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     June 30, 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 August 14, 1998,  the issuer had  4,773,910  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 June 30, 1998
        (unaudited) and September 30, 1997                                  4-5

        Statements of Operations  for the Quarters Ended June 30, 1998
        and 1997 and nine month periods ended March 31, 1998 and 1997
        (unaudited)                                                           6

        Statements of Cash Flows for the ninth month
        periods ended June 30, 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
<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 June 30,  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
     June 30,  1998 and 1997,  and nine month  periods  ended June 30,  1998 and
     1997, and unaudited  condensed  statements of cash flows for the nine month
     periods  ended June 30, 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 nine months ended
     June 30, 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>
                                                                                   June 30,        September 30,
                                                                                      1998              1997
                                                                              (Unaudited)
                                                                               -------------         -------------
CURRENT ASSETS
<S>                                                                             <C>                   <C>         
    Cash and cash equivalents                                                   $    994,397          $    272,148
    Receivables
        Trade accounts,  less  allowance  for doubtful  accounts of $105,089 and
            $137,058 at June 30, 1998 and September 30, 1997,
            respectively.                                                          3,721,930             2,093,056
        Current maturities of notes receivable (Note A)                               27,820               357,006
    Investments in common stock (Note A)                                             350,750               400,000
    Inventories (Notes B)                                                          5,661,634             3,355,871
    Prepaid expenses and other current assets                                        425,446               289,991
    Deferred income taxes                                                            180,693               141,324
                                                                               -------------         -------------

                    Total current assets                                          11,362,670             6,909,396


PROPERTY AND EQUIPMENT, AT COST
        Production equipment                                                       2,568,776             2,418,368
        Furniture and fixtures                                                       852,770               834,971
        Transportation equipment                                                      83,522                69,217
        Leasehold improvements                                                       368,137               368,137
                                                                                 -----------        --------------

                                                                                   3,873,205             3,690,693
        Less accumulated depreciation                                              1,523,349             1,303,063
                                                                                 -----------          ------------

                                                                                   2,349,856             2,387,630
OTHER ASSETS
    Notes receivable, less current maturities (Note A)                               103,105               607,524
    Investments in common stock  (Note A)                                            684,000                    -
     Deferred income taxes                                                         1,290,592             1,392,658
    Goodwill and other intangibles (net)                                           2,164,298             2,287,146
    Other                                                                            665,529               322,630
                                                                                ------------         -------------

                                                                                   4,907,524             4,609,958
                                                                                 -----------           ------------

                                                                                 $18,620,050           $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>
                                                                                    June 30,          September 30,
                                                                                      1998              1997
                                                                                 (Unaudited)
                                                                                ------------           -----------
CURRENT LIABILITIES
<S>                                                                            <C>                     <C>        
    Notes payable                                                              $          -            $   641,505
    Bridge loan                                                                           -                100,000
    Line of credit                                                                 3,795,541             2,237,690
    Current maturities of long-term obligations                                      314,643               263,255
    Current maturities of capital leases                                              66,464                66,464
    Accounts payable                                                               3,028,073             2,053,348
    Accrued liabilities                                                              310,561               481,356
                                                                                ------------           -----------

                    Total current liabilities                                      7,515,282             5,843,618

LONG-TERM OBLIGATIONS, less current
    maturities (Note C)                                                              927,178               681,722

CAPITAL LEASE OBLIGATIONS, less current
    maturities                                                                         8,377                70,889

SUBORDINATED DEBENTURES (Note D)                                                   1,380,059                   -

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

                    Total liabilities                                              9,996,651             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
         4,773,910 shares at June 30, 1998 and
        4,072,863  shares at September 30, 1997                                       52,650                40,729
    Additional paid-in capital                                                    10,146,204             8,733,126
    Accumulated deficit                                                           (1,575,455)           (1,628,855)
                                                                               --------------       ---------------

                    Total stockholders' equity                                     8,623,399              7,145,000
                                                                               -------------            -----------

                                                                                 $18,620,050            $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 June 30,        Nine months ended June 30
                                                  ------------------------------     ---------------------------
                                                      1998              1997             1998         1997
                                                  ------------      ------------     ------------   ------------
<S>                                               <C>               <C>              <C>            <C>         
Net sales                                         $  4,510,112      $  4,479,882     $ 12,113,556   $ 15,220,519
Cost of sales                                        3,534,452         4,083,240        9,431,973     12,912,356
                                                  ------------      ------------     ------------   ------------
               Gross profit                            975,660           396,642        2,681,583      2,308,163

Operating expenses
     Sales and marketing                               192,071           230,040          619,562        695,152
     Research and development                           49,675            60,914          243,044        101,283
     General and administrative                        477,792           390,479        1,117,334      1,115,630
     Depreciation and amortization                     122,288            96,347          364,225        285,025
                                                  ------------      ------------     ------------   ------------

               Total operating expenses                841,826           777,780        2,344,165      2,197,090
                                                  ------------      ------------     ------------   ------------
               Operating income                        133,834          (381,138)         337,418        111,073

Other income (expense)
     Interest expense                                 (112,400)         (134,763)        (367,107)      (403,539)
     Gain on sale of division (Note A)                       -                 -                -        611,912
     Other income (expense), net                        84,318            19,522          118,655         77,194
                                                  ------------      ------------     ------------   ------------

               Total other income (expense)            (28,082)         (115,241)        (248,452)       285,567
                                                  ------------      -------------    ------------   ------------

Earning (loss) before income taxes                     105,752          (496,379)          88,966        396,640

Income taxes (benefit) expense                          42,301          (198,500)          35,566        163,100
                                                  ------------      ------------     ------------   ------------

Net earnings (loss)                               $     63,451          (297,879)    $     53,400   $    233,540
                                                  ============      ============     ============   ============
Earnings (loss) per common share:
     Basic                                        $       0.01             (0.09)    $       0.01   $       0.18
                                                  =============     ============     ============   ============
     Diluted                                              0.01             (0.09)    $       0.01   $       0.07
                                                  =============     ============     ============   ============
Weighted average common and dilutive
    common equivalent shares outstanding
     Basic                                            4,586,962        3,238,975        4,452,312      3,101,930
                                                  =============     ============     ============   ============
     Diluted                                          5,121,153        3,383,638        5,510,758      3,518,097
                                                  =============     ============     ============   ============
</TABLE>


              The accompanying notes are an integral part of these
                                  statements.


                                        6


<PAGE>

                             Pen Interconnect, Inc.

                            STATEMENTS OF CASH FLOWS

                         For nine months ended June 30,

                                   (Unaudited)


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

Increase (decrease) in cash and cash equivalents
    Cash flows from operating activities
<S>                                                                             <C>                 <C>           
        Net earnings                                                            $     53,400        $      233,540
        Adjustments to reconcile net earnings
            to net cash used in operating activities
               Depreciation and amortization                                         364,225               285,025
               Bad debts                                                               3,420               (19,314)
               Gain on sale of division                                                   -               (611,912)
               Contingent stock San Jose agreement                                   (40,000)                   -
               Loss on disposal of equipment                                          16,534                    -
               Deferred taxes                                                         62,697               131,000
               Changes in assets and liabilities
                    Trade accounts receivable                                     (1,632,294)              615,329
                    Inventories                                                   (2,305,763)              (15,587)
                    Prepaid expenses and other assets                               (306,138)             (369,942)
                    Accounts payable                                                 974,725              (703,410)
                    Accrued liabilities                                             (254,795)             (627,103)
                    Income taxes                                                      -                     33,192
                                                                              --------------        --------------

                        Total adjustments                                         (3,117,389)           (1,282,722)
                                                                              --------------        ---------------

                        Net cash used in
                        operating activities                                      (3,063,989)           (1,049,182)
                                                                              ---------------       --------------

    Cash flows from investing activities
        Purchase of property and equipment                                          (202,353)             (207,994)
        Proceeds from sale of division                                                   -               2,000,000
        Proceeds from sale of investments                                            389,250                    -
        Issuance of notes receivable                                                 (89,195)              (35,435)
        Collections on notes receivable                                               22,800                    -
                                                                              --------------        -------------

                        Net cash provided
                        by investing activities                                      120,502             1,756,571
                                                                              --------------        --------------
</TABLE>





                                   (Continued)


                                        7


<PAGE>



                             Pen Interconnect, Inc.

                      STATEMENTS OF CASH FLOWS - CONTINUED

                       For the nine months ended June 30,


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

    Cash flows from financing activities
<S>                                                                           <C>                   <C>          
        Principal payments on notes payable                                         (641,505)                   -
        Net change in line of credit                                               1,557,851            (2,009,864)
        Proceeds from bridge loan                                                         -              1,000,000
        Principal payments on bridge loan                                           (100,000)                    -
        Principal payments on long-term obligations                                 (265,668)              (76,842)
        Proceeds from issuance of subordinated debentures                          1,910,000                    -
        Proceeds from issuance of long-term obligation                               500,000                    -
        Proceeds from sale of common stock                                           705,058               225,000
                                                                              --------------        --------------

                        Net cash (used in) or provided
                        by financing activities                                    3,665,736              (861,706)
                                                                              --------------        --------------

                        Net (decrease) increase in cash
                            and cash equivalents                                     722,249              (154,317)

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

Cash and cash equivalents at end of period                                    $      994,397        $       15,128
                                                                              ==============        ==============

Supplemental disclosures of cash flow information

    Cash paid during the period for
        Interest                                                              $      370,028        $      390,157
        Income taxes                                                                       -                     -
</TABLE>


                                   (Continued)

                                        8


<PAGE>



                             Pen Interconnect, Inc.

                      STATEMENTS OF CASH FLOWS - CONTINUED

                For the nine months ended June 30, 1998 and 1997

Non-cash investing and financing activities

During the third quarter of fiscal year 1998,  subordinated  debentures totaling
$480,000 were converted to 248,122 shares of common stock.

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 nine month
period ended June 30, 1997.  The balance sheet  excludes the Division as of June
30, 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. 

                                                     Nine months  ended June 30,
                                                  (amounts in thousands, except 
                                                           share data)
                                                     1998             1997
                                                  -----------         ----
       Net sales                                  $    12,114     $   14,935
       Operating income                                   337             94
       Net earnings (loss)                                 53           (379)
       Earnings(loss) per common share:
             Basic                                       0.01          (0.12)
             Diluted                                     0.01
       Weighted average common and dilutive
        common equivalent shares outstanding:
            Basic                                   4,452,312      3,101,930
            Diluted                                 5,510,758




                                       11


<PAGE>


                             Pen Interconnect, Inc.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE B - INVENTORIES

Inventories consist of the following:
                                         June 30,        September 30,
                                           1998              1997
Raw materials (net of allowance)      $    3,466,407     $   2,531,235
Work-in-process                            2,123,110           736,928
Finished goods                                72,117            87,708
                                      --------------     -------------

                                         $ 5,661,634     $   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 June 16,  1998,  the Board of  Directors  of the  Company  approved  the
     issuance  of  up  to  $1,000,000   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  June  30,  1998  the  Company  had  issued  all  $1,000,000  of  the
     convertible debentures and none were converted.

                                   (Continued)
                                       12


<PAGE>

                             Pen Interconnect, Inc.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS


       NOTE D - SUBORDINATED DEBENTURES - Continued

     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 June 31, 1998 the Company had issued all $1,500,000 of the $1,500,000
     convertible  debentures  and $800,000 had been converted to common stock at
     an average price of approximately $2.03 per share (Note F). .

NOTE E - STOCK TRANSACTIONS

          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.



                                   (Continued)
                                       13
<PAGE>

                             Pen Interconnect, Inc.




       NOTE E - STOCK TRANSACTIONS -Continued

          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 June 30, 1998
                                            Earnings       Shares     Per-Share
                                           ===========    =========   ==========
       Basic EPS:   Earnings available
         to common  shareholders           $    63,451    4,586,962   $     0.01
                                           ===========    =========   ==========
       Effect of Dilutive Securites
         Stock options and warrants                 -       534,191
       Diluted EPS: Earnings available
         to common shareholders            $    63,451    5,121,153   $     0.01
                                           ===========    =========   ==========

                                             Three months Ended June 30, 1997
                                             (Loss)        Shares      Per-Share
                                           ===========    =========   ==========
       Basic EPS:   Loss available
         to common  shareholders           $  (297,879)   3,238,975   $   (0.09)
                                           ===========    =========   ==========
       Effect of Dilutive Securites
         Stock options and warrants                  -       n/a
                                           ===========    =========   ==========
       Diluted EPS: Loss available
         to common shareholders            $  (297,879)   3,238,975   $   (0.09)
                                           ===========    =========   ==========





                                   (Continued)
                                       14
<PAGE>

                             Pen Interconnect, Inc.




       NOTE E - STOCK TRANSACTIONS -Continued

          Earnings (loss) per share - Continued

                                            Nine months Ended June 30 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 were
excluded as they would decrease the loss per share (anti-dilutive).


                                            Nine months Ended June 30, 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.
                                                         
                                       15
<PAGE>

ITEM 2. MAMAGEMENTS 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
nine month periods ending June 30, 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.

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 nine months ended June 30,
1997.

                                       16
<PAGE>

Net sales.  Net sales for the Company  remained  flat for the three month period
ended June 30, 1998 as compared to the same periods in the prior year. Net sales
have decreased  approximately 20% for the nine month period ending June 30, 1998
as compared to the same periods in the prior year.  The flat sales for the three
month period is the direct result of the start of a significant contract for our
InCirT Division which started during this most recent quarter.  The decrease for
the nine month period  principally  resulted from the loss of a large  customer,
the move out of several  orders into future  quarters 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.

Cost of sales.  Cost of sales as a  percentage  of net sales have  decreased  to
approximately  78% for the three months ended June 30, 1998,  as compared to 91%
for the same  period in the prior  year.  Cost of sales as a  percentage  of net
sales have  decreased  to  approximately  78% for the nine months ended June 30,
1998, as compared to 85% 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  nine  month  period  to
correspond with the reduced sales levels.

Operating  expenses.  Operating  expenses have  increased as a percentage of net
sales to  approximately  19% for the three and nine  month  periods  at June 30,
1998, respectively as compared to approximately 17% and 14% 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.  Sales and marketing actually decreased when compared to the prior
year but reflect a increase  in relation to sales due to the  decrease in sales.
General and  Administrative  expenses increased in the three month period due to
increased costs in public relations and the legal and accounting fees associated
with the merger  negotiations with TMCI. Due to the fixed components included in
the other  operating  costs  they  could  not be  significantly  reduced  in the
short-ter  and due to the  expected  rebound  in sales in future  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% respectively 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 June 30, 1998 totaled  $63,451 or $0.01 basic per share  earnings,
compared with  ($297,879) or ($0.03) basic per share loss for the same period in
the prior  year.  For the nine  months  ended June 30,  1998 the net earning was
$53,400 or $0.01 basic per share  earning,  compared with a loss (net of gain on
sale of division)  of  ($133,607)  or ($0.04)  basic per share loss for the same
period in the prior year.

The increase in earnings and earnings per share as compared to the prior periods
(excluding  the  gain  on the  sale of the  division)  is due in  large  part to
improved  pricing from several vendors and cost cutting  efforts  implemented by
management.

Liquidity and Capital Resources

Working  capital  increased to  $3,847,388  on June 30, 1998 from  $1,065,778 on
September 30, 1997.  The increase is  principally  due to the proceeds  received
from the sale of the debentures and from the additional term loan.

Management believes that existing cash balances,  borrowings available under the
line of credit  together with cash generated from projected  operations  will be
adequate to meet the Company's  anticipated  cash  requirements  during the next
twelve months. However, in the event the Company's operating performance is less
than projected the company may be forced to seek additional financing. There can
be no assurance that such additional financing, if required, would be available;
and if available 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: 19 August 1998
James S. Pendleton,
CEO and Chairman


By: /s/ Wayne R. Wright                            Date:  19 August 1998
Wayne R. Wright,
CFO, Principal Accounting
Officer and Vice-Chairman





                                       20