INTERLINK ELECTRONICS INC — Regulatory Filings 1996

Jun 17, 1996

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 17, 1996 REGISTRATION NO. 33-60380 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- POST-EFFECTIVE AMENDMENT NO. 6 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 INTERLINK ELECTRONICS (Exact name of registrant as specified in its charter) CALIFORNIA 3679 77-0056625 (State or other (Primary Standard Industrial (I.R.S. Employer jurisdiction of Classification Code Number) Identification incorporation Number) or organization) 546 FLYNN ROAD CAMARILLO, CALIFORNIA 93012 (805) 484-8855 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) E. MICHAEL THOBEN, III INTERLINK ELECTRONICS 546 FLYNN ROAD CAMARILLO, CALIFORNIA 93012 (805) 484-8855 (Name, address, including zip code, and telephone number, including area code, of agent for service) COPY TO: John J. Halle Stoel Rives LLP 900 SW Fifth Avenue Portland, Oregon 97204 (503) 224-3380 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this registration statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. / X / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / --------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. INTERLINK ELECTRONICS

PROSPECTUS 223,723 SHARES INTERLINK ELECTRONICS COMMON STOCK The common stock ("Common Stock") of Interlink Electronics ("Interlink" or the "Company") offered hereby (the "Shares") will be sold by the Company upon the effectiveness of the Registration Statement Amendment of which this Prospectus is a part with respect to the exercise of certain warrants to purchase an aggregate of 1,790,946 shares of Common Stock. The expiration date of all such warrants was June 7, 1996, at which time warrants ("Warrants") to purchase the 223,723 Shares offered hereby had been validly submitted for exercise. No commission or solicitation fee was paid in connection with any exercise of Warrants. The Common Stock is listed on the Nasdaq National Market under the symbol LINK. On June 7, 1996, the closing price for the Common Stock was $8.38. --------------- THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR CERTAIN FACTORS RELATED TO THIS OFFERING. --------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS JUNE 17, 1996. PROSPECTUS SUMMARY The following information is qualified in its entirety, and should be read in conjunction with, the more detailed information and financial statements and related notes appearing elsewhere in this Prospectus. Unless otherwise indicated, references to Interlink or the Company are to Interlink Electronics, a California corporation, and its 80% owned subsidiary, Interlink Electronics KK, a Japanese corporation. THE COMPANY Interlink Electronics ("Interlink" or the "Company") uses its patented force-sensing technology to design, manufacture and sell electronic sensor products and systems. Its core business consists of sensor products used in computer cursor control and other human interface devices that provide input into consumer, business and industrial computers. The Company's sensors and systems are currently installed in computers or computer keyboards or used as peripheral devices to control computer operations. Interlink is also seeking to expand its market to include devices such as game controllers and remote controllers for televisions, VCRs, set-top boxes and multimedia systems that increasingly require sophisticated control functions. Interlink also manufactures and sells custom designed sensors for use in a variety of medical, process control and other applications. Interlink has incorporated its proprietary technology into its Force-Sensing Resistor ("FSR") sensors, which transform physical pressure into corresponding electronic response. FSR sensors react to pressure applied by any means, including human touch, a mechanical device, a fluid or a gas. With supporting electronics, a FSR sensor can start, stop, intensify, select, direct, detect or measure a desired response. Interlink is also pursuing research and development projects involving other force sensing technologies as alternatives where indicated by technological or price considerations. Interlink's current pointing device products are based on its proprietary "VersaPoint" technology, which consists of a four-zone sensor array and proprietary software and firmware. By manipulating a "button", "pointing stick" or similar device installed over the four-zone sensor, the operator can move a cursor to a desired location on a screen without the use of any moving part such as are commonly found in other pointing devices. Depending on product design, computer function selection can be provided by "clicking" separate buttons on a computer pointing device or by a sharp increase in pressure on the cursor button itself. Interlink offers pointing device products both as stand-alone units and as modules suitable for installation in computers or computer peripheral devices made by others. Interlink's consumer product line consists of three basic products, short-wired "mice" devices and both wired and infrared remote pointing devices, that provide an after-sale alternative to the trackball and the traditional mouse, as well as a pointing solution geared to the presentation market and other remote applications. Interlink also offers a variety of OEM products incorporating sensors or a complete VersaPoint module to manufacturers of computers, keyboards and other peripheral devices. 2 Interlink sells its complete pointing device products directly to large retailers, including Circuit City, Computer City, Fry's and Incredible Universe and to a variety of smaller establishments through distributors, including Ingram Micro Inc. OEM devices are sold directly by Interlink or through distributors, including Logitech, Inc. Custom sensors are sold directly to the OEM user by the Company's direct sales force. SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING THE COMPANY AND ITS BUSINESS. THE OFFERING Securities offered by the Company............... 223,723 shares of Common Stock Common Stock outstanding on the................. 4,255,113 shares(1) date of this Prospectus Use of net proceeds............................. For general corporate purposes. See "Use of Proceeds." Nasdaq Symbols: Common Stock............................... LINK (1) Does not include (i) 223,723 shares of Common Stock issuable as a result of the exercise of the Warrants, or (ii) up to 1,541,787 shares of Common Stock issuable on exercise of options granted and currently outstanding under the Company's employee stock option plans, or (iii) up to 270,000 shares of Common Stock issuable on the exercise of Underwriter Stock Warrants. See "Description of Securities." 3 SUMMARY FINANCIAL INFORMATION Unless the context indicates otherwise, all share and per share information presented herein gives retroactive effect to a one-for-five reverse split of the Common Stock effective as of March 30, 1993. See "Description of Securities."

4 THE COMPANY Interlink Electronics ("Interlink" or "the Company") uses its patented force-sensing technology to design, manufacture and sell electronic sensor products and systems. Its core business consists of a product incorporating its patented Force-Sensing Resistor (FSR) technology. These products are used in pointing and other human interface devices that provide input into consumer, business and industrial computers. Interlink is also seeking to expand its market to include devices such as game controllers and remote controllers for televisions, VCRs, set-top boxes and multimedia systems that increasingly require sophisticated control functions. Interlink also manufactures and sells custom designed sensors for use in a variety of medical, process control and other applications. Interlink was incorporated in California in 1985 but remained essentially inactive until 1987 when it purchased rights to the 26 original patents and other proprietary rights covering its force sensing technology. Since 1987, Interlink has been expanding its sales and marketing, management and capitalization as it pursues new applications and marketing strategies for its force sensing technology. Interlink's offices are located at 546 Flynn Road, Camarillo, California 93012 and its telephone number is (805) 484-8855. TRADEMARKS VersaPoint(R), RemotePoint(TM), PortaPoint(TM), DuraPoint(R), ProPoint(TM), Super Mouse(TM), Force Sensing Resistor(R), and FSR(R) are trademarks of Interlink. The following trade or service marks used herein are owned by the persons indicated: "Newton" is owned by Apple Computer Inc. ("Apple"), and "Microsoft" is owned by Microsoft Corporation ("Microsoft"). RISK FACTORS This Prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933. Such forward-looking statements may be found in this section and under "Management's Discussion and Analysis of Financial Condition and Results of Operation." Actual events or results could differ materially from those discussed in the forward-looking statements as a result of various factors, including, without limitation, the risk factors set forth below and elsewhere in this Prospectus. In addition to the other information contained in this Prospectus, the following factors should be considered carefully in evaluating an investment in the Shares offered by this Prospectus. Prior Losses and Accumulated Deficit. Throughout most of its history, Interlink has operated at a loss and, as of March 31, 1996, had an accumulated deficit of $11,232,000. While the Company has reported net income and income from operations in each quarter 5 since the second quarter of 1995, there is no assurance that the Company will continue to operate profitably. In addition to unexpected or uncontrollable events, a decision by management to incur significant marketing, research and development or other expense in anticipation of future profitability could cause the Company to incur losses over the period of the expense and until such expenses resulted in increased revenues. Conversely, a decision by management to forego development expense in order to maintain profitability, could have an adverse impact on future revenues. There is no assurance that the decisions of management will result in profitability over either the long or the short term. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Market Acceptance, Product Enhancements and New Products. The Company's VersaPoint technology is a comparatively recent entrant into the pointing device market and faces market acceptance barriers that do not affect more established technologies. To date, the Company's force sensing technology and products have gained limited market acceptance. Moreover, various markets in which Interlink competes are subject to rapid technological change. Interlink's success will ultimately depend on its ability to develop and sell new products and to enhance existing products that address market requirements, including requirements as to timing and price. The success of new products depends on a variety of factors, including product selection, pricing, performance and design, implementation of manufacturing and assembly processes, product performance and effective sales and marketing. Because new product development commitments must be made well in advance of sales, new product decisions must anticipate both future demand and the technology that will be available to supply that demand. New and enhanced products are regularly introduced into markets in which Interlink competes and there is no assurance that Interlink will be successful in selecting, developing, manufacturing and marketing new and enhanced products. Further, the Company has only recently launched certain key products, including its RemotePoint Plus and DeskStick computer pointing devices. The Company cannot determine at this time whether these products will be successful. Potential Requirement for Additional Financing. The Company believes that its existing capital resources and cash flow from operations will be sufficient to meet its anticipated cash requirements for at least the next twelve months, whether or not any proceeds are received from the exercise of Warrants. However, any number of unanticipated events, over many of which the Company will have no control, could increase the Company's operating costs or decrease its sales. Further, the Company has no commitment from others to provide additional capital and there is no assurance that such additional capital will be available when and if needed or, if available, that the terms upon which it is available will be favorable or acceptable to the Company. There is therefore no assurance that the Company will have sufficient funds to develop its business and maintain profitability. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Dependence on Success of Customers. A large percentage of Interlink's sales are to manufacturers or resellers of electronic devices that incorporate Interlink's sensors in their products and/or offer Interlink products as a part of an equipment package including other 6 devices. Interlink has suffered adverse consequences in the past from the failure or poor performance of major customers and expects that for the foreseeable future its success will continue to be dependent to some degree on the success of such customers. Patents and Proprietary Rights. Interlink holds certain domestic and foreign patents covering various aspects of its force sensing technology. See "Business of the Company--Patents and Proprietary Rights." While Interlink believes that its patents and trade secrets offer it some degree of protection against competition, the scope and effectiveness of such protection has not been tested and could prove to be limited. The enforcement of patent rights can be a difficult, time-consuming and expensive process and there is no assurance that Interlink would have the resources required to defend such rights were they to be infringed. There is no assurance that Interlink's patents will provide meaningful protection from competition. Although Interlink is not aware that its activities infringe patent rights of any other person, there is no absolute assurance that such infringement has not occurred or will not occur. Interlink also seeks to protect its technology by safeguarding its trade secrets. However, there is no assurance that proprietary information of Interlink will not be disclosed or that Interlink will have the resources to identify and protect against any such disclosure. Dependence on Key Personnel. The Company's success will depend to a large extent on the abilities and continued participation of certain key employees, including Mr. Thoben, its Chairman. The loss of Mr. Thoben or other key employees could have a material adverse effect on the Company's business. The Company maintains key man insurance in the amount of $1 million on Mr. Thoben, but there is no assurance that such insurance will be available in the future or that the Company will continue to maintain such insurance. In some cases, the Company expects that it will be unable to provide to certain of its key employees the salaries and benefits they could expect to receive at larger, more established businesses and will therefore rely on the equity interest of these employees in the Company to compete for their services. See "Management." Dependence on Suppliers. Interlink attempts, where possible, to ensure that it has access to multiple suppliers of key components and believes that most of its requirements can readily be supplied from multiple sources. However, an unexpected interruption in the supply of a key component could have a material adverse consequence on Interlink's business until a new source could be identified and secured. An important material necessary for production of FSR sensors is available from a limited number of suppliers, each of whom is a foreign entity. A disruption in the supply could adversely affect the Company's production capacity. Competition. The markets for the Company's products are generally highly competitive and consist of providers of several different types of technologies that have various advantages and disadvantages in competition with Interlink's FSR sensors. Many of the Company's competitors have established relationships with OEM customers and others that Interlink targets as potential customers. Some competitors also have substantially greater access to capital and technical resources than does the Company and may therefore have a 7 significant competitive advantage. The Company's success is dependent on the use of force sensing technology in products made by the Company and others. Should anyone develop a superior or more cost-effective technology that can be used in products currently using the Company's force sensing technology, the Company's business could be materially adversely effected. See "Business --Competition." The Company will be required to enhance the performance and/or reduce the cost of its core technologies in order to remain competitive. Because new products and technologies require commitments well in advance of sales, decisions with respect to such commitments must accurately anticipate both future demand and the technology that will be available to supply that demand. There is no assurance that the Company will successfully adapt to future technological change and failure to do so may materially adversely affect the Company's business, financial condition and results of operations. See "--Market Acceptance, Product Enhancements and New Products." Potential Liability. The Company, like all manufacturers, is subject to the risk of products liability claims related to the use of its products. Some of the Company's products are used in medical applications. Damage claims in products liability cases generally, and medical claims in particular, can be large, as can defense costs, even in cases where a defense is successful. The Company's insurance covers products liability up to $2 million per occurrence. There is no assurance that the Company will continue to maintain such insurance or that such coverage will be adequate to satisfy any claims. Foreign Operations. A significant portion of the Company's existing business and expansion potential is in foreign markets. Consequently, the Company is or may be exposed to various risks, including currency fluctuations, changes in trade regulations or enforcement policies with respect thereto, or political instability in certain regions, that affect only international business operations. Dividends on Common Stock Unlikely. The Company has never paid cash dividends on its Common Stock. It is the Company's intention to retain earnings, if any, to finance the operation and expansion of its business and therefore it does not expect to pay cash dividends in the foreseeable future. Substantial Dilution to New Investors. Purchasers of the Shares will incur substantial dilution of their investment since the pro forma net tangible book value per share of the Common Stock as of March 31, 1996 is less than the exercise price of the Warrants. Based upon the net pro forma tangible book value of the Company at March 31, 1996, the dilution to investors would be $6.30 per Share. See "Dilution." Shares Eligible for Future Sale. Substantially all of the Common Stock outstanding on the date of this Prospectus is, and all of the Shares offered hereby will be, subject to resale either without restriction if held by non-affiliates or pursuant to currently effective registration statements. Sales of substantial amounts of Common Stock, or the potential for such sales, could have a depressive effect on the price of the Company's securities. 8 Warrants and Options; Potential Dilution and Adverse Impact on Additional Financing. As of March 31, 1996, there were outstanding options and warrants to purchase an aggregate of 2,035,510 shares of Common Stock, including the 223,723 shares of Common Stock issuable on exercise of the Warrants but excluding warrants that expired unexercised on June 7, 1996. See "Description of Securities--Other Securities." To the extent that the outstanding options and warrants are exercised, dilution to the interests of the Company's shareholders may occur. For the life of the options described above, the holders will have the opportunity to profit from a rise in the price of the underlying securities. The existence of such options may adversely affect the terms on which the Company can obtain additional financing, and the holders of such options can be expected to exercise them at a time when the Company would, in all likelihood, be able to obtain additional capital by an offering of its unissued capital stock on terms more favorable to the Company than those provided by such options. See "Management--Stock Option Plan." Stock Market Volatility and General Market Declines. There have been periods of extreme volatility in the stock market, which in many cases were unrelated to the operating performance of, or announcements concerning, the issuers of the affected stock. General market price declines or market volatility in the future could adversely affect the price of the Common Stock. In certain cases, volatility in the price of a given security can result from the short-term trading strategies of certain market segments. Such volatility can distort market value and can be particularly severe in the case of smaller capitalization stocks and immediately before or after an important corporate event such as a public offering. There is no assurance that the market price of the Common Stock will be maintained following any exercise of Warrants. Preferred Stock. The Company is authorized to issue up to 10,000,000 shares of Preferred Stock. The Company may issue Preferred Stock in one or more series with rights, preferences, privileges and restrictions that may be established by the Company's Board of Directors without shareholder approval. As a result, in the future, the Company could issue Preferred Stock with voting, liquidation, dividend and conversion rights that could adversely affect the voting power and other rights of holders of Common Stock. Moreover, the issuance of Preferred Stock in certain circumstances could have the effect of delaying, deterring or preventing a change in control of the Company. The Company does not have a present intention to issue Preferred Stock. See "Description of Securities--Preferred Stock." Anti-Takeover Provisions. Certain provisions of the Company's Second Amended and Restated Articles of Incorporation and the California General Corporation Law could discourage a third party from attempting to acquire, or make it more difficult for a third party to acquire control of the Company without approval of the Company's Board of Directors. Such provisions could also limit the price that certain investors might be willing to pay in the for future shares of Common Stock. Certain of such provisions allow the Board of Directors to authorize the issuance of Preferred Stock with rights superior to those of the Common Stock. The Company also will be subject to the provisions of Section 1203 of the California 9 General Corporation Law which requires a fairness opinion to be provided to the Company's shareholders in connection with their consideration of any proposed "interested party" reorganization transaction. See "Description of Securities." The Company is considering reincorporating in Delaware. If the Company is reincorporated in Delaware, certain provisions of the Delaware General Corporation Law likewise could discourage a third party from attempting to acquire, or make it more difficult for a third party to acquire control of the Company. See "Description of Securities--Reorganization in Delaware." 10 USE OF PROCEEDS The Company will receive approximately $1,746,000 in net proceeds from the sale of the Shares, after deducting expenses estimated at $100,000. These proceeds will be added to the Company's general purpose funds and will be used for general corporate purposes. MARKET FOR THE COMPANY'S EQUITY SECURITIES AND DIVIDEND POLICY Historical Market Information. On June 7, 1993 the Units sold in the IPO were immediately separated and the underlying Common Stock and Warrants became eligible to trade separately. From that time until September 13, 1995, the Common Stock and the Warrants were listed for trading on the Nasdaq Small Cap market. Effective September 14, 1995, the Common Stock and the Warrants were accepted for listing on the Nasdaq National Market. The Warrants expired June 7, 1996 and were delisted as of that date. The following table sets forth, for the periods shown, the high and low prices for the Common Stock as reported on the Nasdaq Stock Market.

Dividend Policy. The Company has never paid cash dividends. It is the Company's intention to retain earnings, if any, to finance the operation and expansion of its business and therefore it does not expect to pay cash dividends in the foreseeable future. Payment of dividends, if any, will be at the discretion of the Board of Directors after taking into account various factors, including the Company's financial condition, results of operations, current and anticipated cash needs, plans for expansion and restrictions, if any, under the terms of any debt obligations of the Company or equity securities issued by the Company. 11 CAPITALIZATION The following table sets forth the short-term obligations and capitalization of the Company as of June 30, 1995 and as adjusted as of that date to give pro forma effect to the sale of all of the Shares offered hereby:

12 DILUTION The pro forma net tangible book value of the Company at March 31, 1996 was $7,003,000 or $1.65 per share of Common Stock. Net tangible book value per share represents the amount of the Company's tangible assets (total assets less patents and trademarks, European marketing rights and goodwill), less total liabilities, divided by the number of shares of Common Stock outstanding. Without taking into account any further adjustments in net tangible book value after March 31, 1996, other than to give effect to the sale of all of the 223,723 Shares offered hereby, the pro forma net tangible book value of the Company at March 31, 1996 would have been $8,749,000 or $1.95 per share of Common Stock, representing an increase in net tangible book value of $.30 per share to existing shareholders and average dilution of $6.30 per share to new investors. The following table illustrates per share dilution:

13 SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with the financial statements and the related Notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein. The statement of operations data set forth below with respect to the year ended December 31, 1993 are derived from financial statements which have been audited by Deloitte & Touche LLP, independent auditors, whose report thereon is included elsewhere in this Prospectus. The statement of operations data set forth below with respect to the years ended December 31, 1994 and 1995 and the balance sheet data at December 31, 1994 and 1995 are derived from financial statements which have been audited by Arthur Andersen LLP, independent public accountants, whose report thereon is included elsewhere in this Prospectus. The statements of operations data for the years ended December 31, 1991 and 1992 and balance sheet data at December 31, 1991, 1992 and 1993 are derived from financial statements, audited by Deloitte & Touche LLP, not included herein. The selected financial data presented for the three-month periods ended March 31, 1995 and 1996 are derived from the unaudited financial statements of the Company included elsewhere in this Prospectus, and in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of operations for such interim periods. The results of operations at any interim period are not necessarily indicative of results to be expected for a full year.

15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW From the commencement of significant operations in 1987, Interlink has engaged in the development of its sensor business, initially through the sale of custom FSR sensors or systems ("Custom products") and, more recently, through internally developed consumer and industrial computer pointing device products ("Computer Pointing Device products"). Product sales, which have grown at an average annual rate of greater than 60% over the past four fiscal years, were almost entirely comprised of Custom products until 1993. In late 1992, the Company introduced its first product based on its proprietary VersaPoint computer pointing device technology, PortaPoint. Since then the Company has introduced DuraPoint, ProPoint, RemotePoint, RemotePoint Plus, DeskStick and many others on an O.E.M. basis. In 1995, Computer Pointing Device products comprised 74% of revenues and the Company expects to continue to focus the majority of its resources towards the further development of this product line. The particular characteristics of the Company's force sensing technology have required the Company to expend considerable resources in research and development to refine the manufacturing process. Since 1992, the Company has also engaged in the development of standardized computer pointing device products. Given the rapid development cycles required in the computer products industry, the Company expects to continue investing significant resources towards the enhancement of existing computer pointing device products and the development of new products for existing and developing consumer and industrial markets. See "Risk Factors--Market Acceptance, Product Enhancements and New Products" and "--Competition." With the advent of its first consumer product in 1992, the Company has expended substantial marketing resources in support of its consumer computer pointing device products. In 1995, the Company launched on a campaign to develop its own extensive computer retailer distribution network. Thus the Company expects that in the near term its marketing costs on a relative basis will tend to be relatively high in relation to expense levels typical of an established sales and marketing program of comparable size. The Company has experienced steady growth in revenues, from approximately $3 million in 1992 to an annualized rate of approximately $11 million in the first three months of 1996. Primarily as a result of this growth in revenues and resulting economies of scale, income and cash flow have shown overall positive trends. In 1994, the Company recorded net income for the first time as a result of a one-time gain from an exchange of stock with its former European joint venture partner in the last half of the year. In 1995 the Company received its first profit from operations and through the first quarter of 1996 has recorded four consecutive quarters of profits. Except for working capital needed to fund customer receivables and inventory, the Company is operating at a positive cash flow. 16 Based on its 1996 forecasts, the Company currently anticipates that income and cash flow will remain positive or essentially breakeven through the remainder of the year. However, any number of unanticipated events could have a negative impact on income or cash flow, including any significant failure of the Company to meet sales targets as to which there is no assurance. Receipt by the Company of the net proceeds from the sale of all of the Shares and income from the investment of such proceeds would have a positive impact on net income and cash flow from investing and financing activities. However, any use of such proceeds in operations that was expensed or depreciated over a short asset life would have a negative impact on both operating and net income. While the Company has no explicit plans to use such proceeds for such purposes, management may elect to pursue a more rapid growth plan than would be possible without such resources. RESULTS OF OPERATIONS The following table presents, as a percentage of total revenues, certain selected consolidated financial data of each of the periods indicated.

17 Three Months Ended March 31, 1995 and 1996. Revenues grew 22% for the first three months of 1996 as compared to the same period in 1995. For the quarter, product sales for the Computer Pointing Device product line recorded a 52% increase as compared to first quarter of 1995. This growth resulted from the Company's further penetration into the rugged portable computer and presentation system markets, as well as, broader distribution of its Branded products in the retail channels. Revenues for the Custom Applications products line decreased 24% as a result of the Company's strategy to focus on the Computer Pointing Devices product line. For the first quarter of 1996, the Custom Applications product line accounted for 21% of total revenues, down from 35% in the first quarter of 1995. The Company expects that the Custom Applications product line will continue to decline as a percentage of total revenues in succeeding periods. For the three months ended March 31, 1996, gross profit improved to 51% of revenues as compared to 50% for the same period in the prior year. This improvement is a result of the amortization of fixed manufacturing costs over a greater base of product sales combined with a shift in the mix of sales towards the Computer Pointing Device product line, which carries a relatively higher margin. Product development and research expenses remained relatively unchanged at $242,000 (9% of revenues) in first quarter of 1996 versus $222,000 (10% of revenues) for first quarter of 1995 as the Company continued to develop products based on its proprietary VersaPoint technology, which was developed in 1992. Given the industries the Company participates in, management expects research and development costs to remain at or near the current level. For the three months ended March 31, 1996, selling, general and administrative (SG&A) costs fell to 40% of revenues as compared to 44% for the same period of 1995. The decrease resulted from the leveraging of fixed SG&A costs over a higher sales base. Years Ended December 31, 1993, 1994 and 1995 Revenues increased 38% from $7.8 million in 1994 to $10.7 million in 1995. As compared to 1993, 1994 revenues grew 78% from $4.4 million in 1993. The revenue growth is a result of the Company's focus on developing and marketing computer pointing device products based on the Company's VersaPoint technology. Revenues from this product line grew from $1.9 million in 1993, to $5.2 million in 1994 and to $7.9 million in 1995. The primary products within this product line are: PortaPoint, introduced in late 1992 (renamed SuperMouse in early 1994); DuraPoint, introduced in early 1993, ProPoint, introduced in early 1994, the Integrated Pointing Stick, introduced in late 1993; the MicroModule, introduced in early 1994; RemotePoint, introduced in late 1994; RemotePoint Plus, DeskStick and IRC introduced in late 1995. Because of the Company's focus on pointing device products, sales in the Custom Applications product 18 line have recorded nominal growth; growing 4% from $2.5 million in 1993 to $2.6 million in 1994 and 8% to $2.8 million in 1995. The Company expects that the Custom Applications product line will continue to show minimal growth, possibly negative. The improvement of gross profit to 51% in 1995 from 48% in 1994 and 39% in 1993 is a reflection of: a) the shift in revenue mix toward the Computer Pointing Devices product line which carries a relatively higher profit margin; b) the Company's successful efforts to develop low-cost overseas producers of the Company's Branded Products, as volume justifies; c) the relatively low usage of FSR manufacturing capacity, thus as revenue has risen fixed manufacturing costs have remained relatively constant. During the periods presented the Company has not experienced meaningful price erosion in its Computer Pointing Devices product line. Product development and research expense increased from $782,000 in 1993 to $1 million in 1994 and then decreased to $897,000 in 1995. The 1994 expense was spent developing RemotePoint and the MicroJoystick. The Company was able to achieve a decrease in the 1995 expense as the products developed in 1995; RemotePoint Plus, IRC and DeskStick are essentially line extensions to the products developed in the previous year. Selling, general and administrative costs decreased from $4 million in 1993 (91% of revenues) to $3.9 million in 1994 (49.9% of revenues) and then increased to $4.5 million in 1995 (42% of revenues). The 1994 decrease was the result of the Company's change in strategy from the previous year to use an exclusive distributor for most of its Branded Products. Late in 1994 the Company terminated that relationship and reverted to a direct marketing strategy. The change in selling strategy along with the introduction of three new products caused the increase in expenses (on a dollar basis not on a percentage basis) in 1995. For the first time in its history, the Company recorded a profit from operations of $68,000 in 1995 versus operating losses of $1.2 million and $3 million for 1994 and 1993, respectively. These improvements were achieved by strong revenue and profit margin growth from the Company's key focus area, Computer Pointing Devices, and successful cost management of product development and marketing costs. In contemplation of the Company's June 1993 initial public offering, the Company received bridge loans and negotiated the conversion of the PortaPoint Profit Participation Interests. As a consequence of these transactions, the Company recorded one-time, non-cash finance charges totaling $1 million. In September 1994, the Company sold its interest in IEE, yielding a $3.4 million gain. The Company retained royalty rights relating to sales of certain products by IEE in certain geographical areas. The Company expects to record royalty income associated with this arrangement in future periods. 19 The revenue growth in the Company's Computer Pointing Device product line, the resulting improvement in profit margin and operating cost control all contributed to achieve 1995's net income of $150,000, a $1.2 million improvement over 1994's net loss of $1.1 million before the one-time gain. As a result of the gain associated with the sale of the Company's interest in IEE and operating results improvement as compared to 1993 (detailed above), the Company recorded net income in 1994 of $2.3 million, a $6.2 million improvement over 1993. LIQUIDITY AND CAPITAL RESOURCES From inception until June of 1993, the Company was financed through a series of private financings totaling approximately $12.5 million. In June 1993, the Company completed an Initial Public Offering with net proceeds of $7.1 million. From the IPO proceeds, the Company repaid approximately $2 million in outstanding short term debt. Since June 30, 1993 and through the end of 1993, operations consumed $1.8 million in available cash. For the fiscal years 1994 and 1995 and for first three months of 1996, operations have used $1.8 million, $1.3 and $987,000, respectively. The improvement in operating cash flow is a result of the improved net operating results partially offset by the working capital requirements of accelerated revenue growth. From June 30, 1993 to March 31, 1996, investing activities have resulted in a $1.5 million use of cash and marketable securities and are primarily comprised of purchases of production equipment and investment in intellectual property rights. In addition, in late 1993, the Company purchased from its then European joint venture partner the rights to market computer pointing devices in the European Community. Since June 30, 1993 through March 31, 1996, net financing activities have generated $5.5 million in cash, primarily through a $3.5 private placement of equity securities completed in April 1995 and to a lesser extent from the conversion of options and warrants. The Company also has a $1.5 million bank credit line, none of which was drawn at March 31, 1996, and a lease line of $1.8 million of which $900,000 was drawn at March 31, 1996. At March 31, 1996, the Company had cash and cash equivalents of $2.6 million, which the Company believes will provide adequate liquid assets for its budgeted requirements at least through the remainder of 1996 (the period for which detailed forecasts have been prepared). Consequently, the Company's budgeted cash requirements do not require the receipt of any proceeds from the sale of Shares. Because the Company's capital requirements cannot be predicted with certainty, however, there is no assurance that the Company will not require additional financing prior to the end of 1996. The Company has no commitments for capital expenditures in material amounts, but expects operations in 1997 may require capital expenditures that in turn may require additional financing. There is no assurance that any additional financing will be available 20 on terms satisfactory to the Company or not disadvantageous to the Company's shareholders. 21 BUSINESS FORCE SENSING TECHNOLOGY Interlink Electronics' (the "Company") force sensing technology transforms physical pressure applied to a sensor into a corresponding electronic response. Products incorporating a sensor using the Company's force sensing resistor ("FSR") devices can react to pressure when applied by any means--through human touch, a mechanical device, a fluid, or a gas. With supporting electronics, an FSR sensor can start, stop, intensify, select, direct, detect, or measure a desired response. FSR sensors measure pressure and, depending on their configuration and with supporting electronics, can measure the location at which the pressure is applied. A "basic" FSR sensor, such as the sensor used in a foot control device sold by Interlink Electronics and used to control a surgical endoscopic drill, detects the pressure of a foot applied to the foot control device and accurately measures the intensity of the pressure applied, thereby enabling precise control of drill speed. Another type of sensor, an FSR linear potentiometer, consists of a linear strip sensor that can record and translate into an electronic signal the application of pressure, the point along a line at which the pressure is applied and the intensity of the pressure. A potential application would be a linear sensor installed in an audio amplifier that would record a relatively hard application of pressure anywhere on the device as an "on/off" signal and a relatively light application of pressure at any point on the device as a signal controlling the volume level associated with that point. A third type of FSR sensor, known as a touch pad, consists of a two-dimensional grid capable of measuring the location and intensity of pressure applied at any set of coordinates on the grid. This type of device is useful for functions such as handwriting input or computer cursor control. For example, with appropriate interface electronics, a computer pointing device can be driven by the movement of a finger on an FSR touch pad, while the "click" function could be activated by a temporary increase in pressure. Because FSR sensors can be as thin as one-hundredth of an inch thick and measure pressure rather than movement, they can be readily incorporated into sealed systems without moving parts. This makes FSR sensors particularly well suited to operation in harsh or abusive environments or where durability and long life are important. FSR sensor systems, when packaged in sealed environments, are operationally unaffected by most levels of moisture, environmental contaminants, vibration, or noise. In tests conducted by the Company, FSR sensors have retained their performance through tens of millions of actuations, even in adverse environments involving heat, moisture, and chemical contamination. Typical FSR sensors can be designed in any shape. The thin profile of an FSR sensor enables easy integration into a wide variety of mechanical and electronic devices. An FSR product can contain as many as 256 individual FSR sensors within a one-half-inch-square area, enabling a precise measurement of the location at which the pressure is applied. 22 A force sensing resistor is described scientifically as a polymer thick film device that exhibits a decreasing electrical resistance with increasing force applied to the device surface. FSR sensors consist of two or more layers of plastic film, one or more layers supporting interdigitating electrodes (conductor patterns) and one or more layers supporting the proprietary, semiconductive polymer. The two types of substrate layer are arranged in opposition, and the surface contact between them creates an electrical connection. The application of pressure on the device increases the surface area over which the electrical contact occurs thereby decreasing electrical resistance. Any increase in pressure over a relatively broad range causes a proportional decrease in electrical resistance within the circuit that can be measured by standard electronic measuring devices, thereby translating variances in pressure into corresponding variances in an electronic signal. The ability of an FSR sensor to measure variances in pressure is accurate and repeatable in comparison to comparably priced products, allowing precise correlation between the amount of pressure applied to the sensor and the result in the operating system controlled by the sensor. In addition to its patented technology, Interlink Electronics has developed a number of manufacturing process improvements that, while not subject to patent protection, are viewed as trade secrets by the Company, and are considered to have significant proprietary value. PRODUCT APPLICATIONS General The capabilities and versatility of the force sensing technology offer opportunities in numerous markets including computer input, appliances, consumer electronics, aerospace, automotive, and industrial control and measurement. While this diversity of applications is viewed by the Company as an advantage, different kinds of applications call for different electronic or mechanical support efforts and often require separate sales and distribution channels. Also, sales volumes and profit margins can vary significantly from application to application. As a result, Interlink Electronics has selected specific targeted applications based on its assessment of market need and size, effectiveness of distribution channels, support requirements, and potential profitability to the Company. These applications are not limited by industry or function but rather are determined by engineering and economic analysis that shows that force sensing technology offers a particularly functional, cost-effective or otherwise attractive solution to the particular product need. Prior to 1992, the Company's principal business was the manufacture and sale of FSR sensors made to customer specifications. During 1992, the Company changed its product focus to concentrate on the sale of complete sensor products and systems and now focuses in two areas, pointing device products based on the Company's proprietary VersaPoint technology and Custom Applications. 23 VersaPoint Technology For computer users, the two most common ways to enter data or give commands are "keying" (using regular "text entry" keys on a keyboard) and "pointing" (using a mouse or equivalent device, which may be stand-alone or installed on a keyboard). As both commercial and industrial computer systems have moved from text-based to graphics-based user interfaces, the need for pointing devices has increased. Interlink Electronics believes that its force sensing technology is particularly well suited to this application because of its inherent ability to provide accurate control of both cursor movement and speed without any requirement for movement of the device. New computer technologies, such as multimedia, interactive CD and the Internet, also require or support pointing and other non-text-based interface devices. Interlink Electronics' force sensing technology, featuring a thin sensor profile, zero travel, and broad dynamic range characteristics, allows for the design of miniature joysticks, touch pads, and pressure pens offering a user-friendly, cost-effective pointing solution and data entry method. To address these market opportunities, Interlink Electronics has developed its proprietary VersaPoint technology. The VersaPoint technology consists of a four-zone FSR sensor array and proprietary software and firmware. Depending on product design, computer function selection can be provided either by "clicking" separate buttons on the computer pointing device, or by sharply increasing pressure on the cursor control button itself. Branded Products In 1992 Interlink Electronics began the development of various stand-alone computer pointing devices based on its VersaPoint technology. Of these products, the SuperMouse device was introduced in November 1992, the DuraPoint ruggedized pointing device was introduced in February 1993, the ProPoint pointing device was introduced in February 1994, the RemotePoint cordless pointing device was introduced in August 1994, and the DeskStick and RemotePointPlus products were introduced in November 1995. Interlink Electronics is continuing to develop distribution channels for its branded products. Current distribution consists of mass merchandiser outlets, including Circuit City Stores, Inc. ("Circuit City"), Fry's Corporation ("Fry's"), Tandy Corporation's Incredible Universe ("Tandy's Incredible Universe") and Computer City, distributors, such as Ingram Micro, catalogs and specialty resellers targeting corporate accounts. Marketing to these channels is accomplished by direct sales through Company employees and a network of independent sales representatives which has recently been established throughout the United States, Japan, Canada, and Mexico. 24 RemotePointPlus At the Fall 1995 COMDEX show, Interlink Electronics introduced its RemotePointPlus product, a remote control computer cursor controller. With programmable buttons (enabling it to handle dozens of different user-defined functions), and a range of approximately 40 feet, it is designed to meet the needs of even the most sophisticated presenters and Internet power users. DeskStick Interlink Electronics' newest desktop mouse replacement, the DeskStick product, couples the advanced pointing stick technology previously available only in notebook computers with a very attractive price point, designed to meet the needs both of first time mouse users, and of those looking for a unique replacement mouse. SuperMouse Interlink Electronics has designed and developed the SuperMouse device, an after-market mouse for the commercial and consumer market. It is targeted primarily at the notebook and other portable computer market in which the Company believes it has a competitive advantage as a result of its small size and its versatility (it can be used as a portable, desktop, or handheld mouse). In addition, the growing popularity of Microsoft Windows software systems is creating the need for after-sale pointing devices. The principal solutions offered for this after-sale market have been the trackball and the traditional mouse. Sales of external pointing devices, for all markets, including the market for which the SuperMouse device is primarily targeted, grew to an estimated $283 million in revenues in 1995. ProPoint To address the presentation and multimedia market, in February 1994, the Company began shipping its ProPoint device, a handheld corded pointing device used to control cursor movement and function selection. The ProPoint product comes with 12 feet of cable and, with optional additional connecting cables, its range can be extended to up to 40 feet, making it useful not only as a personal cursor control device, but also as a presentation assistant for conference room size presentations. RemotePoint In order to satisfy the need for a cordless, remote pointing device to control desktop and conference room computer-based presentations, Interlink Electronics introduced its RemotePoint product in August 1994. The RemotePoint device is a handheld, infrared cordless cursor control device that has an effective range of up to 40 feet. 25 DuraPoint Increasingly, industrial, technical and scientific machinery is being controlled by computers that incorporate pointing devices as a means of command input. In many of the environments in which such computers operate, resistance to moisture, chemicals and other contaminants is a requirement. Both a traditional mouse and trackball are vulnerable to contamination and malfunction from a variety of substances because they have exposed moving parts and because they cannot be contained within sealed systems. Also, machinery used in hospital operating rooms and some industrial plants must be "scrubbable" as a part of the normal cleaning and disinfecting process required in those environments. To address these needs, in February 1993 Interlink Electronics began shipping its DuraPoint ruggedized pointing device. To the best of the Company's knowledge, its DuraPoint device was the first cursor control device designed to NEMA 4X, 6P, and 13 standards (industry association standards relating to the ability of an electronic device to operate under adverse environmental conditions). Independent testing to confirm compliance with NEMA standards has not been required by customers and has not been requested by the Company. The DuraPoint device can withstand a variety of harsh environments, such as direct water spray, debris, cleansers or even prolonged submersion. Interlink Electronics offers the DuraPoint device as either a stand-alone product or as a cursor control module that can be incorporated into an existing or planned control panel design. Sales channels consist primarily of industrial hardware and software distributors and bundling arrangements with industrial and medical equipment manufacturers. OEM Remote Controls Since the development of its first hand-held pointing device ProPoint, Interlink Electronics has been selling its remote controls on an OEM basis, i.e. direct to the system manufacturer. With the introduction of the Interactive Remote Control ("IRC"), an infrared remote control with VersaPoint pointing technology and up to 30 additional function buttons, Interlink Electronics' offers many remote control solutions to the OEM. Any of the ProPoint, RemotePoint, RemotePointPlus and IRC products can be purchased through a private label arrangement or each has been specifically designed to be easily customized to customer specifications. Interlink Electronics also offers a circuit board level solution of its remote control/ pointing device technology. Keyboard Integration Interlink Electronics offers a variety of alternatives to computer and keyboard manufacturers to purchase components for a pointing device installed in a keyboard or panel mounted. Historically, the Company has sold the basic sensor array for use with electronics supplied by others. More recently, however, it has focused on the sale of a complete VersaPoint-based sensor module incorporating both the sensor array and supporting firmware. When Interlink Electronics' proprietary firmware is a part of the package, the actual electronic components may be sold or the technology may be licensed to the customer for manufacture by others. The Company's FSR sensors have been installed in keyboards for 26 a variety of notebook, desktop, industrial and other computers. A computer pointing device can be incorporated on a keyboard as a separate key or can be installed under a regular text-entry or other function key as an alternate function. Interlink Electronics has developed a "plug and play" FSR pointing device, marketed under the trade name "MicroModule", that is available as a standard integrated product for installation in notebooks or other computers. Interlink Electronics' MicroModule and MicroJoystick computer pointing devices, and similar OEM systems incorporating "pointing sticks," are designed to be incorporated into notebook (and smaller) computer applications. Because the required FSR sensor array can be packaged in an enclosure approximately 0.2" thick, it can be incorporated at and just below the surface of the keyboard, and therefore it does not take up significant amounts of space or interfere with the installation of other components immediately below the keyboard surface. Custom Applications The Company's Custom Applications Product Line consists of design, engineering and product development teams that incorporate its proprietary technology into specific custom products for individual OEM customers. Interlink Electronics' force sensing technology addresses many applications in this area. Because of the required design and development time, sales cycles typically range from four to 18 months and can be considerably longer. On the other hand, the result of a successful custom sale is usually a product that is regularly reordered by the customer over a considerable period of time. The principal advantages of force sensing technology that apply to the Company's other business areas also apply to its Custom Applications. The ability to produce sensors in a wide variety of shapes and sizes, detection of both the location and the intensity of pressure applied to the sensor, the zero-travel characteristic and the system's resistance to environmental damage are all attractive features for the Company's Custom Applications. In some cases, Interlink Electronics' customers have determined that force sensing technology provides the only currently available solution to their sensor requirements. The Company has identified and is currently working with a variety of Custom Applications customers that are presently concentrated in the industrial and medical device industries: for example, it has developed a fail-safe sensor system for Varian Associates for use in a medical imaging device. As the heavy medical imaging device is lowered into contact with the patient, the FSR sensor functions as a safety bumper to prevent injury from excessive pressure of the device on the patient by halting the movement of the device when the selected level of pressure is reached. FSR sensors developed by Interlink Electronics for Baxter Healthcare Corporation are incorporated in an infusion pump where the FSR sensor functions as a safety device to endure proper placement of the intravenous tube in the pump head. 27 SALES AND MARKETING Historically, the Company sought to establish relationships with customers that require a sensor system for which its proprietary force sensing technology offers a particularly attractive solution and market advantage. As a part of such relationships, the Company would work with the customer to design an appropriate solution which the Company would then manufacture and supply. Over the past few years Interlink Electronics' sales and marketing strategy has changed, as the Company has evolved from being merely a supplier of sensors into its present position as a designer and manufacturer of complete sensor systems. Today, the Company is focusing on integrating its patented force sensing technology with added electronic interfacing and mechanics in order to provide full "plug and play" solutions. With the introduction of the initial version of its SuperMouse device in late 1992, Interlink Electronics entered the consumer product market. With its DuraPoint device, introduced the next year, the Company entered the industrial pointing device market. Its ProPoint, RemotePoint, DeskStick, and RemotePointPlus products, introduced in subsequent years, have built upon this foundation. The Company expects to continue to sell its products directly, as well as through distributors, value-added resellers, system integrators, mass merchandisers, and others. Computer Pointing Devices. Since 1990, Interlink Electronics has worked with a variety of keyboard and other computer and computer peripheral device manufacturers to supply sensors or sensor systems for installation in computers or peripheral devices. The Company is continuing to explore opportunities in this area and is in discussions with several potential OEM customers. Sales cycles for OEM sales are relatively long--in part because a successful sale requires Interlink Electronics' sensors to be "designed in" to a customer product. Interlink Electronics' success with respect to such OEM sales is also heavily dependent on the business success of its customers or prospective customers. The Company has from time to time experienced difficulty, when rapidly falling computer and peripheral prices put pressure on many hardware manufacturers, including some of the Company's customers. The Company believes that OEM sales constitute an important part of its sales and marketing activity, and is devoting significant management and sales time to exploring OEM opportunities. During the past few years, manufacturers of notebook computers have given considerable attention to the prospect of installing "pointing stick" devices on the notebook computer keyboard, either in an area away from the main array of keys or in between regular keys. The Company has a distribution agreement with Logitech, Inc., the world's leading OEM distributor of pointing devices, under which Logitech acts as one of Interlink Electronics' non-exclusive world-wide distributor of Interlink Electronics' proprietary computer pointing stick systems. In early 1995, Interlink Electronics revised its distribution strategy for its consumer end user cursor control products by replacing its former distributor with a direct sales force consisting of both Company employees and independent sales representatives. The Company 28 has established a network of sales representatives which covers the United States, Canada, and Mexico, and continues to closely monitor the results of their activities. In Europe, the Company is considering marketing these products through a non-exclusive master distributor, as well as through regional and local sales representatives. In Japan, the Company's subsidiary markets these products through several non-exclusive Japanese distributors. Interlink Electronics is also actively exploring possible OEM bundling opportunities regarding these products. The Company's advertising expenditures regarding these products have thus far been relatively modest, with strong reliance on retailer cooperative advertising, favorable product reviews in leading computer publications, and word of mouth. The Company's DuraPoint ruggedized industrial pointing device, in its stand-alone configuration, is sold by a direct sales force, as well as through a network of industrial electronics distributors. Interlink Electronics supports its sales of DuraPoint products primarily through print advertising in industrial controls magazines, direct mail and demonstrations at trade shows. Custom Applications. Interlink Electronics sells its custom designed sensors through a direct sales organization. An integrated marketing approach, consisting of a direct mail campaign, media advertising, public relation campaigns, trade show participation, and telemarketing programs is managed by the Director of Marketing. The sales and marketing group is supported by a team of customer service specialists and order-entry personnel. An important part of the sales cycle for custom and modified standard products typically involves product development and design. In a new market or product application, there is often a need to design and engineer a solution for customers prior to entering a period of manufacturing. This process typically involves a period of four to seven months for turnkey solutions before volume production can begin. The Company usually charges the customer for design, development and tooling work during this period. In an effort to compress development time, the Company develops product lines that are readily modifiable to meet customer specific requirements. This, in conjunction with Product and Project Management teams focused on the Company's targeted business segments, provides an efficiently responsive process to meet customer specific requirements. INTERNATIONAL OPERATIONS Interlink Electronics K.K. In April 1994, the Company acquired an 80% ownership interest in Interlink Electronics K.K. ("IEKK"), a Japanese company which distributes and performs value added services regarding the Company's products in Japan. The president of IEKK is a former senior executive with Mitsubishi Petrochemicals Company, and has a number of years of experience working with Interlink Electronics and its products. In 1995, IEKK's operations accounted for approximately 20% percent of Interlink Electronics' consolidated revenues. 29 LICENSEES International Electronics & Engineering In September 1994, Interlink Electronics entered into several agreements with InvestAR, S.a.r.l., pursuant to which Interlink Electronics transferred its entire ownership interest in Interlink Electronics Europe ("IEE"), a Luxembourg-based joint venture owned by Interlink Electronics and InvestAR, to InvestAR in exchange for the 510,775 shares of Interlink Electronics common stock then held by InvestAR. These shares, representing approximately 13.3% of the Company's then-outstanding Common Stock, were returned to the Company, and reverted to the status of authorized, but unissued, shares. In addition to the stock transfer, the agreements also provided for continued technological cooperation between the Company and IEE, and for the payments of technology license royalties by IEE to the Company for sales by IEE outside of Europe of certain FSR-based automotive safety related sensors. Royalty revenues from IEE (which changed its name in 1995 to International Electronics & Engineering) were not material in 1995, but are expected to increase in the coming years. Toshiba Silicone In an agreement entered into in 1989, Toshiba Silicone Co., K.K. licensed from the Company the right to use Interlink Electronics' Force Sensing Resistor technology in applications for use with musical instruments. Thus far, the royalties from this license have not been material to the Company's revenues. MANUFACTURING Production of FSR sensors is a relatively inexpensive and non-polluting process. The flexibility of the process allows Interlink Electronics to take advantage of changing market opportunities. FSR sensors are manufactured using screen printing techniques. All proprietary aspects of the manufacturing process are maintained in-house at Interlink Electronics, and at IEE, its European licensee, to maintain quality and protect the force sensing technology. While electronic screen printing is a common process in various technology industries, the quality and precision of printing required to make high-quality FSR sensors greatly exceeds the standards applicable in most other industries. The Company has developed significant expertise in the manufacture of FSR sensors, and believes this experience would be difficult to replicate over the short term. In the FSR manufacturing process, printed sheets of FSR semiconductor material and the corresponding conductor patterns are laminated to form the FSR sandwich structure using inexpensive sheet adhesives. The assembled sheets are die cut, and suitable connectors are attached. 30 Readily available materials (substrates, films, polymer thick film inks) developed for other industries have proved unsuitable for the FSR manufacturing process. Interlink Electronics has worked closely with a small group of manufacturers to create new materials optimized for FSR usage; most of these materials are supplied to the Company on an exclusive basis. The raw materials are processed into their final form on site, using proprietary material and methods. The Company maintains agreements with several computer chip manufacturers pursuant to which they provide microcontrollers to it at guaranteed prices for use in or with Interlink Electronics' pointing devices. From time to time in the past, there have been unanticipated shortages in the number, and/or delays in the availability, of microcontrollers required in the Company's products. No past shortage has had a material effect upon the Company's ability to supply its products in commercial quantities. While the Company has taken a number of steps, including the development of additional chip suppliers, in order to attempt to reduce its prospective exposure, there can be no guarantee that a future chip shortage will not occur, and that, if one occurs, that it would not have an adverse effect upon the Company's operations. Interlink Electronics manufactures FSR sensors in its facility in Camarillo, California. This facility is capable of operating on a single, double, or triple shift basis, as volume dictates. The Company acquires the components of its FSR-based sensors from a number of sources within the United States. Some components for its VersaPoint products as well as the manufacture of some of these products are sourced from manufacturing companies located in the Far East and Mexico; their cost and availability are dependent upon a number of factors beyond the Company's control, including future currency exchange rates, and future political conditions in the countries in which the vendors are located. The Company's European licensee, IEE, also has a modern and well-equipped facility. This facility serves the European Community, and addresses the Company's customers' need for the security of a second possible manufacturing source. RESEARCH Interlink Electronics' research effort falls into four categories: Intellectual Property, Materials and Processes, Prototype and Contract Research, and Special Applications. The research group continues to expand the Company's intellectual properties. The Company regularly files patent applications and continuations thereof to cover both new and improved methods of manufacturing FSR sensors, and new, non-FSR based technologies developed by the Company. 31 PRODUCT DEVELOPMENT Product development for the Company is focused on developing custom, standard, and modified standard products. Custom and modified standard products are developed very selectively, when they are adequately funded, and when there are obvious long-term strategic benefits to the Company. Custom and modified standard products are primarily developed to meet the requirements specified by OEM customers for their unique applications of sensors using "force sensing resistor" technology. Standard or Branded product requirements are established using market analysis, evaluation and assessment to determine product differentiation and acceptance. Branded products are funded as defined by the Company's business plan, and developed to contribute to the Company's short and long-term business objectives. The Company's VersaPoint technology is used to develop standard products, primarily for computer pointing devices serving the OEM, consumer, and industrial markets. COMPETITION In the computer pointing device market, the Company competes with a number of sellers, including Microsoft, IBM, and Logitech (although Logitech is also a customer of the Company for some components (pointing sticks) of its products). A number of other companies manufacture keypads, pointing sticks or remote control input devices, for a wide variety of applications. Many of the Company's competitors have greater financial and technological resources than does the Company, and may also have established relationships with customers, and enjoy economies of scale, that afford them a competitive advantage. In a variety of applications incorporating FSR sensors into complete products, the Company may also compete with the in-house capabilities of its larger customers to design and manufacture all or portions of FSR products. In addition, besides the major previously existing computer cursor pointing technologies (pointing sticks, mice and trackballs), a new "touchpad" technology has gained increased market acceptance over the last few years; although the sales growth of the touchpad technology in the portable and notebook computer OEM market has occurred primarily at the expense of trackballs, several computer manufacturers which formerly used OEM pointing sticks have switched to OEM touchpads. The long-range effect, if any, of this trend upon the Company's OEM pointing stick business is at this time unclear. The Company's FSR sensors compete with comparable sensors produced using a variety of other technologies. For applications that require only "on/off" capability without any force sensing capability, a wide variety of sensors exist, including membrane switches, capacitive sensors and mechanical switches, that compete with the Company's sensors in particular applications. Other kinds of "force sensing" technology include strain gauges, piezo sensors and conductive rubber. Each of these technologies have advantages and disadvantages that make it an attractive solution in certain applications and not in others. Strain gauges are extremely accurate but relatively expensive. Piezo sensors are generally comparable in price and accuracy to FSR sensors but measure instantaneous impact rather 32 than force over a continuing period. Conductive rubber is a widely established technology but deteriorates more rapidly over time than do other force sensing technologies. The Company seeks to identify and pursue applications in which force sensing technology is a particularly attractive solution. Most sensors that compete with the Company's FSR sensors are widely available from a variety of sources. PATENTS AND PROPRIETARY RIGHTS Aspects of Interlink Electronics' technology are protected by more than 40 patents issued or pending in the United States and abroad, as well as trade secret and proprietary knowledge. Products incorporating Interlink Electronics' force sensing technology are sold under trademarks issued or pending in the United States and various other countries. Of the initial FSR patents granted (those covering the use of an uneven surface to produce variable resistance), the last patent granted will expire on February 9, 1999. The Company has continued its efforts to improve the design, formulation, and manufacture of its sensors; some of these improvements are maintained as trade secrets, while U.S. and foreign patents have been applied for with respect to others. Other patents, covering various apparatus, processes and methods related to the force sensing technology expire between 1998 and 2015. Various corresponding foreign patents will expire between this year and 2015. Patents covering various materials and processes used in the Company's current generation of products, as well as new devices for angle and displacement sensing, were granted during 1995 by the U.S. Patent Office. The Company has also filed U.S. and foreign patent applications regarding the design, and several key operating features, of its remote control products. While the Company believes its patents afford it some competitive advantage, such protection is limited by the resources available to the Company to identify potential infringements and to defend its rights against infringement. Furthermore, the extent of the protection offered by any patent is subject to determinations as to its scope and validity that would be made only in litigation. Therefore, there is no assurance that the Company's patents will afford meaningful protection from competition. The Company has also developed certain manufacturing processes and other methods of applying its patented technology that it protects as trade secrets. The Company believes these trade secrets are important for the effective and efficient use of the patented technology and that a competitor with a right to use the patented technology would be required to develop comparable manufacturing and other processes to compete effectively with the Company. The Company requires its employees to sign nondisclosure agreements and seeks to limit access to sensitive information to the greatest practical extent. 33 EMPLOYEES The Company had eighty-five full-time employees in the United States as of March 31, 1996, eighty at its corporate offices and manufacturing facilities (including seven members of management), and five sales managers stationed at regional offices. Its Japan subsidiary had eight employees. 34 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS Information with respect to the directors and executive officers of the Company is set forth below:

Directors are elected at the annual shareholders' meeting and, at the pleasure of the shareholders, hold office for terms of up to three years, expiring at an annual shareholders' meeting and when their successors are elected and qualified. Officers are appointed by the Board of Directors and serve at its discretion. The Company maintains an Audit Committee and a Compensation Committee. The Audit Committee oversees actions taken by the Company's independent auditors. The Compensation Committee reviews the compensation levels of the Company's executive 35 officers, and makes recommendations to the Board of Directors regarding changes in compensation. The Compensation Committee also administers the Company's 1988 Stock Option Plan and the Company's 1993 Stock Incentive Plan and recommends grants under the plan to the Board of Directors. See "Executive Compensation--Stock Option Plan." E. Michael Thoben, III became Chief Operating Officer and a director of the Company in March 1990 and has been President of the Company since June 1990 and Chairman of the Board since 1993. Prior to joining the Company, for 11 years, Mr. Thoben was employed by Polaroid Corporation ("Polaroid"), most recently as the manager of one of Polaroid's seven strategic business units on a worldwide basis. Mr. Thoben holds a B.S. degree from St. Xavier University and has taken graduate management courses at the Harvard Business School and The Wharton School of Business. David J. Arthur has been Interlink's Vice President, Operations since October 1990 and its Senior Vice President since June 1995. Before joining the Company, he held senior positions in materials, purchasing and manufacturing management with TRW Inc., North American Philips Corporation and Amdahl Corporation. From 1987 to 1990 he served as Vice President of Manufacturing at Harman Electronics, Inc. William A. Yates joined Interlink as Vice President, Sales and Marketing in 1990 from Polaroid where, for the nine prior years, he had served in Polaroid's Industrial Products Division. Mr. Yates has over seventeen years of sales and marketing experience with both small companies and large businesses, the latter including Carnation Company and Ortho Pharmaceutical Corporation. Mr. Yates holds a B.A. degree from the University of California at Berkeley. Mr. Yates was promoted to Senior Vice President in March 1995. Paul D. Meyer joined Interlink in December 1989 as Controller and became its Treasurer in October 1992 and its Vice President, Finance in June 1994. From May 1988 to December 1989, he was Controller for Dix-See Sales Company, a food distributor ("Dix-See"). Prior to joining Dix-See, from September 1985 to May 1988, Mr. Meyer was Corporate Accounting Manager for Bell Industries, an electronics distributor. Mr. Meyer was initially employed at Price Waterhouse from 1983 to 1985. Mr. Meyer is a Certified Public Accountant and holds a B.A. degree in economics from the University of California at Los Angeles. Wendell W. Ritchey joined the Company in March 1994 as its Vice President, Engineering and Development. From May 1978 to August 1988, Mr. Ritchey held senior management positions in research and development, engineering and operations at ITT Power Systems. From January 1990 to February 1994, Mr. Ritchey served as Vice President, Engineering of Digital Sound Corporation, a developer of voice processing computers. Mr. Ritchey holds a B.S. degree from Tri-State College. George Gu became a director of the Company in September 1991. Since 1987, George Gu has been the President of GTM Corporation, a Taiwanese textile manufacturer. 36 George Gu is the brother of Hiram Gu, an executive officer of IEE and is the president of FSI, a principal shareholder of the Company. See "Certain Transactions." George Gu holds an M.B.A. degree from Columbia University. Eugene F. Hovanec became a director of the Company in December 1994. Since December 1993, Mr. Hovanec has served as Vice President and Chief Financial Officer of Vitesse Semiconductor Corporation. From April 1989 to December 1993, Mr. Hovanec served as Vice President and Chief Financial Officer of Digital Sound Corporation, a developer of voice processing computers. Merritt M. Lutz became a director of the Company in October 1994. Since October 1994, Mr. Lutz has served as Managing Director of Morgan Stanley & Company, Inc. From November 1989 to November 1993, Mr. Lutz served as President and Chief Operating Officer of Candle Corporation, one of the largest international systems software companies. Carolyn MacDougall is a founder and President of Teeccino, a specialty tea company. Ms. MacDougall has been a free-lance marketing and product development consultant since 1980. She is a co-founder of the Company, has been a director of Interlink since 1985 and was Executive Vice President of the Company from 1985 to 1987. Peter N. Vicars became a director of the Company in June 1994. Since October 1994, Mr. Vicars has served as President and Chief Executive Officer of Teloquent Communications Corp. From July 1987 to February 1994, Mr. Vicars served as President and Chief Executive Officer of Tekelec, Inc. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS The Company has adopted provisions in its Second Amended and Restated Articles of Incorporation that (i) eliminate, to the fullest extent permissible under California law, the liability of the Company's directors to the Company and its shareholders for monetary damages and (ii) authorize the Company to indemnify its directors, officers, employees and agents by bylaw, agreements or otherwise, to the fullest extent permitted by law. The Company's bylaws provide that the Company shall, to the maximum extent permitted under California law, indemnify each of its directors and officers. The Company may reincorporate in Delaware and, in that event, the specific limitations with respect to the liability and indemnification of directors may change. Management does not expect that any such change would be likely to have a material effect in most circumstances. See "Description of Securities -- Reincorporation in Delaware." COMPENSATION OF DIRECTORS Directors receive cash compensation of $500 for a meeting attended in person and $100/hr. for participation in telephone meetings and are reimbursed for their out-of-pocket costs of attendance at board meetings. 37 EXECUTIVE COMPENSATION The following table sets forth cash compensation paid by the Company to each of the Company's five most highly compensated current and former executive officers whose cash compensation exceeded $60,000 and to all executive officers, as a group, for services rendered in all capacities to the Company or its subsidiaries during the year ended December 31, 1995.

STOCK OPTION PLANS In 1988, the Company adopted its 1988 Stock Option Plan (the "1988 Plan") covering up to 280,000 shares of Common Stock. Under the 1988 Plan, statutory incentive stock options, as provided in Section 422A of the Code and/or nonstatutory options were available for grant to officers and key employees. In addition, nonstatutory options were available for grant to directors and independent contractors of the Company who were not also salaried employees of the Company. No new options have been granted under the Plan since 1992 and, management has no current intention to make further grants under the Plan. 38 In May 1993, upon recommendation of the Company's Board of Directors, the Company's shareholders approved the 1993 Stock Incentive Plan (the "1993 Plan") which initially provided for the issuance of up to 426,000 shares of Common Stock, of which 100,000 shares are reserved for grant to directors and employees of the Company retained after the date of such approval and recommendation. The 1993 Plan has subsequently been amended to increase the number of shares subject to options issuance thereunder to 1,726,000 and to increase automatically the total number of shares subject to options issuable thereunder by 300,000 shares annually on the first day of each fiscal year beginning in 1997. The 1993 Plan permits the grant of statutory incentive stock options, as provided in Section 422A of the Code, and/or nonstatutory options to the Company's officers and key employees and contributors. The 1993 Plan is administered by a committee designated by the Board of Directors, which has the authority, subject to the terms of the 1993 Plan, to determine the individuals to whom options or rights may be granted, the exercise price and number of shares subject to each option or right, whether the options granted to employees are to be incentive stock options, the time or times during which all or a portion of each option may be exercised and certain other provisions of each option or right. The 1993 Plan provides for the non-discretionary grant to non-employee directors upon election or appointment as directors of 10-year options to purchase 20,000 shares of common stock at the then current fair market value, 33 1/3% of which vest immediately and upon each of the following two anniversaries of the grant. This provision does not affect current non-employee directors. The 1993 Plan requires that the purchase price of shares of the Common Stock subject to options qualifying as incentive stock options must be not less than the fair market value of the Common Stock at the date of the grant. The maximum term of an incentive stock option is ten years. The purchase price of shares subject to incentive stock options granted to any individual who owns shares possessing more than 10% of the combined voting power of all classes of stock of the Company must be not less than 110% of the fair market value of the stock subject to the options. Such options must expire within five years of the date of grant. Incentive stock options must be exercised by the optionee during the period of the optionee's employment, except the exercise period may be extended for a period of 30 days to one year upon certain events of termination of employment, death, retirement due to age and retirement due to disability. The aggregate fair market value, on the date of grant, of the stock with respect to which incentive stock options are exercisable for the first time by an employee during any calendar year may not exceed $100,000. Options not qualifying as incentive stock options must be exercised within ten years from the date of grant. Stock appreciation rights ("SARs"), stock bonus awards, cash bonus rights and restricted stock may be granted under the 1993 Plan. Cash bonus rights may be granted under the 1993 Plan in connection with options granted or previously granted under the plan and in accordance with the conditions for exercise of the options. A cash bonus right entitles an optionee to a cash bonus when the option to which the bonus right relates is exercised in whole or in part. The amount of the bonus equals the excess of the fair market value of the 39 shares subject to the option on the exercise date over the total option price for the shares, multiplied by the bonus percentage determined by the Board of Directors, not to exceed 75%. A SAR gives the holder the right to payment from the Company of all amounts equal in value to the excess of the fair market value of a share of Common Stock on the date of exercise over its fair market value on the date of grant or, if the SAR is granted in connection with an option, the option price per share under the option to which the SAR relates. Stock bonus awards and grants of restricted stock will be subject to terms, conditions and restrictions determined by the Board of Directors at the time the stock is awarded or granted. As of March 31, 1996 options, granted under both the 1988 Plan and the 1993 Plan, to purchase 1,229,287 shares of Common Stock were outstanding at an average exercise price of approximately $5.00 per share, 381,456 shares of Common Stock had been issued upon exercise of options at an average exercise price of approximately $2.40 per share, no options had expired unexercised, 130,907 had been canceled and 130,257 shares of Common Stock were available for future grants under the 1993 Plan. The following table sets forth certain information relating to options granted (net of cancellations) under the 1988 Plan and the 1993 Plan to executive officers of the Company as of March 31, 1996:

OTHER COMPENSATION The Company provides certain officers with automobile allowances. These benefits, valued at their incremental cost to the Company, did not exceed $25,000 or 10% of the compensation reported for any individual officer, and with respect to the executive officers as a group (eight persons), such compensation did not exceed $25,000 times the number of persons in the group or 10% of the cash compensation reported in the Cash Compensation Table for the group. CERTAIN TRANSACTIONS Pursuant to a promissory note dated November 9, 1988, the Company loaned Mr. Stuart Yaniger, a former officer of the Company, $45,000. The note was fully due and payable on November 9, 1993 and bore interest at the rate of 9% per annum. No interest 40 was payable until maturity. On November 9 of each year during the term of the note, so long as Mr. Yaniger continues to be employed by the Company, the outstanding balance of the note will be reduced by $5,000. In March 1993, the Company and Mr. Yaniger entered into an amended note. The amended note contains substantially the same terms as the original note, except that the amended note is fully due and payable on November 9, 1997, bears interest at a rate of 8% per annum and provides for the forgiveness of accrued interest if Mr. Yaniger remains in the employ of the Company as of November 9, 1997. As of March 31, 1996, the outstanding principal balance on the amended note was $10,000. PRINCIPAL SHAREHOLDERS The following table sets forth certain information regarding the beneficial ownership, as of March 31, 1996, and as adjusted to reflect the sale of the Shares offered by this Prospectus, assuming all such Shares are sold, of the Common Stock by (i) each person known by the Company to own beneficially more than 5% of the Common Stock, (ii) each director of the Company, (iii) the Chief Executive Officer and each of the four most highly compensated executive officers of the Company (other than the Chief Executive Officer) and (iv) all officers and directors as a group. Except as otherwise noted, the Company believes that the persons listed below have sole investment and voting power with respect to the Common Stock owned by them.

42 DESCRIPTION OF SECURITIES REINCORPORATION IN DELAWARE The Company's shareholders have approved the reincorporation of the Company as a Delaware corporation, and authorized management to proceed with such reincorporation should it deem it appropriate to do so. Management has taken steps to implement such reincorporation and expects the reincorporation to become effective in the current quarter. If the Company is reincorporated in Delaware, certain characteristics of its securities, as well as certain rights of officers, directors and shareholders may change. Although most of these changes would be unlikely to have a material effect on the rights of shareholders, it is possible that, in certain circumstances, such changes could have a material effect. If the Company is reincorporated in Delaware, certain provisions of the Delaware General Corporation Laws (the "Delaware GCL") could discourage a third party from attempting to acquire, or make it more difficult for a third party to acquire control of the Company. As a Delaware corporation, the Company would be subject to the provisions of Section 203 of the Delaware GCL. That section provides, with certain exceptions, that a Delaware corporation may not engage in any of a broad range of business combinations with a person or an affiliate or associate of such person who is an "Interested Stockholder" for a period of three years from the date that such person became an Interested Stockholder unless (i) the transaction or business combination that results in a person becoming an Interested Stockholder is approved by the board of directors of the corporation before the person becomes an Interested Stockholder, (ii) upon consummation of the transaction that resulted in the person becoming an Interested Stockholder, the Interested Stockholder owned 85% or more of the voting stock of the corporation outstanding at the time the transaction commenced (excluding shares owned by persons who are both officers and directors of the corporation and shares held by certain employee stock ownership plans) or (iii) on or after the date the person became an Interested Stockholder, the business combination is approved by the corporation's board of directors and authorized by the affirmative vote of the holders of at least 662/3% of the corporation's outstanding voting stock at an annual or special meeting, excluding shares owned by the Interested Stockholder. An "Interested Stockholder" is defined in Section 203 of the Delaware GCL as any person that is (i) the owner of 15% or more of the outstanding voting stock of the corporation or (ii) an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such person is an Interested Stockholder. AUTHORIZED SECURITIES The Company is authorized to issue 40 million shares of Common Stock and 10 million shares of Preferred Stock. 43 Common Stock. The holders of Common Stock are entitled to one vote per share for each share held of record on all matters submitted to a vote of the shareholders and are entitled to receive ratably such dividends as are declared by the Board of Directors out of funds legally available therefor. In the event of a liquidation, dissolution or winding up of the Company, holders of the Common Stock have the right to a ratable portion of the assets remaining after payment of liabilities and liquidation preferences of any outstanding shares of Preferred Stock. The holders of Common Stock have no preemptive rights or rights to convert their Common Stock into other securities and are not subject to future calls or assessments by the Company. All outstanding shares of Common Stock are, and the shares offered hereby, upon issuance and sale, will be, fully paid and nonassessable. The Company's Second Amended and Restated Articles of Incorporation and bylaws contain provisions that (i) eliminate the liability of directors to the Company and its shareholders for monetary damages to the fullest extent permitted under California law and (ii) indemnify the officers and directors of the Company to the fullest extent permitted by California law. Preferred Stock. The Board of Directors may, without further action of the shareholders, issue Preferred Stock in one or more series and fix or alter the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption price or prices, liquidation preferences and the number of shares constituting any series or the designations of such series (provided that the Board of Directors has no authority to issue more than 10 million shares of Preferred Stock.) The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of Preferred Stock, if any. Issuance and sale of Preferred Stock, while providing desirable flexibility in achieving corporate objectives, could have the effect of making it more difficult for a person to acquire, or of discouraging a person from acquiring, a majority of the voting stock of the Company. TRANSFER AGENT AND WARRANT AGENT American Securities Transfer, Incorporated, 1825 Lawrence Street, Denver, Colorado 80202 is the transfer agent and registrar for the Common Stock. LEGAL OPINION The validity of the shares of Common Stock being offered hereby is being passed upon for the Company by Stoel Rives LLP, Portland, Oregon. 44 EXPERTS The financial statements and the related financial statement schedules included in this prospectus and elsewhere in the registration statement, to the extent and for the periods indicated in their reports, have been audited by Arthur Andersen LLP and Deloitte & Touche LLP, independent public accountants, as stated in their reports appearing herein and elsewhere in the registration statement and are included in reliance upon the authority of such firms given upon their authority as experts in accounting and auditing in giving said reports. ADDITIONAL INFORMATION A Registration Statement on Form S-1, including amendments thereto, relating to the Shares offered hereby has been filed by the Company with the Securities and Exchange Commission, Washington, D.C. This Prospectus does not contain all of the information set forth in the Registration Statement and the Exhibits and Schedules thereto. For further information with respect to the Company and the Shares offered hereby, reference is made to such Registration Statement, Exhibits and Schedules. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete, and in each instance reference is made to the copy of such contract or other documents filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. A copy of the Registration Statement may be examined without charge at the Commission's principal offices in Washington D.C., and copies of all or any part thereof may be obtained from the Commission upon the payment of certain fees prescribed by the Commission. The Company intends to furnish its shareholders with annual reports containing audited financial statements reported on by independent public accountants and reports for the first three quarters of each fiscal year containing unaudited financial information. 45 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Financial Statement Page ------------------- ---- Reports of Independent Public Accountants.................................. F-1 Consolidated Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996 (unaudited)............................................. F-3 Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995 and for the Three-Month Periods Ended March 31, 1995 and 1996 (unaudited).................................. F-4 Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended December 31, 1993, 1994 and 1995 and for the Three-Month Period Ended March 31, 1996 (unaudited)........................................... F-5 Consolidated Statements of Cash Flows for Years Ended December 31, 1993, 1994 and 1995 and for the Three-Month Periods Ended March 31, 1995 and 1996 (unaudited).......................... F-6 Notes to the Consolidated Financial Statements (including Data Applicable to Unaudited Periods)........................................... F-8 46 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of Interlink Electronics: We have audited the accompanying consolidated balance sheets of Interlink Electronics (a California corporation) and its subsidiaries as of December 31, 1994 and 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Interlink Electronics and its subsidiary as of December 31, 1994 and 1995, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Los Angeles, California March 1, 1996 F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of Interlink Electronics: We have audited the accompanying statements of operations, shareholders equity (deficit) and cash flows of Interlink Electronics (the "Company") for the year ended December 31, 1993. Our audit also included the financial statement schedule for the year ended December 31, 1993 listed in the Index at Item 14. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion of these financial statements and financial statement schedule based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the year ended December 31, 1993 in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Woodland Hills, California February 25, 1994 F-2 INTERLINK ELECTRONICS

F-3 INTERLINK ELECTRONICS

F-4 INTERLINK ELECTRONICS

F-5 INTERLINK ELECTRONICS

Supplemental Disclosure Of Non-Cash Information - In 1993, $550,000 in Units were issued in connection with bridge loans, $761,000 in Units were issued in connection with the conversion of the PortaPoint Participation Interests to equity and $8,600,000 in Preferred Stock was converted to Common Stock. Additionally, in 1993, $134,000 in notes receivable were received from certain shareholders in connection with the exercise of common stock warrants. The accompanying notes are an integral part of these consolidated financial statements. F-7 INTERLINK ELECTRONICS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31,1993, 1994, 1995 AND UNAUDITED THREE MONTHS ENDED MARCH 31, 1996 - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Interlink Electronics (the "Company") was incorporated in the State of California on February 27, 1985. The Company is engaged in the development and manufacture of products and components incorporating Force Sensing Resistors. Basis of Presentation of Interim Financial Data - The financial information herein for the three month periods ended March 31, 1995 and 1996 is unaudited; however, such information reflects all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of results for the interim periods. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Consolidation Policy - The consolidated financial statements include the accounts of the Company and its majority owned Japanese subsidiary. All material intercompany accounts and transactions have been eliminated. The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of asset and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Foreign Currency Transactions - The accounts of the Company's foreign subsidiary have been translated according to the provisions of Statement of Financial Accounting Standards No. 52. Gains and losses resulting from translations of the foreign financial statements are included in shareholders' equity. Any gain or loss resulting from foreign currency transactions are reflected in the consolidated statement of operations for the period in which they occur. Cash and Cash Equivalents - The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Marketable Securities - Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities". This change in accounting had no significant effect on the Company's financial statements. Marketable securities consist of short-term debt securities which are bought and held principally for the purpose of selling them in the near future and, as such, are classified as trading securities. The securities are stated at the lower of cost or market with unrealized gains and losses included in earnings. Accounts Receivable - Increases to the allowance for doubtful accounts totaled $107,000, $95,000 and $91,000 for the years ended December 31, 1993, 1994, and 1995, respectively. Write-offs against the allowance for doubtful accounts totaled $62,000, $27,000 and $12,000 for the years ended December 31, 1993, 1994 and 1995, respectively. Inventories - Inventories are stated at the lower of cost or market and includes material, labor, and factory overhead. Cost is determined using the average cost method. F-8 Property and Equipment - Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is recorded on the straight-line basis over the estimated useful lives of the assets which range from three to ten years. Amortization of leasehold improvements is made based upon the estimated useful lives of the assets or the term of the lease, whichever is shorter. Maintenance and repairs are charged to operations as incurred, while significant improvements are capitalized. Upon retirement or disposition of property, the asset and related accumulated depreciation or amortization are removed from the accounts and any resultant gain or loss is charged to operations. Patents and Trademarks - The costs of acquiring patents and trademarks are amortized on a straight-line basis over their estimated useful lives, ranging from seven to seventeen years. Amortization expense for the years ended December 31, 1993, 1994 and 1995 was $52,000, $52,000 and $60,000, respectively and $18,000 for the three months ended March 31, 1996. Income Taxes - Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Under this statement, deferred tax assets and liabilities represent the tax effects, calculated at currently effective rates, of future deductible taxable amounts attributable to events that have been recognized on a cumulative basis in the financial statements (see Note 14). Earnings/(Loss) per share - Profit/(Loss) per share is based upon the weighted average number of shares outstanding and common stock equivalents. (See Note 12) Reclassifications - Certain amounts in the 1993 and 1994 financial statements have been reclassified to conform with the 1995 presentation. 2. INVENTORIES

1. PROPERTY AND EQUIPMENT

Depreciation expense charged to operations amounted to $173,000, $314,000 and $105,000 for the years ended 1994, 1995 and for the three months ended March 31, 1996, respectively. Property and equipment under capital leases had a net book value of $673,000 at December 31, 1995. F-9 4. INVESTMENT IN JOINT VENTURE In November 1989, the Company and a Luxembourg entity ("the JV Partner") formed a joint venture in Luxembourg for the purpose of manufacturing and marketing Force Sensing Resistor products in the European Economic Community. The Company contributed $2 million to Interlink Electronics Europe (the "JV") in exchange for a 50% ownership interest in the JV. Simultaneously, the JV purchased the rights to use the Company's technology in Europe for $2 million. Generally accepted accounting principles required the deferral of the investment and the related $2 million gain on the sale of technology because of the Company's continued involvement with the JV. Accordingly, the investment was recorded at no value. In June 1992, December 1992, and April 1993, the JV Partner invested an additional $1.5 million (45,000 shares), $500,000 (15,000 shares) and $850,000 (30,000 shares) in the JV, respectively, increasing their ownership percentage to 69%. The Company's interest in the JV is accounted for under the equity method of accounting. Summarized financial data for the JV are as follows:

Because the Company had recorded the investment at no value and the Company was not liable for the obligations of the JV nor was it otherwise committed to provide any further financial assistance to the JV, it was not required to recognize any of the JV's losses. In December of 1992, the Company sold the JV additional rights to the technology for $500,000 in cash. Given the Company's 36% ownership interest in the JV at that time, that portion of the gain ($180,000) was deferred and was to be amortized over five years. The balance of $320,000 is included in licensing, royalties and other income in the statement of operations in 1992. Because of the Company's sale of its interest in the JV in 1994, the remaining unamortized balance of the deferred gain was included in other income in 1994. In 1993, the Company repurchased from the JV the rights to market pointing device products to the European Community for cash payment of $375,000 which is recorded as an asset and amortized over five years. On September 26, 1994 the Company sold its interest in the JV to the JV partner. As payment, the JV partner surrendered its 510,775 common shares of the Company and agreed to pay a royalty to the Company on certain product sales by the JV outside of Europe and certain other designated territories. The shares received, which constituted approximately 13% of the Company's outstanding shares, were appraised at $3.4 million (after allowing for a discount for the relatively large number of shares received in relation to the total outstanding shares) and were immediately retired. As the Company had carried the investment in the joint venture at no value, the Company recorded a gain of $3,380,000 (net of transaction fees). The gain on the sale of the Joint Venture is included in other income/ (expense) in the accompanying statement of operations and represents net income of $.58 per share for the fiscal year ended 1994. F-10 5. ACQUISITION OF JAPANESE SUBSIDIARY On April 1, 1994, the Company acquired an 80% interest in Interlink Electronics KK for $8,000 in cash. Interlink Electronics KK is located in Tokyo, Japan and is a distributor and value-added manufacturer of FSR-based products. The acquisition has been accounted for as a purchase and the results of Interlink Electronics KK have been included in the accompanying consolidated financial statements since the date of acquisition. The cost of the acquisition has been allocated on the basis of the estimated fair market value of the assets acquired ($428,000) and the liabilities assumed ($476,000). This allocation resulted in goodwill of approximately $58,000 which is being amortized over 15 years. Pro forma results of the acquisition, assuming it had been made at the beginning of the year, would not be materially different from the results reported. 6. SHORT-TERM BORROWINGS The Company maintains a revolving line of credit with a bank with a maximum amount of the lessor of $1,000,000 or 70% of eligible accounts receivable, as defined in the agreement. The loan carries an interest rate of the bank's interest rate plus 1% (9.50% at December 31, 1995) and matures in May 1996. The loan is secured by all of the Company's assets and requires the Company to meet certain financial covenants, all of which were satisfied at December 31, 1995. At December 31, 1995, the Company was eligible to utilize $870,000 on the loan, of which none had been drawn and $100,000 was utilized to secure letters of credit. Selected information regarding short-term borrowings are as follows:

1. BRIDGE LOANS In February and March 1993, the Company issued nine bridge loan units, each unit consisting of a note in the principal amount of $100,000 and an equity right to acquire 9,091 Units. The Company also issued two additional bridge loan units in exchange for certain promissory notes and attached Common Stock Warrants. The bridge loan notes carried interest at 8% per annum and were repaid in June 1993. 8. LONG-TERM DEBT AND CAPITAL LEASES Bank loans - The Company's Japan subsidiary, Interlink Electronics KK, maintains unsecured small business loans with three banks totaling $125,000. The loans carry a weighted average interest rate of 2.5% and are payable in monthly installments through the year 2000. The combined balance outstanding as of December 31, 1994 and 1995 was $44,000 and $125,000, respectively. Technology Transfer Agreement - In December 1987, the Company purchased certain patents and related technology from its founder. Under the Technology Transfer Agreement, the Company is obligated to pay the greater of $4,000 per month or 1% of monthly gross sales of products related to the purchased technology. The term of the agreement is from January 1988 to December 1997. Minimum obligations under the agreement have been recorded at their preset value utilizing an interest rate of 8.25% ($127,000 and $88,000 at December 31, 1994 and 1995, respectively). Capital lease obligations - The Company has an equipment financing agreement with a leasing company to provide for the purchase of equipment of up to $1,108,000. As amounts are drawn on the line, the funded amount is converted to a note payable with a standard payment schedule of up to 42 months at an imputed interest rate of 11.5%. During 1995, the Company utilized and converted $788,000 of the line to notes payable. F-11 At December 31, 1995, scheduled maturities of long-term debt and capital lease obligations for the next five years and thereafter are as follows (in thousands):

2. PORTAPOINT PROFIT PARTICIPATION INTERESTS In 1992, the Company sold PortaPoint Profit Participation Interests in rights to future profits of the PortaPoint product for $400,000 consideration. (An additional $50,000 was sold in January 1993.) Effective with the initial public offering, the investors agreed to convert their interests to an aggregate cash payment of $138,500 and 138,364 Units. 10. CAPITALIZATION Preferred Stock - The Company is authorized to issue up to 10,000 shares of Preferred Stock. As of December 31, 1992, the Company had designated six series of Preferred Stock: Series A (2,000,000 shares authorized; 835,720 shares were issued), Series B (1,350,440 shares authorized and were issued), Series C (800,000 shares authorized; 553,786 shares were issued), Series D (600,000 shares authorized and were issued), Series E (1,454,545 shares authorized; 1,207,865 shares were issued), and Series F (290,909 shares authorized; no shares were issued). In March 1993, the shareholders agreed to the conversion of preferred stock and the accumulated dividends thereon ($2,869,249) to aggregate of 1,682,848 shares of common stock. Pursuant to this agreement, the Company filed, concurrently with the effectiveness of its initial public offering, amended articles of incorporation eliminating all current series of Preferred Stock. In the future, the Preferred Stock may be issued in one or more series with such rights and preferences as may be fixed and determined by the Board of Directors. Common Stock - The Company is authorized to issue 40,000,000 shares of Common Stock. In March 1993, the shareholders approved a 1 for 5 reverse stock split of the Company's Common Stock. All share and per share data have been retroactively restated to reflect this change. In April 1995, the Company completed a private placement of 700,000 shares of common stock and 46,668 warrants. The warrants are exercisable at $8.25 and expire June 7, 1996. The Company received gross proceeds of $3.5 million (before offering expenses and placement agent fees totaling $335,000). In conjunction with the offering, the placement agents also received 60,000 warrants. These securities were registered with the Securities and Exchange Commission under S-3 Registration Statement effective July 17, 1995. Units - In June 1993, the Company completed an initial public offering raising $7,102,000 net of expenses, through the sale of 1,553,000 Units. Each Unit consisted of one share of Common Stock and one Warrant to purchase one share of Common Stock at $8.25. F-12 11. STOCK WARRANTS AND STOCK OPTIONS At December 31, 1995, the Company had the following Common Stock Warrants outstanding:

Under the terms of the Company's Option Plans, officers and key employees may be granted nonqualified or incentive stock options and outside directors and independent contractors of the Company may be granted nonqualified stock options. The aggregate number of shares which may be issued under the plans is 2,006,000. Outstanding options under the plans vest in various increments through April, 1999. Information concerning stock options under the plans is summarized as follows:

1. EARNINGS/(LOSS) PER SHARE The computation of earnings (loss) per share is based upon the weighted average number of common shares outstanding during the periods presented plus (in periods of which they have a dilutive effect) the effect of common shares contingently issuable from options and warrants. Common stock equivalents are calculated using the modified treasury stock method. Under the treasury stock method, the proceeds from the assumed conversion of options and warrants are used first to repurchase up to a maximum of 20% of the outstanding shares, second to retire debt and third, invested in government securities. Accordingly, interest expense and/or interest income is adjusted on a proforma basis. This adjustment totaled $570,000 for the year ended December 31, 1994. F-13 The following table contains information necessary to calculate earnings/(loss) per share:

2. LEASE COMMITMENTS The Company leases its main facility and certain equipment under operating leases expiring through 1998. Rent payments totaled approximately $142,000, $120,000 and $153,000 in 1993, 1994 and 1995, respectively. Minimum lease commitments are summarized as follows (in thousands): Year ---- 1996 $176 1997 176 1998 102 1999 - ---- $454 ==== 14. INCOME TAXES Under Section 382 of the Internal Revenue Code, net operating losses are limited when, on a cumulative basis over a three-year period, the holdings of certain shareholder groups owning more than 5% of the Company have changed more than 50%. On December 23, 1987, the Company experienced a greater than 50% change in ownership. As a result, the Company's utilization of net operating loss carryforwards generated prior to that date of $1,316,000 is limited to $126,000 per year, for federal income tax purposes, through 1998. Utilization of state net operating losses generated prior to December 23, 1987 of $706,000 is limited under the same rules. However, for the tax years 1991 and 1992, the State of California suspended the use of net operating loss carryforwards. As of December 31, 1995, the Company has federal and state income tax net operating loss carryforwards of approximately $10,924,000 expiring through 2009 and $4,677,000 expiring through 1999, respectively. On September 26, 1994, the Company sold its interest in Interlink Electronics Europe (see Note 4). This transaction may have caused an additional "change of ownership" under Section 382 of the Internal Revenue Code. In the event that such a change is deemed to have occurred, the Company's net operating losses will be F-14 limited. The Company has research and development tax credit caryforwards of approximately $139,000 and $200,000 at December 31, 1994 and 1995, respectively. The Company has total net deferred tax assets as follows:

A valuation allowance is recorded if the weight of available evidence suggests it is more likely than not that if some portion or all of the deferred tax asset will not be recognized. There is no assurance that the Company will continue to be profitable in future periods, therefore, a valuation allowance has been recognized for the full amount of the deferred tax asset for 1994 and 1995. 15. RELATED PARTY TRANSACTIONS The Company has agreement with its founder to provide consulting services to the Company at $48,000 per year through December 1997. In December 1994, certain shareholders exercised common stock warrants and/or options. However, in certain instances, the cash consideration for these exercises was not received by the Company until early the following year. The related amounts, totaling $49,000 are shown as due from shareholders as of December 31, 1994. In June 1994, the former Chairman of the Board entered into a consulting arrangement with the Company, terminating February 1995. Total consulting expenses amounted to $143,000 in 1994. 16. SEGMENT INFORMATION

Identifiable assets by product line are those assets that are used in the Company's operations in each segment. Corporate assets are principally cash and cash equivalents, marketable securities, patents and trademarks, European marketing rights, due from shareholders and other assets. Export Sales - The following table shows the breakdown of the Company's export sales as a percentage of consolidated revenues.

Major Customers - In 1995, sales to one customer in the medical industry constituted 11% of the Company's sales and in 1994, sales to one customer in the computer industry constituted 23%. Sales to two customers in the medical industry constituted 12% and 16% of the Company's sales in 1993. 17. INFORMATION RELATED TO UNAUDITED INTERIM FINANCIAL STATEMENTS Line of Credit - On May 5, 1996, the Company's bank renewed the existing credit line and increased the maximum amount of the line to $1.5 million. All other terms remained the same. Bank Loan - In March 1996 two Japanese banks co-agreed to lend approximately $180,000 to the Company's Japan subsidiary. The loan carries an interest rate of 2.8% and is to be repaid over a six year period. Equipment Lease Line - In April 1996 the Company's equipment leasing firm increased the maximum amount available under the Company's equipment lease line to $1.8 million. As of March 31, 1996 the Company had utilized approximately $914,000 of the line and the remaining available amount ($886,000) must be used by December 31, 1996. F-16 ================================================================================ No person has been authorized to give any information or to make any representation in connection with the Offering being made hereby not contained in this Prospectus, and, if given or made, such information or representation must not be relied upon as having been authorized. This Prospectus does not constitute an offer to sell or solicitation of an offer to buy any of the securities offered hereby in any jurisdiction in which it is unlawful to make such offer or solicitation in such jurisdiction. Neither the delivery of this Prospectus nor any sale made hereunder shall under any circumstances create an implication that information contained herein is correct as of any time subsequent to the date hereof. ------------------ TABLE OF CONTENTS Prospectus Summary.................................................. 2 The Company......................................................... 5 Risk Factors........................................................ 5 Use of Proceeds..................................................... 11 Market for the Company's Equity Securities and Dividend Policy................................... 11 Capitalization...................................................... 12 Dilution............................................................ 13 Selected Financial Data............................................. 14 Management's Discussion and Analysis of Financial Condition and Results of Operations....................................................... 16 Business............................................................ 22 Management.......................................................... 35 Certain Transactions................................................ 41 Principal Shareholders.............................................. 41 Description of Securities........................................... 43 Legal Opinion....................................................... 44 Experts............................................................. 45 Additional Information.............................................. 45 Index to Financial Statements....................................... 46 ================================================================================ ================================================================================ 223,723 SHARES OF COMMON STOCK OF INTERLINK ELECTRONICS ------------- PROSPECTUS ------------- June 17, 1996 ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the estimated costs and expenses by the Registrant in connection with the sale of the Common Stock being registered hereby. Legal fees and expenses............................ 25,000 Accountants' fees and expenses..................... 25,000 Miscellaneous expenses............................. 50,000 ------- Total................................... $100,000 ======= ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company's Amended and Restated Articles of Incorporation (the "Articles of Incorporation") provide: The liability of the directors of the [Company] for monetary damages shall be eliminated to the fullest extent permissible under California law. As authorized by Section 204 of the California Corporations Code (the "Code"), this provision of the Company's Articles of Incorporation eliminates director liability to shareholders or the Company for monetary damages arising out of a director's breach of fiduciary duty of care, which generally concerns directors' oversight of the Company's business and the manner in which the directors make business decisions affecting the Company. A director of a California corporation has the fiduciary duty to perform his or her duties as a director (i) in good faith, (ii) in an manner he or she believes to be in the best interests of the corporation and its shareholders and (iii) with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. This limitation on director liability does not change the duty of care owed by a director to the Company and its shareholders. It does, however, eliminate the personal liability of directors for monetary damages in the event of litigation against the director alleging a breach of that duty. This limitation on director liability has no effect on the availability of equitable remedies, such as an injunction or rescission based upon a director's breach of the duty of care, although in certain instances such equitable relief may be impractical, for example, due to the passage of time since the director's alleged actions occurred. Under Section 204 of the Code, the Company's Articles of Incorporation cannot eliminate the liability of directors for monetary damages for breach of the duty of care based on any of the following types of claims: II-1 (i) acts or omissions that involve intentional misconduct or a knowing or culpable violation of law; (ii) acts or omissions that a director believes to be contrary to the best interests of the Company or its shareholders or that involve the absence of good faith on the part of the director; (iii) any transaction from which the director derived an improper personal benefit; (iv) acts or omissions that show a reckless disregard of the director's duty to the Company or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of serious injury to the Company or its shareholders; (v) acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the Company or its shareholders; (vi) arising out of transactions between the Company and a director in which the director has a material financial interest contrary to the provisions of the Code; and (vii) liability for improper distributions to shareholders of the Company, and loans or guarantees to directors or officers of the Company contrary to provisions of the Code. The limitations on the liability of directors apply only to claims against a director arising out of his or her role as a director and not in the case of a director who also serves as an officer, to claims against the person in the capacity of an officer or in any other non-director capacity, and applies only to derivative actions and not to third party claims. This means that actions brought by the Company's customers, discharged employees or regulatory agencies, for example, would not be affected. This provision does not eliminate or limit a director's liability based on a breach of the director's duty of loyalty to the Company or its shareholders (which generally concerns directors' self-interested dealings with respect to the Company) or to liability arising under federal or state securities laws or federal or state laws regulating banks or bank holding companies. At present there is no pending or threatened litigation or proceeding of which the Company is aware involving a director of the Company in his capacity as such. The Company's Articles of Incorporation also provide: The [Company] is authorized to provide indemnification of agents (defined as directors, officers, employees or other agents of the [Company]) for breach of duty to the [Company] and its stockholders through bylaw provisions or through agreements with the agents or both, in excess of the indemnification otherwise permitted by Section 317 of the [Code], subject only to the limits on such excess indemnification set forth in Section 204 of the [Code]. II-2 The Company's bylaws provide: The [Company] shall, to the maximum extent permitted by the General Corporation Law of California, indemnify each of its directors and officers against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding arising by reason of the fact any such person is or was a director or officer of the [Company] and shall advance to such director or officer expenses incurred in defending any such proceeding to the maximum extent permitted by such law. For purposes of this [provision], a "director" or "officer" of the corporation includes any person who is or was a director or officer of the [Company], or is or was serving at the request of the [Company] as a director or officer of another corporation, or other enterprise, or was a director or officer of a corporation which was a predecessor corporation of the [Company] or of another enterprise at the request of such predecessor corporation. The Board of Directors may in its discretion provide by resolution for such indemnification of, or advance of expenses to, other agents of the [Company], and likewise may refuse to provide for such indemnification or advance of expenses except to the extent such indemnification is mandatory under the California General Corporation law. Any indemnification provided to officers or directors under the bylaws must be authorized in each specific case by any one of the following: (i) a majority vote of a quorum of directors who are not parties to the proceeding; (ii) if such quorum is not obtainable, by independent legal counsel in a written opinion; (iii) approval of a majority of the shares represented and voting at a duly held meeting at which a quorum is present with the shares owned by the person seeking indemnification not being entitled to vote; or (iv) the court in which the proceeding is or was pending. The Company is also authorized to advance monies to officers and directors to cover expenses incurred in connection with a proceeding, provided that an officer or director must return any such advances if it is ultimately determined that such officer or director is not entitled to indemnification. Section 317 of the Code sets forth the statutory framework governing indemnification of agents of a corporation. It also provides that a corporation may authorize broader indemnification of its agents than that which is expressly permitted by Section 317 for a breach of duty by the agent to the Company and its shareholders under certain circumstances and subject to certain limitations set forth in the Code. Because the indemnification provisions of Section 317 are nonexclusive, it is possible that certain claims beyond the specific scope of Section 317 may be indemnifiable. Under Section 317 of the Code, the Company may indemnify an agent who was or is threatened to be made a party in a third party action against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with such action. With respect to shareholder derivative actions, the Company may indemnify an agent who was or is a party or is threatened to be made a parry to any threatened, pending or completed action against expenses actually and reasonably incurred in connection with the defense or settlement of such derivative action. II-3 In order to qualify for indemnification, the agent must have acted in good faith and in a manner the agent believed to be in the best interests of the Company and its shareholders. Under the Code, the Company may not provide indemnification for any liability arising out of acts, omissions or transactions set forth in the seven exceptions to elimination of director liability summarized in (i) to (vii) above. In addition, the Company cannot indemnify an agent in the following two sets of circumstances: (i) Indemnification of expenses is prohibited in a derivative action where the agent is found to be liable to the corporation, unless and only to the extent that such indemnification of expenses is expressly allowed by the court If the action is settled without court approval, neither the settlement amount nor expenses incurred in defending the action can be recovered through indemnification; and (ii) In both derivative and third party actions, indemnification is prohibited (with certain exceptions) if such indemnification would be inconsistent with a provision of the Company's Articles of Incorporation, bylaws, shareholders resolutions or an agreement which prohibits or otherwise limits indemnification or would be inconsistent with any condition expressly imposed by a court in approving a settlement. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

II-4

II-5

II-6

II-7

II-8

II-9 ITEM 17. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 14, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it as against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) To reflect in the Prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in this Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. II-10 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CAMARILLO, STATE OF CALIFORNIA, ON THE 17TH DAY OF JUNE, 1996. INTERLINK ELECTRONICS By: E. MICHAEL THOBEN, III ------------------------------------------ E. Michael Thoben, III Chairman, President, Chief Executive Officer and Chief Financial Officer Pursuant to the requirements of the Securities Act, as amended, this amendment to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated:

II-11

II-12 EXHIBIT INDEX

II-7