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     December 31, 1997

   [   ]   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
incorporation or organization)         Identification No)

                 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 February 13, 1998, the issuer had 4,147,863  shares of its common
stock, par value $0.01 per share, issued and outstanding.
         Transitional Small Business Disclosure Format (check one):

                                                    Yes No X



<PAGE>

                                   FORM 10-QSB

                             PEN INTERCONNECT, INC.

                                Table of Contents

                                                                        Page
PART I - FINANCIAL INFORMATION

Item 1    Financial Statements

          Financial Information                                           3

          Balance Sheets at December 31, 1997
          (unaudited) and September 30, 1997                            4-5

          Statements of Operations  for the three months
          ended December 31, 1997 and 1996 (unaudited)                    6

          Statements of Cash Flows for the three months
          ended December 31, 1997 and 1996 (unaudited)                  7-9

          Notes to Condensed Financial Statements (unaudited)         10-13

Item 2    Management's Discussion and Analysis or
          ---------------------------------------
          Plan of Operation                                           14-16

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  December  31, 1997 and
          audited  balance  sheet as of September 30, 1997 (the  Company's  most
          recent fiscal year),  unaudited condensed statements of operations for
          the three  months  ended  December  31, 1997 and 1996,  and  unaudited
          condensed statements of cash flows for the three months ended December
          31, 1997 and 1996, 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, 1997.  The results of  operations  for the three months
          ended  December 31, 1997 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>
                                                                                 December 31         September 30,
                                                                                      1997              1997
                                                                               -------------         -------------
                                                                              (Unaudited)
CURRENT ASSETS
<S>                                                                             <C>                   <C>         
    Cash and cash equivalents                                                   $     50,175          $    272,148
    Receivables
        Trade accounts,  less  allowance  for doubtful  accounts of $151,094
            and $137,058 at December 31, and September 30, 1997,
            respectively.                                                          2,936,026             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)                                                          3,554,536             3,355,871
    Prepaid expenses and other current assets                                        287,313               289,991
    Deferred tax asset                                                               141,324               141,324
                                                                               -------------         -------------

                    Total current assets                                           7,737,352             6,909,396


PROPERTY AND EQUIPMENT, AT COST
        Production equipment                                                       2,471,122             2,418,368
        Furniture and fixtures                                                       841,673               834,971
        Transportation equipment                                                      71,522                69,217
        Leasehold improvements                                                       368,137               368,137
                                                                                 -----------        --------------

                                                                                   3,752,454             3,690,693
        Less accumulated depreciation                                              1,373,082             1,303,063
                                                                                 -----------          ------------

                                                                                   2,379,372             2,387,630
OTHER ASSETS
    Notes receivable, less current maturities (Note A)                                76,294               607,524
    Investments in common stock  (Note A)                                            684,000                    -
     Deferred income taxes                                                         1,412,501             1,392,658
    Goodwill and other intangibles (net)                                           2,246,197             2,287,146
    Other                                                                            502,720               322,630
                                                                                ------------         -------------

                                                                                   4,921,712             4,609,958
                                                                                 -----------          ------------

                                                                                 $15,038,436           $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>
                                                                                December 31,          September 30,
                                                                                      1997              1997
                                                                               -------------         -------------
                                                                                (Unaudited)
CURRENT LIABILITIES
<S>                                                                             <C>                    <C>        
    Notes payable                                                               $    117,093           $   641,505
    Bridge loan                                                                            -               100,000
    Line of credit                                                                 2,640,343             2,237,690
    Current maturities of long-term obligations                                      277,671               263,255
    Current maturities of capital leases                                              61,471                66,464
    Accounts payable                                                               1,919,846             2,053,348
    Accrued liabilities                                                              331,932               481,356
                                                                                     -------               -------

                    Total current liabilities                                      5,348,356             5,843,618

LONG-TERM OBLIGATIONS, less current
    maturities  (Note C)                                                           1,120,482               681,722

CAPITAL LEASE OBLIGATIONS, less current
    maturities                                                                        43,009                70,889

SUBORDINATED DEBENTURES (Note D)                                                   1,100,000                   -

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

                    Total liabilities                                              7,777,602             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
        4,147,863 shares at December 31, 1997 and
        4,072,863  shares at September 30, 1997                                       41,479                40,729
    Additional paid-in capital                                                     8,882,376             8,733,126
    Accumulated deficit                                                           (1,663,021)           (1,628,855)
                                                                               --------------       ---------------

                    Total stockholders' equity                                     7,260,834             7,145,000
                                                                               -------------           -----------

                                                                                 $15,038,436           $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 December 31,
                                                                                   1997                    1996
                                                                               ------------            -----------
<S>                                                                            <C>                     <C>        
Net sales                                                                      $   3,904,717           $ 5,258,386
Cost of sales                                                                      3,055,373             4,357,136
                                                                               -------------           -----------

            Gross profit                                                             849,344               901,250

Operating expenses
    Sales and marketing                                                              218,381               202,319
    Research and development                                                          88,387                45,308
    General and administrative                                                       435,463               334,358
    Depreciation and amortization                                                    114,275                92,289
                                                                               -------------          ------------

            Total operating expenses                                                 856,506               674,274
                                                                               -------------           -----------

            Operating income (loss)                                                   (7,162)              226,976

Other income (expense)
    Interest expense                                                                 (79,037)             (140,163)
    Gain on sale of division (Note A)                                                      -               611,912
    Other income, net                                                                 30,233                16,258
                                                                              --------------          ------------

            Total other income (expense)                                             (48,804)              488,007
                                                                              ---------------          -----------

Earning loss before income taxes                                                     (55,966)              714,983

Provision (benefit) for income taxes                                                 (21,800)              285,551
                                                                               --------------         ------------

Net earnings  (loss)                                                            $    (34,166)            $ 429,432
                                                                               ==============           ==========

Earnings (loss) per common share - basic (Note E)                             $        (0.01)         $       0.14
                                                                              ===============         ============

Weighted average common
    shares outstanding                                                             4,122,863             3,033,407
                                                                                ============           ===========
</TABLE>





        The accompanying notes are an integral part of these statements.


                                        6
<PAGE>

                             Pen Interconnect, Inc.

                            STATEMENTS OF CASH FLOWS

                       For three months ended December 31,
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                   1997                    1996
                                                                            ------------------      --------------

Increase (decrease) in cash and cash equivalents
    Cash flows from operating activities
<S>                                                                            <C>                  <C>           
        Net earnings (loss)                                                    $     (34,166)       $      429,432
        Adjustments to reconcile net earnings (loss) to net
            cash provided by (used in) operating activities
               Depreciation and amortization                                         114,275                92,289
               Bad debts                                                              14,036                (4,230)
               Gain on sale of division                                                   -               (611,912)
               Contingent stock San Jose agreement                                   (40,000)                   -
               Loss on disposal of equipment                                          16,537                    -
               Changes in assets and liabilities
                    Trade accounts receivable                                       (857,006)              799,863
                    Inventories                                                     (198,665)             (214,430)
                    Prepaid expenses and other assets                               (161,412)             (174,803)
                    Accounts payable                                                (133,502)             (285,665)
                    Accrued liabilities                                             (149,424)             (159,523)
                    Income taxes                                                     (19,843)              272,823
                                                                             ----------------         -------------

                        Total adjustments                                         (1,415,004)             (285,588)
                                                                               -------------         --------------

                        Net cash (used in)
                        provided by operating activities                          (1,449,170)              143,844
                                                                                -------------          ------------

    Cash flows from investing activities
        Purchase of property and equipment                                           (81,605)             (112,949)
        Proceeds from sale of division                                                   -               2,000,000
        Issuance of notes receivable                                                 (39,742)                   -
        Collections on notes receivable                                                   -                 13,612
                                                                         -------------------        --------------

                        Net cash (used in) provided
                        by investing activities                                     (121,347)            1,900,663
                                                                               --------------           -----------
</TABLE>



                                   (Continued)

                                        7


<PAGE>
                             Pen Interconnect, Inc.

                      STATEMENTS OF CASH FLOWS - CONTINUED

                     For the three months ended December 31,
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                   1997                  1996
                                                                            -------------------   -----------

    Cash flows from financing activities
<S>                                                                                 <C>                          
        Principal payments on notes payable                                         (524,412)                   -
        Net change in line of credit                                                 402,653            (2,178,487)
        Principal payments on bridge loan                                           (100,000)                  -
        Principal payments on long-term obligations                                  (79,697)              (14,244)
        Proceeds from issuance of term loan                                          500,000                    -
        Proceeds from issuance of subordinated debentures                          1,000,000                    -
        Proceeds from sale of common stock                                           150,000                    -
                                                                                ------------     -----------------

                        Net cash (used in) provided
                        by financing activities                                    1,348,544            (2,192,731)
                                                                               -------------        ---------------

                        Net decrease in cash
                            and cash equivalents                                    (221,973)             (148,224)

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

Cash and cash equivalents at end of period                                     $      50,175           $    21,221
                                                                               =============           ===========

Supplemental disclosures of cash flow information

    Cash paid during the period for
        Interest                                                               $      63,188           $   129,294
        Income taxes                                                                     100                    -
</TABLE>

                                   (Continued)

                                        8


<PAGE>

                             Pen Interconnect, Inc.

                      STATEMENTS OF CASH FLOWS - CONTINUED

              For the three months ended December 31, 1997 and 1996
                                   (Unaudited)

Noncash investing and financing activities


During the first quarter of fiscal year 1998, notes receivable totaling $900,000
plus accrued  interest of $84,000 were converted by the issuer 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

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 Danielli 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  $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 three
       month period ended  December 31,  1996.  The balance  sheet  excludes the
       Division as of December 31, 1997 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.
                            Three months ended December 31,
       (amounts in thousands,
       except share data)
                                              1997                   1996
                                           -----------             ------------
     Net sales                             $    3,905              $      4,972
     Operating income (loss)                       (7)                      210
     Net earnings (loss)                          (34)                       61
     Earnings (loss) per share                  (0.01)                     0.02
     Weighted shares outstanding            3,033,407                 3,033,407







                                       11


<PAGE>
                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

NOTE B - INVENTORIES

Inventories consist of the following:
                                             December 31,       September 30,
                                                 1997                 1997
                                            --------------      -------------

Raw materials (net of allowance)            $    2,457,305      $   2,531,235
Work-in-process                                    980,405            736,928
Finished goods                                     116,826             87,708
                                            --------------      -------------

                                            $    3,554,536      $   3,355,871
                                            --------------      -------------


NOTE C - LOAN FROM CREDIT FACILITY

       On December 8, 1997,  the  Company  obtained  the second term loan 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.

                                       12

<PAGE>
                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

NOTE E - STOCK TRANSACTIONS

       1.   Stock issued for exercised warrants
       In  December  1997,  the Company  issued  75,000  shares of common  stock
       associated with the exercise of certain warrants.

          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 note 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.
<TABLE>
<CAPTION>
                                                 For the Quarter Ended December 31, 1997
                                                     Loss           Shares     Per-Share
<S>                                             <C>           <C>              <C>
       Basic EPS   Loss available to
         common  shareholders                      ($34,166)      4,122,863     ($0.01)
                                                                                =======
       Effect of Dilutive Securities
         Stock options and warrants                       -              -
                                                ------------   ------------
       Diluted EPS Earnings available
         to common shareholders                    ($34,166)      4,122,863     ($0.01)
                                                ============   ============     =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                  For the Quarter Ended December 31, 1996
                                                      Earnings                Shares           Per-Share
<S>                                               <C>                  <C>                      <C>
       Basic EPS Loss available to
         common  shareholders                         $429,432             3,033,407               $0.14
                                                                                                   =====
       Effect of Dilutive Securities
         Stock options and warrants                           -                    -
                                                  --------------        ------------
       Diluted EPS Earnings available
         to common shareholders                        $429,432            3,033,407               $0.14
                                                  =============         ============               =====
</TABLE>

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

                                       13


<PAGE>




ITEM 2. 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 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 months
ended December 31, 1997 and 1996. 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.




                                       14

<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  (see  Note A of Notes to  Condensed  Financial  Statements).
Therefore,  the statement of  operations  data include the results of operations
for only one month in the quarter ended December 31, 1996.

Net sales. Net sales for the Company  decreased  approximately 26% for the three
month period ended December 31, 1997 as compared to the same period in the prior
year. This decrease resulted from the sale of the San Jose Division in the prior
year and a general decrease in revenue resulting from price discounts offered to
customers, and the loss of a significant customer in the Salt Lake Division.

Cost of sales.  Cost of sales as a  percentage  of net sales have  decreased  to
approximately  78% for the three months ended  December 31, 1997, as compared to
83% for the same period in the prior year.  This decrease in costs resulted from
reduced  material  costs due to discounts  obtained  from vendors on several new
contracts,  and an improvement in labor efficiency  during the last quarter.  In
addition,  the Company  has reduced  support  costs  during the last  quarter to
correspond with the reduced sales levels.

Operating  expenses.  Operating  expenses  increased during the first quarter of
fiscal 1998 by approximately  $182,000.  This increase resulted in the following
areas:  (1)  Research and  development  of $43,000  associated  with new product
development  costs in the MotoSat and PowerStream  Divisions to provide products
with  increased  margins;  (2) General and  Administrative  costs  increased  by
$101,000  primarily  due to legal fees to support  the TMCI  dispute,  debenture
agreement,  and Far East  operations and additional  insurance  costs  increased
during this last quarter; and (3) depreciation and amortization increased due to
machinery and equipment  purchases and the recording of goodwill associated with
recent acquisitions.

Other income and expenses.  Other income and expenses (not including the gain on
the sale of the San Jose Division) have decreased by about $75,000 for the three
months ended December 31, 1997 as compared to the same period in the prior year.
This  decrease is the result of decreased  interest  expense of $61,000 due to a
reduction in the average  line of credit  outstanding  during the  quarter.  The
current  years average was  approximately  $2.4 million as compared to the prior
years average of approximately $3.6 million.  In addition,  the Company received
an additional $40,000 of non-operating income from the TMCI settlement.

Net earnings (loss) and earnings (loss) per share. Net loss for the first fiscal
quarter ended December 31, 1997 totaled ($34,166) or ($0.01) per share, compared
with  earnings of $429,432  or $0.14 per share for the first  fiscal  quarter of
1997.  The prior years  earnings  (as tax  effected)  resulted  from income from
operations of approximately $62,000 or $0.02 per share and a gain on the sale of
a division of approximately $367,000 of $0.12 per share.




                                       15
<PAGE>


Liquidity and Capital Resources

Working capital  increased to $2,388,996 on December 31, 1997 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  when placed  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.



                                       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 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.

       On October 22, 1997,  the Board of Directors of the Company  approved the
       issuance of up to $1,500,000 of 3% convertible debentures. As of December
       31, 1997, the Company had issued $1,100,000 in Debentures.

       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.  A placement
       commission  of  $100,000  was paid from the  $1,100,000  issued  prior to
       December  31, 1997.  The  Debentures  were issued as a private  placement
       exempt from  registration  pursuant to section 4(2) of the Securities Act
       of 1933 since they were all  issued to a single  institutional  investor.
       See Note D of Notes to Financial Statements.

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..   None






                                       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/ James S. Pendleton
                      James S. Pendleton,
                      CEO and  Director


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




                                       18


<PAGE>

                                                                  EXHIBIT 11

                             PEN INTERCONNECT, INC.
                        CALCULATION OF EARNINGS PER SHARE
                           FOR THE THREE MONTHS ENDED
                           DECEMBER 31, 1997 AND 1996



<TABLE>
<CAPTION>
                                                                            1997                    1996
--------------------------------------------------------------------------------------------------------

<S>                                                        <C>                     <C>
Earnings (loss) available to
  common shareholders                                                  ($34,166)                $429,432
                                                            --------------------     -------------------

               Basic EPS
Shares
  Common shares outstanding entire period                              4,072,863               3,033,407

  Weighted average common shares issued
   during period                                                          50,000                       -
                                                            --------------------     -------------------

  Weighted average commons shares
  outstanding during period                                            4,122,863               3,033,407
                                                            ====================    ====================

Earnings (loss) per common share                                         ($0.01)                   $0.14
                                                            ====================    ====================


               Diluted EPS
Shares
  Weighted average common shares
  outstanding during period - basic                                    4,122,863               3,033,407

  Dilutive effect of stock options and warrants                                -                       -
                                                            --------------------    --------------------

  Weighted average commons shares
  outstanding during period - diluted                                  4,122,863               3,033,407
                                                            ====================    ====================

Earnings (loss) per common share -
   assuming dilution                                                     ($0.01)                   $0.14
                                                            ====================    ====================
</TABLE>