UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB
(Mark One)
   [ X ]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                    SECURITIES EXCHANGE ACT OF 1934
           For the fiscal year ended   September 30, 1999

   [   ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                    SECURITIES EXCHANGE ACT OF 1934
           For the transition period from            to

                         Commission file number 1-14072

                             PEN INTERCONNECT, INC.
            (Exact name of small business issuer as specified in its
                                    charter)

                                 UTAH 87-0430260
 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer
                               Identification No)

                      1601 Alton Parkway, Irvine CA. 92606
               (Address of Principal Executive Offices) (Zip Code)

                                 (949) 798-5800
                           (Issuer's telephone number)

Securities registered under Section 12(b) of the Exchange Act:

                     Common Stock, par value $0.01 per share
                              Common Stock Warrants

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

                                                Yes X No

           Check if there is no disclosure  of delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. check

           State issuer's revenues for its most recent fiscal year.
 $17,651,838

           As of November 29, 1999,  there were 9,663,114 shares of the Issuer's
common stock,  par value $0.01,  issued and  outstanding.  The aggregate  market
value of the  Issuer's  voting  stock held by  non-affiliates  of the Issuer was
approximately  $2,161,543  computed at the closing  quotation  for the  Issuer's
common stock of $0.270 as of November 29, 1999.

                       DOCUMENTS INCORPORATED BY REFERENCE
                 See Item 13 - Exhibits and reports on form 8-K




<PAGE>


                                   FORM 10-KSB

                             PEN INTERCONNECT, INC.

                                Table of Contents

                                                                           Page

      PART I

      1.   Description of Business                                            3

      2.   Description of Property                                            8

      3.   Legal Proceedings                                                  9

      4.   Submission of Matters to a Vote of Security Holders                9

      PART II

      5.   Market for Common Equity and Related Stockholder
           Matters                                                            9

      6.   Management's Discussion and Analysis or Plan of
           Operation                                                         10

      7.   Financial Statements                                              14

      8.   Changes in and Disagreements With Accountants on
           Accounting and Financial Disclosure                               15

      PART III

      9.   Directors, Executive Officers, Promoters and Control
           Persons;
               Compliance With Section 16(a) of the Exchange Act             15

      10.   Executive Compensation                                           17

      11.   Security Ownership of Certain Beneficial Owners and
            Management                                                       19

      12.   Certain Relationships and Related Transactions                   20

      13.  Exhibits and Reports on Form 8-K                                  21

      Signatures                                                             23



<PAGE>



                                     PART I


                         ITEM 1. DESCRIPTION OF BUSINESS


      FORWARD-LOOKING   STATEMENTS.   This  annual   report   contains   certain
      forward-looking  statements  within  the  meaning  of  section  27A of the
      Securities  Act of 1933,  as amended,  and  section 21E of the  Securities
      Exchange Act of 1934, as amended, that involve risks and uncertainties. In
      addition,  the  Company  may from time to time  make oral  forward-looking
      statements.  Actual  results  are  uncertain  and may be  impacted by many
      factors.  In particular,  certain risks and uncertainties  that may impact
      the accuracy of the  forward-looking  statements with respect to revenues,
      expenses and  operating  results  include  without  limitation;  cycles of
      customer orders,  general economic and competitive conditions and changing
      consumer trends,  technological  advances and the number and timing of new
      product  introductions,  shipments of products and components from foreign
      suppliers,  and changes in the mix of products ordered by customers.  As a
      result,  the actual results may differ  materially from those projected in
      the forward-looking statements.

      Because of these and other factors that may affect the Company's operating
      results,  past financial performance should not be considered an indicator
      of future  performance,  and investors should not use historical trends to
      anticipate results or trends in future periods.

      (A) BUSINESS DEVELOPMENT

      General

       We  develop  and  produce  on a  turnkey  basis,  contract  manufacturing
      solutions   for  original   equipment   manufacturers   in  the  computer,
      telecommunications,  electronic instrument,  medical and testing equipment
      industries.  Original equipment manufacturers are generally referred to by
      the initials  OEM. For most of FY 99 Pen  operated two  divisions:  1) the
      InCirT  division,  located in Irvine,  California,  provides  assembly and
      testing  services for electronic  circuit  boards;  and 2) the PowerStream
      division,  located in Orem, Utah,  designs and  manufactures  custom power
      supplies,  battery chargers and UPS systems.  In September 1999, we closed
      the sale of our MotoSat  division,  located in Salt Lake City,  Utah, to a
      company controlled by our former Chairman.  On February 5, 1999, we closed
      the sale of our Pen Cable division,  located in Salt Lake City, Utah, to a
      subsidiary of CTG, Inc.

      Summary of Current Year Events and Subsequent Events

      Since the end of fiscal  1998,  Pen has entered  into  several  agreements
      which have had, or will have, a material impact on Pen. Over the course of
      fiscal 1999,  Pen continued to  experience a lower level of  profitability
      than was anticipated at the beginning of the year and Pen has consequently
      experienced continued cash flow problems. The lower than expected level of
      profitability  has  been  the  result  of the  inability  to  successfully
      complete  mergers with new companies and increase sales to cover operating
      costs.  For most of  fiscal  1998,  the  market  price of Pen's  stock was
      sufficient to raise additional cash to support the negative cash flow from
      operations. Pen's stock price has since declined and Pen's securities have
      been delisted from the Nasdaq National Market.



                                        3
<PAGE>



      In September 1998 Pen entered into  discussions  with a prospective  buyer
      for  the  MotoSat  and the  Pen  Technology  Cable  divisions  because  of
      continued  losses  generated by these divisions and the lack of capital to
      adequately  fund and grow the business of these two  divisions.  Moreover,
      new management  determined that the MotoSat  business and products did not
      strategically  fit  the  goals  and  directions  established  by  Pen.  In
      September  1999,  Pen  completed  the sale of the  MotoSat  division  to a
      company controlled by James Pendleton,  Pen's former Chairman and CEO. The
      sale did not generate  cash  proceeds  but  eliminated  monthly  operating
      losses associated with MotoSat.  All assets and liabilities of the MotoSat
      division were transferred to Mr.  Pendleton's  company in exchange for any
      future obligations to make payments under a deferred  compensation feature
      in Mr.  Pendleton's  employment  contract.  The  transfer  of the  MotoSat
      division  to  Mr.  Pendleton   resulted  in  a  loss  to  the  Company  of
      approximately $68,000.

      In February 1999, Pen closed an Asset Purchase  Agreement with Pen Cabling
      Technologies,  LLC, a wholly owned  subsidiary  of CTG,  Inc. CTG acquired
      substantially  all of the  assets  relating  to the  Cable  division.  The
      purchase  price  was  $1,075,000  and  the  assumption  by  CTG  of  lease
      obligations of the Cable  division.  The purchase price was based upon the
      approximate book value of the assets and liabilities  divested.  Pen, CTG,
      and its subsidiary  also entered into a Consulting  Agreement  under which
      Pen  will  receive  royalties  on  future  sales of the  Cable  divisions'
      business and products.  Of the purchase price,  $847,823 was paid to Pen's
      principal  lender,   FINOVA,   and  $227,177  was  paid  to  satisfy  many
      outstanding  liabilities  relating  to the Cable  division  which were not
      assumed by CTG. The transaction resulted in a loss for financial reporting
      purposes of approximately $1.5 million.

      In December  1998, Pen entered into a purchase  agreement with  Laminating
      Technologies,  Inc. Under the agreement,  a newly formed subsidiary of Pen
      would merge into Laminating Technologies and Laminating Technologies would
      become a wholly owned  subsidiary of Pen. This agreement was terminated by
      mutual agreement of the parties in April 1999.

      In June 1999,  Pen entered into an  agreement  to merge with  Transdigital
      Communications  Corporation,  which is  commonly  known  as TCC.  TCC is a
      privately held  developer of  entertainment  and database  systems for the
      transportation  markets which includes narrow bodied  commercial  aircraft
      and cruise ships. This agreement was terminated by mutual agreement of Pen
      and TCC on September 1, 1999.

      In October of 1999 the Company  received  notice  from its primary  lender
      (Finova) that they were placing the Company's  loan in default  status for
      non-compliance with loan covenants. The Company was originally given until
      December  18,  1999 to pay off the  loan  balance.  As of the date of this
      report, Finova has extended the deadline to February 28, 2000 but no other
      lending  arrangements or definitive  agreements to sell the Company or any
      of its divisions have been made. On December 23, 1999 the Company signed a
      letter of intent with a contract  manufacturer to sell the InCirT division
      and is currently  going through due diligence  procedures  related to this
      agreement.  It is  anticipated  that  this  sale  will  provide  the  cash
      necessary to pay off the Finova obligation.

      The  Company  is also  negotiating  to acquire  an  electronics  business.
      However,  no agreements or  commitments  have been entered into as of this
      date.



                                        4

<PAGE>



      On December  28,  1999 the  Company  signed a letter of intent to sell the
      PowerStream  division to a private  investor.  Due  diligence is currently
      being performed under the terms of the letter of intent.

      (B)  BUSINESS OF ISSUER

      1.  Principal Products and Services

      Pen focuses on providing services to OEMs interested in utilizing contract
      manufacturing  for some or all  components  incorporated  in OEM products.
      OEMs have been increasing  their use of contract  manufacturers to provide
      components  and  expertise  in  order to  reduce  the  capital  investment
      necessary to manufacture  subassemblies thereby enabling the OEMs to focus
      their resources on their end products.

      Advances in technology of  electronic  products and increased  unit volume
      would  require  OEMs to invest  more  heavily  in  internal  manufacturing
      through increased working capital,  capital equipment,  labor, systems and
      infrastructure.  Use of contract  manufacturers such as Pen allows OEMs to
      maintain  advanced  manufacturing  capabilities  while minimizing  overall
      resource  requirements.  Contract  manufacturers  also allow OEMs to focus
      more  sharply on their own core  competencies  where they add the greatest
      value such as product development and marketing.

      Pen markets its products and services to its  customers  through  in-house
      salesmen and independent  sales  representatives.  Pen's OEM customers are
      located throughout the continental U.S.

      The following is a summary of the products and markets of Pen's divisions.

      InCirT Division

      Pen's InCirT division is engaged in the electronic  manufacturing services
      industry  and  provides   certified  assembly  and  testing  services  for
      electronic  circuit  boards.  Pen can assemble  circuit  boards using both
      commonly  accepted methods.  These are surface mount,  where the parts are
      assembled on the surface of the circuit board, and through-hole, where the
      parts are assembled through holes in the circuit board. These products are
      used primarily in computer, testing, and medical equipment. Pen's services
      are certified by the International Standards Organization, or ISO.

       Two new sales  contracts  (Itec and  Xtend)  were  secured  by the InCirT
      Division  during the third  quarter of FY 99.  During the fourth  quarter,
      both new customers developed cash flow problems and were unable to pay the
      Company for their credit sales  according to the terms  specified in their
      contracts.  The InCirT division has suspended sales or is selling on a COD
      basis  with  these  new  customers  until  their  cash flow  problems  are
      corrected and their accounts brought current.  As a result,  sales for the
      InCirT  division have returned to levels which existed before the securing
      of these new contracts.

       The Company is currently  negotiating with potential buyers of the InCirT
      Division.  On December  23, 1999 the Company  signed a letter of intent to
      sell the InCirT division to a contract manufacturer.



                                        5

<PAGE>


      PowerStream Division

      The PowerStream  division designs custom battery chargers and power supply
      systems for its customers.  If the customer  decides to place an order for
      the product after approval of the prototype  created by the division,  the
      production is contracted out to contract manufacturers:  larger orders are
      manufactured at a facility in China to take advantage of lower labor rates
      and  component  costs  while   production  runs  of  smaller  amounts  are
      manufactured by domestic contract manufacturers.

      PowerStream has a major contract with L3 Corporation which suffered delays
      in its  shipping  schedule  during FY 99 and  resulted in lower sales than
      anticipated.  PowerStream  has worked hard to secure  other  contracts  in
      addition to L3 but none have been of such a volume to make  PowerStream  a
      cash  contributor  to the Company.  PowerStream  has consumed  $452,360 of
      Company funds in its operations during FY 99 and $533,124 in FY 98.

      On December  28,  1999 the  Company  signed a letter of intent to sell the
      PowerStream  division to a private  investor.  Due  diligence is currently
      being performed under the terms of the letter of intent.

       2.  Distribution Methods

       The Company  receives  orders  directly  from OEM's and ships the product
      directly to them. No other distribution method is employed.

       3.  Status of Publicly Announced New Products

         None

      4.   Competitive Business Conditions

      Pen's primary  products and services are sold to OEM's in high  technology
      industries.  The computer  industry in  particular  has been under intense
      pressure  to provide  faster and more  powerful  products at a lower cost.
      Consequently,  many contracts  calling for large  production  runs are now
      being processed in the Pacific Rim countries due to favorable labor rates.

      The InCirT division  provides  services  producing  products for which the
      OEMs do not require  large enough  quantities  to make  production in Asia
      economical.  The InCirT division competes on the basis of price,  quality,
      speed of  production  and  delivery.  Its  principal  competitors  include
      Superior Manufacturing, Comtel, and Qtron, among others. InCirT has a more
      automated   through-hole   operation  to  handle   smaller   manufacturing
      quantities  than  other  competitors  of  comparable  size.   Through-hole
      assembly  amounts to  approximately  70% of the sales volume of the InCirT
      Division.  Combined with the high quality of the product  InCirT  produces
      (only 1% of sales were returned for rework  during FY 99), the  production
      capacity of the  through-hole  operation  creates a  competitive  edge for
      InCirT over its competition.  InCirT must also rely on speed of production
      and  competitive  pricing  to  compete  effectively.  Incirt's  ability to
      compete has been  hindered by the Company's  cash flow problems  which has
      created delays in purchasing raw materials and


                                        6

<PAGE>



      meeting delivery schedules.

      The  PowerStream  division  is an  engineering  design shop and has only a
      small number of competitors.  PowerStream specializes in providing battery
      chargers and power supply  units  needed for  specific  applications  that
      larger  manufacturers  would not  supply in mass  quantities  due to lower
      volumes.  Success in competing with the few competitors which do exist for
      PowerStream  depends  on  effectively  designing  products  that  meet the
      customers specifications for performance, flexibility in making changes to
      product  design as needs change and supplying the product at a competitive
      cost.

      5.  Sources and Availability of Raw Material

      There are a large number of vendors for many of the raw materials  used by
      all of Pen's  divisions.  Some key component  parts used in Pen's products
      are  available  from only one or a limited  number of  suppliers,  and Pen
      currently  does not  have  long-term  agreements  with  all  suppliers  of
      components.  A  reduction  or  interruption  in  supply  from  third-party
      contractors  would reduce  Pen's  production  unless or until  alternative
      sources could be established.

      The  availability  of raw  materials has been hampered by the lack of cash
      flow and the  corresponding  inability to pay vendors in a timely  manner.
      Some vendors from time to time have withheld necessary raw materials until
      payments have been brought current. The impact of this is potential delays
      in meeting customer  shipping  deadlines,  incurring  overtime expenses to
      comply with customer  shipping  schedules and more expensive freight costs
      to have  materials  arrive  in a timely  manner;  all of which  negatively
      impact  profitability.  Through the  divestiture  of the Cable and MotoSat
      divisions and securing new sales orders  through an expanded  sales staff,
      Pen is  attempting  to create a  positive  cash flow  which will allow for
      timely payment for the raw materials.

      6.  Dependence on Major Customers

      The Company sells its products and services  principally to OEMs.  Because
      the products  are not sold at retail to the public,  the Company is always
      dependent on having supply contracts with OEMs. Consequently, at any given
      time the Company can be dependent on one or a few major customers.

      During the past fiscal year, 50% of the sales of the InCirT  division came
      from Alaris Medical  Systems.  The next largest customer was Triconix with
      22% of Incirt's  sales.  Together  these two customers  made up 72% of the
      sales for the InCirT division and 63% of the Company's total sales for the
      year.  The Company made efforts to expand its customer base and reduce the
      risk of depending on one or two customers but its newer customers incurred
      financial difficulty and were unable to perform under their contracts with
      the Company.

      7.  Intellectual Property

      The Company currently has no patents or trademarks on its current products
      or products under development.

      8.  Need For Governmental Approval

      None of the Company's products require governmental approval.



                                        7

<PAGE>






          9.  Effect of Governmental Regulation on Business

          The Company is not aware of any existing  governmental  regulation and
          does not  anticipate  any  governmental  regulation  which  materially
          affects the Company's ability to conduct its business operations.

          10.  Research and Development

          Customers  contract  with  PowerStream  to design the  custom  battery
          chargers or power supplies they need in the specific  environment they
          are to be used  in.  In  almost  all  cases  the  customer  agrees  to
          reimburse  PowerStream  for the time and  material  used to design the
          product.  Payment of this fee is  generally  50% up front and 50% upon
          acceptance of the prototype by the customer after testing.  Because of
          the nature of  PowerStream's  business,  all overhead related expenses
          associated with its operations are treated as research and development
          expenses by the Company.

          11.  Compliance with Environmental Laws

          The  Company  has not  incurred,  and  does not  presently  anticipate
          incurring,  any material costs in complying with all federal and state
          environmental laws.

          12.         Employees

          As of September  30, 1999,  Pen  employed  approximately  212 full and
          part-time  employees.  Five employees were executive  personnel,  nine
          were technical and engineering personnel, 11 were in marketing, sales,
          administrative,  accounting, information systems, and clerical and 187
          were manufacturing personnel.




                         ITEM 2. DESCRIPTION OF PROPERTY


      FACILITIES

      In July of 1998, the InCirT  division moved into a new  manufacturing  and
      office  facility  in Irvine,  California.  This new  facility  consists of
      51,400 square feet of which 46,400 is currently being used;  35,000 square
      feet of  manufacturing  space and 11,400 of office  space.  The  expansion
      capacity can be converted into both office and manufacturing  space as the
      need arises. The lease on the property runs until July of 2005.

      The PowerStream division's sales and engineering facilities are located in
      Orem, Utah, under a lease which expires in February 2001, which management
      intends to extend if the Company  retains the  PowerStream  division.  The
      premises contain approximately 5,200 square feet of space, all of which is
      utilized  for  sales,  research,  development,  prototype  production  and
      administration.

      Management  believes  that the above  properties  and their  contents  are
      adequately  covered by insurance and that the square footage is sufficient
      to meet the Company's needs.




                                        8

<PAGE>


                            ITEM 3. LEGAL PROCEEDINGS


      As of the date of this filing,  the Company and it's CEO,  Stephen  Fryer,
      are being sued by a former  officer of the Company for fraud and breach of
      an  employment  contract.  The name of the case is "Alan  Weaver  vs.  Pen
      Interconnect,  Inc.  and Stephen  Fryer"  case # 817158  being held in the
      Superior Court, County of Orange, State of California.




               ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
                                     HOLDERS


         There  were no  matters  voted  on by the  shareholders  in the  fourth
         quarter.



                                     PART II

                      ITEM 5. MARKET FOR COMMON EQUITY AND
                          RELATED STOCKHOLDERS MATTERS



       Our common stock and warrants have been traded on the OTC Bulletin  Board
       since they were  delisted  from the National  Association  of  Securities
       Dealers Automated  Quotation system as of March 30, 1999. They are traded
       under  the  symbol  "PENC"  for the  common  stock  and  "PENCW"  for the
       warrants.  The common stock and warrants  were first  publicly  traded on
       November 17, 1995.  The following  table sets forth the range of high and
       low bids for our common stock for the last two years.

                                                      High             Low
         Fiscal Year 1999 - Quarter Ended
         September 30, 1999                           $0.81            $0.52
         June 30, 1999                                 1.19             0.78
         March 31, 1999                                2.00             0.72
         December 31, 1998                             2.50             0.77

         Fiscal Year 1998 - Quarter Ended
         September 30, 1998                           $2.22            $0.81
         June 30, 1998                                 3.09             1.88
         March 31, 1998                                3.19             2.50
         December 31, 1997                             3.13             1.88

      On November 8, 1999, the closing quotation for the common stock on the OTC
      Bulletin  Board was $0.25 per share.  As of November  9, 1999,  there were
      9,663,114  shares  of  common  stock  issued  and  outstanding,   held  by
      approximately  1,100  shareholders,  including  several  holders  who  are
      nominees for an undetermined number of beneficial owners.



                                        9

<PAGE>



      On November 8, 1999, the closing  quotation for the warrants was $0.02 per
      warrant.  As of  November  09,  1999,  there were  issued and  outstanding
      warrants to purchase 8,117,328 shares.

      The  trading  volume of the common  stock and  warrants  of the Company is
      limited,  creating  significant changes in the trading price of the common
      stock and warrants as a result of  relatively  minor changes in the supply
      and demand.  Consequently,  potential  investors  should be aware that the
      price of the common  stock and  warrants in the trading  market can change
      dramatically  over short  periods as a result of factors  unrelated to the
      operations, earnings and business activities of the Company.

      The  Company  has not paid any  dividends  with  respect  to its common or
      preferred  stock and does not anticipate  paying any dividends in the near
      future.  The  Company's  credit  facility  with its lender  prohibits  the
      payment of dividends without their consent.




                  ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
                              OR PLAN OF OPERATION



      The following  discussion and analysis provides certain  information which
      the  Company's  management  believes  is  relevant  to an  assessment  and
      understanding  of  the  Company's  results  of  operations  and  financial
      condition  for the fiscal years ended  September  30, 1999 and 1998.  This
      discussion and analysis  should be read in conjunction  with the Company's
      financial statements and related footnotes.

      Results of Operations

      Net  sales.  Net sales for the  Company  increased  $560,406  (3.3%)  from
      $17,091,432  for fiscal year 1998 to $17,651,838 for the fiscal year ended
      September  30, 1999.  The net increase is primarily  due to  $2,935,839 of
      sales to two new customers (Itec and Xtend) secured by the InCirT Division
      during the third quarter of FY 99. These sales were offset by a decline in
      sales of $2,804,387  from the Cable and MotoSat  Divisions which were sold
      five months  into FY 99.  Sales from the two new  customers  at the InCirT
      Division in FY 99 were less than what was  expected to be realized  due to
      collection   problems  incurred  by  the  Company  related  to  these  new
      customers.  The Company  began  shipments  to Itec and Xtend as their sole
      assembly  and  packaging  source of product in May of FY99.  By July,  the
      Company  became  aware of the  inability  of these new  customers  to make
      payments on their accounts.  As a result,  the Company  suspended  further
      shipments  to Itec and reduced  shipments to Xtend to a level more closely
      matching what Xtend could pay on a COD basis.

      Cost of  sales.  Cost of  sales  as a  percentage  of net  sales  remained
      relatively  constant at 94% in fiscal year 1999  compared to 93% in fiscal
      year 1998.  The slight  increase is a net result of numerous  factors each
      immaterial when considered independently.



                                       10

<PAGE>



      Operating  expenses.  Operating expenses increased from $4,736,421 in 1998
      to $10,216,909  in 1999 for a total increase of $5,480,488.  This increase
      resulted  primarily  from 1) an  increase  in  impaired  asset  charges of
      $2,028,129  mostly related to the sale of the cable division and the write
      off of goodwill associated with the InCirT and PowerStream divisions',  2)
      an increase  in general and  administrative  expenses  of  $4,184,682  due
      primarily  to the write off of  accounts  and other  receivables  totaling
      $2,030,833;  $769,125  in options  granted  with an  exercise  price below
      market on the date of issue,  $249,722 in fees  incurred by the Company in
      raising capital to sustain  operations and accounting fees associated with
      three merger attempts which did not materialize. These were offset by 1) a
      decrease in sales and  marketing  expenses of $359,171 and 2) by a decline
      in depreciation  expense of $172,356  related to the sale of the Cable and
      MotoSat divisions.

      Other income and expenses.  The Company  experienced a $1,040,116 increase
      in other  expenses  from  $1,140,078  in fiscal year 1998 to $2,180,194 in
      fiscal year 99. This increase stems primarily from the Company  sustaining
      a  combined  loss on the  sale  of the  Cable  and  MotoSat  divisions  of
      $1,575,497.  This was offset by a decline in interest  expense of $421,784
      due  primarily  to the  reduction  in the line of  credit  related  to the
      receivables and inventory  associated with the Cable and MotoSat divisions
      which were sold.

      Net loss and loss per share.  Net losses increased to $12,014,791 or $1.82
      per common  share in fiscal  year 99 from  $5,445,383  or $1.24 per common
      share in fiscal year 1998;  an increase of  $6,569,408 or $0.58 per share.
      This increased  loss per common share  resulted from the following:  $0.95
      from the increase in general and administrative  expenses,  $0.46 from the
      write off of impaired assets, $0.36 from the loss associated with the sale
      of the Cable and  MotoSat  divisions  and $0.22 from the impact of accrued
      preferred  dividends  and imputed  preferred  dividends on the  discounted
      conversion  feature of the preferred  shares in  calculating  the net loss
      available  to common  shareholders.  These  were  offset by $0.10 due to a
      decline in interest  expense,  $0.08 in the decline of marketing  expenses
      and $1.13 from the  effect of the  increase  in  weighted  average  shares
      during the current fiscal year.

      Liquidity and Capital Resources

      The  Company  had  negative  working  capital  at  September  30,  1999 of
      $3,197,941 compared to $1,714,606 at September 30, 1998 for an increase in
      negative  working  capital of  $1,483,335.  This  increase  was  primarily
      attributable to an increase in accounts payable of $1,034,615, an increase
      in the current  maturities  of  long-term  obligations  of $549,940 and an
      increase  in accrued  liabilities  of  $447,372.  These  were  offset by a
      noncash  conversion  of $1,401,429  of  subordinated  debentures to common
      stock at the end of FY 99.  A  primary  reason  for the  negative  working
      capital is the Company's  failure to comply with covenants  related to the
      Company's  collateralized  loan with  Finova at the end of FY 98 and FY 99
      resulting in the entire loan being  classified as a current  liability due
      to Finova's rights to declare the entire loan due and payable.

      Over the course of fiscal  1999,  Pen  continued to  experience  cash flow
      problems.  For most of fiscal  1998,  the market  price of Pen's stock was
      sufficient to raise additional cash to support the negative cash flow from
      operations. Pen's stock price has since declined and Pen's securities have
      been delisted from the Nasdaq National Market.



                                       11

<PAGE>



      In September  1999,  Pen completed  the sale of the MotoSat  division to a
      company controlled by James Pendleton,  Pen's former Chairman and CEO. The
      sale did not generate  cash  proceeds  but  eliminates  monthly  operating
      losses associated with MotoSat.  All assets and liabilities of the MotoSat
      division were transferred to Mr.  Pendleton's  company in exchange for any
      future obligations to make payments under a deferred  compensation feature
      in Mr.  Pendleton's  employment  contract.  The  transfer  of the  MotoSat
      division  to  Mr.  Pendleton   resulted  in  a  loss  to  the  Company  of
      approximately $68,000.

      In February 1999, Pen closed an Asset Purchase  Agreement with Pen Cabling
      Technologies,  LLC, a  wholly-owned  subsidiary  of CTG, Inc. CTG acquired
      substantially  all of the  assets  relating  to the  Cable  division.  The
      purchase  price  was  $1,075,000  and  the  assumption  by  CTG  of  lease
      obligations of the Cable  division.  The purchase price was based upon the
      approximate book value of the assets and liabilities  divested.  Pen, CTG,
      and its subsidiary  also entered into a Consulting  Agreement  under which
      Pen  will  receive  royalties  on  future  sales of the  Cable  divisions'
      business and products.  Of the purchase price,  $847,823 was paid to Pen's
      principal  lender,   FINOVA,   and  $227,177  was  paid  to  satisfy  many
      outstanding  liabilities  relating  to the Cable  division  which were not
      assumed by CTG. The transaction resulted in a loss for financial reporting
      purposes of approximately $1.5 million.

      In June 1999,  Pen entered into an  agreement  to merge with  Transdigital
      Communications  Corporation,  which is  commonly  known  as TCC.  TCC is a
      privately held  developer of  entertainment  and database  systems for the
      transportation  markets which includes narrow bodied  commercial  aircraft
      and cruise ships. This agreement was terminated by mutual agreement of Pen
      and TCC on September 1, 1999.  Before the  agreement  was  terminated  the
      Company loaned  approximately  $500,000 to TCC to help with  operations in
      anticipation of the merger  closing.  TCC signed a note for the loan which
      calls  for  repayment  as they  secure  additional  financing  from  other
      sources.  As of the  date  of this  filing  TCC  has  not  obtained  other
      financing.

      With  the  sale  of  the  MotoSat  and  Cable  division,  the  InCirT  and
      PowerStream  divisions are the only  divisions  remaining with the Company
      that generate revenue. Of the revenues generated by these two divisions in
      FY 99, InCirT generated 95% of those revenues.

      Two new sales  contracts  were secured by the InCirT  Division  during the
      third  quarter of FY 99.  During the fourth  quarter,  both new  customers
      developed  cash flow problems and were unable to pay the Company for their
      credit sales  according to the terms  specified  in their  contracts.  The
      InCirT  division has suspended sales or is selling on a COD basis to these
      new customers. As a result, sales for the InCirT division have returned to
      levels which existed before the securing of these new contracts and InCirT
      has had to write off $1,878,846 of receivables  related to these customers
      as  uncollectable.  The  Company  purchased  $1,611,557  of  raw  material
      inventory  from both  customers at the inception of the contract which was
      to be paid  off  with a note  within  twelve  months  or  returned  to the
      customers.

      The InCirT  division  acquired two additional SMT equipment lines totaling
      $617,955 with updated technology  capabilities that would make InCirT more
      competitive in attracting additional PCB customers.  One line was acquired
      through a lease for  $417,955  and the other  was  purchased  from  Alaris
      (Incirt's  major  customer) on a note for  $200,000 to be applied  against
      receivables owed InCirT at a rate of $40,000 per month.



                                       12

<PAGE>



      In October of 1999 the Company  received  notice  from its primary  lender
      (Finova) that because of an over-advance from the uncollected  receivables
      from Itec and Xtend and because of continued  losses from  operations they
      were placing the Company's loan in default status for non compliance  with
      loan  covenants.  The Company was given until December 18, 1999 to pay off
      the loan balance with  Finova.  As of the date of this report,  Finova has
      extended the deadline on paying off the loan balance to February 28, 2000;
      however,  no other  lending  arrangements  or financing  sources have been
      obtained.

      On December 23, 1999 the Company signed a letter of intent with a contract
      manufacturer  to sell the InCirT  division and is currently  going through
      due diligence  procedures  related to this  agreement.  As a result of the
      Company's  solvency  and  liquidity  problems,  it  has  written  off  the
      unamortized  balance of goodwill  associated  with the  acquisition of the
      InCirT and PowerStream  divisions to reflect the reduced  expected life of
      these divisions.

      The  Company  is also  negotiating  to acquire  an  electronics  business.
      However,  no agreements or  commitments  have been entered into as of this
      date.

      Finova has withheld advances to reduce the over-advance situation with the
      Company's line of credit. This has restricted the Company's ability to pay
      vendors and obtain raw materials to meet shipping schedules. The Company's
      InCirT  Division  has had to contract  with a  competitor  to purchase raw
      materials  for Alaris,  Incirt's  and the  Company's  major  customer.  If
      Incirt's  competitor were to eventually  replace InCirT as the supplier to
      Alaris,  InCirT would lose 50% of its sales which would  further limit the
      Company's ability to correct its negative cash flow.

      To sustain  operations,  the  Company  had to raise cash from the  capital
      markets.  The Company  secured two bridge loans in the first quarter of FY
      99 totaling $900,000.  The Company raised an additional $2,800,000 through
      the  issuance of two series of preferred  stock.  1,800 shares of Series A
      preferred  stock were  issued in  February  raising  $1,800,000  and 1,000
      shares of Series B preferred  stock were issued in April  raising  another
      $1,000,000.  Of the total  proceeds of  $2,800,000;  $900,000  was used to
      repay the bridge loans made earlier in the year,  $249,722  related to the
      expenses  associated  with the issue,  $500,000 was loaned to TCC with the
      balance  being  used by the  Company to pay  vendors.  Both  issuances  of
      preferred  stock  have an  annual  dividend  of $160 per  share  which the
      Company has accrued for but cannot pay without  approval from Finova.  The
      only other monies raised in the capital markets during the fiscal year was
      from the exercise of warrants to purchase common stock.
      These warrants raised an additional $165,000.

      Additional  capital  infusions are  necessary to help the Company  sustain
      operations at this time. The investors  which  purchased the  subordinated
      debentures in FY 98 and the preferred  stock in FY 99 have been  unwilling
      to  make  any  further  investments  in the  Company.  Attempts  to  raise
      additional  capital from new sources were hindered with the decline in the
      market price of the Company's common stock. As of the date of this filing,
      the Company has no prospects for new sources of lenders,  equity investors
      or new sources of working capital to sustain  operations of the Company as
      it now  exists.  Pen is seeking  to  relieve  the  liquidity  problems  by
      pursuing the sale of its remaining divisions.  However, additional capital
      would  still  probably  be  necessary  to  fund  the  operations  of a new
      business. If Pen cannot raise the additional capital, Pen will continue to
      incur  losses  from  its  operations  and  may  have  to  seek  bankruptcy
      protection.


                                       13

<PAGE>




      Seasonality of Business

      The Company's  InCirT  Division  usually incurs an approximate 30% drop in
      sales  during the  second  quarter of the  fiscal  year  resulting  from a
      decline in orders from  Alaris  Medical  Systems,  the  divisions  primary
      customer.  Sales  usually  resume  to normal  levels as the third  quarter
      begins. This seasonal drop in sales adds to the cash flow problems for the
      Company due to the Company's  position of paying for  commitments on prior
      sales with funding from current sales. A drop in sales  therefore  creates
      less cash to pay for the  expenses  of higher  sales in  previous  months.
      However this year, because of a large past due backlog,  there is expected
      to be no seasonal drop in sales.

      Backlog of Orders

      The only  material  backlog  of orders  exists at the InCirT  division  in
      relation to Alaris.  The cash flow  problems the Company  faces has caused
      delays in procuring  materials to complete production of Alaris orders and
      has created a backlog position.  The Company anticipates that this backlog
      will  continue  until a  positive  cash  flow is  achieved  or  additional
      investments of working capital are secured by the Company.  As of the date
      of this filing,  the PowerStream  division has also developed a backlog of
      shipments  with  one of its  customers  due to  the  Company's  cash  flow
      problems and inability to pay vendors.  Although the sales associated with
      this backlog are  immaterial  to the sales of the Company as a whole,  the
      customer is the main source of current revenue for PowerStream.

      Year 2000 Readiness

      In general,  the Year 2000 issue  relates to computers  and other  systems
      being unable to  distinguish  between the years 1900 and 2000 because they
      use two digits,  rather than four, to define the applicable year.  Systems
      that fail to properly  recognize  such  information  will likely  generate
      erroneous  data  or  cause  a  system  to  fail  possibly  resulting  in a
      disruption of operations.  The Company's  products do not incorporate such
      date coding so the  Company's  efforts to address the Year 2000 issue fall
      in the following  three areas:  (i) the Company's  information  technology
      ("IT")  systems;  (ii) the  Company's  non-IT  systems  (i.e.,  machinery,
      equipment and devices which utilize technology which is "built in" such as
      embedded  microcontrollers);  and (iii) third-party suppliers. The Company
      has  completed  its  evaluation  of its IT systems and believes that these
      systems are Year 2000 compliant. The Company's non-IT systems are not date
      sensitive and therefore pose no risk in relation to Year 2000 issues.

      Third party  suppliers and customers  present a different  problem in that
      the Company  cannot  control the efforts of such third  parties to be Year
      2000 compliant. The Company has completed its review of critical customers
      and  believes  that  they are year 2000  compliant.  The  Company  has not
      completed its review of critical vendors and does not anticipate that this
      review  will be  complete  before the year 2000.  Costs were  expensed  as
      incurred and do not appear to have been material. The foregoing

                                       14

<PAGE>






      statements are based upon management's current assumptions.



                          ITEM 7. FINANCIAL STATEMENTS


      The financial  statements and supplementary data are included beginning at
      page F1.



                                       15

<PAGE>




    ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                              FINANCIAL DISCLOSURE


         Not applicable.


                                    PART III

     ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
                COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE AC



      Directors and Executive Officers.

      The Company's directors and executive officers,  and their respective ages
      and  positions  with the  Company,  are set forth  below in tabular  form.
      Biographical information on each person is set forth following the tabular
      information.  There  are  no  family  relationships  between  any  of  the
      Company's  directors  or  executive  officers.   The  Company's  board  of
      directors is currently comprised of five members,  each of whom is elected
      for a term of one year.  Executive officers are chosen by and serve at the
      discretion of the Board of Directors.


              Name           Age                    Position


      Stephen J Fryer        61             Chief Executive Officer
                                            and Principal Accounting
                                            Officer


      Wayne R. Wright         61            Director; Vice Chairman
                                            of the Board of Directors


      James E. Harward        47            Director

      Milton Haber            76            Director

      Brian Bonar             52            Director

      Danieli Reni            48            Vice President of
                                            Engineering; President of
                                            PowerStream Division

         Stephen J. Fryer has served as Chief  Executive  Officer of the Company
      since 1999 and as a  director  of the  Company  since  1997.  He served as
      Senior Vice  President of Sales and Marketing from October 1996 to October
      1997.   From  1989  to  1996,   Mr.  Fryer  was  a  principal  in  Ventana
      International,  Ltd.,  an Irvine,  California  based  venture  capital and
      private  investment  banking firm. Mr. Fryer graduated from the University
      of  Southern  California  in 1960 with a  Bachelors  Degree in  Mechanical
      Engineering and has spent over twenty-eight years in the computer business
      in the United States, Asia and Europe.


                                       16

<PAGE>


         Wayne R. Wright has served as Vice  Chairman of the Board of  Directors
      since  1985.  From 1985 to 1998,  he was Chief  Financial  Officer  of the
      Company.  From 1984 to 1985,  he was Vice  President  and Chief  Financial
      Officer of PenTec Enterprises.  From 1968 to 1984, he was Controller, Vice
      President  of  Operations  and  Division   General   Manager  for  Beehive
      International,  a  computer  peripheral  company.  From 1967 to 1968,  Mr.
      Wright was the General  Accounting  Manager for Litton Data Systems.  From
      1961 to 1968,  he was  employed by  Beeline/Frontier  Refinery as Division
      Office  Manager.  Mr.  Wright  received his Bachelor of Science  Degree in
      Accounting and Finance from the University of Utah.

         James E. Harward  received his B.A. from Brigham Young  University  and
      his J.D. from the University of California, Hastings School of Law. He was
      in private  practice for the following six years. For five years he was an
      Administrative  Law Judge for the Utah State Tax Commission after which he
      became Director of Legal Affairs for the Utah State Industrial Commission.
      For the two years following  that, he was corporate  attorney for Sinclair
      Oil, and since 1997 he has been  President of ELM  Management and Leasing.
      He has been a director of the Company since February, 1997.

         Milton Haber has been the CFO of Airline  Management  Corporation since
      1996 and is a private  investor.  From 1949  through  1983 Mr. Haber was a
      business  consultant,  small  business  owner and a private  investor.  He
      attended  Brooklyn  College from 1946  through  1948 after  serving in the
      United  States  Air  Force  during  World War II.  Mr.  Haber  joined  the
      Company's Board of Directors in February 1998.

          Brian Bonar was  appointed  a director of the Company on November  30,
     1999.  Mr.  Bonar  currently   serves  as  CEO  and  President  of  Imaging
     Technologies  Corporation  (Itec) and has held this  position  since  April
     1998.  Prior to his  appointment  as CEO of Itec, Mr. Bonar served in other
     capacities  with Itec since  August  1992.  From 1991 to 1992 Mr. Bonar was
     Vice President of Worldwide Sales and Marketing for Bezsier  Systems,  Inc.
     From 1990 to 1991 he was  Worldwide  Sales  Manager for Adaptec,  Inc. From
     1988 to 1990 Mr. Bonar was Vice President of Sales and Marketing for Rastek
     Corporation. From 1984 to 1988 Mr. Bonar was employed as Executive Director
     of  Engineering  at QMS, Inc.  Prior to these  appointments,  Mr. Bonar was
     employed by IBM, U.K. Ltd. for approximately 17 years.

         Danieli  Reni joined the Company in April of 1997 as  President  of the
      PowerStream  Technology Division of the Company and was appointed the Vice
      President of Engineering of the Company in 1998.  From 1978 to 1980 he was
      self-employed as an electronic engineer consultant.  From 1980 to 1981, he
      was a Design  Engineer for General  Dynamics and from 1981 to 1984, he was
      Design Engineer for Teledyne Systems. He was Project Engineer from 1984 to
      1987 in the R&D  Department at Quoltron  Systems and from 1987 to 1991, he
      was the Project Engineer for Power Products for Apple Computer.  He became
      President and Owner of PowerStream  Technology,  Inc. in 1991 and operated
      the company until his employment with the Company in 1997.

      Compliance with Section 16(a) of the Securities Exchange Act of 1934.

         Section 16(a) of the Securities Exchange Act of 1934, and the rules and
      regulations  promulgated  thereunder,   require  the  Company's  executive
      officers and  directors,  and persons who  beneficially  own more than ten
      percent of a registered class of the Company's equity securities,  to file
      reports of ownership  and changes in  ownership  with the  Securities  and
      Exchange Commission and to furnish the Company with copies thereof.

                                       17

<PAGE>






        Based on its review of the copies of such forms received by the Company,
       Mr. James Pendleton,  the Company's  Chairman until November 11, 1999, is
       late in filing  forms  related to the  donation of stock to a  charitable
       organization and Mr. Steve Fryer, the Company's  current Chairman and CEO
       is late in  filing  forms  related  to the  issuance  of  options  by the
       Company.


                         ITEM 10. EXECUTIVE COMPENSATION


      The  following  table  shows the  compensation  paid by the Company to its
      current Chairman and Chief Executive Officer, and the Company's other most
      highly paid executive officer. None of the other executive officer's total
      annual salary and bonus exceeded $100,000 for the years presented.

                           Summary Compensation Table

                               Annual Compensation



      Name and Principal
         Position              Fiscal Year        Salary                 Bonus

      James S. Pendleton          1999            $139,666                  0
      Chairman                    1998            $139,000                  0
                                  1997            $144,236                $6,000

      Stephen J. Fryer            1999            $156,304                  0
      President                   1998            $108,000                  0
                                  1997             $67,053               $45,000


       *  The tables above do not include certain  insurance,  the use of a car,
          and other personal benefits,  the total value of which does not exceed
          $50,000 or 10% of such person's salary and bonus.

                      Option/SAR Grants in Fiscal Year 1999

                      Number of       Percent of Total
                      Securities       Options Granted     Exercise
                    Underlying         to Employees in    Price per   Expiration
Name              Opetions Granted     Fiscal Year 1998     Share       Date

Stephen J. Fryer     250,000              570,000          $0.6500    Apr 2004




                                       18

<PAGE>



                    Aggregated Option/SAR Exercises in Fiscal
                   Year 1999 and Fiscal Year End Option Values



<TABLE>
<CAPTION>
                                                                Number of            Value of
                                                              Number of            Unexercised
                                                             Securities            Options at/
                       Shares                                Unexercised           Fiscal Year/
                      Acquired                               Options               End Year/
                        on                                    Exercisable /          Exercisable /
           Name       Exercise        Value Realized        Unexercised /          Unexercised /

<S>                           <C>       <C>                <C>                    <C>
James S. Pendleton           -0-           None            450,000/450,000        $0.00
Stephen J. Fryer             -0-           None            278,500/278,500        $0.00
</TABLE>





                                       19

<PAGE>


                ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                                     OWNERS
                                 AND MANAGEMENT



         The  following  table sets forth the number of shares of the  Company's
      common  stock  beneficially  owned as of November  29,  1999,  (i) by each
      person who is known by the Company to own beneficially more than 5% of the
      Company's common stock, (ii) by each director and director nominee,  (iii)
      by  each  of the  Company's  named  executive  officers,  and  (iv) by all
      directors,  director  nominees  and  executive  officers,  as a group,  as
      reported  by  each  such  person.   Unless   otherwise   indicated,   each
      stockholder's address is c/o the Company, 1601 Alton Parkway,  Irvine, Ca.
      92606.


<TABLE>
<CAPTION>
                                         Amount and      Amountcial     Percentage of
                                         Nature of       Issuable on     Outstanding
                                         Beneficial      Exercise of     Commonn
        Name and Address of              Ownericial        Optionse        stock
         Beneficial Owner
     Directors and Executive officers
<S>                                    <C>             <C>                <C>
     James S. Pendleton (1)(2)            1,376,703      1,015,408           12.9%
     James S. Pendleton Family Trust        256,441              0            2.7
     Stephen J. Fryer                       580,500        492,500            5.7
     Wayne R. Wright (3)                  1,441,029      1,243,920           13.2
     Milton Haber                            47,222         35,000            0.5
     James E. Harward                        10,000         10,000            0.1
     AMRO International, S.A (4)          3,905,727      3,905,727           28.8
     Gossmunster Platz 26
     Zurich, Switzerland
     Austost Anstalt Schaan (4)           1,952,863      1,952,863           16.8
     Landstrasse 163
     Vaduz, Liechenstein
     Balmore Funds, S.A. (4)              1,952,863      1,952,863           16.8
     Trident Chanbers
     Road Town, Tortola
     British Virgin Islands
     RBB Bank AG (4)                      3,168,200      3,168,200           24.7
     Burgring 16
     Graz, Austria
     Peter Benz                           1,326,667        906.667           12.6

     All Officers and Directors as a
      Group (4 persons) (3) (4)           2,078,751      1,781,420           18.2
</TABLE>


                                       20

<PAGE>






     (1) Includes  256,441 shares of Common Stock held by the James S. Pendleton
     Family Trust of which Mr. Pendleton is a trustee and beneficiary and 15,144
     shares in Mr. Pendleton's account in the Company's ESOP.

     (2) Includes  89,710  shares held by the  Virginia  C.G.  Pendleton  Family
     Trust.  Mr.  Pendleton  has voting  control of these  shares but  disclaims
     beneficial ownership.

     (3)  Includes  100,000  shares  held by the Wayne R. Wright  Family  Trust,
     50,000 shares held by the LaRae Wright Family Trust, of which Mr. Wright is
     a trustee and beneficiary,  and 7,109 shares in Mr. Wright's account in the
     Company's ESOP.

     (4) In addition to shares  issuable  on exercise of  warrants,  consists of
     shares  issuable upon  conversion of shares of Series A preferred stock and
     Series B preferred  stock based on a market price equal to $0.34 per share.
     The terms of the Series A and Series B preferred  stock prevent the holders
     from  converting  their shares of preferred  stock if the conversion  would
     cause the  holder to be deemed  the  beneficial  owner of more than 9.9% of
     Pen's common stock, except with the prior consent of the holder.

     Except as set forth above, the Company knows of no beneficial owner of five
     percent or more of the  Company's  Common  Stock,  and does not know of any
     arrangement which may at a subsequent date result in a change of control of
     the Company.



                   ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
                                  TRANSACTIONS



         The  following  information  summarizes  certain  transactions,  either
      engaged in within the last two (2) years or  proposed  to be engaged in by
      the Company and the individuals described.


         During  fiscal year 1999,  the Company  sold its MotoSat  division to a
      company owned by James  Pendleton who at that time was serving as Chairman
      and CEO of the  Company.  The terms of the sale were such that the Company
      would transfer all assets and  liabilities of the MotoSat  division to Mr.
      Pendleton  in  exchange  for any rights of deferred  compensation  and /or
      retirement benefits as stated in Mr. Pendleton's  employment contract with
      the Company.  The net assets of the MotoSat  division on February 1, 1999,
      the date of the sale, were $68,437.

      During FY 99, the Company had sales of $1,719,093 to Imaging  Technologies
      Corporation   (Itec),   of  which   $949,328  have  been  written  off  as
      uncollectable.  The Company discontinued sales to Itec in July of 1999. In
      November 1999, Mr. Brian Bonar became a director of the Company. Mr. Bonar
      is the  President  and CEO of Itec.  The  Company has  explored  acquiring
      certain assets and  operations of Itec but no agreements  and  commitments
      have been made as of the date of this report.




                                       21

<PAGE>


                    ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K


(a) Reports on Form 8-K.

           No  reports on Form 8-K were  filed by the  Company  during the three
           months ended September 30, 1999.

(b)


INDEX OF EXHIBITS


Exhibit                                   Description
No.

            1. Form  of  Underwriter's   Warrant  Agreement  including  Form  of
               Underwriter's Warrant, incorporated by reference to the Company's
               Registration Statement filed on Form SB-2, SEC File No. 33-96444.

            3. Articles of incorporation and By-laws,  incorporated by reference
               to the Company's  Registration  Statement filed on Form SB-2, SEC
               File No. 33-96444.

           4.1 Certificate of Amendment creating Series A Convertible  Preferred
               Stock as filed  February 10, 1999. See Exhibits to Report on Form
               8-k filed on February 17, 1999.

           4.2 Certificate of Amendment creating Series B Convertible  Preferred
               Stock as amended.

          10.1 Asset  Purchase  Agreement for the purchase of InCirT  Technology
               from the Cerplex Group, Inc. See Exhibit to Report on Form 10-QSB
               dated June 30, 1996.

          10.2 Employment  Agreement between James S. Pendleton and the Company.
               See Exhibit to Report on Form 10-QSB dated June 30, 1996.

          10.3 Employment Agreement between Wayne R. Wright and the Company. See
               Exhibit to Report on Form 10-QSB dated June 30, 1996.

          10.4 Form of Warrant between the Registrant and JW Charles Securities,
               Inc., BMC Bach International Ltd., Gordon Mundy, Louis Centofanti
               and Heracles Holdings,  See Registration  Statement filed on Form
               S-3, SEC File No. 333-60451.

          10.5 Form of 1995 Stock Option Plan.  See Registration Statement filed
               on Form SB-2, SEC File No. 33-96444.

          10.6 Asset Purchase  Agreement dated November 12, 1996 for the sale of
               the  San  Jose  Division  between  Touche  Electronics,   Inc.  a
               subsidiary of TMCI Electronics, Inc. and the Company. See Exhibit
               to Report on Form 10-QSB dated December 31, 1996.

          10.7 Loan and Security  Agreement between FINOVA and the Company.  See
               Exhibit to Report on Form 10-KSB, dated September 30, 1997.

          10.8 Employment  Agreement  between  Stephen J. Fryer and the Company.
               See Exhibit to Report on Form 10-KSB, dated September 30, 1997.

          10.9 Employment  Agreement  between Danieli Reni and the Company.  See
               Exhibit to Report on Form 10-KSB, dated September 30, 1997.



                                       22



         10.10 Agreement and Plan of  Reorganization  through  Acquisition dated
               April  1,  1997  between  PowerStream  Technology,  Inc.  and the
               Company.  See Exhibit to Report on Form 10- KSB, dated  September
               30, 1997.

         10.11 Finder's   Agreement   between  the  Registrant  and  JW  Charles
               Securities,  Inc., dated June 2, 1998. See Registration Statement
               filed on Form S-3, SEC File No. 333-60451.

         10.12 Convertible   Preferred  Stock  and  Warrant  Purchase  Agreement
               between Pen, RBB Bank AG, Austost Anstalt Schaan,  Balmore Funds,
               S.A. and AMRO International,  S.A. dated as of February 12, 1999.
               See Exhibits to Report on Form 8-k filed February 17, 1999.

         10.13 Amendment in Total and  Complete Restatement of the  Deferred
               Compensation Salary Continuation Plan and Employment Agreement
               between Pen and James S. Pendleton dated as of July 23, 1999.

         10.14 Amendment  in Total  and  Complete  Restatement  of the  Deferred
               Compensation  Salary  Continuation Plan and Employment  Agreement
               between Pen, Wayne R. Wright, and Rent A Professional dated as of
               October 1, 1999.


         23.1  Consent of Grant Thornton LLP.

         27.   Financial Data Schedule



                                       23

<PAGE>






      Signatures

      In  accordance  with Section 13 or 15(d) of the Exchange  Act, the Company
      caused  this  report  to be  signed  on its  behalf  by  the  undersigned,
      thereunto duly authorized.


     Date: January 14, 2000             PEN INTERCONNECT, INC.




                                        By:_________________________

                                                Stephen J. Fryer
                                                CEO and Chairman

      In accordance  with the Exchange Act, this report has been signed below by
      the following  persons on behalf of the Company and in the  capacities and
      on the dates indicated below.



      Date:  January 14, 2000

      By:_________________________



Date:  January 14, 2000               By:_________________________
                                           Stephen J. Fryer
                                           Chairman and CEO and
                                           Chief Accounting Officer



Date:  January 14, 2000               By:_________________________
                                           Wayne R. Wright
                                           Director


Date:  January 14, 2000               By:_________________________
                                           James E. Harward
                                           Director


Date:  January 14, 2000               By:_________________________
                                           Brian Bonnar
                                           Director


Date:  January 14, 2000               By:_________________________
                                           Milton Haber
                                           Director




                                       24

<PAGE>



                          INDEX TO FINANCIAL STATEMENTS



                                                                          Page
PEN INTERCONNECT, INC.

Report of Independent Certified Public Accountants                          F-2

Financial Statements

    Balance Sheets as of September 30, 1999 and 1998                        F-3

    Statements of Operations for the Years Ended
        September 30, 1999 and 1998                                         F-5

    Statement of Stockholders' Equity (Deficit) for the Years Ended
        September 30, 1999 and 1998                                         F-6

    Statements of Cash Flows for the Years Ended
        September 30, 1999 and 1998                                         F-7

    Notes to Financial Statements                                          F-11


                                       F-1

<PAGE>





                                          REPORT OF INDEPENDENT
                                       CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors and Stockholders
Pen Interconnect, Inc.


We have audited the  accompanying  balance sheets of Pen  Interconnect,  Inc. (a
Utah Corporation), as of September 30, 1999 and 1998, and the related statements
of operations, stockholders' equity (deficit), 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 audits 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 Pen Interconnect,  Inc., as of
September  30,  1999 and 1998,  and the results of its  operations  and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note B to the
financial statements,  the Company has suffered recurring losses from operations
and as of  September  30,  1999,  the  Company  has a  stockholders'  deficit of
$1,810,128  and  its  current   liabilities   exceeded  its  current  assets  by
$3,197,941. These factors, among others, as discussed in Note B to the financial
statements, raise substantial doubt about the Company's ability to continue as a
going concern.  Management's plans in regard to these matters are also described
in Note B. The financial  statements do not include any  adjustments  that might
result from the outcome of this uncertainty.



                                                           Grant Thornton LLP


Salt Lake City, Utah
December 23, 1999


                                       F-2

<PAGE>



                                           FINANCIAL STATEMENTS




<PAGE>




                             Pen Interconnect, Inc.

                                 BALANCE SHEETS

                                  September 30,


                                     ASSETS
<TABLE>
<CAPTION>
                                                                                1999                       1998
                                                                           --------------             --------------
CURRENT ASSETS
<S>                                                                        <C>                        <C>
     Cash and cash equivalents                                             $      177,214             $      657,777
     Receivables (Notes D and G)
          Trade accounts, less allowance for doubtful accounts
               of $1,890,576 in 1999 and $108,575 in 1998                       2,708,567                  3,350,970
     Current maturities of notes receivable (Notes C and E)                       575,112                     35,675
     Inventories, net (Notes F, G, and H)                                       4,250,661                  3,680,169
     Prepaid expenses and other current assets                                    130,977                    261,375
     Investments (Note O)                                                               -                    242,739
     Deferred income taxes (Note J)                                                     -                     41,324
                                                                           --------------             --------------
                    Total current assets                                        7,842,531                  8,270,029
                                                                           --------------             --------------

PROPERTY AND EQUIPMENT, AT COST
     (Notes G, H, and I)
     Production equipment                                                       1,450,494                  2,624,513
     Furniture and fixtures                                                       167,169                    837,594
     Transportation equipment                                                      22,149                     83,522
     Leasehold improvements                                                       273,733                    613,248
                                                                           --------------             --------------
                                                                                1,913,545                  4,158,877

     Less accumulated depreciation                                                376,681                  1,680,266
                                                                           --------------             --------------
                                                                                1,536,864                  2,478,611


OTHER ASSETS
     Notes receivable, less current maturities (Notes C and E)                    150,000                      3,989
     Deferred income taxes (Note J)                                                     -                    725,667
     Goodwill and other intangibles, net of accumulated
          amortization (Note O)                                                         -                  2,031,685
     Investments (Note O)                                                               -                    482,220
     Other                                                                              -                     98,455
                                                                           --------------             --------------
                                                                                  150,000                  3,342,016
                                                                           --------------             --------------

                                                                           $    9,529,395             $   14,090,565
                                                                           ==============             ==============

</TABLE>

        The Accompanying notes are an integral part of these statements.



                                       F-3

<PAGE>




                                          Pen Interconnect, Inc.

                                        BALANCE SHEETS - CONTINUED

                                              September 30,


                              LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                                                1999                       1998
                                                                           --------------             --------------
CURRENT LIABILITIES
<S>                                                                        <C>                        <C>
     Line of credit (Note G)                                               $    4,436,562             $    4,064,361
     Subordinated debentures (Note N)                                                   -                  1,401,429
     Current maturities of long-term obligations (Notes G and H)                1,682,478                  1,132,538
     Current maturities of capital leases (Note I)                                122,759                     69,621
     Accounts payable                                                           3,961,412                  2,926,797
     Accrued liabilities                                                          837,261                    389,889
                                                                           --------------             --------------
               Total current liabilities                                       11,040,472                  9,984,635

LONG-TERM OBLIGATIONS, less current maturities (Notes G and H)                          -                     51,965

CAPITAL LEASE OBLIGATIONS, less current maturities (Note I)                       299,051                     22,333

DEFERRED INCOME TAXES (Note J)                                                          -                    165,755
                                                                           --------------             --------------
               Total liabilities                                               11,339,523                 10,224,688

COMMITMENTS AND CONTINGENCIES (Notes I, K, and L)                                       -                          -

STOCKHOLDERS' EQUITY (DEFICIT) (Notes K, M, and P)
     Convertible preferred stock, $0.01 par value,
          authorized 5,000,000 shares
               Series A; issued and outstanding 1,800 shares in 1999                   18                          -
               Series B; issued and outstanding 1,000 shares in 1999                   10                          -
     Common stock, $0.01 par value, authorized 50,000,000 shares;
          issued and outstanding 9,638,114 shares in 1999 and
               5,018,437 shares in 1998                                           96,381                      50,184
     Additional paid-in capital                                                17,447,876                 10,890,022
     Accumulated deficit                                                      (19,354,413)                (7,074,238)
                                                                           --------------             --------------
               Total stockholders' equity (deficit)                            (1,810,128)                 3,865,968
                                                                           --------------             --------------
                                                                           $    9,529,395             $   14,090,656
                                                                           ==============             ==============
</TABLE>


        The accompanying notes are an integral part of these statements.


                                                  F-4

<PAGE>

                                          Pen Interconnect, Inc.

                                         STATEMENTS OF OPERATIONS

                                         Year ended September 30,



<TABLE>
<CAPTION>
                                                                                1999                       1998
                                                                           --------------             --------------
<S>                                                                        <C>                        <C>
Net sales (Note D)                                                         $   17,651,838             $   17,091,432
Cost of sales                                                                  16,668,290                 15,892,456
                                                                           --------------             --------------
               Gross profit                                                       983,548                  1,198,976

Operating expenses
     Sales and marketing                                                          206,014                    565,185
     Research and development                                                     350,047                    550,843
     General and administrative                                                 6,558,557                  2,373,875
     Asset impairment charges (Note O)                                          2,598,894                    570,765
     Depreciation and amortization                                                503,397                    675,753
                                                                           --------------             --------------
               Total operating expenses                                        10,216,909                  4,736,421
                                                                           --------------             --------------
               Operating loss                                                  (9,233,361)                (3,537,445)

Other income (expense)
     Interest expense (Note N)                                                   (678,966)                (1,100,717)
     Loss on sale of divisions (Note C)                                        (1,575,497)                         -
     Other income (expense) net                                                    74,236                    (39,361)
                                                                           --------------             --------------
                                                                               (2,180,194)                (1,140,078)
                                                                           --------------             --------------
               Loss before income taxes                                       (11,413,555)                (4,677,523)

Income tax expense (Note J)                                                       601,236                    767,860
                                                                           --------------             --------------

               NET LOSS                                                    $  (12,014,791)            $   (5,445,383)
                                                                           ==============             ==============

Loss per common share (Note M)
     Basic                                                                 $        (1.82)            $         (1.24)
     Diluted                                                                        (1.82)                      (1.24)

Weighted-average common and dilutive common
     equivalent shares outstanding
     Basic                                                                      7,133,344                  4,397,490
     Diluted                                                                    7,133,344                  4,397,490
</TABLE>


        The accompanying notes are an integral part of these statements.

                                       F-5


<PAGE>




                                          Pen Interconnect, Inc.

                               STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

                                 Years ended September 30, 1999 and 1998

<TABLE>
<CAPTION>
                                                                                                         Retained
                                       Common Stock              Preferred Stock         Additional        earnings
                                   Number                      Number                      paid-in     (accumulated
                                  of shares      Amount       of shares       Amount      capital          deficit)      Total
                                 ----------    ----------     ---------     ---------    -----------    ------------   ------------
<S>                              <C>           <C>            <C>           <C>          <C>            <C>            <C>
Balances at October 1, 1997       4,072,863    $   40,729             -     $       -    $ 8,733,126    $ (1,628,855   $  7,145,000
Common stock issued for services     10,833           108             -             -         28,953               -         29,061
Common stock issued upon
  conversion of subordinated
  debentures                        689,332         6,893             -             -        993,107               -      1,000,000
Common stock issued upon
   exercise of warrants             245,000         2,450             -             -        487,549               -        489,999
Favorable conversion feature
   of subordinated debentures             -             -             -             -        639,623               -        639,623
Common stock issued as interest
   on subordinated debentures           409             4             -             -          7,664               -          7,668
Net loss                                  -             -             -             -              -      (5,445,383)    (5,445,383)

                                 ----------    ----------     ---------     ---------    -----------    ------------    ------------

Balances at September 30, 1998    5,018,437        50,184             -             -     10,890,022      (7,074,238)     3,865,968
Common stock issued upon
   conversion of subordinated
   debentures                     2,092,671        20,927             -             -      1,479,073               -      1,500,000
Common stock issued upon
   exercise  of warrants            523,750         5,237             -             -        387,561               -        392,798
Common stock issued upon
   exercise of options            1,260,000        12,600             -             -        365,400               -        378,000
Common stock issued as
   interest on subordinated
   debentures                         4,089            41             -             -          7,628               -          7,669
Common stock issued for
   services                         739,167         7,392             -             -        749,095               -        756,487
Issuance of Series A Preferred
   stock                                  -             -         1,800            18      1,799,982               -      1,800,000
Issuance of Series B Preferred
   stock                                  -             -         1,000            10        999,990               -      1,000,000
Dividends on Preferred stock              -             -             -             -              -        (265,384)      (265,384)
Stock options granted at below
   the fair market value of the
   stock on the date of the grant         -             -             -             -        769,125               -        769,125
Net loss                                  -             -             -             -              -     (12,014,791)   (12,014,791)

                                 ----------    ----------     ---------     ---------    -----------    ------------    ------------

Balances at September 30, 1999    9,638,114    $   96,381         2,800     $      28    $17,447,876    $(19,354,413)  $ (1,810,128)
                                 ==========    ==========     =========     =========    ===========    ============   ============
</TABLE>

        The accompanying notes are an integral part of this statement.

                                       F-6
<PAGE>
                             Pen Interconnect, Inc.

                            STATEMENTS OF CASH FLOWS

                            Years ended September 30,



<TABLE>
<CAPTION>
                                                                                1999                       1998
                                                                           --------------             --------------
<S>                                                                        <C>                        <C>
Increase (decrease) in cash and cash equivalents
   Cash flows from operating activities
     Net loss                                                              $  (12,014,791)            $   (5,445,383)
     Adjustments to reconcile net loss to net cash used
        in operating activities
          Depreciation and amortization                                           503,397                    675,753
          Amortization of favorable conversion feature on
             subordinated debentures charged to interest expense                   98,571                    541,052
          Allowance for bad debts                                               1,782,001                    (28,482)
          Allowance for obsolete inventory                                       (248,689)                   634,497
          Deferred income taxes                                                   601,236                    766,991
          Loss on disposal of property and equipment                               11,425                     (2,779)
          Asset impairment charges                                              2,598,894                    570,765
          Common stock issued for services                                        756,487                     29,061
          Common stock issued in payment of interest                                7,669                      7,668
          Stock options issued for services at below the fair market
            value of the stock on the date of the grant                           769,125                          -
          Loss on sale of divisions                                             1,575,497                          -
          Changes in assets and liabilities
               Trade accounts receivable                                       (1,960,961)                (1,269,432)
               Inventories                                                         63,218                   (958,795)
               Prepaid expenses and other current assets                            5,665                   (168,165)
               Other assets                                                        66,065                     30,760
               Accounts payable                                                 1,170,432                    873,449
               Accrued liabilities                                                191,133                    (91,467)
                                                                           --------------             --------------
                    Total adjustments                                           7,991,165                  1,610,876
                                                                           --------------             --------------
                    Net cash used in operating activities                      (4,023,626)                (3,834,507)
                                                                           --------------             --------------
     Cash flows from investing activities
          Purchase of property and equipment                                     (208,712)                  (449,814)
          Issuance of notes receivable                                           (575,112)                         -
          Collection on notes receivable                                            6,287                     24,866
          Proceeds from sale of divisions                                       1,075,000                    395,690
                                                                           --------------             --------------
                    Net cash provided by (used in) investing activities           297,463                    (29,258)
                                                                           --------------             --------------

</TABLE>

                                  (Continued)

                                       F-7

<PAGE>
                             Pen Interconnect, Inc.

                            STATEMENTS OF CASH FLOWS - CONTINUED

                            Years ended September 30,



<TABLE>
<CAPTION>
                                                                                1999                       1998
                                                                           --------------             --------------
<S>                                                                        <C>                        <C>
Cash flows from financing activities
     Proceeds from issuance of preferred stock                                  2,800,000                          -
     Preceeds from issuance of subordinated debentures                                  -                  2,500,000
     Net change in line of credit                                                 615,249                  1,826,671
     Proceeds from long-term obligations                                                -                    500,000
     Principal payments on long-term obligations                                 (883,201)                  (260,474)
     Principal payments on notes payable                                                -                   (641,505)
     Proceeds from bridge loans                                                   900,000                          -
     Principal payments on bridge loans                                          (900,000)                  (100,000)
     Principal payments on capital leases                                         (57,246)                   (65,297)
     Exercise of warrants                                                         392,798                    489,999
     Exercise of stock options                                                    378,000                          -
                                                                           --------------             --------------
               Net cash provided by financing activities                        3,245,600                  4,249,394
                                                                           --------------             --------------
               Net (decrease) increase in cash and cash equivalents              (480,563)                   385,629

Cash and cash equivalents at beginning of year                                    657,777                    272,148
                                                                           --------------             --------------

Cash and cash equivalents at end of year                                   $      177,214             $      657,777
                                                                           ==============             ==============

Supplemental disclosures of cash flow information

     Cash paid during the year for
          Interest                                                         $      593,374             $      605,627
          Income taxes                                                                  -                        869
</TABLE>

Noncash investing and financing activities

Favorable conversion feature of subordinated debentures

As discussed in Note N - Subordinated Debentures, the Company recognized charges
related  to the  favorable  conversion  feature of the  subordinated  debentures
issued during fiscal 1999. The favorable  conversion feature was recognized as a
deferred  charge against the  subordinated  debenture  balance with an offset to
additional paid-in capital. The deferred charge is being amortized over a period
corresponding  to the time  restrictions  on conversion of the  debentures  into
stock.  The  amortization of the favorable  conversion  feature is recognized as
interest expense. Recognition of the favorable conversion feature and subsequent
amortization  has resulted in an increase in interest expense of $98,571 in 1999
and $541,052 in 1998. At September 30, 1998,  the favorable  conversion  feature
resulted  in a $98,571  decrease  in  subordinated  debentures,  and a  $639,623
increase in additional paid-in capital.



                                  (Continued)

                                      F-8

<PAGE>

                             Pen Interconnect, Inc.

                            STATEMENTS OF CASH FLOWS - CONTINUED

                            Years ended September 30, 1999 and 1998

Noncash investing and financing activities - continued
------------------------------------------------------

Conversion of subordinated debentures and notes payable
-------------------------------------------------------

During fiscal 1999,  convertible  debentures  in the amount of  $1,500,000  were
converted into 2,092,671 shares of common stock. During fiscal 1998, convertible
debentures in the amount of $1,000,000  were  converted  into 689,332  shares of
common stock.

Notes receivable and investments
--------------------------------

During  fiscal  1998,  the  Company  received  stock in another  company  with a
guaranteed value of $1,024,000 as satisfaction for $900,000 of notes receivable,
$84,000 of accrued interest, and $40,000 of accounts receivable.

Sale of Divisions
-----------------

On January  31,  1999,  the  Company  sold  substantially  all of the assets and
certain  liabilities of its Cable Division (Note C). Assets and Liabilities sold
were as follows:

     Accounts receivable, net                               $    310,467
     Inventories                                                 917,760
     Prepaid expenses                                             17,509
     Other assets                                                 32,390
     Property and equipment, net                               1,496,459
     Capital leases                                              (42,526)
                                                            ------------
     Assets sold, net                                          2,732,059
     Less considerations received
          Note receivable                    $     150,000
          Cash                                   1,075,000
                                             -------------
                                                               1,225,000
                                                            ------------

     Loss on sale of division                               $ (1,507,059)
                                                            ============

On September  30, 1999,  the Company  sold  substantially  all of the assets and
liabilities of its MOTO-SAT  Division (Note C). Assets and liabilities sold were
as follows:

     Accounts receivable, net                               $    180,896
     Inventories                                                 206,689
     Notes receivable                                             33,377
     Property and equipment, net                                  33,780
     Accounts payable                                            (56,507)
     Accrued liabilities                                          (9,145)
     Other debt obligations                                     (320,652)
                                                            ------------
     Assets sold, net                                             68,438
     Proceeds received                                                 -
                                                            ------------

     Loss on sale of division                               $   (68,438)
                                                            ============


                                  (Continued)

                                      F-9

<PAGE>

                             Pen Interconnect, Inc.

                      STATEMENTS OF CASH FLOWS - CONTINUED

                     Years ended September 30, 1999 and 1998

Noncash investing and financing activities - continued
------------------------------------------------------

Sale of Divisions - continued
-----------------------------

The following unaudited proforma summary represents the results of operations as
if the  disposition  of the Cable and  MOTO-SAT  Divisions  had  occurred at the
beginning of the period presented, and does not purport to be indicative of what
would have occurred had the  transaction  actually  occurred on that date, or of
results  which may  occure in the  future.  The pro forma  weighted  shares  are
reported as if outstanding at the beginning of the period.

                                                     Fiscal year ended
                                                    September 30, 1999
                                                    (in thousands except
                                                     per share amount)
                                                   ----------------------
     Net sales                                     $               16,307
     Operating loss                                                (8,854)
     Net loss                                                     (11,709)
     Loss applicable to common stock                              (12,697)
     Loss per share - basic                                         (1.78)
     Weighted shares outstanding                                    7,133

        The accompanying notes are an integral part of these statements.

                                      F-10




<PAGE>


                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 1999 and 1998




NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       A  summary  of  the  significant   accounting  policies  applied  in  the
       preparation of the accompanying financial statements follows:

       1.   Business activity

       Pen  Interconnect,  Inc. (the Company) was  incorporated on September 30,
       1985,  in the  State  of Utah.  The  Company  is a total  interconnection
       solution provider  offering  electronic  manufacturing  services industry
       (EMSI)  manufacturing  (circuit  board  assembly)  and custom  design and
       manufacturing of battery chargers, power supplies and uninterrupted power
       supply (UPS) systems for original equipment manufacturers ("OEMs") in the
       computer, peripherals,  telecommunications,  instrumentation, medical and
       testing  equipment  industries.  Most of the  Company's  sales consist of
       printed circuit boards. The Company's customers include OEMs of computers
       including mainframes, desktops, notebooks, pens and palmtops, as well as,
       OEMs of computer peripheral  equipment such as modems,  memory cards, LAN
       adapters,  cellular phones,  faxes and printers.  Other customers include
       OEMs of telecommunications, instrumentation and testing equipment.

       2.   Inventories

       Inventories  consist primarily of components and boards and are valued at
       the lower of cost or market (first-in,  first-out  basis).  Costs include
       materials, labor, and overhead.

       3.   Property and equipment

       Property and equipment are recorded at cost.  Expenditures  for additions
       and major  improvements  are  capitalized.  Expenditures  for repairs and
       maintenance  and minor  improvements  are charged to expense as incurred.
       Gains or losses from  retirements  and  disposals  are  recorded as other
       income or expense.

       Property and equipment are depreciated over their estimated useful lives.
       Leasehold  improvements  and assets  financed  under  capital  leases are
       amortized over their estimated useful lives or the lease term,  whichever
       is  shorter.   Depreciation   and   amortization   are  calculated  using
       straight-line and accelerated methods over the following estimated useful
       lives:


                                                        Years
     Production equipment                                5-6
     Furniture and fixtures                               10
     Transportation equipment                             10
     Leasehold improvements                                5



                                                  F-11

<PAGE>


                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 1999 and 1998




NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

       4. Goodwill and other intangibles

       The Company  capitalized as goodwill,  the excess  acquisition costs over
       the fair  value of net  assets  acquired,  in  connection  with  business
       acquisitions,  which costs are being amortized on a straight-line  method
       over 15 years.  The carrying  value of goodwill is reviewed  periodically
       based on the  undiscounted  cash flows of the entities  acquired over the
       remaining  amortization period. Should this review indicate that goodwill
       is impaired, the Company's carrying value of the goodwill will be reduced
       by the estimated shortfall of undiscounted cash flows.

       5.   Income taxes

       The Company utilizes the liability method of accounting for income taxes.
       Under the  liability  method,  deferred  tax assets and  liabilities  are
       determined based on differences between financial reporting and tax bases
       of assets and  liabilities  and are measured  using the enacted tax rates
       and laws that will be in effect  when the  differences  are  expected  to
       reverse.  An allowance against deferred tax assets is recorded when it is
       more likely than not that such tax benefits will not be realized.

       6.   Revenue recognition

       Revenue is recognized when products are shipped.

       7.   Cash and cash equivalents

       For financial statement purposes, the Company considers all highly liquid
       investments  with an  original  maturity  of three  months  or less  when
       purchased to be cash equivalents.

       8.   Research and development

       Research and development costs are expensed as incurred.

       9. Earnings (loss) per common share

       The  Company  has  adopted  the  provisions  of  Statement  of  Financial
       Accounting  Standards No. 128  "Earnings Per Share" (SFAS No. 128).  SFAS
       No. 128 established  new standards for computing and presenting  earnings
       per share  (EPS).  SFAS No. 128 requires  the  presentation  of basic and
       diluted  EPS.  Basic  EPS are  calculated  by  dividing  earnings  (loss)
       available to common stockholders by the weighted-average number of common
       shares  outstanding  during  each  period.   Diluted  EPS  are  similarly
       calculated,  except  that the  weighted-average  number of common  shares
       outstanding includes common shares that may be issued subject to existing
       rights with dilutive potential.

                                      F-12

<PAGE>


                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 1999 and 1998




NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

       10. Estimates

       The  preparation  of financial  statements in conformity  with  generally
       accepted accounting  principles requires management to make estimates and
       assumptions  that  affect the  reported  amounts of assets,  liabilities,
       revenues and expenses during the reporting period.  Estimates also affect
       the  disclosure of contingent  assets and  liabilities at the date of the
       financial  statements.  Actual results could differ from those estimates.
       Such  estimates  of  significant   accounting   sensitivity  include  the
       allowance for doubtful accounts and the allowance for inventory overstock
       or  obsolescence,  and the  estimated  useful lives of goodwill and other
       intangibles.

       On an ongoing basis, management reviews such estimates, and if necessary,
       makes  changes to them.  The effect of changes in estimates are reflected
       in the  financial  statements  in the  period of the  change.  Management
       believes the estimates used in determining  carrying  values of assets as
       of the  respective  balance sheet dates were  reasonable at the dates the
       estimates were made.  During 1999  adjustments to certain  estimates were
       recognized.

       11. Segment information

       The Company adopted Statement of Financial  Accounting  Standards No. 131
       (SFAS No. 131), "Disclosures about Segments of the Enterprise and Related
       Information" in fiscal 1999. This statement  requires an entity to report
       financial and descriptive  information  about their reportable  operating
       segments.  An  operating  segment is a  component  of an entity for which
       financial  information  is developed and evaluated by the entity's  chief
       operating  decision  maker to assess  performance  and to make  decisions
       about resource  allocation.  The adoption of SFAS No. 131 did not have an
       effect on the Company's financial position or results of operations,  but
       did affect the disclosure of segment information, as presented in Note Q.

       12. Fair value of financial instruments

       SFAS No. 107,  "Disclosure  About Fair Value of  Financial  Instruments,"
       requires  certain  disclosures  regarding  the fair  value  of  financial
       instruments.  Cash and cash equivalents,  accounts  receivable,  accounts
       payable and accrued liabilities are reflected in the financial statements
       at fair value because of the  short-term  maturity of these  instruments.
       Because  of  the  unique  aspects  of  the  subordinated  debentures  and
       long-term debt fair values cannot readily be determined.

       13. Stock options

       The Company has elected to follow Accounting Principles Board Opinion No.
       25,  "Accounting  for Stock  Issued to  Employees"  (APB 25) and  related
       interpretations  in accounting for its employee stock options rather than
       adopting the alternative  fair value  accounting  provided for under FASB
       No. 123 "Accounting for Stock-Based Compensation" (SFAS No. 123).

                                      F-13

<PAGE>


                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 1999 and 1998




NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

       14. Reclassifications

       Certain reclassifications have been made to the 1998 financial statements
       to conform with the 1999 presentation.

NOTE B - FINANCIAL RESULTS AND LIQUIDITY

       The Company  has  incurred  net losses of  $12,014,791,  $5,445,383,  and
       $1,735,483  in 1999,  1998,  and 1997,  respectively.  In  addition,  the
       Company has a  stockholders'  deficit of $1,810,128 and a working capital
       deficit of  $3,197,941  as of September 30, 1999.  These  factors,  among
       others,  raise  substantial doubt about the Company's ability to continue
       as a going concern.


       During  1999,  the  Company  sold it's  unprofitable  Cable and  MOTO-SAT
       Divisions.  However,  the  Company's  operations  continued  to  generate
       operating  losses  and to use rather  than  provide  cash flow.  This has
       caused the Company to be in  violation  of certain of its debt  covenants
       (Note  G).  The  Company  has  issued  preferred  stock,  debentures  and
       increased  other  borrowings  to  provide  working  capital  to help meet
       current  obligations.  However,  the  Company  still  currently  does not
       generate  enough  cash to  fund  operations,  and to  service  it's  debt
       requirements.

       The   Company's   plans  to  satisfy  its   operating  and  debt  service
       requirements  are  focused  primarily  on  sale or  merger  opportunities
       involving  all or a portion of the  Company.  As disclosed in Note R, the
       Company is in the process of  negotiating  certain  sale  agreements.  In
       connection with these plans, the Company's major lender has not exercised
       it's right to foreclose on the Company's assets.

       There can be no  assurance  that the Company  will be  successful  in its
       attempt to sell or merge all or a portion of the Company.

NOTE C - DISPOSITIONS

       Cable Division

       Effective  January 31, 1999,  the Company sold  substantially  all of the
       assets and certain of the  liabilities of its Cable Division to Cables To
       Go, Inc (CTG).  Net assets of $2,732,059 were sold for $1,075,000 in cash
       and a royalty  payment  contingent  upon the future revenues of the Cable
       Division.  $150,000 of the royalty  payment was  guaranteed  and has been
       recorded by the Company as a note  receivable from CTG. CTG agreed to use
       and compensate  the Company for an additional  $558,747 of the net assets
       contingent  upon  certain  of its future  operating  needs.  The  Company
       originally  recorded a loss of  $948,312  upon  disposition  of the Cable
       Division  but has adjusted  the loss to  $1,507,059  based on its present
       determination  that CTG will not use nor  compensate  the Company for the
       additional $558,747 of net assets.

                                      F-14


<PAGE>


                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 1999 and 1998




NOTE C - DISPOSITIONS - CONTINUED

       MOTO-SAT Division

       Effective  September 30, 1999, the Company sold  substantially all of the
       assets and liabilities of its MOTO-SAT  Division to James Pendleton,  the
       Company's former CEO and Chairman. The net assets of $68,438 were sold in
       exchange   for  Mr.   Pendleton's   agreement   to  waive  any  claim  to
       post-employment,  deferred  compensation,  or  retirement  benefits.  The
       Company  recognized  a loss of $68,438 upon  disposition  of the MOTO-SAT
       Division.


NOTE D - MAJOR CUSTOMERS AND CREDIT CONCENTRATION

       Financial  instruments,  which potentially  subject the Company to credit
       risk, consist primarily of trade accounts  receivable.  The Company sells
       to customers in the various technology  industries located throughout the
       United States.  Sales have  historically  been  concentrated with several
       large original  equipment  manufacturers  (OEMs) on a turnkey  basis.  To
       reduce credit risk the Company performs ongoing credit evaluations of its
       customers' financial condition and generally does not require collateral.
       The  majority of its trade  receivables  are  unsecured.  Allowances  are
       maintained for potential  credit losses.  The resulting  losses have been
       charged against the allowances.

       Revenue from shipments to the largest customers  (customers  representing
       over 10 percent of total  sales)  were 10, 19, and 44 percent of sales in
       fiscal  1999 (10  percent,  24 percent  and 59 percent of sales in fiscal
       1998).

       At September 30, 1999,  the Company had accounts  receivable due from the
       above  largest  customers   representing   approximately  62  percent  of
       receivables  and from a fourth  customer  representing  an  additional 27
       percent of accounts receivable.  The Company's  concentration of accounts
       receivable  among the 4 largest  customers is approximately 89 percent of
       total accounts  receivable (75 percent at September 30, 1998).  Remaining
       accounts  receivable  at September  30, 1999,  were due from a variety of
       other customers under normal credit terms.


NOTE E - NOTES RECEIVABLE

Notes receivable consist of the following:

<TABLE>
<CAPTION>
                                                                                          1999                  1998
                                                                                      -----------             ----------
<S>                                                                                  <C>                      <C>
       8% note  receivable  due on June 30,  2000  with  monthly  interest  only
       payments; unsecured.                                                           $   552,612             $        -

</TABLE>

                                                  F-15

<PAGE>


                                          Pen Interconnect, Inc.

                                      NOTES TO FINANCIAL STATEMENTS

                                       September 30, 1999 and 1998




NOTE E - NOTES RECEIVABLE - CONTINUED

<TABLE>
<CAPTION>
                                                                                          1999                  1998
                                                                                      -----------             ----------
<S>                                                                                   <C>                     <C>
       Note receivable from a company,  due in monthly payments as determined by
       a royalty agreement; secured by a royalty agreement.                               150,000                      -

       Note  receivable  due on demand  following  the  registration  of certain
       shares of the Company's stock; unsecured.                                           22,500                      -

       10% note receivable due in monthly payments of $1,500 including interest,
       collateralized  by  inventory,   accounts  receivable,   machinery,   and
       equipment                                                                                -                 33,377

       10% note receivable due in monthly payments of $1,297 including interest,
       collateralized  by  inventory,   accounts  receivable,   machinery,   and
       equipment                                                                               -                  6,287
                                                                                      -----------             ----------
                                                                                          725,112                 39,664

       Less current maturities                                                            575,112                 35,675
                                                                                      -----------             ----------

                                                                                      $   150,000             $    3,989
                                                                                      ===========             ==========
</TABLE>


NOTE F - INVENTORIES

      Inventories consist of the following:


<TABLE>
<CAPTION>
                                                                                         1999                   1998
                                                                                      -----------             -----------
<S>                                                                                   <C>                     <C>
        Raw material                                                                  $ 3,253,574             $ 3,070,958
        Work-in-process                                                                 1,507,108               1,391,664
        Finished goods                                                                     59,315                  35,572
                                                                                      -----------             -----------
                                                                                        4,819,997               4,498,194

        Less allowance for obsolete inventory                                            (569,336)               (818,025)
                                                                                      -----------             -----------

                                                                                      $ 4,250,661             $ 3,680,169
                                                                                      ===========             ===========
</TABLE>


                                      F-16

<PAGE>


                                          Pen Interconnect, Inc.

                                      NOTES TO FINANCIAL STATEMENTS

                                       September 30, 1999 and 1998




NOTE G - CREDIT FACILITY

       The  Company  has  entered  into a  financing  agreement  with a bank for
       $6,300,000,  which expires in September 2001. The agreement consists of a
       $5,000,000  revolving  credit line and two term loans for $800,000 ("Loan
       A") and $500,000 ("Loan B"),  respectively.  The revolving credit loan is
       at prime plus 1.75 percent and is collateralized  by accounts  receivable
       and inventory. The revolving credit loan is subject to a default interest
       rate should the Company become in violation of any of the loan covenants.
       Loan A is at a fixed  rate of  10.16  percent  and is  collateralized  by
       machinery and  equipment.  Loan B is at a fixed rate of 10.32 percent and
       is  collateralized by machinery and equipment of the Company and personal
       guarantees of certain  officers of the Company.  The amount  available on
       the revolving credit line is calculated by applying  certain  percentages
       to the Company's  collateralized  assets  (borrowing base) subject to the
       ceiling  amount of $5,000,000.  This agreement  requires that the Company
       maintain  certain  financial  ratios,  meet  specific  minimum  levels of
       earnings   and  net   worth;   restricts   employee   advances,   capital
       expenditures,  compensation,  and additional indebtedness;  and restricts
       the payment of dividends.  The Company has borrowed  $4,436,562 under the
       line of credit at September 30, 1999 ($4,064,361 at September 30, 1998).

       At times,  including  at  September  30,  1999,  the  Company has been in
       violation  of certain  of the  covenants  of this  credit  facility.  The
       Company operated under a forbearance agreement during all of fiscal 1999.
       As of September 30, 1999,  the Company has not received a waiver from the
       lender and all  obligations  under this  credit  facility  are payable on
       demand of the lender and are  classified  as current  liabilities  in the
       balance sheet.  Subsequent to September 30, 1999, the lender declared the
       loan  agreement in default and  notified the Company of its  intention to
       declare all indebtedness due and payable on February 28, 2000.


NOTE H - LONG-TERM OBLIGATIONS

       Long-term obligations consist of the following:


<TABLE>
<CAPTION>
                                                                                          1999                   1998
                                                                                      -----------             -----------
<S>                                                                                   <C>                     <C>
       Noninterest-bearing  note, payable in 12 monthly installments of $74,509,
       maturing in July 2000, collateralized by inventory                             $   844,104             $         -

       Noninterest-bearing  note, payable in 12 monthly installments of $51,280,
       maturing in June 2000, collateralized by inventory                                 415,366                       -

       10.32%   note  to  a  financial   institution,   payable  in  48  monthly
       installments of $10,417 plus interest,  due on demand,  collateralized by
       substantially  all of the  Company's  property and equipment and personal
       guarantees of certain officers of the Company (Note G)                             214,579                 489,583

</TABLE>

                                      F-17

<PAGE>


                                          Pen Interconnect, Inc.

                                      NOTES TO FINANCIAL STATEMENTS

                                       September 30, 1999 and 1998




NOTE H - LONG-TERM OBLIGATIONS - CONTINUED

<TABLE>
<CAPTION>
                                                                                         1999                   1998
                                                                                      -----------             -----------
<S>                                                                                   <C>                     <C>
       7.50% note, past due                                                                13,617                        -

       Noninterest-bearing note, due in October 1999                                      100,000                        -

       10.16%   note  to  a  financial   institution,   payable  in  48  monthly
       installments of $16,667 plus interest,  due on demand,  collateralized by
       substantially all of the Company's property and equipment (Note G)                  79,992                599,996

       Noninterest-bearing note to a parts vendor, past due                                11,720                 11,720

       11.25% note to a financial institution, past due                                     3,100                  3,100

       Note to an individual with interest imputed at 10% per annum,  payable in
       monthly payments of $2,500                                                               -                 80,104
                                                                                      -----------             -----------
                                                                                        1,682,478               1,184,503
       Less current maturities                                                          1,682,478               1,132,538
                                                                                      -----------             -----------

                                                                                      $         -             $    51,965
                                                                                      ===========             ===========
</TABLE>

       As of September 30, 1999, all of the Company's obligations are classified
       as current. $294,571 of obligations are due on demand because the Company
       is in  violation  of certain  loan  covenants as described in Note G. The
       balance of the Company's obligations come due in fiscal 2000.


NOTE I - LEASES

       1.   Operating leases

       The Company  conducts a portion of its  operations  in leased  facilities
       under  noncancelable  operating leases expiring through 2005. The minimum
       future rental commitments under operating leases are as follows:


       Year ending September 30,
               2001                  $    373,783
               2002                       376,733
               2003                       371,183
               2004                       391,283
               2005                       395,303
            Thereafter                    305,522
                                     ------------
                                     $  2,213,807
                                     ============

                                      F-18

<PAGE>


                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 1999 and 1998




NOTE I - LEASES - CONTINUED

       The  leases  generally   provide  that  property  taxes,   insurance  and
       maintenance  expenses are obligations of the Company. It is expected that
       in the normal  course of business,  operating  leases that expire will be
       renewed or replaced by leases on other properties. Rental expense for all
       operating  leases was $558,492 and $565,490 for the years ended September
       30, 1999 and 1998, respectively.

       2.   Capital leases

       Maturities of capital lease obligations are as follows:


       Year ending September 30,
            2000                                       $ 161,935
            2001                                         150,515
            2002                                         112,326
            2003                                          78,153
          Thereafter                                           -
                                                       ---------

       Total minimum lease payments                      502,929

       Less amount representing interest                  81,119
                                                       ---------

       Present value of net minimum lease payments       421,810

       Less current portion                              122,759
                                                       ---------
                                                       $ 299,051
                                                       =========

       Included in property and equipment is $462,063 of equipment under capital
       leases at September 30, 1999.  The related  accumulated  amortization  is
       $16,590.


NOTE J - INCOME TAXES (BENEFIT)

       Income tax expense (benefit) consists of the following:

                                   1999           1998
                                ---------      ---------
          Current
             Federal            $       -      $       -
             State                      -              -
                                ---------      ---------
                                        -              -

          Deferred
             Federal              518,265        636,762
             State                 82,971        131,098
                                ---------      ---------
                                  601,236        767,860
                                ---------      ---------
                                $ 601,236      $ 767,860
                                =========      =========

                                                  F-19

<PAGE>


                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 1999 and 1998




NOTE J - INCOME TAXES (BENEFIT) - CONTINUED

       Reconciliation  of  income  taxes  (benefit)   computed  at  the  federal
       statutory rate of 34 percent is as follows:

<TABLE>
<CAPTION>
                                                                             1999              1998
                                                                         -------------    -------------
<S>                                                                      <C>              <C>
          Federal income taxes (benefit) at statutory rate               $  (3,880,608)   $  (1,590,358)
          State  income  taxes  (benefit),  net of federal tax benefit        (537,932)        (219,431)
          Permanent differences                                                  4,842            9,373
          Increase in valuation allowance                                    5,014,934        2,568,276
                                                                         -------------    -------------

             Income taxes                                                $     601,236    $     767,860
                                                                         =============    =============

       Deferred tax assets and liabilities consist of the following:

                                                                          1999              1998
                                                                      -------------    -------------
       Deferred tax assets (liabilities)
            Depreciation and amortization                             $     763,404    $    (130,832)
            Net operating loss                                            5,619,324        2,505,871
            Reserve for inventory obsolescence                              220,442          316,731
            Allowance for doubtful accounts                                 732,014          138,411
            Impairment of investment                                              -          117,454
            Reserve for vacation                                             38,934           12,785
                                                                      -------------    -------------
                 Deferred tax asset                                       7,374,118        2,960,420

       Valuation allowance                                               (7,374,118)      (2,359,184)
                                                                      -------------    -------------
                 Net deferred tax asset                               $           -    $     601,236
                                                                      ============     =============
</TABLE>


       The  Company  sustained  net  operating  losses  in  each  of th  periods
       presented.  Deferred tax assets and income tax benefits  were recorded in
       1998 for net  deductible  temporary  differences  and net operating  loss
       carryforwards.  For 1999, there were no deferred tax assets or income tax
       benefits  recorded  in  the  financial   statements  for  net  deductible
       temporary  differences  or net operating loss  carryforwards  because the
       likelihood  of  realization  of the related tax benefits  cannot be fully
       established.  A valuation  allowance of  $7,374,118  has been recorded in
       1999  ($2,359,184 in 1998) to reduce the net deferred tax assets to their
       estimated net realizable value. The change in the valuation allowance was
       $5,014,934  and  $2,568,276  for the years ended  September  30, 1999 and
       1998, respectively.

       As  of  September  30,  1999,   the  Company  had  net   operating   loss
       carryforwards  for tax reporting  purposes of  approximately  $14,500,000
       expiring in various years through 2020.

                                      F-20

<PAGE>


                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 1999 and 1998




NOTE K - STOCK OPTION PLAN

       The Company has a Stock Option Plan (the Plan). The Plan provides for the
       granting of both Incentive Stock Options (ISOs) or  NonQualified  Options
       (NQOs) to purchase  shares of common stock.  ISOs are granted at not less
       than market  value on the date of grant,  whereas  NQOs may be granted at
       not less  than 85  percent  of  market  value  on the date of the  grant.
       Options may be granted  under the Plan to all  officers,  directors,  and
       employees  of the  Company.  In  addition,  NQOs may be  granted to other
       parties who perform services for the Company.

       The Company also issues warrants in conjunction with various transactions
       with third parties.

       The   Company   accounts   for  the  Plan   under  APB  25  and   related
       interpretations.  Accordingly,  no compensation  costs are recognized for
       options  granted  under the Plan at or in excess of the fair market value
       of the stock on the date of the grant.  During 1999, the Company  granted
       3,326,667  options to  consultants  at below the fair market value of the
       stock on the date of grant and recorded an expense of $769,125. All other
       stock  options  were granted at prices at or in excess of the fair market
       value of the stock.  Also  during  1999,  the Company  re-priced  certain
       options and warrants to the fair market value of stock on the date of the
       re-pricing.  982,000 options and 523,750 warrants were re-priced reducing
       the weighted  average  exercise  price of these options and warrants from
       $1.82 to $0.71. Had compensation  cost for the Plan been determined based
       on the fair value of the options at the grant dates for awards  under the
       Plan consistent with the method  prescribed by FAS No. 123, the Company's
       net loss and loss per common  share would have been  increased to the pro
       forma amounts indicated below:

                                                  1999           1998
                                             ------------     --------------
          Net loss
               As reported                   $ (12,017,791)   $   (5,445,383)
               Pro forma                       (13,175,657)       (6,112,600)

          Loss per common share
               As reported - basic           $       (1.82)   $        (1.24)
               Pro forma - basic                     (1.99)            (1.39)

       The fair value of these options and warrants was estimated at the date of
       grant using the  Black-Scholes  option-pricing  model with the  following
       weighted-average  assumptions for 1999 and 1998,  respectively:  expected
       volatility  of  131.86  and  79.07  percent;  weighted-average  risk-free
       interest  rate of 5.50 and 5.26  percent;  and expected life equal to the
       actual life for both periods. The weighted-average  fair value of options
       and warrants granted was $0.33 and $0.83 for 1999 and 1998, respectively.


                                      F-21

<PAGE>


                                          Pen Interconnect, Inc.

                                      NOTES TO FINANCIAL STATEMENTS

                                       September 30, 1999 and 1998




         NOTE K - STOCK OPTION PLAN - CONTINUED

       The  following  is a summary of the  activity  relating  to  options  and
       warrants through September 30, 1999:

                                                                       Weighted-
                                             Warrants                   average
                                            and stock       Exercise    exercise
                                             options          price       price
                                           -----------    -----------   --------
       Outstanding at October 1, 1997        6,069,000      1.38-6.50      4.08
          Granted                            2,305,000      1.00-2.50      2.06
          Canceled                             (59,000)     1.38-6.00      1.83
          Exercised                           (245,000)          2.00      2.00
                                           -----------
       Outstanding at September 30, 1998     8,070,000      1.38-6.50      3.88
          Granted                            6,131,667      0.30-1.37      .056
          Expired/Canceled                  (1,331,250)     1.38-3.00      1.52
          Exercised                         (1,783,750)     0.30-0.75      0.43
                                           -----------

       Outstanding at September 30, 1999    11,086,667      0.30-6.50      2.45
                                           ===========
       Exercisable at September 30, 1999    10,791.767      0.30-6.50      2.49
                                           ===========



       The  following  table   summarizes   information   concerning   currently
       outstanding options and warrants:

                       Options and Warrants Outstanding:
                       ---------------------------------
                                   Weighted-Average
     Range of                         Remaining
      Exercise      Number           Contractual       Weighted-Average
        Price      Outstanding      Life (Years)      Exercise Price
     -----------  ------------     -------------      --------------
     $ 0.30-1.00    5,888,667           3.29           $    0.63
       1.28-2.00    1,635,000           5.46                1.87
       2.13-3.00      713,000           2.17                2.55
            6.50    2,850,000           1.09                6.50
                   ----------
                   11,086,667
                   ==========

                                      F-22

<PAGE>


                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 1999 and 1998




NOTE K - STOCK OPTION PLAN - CONTINUED

            The following  table  summarizes  information  concerning  currently
exercisable options and warrants:


                        Options and Warrants Exercisable:
                       ---------------------------------
                                   Weighted-Average
     Range of                         Remaining
      Exercise      Number           Contractual       Weighted-Average
        Price      Outstanding      Life (Years)      Exercise Price
     -----------  ------------     -------------      --------------
     $0.30-1.00      5,613,167          3.25            $ 0.63
      1.28-2.00      1,635,000          5.46              1.87
      2.13-3.00        693,600          2.20              2.54
           6.50      2,850,000          1.09              6.50
                    ----------
                    10,791,767
                    ==========

NOTE L - COMMITMENTS AND CONTINGENCIES

       1.   Employment agreements

       The Company has  entered  into  agreements  with five key  employees  and
       officers  which  provide  for  annual  salaries  and  incentive  bonuses.
       Incentive  bonuses are calculated as a percentage of gross profits and/or
       sales of the Company.

       Annual salaries under these employment agreements, in the aggregate,  are
       as follows:


       Year ending  September  30,
              2001                 $    292,346
              2002                      195,000
              2003                      125,000
          Thereafter                          -
                                   ------------
                                   $    612,346
                                   ============

       Certain of the employment  agreements  provide for automobile  allowances
       and other forms of compensation not included in the above amounts.

       2.   Litigation

       From time to time the Company is engaged in various  lawsuits or disputes
       as plaintiff or defendant  arising in the normal  course of business.  In
       the opinion of  management,  based upon advice of counsel,  the  ultimate
       outcome of these matters will not have a material impact on the Company's
       financial position or results of operations.

                                      F-23

<PAGE>


                                          Pen Interconnect, Inc.

                                      NOTES TO FINANCIAL STATEMENTS

                                       September 30, 1999 and 1998




NOTE M - LOSS PER SHARE

       The  following  data shows the  amounts  used in  computing  net loss per
       common  share,  including  the  effect  on net loss for  preferred  stock
       dividends and a beneficial  conversion  feature associated with preferred
       stock.  The  following  data also shows the  weighted  average  number of
       shares and dilutive potential common stock. For 1999, net loss applicable
       to common  stock  includes a noncash  imputed  dividend to the  preferred
       stockholders related to the beneficial conversion feature on the Series A
       and Series B  preferred  stock (see Note P).  The  beneficial  conversion
       feature is computed  as the  difference  between the market  value of the
       common stock into which the Series A and Series B preferred  stock can be
       converted  and the value  assigned to the Series A and Series B preferred
       stock in the  private  placement.  The  imputed  dividend  is a one-time,
       noncash charge against the net loss per common share.


<TABLE>
<CAPTION>
                                                                            1999                1998
                                                                      --------------      -------------

<S>                                                                   <C>                 <C>
       Net loss                                                       $  (12,014,791)     $  (5,445,383)

       Dividends on preferred stock                                         (265,384)                 -

       Imputed dividends from beneficial conversion feature                 (722,832)                 -
                                                                      --------------      -------------
       Loss applicable to common stock                                $  (13,003,007)     $  (5,445,383)
                                                                      ==============      =============

       Common shares outstanding during the entire period                  5,018,437          4,072,863

       Weighted-average common shares issued during the period             2,114,907            324,627
                                                                      --------------      -------------

       Weighted-average number of common shares used in basic EPS          7,133,344          4,397,490

       Dilutive effect of stock options, warrants, and convertible
       preferred stock                                                             -                  -
                                                                      --------------      -------------

       Weighted-average number of common shares and dilutive
       potential common stock used in diluted EPS                     $    7,133,344      $   4,397,490
                                                                      ==============      =============
</TABLE>

       For the years ended  September 30, 1999 and 1998,  all of the options and
       warrants that were outstanding, as described in Note K, were not included
       in the  computation  of  diluted  EPS  because  to do so would  have been
       anti-dilutive.

                                      F24

<PAGE>


                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 1999 and 1998




NOTE N - SUBORDINATED DEBENTURES

       On October 22, 1997,  the Board of Directors of the Company  approved the
       issuance of up to $1,500,000 of 3 percent  convertible  Debentures with a
       maximum term of 24 months.  On June 16,  1998,  the Board of Directors of
       the Company approved the issuance of up to $1,000,000 of additional three
       percent  convertible  debentures  with a maximum  term of 24 months.  The
       convertible   debentures  (the  "Debentures")   mature,   unless  earlier
       converted by the holders, into shares of common stock of the Company. The
       Company filed a registration  statement with the United States Securities
       and Exchange  Commission  with respect to the common stock of the Company
       into which the Debentures may be converted.

       The Debentures were convertible by the holders thereof into the number of
       shares of common stock equal to the face amount of the  Debentures  being
       converted divided by the lesser of (i) eighty percent (80 percent) of the
       closing bid price of the Company's common stock as reported on the NASDAQ
       Small Cap market on the day of conversion,  or (ii) $2.75. The Debentures
       could be converted in three equal  installments  beginning on the earlier
       of (i) the 75th day of their issuance,  and continuing  through the 135th
       day of their  issuance,  or (ii) the day following the effective  date of
       the Registration Statement,  through the 60th day following the effective
       date  of  the  Registration  Statement.   The  Company  could  cause  the
       Debentures  to be  converted  into shares of common stock after the 110th
       day following the effective date of the  Registration  Statement,  if the
       common stock traded at or above $5.50 per share for 20 consecutive days.

       As of September 30, 1998,  the Company had issued all $2,500,000 of these
       convertible  Debentures  and  $1,000,000  had been  converted  to 689,332
       shares  of  common  stock.  As  of  September  30,  1999,  the  remaining
       $1,500,000 of  convertible  Debentures  had been converted into 2,092,671
       shares of common stock.

       Because  of the  favorable  conversion  feature  of the  Debentures,  the
       Company  has  recognized  interest  expense  relating  to the price below
       market at which the  Debentures  can be converted  into common  shares of
       stock.  The interest is initially set up as a deferred charge against the
       subordinated  debenture  balance  with an  offset to  additional  paid-in
       capital.  The deferred interest is amortized over a period  corresponding
       to time  restrictions  as to when the  Debentures  can be converted  into
       stock. The resulting  charge to interest expense  increases the effective
       interest rate of the Debentures.  Deferred  interest  expense of $250,032
       was  recorded  on the  $1,000,000  in  Debenture  issue  relative  to the
       favorable  conversion  feature  and was  amortized  over four  months and
       charged to interest expense. Amortization of the $250,032 deferred charge
       totaled  $98,571 in fiscal 1999 ($151,461 in fiscal 1998).  This interest
       along with the stated 3 percent  interest rate in the Debentures  results
       in an inherent interest rate of 31 percent.

       In connection with the $1,500,000  Debenture  issue, the Company recorded
       $389,591  of  deferred   interest   expense  related  to  the  beneficial
       conversion feature.  The entire deferred charge was amortized and charged
       to interest expense as of September 30, 1998. This interest when added to
       the  stated  3  percent  interest  rate of the  Debenture  results  in an
       inherent interest rate of 28 percent.


                                      F-25

<PAGE>


                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 1999 and 1998




NOTE O - ASSET IMPAIRMENT CHARGES

       On an ongoing  basis,  management  reviews the  valuation  of  long-lived
       assets,  including intangible assets, to determine possible impairment by
       comparing the carrying value to the  undiscounted  estimated  future cash
       flows of the  related  assets  and  necessary  adjustments,  if any,  are
       recorded.  Based upon operating losses from certain divisions,  continued
       cash flow  problems and  managements  decision to  negotiate  the sale of
       other divisions, the Company reduced the carrying costs of certain of its
       long-lived  assets by  $2,598,894  in 1999  ($570,765  in 1998) to better
       reflect  management's  current  expectations for the realization of these
       assets.  The  adjustments  relate  to  assets  of the  Company's  various
       divisions.

       The following is a summary of the assets charged-off to impairment:

                                     1999              1998
                              --------------      ------------
          Goodwill            $    1,873,935      $    267,414
          Investments                724,959           303,351
                              --------------      ------------

                              $    2,598,894      $    570,765
                              ==============      ============

NOTE P - CONVERTIBLE PREFERRED STOCK

       During 1999, the Company issued two series of preferred stock.  Series A,
       consisting  of 1,800  shares  with a par  value of $0.01 per  share,  was
       issued in February 1999 for $1,000 per share and has a liquidation  value
       of $1,000 per share.  Series B, consisting of 1,000 shares, was issued in
       March 1999 at the same price and par value as the Series A issue and also
       has  a  liquidation   value  of  $1,000  per  share.   The  Company  paid
       approximately  $250,000  in fees and  expenses  to issue  both  series of
       preferred  stock.  Both  series of  preferred  stock  carry a 16  percent
       dividend rate,  which is to be paid quarterly.  If and when the Company's
       stock is  listed  again on  NASDAQ,  the  dividend  rate  will  drop to 8
       percent.

       Both  issuances of  preferred  stock are  convertible  into shares of the
       Company's  Common  Stock.  Each  share  of  Series A  preferred  stock is
       convertible  into an amount of shares of the Company's common stock equal
       to $1,000  divided by the average of the two lowest closing bid prices of
       the Company's  common stock during the period of 22  consecutive  trading
       days  ending  with the last  trading  day before the date of  conversion,
       after  discounting  that  market  price by 15 percent for Series A and 20
       percent for Series B (the  "Conversion  Price").  The maximum  Conversion
       Price for the Series A preferred stock was $1.17 per share. The shares of
       Series B preferred  stock are  convertible  into common stock at the same
       Conversion  Price as the Series A preferred stock except that the maximum
       Conversion  Price was $0.79 per share.  In  September  1999,  the maximum
       Conversion Price was reduced to $0.53 per share.


                                      F-26

<PAGE>


                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 1999 and 1998




NOTE Q - SEGMENT INFORMATION

       During  1999,  the  Company  adopted  SFAS  No.  131,  which  establishes
       standards for reporting  information about operating segments.  Operating
       segment are components of an enterprise  about which  separate  financial
       information  is available  that is  evaluated  on a regular  basis by the
       chief operating  decision maker in deciding how to allocate  resources to
       an individual segment and in assessing the performance of a segment.  The
       Company considers its separate divisions to be operating segments because
       of the different products produced by each.

       The Company  generally  evaluates  operating  segments based on sales and
       gross profit.  Information about the Company's  operating segments are as
       follows:

                                              1999                 1998
                                         ---------------     ---------------
               Revenues:
               InCirT Division           $    15,516,431     $    11,843,402
               Cable Division                  1,052,538           3,662,717
               Other Divisions                 1,082,869           1,585,313
                                         ---------------     ---------------
                                         $    17,651,838     $    17,091,432
                                         ===============     ===============

               Gross Profit:
               InCirT Division           $       936,420     $     1,092,924
               Cable Division                      7,888            (113,564)
               Other Divisions                    39,240             219,616
                                         ---------------     ---------------
                                         $       983,548     $     1,198,976
                                         ===============     ===============

               Indentifiable Assets:
               InCirT Division           $     8,137,540     $    7,371,248
               Cable Division                          -          4,536,643
               Other Divisions                   386,091          1,457,098
                                         ---------------     ---------------
                                         $    8,523,631      $   13,364,989
                                         ==============      ==============


       Included  in  the  "Other  Divisions"  are  the  Company's  MOTO-SAT  and
       PowerStream divisions.

       The following table reconciles the identifiable  assets  aggregated above
       to the total assets reported in these financial statements:

                                              1999                 1998
                                         ---------------     ---------------
       Above aggregated identifiable
           assets                        $   8,523,631       $   13,364,989
       Unallocated corporate assets:
          Cash                                 176,299                    -
          Notes receivable                     725,112                    -
          Deferred income taxes                      -              725,667
          Other                                104,353                    -
                                         -------------       ---------------
                                         $   9,529,395       $   14,090,656
                                         =============       ==============



                                      F-27

<PAGE>


                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 1999 and 1998




NOTE R - SUBSEQUENT EVENTS

       In December 1999, the Company signed a letter of intent with a company to
       negotiate the sale of the Company's InCirT Division. The letter of intent
       serves  as a basis  for  the  parties  to  negotiate  formal,  definitive
       agreements,  memorializing all the terms of the merger.  Also in December
       1999,  the Company  signed a letter of intent with a company to negotiate
       the sale of the Company's PowerStream Division.


NOTE S - SUMMARIZED QUARTERLY INFORMATION (UNAUDITED)

       Following  is a summary of quarterly  results of operation  for the years
       ended September 30, 1999 and 1998:

<TABLE>
<CAPTION>
                                                       Three Months Ended
          Fiscal 1999               December 31        March 31        June 30      September 30
          --------------------     ------------     -------------  -------------   -------------
<S>                                <C>              <C>            <C>             <C>
          Net sales                $  4,757,839     $   2,828,078  $   5,098,525   $   4,967,396
          Gross profit (loss)           166,621           403,634        892,615        (479,322)
          Net loss                   (1,245,235)       (2,398,526)      (716,235)     (7,654,795)
          Loss per share -
               basic and diluted          (0.22)            (0.46)         (0.19)          (0.95)

          Fiscal 1998
          Net sales                   3,904,717         3,698,727      4,510,112       4,977,876
          Gross profit (loss)           894,344           856,579        975,660      (1,482,607)
          Net earnings (loss)           (55,966)         (192,170)           358      (5,197,605)
          Loss per share -
               basic and diluted          (0.01)            (0.05)             -           (1.18)
</TABLE>


       The fiscal  1999  figures  include  certain  significant  fourth  quarter
       adjustments including asset impairment charges of $1,873,935, an increase
       to the allowance for doubtful accounts of $1,434,693,  expense related to
       the issuance of certain  stock  options of $769,125,  additional  loss on
       sale of divisions of $558,747,  an increase to the allowance for obsolete
       inventory of  $496,371,  a  write-down  of  inventory  based on resetting
       standard  costs of  $251,981,  and  income  tax  expense  relating  to an
       increase in the deferred tax asset valuation allowance of $217,740.

       The fiscal  1998  figures  include  certain  significant  fourth  quarter
       adjustments  including  a write-down  of  inventory  based  on  resetting
       standard costs of $930,145, income tax expense relating to an increase in
       the deferred tax asset valuation allowance of $766,991,  asset impairment
       charges of $570,765,  an increase to the allowance for obsolete inventory
       of $278,901,  interest expense and amortization  related to the favorable
       conversion  feature  of  convertible   debentures  of  $250,000  and  the
       write-off of obsolete inventory of $219,209.


                                      F-28

<PAGE>


Rev 4    AMENDMENT IN TOTAL AND COMPLETE
RESTATEMENT OF THE DEFERRED COMPENSATION
SALARY CONTINUATION PLAN AND
EMPLOYMENT AGREEMENT

This Amendment in Total and Complete  Restatement  of The Deferred  Compensation
Salary Continuation Plan and Employment  Agreement is entered into effective the
23rd day of July, 1999 by and between Pen Interconnect, Inc., a Utah Corporation
(hereinafter  referred  to  as  the  "Company"),   and  by  James  S.  Pendleton
(hereinafter referred to as "Pendleton").

WHEREAS,  effective  the 31st day of  December,  1995 the Company and  Pendleton
entered into a Deferred  Compensation Salary Continuation Plan which was Amended
on  the  1st  day of  July,  1998  (hereinafter  referred  to as  the  "Deferred
Compensation Plan");

WHEREAS,  effective the 1st day of April, 1996 the Company and Pendleton entered
into am Employment Agreement,  which Employment Agreement was Amended on the 1st
day of July, 1998 (hereinafter referred to as the "Employment Agreement");

WHEREAS, the Company is in the process of corporate restructuring and desires to
modify the Company's  obligations  under the Deferred  Compensation Plan and the
Employment Agreement;

WHEREAS,   the  Company   and   Pendleton   are   changing   their   rights  and
responsibilities  pursuant  to the  Deferred  Compensation  Plan the  Employment
Agreement which changes benefit both the Company and Pendleton;

NOW, THEREFORE, for and in consideration of the mutual covenants, conditions and
promises  contained  herein the Company and  Pendleton  agree that the  Deferred
Compensation  Plan and the  Employment  Agreement  as  presently  in  force  are
terminated and the following terms and conditions are in substitution therefor:

1. CONSULTING  CONTRACT.  Company and Pendleton hereby enter into an Independent
Consulting  Contract wherein  Pendleton shall provide to the Company  consulting
services  from June 1, 1999 through  December 30,  1999.  The company  shall pay
Pendleton for his services under this  Consulting  Agreement the total amount of
$450,830.00 payable as follows:

DATE OF PAYMENT                             AMOUNT OF PAYMENT
June 15, 1999                                        $  6,571.00
June 30, 1999                                        $  6,571.00
July 15, 1999                                        $  6,571.00
July 31, 1999                                        $  6,571.00
August 15, 1999                                      $  6,571.00

DATE OF PAYMENT                             AMOUNT OF PAYMENT
August 31, 1999                                      $  6,571.00
September 15, 1999                                   $  6,571.00
September 30, 1999                                   $  6,571.00
October 15, 1999                                     $  6,571.00
October 30, 1999                                     $  6,571.00
November 15, 1999                                    $  6,571.00
November 30, 1999                                    $  6,571.00
December 15, 1999                                    $  6,571.00
December 30, 1999                                    $  6,571.00

If the  Company  fails to timely make any of the above  payments,  a 10% penalty
shall be added to the amount due.

<PAGE>

December 01, 1999          315,408 shares of Registered
                                    Common Stock for payment of
                                    contract payment for January
                                    2000 through December 2000

2. CABLES TO GO ASSIGNMENTS. In addition to the amounts set forth in paragraph 1
above and as additional  compensation for the consulting  services,  the Company
shall pay to  Pendleton  the first  $367,976.00  of the proceeds  received  from
Cables  To Go under the  contract  between  the  Company  and  Cables to Go (the
"Cables  Contract").  The Company will also pay to Pendleton fifty percent (50%)
of all amounts  received  under the Cables  Contract  after receipt of the first
$367,976.00.  The Company will use all reasonable  efforts and expend reasonable
amounts to collect all amounts  due under the Cables  Contract.  The Company and
Pendleton  acknowledge that the amounts receivable under the Cables Contract are
variable  and there is no  guarantee  that the  Company  will be entitled to any
amounts from which to pay Pendleton. The Company will provide for a modification
of the Cables  Contract so that the first  $367,976.00 of the amounts to be paid
under the Cables  Contract and fifty percent of the amounts to be paid under the
Cables Contract in excess of $367,976.00 will be paid directly to Pendleton. The
annual  contract  amount due from January 1, 2000  through  December 31, 2000 is
$157,704.00.  The Company  agrees to issue to  Pendleton  315,408  shares of the
Company's  common  stock  fully  registered  with the right to sell at any time,
without restriction, in lieu of the contract payment for year 2000 in the amount
of $157,704,  which will be considered to be part of the  $450,830.00  total due
Pendleton.  The stock shall be  registered  in the SB 2 submitted  to the SEC in
June of 1999 and revised in October 1999. The Company shall issue the registered
common  stock  before  December  1 1999.  The  Company  agrees to pay the sum of
$13,142.00  per month for each  additional  month  that the  company  delays the
issuance of the  registered  common  stock after  December 1, 1999.  The Company
guarantees that the amount received from the sale of the stock shall not be less
than  $158,704.  If the amount  received  for the sale of the stock is less than
this amount the Company will pay in cash to Pendleton the short fall amount.  In
the  event  that the  amount  received  for the sale of the  stock is more  than
$270,000  Pendleton will pay the Company 50% of the proceeds  received in excess
of the $270,000.

In addition to the above,  the Company will assign to Pendleton fifty percent of
the  proceeds  received  from the sale of the  consigned  inventory  now held by
Cables to Go.  Part of the duties  under the  Consulting  Contract  set forth in
paragraph  1  above,  shall be the  responsibility  for the  disposition  of the
consigned inventory.

3. FINOVA  OBLIGATIONS.  The Company  agrees to pay in full its Term Loan B with
FINOVA on or before December 31, 1999. In addition,  the Company shall indemnify
and hold  Pendleton  harmless from any and all FINOVA  obligations.  The Company
shall obtain a complete  release of Pendleton from any  obligations to FINOVA on
or before  December 31, 1999. In the event the Company is not able to payoff the
Term Loan B and/or  obtain a release  from  FINOVA by  December  31,  1999,  the
Company  and Mr.  Pendleton  shall  agree to extend the date on a month by month
bases, not to exceed 90 days.

4. KEY MAN  INSURANCE.  The Company  agrees to continue in full force and effect
and pay all  premiums  on the one  million  dollar  life  insurance  policy with
Pendleton as insured through  December 31, 1999 or until the Term Loan B is paid
in full and /or the release of obligations is received from FINOVA. On or before
December 31, 1999 the Company shall  transfer to Pendleton the ownership of such
policy and all  values  contained  therein.  The  transfer  shall not effect the
Company's obligation to make all premium payments on the policy through December
31,  1999 or  until  the  Term  Loan B is paid  in  full or the  release  of the
obligation to FINOVA is received.

5.  ISSUANCE OF NEW  WARRANTS.  The  Company  shall  issue to  Pendleton  or his
designee  warrants to purchase 250,000 shares of the Company's common stock at a
price of sixty five cents


<PAGE>

$.65) per share.  The warrants shall be exercisable by Pendleton or his designee
at any time beginning upon issuance and continuing for ten years thereafter. The
Company agrees to give Pendleton or his designee piggy back registration  rights
and agrees to register the warrants and the underlying  stock,  within 12 months
from the date of this agreement.

6.  MODIFICATION  OF  EXISTING  OPTIONS.  The Company  shall  modify the options
presently held by Pendleton to purchase  200,000 shares of the Company's  common
stock so that the  exercise  price is sixty five cents  ($.65) per share with an
exercise  period  commencing  upon  the  effective  date of this  Agreement  and
continuing  until ten  years  from the  effective  date of this  Agreement.  The
Company  agrees to register  66,666 of these options and the  underlying  common
stock with the Company's SB 2 registration  to be filed in June,  1999 and shall
register the remaining options on or before December 9, 1999.

7.  OBLIGATION TO ASSIST IN SALE OF STOCK AND PIGGY BACK RIGHTS.  Once the price
of the common stock of the Company  reaches a price of $1.50 to $2.00 per share,
the Company agrees to assist Pendleton in selling all or part off 200,000 shares
of the Company's common stock now owned by Pendleton as determined by Pendleton,
in either a public or private sale.  The Company  agrees to assist  Pendleton in
selling 100,000 shares of the Company's  common stock for $1.00 or more and will
replace the stock with Rule 144 stock in the amount of 50,000  shares with piggy
back registration rights with the next registration of Pen Interconnect stock at
no cost to Pendleton.  The Company will assist in Pendleton  selling all or such
part of the 100,000 shares of the Company's common stock now owned by Pendleton,
as  determined  by  Pendleton,  in either a public or private sale. In addition,
whenever  the  Company  registers  stock  of the  Company  for  sale in a public
offering,  the Company  shall grant to  Pendleton  the right to act as a selling
shareholder in the public offering, if the underwriter will permit.. The Company
shall bear the  expenses of the public  offering  excepting  usual and  ordinary
Underwriter's  commissions.  Pendleton  shall  be able  to  sell  in the  public
offering  all or any  portion of the  100,000  shares  referenced  above in this
paragraph which have not been previously sold, and an additional  200,000 shares
purchased  or to be  purchased  by  Pendleton  pursuant  to any of the  warrants
granted to Pendleton or options modified  pursuant to this Agreement or the sale
of common stock issued in the amount of 315,408 in lieu of the contract payment.
Pendleton  shall have the right to designate  which shares,  options or warrants
will be subject to the piggy back rights.

8. EXPENSE ACCOUNT REIMBURSEMENT.  The Company agrees to reimburse Pendleton for
Company  expenses paid or incurred by Pendleton in the amount of $25,832.80 plus
interest which shall be paid on or before  December 15, 1999.  Company agrees to
make  monthly  interest  and  principal  payment of $466.00  per month  Starting
October 15,1999 until paid in full.

9. MOTOSAT  DIVISION.  As additional  consideration  for the modification of the
Deferred Compensation  Agreement,  the Company and Pendleton agree to enter into
and carry into effect the Asset Purchase Agreement between the Company and Mobil
Technology,  Inc., a copy of which is attached  hereto as Exhibit "A" and made a
part hereof providing for the sale of the Motosat Division.

10.  VESTING.  Pendleton's  right to receive the  Benefits  hereunder  are fully
vested.

11. MERGER OR CONSOLIDATION. The Company shall not merge or consolidate with any
other  corporation or entity or reorganize  unless and until such succeeding and
continuing  entity agrees to assume and discharge the obligations of the Company
under this Agreement. In the event the Company shall reorganize,  consolidate or
merge with any other  company this  Agreement  shall become an obligation of the
new company or of any company taking over the duties and responsibilities of the
Company. In such event, the Company may assign the obligations  hereunder to the
successor or


<PAGE>

urviving  company.  Upon such  assumption,  the term  "Company"  as used in this
Agreement shall be deemed to refer to such successor entity.

12.  RECAPITALIZATION  AND/OR  REORGANIZATION.  In the event  that the shares of
common stock of the Company, as presently constituted,  shall be changed into or
exchanged for a different  number or kind of shares of stock or other securities
of  the   Company  or  of  another   company   (whether  by  reason  of  merger,
consolidation,  recapitalization,  reclassification,  split up,  combination  of
shares or  otherwise),  or if the number of such shares of common stock shall be
increased through the payment of a stock dividend,  and an equitable  adjustment
in the  number of shares is  appropriate  to give  effect to the  intent of this
Agreement, then such adjustment shall be made.

13. AMENDMENT.  This Agreement may be amended or revoked, in whole or part, only
upon the written agreement of all of the parties.

14. BINDING  EFFECT.  This Agreement  shall be binding upon the parties  hereto,
their heirs, assigns, successors, executors, administrators and they shall agree
to execute any and all instruments necessary for the fulfillment of the terms of
this Agreement.

15.  ATTORNEY'S FEES. If any legal action or other proceeding is brought for the
enforcement  of this  Agreement,  or  because  of an  alleged  dispute,  breach,
default, or  misrepresentation  in connection with any of the provisions of this
Agreement,  the  successful or prevailing  party or parties shall be entitled to
recover  reasonable  attorney's  fees and other fees and costs  incurred in that
action or  proceedings,  in addition to any other relief to which it or they may
be entitled.

16.  APPLICABLE  LAW. This Agreement  shall be construed in accordance  with and
governed by the laws of the State of Utah.

IN WITNESS  WHEREOF,  the  parties  hereto have set their hands the day and year
first above written. COMPANY:

Pen Interconnect, Inc.

By:
    Its President


Pendleton:



<PAGE>


Rev-12a             AMENDMENT IN TOTAL AND COMPLETE
                    RESTATEMENT OF THE DEFERRED COMPENSATION
                          SALARY CONTINUATION PLAN AND
                              EMPLOYMENT AGREEMENT

         This Amendment in Total and Complete Restatement of The Deferred
Compensation Salary Continuation Plan and Employment Agreement is
entered into effective the 1st day of October, 1999 by and between
Pen Interconnect, Inc., a Utah Corporation (hereinafter referred to
as the "Company"), and by Wayne R. Wright (hereinafter referred to as
"Wright").
         WHEREAS, effective the 31st day of December, 1995 the Company
and Wright entered into a Deferred Compensation Salary Continuation
Plan which was Amended on the 1st day of July, 1998 (hereinafter
referred to as the "Deferred Compensation Plan");
         WHEREAS, effective the 1st day of April, 1996 the Company and
Wright entered into am Employment Agreement, which Employment
Agreement was Amended on the 1st day of July, 1998 (hereinafter
referred to as the "Employment Agreement");
         WHEREAS, the Company is in the process of corporate
restructuring and desires to modify the Company's obligations under
the Deferred Compensation Plan and the Employment Agreement;
         WHEREAS, the Company and Wright are changing their rights
and responsibilities pursuant to the Deferred Compensation Plan the
Employment Agreement which changes benefit both the Company and

<PAGE>

Wright;
         WHEREAS, Wright has formed a consulting business, Rent A
Professional, which provides consulting services of a professional
nature.
         NOW, THEREFORE, for and in consideration of the mutual
covenants, conditions and promises contained herein the Company and
Wright agree that the Deferred Compensation Plan and the Employment
Agreement as presently in force are terminated and the following
terms and conditions are in substitution therefor:
         1.       CONSULTING CONTRACT.  Company and Rent a Professional
hereby enter into an Independent Consulting Contract wherein Rent a
Professional shall provide to the Company consulting services from
October 1, 1999 through January 31, 2000 .  Rent A Professional shall
provide the services of Wright.  Rent A Professional shall provide to
the Company the services of Wright and provide 10 hours per month for
the months of October 1, 1999 through January 1, 2000.  The company
shall pay Rent a Professional for its services under this Consulting
Agreement the total amount of $216,380.00 payable as follows:









<PAGE>

                                                          LUMP SUM PAYMENT
DATE OF PAYMENT                        AMOUNT OF PAYMENT  AFTER MONTHLY PAYMENT
October 1, 1999 (monthly)              $   6,980.00         $  209,400
November 1, 1999 (monthly)             $   6,980.00         $  202.420
December 1, 1999 (monthly)             $   6,980.00         $  195,440
January 1, 1999 (monthly)              $   6,980.00         $  188,460
December 1, 1999                       376,920 shares of Registered Common Stock
                                        in Lieu of Lump sum payment.

   The Company agrees to  issue to Wright or his designee 376,920
shares of the company's common stock fully registered with the right
to sell at any time, without restriction, in lieu of the lump sum
payment of $188,460. The stock shall be registered in the SB 2
submitted to the SEC in June of 1999 and revised in October of 1999.
The Company shall issue the registered common stock before December
1, 1999. The Company agrees to pay $6980.00 per month for each
additional month that the company delays the issuance of the
registered common stock after December 31, 1999. The Company
guarantees that the amount received from the sale of the stock shall
not be less than $188,460. If the amount received for the sale of the
stock is less than this amount the Company will pay in cash to Wright
or his designee the short fall amount. In the event that the amount



<PAGE>

received for the sale of the stock is more than the $290,000 Wright
or his designee will pay to the Company 50% of the proceeds received
in excess of the $290,000.

         2.       FINOVA OBLIGATIONS.  The Company agrees to pay in full its
Term Loan B with FINOVA on or before December 31, 1999.  In addition,
the Company shall indemnify and hold Wright harmless from any and all
FINOVA obligations.  The Company shall obtain a complete release of
Wright from any obligations to FINOVA on or before December 31, 1999.
The rights and obligations pursuant to paragraph 1 of this Agreement,
especially the failure to reduce the lump sum amount owing under the
Consulting Contract, shall not effect the Company's obligation to
indemnify and hold Wright harmless from nor to pay the Term Loan B
FINOVA obligation which obligations shall not be eliminated even if
there is no reductions under the Consulting Contract. In the event
the Company is not able to payoff the Term Loan B and/or obtain a
release from FINOVA by December 31, 1999, the Company and Mr. Wright
shall may agree to extend the date on a month by month bases, not to
exceed 90 days.

         3.       KEY MAN INSURANCE.  The Company agrees to continue in full
force and effect and pay all premiums on the one million dollar life




<PAGE>

insurance policy with Wright as insured through December 31, 1999 or
until the Term Loan B with FINOVA is paid and releases given by
FINOVA.  On or before December 31, 1999 the Company shall transfer to
Wright or his designee the ownership of such policy and all values
contained therein.  The transfer shall not effect the Company's
obligation to make all premium payments on the policy through
December 31, 1999 or until the Term Loan B is paid in full and
releases given by FINOVA.

         4.       ISSUANCE OF NEW WARRANTS.  The Company shall issue to
Wright or his designee warrants to purchase 350,000 shares of the
Company's common stock at a price of sixty five cents ($.65) per
share.  The warrants shall be exercisable by Wright or his designee
at any time beginning upon issuance and continuing for ten years.
The Company agrees to give Wright or his designee piggy back
registration rights and further agrees to register the warrants and
the underlying stock within 12 months of this agreement.

         5.       MODIFICATION OF EXISTING OPTIONS.  The Company shall modify
the options presently held by Wright to purchase 267,000 shares of
the Company's common stock so that the exercise price is sixty five
($.65) per share with an exercise period commencing upon the



<PAGE>

effective date of this Agreement and continuing until ten years from
the effective date of this Agreement.  The Company agrees to register
89,000 of these options and the underlying common stock with the
Company's
SB 2 registration to be filed in June, 1999 and shall register the
remaining options on or before December 9, 1999.


         6.       OBLIGATION TO ASSIST IN SALE OF STOCK AND PIGGY BACK
RIGHTS.  Once the price of the common stock of the Company reaches a
price of $1.00 or above per share, the Company agrees to assist
Wright in selling all or such part of the 194,709 shares of the
Company's common stock now owned by Wright, as determined by Wright,
in either a public or private sale and in addition to the above
common stock the company agrees to assist and help place the 376,920
shares of common stock issued to Wright or his designee as payment in
lieu of the lump sum payment . The Company agrees to assist Wright in
selling or placing  with a broker, market maker or other interested
parties . In addition, whenever the Company registers stock of the
Company for sale in a public offering, the Company shall grant to
Wright the right to act as a selling shareholder in the public
offering subject to underwriter approval.  The Company shall bear the




<PAGE>

expenses of the public offering excepting usual and ordinary
Underwriter's commissions.  Wright shall be able to sell in the
public offering all or any portion of the 194,709 shares and 376,920
shares referenced above in this paragraph which have not been
previously sold, and an additional 200,000 shares purchased or to be
purchased by Wright pursuant to any of the warrants granted to Wright
or options modified pursuant to this Agreement.  Wright shall have
the right to designate which shares, options or warrants will be
subject to the piggy back rights.

         7.       CABLES TO GO ASSIGNMENTS.  The Company shall pay to Wright,
fifty percent of the proceeds received from Cables To Go under the
contract between the Company and Cables to Go (the "Cables
Contract"), after receipt of the first $367,976.00, if any, under the
Cables Contract.  The Company will use all reasonable efforts and
expend reasonable amounts to collect all amounts due under the Cables
Contract.  The Company and Wright acknowledge that the amounts
receivable under the Cables Contract are variable and there is no
guarantee that the Company will be entitled to any amounts from which
to pay Wright. The Company will provide for a modification of the
Cables Contract so that fifty percent of the amounts to be paid under
the Cables Contract in excess of $367,976.00 will be paid directly to
Wright.  In addition to the above, the Company will assign to Wright



<PAGE>

fifty percent of the proceeds received from the sale of the consigned
inventory now held by Cables to Go.  Part of the duties under the
Consulting Contract set forth in paragraph 1 above, shall be the
responsibility for the disposition of the consigned inventory.
         8.       VESTING.  Wright's right to receive the Benefits hereunder
are fully vested.
         9.       MERGER OR CONSOLIDATION.  The Company shall not merge or
consolidate with any other corporation or entity or reorganize unless
and until such succeeding and continuing entity agrees to assume and
discharge the obligations of the Company under this Agreement and
agrees to issue Wright share on the same basis all other stock
holders.  In the event the Company shall reorganize, consolidate or
merge with any other company this Agreement shall become an
obligation of the new company or of any company taking over the
duties and responsibilities of the Company.  In such event, the
Company may assign the obligations hereunder to the successor or
surviving company.  Upon such assumption, the term "Company" as used
in this Agreement shall be deemed to refer to such successor entity.
         10.      RECAPITALIZATION AND/OR REORGANIZATION.  In the event that
the shares of common stock of the Company, as presently constituted,
shall be changed into or exchanged for a different number or kind of
shares of stock or other securities of the Company or of another




<PAGE>

company (whether by reason of merger, consolidation,
recapitalization, reclassification, split up, combination of shares
or otherwise), or if the number of such shares of common stock shall
be increased through the payment of a stock dividend, and an
equitable adjustment in the number of shares is appropriate to give
effect to the intent of this Agreement, then such adjustment shall be
made.
         11.      AMENDMENT.  This Agreement may be amended or revoked, in
whole or part, only upon the written agreement of all of the parties.
         12.      BINDING EFFECT.  This Agreement shall be binding upon the
parties hereto, their heirs, assigns, successors, executors,
administrators and they shall agree to execute any and all
instruments necessary for the fulfillment of the terms of this
Agreement.
         13.      ATTORNEY'S FEES.  If any legal action or other proceeding
is brought for the enforcement of this Agreement, or because of an
alleged dispute, breach, default, or misrepresentation in connection
with any of the provisions of this Agreement, the successful or
prevailing party or parties shall be entitled to recover reasonable
attorney's fees and other fees and costs incurred in that action or
proceedings, in addition to any other relief to which it or they may
be entitled.



<PAGE>

        14.      APPLICABLE LAW.  This Agreement shall be construed in
accordance with and governed by the laws of the State of Utah.



<PAGE>

         IN WITNESS WHEREOF, the parties hereto have set their hands the
day and year first above written.
                                       COMPANY:

                                       Pen Interconnect, Inc.


                                       By:
                                           Its President


                                       WRIGHT:



                                       Wayne R. Wright



                                       RENT A PROFESSIONAL


                                       By:
                                       Its



<PAGE>

                                                                    Exhibit 23.1




                                     CONSENT


We have issued our report dated  December 23, 1999,  accompanying  the financial
statements of Pen Interconnect, Inc. appearing in the 1999 Annual Report on Form
10-KSB  for the  year  ended  September  30,  1999.  We  hereby  consent  to the
incorporation  by reference  of the  aforementioned  report in the  Registration
Statements  of Pen  Interconnect,  Inc.  on  Forms  S-3  (File  No.  33-96444-D,
effective  August 4, 1997; File No.  333-29927,  effective August 29, 1997; File
No.  333-297,  effective  February 5, 1998;  and File No.  333-06451,  effective
August  31,  1998 and  amended  October  2,  1998)  and on Forms  S-8  (File No.
333-2618,  effective March 22, 1996, and file No. 333-87297  effective September
17, 1999).





                                                              GRANT THORNTON LLP

Salt Lake City, Utah
December 23, 1999