un-exercisable
------------- ------------- ------------- ------------- ------------------
       $2.40           382            13           382                  0
------------- ------------- ------------- ------------- ------------------
        2.70            42            30            36                  6
------------- ------------- ------------- ------------- ------------------
        2.94           454            29           454                  0
------------- ------------- ------------- ------------- ------------------
        3.04            39            24            39                  0
------------- ------------- ------------- ------------- ------------------
        3.30             5            29             4                  1
------------- ------------- ------------- ------------- ------------------
        3.54             3            17             3                  0
------------- ------------- ------------- ------------- ------------------
        4.30            14            27            13                  1
------------- ------------- ------------- ------------- ------------------
        4.42           276            15           276                  0
------------- ------------- ------------- ------------- ------------------
        5.49            12           119             1                 11
------------- ------------- ------------- ------------- ------------------
        5.50            13             1            13                  0
------------- ------------- ------------- ------------- ------------------
        5.51            80             7            80                  0
------------- ------------- ------------- ------------- ------------------
        5.56             7           117             1                  6
------------- ------------- ------------- ------------- ------------------
        5.65            15            33             8                  7
------------- ------------- ------------- ------------- ------------------
        5.70           500           117            56                444
------------- ------------- ------------- ------------- ------------------
        6.14            18           115             3                 15
------------ ------------- ------------- ------------- ------------------
        6.15           252           115            42                210
------------- ------------- ------------- ------------- ------------------
        6.45           462            38           295                167
------------- ------------- ------------- ------------- ------------------
        6.87           659             5           659                  0
------------- ------------- ------------- ------------- ------------------
        7.54            31            36            21                 10
------------- ------------- ------------- ------------- ------------------
        7.82            13           113             3                 10
------------- ------------- ------------- ------------- ------------------
        7.98             5           110             2                  3
------------- ------------- ------------- ------------- ------------------
        9.40           742           105           328                414
------------- ------------- ------------- ------------- ------------------
       10.60            38            42            20                 18
------------- ------------- ------------- ------------- ------------------
       Total         4,062                       2,739              1,323
------------- ------------- ------------- ------------- ------------------


                                       12
<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

OVERVIEW

         We develop,  manufacture,  market and sell intuitive  interface devices
and  components  for a variety of business  and home  applications.  We generate
revenues from the sale of our hardware products,  such as force sensing resistor
("FSR")  sensors,  FSR-based  subassemblies  and complete  advanced input device
products.  To a lesser  extent,  we  derive  revenue  from the sale of  software
combined with our hardware.  Depending on the application,  this software may be
internally developed or purchased from software partners.
         We record  our  revenue in four  different  market  segments:  business
communications   (wireless   intuitive  input  device  products  addressing  the
presentation  market);  home entertainment  (wireless intuitive input device and
sensor products addressing the advanced TV viewing and home video game markets);
e-transactions  (input  devices  for  the  electronic  signature  markets);  and
specialty  components  (custom  FSR-based  sensors,  subassemblies  and complete
products for a variety of vertical  markets).  We have  addressed  our specialty
components  market  since our  inception in 1985.  Our other three  markets have
evolved out of our specialty  components  market. We have addressed our business
communications market as a separate market since 1994, our e-transactions market
since 1999 and our home  entertainment  market since 2000. The relative  revenue
and gross profit  contributions  of each of these  segments is provided below in
BUSINESS  SEGMENT  OVERVIEW - THREE AND NINE  MONTHS  ENDED  SEPTEMBER  30, 2005
COMPARED TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004.

         Our business  communications  business  segment is divided into two sub
segments - the  Business  Communication  OEM segment  and the  Branded  segment.
Effective  October 1, 2005, the Company will combine its Home  Entertainment and
Business  Communications OEM business segments.  This new segment will be called
the OEM Remote Controls business  segment.  The Company will begin reporting for
this segment  beginning with the results of operations for the fourth quarter of
2005 and thereafter.

                         QUARTERLY FINANCIAL PERFORMANCE
         The following table presents certain financial  information for each of
the following quarters:

<TABLE>
<CAPTION>
                            QUARTER ENDED (UNAUDITED)
                      (in thousands, except per share data)

                    SEP.      JUN.       MAR.      DEC.      SEP.      JUN.      MAR.      DEC.     SEP.
                    30,       30,        31,        31,       30,       30,       31,       31,      30,
                   2005      2005(1)    2005(1)  2004(1)    2004(1)   2004(1)   2004(1)   2003(1)   2003
---------------- --------- ---------- --------- --------- --------- --------- ---------- -------- --------
<S>              <C>        <C>        <C>        <C>       <C>       <C>        <C>      <C>      <C>
   Revenues      $10,223    $10,263    $ 9,269    $ 9,682   $ 9,556   $ 8,232    $ 7,936  $ 8,716  $ 7,848
---------------- --------- ---------- --------- --------- --------- --------- ---------- -------- --------
 Gross profit     $1,292    $ 1,819    $ 3,256    $ 2,190   $ 2,088   $ 3,183    $ 3,134  $ 2,025  $ 3,285
---------------- --------- ---------- --------- --------- --------- --------- ---------- -------- --------
  Net income
    (loss)       $(2,689)  $ (1,961)   $  (398)   $(2,067)  $(1,690)  $   (78)   $    66  $  (907) $   238
---------------- --------- ---------- --------- --------- --------- --------- ---------- -------- --------
   Earnings
  (loss) per     $ (0.20)  $  (0.14)   $ (0.03)   $ (0.15)  $ (0.15)  $ (0.01)   $  0.01  $ (0.08) $  0.02
 share - basic
---------------- --------- ---------- --------- --------- --------- --------- ---------- -------- --------
   Earnings
  (loss) per     $ (0.20)  $  (0.14)   $ (0.03)   $ (0.15)  $ (0.15)  $ (0.01)   $  0.01  $ (0.08)   $0.02
share - diluted
---------------- --------- ---------- --------- --------- --------- --------- ---------- -------- --------
</TABLE>

(1)      As restated. See Note 1 to the consolidated financial statements.


                                       13
<PAGE>


         Quarterly  revenues have  increased by 30% on a cumulative  basis since
the third quarter of 2003.  Revenues have grown  relatively  constantly over the
past nine quarters, with a decline in sequential revenues occurring in the first
quarter  of 2004  and the  first  and  third  quarters  of 2005.  Earnings  have
fluctuated  over the previous nine quarters with losses being  incurred over the
previous five  quarters as a result of various  factors,  including  fluctuating
quarterly sales levels due to market conditions and customer ordering  patterns,
increases  in operating  costs,  inventory  reserve  adjustments  and  increased
compliance and regulatory costs.

         On  March  9,  2005,  we  reported  the  restatement  of our  financial
statements for the first three quarters of 2004. The restatements  were due to a
misinterpretation  of the revenue recognition  guidelines  regarding a "bill and
hold"  product sale in the first  quarter of 2004.  The  resulting  restatements
decreased  revenues  in the first  quarter  of 2004 by  $498,000  and  increased
revenues  by $74,000  and  $114,000  in the second and third  quarters  of 2004,
respectively.  Gross profit and net income were reduced in the first  quarter of
2004 by $218,000  and  increased  by $33,000 and $50,000 in the second and third
quarters of 2004, respectively.  Also, in the third quarter of 2004, our product
costing  system  underestimated  the initial costs and low yields of starting up
our high  volume home  entertainment  remote  control  business  and  overstated
inventory and the amount of manufacturing  overhead allocable to inventory.  The
resulting  restatement  increased cost of sales and decreased  inventory by $1.2
million in the third quarter of 2004.

         On  November 2, 2005,  we reported  our  intention  to make  additional
restatements to our financial  information for the years ended December 31, 2003
and  December  31,  2004 and the  first two  quarters  of 2005.  The  additional
restatements  reflect  adjustments  to correctly  account for the following four
items:

         o        The  first  item  involves  a key  vendor  in  China  and  was
                  identified  in a recent  reconciliation  of accounts with that
                  vendor. This matter relates to a net write-off of $1.1 million
                  of certain  receivables  primarily  originating  in the fourth
                  quarter of 2003,  with $167,000 of that amount  originating in
                  the  fourth  quarter  of 2002,  due from  the  vendor  and the
                  recording  of $1.0 million in payables due to that same vendor
                  that were not properly  recorded in the  Company's  accounting
                  system for the third and fourth quarters of 2004 and the first
                  and second quarters of 2005.

         o        The second item relates to the understatement of cost of sales
                  in the  second  quarter  of 2005 of  $372,000  as a result  of
                  certain  inventory  components being  double-counted  and thus
                  overstated in inventory as of June 30, 2005.

         o        The third item relates to the  understatement of cost of sales
                  in the first and second quarters of 2005 totaling  $616,000 as
                  a result of certain  licensing  charges that were not properly
                  recorded in cost of sales and inventory.

         o        The fourth item relates to a balance sheet reclassification of
                  $1.3 million in cash  payments  made by a customer  during the
                  second  and fourth  quarters  of 2004 as well as the first and
                  second  quarters  of 2005 in  advance of future  shipments  of
                  product.  These  payments  were  incorrectly  applied  against
                  accounts  receivable rather than recorded as deferred revenue.
                  The  cash  prepayments  have  been  properly  reclassified  to
                  deferred revenue.

         These  additional  restatements  reduced  stockholders'  equity  by  an
aggregate $2.9 million and affected prior periods as follows:

         o        Gross  profit and net  income  for the fourth  quarter of 2003
                  were each reduced by $1.3 million,  to a gross profit of $11.4
                  million and net loss of $248,000.

         o        For the third  quarter of 2004,  gross  profit was  reduced by
                  $249,000  to  $2.1  million  and  our net  loss  increased  by
                  $249,000 to $1.7 million.

         o        For the fourth  quarter of 2004,  gross  profit was reduced by
                  $178,000  to  $3.0  million  and  our net  loss  increased  by
                  $178,000 to $1.2 million.


                                       14
<PAGE>


         o        For the first  quarter of 2005,  gross  profit was  reduced by
                  $238,000  to  $2.5  million  and  our net  loss  increased  by
                  $238,000 to $1.1 million.

         o        For the second  quarter of 2005,  gross  profit was reduced by
                  $945,000  to  $2.4  million  and  our net  loss  increased  by
                  $945,000 to $1.3 million.

         On  March  30,  2006,  we  reported  the  discovery  of two  additional
discrepancies   to  the   Company's   historical   financial   statements.   The
discrepancies  affect  financial  information  for the years ended  December 31,
2001,  December 31, 2004 and December 31, 2005.  These  additional  restatements
reflect  adjustments  to correctly  account for the following  two items:

         o        The first item was  discovered  during the 2005 year-end audit
                  process and involves accounting for stock options exercised by
                  terminated employees whose termination  coincided with a black
                  out period.  The Company  extended the  terminated  employees'
                  time to exercise  stock options to 30 days after the black out
                  period as opposed to 30 days  after  termination  as stated in
                  the terms of the Company's  stock option plan.  This treatment
                  results in a re-measurement date as defined under stock option
                  accounting  rules,  which require a  revaluation  of any stock
                  options that were given this benefit. The extension of time to
                  exercise  resulted  in  additional  non-cash  expense  of $2.4
                  million for 2001,  $220,000  for 2004 and  $108,000  for 2005,
                  $106,000 of which was in the first nine  months of 2005,  that
                  due to an error were not recorded in the Company's  accounting
                  system.

         o        The  second  item  relates  to  an  error   resulting  in  the
                  understatement  of cost of sales of $837,000 in 2004,  none of
                  which  was  in  the  first  nine  months  of  2004,   and  the
                  overstatement  of cost of sales of $748,000 in 2005,  $441,000
                  of which was in the first nine months of 2005,  as a result of
                  certain  inventory in transit  from the parent  company to its
                  Hong Kong subsidiary being overvalued at December 31, 2004.

         These  additional  restatements  reduced  stockholders'  equity  by  an
aggregate $2.8 million and affected prior periods as follows:

         o        Our net loss for 2001 increased by $2.4 million, to a net loss
                  of $4.4 million.

         o        Gross  profit  for 2004 was  reduced  by  $837,000  to a gross
                  profit of $10.6 million and our net loss for 2004 increased by
                  $1 million, to a net loss of $3.8 million. There was no effect
                  on the first nine months of 2004.

         o        For the first nine months of 2005,  gross profit was increased
                  by $441,000 to a gross profit of $6.4 million and our net loss
                  decreased  by  $335,000 to a net loss of $5.0  million.  Gross
                  profit for the year ended  December 31, 2005 was  increased by
                  $748,000  to a gross  profit of $8.1  million and our net loss
                  decreased by $640,000 to a net loss of $8.3 million.

CURRENT OPPORTUNITIES AND CHALLENGES

         A considerable  portion of our effort is directed at emerging  markets,
such as our  e-transactions  market where our success  depends on our ability to
accurately  forecast the nature,  amount and timing of market requirements in an
environment in which historical precedent is limited or non-existent. We rely on
information  generated  by our  internal  staff  and  industry  partners  and on
independent  market  studies for  forecasts of market demand in our focus areas,
but these studies are themselves based on limited  empirical data. An inaccurate
forecast  of market  demand in any of our core  market  areas  would  impact our
short-term performance and could impact our competitive position and, therefore,
our long-term performance.

         Our quarterly  results are often affected by volatility in orders for a
particular  product.  For  example,   sales  of  remote  controls  constitute  a
significant  source of revenue,  but are substantially  dependent on advanced TV
sales that we cannot control or accurately forecast.  Similarly,  sales to large
institutions of


                                       15
<PAGE>


our  e-transactions  products typically come in relatively large orders that can
be one-time events or can occur at widely-dispersed intervals.

         Other  factors  that  could  cause our  estimates  to be wrong or could
result  in  trends  that are not  apparent  from our  financial  statements  are
described  under "Risk Factors" in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2004 and in Part II below.

         Management faces the constant  challenge of balancing its investment in
new  technology,  product  development  and  marketing  initiatives  against the
objective of steady earnings growth. A decision to make a significant investment
in a new technology, product or marketing effort may have a short-to-medium term
negative  impact on  earnings  even if the  investment  proves to be  justified.
Because we intend to pursue a growth strategy,  it is probable that we will make
investments in new business  opportunities  that will increase  operating costs,
decrease  margins and negatively  impact earnings until the investment  produces
significant revenue growth.

         We  expect to use cash in the  future to  support  growth  through  the
purchase of new  technologies  or businesses  and through  internal  technology,
product and market development efforts. We expect to generate cash from existing
operations and, depending on actual cash  requirements,  may seek to obtain cash
from commercial borrowing and/or additional sales of securities.


                                       16
<PAGE>


BUSINESS  SEGMENT  OVERVIEW - THREE AND NINE  MONTHS  ENDED  SEPTEMBER  30, 2005
COMPARED TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004

         For the  three  and nine  months  ended  September  30,  2005 and 2004,
revenue and gross profit by market segment are shown in the following table:
<TABLE>
<CAPTION>
                               Three Months              Three Months          Nine Months          Nine Months
                              Ended Sept. 30,           Ended Sept. 30,       Ended Sept. 30,      Ended Sept. 30,
                                  2005                      2004(1)                2005                2004 (1)
                          ------------------------ ---------------------- --------------------- --------------------
                                        PERCENT                 PERCENT               PERCENT              PERCENT
             T                          OF TOTAL                OF TOTAL              OF TOTAL             OF TOTAL
MARKET SEGMENT              $000'S       SALES       $000'S      SALES      $000'S     SALES     $000'S     SALES
------------------------- ---------- ------------- ---------- ----------- ---------- ---------- --------- ----------
<S>                          <C>           <C>        <C>          <C>      <C>         <C>      <C>         <C>
Business Communications:
------------------------- ---------- ------------- ---------- ----------- ---------- ---------- --------- ----------
- Revenue                    $5,229        51%        $5,679       59%      $14,390     48%      $15,399     60%
------------------------- ---------- ------------- ---------- ----------- ---------- ---------- --------- ----------
- Gross Profit                (978)                    1,537                  1,407                4,495
------------------------- ---------- ------------- ---------- ----------- ---------- ---------- --------- ----------
- Gross Profit % of           (19)%                      27%                    10%                  29%
   Segment Revenue
------------------------- ---------- ------------- ---------- ----------- ---------- ---------- --------- ----------
Home Entertainment:
------------------------- ---------- ------------- ---------- ----------- ---------- ---------- --------- ----------
- Revenue                      $728         7%        $1,427       15%       $4,630     16%       $2,650     10%
------------------------- ---------- ------------- ---------- ----------- ---------- ---------- --------- ----------
- Gross Profit                   70                    (821)                    821                (600)
------------------------- ---------- ------------- ---------- ----------- ---------- ---------- --------- ----------
- Gross Profit % of             10%                    (58)%                    18%                (23)%
   Segment Revenue
------------------------- ---------- ------------- ---------- ----------- ---------- ---------- --------- ----------
E-Transactions:
------------------------- ---------- ------------- ---------- ----------- ---------- ---------- --------- ----------
- Revenue                    $3,124        31%        $1,069       11%       $6,480     22%       $4,008     16%
------------------------- ---------- ------------- ---------- ----------- ---------- ---------- --------- ----------
- Gross Profit                1,688                      501                  2,180                2,205
------------------------- ---------- ------------- ---------- ----------- ---------- ---------- --------- ----------
- Gross Profit % of             54%                      47%                    34%                  55%
   Segment Revenue
------------------------- ---------- ------------- ---------- ----------- ---------- ---------- --------- ----------
Specialty Components:
------------------------- ---------- ------------- ---------- ----------- ---------- ---------- --------- ----------
-Revenue                     $1,142        11%        $1,381       15%       $4,256     14%       $3,667     14%
------------------------- ---------- ------------- ---------- ----------- ---------- ---------- --------- ----------
-Gross Profit                   512                      871                  1,959                2,305
------------------------- ---------- ------------- ---------- ----------- ---------- ---------- --------- ----------
-Gross Profit % of              45%                      63%                    46%                  63%
Segment Revenue
------------------------- ---------- ------------- ---------- ----------- ---------- ---------- --------- ----------
All Segments:
------------------------- ---------- ------------- ---------- ----------- ---------- ---------- --------- ----------
- Revenue                   $10,223       100%        $9,556      100%      $29,756    100%      $25,724    100%
------------------------- ---------- ------------- ---------- ----------- ---------- ---------- --------- ----------
- Gross Profit                1,292                    2,088                  6,367                8,405
------------------------- ---------- ------------- ---------- ----------- ---------- ---------- --------- ----------
- Gross Profit %                13%                      22%                    21%                  33%
------------------------- ---------- ------------- ---------- ----------- ---------- ---------- --------- ----------
</TABLE>

----------
(1)      As restated. See Note 1 to the consolidated financial statements.


                                       17
<PAGE>


BUSINESS COMMUNICATIONS

         In  our  business  communications  segment,  we  sell  wireless  remote
controls  on  an  OEM  basis  to  the  leading   manufacturers  of  presentation
projectors.  We  also  sell  Interlink-branded   wireless  remote  controls  and
keyboards  direct  to  computer  products  retailers,  corporate  resellers  and
distributors.  In  the  first  nine  months  of  2005,  OEM  revenues  comprised
approximately 63% of business  communications revenues as compared to 72% in the
same period of 2004.

         Overall,  business  communications  revenues for the third  quarter and
first nine months of 2005 declined 8% and 7%,  respectively,  as compared to the
same periods of 2004. OEM revenues fell 22% and 18%,  respectively,  as compared
to the third quarter and first nine months of 2004, due primarily to lower sales
to existing  OEM  customers.  OEM average  selling  prices range from $2 to $25.
Revenues  from  branded   products,   which  had  average   selling   prices  of
approximately $40 to $450, increased 35% and 23%,  respectively,  from the third
quarter and first nine  months of 2004,  respectively.  The  increase in branded
unit volume  resulted  from a greater  number of products sold into our reseller
customer base.

         Business  communications gross profit margins for the third quarter and
first nine  months of 2005  declined  to a gross  margin loss of 19% and a gross
profit margin of 10%, respectively,  as compared to a gross profit margin of 27%
and 29% for the three months and nine months ended September 30, 2004 due to the
much lower profit margin  percentage  for OEM products sold in the 2005 periods.
The third  quarter of 2005 also was affected by $2.3 million in charges  related
to the  following:

         o        Based  on  lowered  revenue   expectations  for  the  Business
                  Communications-OEM   segment  for  the  next  12  months,   we
                  increased  our reserve for excess and  obsolete  inventory  by
                  approximately $1.0 million.

         o        The  Restriction  of Hazardous  Substances  Act of 2002 (ROHS)
                  will,  when it goes  into  effect,  limit  the use of  certain
                  restricted raw materials in production of consumer goods. ROHS
                  goes into effect in the European  Community in late 2006. Most
                  of the  materials  whose  use is  restricted  under  ROHS  are
                  commonly  found  in  electronics   components   in-use  today,
                  including   components   that  we  have   in   inventory.   In
                  anticipation of the implementation  date of ROHS, we have been
                  reducing our inventories of non-compliant  materials.  Many of
                  our OEM customers are now demanding  early  implementation  of
                  ROHS  compliance.  For  this  reason  and  due to the  lowered
                  expectation    for    future    demand    in   the    Business
                  Communications-OEM  segment,  we  recorded  a reserve  for our
                  expected future losses on non-ROHS compliant material totaling
                  approximately $900,000.

         o        Lowered  projected  Business  Communications-OEM  demand  also
                  affected  the  depreciation   rates  of  production   tooling.
                  Additional tooling  depreciation expense for the third quarter
                  of 2005 was approximately $400,000.

HOME ENTERTAINMENT

          In our home entertainment  segment,  we primarily sell remote controls
on an OEM basis to  manufacturers  of  advanced  TV viewing  devices,  including
projectors  sold for TV viewing.  Our home  entertainment  revenues in the third
quarter declined 49% when compared to the third quarter of 2004 due primarily to
a reduced number of customer orders.  Revenues for the first nine months of 2005
increased  75% as compared to the first nine months of 2004.  This  increase was
attributable  to an increase in the volume of customer  orders combined with the
dollar amount of certain customer orders.

         Home entertainment gross profit margins for the third quarter and first
nine months of 2005 increased to 10% and 18%,  respectively as compared to (58)%
and (23)% for the third  quarter and first nine months of 2004 due  primarily to
$1.2 million in expense  attributable to an underestimation of the initial costs
and low yields in starting up the Home Entertainment business segment in 2004.


                                       18
<PAGE>


E-TRANSACTIONS

         In our  e-transactions  segment,  we sell electronic  signature capture
devices and, depending on the customer requirement,  signature-capture software.
We offer annual software maintenance agreements and hardware upgrade programs to
our existing customers;  however,  historically we have not recorded significant
revenues from those types of sales.

         In the third  quarter  and  first  nine  months of 2005,  e-transaction
revenues increased 192% and 62%, respectively, over the same periods of 2004 due
primarily  to an  increased  number of high  volume  customer  sales in the 2005
period. Our e-transactions results from period to period are greatly affected by
individually significant sales, which are negotiated independently.

         E-transaction  gross  profit  margin  for  the  third  quarter  of 2005
increased  to 54% from a gross  margin loss of 47% in the third  quarter of 2004
due to increased sales and higher relative pricing.  E-transaction  gross profit
margin for the first nine months of 2005  decreased to 34% from 55% in the first
nine  months  of  2004  due to the  varying  size  of  customer  orders  and the
corresponding allocation of overhead costs and applied labor.

SPECIALTY COMPONENTS

         In our specialty components segment, we sell our MicroNav(TM)  products
and  custom  FSR's and  FSR-based  subassemblies  to maNY  customers  in several
vertical markets,  such as medical devices,  industrial input and military input
products.

          Specialty components revenues for the third quarter decreased 17% when
compared to the third  quarter of 2004,  but grew 16% when  comparing  the first
nine months of 2005 to the first nine months of 2004.  The  increase in sales is
primarily  attributable  to  increased  sales  of  our  MicroNav  products.  The
Specialty  business segment quarterly  revenues will fluctuate due to the timing
of customer orders and shipments to customers.

         Specialty component gross profit margin for the third quarter and first
nine months of 2005  decreased to 45% and 46%,  respectively  as compared to 63%
for the third quarter and first nine months of 2004. The overall margin decrease
is primarily due to a greater mix of relatively lower margin revenues related to
our new MicroNav products in the 2005 period.

OPERATING EXPENSES

         Product  development  and research costs include  internal  engineering
labor,  contract  engineering  and outside  processing  costs for the design and
development of our OEM and branded  designs and products and the research of our
technologies.  For the  third  quarter  of 2005,  our  product  development  and
research  costs  declined  3% as  compared  to the third  quarter of 2004 due to
similar levels of product  development and engineering  support related expenses
incurred.  For the  first  nine  months of 2005,  our  product  development  and
research  costs  increased  9% as compared to the same period of 2004 due to our
continued  investment in future product design and development.  As a percentage
of revenues,  product development and research costs declined slightly to 11% in
the third quarter of 2005 compared to 12% in the third quarter of 2004.  For the
first nine months of 2005,  product  development  and research  and  development
represented 11% of total sales compared to 12% in the same period of 2004.

         Sales,   general  and  administrative  costs  ("SG&A")  include  sales,
marketing,  legal,  accounting  and  administrative  labor,  sales  commissions,
advertising,   general  marketing,   branded  business   communications  channel
marketing and travel and  entertainment  costs.  For the third quarter and first
nine months of 2005, SG&A grew 12% and 18%, respectively,  over the same periods
of 2004 due to  higher  corporate  governance  costs,  and  increased  sales and
marketing costs,  including  commissions,  advertising and marketing development
costs. As a percentage of revenues,  SG&A remained  relatively  level at 29% and
28%,  respectively,  in the third quarter and first nine months of 2005 compared
to 27%, respectively, in the same periods of 2004.


                                       19
<PAGE>


OPERATING RESULTS

         In summary,  our operating  results in the third quarter and first nine
months of 2005 were attributable to the following factors:

         o        7% growth in revenues for the third  quarter of 2005  resulted
                  primarily  from growth in our Business  Communication  branded
                  and e-transactions business segments;

         o        16%  growth  in  revenues  for the first  nine  months of 2005
                  resulted  primarily from growth in our Business  Communication
                  branded,  E-transactions,  Home  Entertainment  and  Specialty
                  Components business segments;

         o        Decline in gross  profits  margins to 13% in the third quarter
                  of 2005 compared to 22% in the third quarter of 2004 primarily
                  attributable to a $1.9 million  inventory  reserve  adjustment
                  made in the third quarter of 2005, as discussed above;

         o        Gross profit  margin for the first nine months of 2005 was 21%
                  compared  to 33% for the  first  nine  months  of  2004.  This
                  reduction  is  also   attributable  to  the  $1.9  million  of
                  inventory  reserve  adjustments  taken in the third quarter of
                  2005; and

         o        7% and 15% growth in operating  expenses for the third quarter
                  and  first  nine  months  of 2005,  respectively,  related  to
                  increased  corporate   governance  and  regulatory  costs  and
                  increased  sales and marketing  costs to help support and grow
                  the revenues of the Company.

         Total  other   income,   net   increased   to  $77,000  and   $229,000,
respectively,  in the third  quarter  and first nine  months of 2005  versus net
expenses of $15,000  and $12,000 in the third  quarter and the first nine months
of 2004,  respectively,  due to interest earned on a greater net cash balance in
the 2005 periods.

         We have  approximately  $36.5  million in net  operating  loss  ("NOL")
carryforwards  available for U.S. federal tax purposes, of which certain amounts
expire in 2005. In determining whether or not a valuation allowance is necessary
against the deferred tax asset related to these NOL carryforwards,  forecasts of
future  taxable  income are not  considered  sufficient  evidence  to outweigh a
history of losses.  Accordingly, we have maintained the full valuation allowance
against our deferred tax assets as of September 30, 2005.  This has no effect on
the  Company's  NOL  carryforwards  for tax  purposes  and they  continue  to be
available for up to 20 years.

LIQUIDITY AND CAPITAL RESOURCES

         Working  capital  decreased to $26.1 million at September 30, 2005 from
$30.5 million at the end of 2004 due primarily to the loss from operations.

         Operations  used $3.4  million in cash in the first nine months of 2005
as compared to $1.1  million in the same  period of 2004.  The greater  usage of
cash is due  primarily  to higher  vendor  payments  coupled  with the loss from
operations.

         We  spent  $152,000  in the  first  nine  months  of 2005  to  purchase
additional  manufacturing  and  computer  equipment  compared to $405,000 in the
first nine months of 2004. We also invested $114,000 in new patent and trademark
activity  in the first nine  months of 2005 as  compared to $93,000 in the first
nine months of 2004.

          We made  payments  on  long-term  debt of  $411,000  in the first nine
months of 2005 and $451,000 in the first nine months of 2004.  Net proceeds from
the  exercise of employee  and director  stock  options  were  $220,000 and $1.8
million in the first nine  months of 2005 and 2004,  respectively.  In the first
nine months of 2004 we also  completed a public stock offering with net proceeds
of $13.2 million.

         We currently have minor  commitments  for capital  expenditures  and no
material  purchase  obligations.  We have a software license  agreement that has
minimum quarterly payments through 2007.


                                       20
<PAGE>


         Our minimum  long-term debt,  licensing and operating lease obligations
as of December  31, 2004,  the last fiscal  year-end  date,  were as follows (in
thousands):
                                                     Less
                                                     Than
                                                      One       1-3         4th
                                         Total       Year      Years       Year
                                         ------     ------     ------     ------
Long-term debt obligations .........     $  896     $  491     $  405     $ --
Software licensing .................      1,500        600        900       --
Operating lease obligations ........      1,856        384      1,093        379
                                         ------     ------     ------     ------
Total ..............................     $4,252     $1,475     $2,398     $  379
                                         ======     ======     ======     ======

         These  amounts may  increase as we pursue our growth  strategy  but the
amount of any such  growth  will depend on the  particular  requirements  of any
growth  commitment,  the  availability  and  attractiveness  of  equity  capital
arrangements and our general liquidity position.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

         This Quarterly Report on Form 10-Q contains forward-looking  statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the  Securities  Exchange Act of 1934, as amended (the  "Exchange
Act"),  that involve  substantial risks and uncertainties and which are intended
to be covered by the safe  harbors  created  thereby.  These  statements  can be
identified  by  the  fact  that  they  do  not  relate  strictly  to  historical
information  and may include  the words  "expects",  "believes",  "anticipates",
"plans",  "may",  "will",  "intends",  "estimates",  "continue" or other similar
expressions.  These forward-looking  statements are subject to various risks and
uncertainties  that could cause actual results to differ  materially  from those
currently  anticipated.  These  risks  and  uncertainties  include,  but are not
limited  to,   items   discussed   under  the  headings   "Overview",   "Current
Opportunities  and Challenges" and "Business  Segment  Overview - Three and Nine
Months  Ended  September  30,  2005  Compared  to Three  and Nine  Months  Ended
September 30, 2004." Forward-looking  statements speak only as of the date made.
We  undertake  no  obligation  to  publicly  release  or update  forward-looking
statements, whether as a result of new information, future events or otherwise.

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         Management's  discussion  and analysis of our  financial  condition and
results of  operations  are based upon the  consolidated  financial  statements,
which have been  prepared in accordance  with  accounting  principles  generally
accepted in the United States.  The  preparation of these  financial  statements
requires  management to make  estimates  and judgments  that affect the reported
amounts of assets,  liabilities,  revenues and expenses, and related disclosures
of contingent assets and liabilities. On an on-going basis, management evaluates
estimates,  including  those  related  to the  valuation  of  inventory  and the
allowance  for  uncollectible  accounts  receivable.  We base our  estimates  on
historical  experience and on various other  assumptions that are believed to be
reasonable  under the  circumstances,  the  results  of which form the basis for
making  judgments about the carrying  values of assets and liabilities  that are
not readily  apparent from other  sources.  Actual results may differ from these
estimates  under different  assumptions or conditions.  We believe the following
critical accounting policies affect our more significant judgments and estimates
used in the preparation of our consolidated financial statements:

         REVENUE RECOGNITION.  We recognize revenue in accordance with SEC Staff
Accounting Bulletin ("SAB") No. 104, "Revenue Recognition." SAB No. 104 requires
that four basic  criteria  must be met before  revenue  can be  recognized:  (1)
persuasive  evidence of an  arrangement  exists;  (2)  delivery  has occurred or
services rendered; (3) the fee is fixed and determinable; and (4) collectibility
is  reasonably   assured.   Determination   of  criteria  (3)  and  (4)  require
management's  judgments  regarding  the  fixed  nature  of the fee  charged  for
services rendered and products  delivered and the  collectibility of those fees.
To satisfy the  criteria,  we: (1) input orders based upon receipt of a customer
purchase order;  (2) record revenue upon shipment of goods and when risk of loss
and title has  transferred;  (3) confirm pricing  through the customer  purchase
order; and (4) validate  creditworthiness  through past payment history,  credit
agency reports and other  financial data. All customers have warranty rights and
some customers also have explicit or implicit  rights of return.  We comply with
Statement of Financial  Accounting Standards No. 48 with respect to sell-through
and  returns and


                                       21
<PAGE>


the related recording of revenues for potential customer returns. Should changes
in conditions cause management to determine the revenue recognition criteria are
not  met  for  certain  future  transactions,   such  as  a  determination  that
collectibility was not reasonably assured,  revenue recognized for any reporting
period could be adversely affected.

         ACCOUNTS  RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS.  Our accounts
receivable are  unsecured,  and we are at risk to the extent such amounts become
uncollectible.  We continually  monitor individual account receivable  balances,
and provide for an allowance  of doubtful  accounts at the time  collection  may
become  questionable  based on payment  performance or age of the receivable and
other factors related to the customer's ability to pay.

         RESERVE FOR ESTIMATED  PRODUCT  RETURNS.  While not an explicit part of
our terms and conditions of product sales except for some customers, we do, on a
discretionary  basis,  grant product exchanges for our distribution and reseller
customers in our branded business  communications market for similar products of
equal value if these exchanges meet certain other  criteria.  We estimate future
product  returns based on recent return  history,  inventory  status and product
"sell-through"  statistics  received  from our major  distributors,  discussions
regarding product sales activity with our major reseller customers,  and current
industry  product  and  technology  trends.  Management  judgment is required in
evaluating  the  relative  significance  of the  aforementioned  data and in the
determination of the estimated value of the returns  reserve.  If actual returns
are greater than  management's  estimate then revenues in the subsequent  period
will be adversely affected.

         INVENTORY  RESERVE.  At each balance sheet date, we evaluate our ending
inventories for excess  quantities and  obsolescence.  This evaluation  includes
analyses of forecast sales levels by product and historical demand. We write off
inventories  that are  considered  obsolete.  Remaining  inventory  balances are
adjusted to  approximate  the lower of our cost or market  value and result in a
new cost  basis in such  inventory  until  sold.  If  future  demand  or  market
conditions  are  less  favorable  than  our  projections,  additional  inventory
write-downs  may be  required,  and would be  reflected  in cost of sales in the
period the revision is made. Based on lowered  expectations for future demand in
the Business  Communications-OEM  segment as well as  limitations  on the use of
certain  restricted raw materials  prompted by early adoption of the Restriction
of Hazardous  Substances Act of 2002 by many of our customers,  we increased our
reserve for excess and obsolete  inventory by approximately  $1.9 million in the
third  quarter of 2005.  The  reserve  is  discussed  in detail in the  BUSINESS
SEGMENT OVERVIEW under Business Communications.

         PROVISION  FOR INCOME  TAX.  As part of the  process of  preparing  our
financial statements, as required by Statement of Financial Accounting Standards
("SFAS")  No. 109, we are  required to estimate  our income taxes in each of the
jurisdictions in which we operate.  This process involves  estimating our actual
current tax exposure  together with assessing  temporary  differences  resulting
from  differing  treatment  of  items  for tax and  accounting  purposes.  These
differences result in deferred tax assets and liabilities, which are included in
our balance  sheet.  We must then assess the  likelihood  that our  deferred tax
assets will be recovered from future taxable income and to the extent we believe
that  recovery is not likely,  we must  establish  a valuation  reserve.  To the
extent we  establish a reserve or  increase  this  reserve in a period,  we must
include an expense within the tax provision in the statements of operations.

         Significant   management   judgment  is  required  in  determining  our
provision for income taxes, deferred tax asset and liabilities and any valuation
reserve  recorded  against our net deferred tax assets.  Management  continually
evaluates  its  deferred  tax asset as to whether it is likely that the deferred
tax asset will be realized.

         Based on historical and prospective evidence, we have concluded that we
did not have  sufficient  evidence to be able to recognize our NOL  carryforward
benefits as assets and thus we have recorded a valuation  allowance  against our
deferred tax asset balance.  If we achieve profitable  operations in the future,
we will  reevaluate  our deferred tax asset  balance and may reduce or eliminate
the valuation allowance.

         As of December 31, 2004, we had NOL  carryforwards  for federal,  state
and  foreign  income tax  purposes  of $36.5  million,  $18.8  million  and $2.4
million,  respectively,  which are available to offset future  taxable income in
those jurisdictions through 2024.


                                       22
<PAGE>


         FOREIGN EXCHANGE EXPOSURE. 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  21%, 28% and 22% of our revenues for the first
nine  months  of 2005 and the  years  2004 and  2003,  respectively,  came  from
Japanese  customers.  Revenues from these  customers are denominated in Japanese
yen  and  as  a  result  we  are  subject  to  foreign  currency  exchange  rate
fluctuations in the yen/dollar  exchange rate. We use foreign  currency  forward
and  average  rate  option  contracts  to hedge this  exposure.  We use  revenue
forecasts from our Japanese subsidiary to determine the amount of our forward or
option  contracts to purchase and we attempt to enter into these  contracts when
we believe the yen value is relatively  strong against the U.S.  dollar.  To the
extent that our revenue  forecast may be inaccurate or the timing of forecasting
the  yen's  strength  is  wrong,  our  actual  hedge  gains  or  losses  may not
necessarily  correlate with the effect of foreign currency rate  fluctuations on
our revenues.  We mark these contracts to market value and the gain or loss from
these  contracts  is recorded in business  communications  revenue.  These hedge
transactions  are  classified  as  economic  hedges and do not qualify for hedge
accounting  under  Statement  of  Financial  Accounting  Standards  No.  133. In
addition,  because our Japanese subsidiary's functional currency is the yen, the
translation of the net assets of that subsidiary into the  consolidated  results
will fluctuate with the yen/dollar exchange rate.

         The  following  table   illustrates  the  impact  of  foreign  currency
fluctuations  on our  yen-denominated  revenues  and  the  effectiveness  of our
foreign currency hedging activity (in thousands).

                                                                  NINE MONTHS
                                                             ENDED SEPTEMBER 30,
                                                               ----------------
                                                               2005       2004
                                                               -----      -----
Increase (decrease) in revenues resulting from
    foreign currency fluctuations .......................      $ 118      $(116)
Hedging gains ...........................................         39        127
                                                               -----      -----
        Net revenue impact ..............................      $ 157      $  11
                                                               =====      =====

         We  calculate  the  "increase  (decrease)  in revenues  resulting  from
foreign currency  fluctuations" by calculating the U.S. dollar equivalent of our
yen-denominated  revenues using the yen/dollar exchange rate at the beginning of
the period.  The resulting product is compared to our  yen-denominated  revenues
converted to U.S.  dollars  according to GAAP and the difference is shown in the
table above.

RECENT ACCOUNTING PRONOUNCEMENTS

         In November  2004, the FASB issued SFAS No. 151,  "Inventory  Costs--an
amendment of APB Opinion No. 43, Chapter 4." SFAS No. 151 clarifies the language
used in APB Opinion No. 43 with respect to  accounting  for abnormal  amounts of
idle facility expenses,  freight, handling costs and spoilage. The guidance does
not result in substantive  changes in accounting for these costs, but eliminates
inconsistencies in wording between U.S. and international  accounting standards.
We  adopted  SFAS No.  151 as of January  1,  2006.  This  pronouncement  is not
expected to have a material impact on our consolidated  statements of operations
or financial position.

         In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment."
This  statement  is a revision  to SFAS No.  123,  "Accounting  for  Stock-Based
Compensation"  and  APB  Opinion  No.  25,   "Accounting  for  Stock  Issued  to
Employees."  This  statement   establishes  standards  for  the  accounting  for
transactions  in which an entity  exchanges its equity  instruments for goods or
services,  primarily  focusing on the  accounting for  transactions  in which an
entity obtains employee services in share-based payment  transactions.  Entities
will be required to measure the cost of employee  services  received in exchange
for an award of equity  instruments  based on the  grant-date  fair value of the
award (with limited  exceptions).  That cost will be recognized  over the period
during which an employee is required to provide service,  the requisite  service
period (usually the vesting  period),  in exchange for the award. The grant-date
fair value of employee share options and similar  instruments  will be estimated
using  option-pricing  models.  If an equity  award is modified  after the grant
date, incremental compensation cost will be recognized in an amount equal to the
excess  of the  fair  value of the  modified  award  over the fair  value of the
original award immediately before the modification.  We adopted SFAS No. 123R as
of January 1, 2006.  We are currently  assessing  the impact of this  accounting
standard on our  consolidated  results of operations and financial  position for


                                       23
<PAGE>


2006.  Based on current  calculations and stock options granted through June 30,
2006,  we expect  that we will incur non cash  expenses  of  approximately  $4.0
million in 2006.

         In  December  2004,  the  FASB  issued  SFAS  No.  153,  "Exchanges  of
Nonmonetary  Assets,"  an  amendment  of APB  Opinion  No. 29,  "Accounting  for
Nonmonetary  Transactions." The amendments made by SFAS No. 153 are based on the
principle that  exchanges of nonmonetary  assets should be measured based on the
fair value of the assets exchanged. Further, the amendments eliminate the narrow
exception for nonmonetary  exchanges of similar productive assets and replace it
with a broader  exception for exchanges of  nonmonetary  assets that do not have
commercial  substance.   Previously,  APB  Opinion  No.  29  required  that  the
accounting for an exchange of a productive asset for a similar  productive asset
or an  equivalent  interest in the same or similar  productive  asset  should be
based on the recorded amount of the asset relinquished.  We adopted SFAS No. 153
as of January 1, 2006.  The adoption of this statement is not expected to have a
material impact on our consolidated results or operations or financial position.

         In October 2004,  the American Jobs Creation Act of 2004 ("Act") became
effective  in the  U.S.  Two  provisions  of the Act may  impact  the  Company's
provision (benefit) for income taxes in future periods,  namely those related to
the  Qualified  Production  Activities  deduction  ("QPA") and Foreign  Earnings
Repatriation ("FER").

         The QPA will be effective  for the  Company's  U.S.  federal tax return
year  beginning  after  December  31, 2004.  In summary,  the Act provides for a
percentage  deduction  of earnings  from  qualified  production  activities,  as
defined,  commencing  with an initial  deduction of three  percent for tax years
beginning in 2005 and increasing to nine percent for tax years  beginning  after
2009, with the result that the Statutory  federal tax rate currently  applicable
to the Company's qualified production  activities of 35 percent could be reduced
initially to 33.95 percent and  ultimately to 31.85  percent.  However,  the Act
also  provides  for  the  phased  elimination  of  the  Extraterritorial  Income
Exclusion provisions of the Internal Revenue code. Due to the interaction of the
law  provisions  noted above as well as the  particulars  of the  Company's  tax
position,  the  ultimate  effect  of the QPA on the  Company'  future  provision
(benefit) for income taxes has not been determined at this time. The FASB issued
FASB Staff Position FAS 109-1, Application of FASB Statement No. 109, Accounting
for Income  Taxes,  to the Tax  Deduction  on  Qualified  Production  Activities
Provided by the American  Jobs Creation Act of 2004 ("FSP  109-1"),  in December
2004.  FSP 109-1  required  that tax benefits  resulting  from the QPA should be
recognized  no earlier  than the year in which they are reported in the entity's
tax return,  and that there is to be no  revaluation  of recorded  deferred  tax
assets  and  liabilities  as would be the case  had  there  been a change  in an
applicable statutory rate.

         The FER  provision  of the Act  provides  generally  for a one-time  85
percent  dividends  received  deduction for qualifying  repatriations of foreign
earnings to the U.S. Qualified  repatriated funds must be reinvested in the U.S.
in certain  qualifying  activities and  expenditures,  as defined by the Act. In
December  2004,  the FASB issued FASB Staff  Position FAS 109-2,  Accounting and
Disclosure  Guidance for the Foreign  Earnings  Repatriation  Provision with the
American Jobs Creation Act of 2004 ("FSP  109-2").  FSP 109-2 allows  additional
time for entities potentially impacted by the FER provision to determine whether
any foreign earnings will be repatriated  under said  provisions.  At this time,
the Company has not  undertaken  an  evaluation  of the  application  of the FER
provision  and any  potential  benefits of  effecting  repatriations  under said
provision.  Numerous factors, including previous actual and deemed repatriations
under federal tax law provisions,  are factors impacting the availability of the
FER provision to the Company and its potential  benefit to the Company,  if any.
We intend to examine the issue and will provide updates in subsequent periods.

         In May 2005,  the FASB  issued SFAS No.  154,  "Accounting  Changes and
Error  Corrections."  SFAS  No.  154  requires  retrospective  application  of a
voluntary change in accounting  principle to prior periods' financial statements
and also  requires  that a change in method of  depreciation,  amortization,  or
depletion for long-lived,  non-financial  assets be accounted for as a change in
accounting  estimate  that is affected by a change in accounting  principle.  We
adopted SFAS No. 154 as of January 1, 2006.  We believe the adoption of SFAS No.
154 will not have a material  impact on our results of  operations  or financial
condition.


                                       24
<PAGE>


         In  March  2005,  the  FASB  issued  Financial  Interpretation  No.  47
"Accounting for Conditional  Asset Retirements  Obligations"  ("FIN 47"). FIN 47
clarifies that the term  "conditional  asset  retirement  obligation" as used in
FASB Statement No. 143 "Accounting for Asset Retirement  Obligations," refers to
a legal obligation to perform an asset  retirement  activity in which the timing
or method of settlement are conditional on a future event that may or may not be
within the control of the entity. The obligation to perform the asset retirement
activity is  unconditional  even though  uncertainty  exists about the timing or
method  of  settlement.  Thus,  the  timing  or  method  of  settlement  may  be
conditional on a future event. Accordingly, an entity is required to recognize a
liability for the fair value of a conditional asset retirement obligation if the
fair value of the liability can be reasonably  estimated.  FIN 47 also clarifies
when an entity would have sufficient information to reasonably estimate the fair
value of an asset retirement  obligation.  FIN 47 is effective no later than the
end of fiscal  years  ending  after  December  15,  2005.  We do not  expect the
adoption  of  this  statement  to  have a  material  impact  on our  results  of
operations or financial position.


ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         FOREIGN  CURRENCY  EXCHANGE  RATE  RISK  -  Our  Japanese   subsidiary,
Interlink  Electronics  K.K.,  generally  makes sales and  collects its accounts
receivable in Japanese yen. To hedge these revenues  against future movements in
exchange rates,  we purchase  foreign  exchange  forward and average rate option
contracts. Gains or losses on these contracts are then offset by gains or losses
on the  underlying  revenue  exposure and  consequently  a sudden or significant
change of foreign  exchange rates would not have a material impact on net income
or cash flows to the extent future  revenues are  protected by forward  currency
contracts. These contracts,  however, typically have a six-month duration. Thus,
yen/dollar  fluctuations lasting more than six months will have an impact on our
revenues.  For the nine month  periods  ended  September  30, 2005 and 2004,  we
entered  into  foreign  currency  exchange  contracts  in the  normal  course of
business  to manage  our  exposure  against  foreign  currency  fluctuations  on
revenues  denominated  in foreign  currencies.  The principal  objective of such
contracts  is to minimize  the risks and costs  associated  with  financial  and
global operating activities. We do not utilize financial instruments for trading
or other  speculative  purposes.  The fair  value of foreign  currency  exchange
contracts is estimated by obtaining  quotes from bankers.  During the first nine
months of 2005,  we  recognized  $39,000 of gains on foreign  currency  exchange
contracts  which  is  reflected  in  revenue  in the  accompanying  consolidated
statements of operations. Our hedging policies are designed to offset the effect
of a yen  devaluation on our revenues;  thus, a hypothetical  10% devaluation of
the yen would reduce our yen  denominated  revenues by 10%; but our  theoretical
hedging  gains would  offset that effect for a period of time,  to the extent we
have such foreign currency exchange contacts outstanding.

         INTEREST RATE EXPOSURE - Based on our overall interest rate exposure at
September 30, 2005, a  hypothetical  10% change in interest rates applied to our
outstanding  debt as of  September  30, 2005,  would have no material  impact on
earnings or cash flows over a one-year period.


ITEM 4.  CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

         In connection  with the  preparation  of this Form 10-Q,  the Company's
senior  management,  with the  participation  of the Company's  Chief  Executive
Officer and Chief Financial  Officer,  evaluated the effectiveness of the design
and  operation  of  the  Company's  disclosure  controls  and  procedures  as of
September 30, 2005.  Based upon that  evaluation,  the Company's Chief Executive
Officer and Chief  Financial  Officer  concluded  that the Company's  disclosure
controls and procedures were  ineffective,  as of September 30, 2005, to provide
reasonable assurance that information required to be disclosed by the Company in
reports that it files or submits under the Exchange Act, is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms and to ensure that information  required to be disclosed by the Company in
the reports that it files or submits under the Exchange Act is  accumulated  and
communicated  to  management,  including the Company's  principal  executive and
principal  financial  officers,  or persons  performing  similar  functions,  as
appropriate  to allow timely  decisions  regarding  required  disclosures.  This
conclusion is based  primarily on the fact that the Company's  internal  control
over financial  reporting was


                                       25
<PAGE>


ineffective  as of such date.  Through  the date of the filing of this Form 10-Q
the Company has adopted additional  remedial measures described below to address
deficiencies  in its disclosure  controls that existed on September 30, 2005 and
has  taken  additional  measures  to verify  the  information  in its  financial
statements.  The Company  believes that, as a result of these remedial and other
measures,  this  Form 10-Q  properly  reports  all  information  required  to be
included in such report.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

         As of December 31, 2004,  management  conducted  an  evaluation  of the
effectiveness of the system of internal  control over financial  reporting based
on the  framework in Internal  Control-Integrated  Framework  (the  "Framework")
issued by the Committee of Sponsoring  Organizations of the Treadway  Commission
(COSO). Based on its evaluation,  management concluded that the Company's system
of internal control over financial  reporting was ineffective as of December 31,
2004.  This  conclusion  was  reached  based on the  identification  of material
weaknesses described below:

         o        Certain tests undertaken in connection with the preparation of
                  our 2004 financial  statements indicated that that our product
                  cost estimates had  underestimated  product purchase and yield
                  cost  attributable  to third quarter  sales and  overestimated
                  capitalized overhead and ending inventory cost and, therefore,
                  inventory value.  Based on this  information,  we restated our
                  financial  statements  for the third  quarter  of 2004.  Other
                  errors  in our  inventory  controls  misstated  our  inventory
                  reserves at December 31, 2004.  At the  direction of our Chief
                  Executive and Chief  Financial  Officers,  we have changed the
                  procedures   by  which  we  estimate   inventory   value  and,
                  accordingly,  believe  that  this  material  weakness  will be
                  remediated.

         o        In the first  quarter of 2004, we initially  recorded  revenue
                  from a significant product sale when the product was completed
                  and stored at the  customer's  request in our  facilities  for
                  later shipment at the instruction of the customer.  During the
                  course of our year-end audit, we determined that certain terms
                  within the  contract  did not meet the  criteria to  recognize
                  revenue due to certain  exchange  rights and a failure to meet
                  all of the  provisions  of the SEC's  "bill and hold"  revenue
                  recognition guidelines.  Based on this conclusion, we restated
                  our  financial  statements  for the  first,  second  and third
                  quarters of 2004. A similar  transaction for the same customer
                  was also  recorded  in the  fourth  quarter  of  2004.  At the
                  direction of our Chief Executive and Chief Financial Officers,
                  we have adopted new  procedures  by which we review and select
                  appropriate revenue recognition policies and, accordingly,  we
                  believe we will remediate this material weakness.

         o        We identified certain weaknesses related to the closing of our
                  quarterly and annual  financial  statements and the failure to
                  have identified the material  weaknesses  described above as a
                  part of the closing  process.  At the  direction  of our Chief
                  Executive and Chief  Financial  Officers,  we have adopted new
                  closing  processes,  and  accordingly,   we  believe  we  will
                  remediate this material weakness.

         o        In tests of controls  related to our Japanese  subsidiary,  we
                  identified  significant  deficiencies  involving  management's
                  review and approval of transactions and financial results that
                  could adversely affect the  subsidiary's  ability to initiate,
                  record,  process,  or  report  financial  data  involving  the
                  significant  processes  of Sales  Order To  Cash,  Procure  To
                  Payment,  and Treasury and Investments  which, when considered
                  with other  ineffective  controls  within  the same  financial
                  processes,  resulted in the conclusion of a material  weakness
                  for each  significant  process as a whole. At the direction of
                  our Chief  Executive  and Chief  Financial  Officers,  we have
                  implemented  certain revised internal  control  procedures and
                  are  developing   additional   internal   control   procedures
                  applicable  to  our  Japanese  subsidiary  and,   accordingly,
                  believe that these material weaknesses will be remediated.


                                       26
<PAGE>


         In addition to the  material  weaknesses  described  above,  during the
third  quarter of 2005 and through the filing of this report,  while  conducting
our ongoing  evaluation of the  effectiveness  of the system of internal control
over  financial  reporting,  we identified  material  weaknesses in our internal
controls  related to our vendor account  reconciliation  process,  our inventory
management  and  costing  processes  and the  accounting  for stock  options  of
terminated  employees and determined  that certain of our  historical  financial
statements required restatement. On November 2, 2005, we announced our intention
to restate  our  financial  results for the years  ended  December  31, 2003 and
December  31,  2004 and the first  two  quarters  of 2005.  The  restatement  is
necessary to correct errors caused by the material weaknesses described below:

         o        We  identified  certain  weaknesses  in our internal  controls
                  related to our  account  reconciliation  process  with a major
                  vendor.  Because  of our  failure  to  timely  and  accurately
                  perform  account  reconciliations,  a net write-off of certain
                  receivables  totaling  $1.1 million was not made in the fourth
                  quarter  of 2003.  In  addition,  we also  failed to  properly
                  record  approximately  $1.0 million of invoices  received from
                  this  same   vendor   from  July  2004   through   June  2005.
                  Accordingly,  restatement of our third and fourth  quarters of
                  2004 and our first and second  quarters of 2005 was necessary.
                  At the direction of the Chief  Executive  and Chief  Financial
                  Officers,  we have adopted new  management  vendor  procedures
                  that we believe will remedy this material weakness.

         o        In the course of reviewing  our inventory  records  during the
                  third  quarter  financial  close  process,   we  identified  a
                  material  weakness  in our  inventory  management  and costing
                  processes.  This  weakness  led to  approximately  $616,000 of
                  software license costs remaining in inventory that should have
                  been  expensed  in the first and second  quarters  of 2005 and
                  $372,000 of certain inventory  components being double-counted
                  and thus  overstated  in inventory  as of June 30, 2005.  This
                  weakness  also  led  to an  overstated  valuation  of  certain
                  inventory  in transit at December  31, 2004 between the parent
                  company and its Hong Kong subsidiary.  This matter resulted in
                  the  understatement of cost of sales of $837,000 in 2004, none
                  of  which  was in the  first  nine  months  of  2004, and  the
                  overstatement  of cost of sales of $748,000 in 2005,  $441,000
                  of  which  was  in the  first  nine  months  of  2005.  At the
                  direction of the Chief Executive and Chief Financial Officers,
                  we are developing revised inventory reconciliation  procedures
                  that we believe will remedy this material weakness.

         o        The Company identified that it was incorrectly  accounting for
                  stock  options of  terminated  employees.  This resulted in an
                  unrecorded, non-cash expense of $2.4 million in 2001, $220,000
                  in 2004 and  $108,000  in 2005,  $106,000  of which was in the
                  first  nine  months  of 2005.  At the  direction  of the Chief
                  Executive and Chief Financial  Officers,  we are  implementing
                  new  controls and  procedures  related to the  accounting  for
                  stock  options and,  accordingly,  believe that this  material
                  weakness will be remediated.

         Other than as  discussed  above,  there was no change in the  Company's
internal  control over financial  reporting  during the last fiscal quarter that
materially  affected,  or is likely to materially affect, the Company's internal
control over financial reporting.

LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS

         Our  management,  including  our  Chief  Executive  Officer  and  Chief
Financial Officer,  do not expect that our disclosure controls and procedures or
internal control over financial reporting will prevent all errors and all fraud.
A control system no matter how well designed and  implemented,  can provide only
reasonable, not absolute, assurance that the control system's objectives will be
met.  Further,  the design of a control  system must reflect the fact that there
are  resource  constraints,  and the  benefits  of controls  must be  considered
relative to their  costs.  Because of the  inherent  limitations  in all control
systems,  no  evaluation  of controls can provide  absolute  assurance  that all
control issues within a company are detected.  The inherent  limitations include
the  realities  that  judgments  in  decision-making  can be  faulty,  and  that
breakdowns can occur because of simple errors or mistakes.  Controls can also be
circumvented by the individual acts of some persons, by collusion of two or more
people or by  management  override  of the  controls.  Because  of


                                       27
<PAGE>


the inherent limitations in a cost-effective  control system,  misstatements due
to error or fraud may occur and not be detected.

                           PART II - OTHER INFORMATION

ITEM 5.  LEGAL PROCEEDINGS

         On November 15, 2005, a class  action  alleging  violations  of federal
securities  laws was filed against the Company and two of its current and former
officers  in the  United  States  District  Court for the  Central  District  of
California.  The complaint alleges that,  between April 24, 2003 and November 1,
2005,  the Company and two of its  current  and former  officers  made false and
misleading  statements and failed to disclose material information regarding the
Company's results of operations and financial condition.  The complaint includes
claims under the Securities Act and Exchange Act and seeks  unspecified  damages
and legal expenses.

         To date,  the  Court  has not  certified  a class,  and the  litigation
remains in its early stages.

         On  January  24,  2006,  a  shareholder's  derivative  action was filed
against two of the Company's  current and former officers and the members of its
Board of  Directors  in the  Central  District  of  California.  The  derivative
complaint  contains the same factual  allegations as the class action  complaint
and  sought to  recover  unspecified  damages  from the  defendants,  as well as
forfeiture of their equity-based  compensation and contribution from them in the
event that the Company is found to have  violated the federal  securities  laws.
Following a motion made by the  defendants  to dismiss,  or in the  alternative,
stay the derivative action, the plaintiff  voluntarily  dismissed the derivative
action without prejudice on June 14, 2006.

         In  connection  with the class  action and the  derivative  proceedings
described above, an independent investigation was undertaken at the direction of
the Audit  Committee  by Dorsey & Whitney,  LLP.  Dorsey & Whitney  retained the
services  of  PricewaterhouseCoopers   LLP  with  respect  to  various  forensic
accounting   and   electronic   procedures   performed  in  the  course  of  the
investigation.

         While it intends to vigorously  defend against these  allegations,  the
Company  cannot  predict the final  disposition  of these matters or whether the
Company  will be liable  for  amounts  not  covered  by  insurance.  There is no
assurance,  however,  that the  ultimate  resolution  of these  matters will not
result  in a  material  adverse  effect  on the  Company's  business,  financial
condition or results of operations.

         In addition to the matters  identified  above,  from time to time,  the
Company is involved in various legal  actions that arise in the ordinary  course
of business.

ITEM 5(A).  RISK FACTORS

WE ARE ENTERING NEW MARKETS AND IF WE FAIL TO  ACCURATELY  PREDICT THE GROWTH OF
THESE NEW MARKETS, WE MAY SUFFER REDUCED EARNINGS.

         Historically,  our sales were concentrated in the specialty  components
markets, as well as remote control devices for presentation projectors. However,
we have devoted  significant  resources to the  development  of products and the
support of  marketing  and sales  efforts  in new  markets,  such as  television
remotes and the  e-transactions  market.  We expect to continue to identify  and
develop  products for new markets.  These markets  change  rapidly and we cannot
assure  you that they will grow or that we will be able to  accurately  forecast
market demand in time to respond  appropriately.  Our investment of resources in
these  markets may either be  insufficient  to meet  actual  demand or result in
expenses that are excessive in light of actual sales volumes. Failure to predict
growth and demand  accurately in new markets may cause us to suffer  substantial
losses or reduced earnings.


                                       28
<PAGE>


OUR OEM  REMOTE  CONTROLS  BUSINESS  IS  FOCUSED ON  CONSUMER  MARKETS  THAT ARE
INTENSELY  PRICE   COMPETITIVE.   IF  WE  CANNOT  GENERATE  VOLUME  AND  RELATED
MANUFACTURING  EFFICIENCIES REQUIRED TO COMPETE IN THESE MARKETS, OUR RESULTS OF
OPERATIONS WILL BE ADVERSELY AFFECTED.

         Historically,  our OEM Remote Controls  business was focused on selling
remote devices in the presentation projector market. As a specialty market, this
sector generated relatively low sales volumes with correspondingly high margins.
However the presentation  projector market has become more consumer-oriented and
price  competition  has  increased.  We have  shifted  our OEM  Remote  Controls
business toward sales to manufacturers of advanced viewing devices which is also
very consumer  oriented and price competitive but which offers the potential for
higher  volumes.  If we cannot  increase  production and sales volume,  or if we
otherwise fail to achieve production efficiencies, our results of operations and
financial position will be adversely affected.

FAILURE TO MAINTAIN, DEVELOP AND EXPAND OUR OEM RELATIONSHIPS COULD CAUSE DEMAND
FOR OUR PRODUCTS TO DECREASE.

         Sales to OEMs  constituted  30% of our total  sales for the nine months
ended  September  30,  2005.  If we fail to  maintain,  develop  and  expand our
relationships  with  significant  OEMs,  or if those OEMs are not  successful in
their  marketing and sales  efforts,  demand for our products may decrease.  For
example, our OEM Remote Controls products are sold to OEMs and consist primarily
of remote devices that are packaged with advanced viewing  devices,  televisions
or presentation systems. If our OEM customers experience a significant reduction
in demand for advanced viewing devices,  televisions or presentation  systems it
will significantly decrease demand for our remote devices.

         Our ability to generate increased  revenues also depends  significantly
on the extent to which our OEM customers develop, promote and sell products that
incorporate   our  technology  and  products.   If  our  OEM  customers  do  not
successfully develop and market products that incorporate our products, sales of
our products to our OEM  customers  would be adversely  affected.  The extent to
which our OEM  customers  develop,  promote and sell our  products is based on a
number of factors that are largely beyond our ability to control.

THE LOSS OF ANY SIGNIFICANT CUSTOMER OR ANY CANCELLATION,  REDUCTION OR DELAY OF
A LARGE PURCHASE BY A SIGNIFICANT  CUSTOMER COULD REDUCE OUR REVENUE AND REQUIRE
US TO WRITE-DOWN INVENTORY.

         For the first nine months of 2005, approximately 46% of our total sales
were to our OEM Remote  Controls  customers  and most of these sales were to OEM
customers. With the advent of our MICRONAV family of sensors, we expect that our
reliance on OEM sales will  increase.  The loss of any key OEM  customers,  or a
significant  reduction in sales to those customers,  could significantly  reduce
our revenue below anticipated levels. From time to time, we expect to lose other
significant  revenue  streams  and  will be  required  constantly  to  seek  new
opportunities  with new and existing  customers.  Because our expense levels are
based on our expectations as to future revenue and are, to a large extent, fixed
in the short term, a substantial  reduction or delay in sales of our products to
an OEM customer,  the unexpected  loss of any significant OEM or other customer,
or unexpected returns from customers, could harm our business.

FAILURE TO INCREASE MARKET  AWARENESS AND ACCEPTANCE OF  E-TRANSACTIONS  AND OUR
E-TRANSACTION  PRODUCTS  MAY CAUSE OUR  REVENUES IN THIS MARKET TO FALL SHORT OF
OUR EXPECTATIONS.

         The prospects  for our  e-transactions  business  depend in part on the
acceptance by our target markets of electronic  signatures as a replacement  for
traditional pen and ink  signatures.  The market for  e-transactions  is new and
emerging  and we cannot be certain  that it will  continue to develop or grow or
that  businesses will elect to adopt our products rather than continuing to rely
on traditional pen and ink signatures. Businesses that have invested substantial
resources in traditional infrastructures may be reluctant to adopt an electronic
approach to replace their existing systems. Concerns about privacy and fraud may
cause businesses not to adopt e-transactions or our e-transaction  products.  We
expect  that we will need to continue to pursue  intensive  marketing  and sales
efforts to educate  prospective  customers about the benefits of  e-transactions
and  our  e-transaction   products.   If  market  awareness  and  acceptance  of
e-


                                       29
<PAGE>


transactions do not occur,  our revenues and  profitability  in this market will
fall short of our expectations.

SALES  OF  SIMPLE  SIGNATURE   CAPTURE  DEVICES  ARE  GROWING  RAPIDLY  AND  THE
MANUFACTURERS  OF THESE  DEVICES  COULD  BROADEN  THEIR PRODUCT RANGE TO INCLUDE
PRODUCTS THAT COMPETE WITH OUR EPAD.

         Simple signature capture devices have recently become a common sight at
retail  checkout  counters and a number of companies  manufacture and sell these
devices.  While  our  EPAD  product  is  targeted  at a more  demanding  market,
signature  capture  device  manufacturers  could elect to upgrade their existing
products in an effort to compete in our markets.  Such competition  could reduce
margins or  otherwise  adversely  affect  our  prospects  in our  e-transactions
market.

IF WE ARE UNABLE TO KEEP PACE WITH RAPID  TECHNOLOGICAL  CHANGE AND GAIN  MARKET
ACCEPTANCE OF NEW PRODUCTS, WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY.

         Technology,  both in our  markets  and in our  customers'  markets,  is
undergoing  rapid change.  In order to maintain our  leadership  position in our
existing  markets  and to  emerge as a leader  in new  markets,  we will have to
maintain a leadership  position in the  technologies  supporting  those markets.
Doing so will require, among other things, the following:

         o        we must accurately predict the evolving needs of our customers
                  and develop,  in a timely manner,  the technology  required to
                  support those needs;

         o        we must  provide  products  that are not only  technologically
                  sophisticated  but are also available at a price within market
                  tolerances and competitive with comparable products;

         o        we must establish and effectively  defend our ownership of the
                  intellectual property supporting our products; and

         o        we must enter into  relationships  with other  companies  that
                  have developed complementary  technology on which our products
                  also depend.

We cannot assure you that we will be able to achieve any of these objectives.

IF WE FAIL TO MANAGE OUR GROWTH SUCCESSFULLY,  OUR OPERATIONS COULD BE ADVERSELY
IMPACTED AND OUR GROWTH COULD BE IMPAIRED.

         The  ability to  operate  our  business  in  rapidly  evolving  markets
requires an effective planning and management  process. We expect that growth in
our  business  will  place a  significant  strain on our  personnel,  management
systems, infrastructure and other resources. Our ability to manage any potential
future growth effectively will require us to attract, train, motivate and manage
new  employees,  to integrate new employees  into our overall  operations and to
continue to improve our  operational,  financial  and  management  controls  and
procedures.  If we are unable to implement  adequate  controls or integrate  new
employees  into our business in an efficient and timely  manner,  our operations
could be adversely affected and our growth could be impaired.

MOST OF OUR OEM AND MAJOR  RETAIL  CUSTOMERS  ORDER  FROM US ON A "JUST IN TIME"
BASIS, WHICH REQUIRES US TO ESTIMATE DEMAND FOR PARTICULAR PRODUCTS.

         The  agreements  or  understandings  that we reach with most of our OEM
customers  specify  various terms such as product  design and price,  but do not
constitute firm purchase orders for a specific number of products or components.
Our OEM and major retail  customers  typically  place firm purchase  orders on a
"just in time" basis and expect  products or components to be shipped to them as
soon as they can be made.  Accordingly,  our backlog of firm orders is typically
quite small in relation to the volume of our sales.  In anticipation of customer
demand,  we are often required to purchase raw materials and components based on
estimates of customer demand derived from non-binding  information  furnished by
the  customer.  If  customer  purchase  orders  differ  substantially  from  our
estimates,  we may accumulate excess inventory that


                                       30
<PAGE>


has to be written  off.  If we  underestimate  demand,  we may be unable to meet
customer needs, which could harm our relationship with the customer.

WE RELY ON  THIRD  PARTIES  FOR THE  MATERIALS  THAT WE USE TO  MANUFACTURE  OUR
PRODUCTS AND A SHORTAGE OF SUPPLY COULD ADVERSELY AFFECT OUR REVENUES, OPERATING
RESULTS AND CUSTOMER RELATIONSHIPS.

         We rely on third-party suppliers for the raw material components of our
products.  We cannot assure you that our  suppliers  will be able to maintain an
adequate  supply of these raw  materials  to  enable  us to  fulfill  all of our
customers'  orders on a timely basis. A failure to obtain an adequate  supply of
the materials for our products could increase our costs of goods sold,  cause us
to fail to meet  delivery  commitments  and cause our customers to purchase from
our competitors, which could adversely affect our operating results and customer
relationships. In some situations, we rely on a single supplier for raw material
components of our products. Any disruption in these supplier relationships could
prevent us from  maintaining an adequate supply of materials and could adversely
affect our results of operation and financial position.

DISRUPTIONS  IN OUR  MANUFACTURING  FACILITIES OR  ARRANGEMENTS  COULD CAUSE OUR
REVENUES AND OPERATING RESULTS TO DECLINE.

         We  manufacture  all of our FSR  sensors at our  Camarillo,  California
facility. This facility is vulnerable to damage from earthquakes, floods, fires,
power loss and similar events.  It could also be subject to break-ins,  sabotage
and intentional acts of vandalism.  Our insurance may not cover such events and,
if the event is covered,  our  insurance  may not be sufficient to compensate us
for any  losses  that may  occur.  Despite  any  precautions  we may  take,  the
occurrence  of  a  natural  disaster  or  other  unanticipated  problem  at  our
manufacturing  facility  could result in delayed  shipment of  products,  missed
delivery deadlines and harm to our reputation,  which may cause our revenues and
operating results to decline.

         All of our non-FSR  product  manufacturing  is currently  done by third
parties in China  identified and managed  through our Hong Kong  subsidiary.  We
rely on our subsidiary to select and contract with contract  manufacturers  with
suitable  manufacturing  facilities  and  appropriately  trained  employees.  An
interruption in our current  manufacturing  arrangements  could adversely affect
our revenues, operating results and customer relationships.

PERFORMANCE,  RELIABILITY  OR QUALITY  PROBLEMS  WITH OUR PRODUCTS MAY CAUSE OUR
CUSTOMERS TO REDUCE OR CANCEL ORDERS WHICH WOULD HARM OUR OPERATING RESULTS.

         We  regularly   introduce  new  products  with  new   technologies   or
manufacturing processes. Our products have in the past contained, and may in the
future contain,  errors or defects that may be detected at any point in the life
of the product.  Detection of such errors could result in delays in shipping and
sales during the period required to correct such errors. Defects may also result
in  product  returns,  loss of sales  and  cancelled  orders,  delays  in market
acceptance,  injury to our  reputation,  injury to  customer  relationships  and
increased  warranty  costs,  which could have an adverse effect on our business,
operating results and financial condition.


                                       31
<PAGE>


INTERNATIONAL SALES AND MANUFACTURING RISKS COULD ADVERSELY AFFECT OUR OPERATING
RESULTS.

         Our revenue from  international  sales accounted for approximately 58%,
60% and 51% of net sales for the nine months  ended 2005 and for the years ended
December 31, 2004 and 2003,  respectively.  We believe that international  sales
will represent a substantial  portion of our sales for the  foreseeable  future.
Our non-FSR  manufacturing is currently performed by third parties in China. Our
international operations involve a number of risks, including:

         o        import-export license requirements,  tariffs,  taxes and other
                  trade barriers;

         o        difficulty in staffing and managing foreign operations;

         o        ability to secure credit and funding;

         o        difficulty  in  maintaining  an  effective  system of internal
                  controls at our foreign manufacturing facility;

         o        foreign collection problems;

         o        reduced protection of intellectual property rights;

         o        international unrest and terrorism;

         o        political and economic instability; and

         o        transportation risks.

Any of the above factors could adversely affect our operating results.

OUR OPERATING  RESULTS COULD BE ADVERSELY  AFFECTED BY FLUCTUATIONS IN THE VALUE
OF FOREIGN CURRENCIES.

         International  sales made through our Japanese subsidiary are generally
denominated in yen. A weak yen would  materially  affect total revenue and could
result in a decrease in dollar  revenue even though sales  remained  constant or
increased.  We  also  contract  for  most  of  our  large-volume,  non-technical
manufacturing in China. Although we contract in U.S. dollars, a weakening of the
dollar  could  cause  existing  contracts  to be  uneconomic  to the  vendor and
therefore  require a  renegotiation.  Over the past two years, the valuations of
many  foreign  currencies  have  fluctuated  significantly  relative to the U.S.
dollar. The Japanese yen, in particular,  has fluctuated in value due in part to
the economic problems  experienced by Asian countries and the recent devaluation
of the U.S. dollar. Although we at times engage in currency hedging transactions
in order to protect ourselves from risks of Japanese yen currency  fluctuations,
we cannot assure you that these activities will protect us from such risks.

OUR MARKETS ARE INTENSELY COMPETITIVE AND MANY OF OUR POTENTIAL COMPETITORS HAVE
RESOURCES THAT WE LACK.

         Our  markets are  competitive  and we expect  competition  in our newer
markets to increase.  Our competitors include companies with similar products or
technologies,  companies that sell complementary  products to our target markets
and our OEM customers themselves,  who could choose to manufacture products that
they currently buy from us. Our competitors  and potential  competitors may have
established business  relationships that may afford them a competitive advantage
or may create  technologies that are superior to ours or that set a new industry
standard that will define the successful  product for that market. If any of our
competitors establish a close working relationship with our customers,  they may
obtain advance knowledge of our customers' technology choices or may be afforded
an opportunity to work in partnership to develop compatible technologies and may
therefore  achieve  a  competitive  advantage.  We  may  be  unable  to  compete
successfully against our current and future competitors.


                                       32
<PAGE>


OUR PRODUCTS ARE OFTEN  CUSTOMER-SPECIFIC,  AND FROM TIME TO TIME WE MAY NEED TO
WRITE OFF EXCESS OR OBSOLETE INVENTORY.

         A  substantial  percentage  of  our  intuitive  interface  devices  and
components are customer-specific and cannot be easily recycled for sale to other
customers. However, we must have sufficient quantities of our products available
to satisfy our customers'  demands.  If a particular  customer fails to order as
expected  or  cancels  or  substantially  delays  an order,  we may have  excess
inventory  that we may be required to hold for long  periods of time or that may
eventually become obsolete. In these situations, we may be required to write off
or write down  inventory,  which  would have a  material  adverse  effect on our
results of operations.

EARLY  IMPLEMENTATION  OF THE  RESTRICTION  ON HAZARDOUS  SUBSTANCES ACT OF 2002
("ROHS") OR THE ADOPTION OF SIMILAR  RESTRICTIONS  IN MARKETS  OUTSIDE OF EUROPE
MAY REQUIRE US TO MAKE ADDITIONAL WRITE-DOWNS OF OUR INVENTORY.

            When it goes into  effect,  the ROHS will  limit the use of  certain
restricted  raw  materials  in  production  of  consumer  goods that are sold in
Europe. Many of these restricted  materials are found in our products and in the
components we have in our  inventory.  Although the ROHS is not effective  until
late 2006,  many of our OEM customers  are  implementing  the ROHS  restrictions
early  and are  requiring  our  products  to be  ROHS-compliant.  We  previously
determined  that we would not be able to  adequately  reduce  our  inventory  of
non-compliant  materials and as a result,  we recorded an expense of $900,000 to
create a reserve for  obsolescence.  While we  currently  believe our reserve is
adequate,  we may need to reassess  it if other OEM  customers  begin  demanding
ROHS-compliant  products prior to the effective date of ROHS or if other markets
adopt similar restrictions.

OUR  ABILITY TO OPERATE  EFFECTIVELY  COULD BE  IMPAIRED  IF WE WERE TO LOSE THE
SERVICES OF KEY PERSONNEL, OR IF WE ARE UNABLE TO RECRUIT QUALIFIED MANAGERS AND
KEY PERSONNEL IN THE FUTURE.

         Our success is substantially dependent on the continued availability of
our key  management  and  technical  personnel.  Several  of our key  management
personnel have been with us throughout most of our history and have  substantial
experience  with  our  business  and  technology.  If one  or  more  of our  key
management  personnel  leaves  Interlink and we are unable to find a replacement
with the combination of skills and attributes  necessary to execute our business
plan,  it may have an adverse  impact on our  business.  Our  success  will also
depend,  in part,  on our  ability to attract  and retain  additional  qualified
professional,  technical,  production,  managerial and marketing personnel, both
domestically and internationally.

IF OUR PRODUCTS DO NOT SUPPORT EVOLVING INDUSTRY STANDARDS, THEY MAY NOT ACHIEVE
OR MAINTAIN MARKET ACCEPTANCE AND OUR REVENUES MAY DECLINE.

         Our wireless  communication  products must  communicate  using whatever
communication  protocol  is  chosen by the  customer.  Supporting  a  particular
communication  protocol requires specific technical expertise and we expect that
we will be required to establish  and maintain  such  expertise  with respect to
each commonly  used  communication  protocol.  New  communication  protocols are
constantly under development and we may fail to acquire the necessary experience
to support a popular  new  protocol  or to  respond  to  changes in an  existing
protocol.  In our  e-transactions  business,  our customers will expect that our
products  will enable them to comply with  applicable  requirements  relating to
electronic signatures,  such as the Electronic Signatures in Global Commerce Act
and procedures  adopted by the National Notary  Association.  If our products do
not support these  requirements,  sales of our e-transactions  products would be
adversely affected.

IF WE ARE NOT ABLE TO PROTECT OUR INTELLECTUAL PROPERTY OR IF WE INFRINGE ON THE
INTELLECTUAL  PROPERTY OF OTHERS,  OUR BUSINESS AND  OPERATING  RESULTS COULD BE
ADVERSELY AFFECTED.

         We  consider  our  intellectual  property  to be a key  element  of our
ability to compete in our chosen  markets.  We rely on a combination of patents,
trade secrets and proprietary software to establish and protect our intellectual
property  rights.  We cannot  assure you that patents will be issued from any of
our pending  applications  or that any claims  allowed from  existing or pending
patents will be  sufficiently  broad


                                       33
<PAGE>


to protect our technology.  We also cannot assure you that any patents issued to
us will not be  challenged,  invalidated  or  circumvented,  or that the  rights
granted  will provide  proprietary  protection.  Litigation  may be necessary to
enforce our patents,  trade secrets and other  intellectual  property rights, to
determine  the  validity  and  scope of the  proprietary  rights of others or to
defend  against  claims  of  infringement.   Such  litigation  could  result  in
substantial  costs and diversion of resources and could have a material  adverse
effect on our business, regardless of the final outcome of the litigation.

         We are not currently  engaged in any patent  infringement  suits but we
have been threatened with one such suit in recent years.  Despite our efforts to
maintain and safeguard our proprietary rights, we cannot assure you that we will
be successful in doing so or that our competitors will not independently develop
or patent  technologies  that are  substantially  equivalent  or superior to our
technologies.  If any of the holders of these patents  assert claims that we are
infringing them, we could be forced to incur substantial  litigation expenses or
to pay substantial royalties.  In addition, if we were found to be infringing on
someone  else's patent,  we could be required to pay  substantial  damages,  pay
royalties in the future or be enjoined from infringing in the future.

WE RELY ON OTHERS FOR ASPECTS OF OUR TECHNOLOGY DEVELOPMENT.

         Our  in-house  research  and  development  expertise  is focused on our
sensor and communication technologies. We do not have broadly based expertise in
software development,  chip design or other critical  technological aspects of a
complete product.  We rely on other companies with whom we may contract or enter
into joint  development  agreements  to  provide  these  aspects of our  product
technologies. We cannot assure you that we will be able to contract or otherwise
arrange  for these  services in the  future.  We also  cannot  assure you that a
developer with whom we contract for technology  will not use or permit others to
use similar technology in competition with us.

WE ARE A  PUBLIC  COMPANY  AND ARE  THEREFORE  REQUIRED  TO INCUR  COSTS  AND TO
DISCLOSE  INFORMATION  THAT  PRIVATE  COMPANIES  ARE NOT  REQUIRED  TO  INCUR OR
DISCLOSE.

         As a public company,  we are required to comply with complex and costly
accounting and disclosure  requirements  that do not apply to foreign  companies
that are not public in the United States,  private  companies or to subsidiaries
or divisions of very large  companies for whom the results of the  subsidiary or
division are not material. The costs that we are required to incur have recently
increased dramatically,  especially in connection with our reporting obligations
under  Section 404 of the  Sarbanes-Oxley  Act of 2002,  and these  expenses may
continue to be incurred at historically unprecedented levels for the foreseeable
future.  These  costs  impact  our  profitability  and  therefore  constitute  a
competitive  disadvantage vis-a-vis much of our competition.  These requirements
may also prevent our management from focusing on other areas of our business. In
addition,  our public status requires us to disclose  publicly  information that
can afford a competitor a  competitive  advantage.  If we are unable to maintain
costs associated with our public company status within reasonable parameters, or
if we are  required  to disclose  information  that our  competitors  can use to
compete  with us, our  ability to remain  competitive  in our  markets  could be
adversely affected.

BUSINESS  ACQUISITIONS  OR  PARTNERING  ARRANGEMENTS  MAY DISRUPT OUR  BUSINESS,
DILUTE SHAREHOLDER VALUE AND DISTRACT MANAGEMENT'S ATTENTION.

         As part of our business strategy,  we may consider  acquisitions of, or
significant  investments in, businesses with services,  products or technologies
that we believe could  complement or expand our business.  Such  acquisitions or
investments involve numerous risks, including:

         o        unanticipated costs and liabilities;

         o        difficulty  of  integrating  the   operations,   products  and
                  personnel of the acquired business;

         o        difficulties in managing the financial and strategic  position
                  of acquired or developed products and technologies;


                                       34
<PAGE>


         o        difficulties in maintaining customer relationships;

         o        diversion of management's attention;

         o        inability to maintain uniform  standards,  controls,  policies
                  and procedures;

         o        impairment  of  relationships   with  acquired  employees  and
                  customers occurring as a result of integration of the acquired
                  business; and

         o        accounting  results that are unrelated to the  performance  of
                  either business.

         Acquisitions  also frequently result in recording of goodwill and other
intangible  assets  that are  subject to  potential  impairments  in the future.
Additionally, if we finance acquisitions by using convertible debt or stock, our
existing  stockholders may be diluted which could affect the market price of our
stock. If we fail to properly evaluate and execute  acquisitions or investments,
we may not achieve the anticipated  additional  benefit to our business,  and we
may incur costs in excess of what we anticipate.

WE HAVE IDENTIFIED  MATERIAL  WEAKNESSES IN OUR INTERNAL  CONTROL OVER FINANCIAL
REPORTING AND HAVE BEEN REQUIRED TO RESTATE OUR HISTORICAL FINANCIAL STATEMENTS.

         In our Annual Report for the year ended  December 31, 2004, we reported
material weaknesses in our internal control over financial reporting. Additional
material  weaknesses  were  identified  in 2005.  As a result of these  material
weaknesses,  we were  required to restate  several of our  historical  financial
statements.  We  have  taken  significant  measures  to  improve  our  financial
reporting  process but,  despite  these  measures,  continued  to have  material
weaknesses  as of September  30, 2005.  These  matters are more fully  described
elsewhere  in this  Report  under  the  captions  "Management's  Discussion  and
Analysis of Financial  Condition  and Results of  Operations"  and "Controls and
Procedures--Changes in Internal Control Over Financial Reporting."

         Any  continuing  material  weaknesses  in  our  internal  control  over
financial  reporting  could result in errors in our financial  statements.  Such
errors could cause our internal  planning and  assessment  of our business to be
based on false information and could cause our published financial statements to
fail to fairly  present our financial  condition and results of  operations.  We
cannot  assure you that we will be  successful  in our effort to  eliminate  all
material  control  weaknesses.  Any continuing  material  weaknesses could erode
market confidence in our company, could cause the price of our stock to be based
on false or misleading  information and could result in litigation  based on any
such false or misleading information.

WE ARE FACING  LITIGATION  BASED ON OUR  RESTATEMENTS  OF  HISTORICAL  FINANCIAL
STATEMENTS,  WHICH MAY HAVE A MATERIAL  ADVERSE  IMPACT ON OUR CASH RESERVES AND
MAY IMPAIR OUR ABILITY TO ACHIEVE OUR BUSINESS OBJECTIVES.

         Certain former Interlink stockholders have filed a class action lawsuit
claiming  damages  under various  securities  laws based on our  restatement  of
historical  financial  statements.  Other stockholders have brought a derivative
action against our Chief Executive  Officer,  our former Chief Financial Officer
and our directors, alleging mismanagement. These actions will require a vigorous
defense and could result in a settlement or adverse award that is not covered by
insurance  or that exceeds  applicable  insurance  limits.  The time and expense
required  to defend  these  claims  may also  affect  our  ability to pursue our
strategy.  There is also no  assurance  that the  ultimate  resolution  of these
matters will not result in a material adverse effect on our business,  financial
condition or results of operations.


                                       35
<PAGE>


ITEM 6.  EXHIBITS

         3.1      Certificate  of  Incorporation,  as amended  (incorporated  by
                  reference to Exhibit 3.1 to the Registrant's  Annual Report on
                  Form 10-K for the year ended December 31, 2000).

         3.2      Bylaws  (incorporated  by  reference  to  Exhibit  3.2  to the
                  Registrant's  Current  Report  on Form  8-K  filed  on May 11,
                  2006).

         31.1     Certification   of  Chief  Executive   Officer  of  Registrant
                  Pursuant to SEC Rule 13a-14(a)/15d-14(a),  as Adopted Pursuant
                  to Section 302 of the Sarbanes-Oxley Act of 2002.

         31.2     Certification   of  Chief  Financial   Officer  of  Registrant
                  Pursuant to SEC Rule 13a-14(a)/15d-14(a),  as Adopted Pursuant
                  to Section 302 of the Sarbanes-Oxley Act of 2002.

         32.1     Certification   of  Chief  Executive   Officer  of  Registrant
                  Pursuant to 18 U.S.C.  Section  1350,  as Adopted  Pursuant to
                  Section 906 of the Sarbanes-Oxley Act of 2002.

         32.2     Certification   of  Chief  Financial   Officer  of  Registrant
                  Pursuant to 18 U.S.C.  Section  1350,  as Adopted  Pursuant to
                  Section 906 of the Sarbanes-Oxley Act of 2002.


                                       36
<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: July 24, 2006                                   /S/ CHARLES C. BEST
                                                     ---------------------------
                                                     Charles C. Best
                                                     Chief Financial Officer


                                       37
<PAGE>


                                  EXHIBIT INDEX

The following  exhibits are filed with or  incorporated  by reference  into this
Quarterly Report:

EXHIBIT
NUMBER   DESCRIPTION
-------  -----------

3.1      Certificate of Incorporation,  as amended (incorporated by reference to
         Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the year
         ended December 31, 2000).

3.2      Bylaws  (incorporated  by reference to Exhibit 3.2 to the  Registrant's
         Current Report on Form 8-K filed on May 11, 2006).

31.1     Certification of Chief Executive Officer of Registrant  Pursuant to SEC
         Rule  13a-14(a)/15d-14(a),  as Adopted  Pursuant  to Section 302 of the
         Sarbanes-Oxley Act of 2002.

31.2     Certification of Chief Financial Officer of Registrant  Pursuant to SEC
         Rule  13a-14(a)/15d-14(a),  as Adopted  Pursuant  to Section 302 of the
         Sarbanes-Oxley Act of 2002.

32.1     Certification of Chief Executive  Officer of Registrant  Pursuant to 18
         U.S.C.  Section  1350,  as  Adopted  Pursuant  to  Section  906  of the
         Sarbanes-Oxley Act of 2002.

32.2     Certification of Chief Financial  Officer of Registrant  Pursuant to 18
         U.S.C.  Section  1350,  as  Adopted  Pursuant  to  Section  906  of the
         Sarbanes-Oxley Act of 2002.


                                       38