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

(Mark One)

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

                  For the quarterly period ended     March 31, 1999   

[]   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 No)
incorporation or organization)

                      1601 Alton Parkway Irvice, Ca.      92606
               (Address of Principal Executive Offices) (Zip Code)

                                 (949) 798-5800
                           (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

     As of May 15, 1999 the issuer had 7,539,838 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 March 31, 1999
       (unaudited) and September 30, 1998                                    4-5

       Statements of Operations  for the three months
       ended March 31, 1999 and 1998 (unaudited) and                           6
       six month periods ended March 31, 1999 and
       1998 (unaudited)

       Statements of Cash Flows for the six months
       ended March 31, 1999 and 1998 (unaudited)                             7-8

       Notes to Condensed Financial Statements (unaudited)                  9-12

Item 2 Management's Discussion and Analysis or 
       Plan of Operation                                                   13-16

PART II - OTHER INFORMATION

Item 1  Legal Proceedings                                                     17

Item 2  Changes in the Securities and Use of Proceeds                         17

Item 3  Defaults Upon Senior Securities                                       17

Item 4  Submission of Matters to a Vote of Security Holders                   17

Item 5  Other Information                                                     17

Item 6(a). Exhibits

Item 6(b). Reports on Form 8-K                                                17

Signatures                                                                    18


                                        2


<PAGE>



                             PEN INTERCONNECT, INC.

                                     PART I

                              FINANCIAL INFORMATION

ITEM 1. INTERIM CONDENSED FINANCIAL STATEMENTS


Pen  Interconnect,  Inc. (the "Company"),  has included the unaudited  condensed
balance  sheet of the Company as of March 31, 1999 and audited  balance sheet as
of  September  30, 1998 (the  Company's  most  recent  fiscal  year),  unaudited
condensed  statements of operations for the three and six months ended March 31,
1999 and 1998,  and  unaudited  condensed  statements  of cash flows for the six
months ended March 31, 1999 and 1998,  together with unaudited  condensed  notes
thereto. In the opinion of management of the Company,  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 Company 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 Company and the notes
thereto included in the annual report of the Company on Form 10-KSB for the year
ended  September 30, 1998.  The results of  operations  for the six months ended
March 31, 1999 may not be indicative of the results that may be expected for the
year ending September 30, 1999.





                                        3


<PAGE>



                             Pen Interconnect, Inc.

                                 BALANCE SHEETS

                                     ASSETS


<TABLE>
<CAPTION>
                                                                                      March 31,           September 30,
                                                                                         1999                 1998
                                                                                  ------------------   -------------------
                                                                                     (unaudited)
CURRENT ASSETS
<S>                                                                               <C>                  <C>               
      Cash and cash equivalents                                                   $         258,681    $          657,777
      Receivables
      Trade accounts less allowance for
         doubtful accounts of $67,434 at March 31, 1999                                   1,840,858             3,350,970
         $108,575 at September 30, 1998, respectively
      Current maturities of notes receivable                                                762,409                35,675
      Investments in common stock                                                           242,739               242,739
      Inventories                                                                         2,777,230             3,680,169
      Prepaid expenses and other current assets                                             410,078               261,375
      Deferred tax asset                                                                     41,324                41,324
                                                                                  ------------------   -------------------
                 Total current assets                                                      6,333,319             8,270,029

PROPERTY AND EQUIPMENT, AT COST
      Production Equipment                                                                   655,423            2,624,513
      Furniture and fixtures                                                                 243,178              837,594
      Transportation equipment                                                                22,149               83,522
      Leasehold improvements                                                                 242,274              613,248
                                                                                  ------------------   -------------------
                                                                                           1,163,024            4,158,877
      Less accumulated depreciation                                                          275,307            1,680,266
                                                                                  ------------------   -------------------
                                                                                             887,717            2,478,611

OTHER ASSETS
      Notes receivable, less current maturities                                                8,798                3,989
      Investments in common stock                                                            482,220              482,220
      Deferred income taxes                                                                  725,667              725,667
      Goodwill and other intangibles, net                                                  2,041,517            2,031,685
      Assets transferred under contractual arrangement                                       454,742                    0
      Other                                                                                    4,325               98,455
                                                                                  ------------------   -------------------
                 Total other assets                                                        3,717,269            3,342,016
                                                                                  ------------------   -------------------
                                                                                         $10,938,305          $14,090,656
                                                                                  ==================   ===================
</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>
                                                                                      March 31,           September 30,
                                                                                         1999                 1998
                                                                                  ------------------   -------------------
                                                                                     (unaudited)
CURRENT LIABILITIES
<S>                                                                               <C>                  <C>               
      Subordinated debentures                                                     $         325,000    $        1,401,429
      Line of credit                                                                      2,922,349             4,064,361
      Current maturities of long-term obligations                                           717,871             1,132,538
      Current maturities of capital leases                                                        0                69,621
      Accounts payable                                                                    2,130,094             2,926,797
      Accrued liabilities                                                                   906,393               389,889
                                                                                  ------------------   -------------------
                 Total current liabilities                                                7,001,707             9,984,635

LONG TERM OBLIGATIONS, less current maturities                                                7,314                51,965

CAPITAL LEASE OBLIGATIONS, less current maturities                                                0                22,333

LIABILITIES TRANSFERRED UNDER CONTRACTUAL ARRANGEMENTS                                      514,813                     0

                                          DEFERRED INCOME TAXES                             165,755               165,755
                                                                                  ------------------   -------------------
                 Total liabilities                                                        7,689,589            10,224,688

STOCKHOLDERS' EQUITY
       Preferred stock, $0.01 par value
            authorized 5,000,000 shares, 1,800,000
            issued and outstanding at March 31, 1999                                          1,800                    0
       Common stock, $0.01 par value,
            authorized 50,000,000 shares, issued and                                         68,648               50,184
            outstanding 6,864,838 shares at March 31,
            1999 and 5,018,437 at September 30, 1998
       Additional paid-in capital                                                        14,057,834           10,890,022
       Accumulated deficit                                                              (10,879,566)          (7,074,238)
                                                                                  ------------------   -------------------
                 Total stockholders' equity                                               3,248,716            3,865,968
                                                                                  ------------------   -------------------
                                                                                        $10,938,305          $14,090,656
                                                                                  ==================   ===================
</TABLE>





        The accompanying notes are an integral part of these statements.

                                                         5


<PAGE>



                             Pen Interconnect, Inc.

                            STATEMENTS OF OPERATIONS
                                   (Uaudited)


<TABLE>
<CAPTION>
                                                        Three months ended                       Six months ended
                                               --------------------------------------     -----------------------------------
                                                   March 31,            March 31,            March 31,          March 31,
                                                      1999                1998                  1999               1998
                                               ------------------   -----------------     ----------------   ----------------
<S>                                            <C>                  <C>                   <C>                <C>           
Net Sales                                      $       2,828,078    $      3,698,727      $     7,585,916    $     7,603,444
Cost of sales                                          2,400,695           2,842,148            6,968,163          5,897,521
                                               ------------------   -----------------     ----------------   ----------------

      Gross profit                                       427,383             856,579              617,753          1,705,923

Operating expenses
      Sales and marketing                                 55,692              17,590              137,411             69,405
      Research and development                           180,606             104,982              492,634            193,369
      General and administrative                       1,312,513             395,599            2,035,143            997,628
      Depreciation and amortization                       79,010             127,662              191,307            241,937
                                               ------------------   -----------------     ----------------   ----------------
                 Total operating expenses
                                                       1,627,821             645,833            2,856,495          1,502,339
                                               ------------------   -----------------     ----------------   ----------------

      Operating income, (loss)                        (1,200,438)            210,746           (2,238,742)           203,584

Other income (expense)
      Interest expense                                  (192,903)           (175,670)            (385,775)          (254,707)
      Loss on sale of division                          (948,312)                  0             (948,312)                 0
      Other income (expense) net                        (158,281)              4,104             (232,499)            34,337
                                               ------------------   -----------------     ----------------   ----------------
                 Total other income (expense)         (1,299,496)           (171,566)          (1,566,586)          (220,370)
                                               ------------------   -----------------     ----------------   ----------------

Loss before income taxes                              (2,499,934)             39,180           (3,805,328)           (16,786)

Income tax expense (benefit)                                   0              16,123                    0             (5,677)
                                               ------------------   -----------------     ----------------   ----------------

Net earnings (loss)                            $      (2,499,934)   $         23,057      $    (3,805,328)   $       (11,109)
                                               ==================   =================     ================   ================

Earnings (loss) per common share
       Basic                                   $          (0.47)    $           0.01      $         (0.72)   $         (0.00)
       Diluted                                 $          (0.47)    $           0.00      $         (0.72)   $         (0.00)

Weighted average common shares outstanding
       Basic                                          6,321,553            4,234,009            5,932,173          4,165,952
       Diluted                                        6,321,553            6,486,509            5,932,173          4,165,952

</TABLE>



        The accompanying notes are an integral part of these statements.

                                        6


<PAGE>



                             Pen Interconnect, Inc.

                            STATEMENTS OF CASH FLOWS
                                   (Uaudited)


<TABLE>
<CAPTION>
                                                                                              Six months ended
                                                                                     ------------------------------------
                                                                                         March 31,          March 31,
                                                                                           1999               1998
                                                                                     -----------------  -----------------


Increase (decrease) in cash and cash equivalents
   Cash flows from operating activities
<S>                                                                                  <C>                <C>               
     Net loss                                                                        $      (3,805,328) $         (11,109)
     Adjustments to reconcile net loss to net cash
       used in operating activities
          Depreciation and amortization                                                        191,307            241,937
          Bad debts                                                                             13,247             14,527
          Interest on debenture conversion                                                      98,571                  0
          Loss on sale of cable division                                                       948,312                  0
          Contingent stock San Jose agreement                                                        0            (40,000)
          Loss on disposal of equipment                                                              0             16,534
          Changes in asset and liabilities
             Trade accounts receivable                                                       1,005,502           (779,795)
             Inventories                                                                       334,368           (963,648)
             Prepaid expenses and other assets                                                (166,211)          (164,054)
             Accounts Payable                                                                 (513,019)           489,269
             Accrued liabilities                                                               619,125           (263,156)
             Income taxes                                                                            0             21,454
                                                                                     -----------------  -----------------
                        Total adjustments                                                    2,531,202         (1,426,932)
                                                                                     -----------------  -----------------
                        Net cash used in operating activities                               (1,274,126)        (1,438,041)
                                                                                     -----------------  -----------------


   Cash flows from investing activities
     Purchase of property and equipment                                                        (76,395)          (158,967)
     Proceeds from sale of division                                                                  0                  0
     Issuance of notes receivable                                                             (614,920)           (72,760)
     Collections on notes receivable                                                                 0             22,800
                                                                                     -----------------  -----------------
                        Net cash used in operating activities                                 (691,315)          (208,927)
                                                                                     -----------------  -----------------
</TABLE>


                                   (Continued)

                                        7


<PAGE>



                             Pen Interconnect, Inc.

                       STATEMENTS OF CASH FLOWS - CONTINED
                                   (Uaudited)


<TABLE>
<CAPTION>
                                                                                              Six months ended
                                                                                     ------------------------------------
                                                                                         March 31,          March 31,
                                                                                           1999               1998
                                                                                     -----------------  -----------------
Cash flows from financing activities
<S>                                                                                  <C>                <C>      
  Principal payments on notes payable                                                                0           (574,902)
  Net change in line of credit                                                                (393,513)           653,801
  Proceeds from bridge loan                                                                    900,000                  0
  Principal payments on bridge loan                                                           (800,000)          (100,000)
  Principal payments on long-term obligations                                                 (153,217)          (174,767)
  Proceeds from issuance of subordinated debentures                                                  0          1,000,000
  Proceeds from issuance of long-term obligation                                                     0            500,000
  Proceeds from sale of common stock                                                           213,075            181,999
  Proceeds from issuance of preferred stock                                                  1,800,000                  0
                                                                                     -----------------  -----------------
                        Net cash provided by financing activities                            1,566,345          1,486,131
                                                                                     -----------------  -----------------
Net decrease in cash and cash equivalents                                                     (399,096)          (160,837)
Cash and cash equivalents at beginning of period                                               657,777            272,148
                                                                                     -----------------  -----------------
Cash and cash equivalents at end of period                                           $         258,681  $         111,311
                                                                                     =================  =================

Supplemental  disclosures of cash flow  information  
Cash paid during the period for:
    Interest expense                                                                 $         287,204  $         243,728
    Income tax expense                                                               $               0  $               0
</TABLE>


Noncash investing and financing activities
During  the  first and  second  quarters  of FY 99  $1,150,000  of  subordinated
debentures were converted into 1,566,741 shares of common stock.  Along with the
conversion  on  the   debentures,   $98,571  of  unamortized   interest  on  the
subordinated debentures was charged to interest expense.

During the second quarter of FY 99,  $1,800,000 of Series A Preferred  Stock was
issued. Of this amount, $800,000 was used directly to pay off $800,000 of bridge
loans made to the Company during the first quarter of FY 99.

The letter of intent for the sale of the MotoSat  division  to James  Pendleton,
Pen's  former  Chairman  and CEO,  all assets  and  liabilities  of the  MotoSat
division will be transferred to Mr.  Pendleton in exchange for an elimination of
future obligations to pay retirement  benefits under Mr. Pendleton's  employment
contract.  If the transaction had been closed as of March 31, 1999 it would have
yielded a gain of $60,072, representing the excess of liabilities over assets to
be  transferred.  This  gain  must  be  deferred  pending  the  closing  of this
transaction, which is anticipated for summer 1999.



        The accompanying notes are an integral part of these statements.

                                        8



<PAGE>


                             PEN INTERCONNECT, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS





NOTE A - ACQUISITIONS/DISPOSITIONS

Laminating Technologies Inc.

On December 23, 1998,  the Company  signed a definitive  agreement to merge with
Laminating  Technologies  Inc.  (LTI).  On April 2,  1999  the  Company  and LTI
mutually terminated this definitive agreement to merge.

Cables To Go Inc.

On January 29, 1999 the Company  signed an agreement to sell certain  assets and
transfer  certain  liabilities  of the Cable division to Cables To Go Inc (CTG).
CTG purchased  certain of the receivables,  inventory,  machinery  equipment and
assumed capital lease liabilities for $1,075,000 thus yielding the Company a net
loss on the sale of ($948,312).

Mobile Technology Inc.

On February 1, 1999 the Company signed a letter of intent with Mobile Technology
Inc.  (MTI) to sell all assets and  liabilities of the MotoSat  division.  MTI's
principal  owner is James  Pendleton,  a former Chairman and CEO of the Company.
The letter of intent calls for MTI to assume all assets and  liabilities  of the
MotoSat division.  If the transaction were closed as of March 31, 1999, it would
yield a gain to the Company on the sale of  $60,071.  Pending the closing of the
sale,  the  Company  has agreed to  maintain  and/or  provide a $300,000  credit
facility with the Company's major lender.  The Company  anticipates  closing the
transaction when MTI is able to secure independent sources of financing.  In the
interim,  MTI has assumed  operational  control of the MotoSat  division but the
Company retains  ownership of the MotoSat  division's  receivables and inventory
which are collateral for the Company's credit facility.

Inasmuch as the Company is still at risk for the credit  facility made available
to MTI, on the  receivables  and inventory  currently being submitted to finance
the current  operations  of MotoSat,  the Company has  recorded  the position of
financial  condition  as of the date of the letter of intent only  (February  1,
1999).  Assets and liabilities  have been  reclassified as "Assets  /Liabilities
Transferred  Under  Contractual  Arrangements" on the balance sheet at March 31,
1999.

Transdigital Communications Inc.

In December 1998, the Company signed a nonbinding  letter of intent to negotiate
a  possible  merger  with  Transdigital  Communications  Inc.  (TCC).  TCC  is a
privately  held  developer  of  entertainment   and  database  systems  for  the
transportation  markets which  includes  narrow bodied  commercial  aircraft and
cruise ships. Pen and TCC are currently engaged in due diligence  investigations
and the negotiation of terms for definitive contracts.

                                       9



<PAGE>


                             PEN INTERCONNECT, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS





NOTE B - INVENTORIES

Inventories consist of the following:

                                              March 31,           September 30,
                                               1999               1999
                                          ---------------     ------------------
Raw materials (net of allowance)          $     1,942,174     $        2,253,933
Work-in-process                                   835,056              1,391,664
Finished goods                                          -                 35,572
                                          ---------------     ------------------
                                          $     2,777,230     $        3,680,169
                                          ===============     ==================


NOTE C - BRIDGE LOANS

During the 1st quarter of FY 1999 the Company  secured two bridge  loans both of
which were to be repaid with funds to be received  from the merger with LTI. The
term of each loan was 90 days and  carried an  interest  rate of 8 percent.  One
bridge loan was secured in November  for  $500,000 and the other in December for
$400,000. Both bridge loans were subsequently repaid from proceeds received from
the issuance of preferred stock. (See Note E)


NOTE D - WARRNATS TO PURCHASE COMMON STOCK

During the first  quarter of FY 1999 the  Company  issued  warrants  to purchase
490,000 shares of the Company's  common stock.  The following table outlines the
features of these warrants:

   Number of               Exercise                 Expiration
   warrants                 price                      date
---------------        ----------------       ----------------------
150,000                     $1.000                     October 2002
125,000                     $0.875                     October 2002
215,000                     $0.875                    November 2001


During the second  quarter of FY 1999 the  Company  issued  warrants to purchase
160,000  shares of common  stock in  conjunction  with the issuing of a Series A
Preferred Stock. The terms of the conversion of the warrants to shares of common
stock are discussed in Note E.


                                       10


<PAGE>


                             PEN INTERCONNECT, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS





NOTE E - PREFERRED STOCK

The Company  has issued two series of  Preferred  Stock.  Series A was issued in
February 1999 consisting of 1,800 shares,  par value $0.01 per share, for $1,000
per  share.  Series B was  issued in April 1999 at the same price but only 1,000
shares were  issued.  As  mentioned in Note C, part of the funds raised from the
issuance of this stock were used to repay the bridge  loans made  earlier in the
fiscal year. After repayment of the bridge loans and paying $238,500 in fees and
expenses, the net cash raised by the Company for operations was $1,665,500. Both
series  of  Preferred  Stock  carry a 16  percent  dividend  rate  which is paid
quarterly.

Both issuances of Preferred Stock are  convertible  into shares of the Company's
Common  Stock.  Each share of Series A Preferred  Stock is  convertible  into an
amount of shares of Pen Common  Stock equal to $1,000  divided by the average of
the two lowest  closing bid prices for Pen Common  Stock during the period of 22
consecutive  trading  days ending  with the last  trading day before the date of
conversion,  after  discounting that market price by 15 percent (the "Conversion
Price").  The maximum Conversion Price for the Series A Preferred Stock is $1.17
per share.  The shares of Series B Preferred Stock are  convertible  into Common
Stock at the same  Conversion  Price as the  Series  A  Preferred  Stock  with a
maximum Conversion Price of $0.79 per share.  Warrants to acquire 335,453 shares
of Common Stock at conversion prices ranging from $0.86 to $1.434 per share were
also issued to the purchasers of the Series A and Series B Preferred  Stock. The
Warrants  expire three years from date the  Preferred  Stock and  warrants  were
initially issued.


NOTE F - EARNINGS (LOSS) PER SHARE

Basic  earnings  (loss) per common  share is computed by dividing  net  earnings
(loss) available to common shareholders by the weighted average number of common
shares  outstanding  during each period.  Diluted  earnings per common share are
similarly  calculated,  except that the weighted average number of common shares
outstanding includes common shares that may be issued subject to existing rights
with dilutive potential.

For the three and six months  ended March 31,  1999,  net loss  attributable  to
common  shareholders  includes  a non-cash  imputed  dividend  to the  preferred
shareholders  related to the beneficial  conversion feature on the 1999 Series A
Preferred Stock and related  warrants.  (See Note E). The beneficial  conversion
feature is computed  as the  difference  between the market  value of the common
stock into which the Series A  Preferred  Stock can be  converted  and the value
assigned to the Series A Preferred Stock in the private  placement.  The imputed
dividend is a one-time non-cash charge against the loss per common share.

                                       11

<PAGE>


                             PEN INTERCONNECT, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS





NOTE F - EARNINGS (LOSS) PER SHARE - CONTINUED

Basic and diluted loss per common share were calculated as follows:

                                                  Three              Six
                                                 months              months
                                                  ended              ended
                                                 March 31,           March 31,
                                                  1999               1999
                                             ---------------     --------------
Net loss                                     $    (2,499,934)    $   (3,805,328)
Preferred dividends                                  (30,773)           (30,773)
Imputed dividend from beneficial
   conversion feature                               (449,438)          (449,438)
                                             ---------------     ---------------
           Net loss attributable to
              common stockholders            $    (2,980,145)    $   (4,285,539)
                                             ===============     ===============
Weighted-average common and
   common equivalent shares                  $     6,321,553     $    5,932,173
Loss per common share                                  (0.47)    $        (0.72)

                                       12



<PAGE>


            MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
            ---------------------------------------------------------


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

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

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 six months
ended March 31, 1999 and 1998.  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, 1998.

General

Pen  Interconnect,  Inc. is a provider of contract  manufacturing  services  for
original  equipment  manufacturers.  It builds electronic systems and subsystems
for  customers  in  a  range  of  industries   including   computers,   consumer
electronics,  industrial and medical instrumentation,  avionics, communications,
and  semiconductor  applications.  Pen  Interconnect's  services include product
design and prototyping,  systems assembly, software duplication,  packaging, and
warehousing.

Pen  Interconnect,  Inc.  provides the total  manufacturing  solution  including
circuit  design,  board design from  schematic,  mechanical and product  design,
prototype  assembly,   volume  board  assembly,  system  services  and  end-user
distribution.  The Company was incorporated  under the laws of the State of Utah
on  September  30,  1985.  Pen  Interconnect,  Inc.  has  support  manufacturing
facilities in California, Utah and China.

Sale of Divisions

January  29,  1999 the  Company  sold the Cable  division in order to reduce the
losses  being  incurred  each  month and focus on more  strategically  promising
divisions.  The sale of the Cable division  resulted in a loss to the Company of
($948,312).  Although the  transaction  yielded a substantial  loss, the Company
anticipates  reducing losses by approximately  $170,000 per month. The agreement
with CTG also  provides for royalty  payments  equal to 2 percent of sales to be
paid quarterly up to an amount of $600,000, of which $150,000 is guaranteed.

                                       13


<PAGE>





Results of Operations

Net sales.  Net sales for the Company  decreased  $870,649 or  approximately  24
percent for the three month  period ended March 31, 1999 as compared to the same
period in the prior year. This decrease resulted  primarily from the sale of the
Cable division in January 1999 and a decline in the sales at the InCirT division
as the contract  expansion for a major customer was completed and sales returned
to regular levels.  Net sales for the six months ending March 31, 1999 decreased
$17,528 or 0.2 percent from the same period  during the prior  fiscal year.  The
contract  expansion in the InCirT  division  was still  ongoing the first fiscal
quarter  which  offset  the  decline  of sales  following  the sale of the Cable
division in the second quarter.

Cost of sales.  Cost of sales as a  percentage  of net sales have  increased  to
approximately  85 percent for the three  months ended March 31, 1999 as compared
to 77 percent for the same period in the prior year.  This  increase is due to a
decline in sales at the InCirT  division  and the impact of fixed  manufacturing
costs on a lower sales base.  Cost of sales as a percentage of net sales for the
first six months of fiscal 1999  increased to 92 percent  compared to 78 percent
for the same period last year.  This increase was further  worsened by declining
sales in the Cable  division  during  the first  quarter  with no  corresponding
reduction  in overhead  costs.  The  increase  was also due to a decrease in the
margins on a major contract at the InCirT division.

Operating expenses. Operating expenses increased $981,988 or 152 percent for the
three months  ended March 31, 1999 over the same three month  period  during the
prior fiscal year. For the first six months of fiscal 1999,  operating  expenses
increased  $1,354,156  or 90 percent  compared to the same period from the prior
fiscal year.  The increases  for both the second  quarter and for the six months
were mostly associated with an increase in general and  administrative  expenses
of  $916,914  and  $1,037,515,   respectively.  The  increases  in  general  and
administrative  expenses during the second quarter are primarily responsible for
the increase.  These included (1) $208,599 in professional  fees associated with
the issuance of the  Company's  Series A preferred  stock,  the  negotiation  of
proposed merger  agreements and agreements for the sale of the Cable and Motosat
divisions,   and  Nasdaq  compliance   hearings,   (2)  $429,259  for  financial
representation  services,  and (3)  $97,000  in  supplemental  payroll  expenses
associated  with  the  termination  of  employees  with  the  sale of the  Cable
division.  Operating  expenses  also  increased  for the quarter and for the six
months due to the need to expense  rather than  capitalize  certain  development
costs at the PowerStream division.

Other income and expenses.  Other expenses increased $351,184 net of the loss on
the sale of the Cable  division or 205 percent for the three  months ended March
31, 1999 as compared to the same period in the prior year.  These  expenses also
increased  $618,274  or 281  percent  for the first six months of fiscal 1999 as
compared to the same period in the prior  fiscal  year.  The  increases in other
expenses for the second quarter of fiscal 1999 primarily  include brokerage fees
and other expenses in connection  with the issue of the Series A Preferred Stock
in the second  quarter and of  subordinated  debentures  during the prior fiscal
year.  Interest expense for both the second quarter and for the first six months
of fiscal 1999 are higher than corresponding amounts from the prior year because
of interest  expense  associated  with the favorable  conversion  feature of the
subordinated debentures issued during the prior fiscal year.

                                       14


<PAGE>





Net  earnings  (loss) and  earnings  (loss)  per share.  Net loss for the second
fiscal  quarter ended March 31, 1999 totaled  ($2,499,934)  or ($0.40) per basic
share,  compared  with a gain of $23,057 or $0.01 per basic share for the second
quarter of fiscal  1998.  The  change in the loss per basic  share of ($0.41) is
mostly   comprised   of  ($0.15)   related  to  the   increase  in  General  and
Administrative  expenses,  ($0.03)  related to the  increase in other  expenses,
($0.07)  related to the  decline in sales and the  decline in profit  margins on
sales,  and ($0.15) related to the loss on the sale of the Cable  division.  The
loss for the first six months of fiscal 1999 of  $3,805,328 or ($0.64) per basic
share was  ($0.64) per share more than that of the first six months of the prior
fiscal  year.  The  change in loss per basic  share for this  period  was mostly
comprised  of ($0.17)  related to the  increase  in General  and  Administrative
expenses,  ($0.05) related to the increase in development costs, ($0.04) related
to the increase in Other Expenses,  ($0.18) related to the decline in margins on
sales, and ($0.16) related to the loss on the sale of the Cable division.

Liquidity and Capital Resources

The  working  capital  deficit  at March  31,  1999 is  ($668,388)  compared  to
($2,263,049)  at December 31, 1998 and  ($1,714,606)  at September 30, 1998. The
decrease in negative  working  capital is  primarily  due to 1) the  decrease in
accounts  payable and the Company's line of credit from the proceeds of the sale
of the Cable  division,  and 2) the  issuance  during the second  quarter of the
Series A Preferred Stock.

During the second  quarter of fiscal  1999 the  Company  sustained  losses  from
operations of  ($1,200,438)  compared to a loss incurred during the first fiscal
quarter of ($1,038,304).  The Company's  management  believes that a significant
portion of the  losses in the second  quarter  were due to  nonrecurring  items.
These include increases in general and administrative expenses related to merger
and divisional sale transactions. If these nonrecurring items were excluded, the
Company's  management  believes  that the loss  from  operations  in the  second
quarter would have been only $600,000,  or roughly half of that incurred  during
the first quarter.

Cash from operations has not been sufficient during the recent quarter or during
the current fiscal year to cover expenses.  Pen anticipates an increase in sales
and  new  contracts  with  more  profitable   margins  generating  a  return  to
profitability  beginning in the third quarter of fiscal 1999.  Pen's  management
has also taken steps to reduce  losses by selling the Cable  division to CTG Inc
and by signing a letter of intent to sell the MotoSat division. With the sale of
the these two divisions, Pen expects to save approximately $170,000 per month in
operating costs and interest. The sale of the Cable division yielded proceeds of
$1,075,000.

Pen's management  estimates that  approximately $1 million may have to be raised
to sustain  operations.  Funds have been  realized from the issuance of Series A
Preferred  Stock and Series B  Preferred  Stock in the  second and third  fiscal
quarters of fiscal  1999.  The  issuance of the Series A Preferred  Stock raised
$850,000  after  payment of $150,000 in fees and applying  $800,000  towards the
repayment  of two bridge  loans  made to Pen during the first  quarter of fiscal
1999. The sale of the Cable and Moto-Sat divisions, the anticipated increases in
sales from the remaining  divisions and the anticipated  return to profitability
should generate sufficient cash to fund operations for the rest of calendar year
1999. However, Pen may be unable to raise funds and the anticipated increases in
sales may not occur.

                                       15


<PAGE>



Inflation and Seasonality

The Company does not believe that it is significantly impacted by inflation. The
Company has been marginally  influenced  with  seasonality of sales in the past.
With the sale of the Cable  and  MotoSat  divisions,  the  Company  is even less
impacted by seasonality than before.

Year 2000 Readiness

In general,  the Year 2000 issue  relates to computers  and other  systems being
unable to  distinguish  between  the years  1900 and 2000  because  they use two
digits,  rather than four, to define the applicable  year.  Systems that fail to
properly recognize such information will likely generate erroneous data or cause
a system to fail possibly resulting in a disruption of operations. The Company's
products do not incorporate such date coding so the Company's efforts to address
the Year  2000  issue  fall in the  following  three  areas:  (i) the  Company's
information  technology ("IT") systems; (ii) the Company's non-IT systems (i.e.,
machinery,  equipment and devices which utilize  technology  which is "built in"
such as embedded microcontrollers);  and (iii) third-party suppliers. Management
has  initiated  a program to prepare  for  compliance  in these  three areas and
expects such program to be implemented and completed by June 1999. Costs will be
expensed as incurred and currently are not expected to be material.

The Company believes its current IT systems are year 2000 compliant. The Company
is currently conducting an inventory of non-IT systems which may have inadequate
date coding and will commence efforts to remedy any non-compliant systems by the
end of the first quarter of 1999. Third party suppliers and customers  present a
different  problem in that the Company  cannot control the efforts of such third
parties.  The  Company  anticipates  requesting  confirmations  from third party
suppliers that they are year 2000 compliant to avoid disruptions of services and
supplies.  However,  any  failure  on the part of such  companies  with whom the
Company  transacts  business  to be year 2000  compliant  on a timely  basis may
adversely affect the operations of the Company.

                                       16

<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 has had a judgement made
against it pertaining to an obligation of $79,000 to YC Intl. which has not been
paid.  Agreements  made  with the legal  counsel  of YC Intl.  Call for  monthly
payments of $10,000 to be made. To date the Company has made payments of $20,000
towards this obligation.

Item 2. Changes in the Securities and Use of Proceeds. 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. Exhibits

         11  Calculation of earnings (loss) per share.

         27  Financial Data Schedule.

B. Reports on Form 8-K

On February 17, 1999,  the Company filed a report on Form 8-K reporting the sale
of the Cable division,  the execution of the merger  agreement with LTI, and the
issuance of the Series A Preferred  Stock. It consisted of: Item 2.  Acquisition
or  Disposition  of  Assets,  Item  5.  Other  Events,  and  Item  7.  Financial
Statements, Pro Forma Financial Information, and Exhibits.

                                       17


<PAGE>





                                   SIGNATURES

In accordance with the  requirements of the Exchange Act, the Registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.


                                   PEN INTERCONNECT, INC.

                                   By:  /s/ Stephen J Fryer 
                                   Stephen J. Fryer    
                                   President and CEO


                                   By: /s/ Robert J. Albrecht  
                                   Robert J. Albrecht
                                   CFO, Principal Accounting
                                   Officer and Vice-Chairman

                                       18



<PAGE>


Exhibit 11

                             Pen Interconnect, Inc.

                        CALCULATION OF EARNINGS PER SHARE
                                   (Uaudited)


<TABLE>
<CAPTION>
                                                             Three months ended                     Six months ended
                                                    --------------------------------------   ----------------------------------
                                                         March 31,           March 31,          March 31,          March 31,
                                                           1999                1998                1999              1998
                                                    -------------------  -----------------   ----------------   ---------------

<S>                                                 <C>                  <C>                 <C>                <C>             
Earnings (loss) available to common shareholders    $        (2,980,145) $          23,057   $     (4,285,539)  $       (11,109)
                                                    ===================  =================   ================   ===============

Basic EPS
---------------------------------------------
     Common shares outstanding entire period                  6,069,160          4,147,863          5,018,437         4,072,863
     Weighted average common shares issued                      252,393             86,146            913,736            93,089
                                                    -------------------  -----------------   ----------------   ---------------

     Weighted average common shares outstanding
        during period                                         6,321,553          4,234,009          5,932,173         4,165,952
                                                    ===================  =================   ================   ===============

     Earnings (loss) per common shares                            (0.47)              0.01              (0.72)            (0.00)

Diluted EPS
---------------------------------------------
     Weighted average common shares outstanding
        during period - basic                                 6,321,553          4,234,009          5,932,173         4,165,952
     Dilutive effect of stock options and warrants                    0          2,252,500                  0                 0
                                                    -------------------  -----------------   ----------------   ---------------

     Weighted average common shares outstanding
        during period - diluted                               6,321,553          6,486,509          5,932,173         4,165,952
                                                    ===================  =================   ================   ===============

     Earnings (loss) per common share - 
        assuming dilution                           $             (0.47) $            0.00   $          (0.72)  $          (0.00)

</TABLE>