UNITED STATES
                        SECURITIES AND EXCHANGE COMMISION
                             WASHINGTON, D.C. 20549
                                   FORM 10-QSB

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

     For the quarterly period ended December 31, 1996

[ ]  TRANSITION  REPORT  UNDER  SECTION  13 OR 15(d)  OF THE  SECURITIES
     EXCHANGE ACT

     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                (I.R.S. Employer Identification
 incorporation or organization)                       Number)

                 2351 South 2300 West, Salt Lake City, UT 84119
               (Address of Principal Executive Offices) (Zip Code)

                                 (801) 973-6090
                           (Issuer's telephone number)

                                      N/A

   (Former name, former address and former fiscal year, if changed since last
                                     report)

     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

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                   PROCEEDINGS DURING THE PRECEDING FIVE YEARS

     Check  whether the issuer filed all  documents  and reports  required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the  distribution of
securities under a plan confirmed by a court.    Yes    No

                      APPLICABLE ONLY TO CORPORATE ISSUERS



<PAGE>



     As of January  15,  1997,  the issuer  had  3,033,407  shares of its common
stock, par value $0.01 per share, issued and outstanding.

     Transitional Small Business Disclosure Format (check one):

                        Yes No X





<PAGE>




                                   FORM 10-QSB

                             PEN INTERCONNECT, INC.

                                Table of Contents

                                                                           Page

PART I - FINANCIAL INFORMATION

Item 1 Financial Statements

       Financial Information                                                  3

       Balance Sheets at
       December 31,  1996 and September 30, 1996                            4-5

       Statements of Earnings for the three months
       ended December 31, 1996 and 1995                                       6

       Statements of Cash Flows for the three months
       Ended December 31, 1996 and 1995                                     7-9

       Notes to Condensed Financial Statements                            10-14

Item 2 Management's Discussion and Analysis of Financial
       Condition and Results of Operations                                15-17

PART II - OTHER INFORMATION

Item 1   Legal Proceedings                                                   18

Item 2   Changes in the Securities                                           18

Item 3   Defaults Upon Senior Securities                                     18

Item 4   Submission of Matters to a Vote of Security Holders                 18

Item 5   Other Information                                                   18

Item 6(a). Exhibits                                                          18

Item 6(b). Reports on Form 8-K                                               18

Signatures                                                                   19


                                        2

<PAGE>



                             PEN INTERCONNECT, INC.

                                     PART I

                              FINANCIAL INFORMATION


ITEM 1. INTERIM CONDENSED FINANCIAL STATEMENTS

     Pen Interconnect, Inc. (the "Issuer"), has included the unaudited condensed
     balance  sheet of the Issuer as of December  31,  1996 and audited  balance
     sheet as of September  30, 1996 (the  Issuer's  most recent  fiscal  year),
     unaudited  condensed  statements  of earnings  for the three  months  ended
     December 31, 1996 and 1995,  and  unaudited  condensed  statements  of cash
     flows for the three months ended December 31, 1996 and 1995,  together with
     unaudited  condensed  notes  thereto.  In the opinion of  management of the
     Issuer, the financial statements reflect all adjustments,  all of which are
     normal recurring  adjustments,  considered  necessary to fairly present the
     financial condition, results of operations and cash flows of the Issuer for
     the interim periods presented.  The financial  statements  included in this
     report  on Form  10-QSB  should  be read in  conjunction  with the  audited
     financial  statements of the Issuer and the notes  thereto  included in the
     annual report of the Issuer on Form 10-KSB for the year ended September 30,
     1996.  The results of  operations  for the three months ended  December 31,
     1996 may not be indicative of the results that may be expected for the year
     ending September 30, 1997.

                                        3


<PAGE>



                             Pen Interconnect, Inc.

                                 BALANCE SHEETS

                                     ASSETS
<TABLE>
<CAPTION>
                                                                                   December 31     September 30,
                                                                                      1996              1996
                                                                                  (Unaudited)
CURRENT ASSETS
<S>                                                                             <C>                   <C>
    Cash and cash equivalents                                                   $     21,221          $    169,445
    Receivables (Note C)
        Trade accounts,  less  allowance  for doubtful  accounts of $251,167 and
            $273,852 at December 31, and September 30, 1996,
            respectively.                                                          2,783,245             4,259,298
        Current maturities of notes receivable                                       348,882                37,494
    Income tax refund receivable                                                     228,241               228,241
        Inventories (Notes B and C)                                                4,768,486              6,198,392
    Prepaid & other assets                                                           549,104               386,494
    Deferred tax asset                                                               525,800               525,800
                                                                               -------------         -------------

                    Total current assets                                           9,224,979             11,805,164


PROPERTY AND EQUIPMENT, AT COST
    (Note C)
        Production equipment                                                       2,469,195             3,010,575
        Furniture and fixtures                                                       623,392               717,821
        Transportation equipment                                                      49,373                49,373
        Leasehold improvements                                                       365,260               354,150
                                                                                 -----------        --------------

                                                                                   3,507,220              4,131,919
        Less accumulated depreciation                                              1,032,607             1,065,205
                                                                                 -----------          ------------

                                                                                   2,474,613              3,066,714
OTHER ASSETS
    Notes receivable, less current maturities                                        594,630                19,630
    Investments     400,000                                                               -
    Goodwill (net)                                                                                       1,562,692
    1,589,313
    Other                                                                            129,020               176,097
                                                                                ------------         -------------

                                                                                   2,686,342              1,785,040
                                                                                 -----------           ------------

                                                                                 $14,385,934            $16,656,918
                                                                                 ===========            ===========
</TABLE>


The accompanying notes are an integral part of these statements.

                                        4


<PAGE>


                             Pen Interconnect, Inc.

                           BALANCE SHEETS - CONTINUED

                      LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

                                                                                December 31,          September 30,
                                                                                      1996              1996
                                                                                 (Unaudited)
CURRENT LIABILITIES
<S>                                                                               <C>                   <C>
    Line of credit (Note C)                                                       $2,791,377            $4,969,864
    Current maturities of long-term obligations                                       17,765                19,265
    Current maturities of capital leases                                              53,435                59,878
    Accounts payable                                                               2,391,507             2,954,601
    Accrued liabilities                                                              416,843               611,739
    Income taxes payable                                                             272,823                    -
                                                                              --------------      ---------------

                    Total current liabilities                                      5,943,750              8,615,347

LONG-TERM OBLIGATIONS, less current
    maturities                                                                        94,758                96,758

CAPITAL LEASE OBLIGATIONS, less current
    maturities                                                                       123,564               150,382

DEFERRED INCOME TAXES                                                                225,800               225,800
                                                                                ------------           -----------

                    Total liabilities                                              6,387,872              9,088,287


STOCKHOLDERS' EQUITY (Notes A and D)
    Preferred stock, $0.01 par value, authorized
        5,000,000 shares, none issued                                                     -                     -
    Common stock, $0.01 par value, authorized
        50,000,000 shares, issued and outstanding
        3,033,407 shares at December 31 and
        September 30, 1996, respectively.                                             30,334                30,334
    Additional paid-in capital                                                     7,431,669             7,431,669
    Retained earnings                                                                536,059               106,628
                                                                                ------------           -----------

                    Total stockholders' equity                                     7,998,062              7,568,631
                                                                                 -----------            -----------

                                                                                 $14,385,934            $16,656,918
                                                                                 ===========            ===========
</TABLE>

The accompanying notes are an integral part of these statements.


                                        5


<PAGE>


                             Pen Interconnect, Inc.

                             STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
                                                                               Three months ended December 31,
                                                                                   1996                  1995

<S>                                                                             <C>                    <C>
Net sales                                                                       $  5,258,386           $ 4,570,313
Cost of sales                                                                      4,357,136             3,563,356

            Gross profit                                                             901,250
    1,006,957

Operating expenses
    Sales and marketing                                                              202,319               264,307
    Research and development                                                          45,308                    -
    General and administrative                                                       334,358               275,123
    Depreciation and amortization                                                     92,289                39,000
                                                                             ---------------         -------------

            Total operating expenses                                                 674,274               578,430
                                                                              --------------           -----------

            Operating income                                                         226,976               428,527

Other income (expense)
    Interest expense                                                                (140,163)             (114,362)
    Gain on sale of division (Note A)                                                611,912                    -
    Other income (expense)                                                            16,258               (18,029)
                                                                           -----------------       ----------------

            Total other income (expense)                                             488,007              (132,391)
                                                                             ---------------         -------------

Earning before income taxes                                                          714,983               296,136

Provision for income taxes                                                           285,551               115,840
                                                                              --------------        --------------

Net earnings                                                                 $       429,432          $    180,296
                                                                            ================         =============

Earnings  per common share  - Primary                                    $              0.14       $          0.08
                                                                         ===================       ===============

                            - Fully dilutive                             $              0.14       $          0.08
                                                                         ===================       ===============


Weighted average common
    shares outstanding - Primary                                                   3,033,407             2,200,000
                                                                             ===============           ===========

                            - Fully dilutive                                       3,088,975             2,200,000
                                                                             ===============           ===========

</TABLE>

The accompanying notes are an integral part of these statements.


                                        6

<PAGE>


                             Pen Interconnect, Inc.

                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                             For three months ended December 31,
                                                                                   1996                  1995

Increase (decrease) in cash and cash equivalents
    Cash flows from operating activities
<S>                                                                           <C>                   <C>
        Net earnings                                                          $      429,432        $      180,296
        Adjustments to reconcile net earnings to net
            cash provided by (used in) operating activities
               Depreciation and amortization                                          92,289                39,000
               Bad debts                                                              (4,230)               4,570
               Gain on sale of division                                             (611,912)                   -
               Changes in assets and liabilities
                    Trade accounts receivable                                        799,863              (350,889)
                    Inventories                                                     (214,430)             (418,822)
                    Prepaid expenses and other assets                               (174,803)             (109,817)
                    Deferred offering costs                                               -                294,158
                    Accounts payable                                                (285,665)             (110,654)
                    Accrued liabilities                                             (159,523)              (67,789)
                    Income taxes                                                     272,823              (172,184)
                                                                             ---------------        ---------------

                        Total adjustments                                           (285,588)             (892,427)
                                                                             ---------------         --------------

                        Net cash (used in) or
                        provided by operating activities                             143,844              (712,131)
                                                                               -------------         -------------

    Cash flows from investing activities
        Purchase of property and equipment                                          (112,949)             (211,045)
        Proceeds from sale of division                                            2,000,000                     -
        Issuance of notes receivable                                                      -                (12,393)
        Collections on notes receivable                                               13,612                 3,000
                                                                             ---------------         -------------

                        Net cash (used in) or provided
                        by investing activities                                    1,900,663              (220,438)
                                                                              --------------            ----------

</TABLE>

                                   (Continued)

                                        7


<PAGE>



                             Pen Interconnect, Inc.

                      STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>

                                                                            For the three months ended December 31,
                                                                                   1996                  1995

    Cash flows from financing activities
<S>                                                                     <C>                             <C>
        Principal payments on notes payable                                               -             (1,600,000)
        Proceeds from line of credit                                               5,488,922             3,635,006
        Principal payments on line of credit                                      (7,667,409)           (4,226,688)
        Principal payments on long-term obligations                                  (14,244)              (60,156)
        Proceeds from sale of common stock                                                -              4,860,398
                                                                        --------------------       ---------------

                        Net cash (used in) or provided
                        by financing activities                                   (2,192,731)            2,608,560
                                                                              ---------------        -------------

                        Net increase (decrease) in cash
                            and cash equivalents                                    (148,224)            1,675,991

Cash and cash equivalents at beginning of period                                     169,445               376,488
                                                                            ----------------       ---------------

Cash and cash equivalents at end of period                                   $        21,221          $  2,052,479
                                                                             ===============          ============

Supplemental disclosures of cash flow information

    Cash paid during the period for
        Interest                                                            $        129,294           $   117,507
        Income taxes                                                                      -                288,024
</TABLE>


                                   (Continued)

                                        8


<PAGE>


                             Pen Interconnect, Inc.

                      STATEMENTS OF CASH FLOWS - CONTINUED

              For the three months ended December 31, 1996 and 1995


Noncash investing and financing activities

Effective  November  1, 1996,  the  Company  sold  substantially  all assets and
certain  liabilities  of the San Jose  Division  for $2  million  cash and other
consideration. Assets and liabilities sold were as follows:
<TABLE>

<S>                                                               <C>                <C>
       Accounts receivable                                                                    $680,420
       Inventories                                                                           1,644,336
       Prepaid expenses                                                                         34,177
       Other assets                                                                             26,099
       Property and equipment                                                                  638,373
       Accounts payable                                                                       (277,429)
       Accrued liabilities                                                                     (35,373)
       Capital leases                                                                          (22,515)
                                                                                     ------------------

       Net assets sold                                                                       2,688,088

       Less non cash consideration received
               Notes                                                          900,000
               Stock                                                          400,000
                                                                                             1,300,000

       Cash consideration                                                                    2,000,000

       Gain on sale of division                                                              $ 611,912
                                                                                             =========
</TABLE>


The accompanying notes are an integral part of these statements.

                                        9


<PAGE>



                             PEN INTERCONNECT, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE A - ACQUISITIONS AND DISPOSITION OF ASSETS

Effective  April 1, 1996,  the  Company  entered  into an  agreement  to acquire
substantially  all assets and assumed certain  liabilities and the operations of
InCirT  Technology,  a division  of the Cerplex  Group,  Inc.  for $5.3  million
comprised  of $3.5  million  in cash and  333,407  shares  of common  stock.  In
addition,  the Company will deliver to Cerplex .09261 shares of its common stock
for  every  dollar  of past  due  over 90 days  accounts  receivable  of  InCirt
Technology  collected by the Company during the first 180 days after the date of
the acquisition  closing up to a maximum of 55,568 shares of common stock.  This
transaction  was  accounted  for using the purchase  method of  accounting.  The
results  of  operations  of the  aquired  business  have  been  included  in the
financial statements since the effective date of the acquisition.

Effective  January  1,  1996,  the  Company  acquired  the  assets  of  Overland
Communication,  Inc. dba MOTO- SAT by assuming that  company's debt and offering
future  stock   distributions   contingent   upon   achievement  of  performance
milestones.  MOTO-SAT is a manufacturer of high-end satellite television systems
for recreational vehicles. This transaction was accounted for using the purchase
method of accounting; accordingly the purchased assets and liabilities have been
recorded  at their  fair  value  at the  date of  acquisition.  The  results  of
operations  of the  acquired  business  have  been  included  in  the  financial
statements since the effective date of the acquisition.

Effective  March 24, 1995,  the Company  acquired  substantially  all assets and
assumed certain liabilities and the operations of Quintec  Interconnect  Systems
(QIS) of San Jose,  California  (San Jose  Division)  for  $2,107,457  including
acquisition  costs of $107,457.  This  transaction  was  accounted for using the
purchase method of accounting;  accordingly the purchased assets and liabilities
were recorded at their estimated fair value at the date of acquisition.

However, effective November 1, 1996, the Company sold all of the net assets used
by the San Jose Division ("Division") to Touche Electronics,  Inc. ("Touche"), a
subsidary of TMCI Electronics, Inc. ("TMCI"). The sales price for the net assets
of the Division was  $3,300,000;  consisting of $2,000,000 in cash,  $900,000 in
promissory  notes,  and 53,669  shares of TMCI common  stock with an agreed upon
guaranteed  value of  $400,000.  In  addition,  Pen has the  rights  to  receive
$700,000 in contingent  earnouts for a potential total sale price of $4,000,000.
Pen  originally   purchased  the  Division  in  March  1995  for   approximately
$2,100,000.  As part of the  transaction,  Touche and TMCI also assumed  certain
liabilities associated with the operations of the Division.



                                   (Continued)

                                       10


<PAGE>




                             PEN INTERCONNECT, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE A - ACQUISITIONS AND DISPOSITION OF ASSETS - CONTINUED

The $900,000 in promissory  notes are comprised of two  promissory  notes in the
amounts of $400,000 and $500,000,  respectively.  The $400,000  promissory  note
bears  interest at  one-half  of one  percent  above the prime rate and is to be
fully amortized and paid monthly over a 24 month period. The $500,000 promissory
note bears interest at the rate of one-half of one percent above the prime rate,
is  amortized  over a 48 month  period  and is payable  monthly  with the entire
balance coming due on October 31, 1999.

In addition, Pen has the right to receive up to $700,000 of contingent earnouts.
These contingent earnouts are described as follows:

1.   Accounts Receivable Over 120 Days. Pen is entitled to receive .13417 shares
     of TMCI  common  stock  for  every $1 of past  due  over 120 days  accounts
     receivable of the Division as of October 31, 1996 collected within 180 days
     of the closing date, up to a maximum of 13,417 shares of stock or $100,000.

2.   Division Earnings. Pen has the right to receive up to 80,503 shares of TMCI
     -------- ---------
     common shares or cash  equivalent at the option of TMCI contingent upon the
     earnings  of the  Division.  To the extent the  earnings  of the  Division,
     determined   before   interest,   income  taxes  and   corporate   overhead
     allocations,  exceed  $800,000  in any one year,  Pen shall be  entitled to
     receive such excess on a dollar for dollar basis in the form of TMCI common
     shares valued at $7.4532 per share until Pen has received up to $600,000 in
     the  aggregate  worth  of  TMCI  common  stock  or  80,503  shares  or cash
     equivalent  at the option of TMCI.  Pen has the right to earn these  shares
     during  the  calendar  years 1997  through  2000.  Based on the  historical
     earnings  if the  transaction  had  occurred  in March  1995  (the date the
     Division was purchased)  the earnout  amount would have been  approximately
     $600,000 at June 30,  1996.  However,  the actual  earnout  amount may vary
     based on future earnings of the Division and the timing of such earnings.

The net  assets  sold  by the  Company  include  all of the  assets  used by the
Division in its operations  including,  but not limited to, inventory,  accounts
receivable,  furniture,  fixtures and equipment,  customer  lists,  intellectual
property and the assumption of accounts payable and other liabilities.

The sales price for the  Division  was  determined  on the basis of  arms-length
negotiations between the Company,  Touche and TMCI and was based in a large part
on  the  earnings  and  net  assets  of the  Division.  There  was  no  material
relationship  between the Company and TMCI prior to the acquisition however, the
Company  leased  space  and sold  product  to  Touche  in the  normal  course of
business.

                                   (Continued)
                                       11

<PAGE>


                             PEN INTERCONNECT, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE A - ACQUISITIONS AND DISPOSITION OF ASSETS - CONTINUED

The results of operations  include one month of  operations  for the three month
period ended  December 31, 1996 and three  months of  operations  for the period
ended  December 31, 1995. The balance sheet excludes the Division as of December
31, 1996 and includes it as of September 30, 1996.

Pro forma  data.  The  following  unaudited  pro forma  summary  represents  the
combined results of operations as if the acquisitions of InCirT and Moto-Sat and
the  disposition of the San Jose Division had occured on October 1, 1994, and do
not purport to be indicative  of what would have  occurred had the  transactions
been made as of October 1, 1994,  or of results  which may occur in the  future.
The pro forma weighted  shares is reported as if outstanding at the beginning of
the period.

                         Three months ended December 31,
                             (amounts in thousands,
                                                        except share data)
                                             1996                     1995
Net sales                                 $ 4,972                  $ 7,579
Operating income                              210                      861
Net earnings                                   61                       95
Earnings per share                           0.02                     0.03
Weighted shares outstanding             3,033,407                3,033,407


NOTE B - INVENTORIES

Inventories consist of the following:

                                       December 31,             September 30,
                                          1996                    1996

Raw materials                             $2,981,240              $ 3,780,800
Work-in-process                            1,624,918                1,830,891
Finished goods                               162,328                  586,701
                                             -------              -----------

                                         $ 4,768,486             $  6,198,392
                                         -----------             ------------





                                       12


<PAGE>


                             PEN INTERCONNECT, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE C - CREDIT FACILITY

On April 8, 1996, the Company completed a new 3 year financing  agreement with a
bank for a $6 million  revolving  line of credit with  interest at one-half (.5)
percent over the prime rate.  The line of credit is  collateralized  by accounts
receivable,  inventory, property and equipment. This agreement requires that the
Company maintain certain  financial ratios and meet specified  minimum levels of
total assets,  earnings and  restrictions on the payments of dividends.  Because
the  Company  did not  comply  with  certain  of  these  requirements,  the bank
exercised  its right to increase the interest rate to 2.5% over prime (10.75% at
December31,  and September 30, 1996) until such time as these  requirements  are
met. This new line of credit replaced the previous $3,000,000  revolving line of
credit. The Company has borrowed $2,791,377 and $4,969,864 under the new line of
credit at December 31, and September 30, 1996,  respectively  (the Company still
has $3,208,623  available  under the line at December 31, 1996).  As a result of
the Company's  failure to meet these  requirements the Company was in default at
September  30,  1996 under the loan  agreement.  The  lender  has  waived  these
defaults as of September 30, 1996.

NOTE D - STOCK TRANSACTIONS

Initial public offering

On November  17, 1995,  the Company  successfully  completed  an initial  public
offering  of  1,000,000  shares of its Common  Stock and  warrants  to  purchase
1,000,000  shares of Common Stock.  The initial public  offering price was $6.00
per share of Common  Stock and $0.10 per Warrant.  Each Warrant was  immediately
exercisable  and entitled the registered  holder to purchase one share of Common
Stock at a price of $6.50 and  expires on November  17,  2000.  The  outstanding
Warrants  may be redeemed by the Company upon 30 days'  written  notice at $0.05
per Warrant,  provided that the closing bid  quotations of the Common Stock have
averaged at least $9.00 per share for a period of any 20 trading  days ending on
the third day prior to the day on which the Company gives notice.


                                   (Continued)

                                       13

<PAGE>


                             PEN INTERCONNECT, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS


NOTE D - STOCK TRANSACTIONS

Initial public offering - Continued

In connection  with the offering,  the Company granted the underwriter the right
to  purchase up to 100,000  shares of common  stock and  100,000  warrants.  The
underwriter  was also  granted an  over-allotment  option of  150,000  shares of
common stock and/or warrants to purchase an additional  150,000 shares of common
stock. In December 1995, the underwriter  exercised its option and purchased the
150,000 warrants.  The option to purchase the 150,000 shares of common stock has
expired.

Shares issued in Acquisition

As discussed  in Note A, the Company  issued  333,407  shares of common stock in
connection with an acquisition in May 1996. In addition,  the Company has agreed
to issue a maximum of 55,568 shares of common stock ("Contingent  Stock") to The
Cerplex Group, Inc. based on collections of amounts over 90 days in the accounts
receivable .

                                       14


<PAGE>


                                     PART I



                                     ITEM 2.

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS


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 three months
ended December 31, 1996 and 1995. This discussion  should be read in conjunction
with the audited financial  statements of the Company and notes thereto included
in the Annual Report of the Company on Form 10-KSB for the year ended  September
30, 1996.

General

The Company develops and produces on a turnkey basis  interconnection  solutions
for  original  equipment  manufacturers  ("OEMs")  in  the  computer,   computer
peripheral and other computer related industries such as the telecommunications,
instrumentation and testing equipment industries. The Company's products connect
electronic  equipment,  such as computers,  to various external devices (such as
video  screens,  printers,   external  disk  drives,  modems,  telephone  jacks,
peripheral  interfaces  and networks) and connect  devices  within the equipment
(such as  power  supplies,  computer  hard  drives  and PC  cards).  Most of the
Company's  sales  consist of custom  cable  interconnections  developed in close
collaboration  with its  customers.  The  Company's  customers  include  OEMs of
computers including mainframes,  desktops,  portables,  laptops, 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.  The
InCirT  Division is engaged in the electronic  manufacturing  services  industry
(EMSI),  and  provides  sophisticated  ISO  9002-certified  assembly and testing
services for complex  printed circuit boards and  subsystems.  In addition,  the
Company's MOTO-SAT Division is a manufacturer of high-end  satellite  television
systems for recreational vehicles.



                                       15

<PAGE>


Results of Operations

Effective April 1, 1996, the Company  acquired the net assets InCirT  Technology
(InCirT),  which has been accounted for as a purchase. The statement of earnings
data for the three  months  ended  December  31,  1996  includes  the results of
operations for this division.

Effective January 1, 1996, the Company acquired the net assets of MOTO-SAT which
has been  accounted  for as a purchase.  The  statement of earnings data for the
three months ended December 31, 1996 includes the results of operations for this
division.

Effective  March 24, 1995, The Company  acquired the net assets of QIS which has
been  accounted  for as a purchase.  This  division was sold on November 1, 1996
(see Note A).  Therefore,  the statement of earnings data include the results of
operations  for only one month in the quarter  ended  December  31, 1996 and for
three months in the quarter ended December 31, 1995 amounts.

Net sales. Net sales for the Company  increased  approximately 15% for the three
month period ended December 31, 1996 as compared to the same period in the prior
year.  This  increase  principally  resulted  from the  inclusion  of the recent
acquisitions  of the InCirT  Division and the MOTO-SAT  Division which more than
offset the loss  revenue  from the sold  division.  There have been no  material
increases in prices of any of the Company's products between the two periods and
the Company anticipates that prices will remain subject to competitive pressures
in the foreseeable future which may prohibit a significant price increase.

Cost of sales.  Cost of sales as a  percentage  of net sales have  increased  to
approximately  83% for the three months ended  December 31, 1996, as compared to
78% for the same  period in the prior  year.  This  increase  in costs  resulted
primarily from reduced margins from a few large customers and a loss of earnings
from the San Jose Division that was sold.  The San Jose Division had earnings in
the prior year but was operating at a loss in the current year prior to its sale
on November 1, 1996. In addition,  the Salt Lake City Division has increased its
per hour wages due to an increased  demand for skilled workers in the region and
a very low unemployment rate.

Operating  expenses.  Operating expenses in total as a percent of net sales have
remained  relatively  constant at about 13% for both  periods  presented.  These
costs  have  not  decreased  as  a  percent  of  sales  because  of  the  recent
acquisitions  and the effects of assimilate the operations of the  acquisitions.
In  addition,  the Company has added  research  and  development  costs with its
recent acquisitions and experienced an increase in depreciation and amortization
due to machinery and equipment purchases and the recording of goodwill.

                                       16

<PAGE>



Other income and expenses.  Other income and expenses (not including the gain on
the sale of the San Jose  Division)  have  decreased  as a  percent  of sales to
approximately 2% for the three months ended December 31, 1996 from approximately
3% for the same  period in the prior year.  The  Company  also sold its San Jose
Division  as  of  November  1,  1996  which   resulted  in  a  current  gain  of
approximately  $612,000.  This Division was profitable in the prior year but was
not producing to the same level of sales and profits in the current year.

Net Earnings and Earnings Per Share.  Net earnings for the first fiscal  quarter
ended  December  31, 1996  totaled  $429,432 or $0.14 per share,  compared  with
$180,296  or $0.08  per  share  for the  first  fiscal  quarter  of  1995.  This
significant  increase  resulted  from  a gain  on  the  sale  of a  division  of
approximately  $367,000  or $0.12  per  share  and  income  from  operations  of
approximately  $62,000  or $0.02 per  share.  These  current  per share  amounts
occurred despite increasing the weighted shares outstanding by more than 833,000
shares in the current period compared to the prior years period.

Liquidity and Capital Resources

The Company has historically financed its operations through operating cash flow
and lines of credit.  However,  on November 17, 1995,  the Company  completed an
initial  public  offering  which  produced  net proceeds of  approximately  $4.8
million. This offering significantly  increased the cash and equity balances. It
also allowed the Company to retire the $1,600,000  debt  associated with the QIS
acquisition,  and to purchase additional  inventory and equipment to support the
increased production levels.

Working  capital  increased to  approximately  $3.3 million at December 31, 1996
compared to approximately $3.2 million despite the sale of the San Jose Division
in November of 1996.The  current ratio has increased to 1.6 at December 31, 1996
from 1.4 at September 30, 1996.

Management  believes that additional working capital may be required to meet its
future operating costs, for business  expansion  opportunities and to adequately
support its China strategic  manufacturing  alliance in addition to its existing
cash balances, borrowings available under the line of credit, and cash generated
from  operations.  However,  there  can be no  assurance  that  such  additional
financing, if required, would be available on favorable terms if at all.

Inflation and Seasonality

The Company does not believe  that it is  significantly  impacted by  inflation.
Historically,  the industry sales tend to decline in January, February, July and
August when activity in the personal computer industry as a whole is reduced.

                                       17


<PAGE>


                                     PART II

                                OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time the  Company  has been a party to  various  legal  proceedings
arising in the ordinary course of business. The Company is not currently a party
to any material litigation and is not aware of any litigation threatened against
it that could have a materially adverse effect on its business.

Item 2. Changes in the Securities. None.


Item 3. Defaults Upon Senior Securities. None.

Item 4.  Submission  of Matters to a Vote of Security  Holders.  None during the
         quarter.

Item 5. Other Information. None

Item 6. Exhibits and Reports on Form 8-K.

     A:   Reports on Form 8-K

          During the quarter ended  December 31, 1996, the Issuer filed a report
          on form 8-K dated  November 12, 1996  associated  with the sale of the
          San Jose Division .

     B.   Exhibits

          10   Material contracts -

               Asset Purchase Agreement for the sale of the San Jose Division to
               Touche  Electronics,  a subsidiary of TMCI Electronics,  Inc. The
               Schedules to this agreement are in standard form and are omitted.
               Registrant  will  on  request  of  the  Securities  and  Exchange
               Commission supplementally file all omitted schedules.

          11   Calculation of earnings per share.

          27   Financial Data Schedule.

                                       18


<PAGE>



                                   SIGNATURES

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


                                PEN INTERCONNECT, INC.

                                By:  /s/ James S. Pendleton
                                James S. Pendleton,
                                         CEO and  Director


                               By: /s/ Wayne R. Wright
                                Wayne R. Wright,
                                CFO, Principal Accounting
                                Officer and Director


                                       19


<PAGE>


                                                                     EXHIBIT 10

                            ASSET PURCHASE AGREEMENT

     THIS  ASSET  PURCHASE  AGREEMENT  ("Agreement"),  dated as of  12:01  a.m.,
November  1,  1996,  by and among PEN  INTERCONNECT,  INC.,  a Utah  corporation
("Company"),  as seller, and TOUCHE ELECTRONICS,  INC., a California corporation
("Purchaser"),  as purchaser and TMCI ELECTRONICS,  INC., a Delaware corporation
("TMCI").

                                    RECITALS:

     WHEREAS,  the Company wishes to sell to Purchaser,  and Purchaser wishes to
purchase from the Company all of the assets and business of the Company  related
to or used in  connection  with its San  Jose  division  ("Division"),  upon the
terms, conditions and provisions hereinafter set forth; and

     WHEREAS, Purchaser is the wholly-owned subsidiary of TMCI.

     NOW, THEREFORE,  in consideration of the mutual terms, conditions and other
agreements  set forth herein,  Purchaser,  TMCI and the Company  hereby agree as
follows:

                                    ARTICLE I
                                   DEFINITIONS

     I.1 Certain  Definitions.  As used in this  Agreement,  the following terms
have the following meanings unless the context otherwise requires:

     "Accounts Receivable" has the meaning specified in Section 2.1(k).

     "Act" has the meaning specified in Section 3.19.

     "Action or Proceeding" means any action, suit, proceeding, claim pending or
filed  or  arbitration  by any  Person  or any  investigation  or  audit  by any
Governmental or Regulatory Body.

     "Additional Common Stock" has the meaning specified in Section 2.5.

     "Affiliate" with respect to any Person, means any other Person controlling,
controlled  by or  under  common  control  with  such  Person,  except  that the
Purchaser,  TMCI and the Company  shall not be deemed to be  affiliates  of each
other after the Closing.

     "Agreement" means this Asset Purchase Agreement.

                                       20

<PAGE>


     "Assets" has the meaning specified in Section 2.1.

     "Assignable Contracts" has the meaning specified in Section 2.1(c).

     "Assignment and Assumption  Agreement" has the meaning specified in Section
5.1(g).

     "Associate"  means,  with respect to any Person,  any  corporation or other
business  organization  of which such  Person is an officer or partner or is the
beneficial  owner,  directly or indirectly,  of ten percent (10%) or more of any
class of equity  securities,  any trust or estate  in which  such  Person  has a
substantial  beneficial  interest or as to which such Person serves as a trustee
or in a similar  capacity  and any  relative  or spouse of such  Person,  or any
relative  of such  spouse,  who has the same home as such Person or any child or
sibling of such Person or such Person's spouse.

     "Assumed Liabilities" has the meaning specified in Section 2.2.

     "Benefits" has the meaning specified in Section 6.5(c)(ii).

     "Bentley" has the meaning specified in Section 4.5.

     "best knowledge", "knowledge" or words to that effect shall mean, as to any
Person,   to  the  best   knowledge   of  such  Person  after  due  inquiry  and
investigation.

     "Books and Records" of any Person means all files, documents,  instruments,
papers,  books and records relating to the business,  operations,  conditions of
(financial or other),  results of operations  and assets and  properties of such
Person,  including without  limitation,  financial  statements,  Tax Returns and
related work papers and letters from accountants,  budgets,  pricing guidelines,
ledgers,  journals,  deeds, title policies, minute books, stock certificates and
books,  stock  transfer  ledgers,  contracts  and  other  agreements,  licenses,
customer lists, computer files and programs,  retrieval programs, operating data
and plans and environmental studies and plans.

     "Bulk Sales or Transfer  Laws" means  Sections  6101 et seq. of the Uniform
Commercial Code as adopted by the State of California.

     "Business Day" means those days as defined in California Civil Code Section
9.

     "Business" has the meaning specified in Section 2.1.

     "Cash Payment" has the meaning specified in Section 2.4(a).

     "Claim" has the meaning specified in Section 2.6.

     "Claim Notice" has the meaning specified in Section 7.4(a).

     "Closing" has the meaning specified in Section 2.8.

                                       21

<PAGE>


     "Closing Date" has the meaning specified in Section 2.8.

     "Code" means the Internal Revenue Code of 1986, as amended.

     "Common Stock" has the meaning specified in Section 2.4(a).

     "Company"  has  the  meaning  specified  in the  first  paragraph  of  this
Agreement.

     "Company  Plan" means each  "employee  benefit plan" (within the meaning of
Section 3(3) of the Employee  Retirement Income Security Act of 1974, as amended
("ERISA")) and each other policy, arrangement or practice that either covers any
employee of the Company or is  maintained  by the Company  with respect to which
the Company makes or has an obligation to make  contributions in connection with
the Business.

     "Company's  Restrictive  Covenants"  has the meaning  specified  in Section
6.5(c).

     "Company's  Restricted  Customers"  has the  meaning  specified  in Section
6.5(b)(i).

     "Confidential  Company  Information"  has the meaning  specified in Section
6.5(b)(ii).

     "Contracts and other Agreements" means all executory contracts, agreements,
understandings, indentures, notes, bonds, loans, instruments, leases, mortgages,
franchises,  licenses,  commitments or other legally binding  arrangements which
pertain to the Division or the Business.

     "Delivery Date" has the meaning specified in Section 2.6.

     "Division" has the meaning specified in the Recitals.

     "document  or other  papers"  means any  document,  agreement,  instrument,
certificate,  notice, consent,  affidavit,  letter, telegram,  telex, statement,
schedule  (including any Schedule to this  Agreement) or exhibit  (including any
Exhibit to this Agreement).

     "Environmental,   Health  and   Safety   Laws"   means  the   Comprehensive
Environmental  Response,  Compensation  and Liability Act of 1980,  the Resource
Conservation  and Recovery Act of 1976, and the  Occupational  Safety and Health
Act of 1970,  each as amended,  together with all other laws  (including  rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges  thereunder) of federal,  state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment,  public
health and safety,  or employee  health and safety,  including  laws relating to
emissions,   discharges,   releases,   or  threatened  releases  of  pollutants,
contaminants, or chemical,  industrial,  hazardous, or toxic materials or wastes
into ambient air, surface water, ground water, or lands or otherwise relating to
the manufacture,  processing,  distribution,  use, treatment, storage, disposal,
transport,  or handling of pollutants,  contaminants,  or chemical,  industrial,
hazardous, or toxic materials or wastes.


                                       22

<PAGE>


     "Extremely  Hazardous  Substance"  has the meaning set forth in Sec. 302 of
the Emergency Planning and Community Right-to-Know Act of 1986, as amended.

     "ERISA"  means the Employee  Retirement  Income  Security  Act of 1974,  as
amended.

     "ERISA  Affiliate"  means each entity  required to be  aggregated  with the
Company  under  Section  414(b),  (c), (m) or (o) of the Code or Section 4001 of
ERISA.

     "Escrow Agents" has the meaning specified in Section 2.6.

     "GAAP" means generally accepted accounting principles.

     "Governmental or Regulatory Body" means court, tribunal,  arbitrator or any
government or political  subdivision  thereof,  whether federal,  state, county,
local or foreign, or any agency,  authority,  official or instrumentality of any
such government or political subdivision.

     "Guaranty" has the meaning specified in Section 2.4(c).

     "Holdback Stock" has the meaning specified in Section 2.6.

     "Inventory" has the meaning specified in Section 2.1(d).

     "Investor Rights Agreement" has the meaning specified in Section 3.19.

     "Indemnified Party" has the meaning specified in Section 7.4.

     "Indemnifying Party" has the meaning specified in Section 7.4.

     "Intellectual Property" has the meaning specified in Section 2.1(a).

     "IRS" means the Internal Revenue Service.

     "Law"  means  any law,  statute,  rule,  regulation,  ordinance  and  other
pronouncement having the effect of law of the United States, any foreign country
or any domestic or foreign state, county, city or other political subdivision or
of any Governmental or Regulatory Body.

     "Liability"  or  "Liabilities"  means any direct or indirect  indebtedness,
liability, claim, loss, damage, deficiency, obligation or responsibility,  fixed
or  unfixed,  choate  or  inchoate,  liquidated  or  unliquidated,   secured  or
unsecured, accrued, absolute, contingent or otherwise.

     "Lien" means any lien, pledge, hypothecation,  mortgage, security interest,
claim,  lease,  charge,  option,  right of first refusal,  easement,  servitude,
transfer restriction under any stockholder or similar agreement,  encumbrance or
any other restriction or limitation whatsoever.

                                       23

<PAGE>


     "Loss" or "Losses" has the meaning specified in Section 7.2.

     "Market Price" means with respect to the date of determination, the average
of the last reported  sale price of one share of TMCI's Common Stock,  par value
$0.001,  for the twenty (20)  trading  days  immediately  preceding  the date of
determination.

     "Material  Adverse Effect" means, in the case of any Person,  any change or
changes or effect or effects that  individually  or in the  aggregate are or may
reasonably be expected to be materially  adverse to (i) the assets,  properties,
business, operations, income, prospects or condition (financial or otherwise) of
such  Person or the  transactions  contemplated  by this  Agreement  or (ii) the
ability of such Person to perform its obligations under this Agreement.

     "Material Contracts" means:

     (a)  The Assignable Contracts;

     (b)  Contracts and other  Agreements  with any current or former  employee,
          consultant, agent, other representative of the Business;

     (c)  Contracts or other Agreements for the sale, distribution or license of
          any of the Assets or for the grant to any  Person of any  preferential
          rights to purchase any of the Assets;

     (d)  Contracts  and other  Agreements  under  which the  Company  agrees to
          indemnify any Person for use of the Assets;

     (e)  Contracts  and other  Agreements  relating to the creation of Liens on
          any of the Assets; and

     (f)  Contracts  and  other  Agreements  for the sale or  lease of  Tangible
          Property.

     "Order" means any writ,  judgment,  decree,  injunction or similar order of
any Governmental or Regulatory Body, in each case whether preliminary or final.

     "Person" means any individual, corporation,  partnership, limited liability
company,  firm,  joint  venture,   association,   joint-stock  company,   trust,
unincorporated organization, Governmental or Regulatory Body or other entity.

     "Promissory Notes" has the meaning specified in Section 2.4(a).

     "Purchase Price" has the meaning specified in Section 2.4(a).

     "Purchaser"  has the  meaning  specified  in the  first  paragraph  of this
Agreement.

     "Purchaser's  Restricted  Customers"  has the meaning  specified in Section
6.5(a).

                                       24

<PAGE>


     "Records" has the meaning specified in Section 2.1(h).

     "Restricted Area" has the meaning specified in Section 6.5(a).

     "Restricted Period" has the meaning specified in Section 6.5(a).

     "Restricted Products" has the meaning specified in Section 6.5(a).

     "Restrictive Covenants" has the meaning specified in Section 6.5(e).

     "Sale Completion Date" has the meaning specified in Section 2.5.

     "Sale Proceeds" means the proceeds, net of brokerage commissions,  from the
sale  of the  Common  Stock  by the  Company  pursuant  to the  Investor  Rights
Agreement.

     "Second Anniversary Date" has the meaning specified in Section 2.5.

     "Security Agreement" has the meaning specified in Section 2.4(c).

     "Shortfall  Amount"  means the  amount  (if any) of four  hundred  thousand
dollars ($400,000) subject to adjustment as provided in Section 2.7 over (i) the
Sale  Proceeds,  if the Holdback  Stock is sold under a  registration  statement
pursuant to the Investor Rights Agreement,  or (ii) otherwise,  the value of the
Holdback Stock  determined by multiplying  number of shares of Holdback Stock by
the Market Price on the Second Anniversary Date.

     "Tangible Property" has the meaning specified in Section 3.11.

     "Tax  Return"  means  any  return,  report,  information  return,  or other
document (including any related or supporting  information) filed or required to
be filed with any federal,  state, local or foreign governmental entity or other
authority in connection with the determination,  assessment or collection of any
Tax (whether or not such Tax is imposed on the Company) or the administration of
any laws, regulations or administrative requirements relating to any Tax.

     "Tax"  and  "Taxes"  means  all  taxes,  charges,  fees,  levies  or  other
assessments  imposed by any federal,  state,  local or foreign taxing authority,
whether  disputed  or  not,  including,  without  limitation,  income,  capital,
estimated,  excise,  property,  sales, use,  transfer,  withholding  employment,
payroll,  and  franchise  taxes  and such  terms  shall  include  any  interest,
penalties  or  additions  attributable  to or imposed on or with respect to such
assessments.

     "TMCI" has the meaning specified in the first paragraph of this Agreement.

     "TMCI's Restrictive Covenants" has the meaning specified in Section 6.5(d).



                                       25

<PAGE>


     "Transfer Taxes" has the meaning specified in Section 6.3.

     "Unaudited Financial Statements" has the meaning specified in Section 3.6.

                                   ARTICLE II
                           ACQUISITION OF THE ASSETS;
                     ASSUMED LIABILITIES AND PURCHASE PRICE

     II.1 Purchase of the Assets. On the terms and subject to the conditions set
forth in this Agreement,  the Company hereby sells, transfers,  assigns, conveys
and delivers to Purchaser, and Purchaser hereby purchases,  acquires and accepts
from the Company,  all of the right, title and interest of the Company in and to
all of the assets  (excluding  intercompany  and cash accounts),  properties and
rights  owned by the  Company,  and which  either (a) are used  primarily by the
Company in the  business  and  operations  of the  Division as such  business is
conducted  on the  date  hereof  ("Business"),  or (b) are  held at the  primary
location of the Business,  except as set forth in Section 2.1(l),  both tangible
and  intangible,  free and clear of any Liens  (the  foregoing  are  hereinafter
collectively  referred  to  as  the  "Assets").   The  Assets  include,  without
limitation,  all of the right,  title and  interest  of the Company in or to the
following:

     (a)  Intellectual  Property.  Except as set forth in  Section  6.5(b),  all
          ------------  ---------
          intellectual  property  rights  used or held for use in the conduct of
          the  Business  (including  the  Division's  goodwill  therein) and all
          rights,  privileges,  claims, causes of action and options relating to
          the Business or its assets or properties, including but not limited to
          trademarks,  copyrights,  whether or not  registered,  applied for, or
          under common law, and internet  domain  registrations,  if any,  trade
          names, service marks, goodwill,  trade secrets (including the property
          defined as "trade  secrets" in the  California  Uniform  Trade Secrets
          Act),  know-how,   manufacturing  methods,  engineering  drawings  and
          specifications,  inventions,  patents or patents  pending,  if any, or
          improvements   thereto  (whether  or  not  patentable  or  reduced  to
          practice) and all other proprietary information used in the conduct of
          the Business (the "Intellectual  Property"),  as set forth in Schedule
          2.1(a), including, but not limited to, all trademarks and servicemarks
          used in or useful to, the Business and any  registered  copyrights  or
          patents.  Notwithstanding  anything to the contrary  contained herein,
          neither  Purchaser  nor TMCI  shall  have any  right to the name  "Pen
          Interconnect" or any derivative thereof;

     (b)  IP Licenses.  All licenses,  sublicenses and other  agreements used in
          the Business  under which the Company is a licensor or licensee of any
          Intellectual  Property (the "IP  Licenses"),  as set forth on Schedule
          2.1(b);

     (c)  Assignable  Contracts.  All of the contracts and other agreements used
          in the Business to which the Company is a party and which are utilized
          in the conduct of the Business,  as set forth on Schedule  2.1(c) (the
          "Assignable Contracts");


                                       26

<PAGE>


     (d)  Inventory.   All  inventories  or  work-in-process,   finished  goods,
          ---------
          merchandise,  demonstration  equipment,  office  and  other  supplies,
          parts,   packaging   materials,   advertising   materials   and  other
          accessories related thereto which is otherwise used or held for use by
          the Division or in the conduct of the Business,  which are held at, or
          are in transit  from or to, the  locations  at which the  Business  is
          conducted or including any of the foregoing  purchased  subject to any
          conditional  sales or title retention  agreement in favor of any other
          Person,  together with all rights of the Company against  suppliers of
          such  inventories  (the  "Inventory"),  all as set  forth on  Schedule
          2.1(d);

     (e)  Tangible Personal  Property.  In addition to the Inventory  separately
          -------- --------  ---------
          described above, all furniture,  fixtures,  equipment, tooling, molds,
          and dyes,  machinery and other tangible personal property used or held
          primarily  for use in the conduct of the Business or which are held at
          the primary  location at which the  Business is  conducted,  including
          those  located  at  suppliers'  premises  or  customers'  premises  on
          consignment,  or otherwise  used or held for use by the Company in the
          conduct of the Business, including any of the foregoing purchased, all
          as set forth on Schedule 2.1(e);

     (f)  Warranties.  All  rights  of the  Company  under  or  pursuant  to all
          warranties,   representations   and  guarantees   made  by  suppliers,
          manufacturers  or contractors  in connection  with products sold to or
          services provided to the Company for the Division or the Business,  or
          affecting the IP Licenses,  property,  machinery or equipment  used in
          the conduct of the Business;

     (g)  Telephone  Numbers  and E  Mail  Accounts.  All  rights  in and to the
          telephone numbers and E Mail accounts of the Division,  subject to the
          regulations of the California Public Utilities Commission;

     (h)  Books and  Records.  All  books,  records  and  information  or copies
          thereof  relating  to the Assets or the  Business  except for  records
          pertaining to employees or consultants not employed or retained by the
          Company or the Division on November 1, 1996 (the "Records");

     (i)  Advertising.   All  customer  and  market  record  referral  data  and
          materials, and all advertising and promotional literature and material
          relating  to  the  Assets,  including  without  limitation,  catalogs,
          brochures, pamphlets, art work and printing plates;

     (j)  Customer List. Subject to the restrictions of Section 6.5(b), the list
          of all of the past and current customers of the Division;

     (k)  Accounts   Receivable.   All  accounts   receivable  of  the  Division
          including,  without  limitation,  those set forth on  Schedule  2.1(k)
          ("Accounts Receivable"); and

     (l)  Other  Assets.  Any and all other assets used  primarily in connection
          with the  operation  of the  Business or which are held at the primary
          location of the Business,  as set forth on Schedule  2.1(l)(1)  except
          for those assets set forth on Schedule 2.1(l)(2).

                                       27

<PAGE>


     II.2 Assumed  Liabilities.  Subject to the terms and  conditions  set forth
herein,  Purchaser hereby assumes those  liabilities of the Company set forth on
Schedule 2.2 and agrees to perform and discharge promptly and fully when due all
of the outstanding  obligations of the Company under the Assignable Contracts as
listed in Schedule  2.1(c)  arising and to be  performed on or after the Closing
Date  (collectively,  the  "Assumed  Liabilities").  In the  event of any  claim
against  Purchaser  with  respect to any of the Assumed  Liabilities  hereunder,
Purchaser shall have, and the Company hereby assigns to Purchaser,  any defense,
counterclaim, or right of set off which would have been available to the Company
if such claim had been  asserted  against the  Company.  The  Company  agrees to
cooperate  with  Purchaser in the defense of any such claim  against  Purchaser,
provided  that  Purchaser  shall be  obligated  to  reimburse  the  Company  for
out-of-pocket expenses incurred by it in cooperating with Purchaser.

     II.3 Liabilities Not Assumed. Except for the Assumed Liabilities, Purchaser
does not assume nor have any responsibility for or with respect to, nor have any
duty under any other obligation, debt, agreement or Liability of the Company.

     II.4 Purchase Price.

     (a)  Subject  to  adjustment  as  provided  herein and in  addition  to the
          Assumed Liabilities, the purchase price (the "Purchase Price") for the
          Assets to be purchased by Purchaser from the Company  hereunder  shall
          be a total of four million dollars  ($4,000,000) payable at Closing as
          follows:  (i) two million  dollars  ($2,000,000)  to be a cash payment
          (the "Cash  Payment"),  (ii) a  promissory  note in the face amount of
          five hundred thousand dollars  ($500,000) in substantially the form of
          Exhibit  "A",  (iii) a  promissory  note in the  face  amount  of four
          hundred  thousand  dollars  ($400,000)  in  substantially  the form of
          Exhibit  "B",  and (iv) the  issuance  by TMCI to the Company of fifty
          three thousand six hundred  sixty-nine  (53,669)  shares of its common
          stock, par value $0.001 per share ("Holdback  Stock"; (v) the issuance
          by TMCI to the Company of eighty  thousand five hundred three (80,503)
          shares of its common stock, par value $.001 per share,  subject to the
          terms and  conditions of the Earn Out Agreement in  substantially  the
          form of  Exhibit  "C"  hereto  and (vi) the  right of the  Company  to
          receive up to one  hundred  thousand  dollars  ($100,000)  pursuant to
          Section 2.7 hereof.  The TMCI common  stock  delivered  to the Company
          pursuant  to (iv) and (v) herein is  collectively  referred  to as the
          "Common  Stock".  The number of shares of Common Stock to be delivered
          to the  Company at Closing  is  determined  by  dividing  one  million
          dollars  ($1,000,000)  by  $7.4532,  which is the  average of the last
          reported sale price of one share of TMCI's common stock for the twenty
          (20) trading days immediately preceding November 1, 1996. Any fraction
          of a share resulting therefrom will be remitted to the Company in cash
          and no  fractional  shares  shall  be  issued.  The  promissory  notes
          referred  to in (ii) and (iii) above are  collectively  referred to as
          the "Promissory Notes."

     (b)  The Cash  Payment  shall be paid to the  Company by  Purchaser  on the
          Closing  Date by delivery of  certified  funds or by wire  transfer of
          immediately available funds to an account designated by the Company.



                                       28

<PAGE>


     (c)  The payment of the Promissory Notes will be secured by the Assets,  as
          evidenced by a Security Agreement in substantially the form of Exhibit
          "D"  ("Security  Agreement"),  and the  personal  guaranty  of Rolando
          Loera, the president of Purchaser in substantially the form of Exhibit
          "E" ("Guaranty").

     II.5  Additional  Consideration.  Within ten business days after the second
anniversary  of the  issuance of the  Holdback  Stock (as defined  below) to the
Company ("Second  Anniversary  Date"), or if the Holdback Stock is sold pursuant
to the Investor Rights Agreement,  within thirty (30) days following the date of
the  completion  of such sale (the  "Sale  Completion  Date"),  Purchaser  shall
deliver to the  Company a sum of cash equal to the  Shortfall  Amount,  provided
that Purchaser may, at its sole option,  pay all or any portion of the Shortfall
Amount by the delivery of a number of  additional  shares of TMCI's common stock
(the  "Additional  Common  Stock")  equal to the  Shortfall  Amount (or  portion
thereof), if any, divided by (x) the Market Price on the Second Anniversary Date
if the Additional Common Stock is delivered pursuant to this Section 2.5, or (y)
the Market Price on the Sale Completion  Date if the Additional  Common Stock is
delivered  pursuant to a sale of the Holdback  Stock under the  Investor  Rights
Agreement.  Any Additional  Common Stock which is delivered to Pen pursuant to a
sale  of the  Holdback  Stock  under  the  Investor  Rights  Agreement  will  be
"unregistered" securities under the Act.

     II.6 Common Stock Holdback.  As security for the Company's  representations
and warranties in Article III and the Company's  indemnification  obligations in
Article VII,  Purchaser  shall deliver the Holdback  Stock to an escrow  account
(the  "Escrow  Account") in which  Parsons  Behle & Latimer will serve as escrow
agent  (the  "Escrow  Agent").  Subject to any  reductions  in the amount of the
Holdback  Stock  pursuant  to this  Section  2.6,  the  Holdback  Stock shall be
released  to the  Company  on the  earlier of (i) the date which is one (1) year
after the Closing Date, or (ii) the effective date of a  registration  statement
with the United States Securities and Exchange Commission (the "Delivery Date"),
except to the extent  there is any claim  pending  under this Section 2.6 on any
amount of such  Holdback  Stock.  To be  entitled  to  reimbursement  under this
Section 2.6,  Purchaser  must comply with the  provisions of this  Section,  but
compliance  with this section will not relieve  Purchaser of its  obligations to
comply with the provisions of Article VII hereof.

     (a)  Delivery  of Notice.  Purchaser  shall  provide  notice to the Company
          within  thirty  (30)  days  of  the  discovery  of any  breach  of the
          representations  and  warranties  contained  in  Article  III  or  the
          indemnities set forth in Article VII, and such notice shall detail (i)
          the nature and amount of any such breach,  (ii) the Purchaser's  right
          to indemnification from the Company and (iii) the nature and amount of
          a cure acceptable to the Purchaser (the "Claim").

     (b)  Company's  Right to Object.  The  Company  shall have twenty (20) days
          ---------  ----- -- -------
          from the date of its  receipt of any notice  under  Section  2.6(a) to
          deliver a written  objection to such Claim to Purchaser and the Escrow
          Agents.  If the Company does not object to the Claim within such time,
          then it shall have twenty (20) days,  after  expiration of the initial
          twenty (20) day period, to satisfy the Claim and notify Purchaser that
          the  Claim  is  satisfied,  without  reduction  in the  amount  of the
          Holdback Stock. Purchaser shall,  thereafter,  notify the Company that
          it  approves or does not approve  the  Company's  satisfaction  of the
          Claim, which approval shall not be unreasonably withheld.



                                       29

<PAGE>


     (c)  Procedure to Arbitrate  Disputes.  If the Company objects to the Claim
          --------- -- ---------  ---------
          pursuant  to Section  2.6(b),  or if  Purchaser  does not  approve the
          Company's  satisfaction of a Claim,  then the parties shall have sixty
          (60) days to negotiate a  satisfactory  settlement of the Claim.  Such
          sixty  (60)  days  shall be  measured  from the time that  either  (i)
          Purchaser  receives  the  Company's  objection  to the Claim,  or (ii)
          Purchaser  notifies the Company that it does not approve the Company's
          satisfaction  of the Claim.  If the parties are unable to  negotiate a
          satisfactory  settlement of their  dispute  regarding any Claim within
          sixty  (60)  days,  then  either  party  may  submit  the  dispute  to
          arbitration in accordance with Section 8.15 hereof.

     (d)  Reduction  of  the  Amount  of  Holdback  Stock.  If it is  ultimately
          ---------  --  ---  ------  --  --------  ------
          determined  that the  Company  is  indebted  to  Purchaser  under this
          Section  2.6,  then  the  Escrow   Agents   shall,   upon  receipt  of
          instructions from an appropriate officer of the Company,  release, and
          deliver to Purchaser, the number of shares of the Holdback Stock equal
          in value to the  dollar  amount  of the  indebtedness.  The  number of
          shares shall be determined by dividing the amount of the  indebtedness
          by the  average of the last  reported  sales price of one share of the
          Common Stock for the twenty (20) trading days immediately prior to the
          date that Purchaser became entitled to recover under this Section 2.6.

     (e)  Close of Escrow/Escrow  Instructions.  The escrow created hereby shall
          ----- -- -------------  -------------
          close on the earlier of (i) the Delivery  Date,  or (ii) the date that
          the number of shares of Holdback Stock is reduced to zero. The parties
          shall  prepare  escrow  instructions  and  deliver  them to the Escrow
          Agents. The escrow instructions shall provide, at a minimum, that none
          of the  Holdback  Stock  shall be released  from  escrow  prior to the
          Delivery  Date unless both Escrow  Agents  authorize  such  release in
          writing.  The  instructions  shall also  require the Escrow  Agents to
          deliver the Holdback Stock, or the remaining  portion thereof,  to the
          Company on the Delivery Date.

     II.7 Additional Stock for Collection of Accounts Receivable. Purchaser will
deliver to the Company  .13417 shares of its common stock  ("Additional  Stock")
for every $1.00 of the Division's past due over 120 days accounts  receivable as
of October 31, 1996  collected by the Purchaser and the Company  jointly  within
one hundred  eighty (180) days of the Closing  Date, up to a maximum of thirteen
thousand  four hundred  seventeen  (13,417)  shares of stock.  Purchaser and the
Company agree to use practices consistent with their ordinary business practices
in collecting the past due over 120 days accounts  receivable of the Division as
set forth on Schedule  2.1(k).  The parties  acknowledge  that as of October 31,
1996  the  past  due over 120  days  accounts  receivable  is in the  amount  of
$272,427.  The  certificate  representing  the stock to be issued to the Company
pursuant to this  Section  2.7 will be  delivered  to the  Company by  Purchaser
within 30 days after the  expiration  of the period  during which  Purchaser may
collect the past due over 120 days accounts receivable.  Such stock shall become
Holdback Stock and shall be governed by the provisions of Section 2.6 hereof.

     II.8 Closing Date. The  consummation of the purchase and sale of the Assets
(the  "Closing")  shall  be  held  simultaneously  with  the  execution  of this
Agreement  ("Closing Date"). The Closing may be held by the Purchaser,  TMCI and
the  Company  exchanging  facsimile  signature  pages  and  complying  with  the
conditions set forth in Article V.


                                       30

<PAGE>


                                   ARTICLE III
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The  Company  represents  and  warrants  to  Purchaser  and  TMCI  with the
knowledge  that  Purchaser  and TMCI are  relying  on such  representations  and
warranties in entering into this Agreement, and that the statements contained in
this Article III are true, correct,  complete and current as of the date of this
Agreement.

     III.1  Organization  and  Qualification.  The Company is a corporation duly
organized,  validly existing and in good standing under the laws of the State of
Utah and has all requisite  corporate power and authority to (a) enter into this
Agreement and to perform its obligations  hereunder,  (b) own, lease and operate
its properties and assets used in the Business as they are now owned, leased and
operated  and (c) carry on its  business,  including,  without  limitation,  the
Business,  as now  presently  conducted.  The  Company is duly  qualified  to do
business  and is in good  standing  in  each  jurisdiction,  including,  but not
limited to, California,  in which the nature of its business or properties makes
such qualification necessary, except where the failure to do so would not have a
Material  Adverse  Effect after the Closing Date on the Business,  the Assets or
Purchaser.

     III.2  Validity and Execution of Agreement.  The Company has the full legal
right, capacity and power and has all requisite corporate authority and approval
required to enter into,  execute and deliver this Agreement and to perform fully
its  obligations  hereunder.  The board of directors of the Company has approved
the transactions  contemplated  pursuant to this Agreement and each of the other
documents contemplated by this Agreement. Pursuant to the provisions of the Utah
Code Annotated,  the shareholders of the Company are not required to approve the
transactions  contemplated  by this  Agreement.  This Agreement  constitutes the
valid and binding  obligation  of the Company and is  enforceable  against it in
accordance  with  its  terms,  except  as such  enforcement  may be  limited  by
bankruptcy,  insolvency,  reorganization,   moratorium  or  other  similar  laws
affecting  the  enforcement  of  creditors'  rights in  general  and by  general
principles of equity.

     III.3 No  Conflict.  Except  as set  forth on  Schedule  3.3,  neither  the
execution and delivery of this  Agreement by the Company nor the  performance by
the  Company  of the  transactions  contemplated  hereby  will:  (a)  violate or
conflict with any of the provisions of the Articles of  Incorporation or By-Laws
(or similar governing  documents) of the Company; (b) except as would not have a
Material Adverse Effect after the Closing Date on the Company, the Business, the
Assets or Purchaser,  violate,  conflict with, result in the acceleration of, or
entitle  any  party  to  accelerate  the  maturity  or the  cancellation  of the
performance of any obligation  under, or result in the creation or imposition of
any Lien in or upon any of Assets or  constitute  a default  (or an event  which
might, with the passage of time or the giving of notice,  or both,  constitute a
default) under any mortgage,  indenture, deed of trust, lease, contract, loan or
credit agreement, license or other instrument to which the Company is a party or
by which its or any of its properties or assets may be bound or affected; or (c)
except as would not have a Material Adverse Effect after the Closing Date on the
Company,  the Business,  the Assets or  Purchaser,  violate or conflict with any
provision of any Law or Order  applicable  to the Company or require any consent
or approval of or filing or notice with any

                                       31

<PAGE>


Governmental  or  Regulatory  Body.  The Company has obtained all  necessary and
proper consents from its lenders, customers,  suppliers, and similar parties, as
necessary to prevent or avoid a Material  Adverse  Effect after the Closing Date
on the Business, the Assets, the Division or Purchaser by reason of a failure by
the Company to obtain such consent.

     III.4 Books and Records.  Except as set forth on Schedule  3.4, the Records
of the Company as supplied to Purchaser are true, correct,  complete and current
in all material respects.

     III.5 Certificate of Incorporation and By-Laws.  The Company has heretofore
delivered  to  Purchaser  true,  correct,  complete  and  current  copies of the
Certificate  or  Articles  of  Incorporation  and  By-Laws or similar  governing
documents of the Company as in full force and effect on the date hereof.

     III.6  Financial  Statements.   The  unaudited  financial  statements  (the
"Unaudited  Financial  Statements") of the Division for the year ended September
30, 1996 and the period ended October 31, 1996,  attached hereto as Schedule 3.6
were  prepared  in  accordance  with GAAP  consistently  applied for the periods
covered thereby.  The statement of income contained  therein fairly presents the
results of operations of the Division for the year ended on such date.

     III.7 No Material  Adverse  Change.  Except as set forth on  Schedule  3.7,
since September 30, 1996, to the Company's  knowledge there has been no material
adverse  change  in the  assets,  properties,  business,  operations,  income or
condition  (financial  or  otherwise)  of the  Business,  nor is any such change
threatened,  nor has there been any damage, destruction or loss which could have
a Material Adverse Effect after the Closing Date on the Business,  the Assets or
Purchaser, whether or not covered by insurance.

     III.8 Tax Matters. All Tax Returns required to be filed with respect to the
Company  have  been  timely  filed and all such Tax  Returns  were  correct  and
complete in all  respects.  The Company has timely paid to the  appropriate  tax
authorities all Taxes due or claimed to be due from it by any Tax authority.  No
adjustment  relating to any Tax Return  required to be filed with respect to the
Company has been proposed  formally or informally by any Tax  authority,  and to
the best knowledge of the Company no basis exists for any such  adjustment.  The
Company is not currently the  beneficiary  of any extension of time within which
to file any Tax Return.  There are no liens for Taxes upon assets or  properties
of the  Company.  There is no  examination  or  proceeding  pending  or,  to the
knowledge  of the  Company,  threatened  by any tax  authority  relating  to the
determination,  assessment  or  collection  of, or any  delinquencies  in filing
related to any Taxes of the Company.  Notwithstanding  anything contained herein
to the  contrary  contained  herein,  the  Company  shall not be deemed to be in
breach of this Section 3.8 if the breach of any of the  statements  contained in
this Section 3.8 does not have a Material  Adverse Effect after the Closing Date
upon the Assets, the Division, the Business or the Purchaser.  The Company holds
a valid California resale certificate.

     III.9  Litigation.  Except  as set  forth on  Schedule  3.9,  there  are no
outstanding  Orders  by which the  Company,  or any of its  securities,  assets,
properties or businesses  are bound.  Except as set forth on Schedule 3.9, there
is no  Action  or  Proceeding  pending  or,  to the  knowledge  of  the  Company
threatened (whether or not the defense thereof or liabilities in respect thereof
are covered by insurance)

                                       32

<PAGE>


against or affecting the Company or any of its assets, properties or businesses,
including  without  limitation  the Business and the Assets,  which if adversely
decided would have a Material  Adverse  Effect after the Closing on the Company,
the Purchaser, the Business, the Division or the Assets, nor are there any facts
known to the  Company  which  are  likely  to give  rise to any such  Action  or
Proceeding  which if adversely  decided,  would have a Material  Adverse  Effect
after the Closing on the Company, the Purchaser,  the Business,  the Division or
the Assets.

     III.10 Contracts and Other Agreements. True, complete and current copies of
all of the Material Contracts have been delivered to Purchaser or made available
to Purchaser for inspection. A list of the Material Contracts is attached hereto
as Schedule 3.10. All of the Material Contracts are valid,  subsisting,  in full
force and effect and binding  upon the Company and to the best  knowledge of the
Company,  the  Company  has  satisfied  in  full  or  provided  for  all  of its
liabilities and obligations  thereunder requiring  performance prior to the date
hereof in all material  respects,  is not in default under any of them, nor does
any condition  exist that with notice or lapse of time or both would  constitute
such a default.  To the  knowledge  of the  Company,  no other party to any such
Material  Contract is in default  thereunder,  nor does any condition exist that
with notice or lapse of time or both would constitute such a default.  Except as
separately  identified on Schedule 3.10, no approval or consent of any Person is
needed for the  Material  Contracts  to continue to be in full force and effect,
and all of the  Company's  rights  under  Material  Contracts  to be assigned to
Purchaser  hereunder  will be conveyed to Purchaser,  upon  consummation  of the
transactions contemplated by this Agreement.

     III.11  Tangible  Property.  Schedule  3.11  sets  forth a true,  complete,
correct and current list of all categories of tangible  personal property (other
than Inventory),  including, without limitation, equipment, furniture, leasehold
improvements,  fixtures, vehicles, structures, any related capitalized items and
other similar tangible property, in each case owned or leased by the Company and
material to the Business (collectively, the "Tangible Property") together with a
description of all leases or subleases of Tangible Property to which the Company
(on behalf of the  Business) is the lessor,  sublessor,  lessee or sublessee and
all options to purchase or sell the underlying  property.  The Tangible Property
is free from  material  defects  (patent and  latent),  has been  maintained  in
accordance with normal  industry  practice,  is in good operating  condition and
repair  (subject to normal wear and tear),  and is suitable for the purposes for
which it presently is used.

     III.12 Intellectual Property.

     (a)  The Company  owns or is licensed  to use all  "Intellectual  Property"
          that is necessary for the conduct of the  Business,  free and clear of
          any  Liens of any kind  that may  interfere  with the  conduct  of the
          Business.  Except as disclosed in Schedule  3.12, the Company is not a
          party to any agreement limiting the use of Intellectual Property.

     (b)  No  litigation  is  pending  or,  to the  knowledge  of  the  Company,
          threatened,  that challenges the validity,  enforceability,  ownership
          of, or right to use,  sell,  license or  dispose  of any  Intellectual
          Property,  nor does the Company know of any valid grounds for any such
          claim.



                                       33

<PAGE>


     (c)  None of the material  trade  secrets of the Company as are material to
          the  Business  has been  disclosed  to any Person,  except as required
          pursuant to the filing of a patent application by the Company,  unless
          such  disclosure  was  necessary  and the use was made  pursuant  to a
          confidentiality  agreement.  All  such  trade  secrets  are  protected
          against  their  use by  other  Persons  to an  extent  and in a manner
          customary in the industries in which the Company operates, except that
          the Company has not required its employees to sign  confidentiality or
          similar agreements.

     III.13 ERISA. The Company has provided to the Purchaser a true, correct and
complete copy of each Company Plan, or if no copy exists, a written  description
thereof.   All  of  the  Company  Plans  are,  and  have  been   maintained  and
administered,  in all  material  respects  in  compliance  with  all  applicable
requirements  of ERISA and the Internal  Revenue  Code of 1986,  as amended (the
"Code"),  to the extent  such  Company  Plans are subject to ERISA and the Code.
Each Company Plan that is intended to be a qualified  plan under Section  401(a)
of the Code has received all necessary favorable  determination letters from the
Internal  Revenue  Service and, to the Company's  knowledge,  such Company Plans
have not been operated in any way which would  adversely  affect their qualified
status.  As a result of the  transactions  contemplated by this  Agreement,  the
Purchaser shall have no liability with respect to any Company Plan maintained by
the  Company or any trade or  business  under  common  control  with the Company
within the meaning of Section 414(b),  (c) or (m) of the Code.  Other than usual
claims for benefits arising under the Company Plans in the normal course,  there
are no pending claims, and the transactions  contemplated by this Agreement will
not give rise to any material claims, suits or proceedings which might cause the
Company to incur liability to any employee under any Company Plan, including any
liability  for  severance  payments to any  employee  or former  employee of the
Company,  which may have a Material  Adverse  Effect after the Closing Date upon
the Assets, the Division, the Business or the Purchaser.

     III.14 Title; Liens. At the Closing,  Company will deliver to Purchaser one
or more Forms UCC-2 -- Termination  Statement  from National Bank of Canada.  At
such time as the Termination  Statements are properly filed with the appropriate
state agency, except as set forth on Schedule 3.14, the title to the Assets will
be in each case free and  clear of any Lien and the  Company  will have good and
marketable title to the Assets.

     III.15  Compliance  with Laws.  Except as set forth in Schedule  3.15,  the
Company (a) is in compliance  with all, and not in violation of any, and has not
received  any  claim or  notice  that it is not in  compliance  in any  material
respect with, or that it is in violation in any material  respect of, any Law or
Order to which the Business or any of the Assets (including the use thereof) are
subject and (b) has not failed to obtain or to adhere to the requirements of any
governmental  permit,  license,  registration and other governmental  consent or
authorization  necessary in  connection  with the Business or the Assets,  which
failure  would have a Material  Adverse  Effect  after the  Closing  Date on the
Business,  the  Assets,  the  Division  or  Purchaser.  The  Company has advised
Purchaser in writing of any  proposed  health or other law,  rule or  regulation
which, to its knowledge, could reasonably be expected to have a Material Adverse
Effect on the Business,  the Division,  the Assets or Purchaser on or which,  to
its knowledge,  could reasonably be expected to require  substantial new capital
investments by Purchaser in the Business.


                                       34

<PAGE>


     III.16 Entire Business.  Except as otherwise  provided herein,  the sale of
the Assets to be sold by the Company to  Purchaser  pursuant  to this  Agreement
will  convey to  Purchaser  the  entire  Business  and all of the  tangible  and
intangible  property used by the Company  (whether  owned,  leased or held under
license by the Company,  by any of the  Company's  Affiliates,  Associates or by
others,  including,  without  limitation,  any of the  assets  of the  Business)
primarily in connection with the conduct of the Business as heretofore conducted
by the  Company  or held at the  primary  location  of the  Business.  Except as
disclosed in Schedule 3.16, there are no material facilities,  services,  assets
or properties  shared with any other Person which are used by the Company in the
Business.

     III.17  Brokers.  All  negotiations  relative  to  this  Agreement  and the
transactions  contemplated  hereby have been carried out by the Company directly
with Purchaser  without the  intervention of any person on behalf of the Company
in such  manner  as to give  rise  to any  valid  claim  by any  Person  against
Purchaser  for a finder's fee,  brokerage  commission  or similar  payment.  Any
brokers or finders  retained by the Company or the Division shall be entitled to
a fee only upon completion of the  transactions  contemplated by this Agreement.
The Company agrees that it shall be solely responsible to pay the fees and costs
of any broker or finder which it has retained.

     III.18 Environmental, Health and Safety Laws.

     (a)  Each of the  Company,  its  Affiliates  and,  to its  knowledge,  it's
          predecessors  has complied with all  Environmental,  Health and Safety
          Laws, and no action, suit, proceeding, hearing, investigation, charge,
          complaint,  claim,  demand,  or  notice  has been  filed or  commenced
          against  any of  them  alleging  any  failure  so to  comply.  Without
          limiting  the  generality  of  the  preceding  sentence,  each  of the
          Company,  its Affiliates and, to its knowledge,  its  predecessors has
          obtained and been in compliance  with all of the terms and  conditions
          of all permits,  licenses, and other authorizations which are required
          under,  and has  complied  with all other  limitations,  restrictions,
          conditions,  standards,   prohibitions,   requirements,   obligations,
          schedules,  and timetables which are contained in, all  Environmental,
          Health and Safety Laws.

     (b)  None of the Company or its  Affiliates  has any Liability (and none of
          the Company,  its Affiliates and, to its knowledge,  its  predecessors
          has handled or disposed of any substance, arranged for the disposal of
          any  substance,  exposed  any  employee  or  other  individual  to any
          substance or condition,  or owned or operated any property or facility
          in any  manner  that  could  form the basis for any  present or future
          action, suit, proceeding, hearing,  investigation,  charge, complaint,
          claim, or demand against any of the Company and its Affiliates  giving
          rise to any  Liability) for damage to any site,  location,  or body of
          water (surface or  subsurface),  for any illness of or personal injury
          to any  employee  or other  individual,  or for any  reason  under any
          Environmental, Health, and Safety Law.

     (c)  All properties and equipment used in the business of the Company,  its
          Affiliates and, to its knowledge,  its predecessors  have been and are
          free  of  asbestos,  PCB's,  methylene  chloride,   trichloroethylene,
          1,2-transdichloroethylene,   dioxins,  dibenzofurans,   and  Extremely
          Hazardous Substances.

                                       35

<PAGE>


     (d)  Notwithstanding anything contained herein to the contrary, the Company
          shall not be deemed to be in breach of this Section 3.18 if the breach
          of any of the  representations  and  warranties  contained  in Section
          3.18(a), (b) and (c) does not have a Material Adverse Effect after the
          Closing upon the Assets, the Division, the Business or the Purchaser.

     III.19  Restrictions on Common Shares.  The Common Stock when issued to the
Company, will constitute "restricted securities" as that term is defined in Rule
144, as  promulgated  under the  Securities Act of 1933, as amended (the "Act"),
and as such may not be transferred except pursuant to an effective  registration
statement  filed  under  the Act,  or  pursuant  to a valid  exemption  from the
registration  requirements  of the Act.  Except as  provided  in the  Investors'
Rights Agreement dated of even date herewith, neither TMCI nor the Purchaser has
any obligation,  whatsoever,  to register the Common Stock under the Act and has
no present  intention to so register the Common Stock. If the Company desires to
sell or transfer any interest in the Common Stock  pursuant to an exemption from
registration  under the Act and under state  securities  laws, the Company shall
first  provide the  Purchaser  with a description  of the  circumstances  and an
opinion of counsel  reasonably  satisfactory  to counsel to Purchaser  that such
sale or transfer is so exempt.  Investor  understands  that resale to the public
will not be available for at least two years under Rule 144. The Common Stock is
being acquired by the Company for investment  purposes only,  solely for its own
account,  and  without  any  present  intention  of  participating  directly  or
indirectly  in the  distribution  or resale of all or any  portion of the Common
Stock  then  being  acquired.  The  following  legend  shall be placed  upon the
certificate or certificates representing the Common Stock:

     The shares  represented by this  certificate have not been registered under
the Securities Act of 1933. The shares have been acquired for investment and may
not be sold, transferred or assigned in the absence of an effective registration
statement for these shares under the Securities Act of 1933 or an opinion of the
Company's  [TMCI  Electronics,  Inc.] counsel that  registration is not required
under said Act.

     In addition,  an  appropriate  legend for the State of California  shall be
placed  upon the  certificates.  Purchaser  may  place a "stop  transfer  order"
regarding the Common Stock with its transfer agent as appropriate to comply with
the requirements of this Section 3.19.

     III.20 Accounts  Receivable.  All accounts  receivable of the Company which
are sixty (60) days or less past due are  reflected  properly  in the  Unaudited
Financial   Statements,   are  valid  receivables   subject  to  no  setoffs  or
counterclaims,  are collectible, and will be collected within one hundred eighty
(180) days, in accordance  with their terms at their recorded  amounts,  subject
only  to the  reserve  for  bad  debts  set  forth  in the  Unaudited  Financial
Statements as adjusted for the passage of time through the Closing Date, subject
to Purchaser and TMCI using their normal and customary collection practices. The
amount of the accounts receivable subject to this paragraph 3.20 is four hundred
twenty thousand nine hundred forty-eight  dollars ($420,948).  To the extent the
sixty (60) days or less past due accounts  receivable  are not collected  within
the  aforementioned  one  hundred  eighty  (180) day  period,  the amount of the
uncollected receivables shall be offset against the Holdback Stock.

                                       36


<PAGE>


     III.21  Relationship  With  Customers.  The Company has not received notice
from any of its material customers that such customer intends to discontinue its
business relationship with the Division.

     III.22  Securities.  The Company is an "accredited  investor" as defined in
Rule 501(a) of Regulation D promulgated under the Act. The Company  acknowledges
that TMCI has  delivered to it its  Prospectus  dated March 5, 1996,  its Annual
Report on Form  10-KSB  for the  fiscal  year ended  December  31,  1995 and its
Quarterly Report on Form 10-QSB for the quarter ended June 30, 1996. The Company
has had the  opportunity  to review and discuss the  above-referenced  documents
with TMCI and has had the  opportunity  to ask questions  and make  inquiries of
representatives  of  TMCI  regarding  TMCI's  financial  condition,  assets  and
operations and the Company has received  satisfactory  answers to such questions
and inquiries.

     III.23  Disclosure.  None of the  representations,  warranties or covenants
contained in this  Agreement,  nor in any Schedule or Exhibit hereto contains or
will  contain an untrue  statement of a material  fact or omits a material  fact
necessary to make the statements contained herein or therein not misleading.

     III.24 Equipment. All equipment used in the operation of the Business is in
good operating condition, ordinary wear and tear excepted.

                                   ARTICLE IV
              REPRESENTATIONS AND WARRANTIES OF PURCHASER AND TMCI

     Purchaser and TMCI represent and warrant to the Company with knowledge that
Company is relying upon such representation and warranties in entering into this
Agreement,  and that the  statements  contained  in this  Article  IV are  true,
correct, complete and current as of the date of this Agreement.

     IV.1  Organization and  Capitalization  of TMCI. TMCI is a corporation duly
organized and validly  existing and in good standing under the laws of the State
of Delaware and has all  requisite  corporate  power and  authority to (a) enter
into this Agreement and to perform its obligations hereunder, (b) own, lease and
operate its properties and assets as they are now owned, leased and operated and
(c) carry on its business as now conducted. The authorized capital stock of TMCI
as of the Closing Date consists of 25,000,000  shares of common stock, par value
$0.001  per  share  of which  approximately  3,365,600  shares  are  issued  and
outstanding.

     IV.2  Organization  and   Capitalization  of  Purchaser.   Purchaser  is  a
corporation  duly organized and validly  existing and in good standing under the
laws of the  State of  California  and has all  requisite  corporate  power  and
authority  to (a) enter  into this  Agreement  and to  perform  its  obligations
hereunder,  (b) own, lease and operate its properties and assets as they are now
owned, leased and operated and (c) carry on its business as now conducted.
Purchaser is the wholly-owned subsidiary of TMCI.


                                       37

<PAGE>


     IV.3 Validity and Execution of Agreement.  Purchaser and TMCI have the full
legal right,  capacity and power and have all requisite  corporate authority and
approval  required to enter into,  execute and  deliver  this  Agreement  and to
perform  fully its  obligations  hereunder.  The Boards of Directors of TMCI and
Purchaser have approved the transactions contemplated pursuant to this Agreement
and each of the other documents  contemplated by this Agreement.  This Agreement
constitutes   the  valid  and  binding   obligation   of  TMCI  and   Purchaser,
respectively,  enforceable  against TMCI and  Purchaser in  accordance  with its
terms,  except as such  enforcement  may be limited by  bankruptcy,  insolvency,
reorganization,  moratorium or other similar laws  affecting the  enforcement of
creditors' rights in general and by general principles of equity.

     IV.4 No Conflict.  Neither the execution and delivery of this  Agreement by
TMCI and Purchaser nor the performance by TMCI and Purchaser of the transactions
contemplated  hereby will: (a) violate or conflict with any of the provisions of
the  articles  of  incorporation  or by-laws of TMCI and  Purchaser  (or similar
governing  documents)  as the case may be,  (b)  violate  or  conflict  with any
provisions of any Law or Order  applicable to TMCI or Purchaser;  or (c) require
any  consent  or  approval  by or  filing  or notice  with any  Governmental  or
Regulatory Body.

     IV.5  Brokers.  All  negotiations   relative  to  this  Agreement  and  the
transactions  contemplated  hereby have been  carried out by TMCI and  Purchaser
directly with the Company  without the  intervention  of any Person on behalf of
Purchaser  in such  manner  as to give  rise to any  valid  claim by any  Person
against the Company for a finder's fee, brokerage commission or similar payment,
except to The Bentley Companies  ("Bentley").  All amounts so payable to Bentley
shall be paid by TMCI or the Purchaser.

     IV.6 Articles of  Incorporation  and Bylaws.  TMCI and Purchaser  have each
heretofore  delivered to the Company true,  correct and complete copies of their
Articles of Incorporation and Bylaws or similar  governing  documents as in full
force and effect on the date hereof.

     IV.7  Delivery of  Documents.  TMCI has  delivered to the Company its true,
correct,  complete and current Prospectus dated March 5, 1996, its Annual Report
on Form  10-KSB for the fiscal  year ended  December  31,  1995,  its  quarterly
reports  on Form  10-QSB for the  quarter  ended  June 30,  1996.  Each of these
documents contain the information  required to be included therein by applicable
law and as to such required  information do not contain any untrue statements of
material fact or omit a material fact necessary to make the statements contained
thereof not misleading.  Each audited and unaudited financial statement (and the
notes  relating  thereto)  contained in such reports was prepared in  accordance
with generally accepted accounting  principles  consistently  applied (except as
otherwise  indicated  therein) and fairly  presents the  consolidated  financial
condition of TMCI and its subsidiaries as of the respective date thereof and the
related consolidated results of operations, stockholders' equity, and cash flows
or changes in financial  position,  as applicable,  of TMCI and its subsidiaries
for and during the respective period covered thereby.

     IV.8 Consents and  Approvals.  Except for Form 8-K, no consent  approval or
authorization of, or declaration,  filing or registration with, any third party,
including any governmental or regulatory authority, United States or foreign, is
required in connection  with the  execution,  delivery and  performance  of this
Agreement by TMCI or Purchaser.

                                       38

<PAGE>


     IV.9 Absence of Certain Changes or Events.  Except as previously  disclosed
to the  Company,  since  September  30, 1996 there has been no material  adverse
change in the assets,  properties,  business,  operations,  income or  condition
(financial or otherwise) of TMCI or Purchaser nor is any such change threatened,
nor has there been any damage,  destruction  or loss which could have a Material
Adverse  Effect  after the  Closing  Date on TMCI or  Purchaser,  whether or not
covered by insurance. TMCI has not (i) declared any dividend or made any payment
or other distribution with respect to its shares of capital stock, (ii) acquired
or disposed of any shares of its capital stock or granted any options,  warrants
or other  rights to  acquire or convert  any  obligation  into any shares of its
capital stock, (iii) sold, assigned, transferred, conveyed or otherwise disposed
of, or agreed to sell or dispose of, a substantial portion of its assets, except
for sales of inventory in the ordinary course of business, (iv) entered into any
transaction of merger or consolidation  with any other entity,  or (v) agreed or
entered into any commitment to take any of the above actions.

     IV.10  Litigation.  Except  as set  forth on  Schedule  4.9,  there  are no
outstanding Orders by which TMCI or Purchaser, or any of its securities, assets,
properties or businesses  are bound.  Except as set forth on Schedule 4.9, there
is no Action or  Proceeding  pending or, to the  knowledge  of TMCI or Purchaser
threatened (whether or not the defense thereof or liabilities in respect thereof
are covered by insurance)  against or affecting  TMCI or Purchaser or any of its
assets, properties or businesses,  including without limitation the Business and
the Assets,  which if adversely  decided  would have a Material  Adverse  Effect
after the Closing on TMCI or Purchaser, nor are there any facts which are likely
to give rise to any such Action or Proceeding which if adversely decided,  would
have a Material  Adverse Effect after the Closing on TMCI,  the  Purchaser,  the
Business, the Division or the Assets.

     IV.11 Status of Shares. The Common Stock when issued in accordance with the
terms of this Agreement will be duly authorized,  validly issued, fully paid and
nonassessable and free of liens,  encumbrances or preemptive rights contained in
the Certificate of Incorporation or Bylaws of TMCI; provided,  however, that the
Common  Stock may be subject to  restrictions  on transfer  under  state  and/or
federal  securities laws and the Holdback Stock and Earn Out Stock is subject to
forfeiture as provided in this Agreement.

     IV.12  Disclosure.  None of the  representations,  warranties  or covenants
contained in this Agreement,  any document  provided by TMCI or Purchaser to the
Company,  nor in any  Schedule  or  Exhibit  hereto  made by TMCI or  Purchaser,
contains  or will  contain  any untrue  statement  of  material  fact or omits a
material fact necessary to make the statements  contained  herein or therein not
misleading.

                                    ARTICLE V
                       CONDITIONS PRECEDENT TO THE CLOSING

     V.1  Conditions  Precedent to the  Obligations of Purchaser to Complete the
Closing. The obligations of Purchaser to enter into and complete the Closing are
subject  to the  fulfillment  at or  prior  to  the  Closing  of  the  following
conditions, any one or more of which may be waived by Purchaser:


                                       39


<PAGE>


     (a)  Representations,  Warranties and Covenants.  The  representations  and
          warranties of the Company  contained in this Agreement  shall be true,
          complete and correct in all material respects.

     (b)  Consents,  Waivers, Licenses,  Filings, etc. The consents,  approvals,
          authorizations,  licenses,  registrations,   declarations  or  filings
          listed on Schedule  3.3, if any,  hereto  shall have been  obtained or
          made, as the case may be.

     (c)  Third Party  Consents.  Except as otherwise  waived by Purchaser,  all
          ----- -----  ---------
          consents,  permits and  approvals  from  parties to contracts or other
          agreements  with  the  Company  set  forth  on any  Schedule  to  this
          Agreement,  including,  but not limited to, the Assignable  Contracts,
          and any  other  material  consent,  permit  or  approval  that  may be
          required  in  connection  with the  performance  by the Company of its
          obligations   under  this  Agreement  or  the   consummation   of  the
          transactions  contemplated by this Agreement or the continuance of the
          Company's  contracts  or other  agreements  with  Purchaser  after the
          Closing shall have been obtained.

     (d)  Injunction,  etc.  At the  Closing,  there  shall  not  be  any  Order
          outstanding  against any party hereto or Law promulgated that prevents
          consummation of the transactions contemplated by this Agreement or any
          of the conditions to the consummation of the transactions contemplated
          by this  Agreement  or would be  likely to have any  Material  Adverse
          Effect on the Business or the Assets to be purchased hereunder.

     (e)  Opinion of Counsel to the Company.  Purchaser shall have been provided
          with an opinion of Parsons Behle & Latimer, counsel to the Company, in
          form and substance satisfactory to Purchaser and dated the date of the
          Closing.

     (f)  Approval  of  Counsel  to  Purchaser.   All  actions  and  proceedings
          hereunder and all documents and other papers  required to be delivered
          by the Company hereunder or in connection with the consummation of the
          transaction  contemplated  hereby and all other related  matters shall
          have  been  approved  by  Rosenblum,   Parish  &  Isaacs,  counsel  to
          Purchaser, as to their form and substance, which approval shall not be
          unreasonably withheld.

     (g)  Conveyancing Documents.  The Company shall have executed and delivered
          to Purchaser an Assignment  and Assumption  Agreement (an  "Assignment
          and Assumption  Agreement") in  substantially  the form of Exhibit "F"
          hereto,  and  such  further   instruments  and  documents  as  may  be
          reasonably requested by Purchaser in order to complete the transfer of
          the Assets to Purchaser  and as may be necessary  for the  Purchaser's
          operation of the Business.

     (h)  Earn Out  Agreement.  The Company shall have executed and delivered to
          Purchaser the Earn Out Agreement.

     (i)  Investors'  Rights  Agreement.  The Company  shall have  executed  and
          delivered  to  Purchaser an  Investors'  Rights  Agreement in form and
          substance satisfactory to both parties hereto.


                                       40


<PAGE>


     (j)  Strategic  Marketing and  Manufacturing  Agreement.  The Company shall
          have  executed  and  delivered  to  Purchaser  and TMCI the  Strategic
          Marketing   and   Manufacturing   Agreement  in  form  and   substance
          satisfactory to both parties hereto.

     (k)  Subordination Agreement. The Company shall have executed and delivered
          to  Purchaser  and  TMCI  the  Subordination  Agreement  in  form  and
          substance satisfactory to both parties hereto.

     (l)  Resolutions.  The Company shall have  delivered to Purchaser a copy of
          the resolution of its Board of Directors authorizing and approving the
          execution of this Agreement and the  consummation of the  transactions
          contemplated hereby.

     V.2 Conditions  Precedent to the Obligations of the Company to Complete the
Closing.  The  obligations of the Company to enter into and complete the Closing
are subject to the  fulfillment  on or prior to the  Closing,  of the  following
conditions, any one or more of which may be waived by the Company:

     (a)  Representations,   Warranties  and  Covenants.   The  representations,
          warranties and covenants of Purchaser and TMCI shall be true, complete
          and correct in all material respects.

     (b)  Injunction,  etc.  At the  Closing,  there  shall  not  be  any  Order
          outstanding  against any party hereto or Law promulgated that prevents
          consummation of the transactions contemplated by this Agreement or any
          of the conditions to the consummation of the transaction  contemplated
          by this  Agreement  or would be  likely to have any  Material  Adverse
          Effect on the  Business  or the Assets to be  purchased  by  Purchaser
          hereunder.

     (c)  Opinion of Counsel to  Purchaser.  Purchaser  shall have been provided
          with an opinion of  Rosenblum,  Parish & Isaacs,  counsel to Purchaser
          and TMCI, in form and substance  satisfactory to the Company and dated
          the date of the Closing.

     (d)  Delivery of Purchase  Price.  Purchaser  shall have  delivered  to the
          Company  the  Cash  Payment,   the  Promissory   Notes,  and  a  stock
          certificate  representing fifty three thousand six hundred eight-eight
          (53,688) shares of TMCI's common stock.

     (e)  Delivery  of  Security  Agreements.  Purchaser  and  TMCI  shall  have
          delivered to the Company the Security  Agreement and  underlying  Form
          UCC-1 and caused to be delivered to the Company the Guaranty.

     (f)  Conveyancing  Documents.  Purchaser  and TMCI shall have  executed and
          delivered to the Company the Assignment and Assumption Agreement.

     (g)  Resolutions.  Purchaser and TMCI shall have delivered to the Company a
          copy  of the  resolution  of  their  respective  Boards  of  Directors
          authorizing  and  approving  the  execution of this  Agreement and the
          consummation of the transactions contemplated hereby.

                                       41


<PAGE>


     (h)  Investors'  Rights  Agreement.  Purchaser and TMCI shall have executed
          and  delivered to the Company an Investors'  Rights  Agreement in form
          and substance satisfactory to both parties hereto.

     (i)  Strategic  Marketing and  Manufacturing  Agreement.  The Purchaser and
          TMCI shall have  executed and  delivered to the Company the  Strategic
          Marketing   and   Manufacturing   Agreement  in  form  and   substance
          satisfactory to both parties hereto.

     (j)  Earn Out Agreement. The Purchaser shall have executed and delivered to
          the Company the Earn Out Agreement.

     (k)  Subordination  Agreement.  The  Purchaser and TMCI shall have executed
          and delivered to the Company the  Subordination  Agreement in form and
          substance satisfactory to both parties hereto.

     (l)  Approval of Counsel to Company. All actions and proceedings  hereunder
          and all  documents  and other  papers  required to be delivered by the
          Purchaser and TMCI hereunder or in connection with the consummation of
          the  transaction  contemplated  hereby and all other  related  matters
          shall have been  approved by Parsons  Behle & Latimer,  counsel to the
          Company,  as to their form and substance,  which approval shall not be
          unreasonably withheld.

                                   ARTICLE VI
                             POST-CLOSING COVENANTS

     The parties covenant to take the following actions after the Closing Date:

     VI.1 Further Information.  Following the Closing, each party will afford to
the other party, its counsel and its accountants,  during normal business hours,
reasonable  access to the  books,  records  and  other  data of the  Company  or
relating  to the  Business,  the  Assets,  or  the  Assumed  Liabilities  in its
possession  with  respect to periods  prior to the Closing and the right to make
copies and extracts therefrom,  to the extent that such access may be reasonably
required by the requesting party (a) to facilitate the investigation, litigation
and final  disposition  of any claims which may have been or may be made against
any party or its Affiliates and (b) for any other reasonable business purpose.

     VI.2 Record Retention. Each party agrees that for a period of not less than
seven (7) years  following  the Closing  Date, it shall not destroy or otherwise
dispose of any of the Records relating to the Business,  the Assets, the Assumed
Liabilities,  or the Company in its possession  with respect to periods prior to
the  Closing.  Each party  shall  have the right to destroy  all or part of such
Records after the seventh anniversary of the Closing Date or, at an earlier time
by giving each other party hereto thirty (30) days prior written  notice of such
intended  disposition  and by offering to deliver to the other  parties,  at the
other  parties'  expense,  custody  of such  Records as such party may intend to
destroy.



                                                               42

<PAGE>



     VI.3 Transfer and Property Taxes. The Company agrees to pay all sales, use,
transfer,  real property  transfer,  recording,  gains, stock transfer and other
similar taxes and fees  ("Transfer  Taxes") arising out of or in connection with
the  transactions  effected  pursuant to this  Agreement,  and shall  indemnify,
defend and hold  harmless the  Purchaser  and TMCI with respect to such Transfer
Taxes. The Company shall file all necessary  documentation  and Tax Returns with
respect to such Transfer  Taxes.  Personal  property taxes assessed  against the
Assets for the year 1996 shall be prorated as of the Closing Date.

     VI.4 Post-Closing Assistance.  The Company, on the one hand, and Purchaser,
on the  other  hand,  will  provide  each  other  with  such  assistance  as may
reasonably be requested in connection  with the  preparation  of any Tax Return,
any audit or other  examination  by any taxing  authority,  or any  judicial  or
administrative proceedings relating to liability for Taxes, and each will retain
and provide the  requesting  party with any records or  information  that may be
reasonably  relevant  to such  return,  audit  or  examination,  proceedings  or
determination.  The party requesting  assistance shall reimburse the other party
for  reasonable  out-of-pocket  expenses  (other  than  salaries or wages of any
employees of the parties) incurred in providing such assistance. Any information
obtained  pursuant to this Section 6.4 or pursuant to any other  Section  hereof
providing  for the  sharing  of  information  or the review of any Tax Return or
other  schedule  relating  to Taxes  shall be kept  confidential  by the parties
hereto.

     VI.5 Non-Compete.

     (a)  Company's  Covenants  Against  Competition.  In consideration  for the
          ---------  ---------  -------  ------------
          payment  by  Purchaser  of the  Purchase  Price on the  Closing  Date,
          Company for itself (and for and on behalf of its current  officers and
          directors)  agrees  that it will not at any time  within  the four (4)
          year  period  immediately  following  the  Closing  Date  ("Restricted
          Period"),  directly or  indirectly,  engage in, or have any  ownership
          interest in any person, firm,  corporation,  or business which engages
          in,  in  any  way,  (i)  the  manufacturing  of  harness,  ribbon,  or
          non-molded   specialty  cables  ("Restricted   Products")  within  the
          counties of Alameda,  Contra Costa,  Marin, San Francisco,  San Mateo,
          Santa Clara,  Sacramento,  Santa Cruz, or Sonoma,  State of California
          ("Restricted  Area");  or (ii)  soliciting  orders for or selling  the
          Restricted   Products  to  any  customers  in  the   Restricted   Area
          ("Purchaser's   Restricted   Customers").   Notwithstanding   anything
          contained herein to the contrary,  the restrictions  contained in this
          6.5(a)  shall not preclude  the Company  from  directly or  indirectly
          engaging in, or having any interest in any person,  firm,  corporation
          or business which engages in, in any way  manufacturing the Restricted
          Products  in any area  outside of the  Restricted  Area (as long as it
          does not sell to any of  Purchaser's  Restricted  Customers) nor shall
          the restriction,  set forth above preclude in any way the Company from
          selling to or soliciting  orders from any customers in the  Restricted
          Area for  molded  cables  or any  product  which  is not a  Restricted
          Product.  Notwithstanding  the foregoing,  neither the Company nor any
          officer or director of the Company  shall be in breach of this Section
          6.5(a)  merely  because  it  owns  five  percent  (5%)  or less of the
          outstanding  common  stock of a  corporation,  if,  at the time of the
          acquisition  of  such  stock  by  the  Company  (or  its  officers  or
          directors), such stock is listed on a national securities exchange, is
          quoted on  NASDAQ,  or is  regularly  traded  in the  over-the-counter
          market by a member of a national securities exchange.



                                       43


<PAGE>






     (b)  Purchaser's and TMCI's Covenants Against  Competition;  Acknowledgment
          of Confidential Information and Trade Secrets.

          (i)  Purchaser  and TMCI  acknowledge  and agree that the  Company has
               invested  significant amounts of time and money in developing its
               molded  specialty  cable business and that Company would not sell
               the Assets to Purchaser but for the  agreements  and covenants of
               the Purchaser contained in this Section 6.5(b). Accordingly,  the
               Purchaser and TMCI for themselves  (and for and on behalf of each
               of their respective Affiliates) each covenants and agrees that it
               will not at any time, during the Restricted  Period,  directly or
               indirectly  engage  in,  or have any  ownership  interest  in any
               person,  firm,  corporation,  or business that engages in, in any
               way, the  manufacturing  of, the sale of or the  solicitation  of
               orders for molded specialty cables to or from any customer in the
               State of  California  to which the Company is  currently  selling
               such  products  ("Company's  Restricted  Customers").  A list  of
               certain of the Company's  customers  ("Company's  Customer List")
               which  includes  the  Company's   Restricted  Customers  will  be
               delivered by the Company to Purchaser at Closing. Notwithstanding
               anything  contained  herein to the contrary,  this Section 6.5(b)
               shall not  preclude  Purchaser  from  selling  to nor  soliciting
               orders  from the  Company's  Restricted  Customers  for  harness,
               ribbon  and  non-molded  specialty  cables  or  from  selling  or
               soliciting   orders  from  persons  who  are  not  the  Company's
               Restricted Customers for Molded Specialty Cables. Notwithstanding
               the  foregoing,  neither  Purchaser,  TMCI nor any  affiliate  of
               Purchaser  or TMCI  shall be in  breach  of this  Section  6.5(b)
               merely  because  it  owns  five  percent  (5%)  or  less  of  the
               outstanding common stock of a corporation, if, at the time of the
               acquisition of such stock by Purchaser, TMCI (or any affiliate of
               Purchaser or TMCI), such stock is listed on a national securities
               exchange,  is quoted on  NASDAQ,  or is  regularly  traded in the
               over-the-counter  market  by a member  of a  national  securities
               exchange.

          (ii) During and after the Restricted Period,  Purchaser, TMCI and each
               Affiliate  shall keep secret and retain in strictest  confidence,
               and shall not use for the benefit of itself or himself or others,
               any  and  all  confidential   information  with  respect  to  the
               operations by the Company of its molded  specialty cable business
               learned by TMCI, the Purchaser and each  Affiliate  heretofore or
               hereafter  directly or  indirectly  from the Company,  including,
               without  limitation,  information with respect to (a) prospective
               facilities,  (b) sales figures,  (c) profit or loss figures,  (d)
               customers,  clients,  suppliers,  sources of supply and  customer
               lists  (including  those  entities  designated  on the  Company's
               Customer List) and (e) pricing information ("Confidential Company
               Information"),  and shall not disclose such Confidential  Company
               Information  to  anyone  outside  of  Purchaser,   TMCI  and  its
               Affiliates  except with the Company's express written consent and
               except for Confidential  Company  Information which (i) is at the
               time of receipt or thereafter  becomes  publicly known through no
               wrongful  act of the  Purchaser,  TMCI or an Affiliate or (ii) is
               received  from a third party not under an obligation to keep such
               information  confidential  and without breach of this  Agreement.
               Notwithstanding   anything  contained  herein  to  the  contrary,
               Purchaser,  TMCI  and  its  Affiliates  shall  not  disclose  the
               Confidential  Company  Information  to any person or entity which
               subsequent to the date hereof directly or indirectly acquires the
               Purchaser,   TMCI  and,  thereby  becomes  an  affiliate  of  the
               Purchaser  or TMCI.  Purchaser  and TMCI hereby  acknowledge  and
               agree that the  Company's  Customer List is the  proprietary  and
               confidential  information  of the Company  and is a trade  secret
               under the laws of the State of California.


                                       44

<PAGE>


     (c)  Rights and  Remedies of Purchaser  Upon Breach.  If the Company or any
          ------ ---  -------- -- ---------  ---- -------
          Affiliate  breaches,  or  threatens  to commit a breach of, any of the
          provisions of Section 6.5(a) (the "Company's Restrictive  Covenants"),
          Purchaser shall have the following rights and remedies,  each of which
          rights and remedies  shall be  independent  of the other and severally
          enforceable and shall not be affected by the provisions of Article VI,
          and all of which rights and remedies  shall be in addition to, and not
          in lieu of, any other rights and remedies available to Purchaser under
          law or in equity:

          (i)  The right and remedy to have the Company's  Restrictive Covenants
               specifically  enforced  (without  posting  any bond) by any court
               having equity jurisdiction,  including,  without limitation,  the
               right  to an entry  against  the  Company  or such  Affiliate  of
               restraining  orders  and  injunctions  (preliminary,   mandatory,
               temporary  and  permanent)  against  violations,   threatened  or
               actual, and whether or not then continuing, of such covenants, it
               being  acknowledged and agreed that any such breach or threatened
               breach will cause irreparable  injury to Purchaser and that money
               damages will not provide adequate remedy to Purchaser.

          (ii) The right and remedy to require the Company or such  Affiliate to
               account for and pay over to  Purchaser  all profits  ("Benefits")
               derived or received by such person the result of any transactions
               constituting  a  breach  of  any  of  the  Company's  Restrictive
               Covenants,  and such person  shall  account for and pay over such
               Benefits to Purchaser.

     (d)  Rights and Remedies of Company Upon Breach.  If the  Purchaser or TMCI
          ------ --- -------- -- ------- ---- -------
          or any Affiliate breaches,  or threatens to commit a breach of, any of
          the provisions of Section 6.5(b) ("TMCI's Restrictive Covenants"), the
          Company shall have the following  rights and remedies (upon compliance
          with any necessary  prerequisites imposed by law upon the availability
          of  such  remedies),  each of  which  rights  and  remedies  shall  be
          independent  of the other and severally  enforceable  and shall not be
          affected by the  provisions of Article VI, and all of which rights and
          remedies shall be in addition to, and not in lieu of, any other rights
          and remedies available to the Company under law or in equity:

          (i)  The right and  remedy to have the  TMCI's  Restrictive  Covenants
               specifically  enforced  (without  posting  any bond) by any court
               having equity jurisdiction,  including,  without limitation,  the
               right to an entry against TMCI and Purchaser or such Affiliate of
               restraining  orders  and  injunctions  (preliminary,   mandatory,
               temporary  and  permanent)  against  violations,   threatened  or
               actual, and whether or not then continuing, of such covenants, it
               being  acknowledged and agreed that any such breach or threatened
               breach  will cause  irreparable  injury to the  Company  and that
               money damages will not provide adequate remedy to the Company.

          (ii) The  right and  remedy  to  require  TMCI and  Purchaser  or such
               Affiliate  to  account  for  and  pay  over  to the  Company  all
               compensation,  profits,  monies,  accruals,  increments  or other
               benefits  (collectively,  "Benefits") derived or received by such
               person the result of any  transactions  constituting  a breach of
               any of the TMCI's  Restrictive  Covenants,  and such person shall
               account for and pay over such Benefits to the Company.



                                       45


<PAGE>


     (e)  Severability  of Covenants.  If any court  determines  that any of the
          Company's   Restrictive  Covenants  or  TMCI's  Restrictive  Covenants
          (collectively,  the "Restrictive Covenants"),  or any part thereof, is
          invalid or unenforceable,  the remainder of the Restrictive  Covenants
          shall not thereby be affected and shall be given full effect, without
          regard to the invalid portions.

     (f)  Blue-Pencilling.  If any court  determines that any of the Restrictive
          Covenants,  or any  part  thereof,  is  unenforceable  because  of the
          duration of such  provision  or the area covered  thereby,  such court
          shall have the power to reduce the duration or area of such provisions
          and, in its reduced form, such provision shall then be enforceable and
          shall be enforced.

     (g)  Enforceability in  Jurisdictions.  Purchaser and the Company intend to
          -------------- --  --------------
          and hereby confer  jurisdiction to enforce the  Restrictive  Covenants
          upon the courts of any jurisdiction  within the geographical  scope of
          the  Restrictive  Covenants.  If the courts of any one or more of such
          jurisdictions hold the Restrictive  Covenants wholly  unenforceable by
          reason of the breadth of such scope or otherwise,  it is the intention
          of Purchaser and the Company that such determination not bar or in any
          way affect Purchaser's or the Company's,  as the case may be, right to
          the  relief  provided  above in the  courts of any other  jurisdiction
          within the  geographical  scope of such Restrictive  Covenants,  as to
          breaches  of  such  Restrictive  Covenants  in such  other  respective
          jurisdictions,  such  Restrictive  Covenants  as they  relate  to each
          jurisdiction  being,  for this  purpose,  severable  into  diverse and
          independent covenants,  subject, where appropriate, to the doctrine of
          res judicata.

     VI.6  Delivery of  Certificates.  The Company  will use its best efforts to
provide the  Purchaser  with a sales tax  clearance  certificate  from the State
Board  of  Equalization  and  a  certificate  of no  claims  from  the  Economic
Development Department in a commercially reasonable manner and time.


                                   ARTICLE VII
                            SURVIVAL; INDEMNIFICATION

     VII.1 Survival of  Representations,  Warranties,  Covenants and Agreements.
The  representations,  warranties,  covenants  and  agreements  of the  Company,
Purchaser and TMCI  contained in this  Agreement  will survive the Closing for a
period of three (3) years.

     VII.2 Indemnification of Purchaser. Subject to the limitations contained in
this Article  VII, the Company  agrees to  indemnify,  defend and hold  harmless
Purchaser  and  its  directors,  officers,  shareholders,  partners,  employees,
successors  and  assigns  from  and  against  any  and all  losses,  Liabilities
(including punitive or exemplary damages and fines or penalties and any interest
thereon),  expenses (including fees and disbursements of counsel and expenses of
investigation  and defense),  claims,  liens or other  obligations of any nature
whatsoever  (hereinafter  individually,  a "Loss"  and  collectively,  "Losses")
which,  directly or  indirectly,  arise out of, result from or relate to (a) any
inaccuracy in or any breach of any representation and warranty, or any breach of
any covenant or agreement,  of the Company contained in this Agreement or in any
document or other papers delivered pursuant to this Agreement, (b) any liability
or obligation of the Company which is not an Assumed

                                       46

<PAGE>



Liability,  including  any  sales  or use tax  arising  from  this  transaction,
including,  but not limited to, any  liability  resulting  from the operation of
California Revenue and Tax Code ss. 6811, et seq. (c) the failure of the Company
to comply  with any Bulk Sales or  Transfer  Laws or failure to comply  with any
other applicable laws, rules or regulations and Purchaser's waiver of compliance
with such laws,  including  California  Civil Code ss. 3440,  (d) the  Company's
misappropriation of trade secrets,  or its infringement or alleged  infringement
of any patent, copyright, trademark, servicemark, or any other proprietary right
of any Person, (e) any claims which arise from the operations of the Business by
the Company  prior to the Closing Date other than the Assumed  Liabilities,  (f)
any obligations of the Company for claims under ERISA, and (g) violations of the
Environmental, Health and Safety Laws by the Company prior to the Closing Date.

     VII.3 Indemnification of the Company.  Subject to the limitations contained
in this  Article VII,  Purchaser  and TMCI agree to  indemnify,  defend and hold
harmless  the  Company,  its  respective  directors,   officers,   shareholders,
partners, employees,  successors and assigns from and against any and all Losses
which,  directly or  indirectly,  arise out of, result from or relate to (a) any
inaccuracy in or any breach of any representation and warranty, or any breach of
any covenant or agreement,  of Purchaser  contained in this  Agreement or in any
documents or other papers delivered pursuant to this Agreement,  (b) any Assumed
Liability  assumed by Purchaser  pursuant to Section 2.2, (c)  operations of the
Business by the Purchaser  subsequent to the Closing Date, (d) violations of the
Environment, Health and Safety laws by Purchaser subsequent to the Closing Date,
and (e) the failure by Purchaser to pay any Transfer Taxes.

     VII.4  Method of  Asserting  Claims.  The party  making a claim  under this
Article VII is referred to as the "Indemnified Party" and the party against whom
such  claims  are  asserted  under  this  Article  VII  is  referred  to as  the
"Indemnifying Party." all claims by any Indemnified Party under this Article VII
shall be asserted and resolved as follows:

     (a)  In the event that any claim or demand for which an Indemnifying  Party
          would be liable to an Indemnified  Party hereunder is asserted against
          or  sought to be  collected  from  such  Indemnified  Party by a third
          party, said Indemnified Party shall with reasonable  promptness notify
          in writing the Indemnifying Party of such claim or demand,  specifying
          the basis for such  claim or demand,  and the amount or the  estimated
          amount thereof to the extent then  determinable  (which estimate shall
          not be  conclusive  of the final amount of such claim and demand;  the
          "Claim  Notice");  provided,  however,  that any  failure to give such
          Claim  Notice  will  not be  deemed  a  waiver  of any  rights  of the
          Indemnified  Party except to the extent the rights of the Indemnifying
          Party are actually prejudiced by such failure. The Indemnifying Party,
          upon request of the Indemnified Party, shall retain counsel (who shall
          be reasonably  acceptable to the  Indemnified  Party) to represent the
          Indemnified  Party and shall pay the reasonable fees and disbursements
          of such  counsel  with regard  thereto'  provided,  however,  that any
          Indemnified  Party is hereby  authorized prior to the date on which it
          receives written notice from the Indemnifying  Party  designating such
          counsel,  to retain  counsel,  whose fees and expenses shall be at the
          expense of the Indemnifying Party, to file any motion, answer or other
          pleading  and take such other action  which it  reasonably  shall deem
          necessary to protect its interests or those of the Indemnifying  Party
          until the date on which the  Indemnified  Party  receives  such notice
          from the Indemnifying Party. After the Indemnifying Party shall retain
          such counsel, the Indemnified Party shall have the right to

                                                               47


<PAGE>


          retain its own  counsel,  but the fees and  expenses  of such  counsel
          shall be at the  expense  of such  Indemnified  Party  unless  (x) the
          Indemnifying  Party and the  Indemnified  Party  shall  have  mutually
          agreed to the  retention of such  counsel or (y) the named  parties of
          any such proceeding (including any impleaded parties) include both the
          Indemnifying  Party and the Indemnified  Party and  representation  of
          both parties by the same counsel would be inappropriate  due to actual
          or potential  differing interests between them. The Indemnifying Party
          shall not, in connection with any  proceedings or related  proceedings
          in the same jurisdiction,  be liable for the fees and expenses of more
          than one such firm for the Indemnified Party (except to the extent the
          Indemnified Party retained counsel to protect its (or the Indemnifying
          Party's) rights prior to the selection of counsel by the  Indemnifying
          Party.) If requested by the Indemnifying  Party, the Indemnified Party
          agrees to  cooperate  with the  Indemnifying  Party and its counsel in
          contesting any claim or demand which the Indemnifying Party defends. A
          claim or demand may not be settled by the  Indemnifying  Party without
          the prior written consent of the Indemnified Party (which consent will
          not be unreasonably withheld) unless, as part of such settlement,  the
          Indemnified  Party  shall  receive  a full and  unconditional  release
          reasonably satisfactory to the Indemnified Party.

     (b)  In the event any  Indemnified  Party  shall have a claim  against  any
          Indemnifying  Party hereunder which does not involve a claim or demand
          being  asserted  against or sought to be collected  from it by a third
          party, the Indemnified Party shall send a Claim Notice with respect to
          such claim to the Indemnifying Party.

     (c)  After   delivery  of  a  Claim  Notice,   so  long  as  any  right  to
          indemnification  exists  pursuant to this  Article  VII,  the affected
          parties  each  agree to retain all Books and  Records  related to such
          Claim Notice.  In each instance,  the Indemnified Party shall have the
          right to be kept  fully  informed  by the  Indemnifying  Party and its
          legal counsel with respect to any legal  proceedings.  Any information
          or documents made  available to any party  hereunder and designated as
          confidential by the party providing such  information or documents and
          which is not  otherwise  generally  available  to the  public  and not
          already  within the knowledge of the party to whom the  information is
          provided (unless otherwise covered by the confidentiality provision of
          any other  agreement among the parties  hereto,  or any of them),  and
          except as may be required by applicable law, shall not be disclosed to
          any third Person  (except for the  representatives  of the party being
          provided  with  information,  in which event the party being  provided
          with the information shall request its representatives not to disclose
          any such information which is otherwise  required hereunder to be kept
          confidential).

     VII.5 Limitation on Indemnification.

     (a)  The obligation of the Company under Section 7.2 above shall be limited
          to an amount equal to the Purchase Price.

     (b)  The  indemnification  of the  Purchaser  as set  forth  herein  by the
          Company shall be limited to only those matters  specifically  provided
          in Section  7.2  above;  Purchaser  hereby  releases,  discharges  and
          acquits  the  Company  from  any  other  damage,   claim,   liability,
          deficiency,  loss,  cost or  expense,  known or  unknown  incurred  by
          Purchaser  arising  out of or  resulting  from any  other  matter  not
          specifically  covered or provided in Section 7.2 above. The obligation
          of Purchaser under Section

                                       48

<PAGE>




          7.2 shall be limited to the unpaid portion of the Promissory Notes and
          the  fair  market  value  as of the date  hereof  (determined  without
          discounts  for  restrictions  on  marketability)  of any stock held in
          escrow at the time a claim is  tendered,  excluding  any stock held in
          escrow pursuant to the Earn Out Agreement of equal date hereto.

     (c)  The  indemnification  of the Company by the  Purchaser and TMCI as set
          forth  herein  shall be  limited to only  those  matters  specifically
          provided in Section 7.3 above; the Company hereby releases, discharges
          and acquits the  Purchaser  from any other damage,  claim,  liability,
          deficiency,  loss, cost or expense,  known or unknown  incurred by the
          Company  arising  out  of or  resulting  from  any  other  matter  not
          specifically covered or provided in Section 7.3 above.

                                  ARTICLE VIII
                                  MISCELLANEOUS

     VIII.1  Expenses.  Each of the parties  hereto  shall pay its own  expenses
(including,   without   limitation,   attorney's  and   accountants'   fees  and
out-of-pocket  expenses)  incidental  to this  Agreement  and  the  transactions
contemplated hereby.

     VIII.2  Further  Assurances.  At any time and from  time to time  after the
Closing Date at the request of Purchaser, and without further consideration, the
Company  will  execute and deliver  such other  instruments  of sale,  transfer,
conveyance,  assignment and confirmation and take such other action as Purchaser
may  reasonably  deem  necessary or  desirable in order to transfer,  convey and
assign more  effectively  to  Purchaser,  the Assets to put  Purchaser in actual
possession  and  operating  control of the Business  and to assist  Purchaser in
exercising all rights with respect thereto.

     VIII.3 Notices.  All notices,  requests,  demands and other  communications
required or  permitted  to be given  hereunder  shall be in writing and shall be
given personally,  telegraphed,  telexed, sent by facsimile transmission or sent
by prepaid  air  courier or  certified,  registered  or  express  mail,  postage
prepaid.  Any such notice shall be deemed to have been given (a) when  received,
if delivered in person, telegraphed, telexed, sent by facsimile transmission and
confirmed  in writing  within  three (3)  Business  Days  thereafter  or sent by
prepaid  air  courier  or (b) three (3)  Business  Days  following  the  mailing
thereof,  if mailed by  certified  first class  mail,  postage  prepaid,  return
receipt  requested,  in any such case as follows  (or to such  other  address or
addresses as a party may have  advised the other in the manner  provided in this
Section 8.3):

         If to TMCI:

                  TMCI Electronics, Inc.
                  1875 Dobbin Drive
                  San Jose, California  95133
                  Attention:  Rolando Loera, CEO



                                       49

<PAGE>



         If to the Purchaser:

                  Touche Electronics, Inc.
                  1875 Dobbin Drive
                  San Jose, California  95133
                  Attention:  Rolando Loera, CEO

         With a copy to:

                  Rosenblum, Parish & Isaacs
                  160 West Santa Clara Street, 15th Floor
                  San Jose, California  95113
                  Attention:  Thomas Chaffin

         If to the Company:
                  Pen Interconnect, Inc.
                  2351 South 2300 West
                  Salt Lake City, Utah  84119
                  Attention:  James S. Pendleton & Wayne R. Wright

         With a copy to:
                  Parsons Behle & Latimer
                  201 South Main Street, Suite 1800
                  Salt Lake City, Utah  84111
                  Attention:  Stuart A. Fredman

     VIII.4  Publicity.  No  public  release  or  announcement  concerning  this
Agreement or the transactions  contemplated hereby shall be made without advance
approval thereof by Purchaser and the Company;  provided,  however,  that either
party  hereto  may make any  public  disclosure  it  believes  in good  faith is
required by applicable  law or any listing or trading  agreement  concerning its
publicly-traded  securities  (in which  case the  disclosing  party will use its
reasonable efforts to advise the other party prior to making the disclosure).

     VIII.5  Entire  Agreement.  This  Agreement  (including  the  Exhibits  and
Schedules)  and the  agreements,  certificates  and  other  documents  delivered
pursuant to this Agreement  contain the entire  agreement among the parties with
respect  to  the  transactions   described  herein,   and  supersede  all  prior
agreements, written or oral, with respect thereto.

     VIII.6 Waivers and Amendments.  This Agreement may be amended,  superseded,
cancelled,  renewed or extended,  and the terms hereof may be waived,  only by a
written  instrument  signed by the parties  or, in the case of a waiver,  by the
party waiving  compliance.  No delay on the party in exercising any right, power
or  privilege  hereunder  shall  operate  as a waiver  thereof.  The  rights and
remedies of any parties  based upon,  arising out of or  otherwise in respect of
any inaccuracy in or breach of any

                                       50

<PAGE>



representation,  warranty,  covenant or agreement  contained  in this  Agreement
shall in no way be limited  by the fact that the act,  omission,  occurrence  or
other  state of facts upon which any claim of any such  inaccuracy  or breach is
based may also be the  subject  matter of any  other  representation,  warranty,
covenant or agreement  contained in this  Agreement  (or in any other  agreement
between the parties as to which there is no inaccuracy or breach).

     VIII.7  Governing Law. This Agreement shall be governed by and construed in
accordance  with  the  laws  of the  State  of  California,  without  regard  to
principles of conflicts of law.

     VIII.8 Binding Effect; No Assignment.  This Agreement shall be binding upon
and inure to the  benefit of the  parties and their  respective  successors  and
permitted assigns.  This Agreement is not assignable by any party hereto without
the prior written consent of the other parties hereto, which consent will not be
unreasonably  withheld  except  by  operation  of law  and any  other  purported
assignment shall be null and void; provided,  however, that Purchaser may assign
this Agreement  without the consent of the other parties hereto to any lender of
Purchaser.

     VIII.9  Variations  in Pronouns.  All pronouns and any  variations  thereof
refer to the masculine,  feminine or neuter,  singular or plural, as the context
may require.

     VIII.10 Counterparts.  This Agreement may be executed by the parties hereto
in separate counterparts,  each of which when so executed and delivered shall be
an original,  but all such  counterparts  shall together  constitute one and the
same instrument.  Each counterpart may constitute a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.

     VIII.11  Exhibits and  Schedules.  The Exhibits and Schedules are a part of
this Agreement as if fully set forth herein.  All references herein to Sections,
subsections,  clauses, Exhibits and Schedules shall be deemed references to such
parts of this Agreement, unless the context shall otherwise require.

     VIII.12  Effect of  Disclosure  on  Schedules.  Any item  disclosed  on any
Schedule to this  Agreement  shall only be deemed to be disclosed in  connection
with (a) the  specific  representation  and  warranty to which such  Schedule is
expressly  referenced,  (b)  any  specific  representation  and  warranty  which
expressly cross-references such Schedule and (c) any specific representation and
warranty to which any other Schedule to this  Agreement is expressly  referenced
if such other Schedule expressly cross-references such Schedule.

     VIII.13  Headings.  The headings in this Agreement are for reference  only,
and shall not affect the interpretation of this Agreement.

     VIII.14 Severability of Provisions.  If any provision or any portion of any
provision of this Agreement or the  application of such provision or any portion
thereof to any Person or circumstance,  shall be held invalid or  unenforceable,
the remaining  portion of such  provision  and the remaining  provisions of this
Agreement or the  application  of such provision or portion of such provision as
is held invalid or unenforceable to persons or circumstances other than those as
to which it is held invalid or unenforceable, shall not be affected thereby.

                                       51

<PAGE>


     VIII.15 Arbitration.  Any dispute arising under or pursuant to or affecting
the subject matter of this  Agreement  shall be resolved in arbitration in Santa
Clara County, California under the arbitration provisions of the California Code
of Civil  Procedure  Sections 1282 through 1284. Any judgment upon the award may
be  confirmed  and  entered  in  any  court  having  jurisdiction  thereof.  The
arbitrator(s) shall be required to, in all determinations, apply California law.
Further,  the  arbitrator(s)  are afforded the jurisdiction to provide and order
all provisional  remedies,  including,  without  limitation,  injunctive relief,
writs for recovery or possession  or such similar  relief as may be necessary to
protect the interests of either of the parties or their property rights.  In the
event that it is determined that the  arbitrator(s) do not have the jurisdiction
to grant those  remedies  conferred upon them by this provision and requested by
the  parties,  then such  remedies  shall be  reserved  to a court of  competent
jurisdiction.  The prevailing party in said arbitration  shall be awarded by the
arbitrator(s) the costs of arbitration (inclusive of the arbitrator(s)' fees and
costs), as allocated by the  arbitrator(s).  The parties hereto agree to request
that in  awarding  non-injunctive  relief  the  arbitrator  shall  submit to the
parties a formal  finding of facts and  conclusions of law, no less than one (1)
week before the rendering of any final judgment.


     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

                               PEN INTERCONNECT, INC.


                               By:   /s/ James S. Pendleton
                               Its:    CEO Pen Interconnect, Inc.

                               TMCI ELECTRONICS, INC.


                               By:    /s/ Rolando Loera
                               Its:    CEO TMCI Electronics, Inc.

                                       52


<PAGE>


                                                                     EXHIBIT 11

                             PEN INTERCONNECT, INC.
                        CALCULATION OF EARNINGS PER SHARE
                           FOR THE THREE MONTHS ENDED
                           DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>

                                                                 Months                            Fully
                                                    Common      Out-            Primary         Dilutive
                         1996                     Shares       standing          Shares           Shares
--------------------------------------------------------------------------------------------------------

<S>                                              <C>                  <C>     <C>              <C>
Balance at October 1, 1996                       3,033,407            3       3,033,407        3,033,407

Contingent shares                                   55,568            3              -            55,568
                                                                       --------------- -----------------

Balance at December 31, 1996                                                  3,033,407        3,088,975
                                                                       ================        =========

Earnings for three months ended December 31,                                  $ 429,432        $ 429,432

Earnings per share                                                               $ 0.14           $ 0.14
                                                                       =================================

</TABLE>

<TABLE>
<CAPTION>

                                                                 Months                            Fully
                                                    Common      Out-            Primary         Dilutive
                         1995                     Shares       standing          Shares           Shares
--------------------------------------------------------------------------------------------------------

<S>                                              <C>                  <C>     <C>              <C>
Balance at October 1, 1995                       1,700,000            3       1,700,000        1,700,000

Issued on November 17, 1995                      1,000,000          1.5         500,000          500,000
                                                                       ---------------------------------

Balance at December 31, 1995                                                  2,200,000        2,200,000
                                                                       =================================

Earnings for three months ended December 31,                                  $ 180,296        $ 180,296
                                                                          ==============================

Earnings per share                                                               $ 0.08           $ 0.08
                                                                       =================================

</TABLE>