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, 1998

   [   ]   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)

                 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

         As of May 11,  1998,  the  issuer  had  4,627,149  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, 1998
          (unaudited) and September 30, 1997                               4-5

          Statements of Operations for the Quarters Ended March 31, 1998
          and 1997 and six month periods ended March 31, 1998 and 1997
          (unaudited)                                                      6

          Statements of Cash Flows for the six month
          periods ended March 31, 1998 and 1997 (unaudited)                7-9

          Notes to Condensed Financial Statements (unaudited)              10-15

Item 2    Management's Discussion and Analysis or
          ---------------------------------------
          Plan of Operation                                                16-18

PART II - OTHER INFORMATION

Item 1    Legal Proceedings                                                19

Item 2    Changes in the Securities and Use of Proceeds                    19

Item 3    Defaults Upon Senior Securities                                  19

Item 4    Submission of Matters to a Vote of Security Holders              19

Item 5    Other Information                                                19

Item 6(a) Exhibits

Item 6(b).Reports on Form 8-K                                              19

Signatures                                                                 20
                             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,  1998 and audited
     balance  sheet as of September 30, 1997 (the  Company's  most recent fiscal
     year),  unaudited condensed statements of operations for the quarters ended
     March 31,  1998 and 1997,  and six month  periods  ended March 31, 1998 and
     1997,  and unaudited  condensed  statements of cash flows for the six month
     periods ended March 31, 1998 and 1997,  together with  unaudited  condensed
     notes  thereto.  In the opinion of management  of the Company,  the interim
     condensed  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,  1997.  The results of  operations  for the three and six months  ended
     March 31, 1998 may not be  indicative  of the results  that may be expected
     for the year ending September 30, 1998.




                                        3


<PAGE>

                             Pen Interconnect, Inc.

                                 BALANCE SHEETS

                                     ASSETS
<TABLE>
<CAPTION>
                                                                                  March 31,          September 30,
                                                                                    1998                   1997
                                                                               -------------         -------------
                                                                                (Unaudited)
CURRENT ASSETS
<S>                                                                             <C>                   <C>         
    Cash and cash equivalents                                                   $    111,311          $    272,148
    Receivables
        Trade accounts,  less  allowance  for doubtful  accounts of $116,196 and
            $137,058 at March 31, 1998 and September 30, 1997,
            respectively.                                                          2,858,324             2,093,056
        Current maturities of notes receivable (Note A)                               27,978               357,006
    Investments in common stock (Note A)                                             740,000               400,000
    Inventories (Notes B)                                                          4,319,519             3,355,871
    Prepaid expenses and other current assets                                        359,511               289,991
    Deferred income taxes                                                            160,832               141,324
                                                                                ------------         -------------

                    Total current assets                                           8,577,475             6,909,396


PROPERTY AND EQUIPMENT, AT COST
        Production equipment                                                       2,526,820             2,418,368
        Furniture and fixtures                                                       851,340               834,971
        Transportation equipment                                                      83,522                69,217
        Leasehold improvements                                                       368,137               368,137
                                                                                ------------         -------------

                                                                                   3,829,819             3,690,693
        Less accumulated depreciation                                              1,447,938             1,303,063
                                                                                ------------         -------------

                                                                                   2,381,881             2,387,630
OTHER ASSETS
    Notes receivable, less current maturities (Note A)                                86,512               607,524
    Investments in common stock  (Note A)                                            684,000                    -
     Deferred income taxes                                                         1,351,696             1,392,658
    Goodwill and other intangibles (net)                                           2,205,247             2,287,146
    Other                                                                            505,308               322,630
                                                                                ------------         -------------

                                                                                   4,832,763             4,609,958
                                                                                ------------         -------------

                                                                                $ 15,792,119         $  13,906,984
                                                                                ============         =============
</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,
                                                                                      1998              1997
                                                                                ------------          ------------
                                                                                 (Unaudited)
CURRENT LIABILITIES
<S>                                                                             <C>                    <C>        
    Notes payable                                                               $     66,603           $   641,505
    Bridge loan                                                                           -                100,000
    Line of credit                                                                 2,891,491             2,237,690
    Current maturities of long-term obligations                                      314,643               263,255
    Current maturities of capital leases                                              66,464                66,464
    Accounts payable                                                               2,542,617             2,053,348
    Accrued liabilities                                                              302,200               481,356
                                                                                ------------           -----------

                    Total current liabilities                                      6,184,018             5,843,618

LONG-TERM OBLIGATIONS, less current
    maturities (Note C)                                                              985,679               681,722

CAPITAL LEASE OBLIGATIONS, less current
    maturities                                                                        40,777                70,889

SUBORDINATED DEBENTURES (Note D)                                                     780,000                   -

DEFERRED INCOME TAXES                                                                165,755               165,755
                                                                                ------------         -------------

                    Total liabilities                                              8,156,229             6,761,984


STOCKHOLDERS' EQUITY (Notes A and E)
    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
        4,384,987  shares at March 31, 1998 and
        4,072,863  shares at September 30, 1997                                       43,850                40,729
    Additional paid-in capital                                                     9,232,004             8,733,126
    Accumulated deficit                                                           (1,639,964)           (1,628,855)
                                                                                ------------          ------------ 

                    Total stockholders' equity                                     7,635,890             7,145,000
                                                                                ------------          ------------ 

                                                                                $ 15,792,119          $ 13,906,984
                                                                                ============          ============
</TABLE>

        The accompanying notes are an integral part of these statements.


                                        5



<PAGE>

                             Pen Interconnect, Inc.

                            STATEMENTS OF OPERATIONS
                                   (unaudited)

<TABLE>
<CAPTION>
                                                  Three months ended March 31,       Six months ended March 31
                                                  ----------------------------       ---------------------------
                                                      1998            1997               1998           1997
                                                  ------------   -------------       ------------   ------------
<S>                                               <C>            <C>                 <C>            <C>         
Net sales                                         $  3,698,727   $   5,482,251       $  7,603,444   $ 10,740,637
Cost of sales                                        2,842,148       4,471,980          5,897,521      8,829,116
                                                  ------------   -------------       ------------   ------------

               Gross profit                            856,579       1,010,271          1,705,923      1,911,521

Operating expenses
     Sales and marketing                               209,110         262,793            427,491        465,112
     Research and development                          104,982          (4,939)           193,369         40,369
     General and administrative                        204,079         390,793            639,542        725,151
     Depreciation and amortization                     127,662          96,389            241,937        188,678
                                                  ------------   -------------       ------------   ------------

               Total operating expenses                645,833         745,036          1,502,339      1,419,310
                                                  ------------   -------------       ------------   ------------

               Operating income                        210,746         265,235            203,584        492,211

Other income (expense)
     Interest expense                                 (175,670)       (128,613)          (254,707)      (268,776)
     Gain on sale of division (Note A)                     -               -                  -          611,912
     Other income (expense), net                         4,104          41,414             34,337         57,672
                                                  ------------   -------------       ------------   ------------

               Total other income (expense)           (171,566)        (87,199)          (220,370)       400,808
                                                  ------------   -------------       ------------   ------------

Earning (loss) before income taxes                      39,180         178,036            (16,786)       893,019

Income taxes (benefit) expense                          16,123          76,049             (5,677)       361,600
                                                  ------------   -------------       ------------   ------------

Net earnings (loss)                               $     23,057      $  101,987       $    (11,109)  $    531,419
                                                  ============      ==========       ============   ============

Earnings (loss) per common share:
     Basic                                        $       0.01            0.03       $      (0.00)  $       0.18
                                                  ============      ==========       ============   ============
     Diluted                                      $       0.00            0.03       $      (0.00)  $       0.13
                                                  ============      ==========       ============   ============
Weighted average common and dilutive
    common equivalent shares outstanding
     Basic                                           4,234,009       3,033,407          4,165,952      3,033,407
                                                  ============      ==========       ============   ============
     Diluted                                         6,486,509       3,880,407          4,165,952      4,040,407
                                                  ============      ==========       ============   ============

</TABLE>

        The accompanying notes are an integral part of these statements.


                                        6


<PAGE>

                             Pen Interconnect, Inc.

                            STATEMENTS OF CASH FLOWS

                         For six months ended March 31,

                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                   1998                 1997
                                                                               -------------        --------------

Increase (decrease) in cash and cash equivalents
    Cash flows from operating activities
<S>                                                                            <C>                  <C>           
        Net earnings(loss)                                                     $     (11,109)       $      531,419
        Adjustments to reconcile net earnings (loss)
            to net cash used in operating activities
               Depreciation and amortization                                         241,937               188,678
               Bad debts                                                              14,527               (22,807)
               Gain on sale of division                                                   -               (611,912)
               Contingent stock San Jose agreement                                   (40,000)                   -
               Loss on disposal of equipment                                          16,534                    -
               Deferred taxes                                                             -                 79,544
               Changes in assets and liabilities
                    Trade accounts receivable                                       (779,795)             (367,718)
                    Inventories                                                     (963,648)               57,050
                    Prepaid expenses and other assets                               (164,054)             (249,298)
                    Accounts payable                                                 489,269              (680,615)
                    Accrued liabilities                                             (263,156)             (203,414)
                    Income taxes                                                      21,454               269,328
                                                                               -------------        --------------

                        Total adjustments                                         (1,426,932)           (1,541,164)
                                                                               -------------        --------------

                        Net cash used in
                        operating activities                                      (1,438,041)           (1,009,745)
                                                                               -------------        --------------

    Cash flows from investing activities
        Purchase of property and equipment                                          (158,967)             (274,210)
        Proceeds from sale of division                                                   -               2,000,000
        Issuance of notes receivable                                                 (72,760)              (34,305)
        Collections on notes receivable                                               22,800                    -
                                                                               -------------        --------------

                        Net cash (used in) or provided
                        by investing activities                                     (208,927)            1,691,485
                                                                               -------------        --------------
</TABLE>






                                   (Continued)


                                        7


<PAGE>



                             Pen Interconnect, Inc.

                      STATEMENTS OF CASH FLOWS - CONTINUED

                       For the six months ended March 31,


<TABLE>
<CAPTION>
                                                                                   1998                  1997
                                                                               -------------        --------------
    Cash flows from financing activities
<S>                                                                            <C>                  <C>        
        Principal payments on notes payable                                         (574,902)                   -
        Net change in line of credit                                                 653,801            (1,455,921)
        Proceeds from bridge loan                                                         -                700,000
        Principal payments on bridge loan                                           (100,000)                   -
        Principal payments on long-term obligations                                 (174,767)              (44,177)
        Proceeds from issuance of subordinated debentures                          1,000,000                    -
        Proceeds from issuance of long-term obligation                               500,000                    -
        Proceeds from sale of common stock                                           181,999                    -
                                                                               -------------        --------------

                        Net cash (used in) or provided
                        by financing activities                                    1,486,131              (800,098)
                                                                               -------------        --------------

                        Net decrease in cash
                            and cash equivalents                                    (160,837)             (118,358)

Cash and cash equivalents at beginning of period                                     272,148               169,445
                                                                               -------------        --------------

Cash and cash equivalents at end of period                                     $     111,311        $       51,087
                                                                               =============        ==============

Supplemental disclosures of cash flow information

    Cash paid during the period for
        Interest                                                               $     243,728        $      272,477
        Income taxes                                                                      -                     -
</TABLE>




                                   (Continued)

                                        8


<PAGE>



                             Pen Interconnect, Inc.

                      STATEMENTS OF CASH FLOWS - CONTINUED

                For the six months ended March 31, 1998 and 1997

Non-cash investing and financing activities

During the second quarter of fiscal year 1998,  subordinated debentures totaling
$320,000 were converted to 147,092 shares of common stock.

During the first quarter of fiscal year 1998, notes receivable totaling $900,000
plus accrued interest of $84,000 were converted to investments in common stock.

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:

       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
                                                              ===============


        The accompanying notes are an integral part of these statements.

                                        9


<PAGE>

                             PEN INTERCONNECT, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE A - ACQUISITIONS/DISPOSITIONS

          PowerStream Technology

          Effective April 1, 1997, the Company acquired substantially all of the
          assets,  and  assumed  certain  liabilities  and  the  operations,  of
          PowerStream Technology, Inc. ("PowerStream") by issuing 150,000 shares
          of common stock valued at $1.50 per share.  PowerStream  is a research
          and development  company  specializing in power recharging devices and
          power supply  products.  In addition the Company entered into a 5 year
          Employment  Agreement with Daniele Reni, the President of PowerStream.
          The Company  believes  that Mr. Reni is an expert in the area of power
          recharging  devices and power supply  products.  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  and the excess  purchase price over
          fair  value of net  tangible  assets  acquired  of  $749,114  is being
          amortized  over 15 years.  The results of  operations  of the acquired
          business  have been  included in the  financial  statements  since the
          effective date of acquisition.

          SALE OF SAN JOSE DIVISION

          Effective  November 1, 1996, the Company sold substantially all of the
          net  assets  used by the San  Jose  Division  ("Division")  to  Touche
          Electronics,  Inc. ("Touche"), a subsidiary 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,  the Company had the right
          to receive up to $700,000 in contingent earnouts for a potential total
          sale  price  of  $4,000,000.  The  Company  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.

          In February 1997,  TMCI filed a notice of demand for rescission of the
          purchase and sale of the Division.  The Company  filed a  counterclaim
          against TMCI in May,  1997,  alleging  that TMCI had  defaulted in its
          obligations under the promissory notes. The disputes were subsequently
          submitted to arbitration in August, 1997.


                                   (Continued)

                                       10

<PAGE>


                             Pen Interconnect, Inc.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE A - ACQUISITIONS/DISPOSALS - CONTINUED

          In December  1997,  the Company and TMCI entered into a Settlement and
          Release Agreement (the "Settlement  Agreement"),  releasing each other
          of any and all respective claims the parties may have had against each
          other. The Settlement Agreement provided,  in part, that TMCI issue to
          the  Company,  137,390  shares of TMCI's  common  stock to replace the
          $900,000 of promissory  notes and related accrued  interest payable by
          TMCI to the Company.  The  Settlement  Stock is  guaranteed  to have a
          minimum value of $7.4532 per share. In the event the Settlement  Stock
          is sold by the Company at less than that amount,  TMCI is obligated to
          pay the  Company  the  difference  between  the  sales  price  and the
          guaranteed  value.  The  conclusion  of the  disputes,  will allow the
          Company  and  TMCI  to  continue   their  joint  sales  and  marketing
          arrangements.

          The results of operations  include one month of operations for the six
          month  period  ended March 31, 1997.  The balance  sheet  excludes the
          Division as of March 31, 1998 and September 30, 1997.

          Pro forma data. The following  unaudited pro forma summary  represents
          the combined  results of operations as if the  disposition  of the San
          Jose  Division had occurred on October 1, 1996,  and do not purport to
          be indicative of what would have  occurred had the  transactions  been
          made as of  October  1,  1996,  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.
 

                                            Six months  ended March 31,
                                             (amounts in thousands, 
                                               except share data)
                                                 1998        1997
                                             ----------  ----------
       Net sales                             $    7,603  $   10,455
       Operating income                             204         472
       Net earnings (loss)                          (11)        157
       Earnings (loss) per common share:
             Basic                                (0.00)       0.05
             Diluted                              (0.00)       0.04
       Weighted average common and 
        dilutive common equivalent shares
         outstanding:
            Basic                             4,165,952   3,033,407
            Diluted                           4,165,952   4,040,407




                                       11


<PAGE>


                             Pen Interconnect, Inc.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE B - INVENTORIES

Inventories consist of the following:
                                           March 31,       September 30,
                                              1998              1997
                                        --------------     -------------
Raw materials (net of allowance)        $    3,161,423     $   2,531,235
Work-in-process                              1,102,710           736,928
Finished goods                                  55,386            87,708
                                        --------------     -------------

                                        $    4,319,519     $   3,355,871
                                        --------------     -------------

NOTE C - LOAN FROM CREDIT FACILITY

          On December 8, 1997,  the Company  obtained  the second term under its
          credit facility with a bank in the principal amount of $500,000, which
          bears  interest  at a fixed  rate of  10.32%  per  annum.  The loan is
          payable in 36 monthly  installments  of $10,417,  including  interest,
          with payments to begin in September 1998.

NOTE D - SUBORDINATED DEBENTURES

          On October 22, 1997,  the Board of  Directors of the Company  approved
          the issuance of up to $1,500,000  of 3%  convertible  debentures  (the
          "Debentures")  with a maximum term of 24 months.  The Debentures  will
          mature, unless earlier converted by the holders, into shares of common
          stock of the  Company.  The Company has agreed to file a  registration
          statement with the United States  Securities  and Exchange  Commission
          with  respect  to the  Common  Stock of the  Company  into  which  the
          Debentures may be converted

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

          As of  March  31,  1998  the  Company  had  issued  $1,100,000  of the
          $1,500,000  convertible  debentures and $320,000 had been converted to
          common  stock at an  average  price of  approximately  $2.18 per share
          (Note F).

                                      12
<PAGE>

                             Pen Interconnect, Inc.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS


NOTE E - STOCK TRANSACTIONS

        1. Stock issued

          In the second  quarter of fiscal year 1998,  the Company issued 89,990
          shares  of  common  stock  associated  with the  exercise  of  certain
          warrants  and  147,092  shares of  common  stock  associated  with the
          conversion of subordinated debentures.

          In the first  quarter of fiscal year 1998,  the Company  issued 75,000
          shares  of  common  stock  associated  with the  exercise  of  certain
          warrants.

        2. Earnings (loss) per share

          In February  1997,  the Financial  Accounting  Standards  Board issued
          Statement of Financial  Accounting  Standard (SFAS) No. 128, "Earnings
          per Share." SFAS No. 128 is effective  for  financial  statements  for
          periods  ending after  December 15,  1997,  and requires  companies to
          report  both  "basic"  and  "diluted"  earnings  per share.  A "Basic"
          earnings  per share does not  include  the  addition  of common  stock
          equivalents to the shares  outstanding.  "Diluted"  earnings per share
          requires  the  addition  of common  stock  equivalents  to the  shares
          outstanding.  Average shares  outstanding is the  denominator  used in
          "basic" earnings per share calculations. Accordingly, "basic" earnings
          per share will be higher  than  "diluted"  earnings  per  share.  This
          statement replaces Accounting Principles Board ("APB") Opinion No. 15,
          "Earnings per Share." The following  table  illustrates  the effect on
          the Company of presenting EPS in accordance with SFAS No. 128.

                                            Three months Ended March 31, 1998
                                             Earnings      Shares     Per-Share
                                            ----------  ----------   ----------
       Basic EPS:   Earnings available
         to common  shareholders            $   23,057   4,234,009   $     0.01
                                                                     ==========
       Effect of Dilutive Securites
         Stock options and warrants                 -    2,252,500
                                            ----------  ----------
       Diluted EPS: Earnings available
         to common shareholders             $   23,057   6,486,509   $     0.00
                                            ==========  ==========   ==========




                                   (Continued)
                                       13

<PAGE>


                             Pen Interconnect, Inc.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS



NOTE E - STOCK TRANSACTIONS - CONTINUED

         2. Earnings (loss) per share - continued

                                           Three months Ended March 31, 1998
                                             Earnings      Shares     Per-Share
                                            ----------  ----------   ----------
       Basic EPS:   Earnings available
         to common  shareholders            $  101,987   3,033,407   $     0.03
                                                                     ==========
       Effect of Dilutive Securites
         Stock options and warrants                  -     847,000
                                            ----------  ----------
       Diluted EPS: Earnings available
         to common shareholders             $  101,987   3,880,407   $     0.03
                                            ==========  ==========   ==========

                                             Six months Ended March 31, 1998
                                               Loss       Shares      Per-Share
                                            ----------  ----------   ----------
       Basic EPS:   Loss available
         to common  shareholders            $  (11,109)  4,165,952   $    (0.00)
                                                                     ==========
       Effect of Dilutive Securites
         Stock options and warrants                  -           -
                                            ----------  ----------
       Diluted EPS: Loss available
         to common shareholders             $  (11,109)  4,165,952   $    (0.00)
                                            ==========  ==========   ==========

       Due to the above loss all  outstanding  common stock warrants and options
of  5,102,500   were  excluded  as  they  would  decrease  the  loss  per  share
(anti-dilutive).

                                             Six months Ended March 31, 1997
                                             Earnings     Shares      Per-Share
                                            ----------  ----------   ----------
       Basic EPS:   Earnings available
         to common  shareholders            $  531,419   3,033,407   $     0.18
                                                                     ==========
       Effect of Dilutive Securites
         Stock options and warrants                  -   1,007,000
                                            ----------  ----------
       Diluted EPS: Earnings available
         to common shareholders             $  531,419   4,040,407   $     0.13
                                            ==========  ==========   ==========


          Warrants to purchase 2,850,000 shares of common stock at $6.50 a share
          were outstanding during the periods presented.  They were not included
          in the  computation  of EPS because their  exercise  price was greater
          than the average market price of the common shares.

                                       14

<PAGE>

                             Pen Interconnect, Inc.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS


NOTE F - SUBSEQUENT EVENTS

          In  April  1998,  the  Company   issued  the  remaining   $400,000  of
          convertible debentures and received proceeds of $363,000 (net of fees)
          (Note D). In addition,  another  $330,000 of the  original  debentures
          were  converted to 162,162  shares of common stock at an average price
          of approximately $2.035 per share.


                                       15
<PAGE>


                                     ITEM 2.

            MANAGEMENTS 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 the timing of operating  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 three and
six month periods ending March 31, 1998 and 1997. 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, 1997.

General

Pen  Interconnect,  Inc.  (the  "Company"  or "Pen") is a total  interconnection
solution  provider  offering  internal  and  external  custom  cable and harness
interconnections,  mobile satellite  equipment,  EMSI (Electronic  Manufacturing
Service Industry)  manufacturing  (circuit board assembly) and custom design and
manufacturing  of battery  chargers,  power supplies and  Uninterruptible  Power
Supply UPS systems for original equipment manufactures ("OEMs") in the computer,
peripheral,  telecommunications,  instrumentation, medical and testing equipment
industries.  The Company was incorporated under the laws of the State of Utah on
September 30, 1985. The Company  maintains  divisions located in Salt Lake City,
and Orem, Utah and Tustin, California.


                                                   16 

<PAGE>


Results of Operations

Effective  March 24, 1995,  the Company  acquired the net assets of the San Jose
Division which has been  accounted for as a purchase.  This division was sold on
November 1, 1996 (Note A).  Therefore,  the statement of operations data include
the results of  operations  for only one month in the six months ended March 31,
1997.

Net sales. Net sales for the Company decreased approximately 33% and 29% for the
three and six  month  periods  ending  March 31,  1998 as  compared  to the same
periods in the prior year,  respectively.  These decreases  principally resulted
from the loss of a large  customer,  the move  out of  several  orders  into the
second  half of the year and  decreased  orders  by  several  other  significant
customers.  Such move out and loss of orders were not able to be replaced within
the short-term.  However, the Company has received several significant orders to
be shipped within the next six month period.

Cost of sales.  Cost of sales as a  percentage  of net sales have  decreased  to
approximately  77% for the three months ended March 31, 1998, as compared to 82%
for the same  period in the prior  year.  Cost of sales as a  percentage  of net
sales have  decreased  to  approximately  78% for the six months ended March 31,
1998, as compared to 82% for the same period in the prior year.  These decreases
in costs resulted from reduced  materials  costs due to discounts  obtained from
vendors on several new contracts.  In addition,  the Company has reduced support
costs in cost of  goods  sold  during  the  most  recent  six  month  period  to
correspond with the reduced sales levels.

Operating expenses.  Operating expenses have increased as a percent of net sales
to  approximately  17% and 20% for the three and six month  periods at March 31,
1998, respectively as compared to approximately 14% and 13% for the same periods
in the prior year.  These cost  increases  have  resulted in the  following  two
areas:  1) Research  and  Development  expenditures  in an effort to develop new
products with  improved  margins and 2)  depreciation  and  amortization  due to
amortization  of  goodwill  and other  intangible  assets  associated  with past
acquisitions.  Other  operating  costs  (Sales and  marketing  and  General  and
Administrative) actually decreased when compared to the prior year but reflect a
increase  in relation  to sales due to the  decrease in sales.  Due to the fixed
components included in the other operating costs they could not be significantly
reduced in the short-term  and due to the expected  rebound in sales in the next
two quarters such reductions may not be necessary in the future.

Other income and expenses.  Other income and expenses (not including the gain on
the sale of the San Jose  Division) as a percentage of net sales have  increased
to  approximately 5% and 3% for the three and six months ended March 31, 1998 as
compared  to  approximately  2% for both the three and six  months  ended in the
prior year.  This  increase is  primarily  in interest  expense and is due to an
increased sales order for the next six months that required increased  inventory
levels to support these future sales.



                                       17

<PAGE>


Net  earnings(loss)  and  earnings(loss)  per share.  Net earnings for the three
months ended March 31, 1997 totaled  $23,057 or $0.01 basic per share  earnings,
compared with $101,987 or $0.03 basic per share  earnings for the same period in
the prior year. For the six months ended March 31, 1998 the net loss was $11,109
or $0.00 basic per share loss,  compared  with  earning  (net of gain on sale of
division)  of $158,153 or $0.05 basic per share  earnings for the same period in
the prior year.

These  decreases in earnings and earning per share as compared to the prior year
were due to decreased sales levels and the inherent fixed costs  associated with
a manufacturing operation that could not be reduced in the short-term to provide
increased profits.  As the sales rebound in the next six months such fixed costs
associated with excess capacity should provide improved margins.


Liquidity and Capital Resources

Working  capital  increased to $2,393,457  on March 31, 1998 from  $1,065,778 on
September 30, 1997.  The increase is  principally  due to the proceeds  received
from the sale of debentures and from the additional term loan.

Management believes that existing cash balances,  borrowings available under the
line of credit and the  additional  $400,000 of  debentures  together  with cash
generated  from  operations  will be adequate to meet the Company's  anticipated
cash  requirements  during the next  twelve  months.  However,  in the event the
Company experiences  adverse operating  performance or above anticipated capital
expenditure requirements,  additional financing may be required. There can be no
assurance that such  additional  financing,  if required,  would be available on
favorable terms.

Inflation and Seasonality

The Company does not believe  that it is  significantly  impacted by  inflation.
Historically,  the computer industry sales tend to decline in December, January,
July and August when  activity in the personal  computer  industry as a whole is
reduced.  However,  the Company has  recently  diversified  into the medical and
telecommunications  products  in an  effort  to offset  the  seasonality  in the
computer industry.



                                       18

<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 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

         27  Financial Data Schedule.

B.       Reports on Form 8-K..   None



                                       19


<PAGE>



                                   SIGNATURES

In accordance with the  requirements of the Securities  Exchange Act of 1934, as
amended,  the  Registrant  caused  this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


PEN INTERCONNECT, INC.

By:  /s/ James S. Pendleton               Date:    May 15, 1998
    ------------------------                   ----------------
James S. Pendleton,
CEO and Chairman


By: /s/ Wayne R. Wright                   Date:   May 15, 1998
   -------------------------                   ---------------
Wayne R. Wright,
CFO, Principal Accounting
Officer and Vice-Chairman



                                       20