UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ______________________

                                    FORM 10-Q

[  X  ]     QUARTERLY  REPORT  PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
            EXCHANGE  ACT  OF  1934

               For the quarterly period ended  September 30, 2003
                                               ------------------

                                       OR

[     ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
            EXCHANGE  ACT  OF  1934

                For the transition period from                to

                        COMMISSION FILE NUMBER 000-27267

                              I/OMAGIC CORPORATION

             (Exact Name of Registrant as Specified in Its Charter)


          Nevada                                        88-029062
 ------------------------------             -------------------------------
(State or Other Jurisdiction of            (IRS Employer Identification No.)
Incorporation  or  Organization)


     4  Marconi,  Irvine,  CA                            92618
     ------------------------                         ----------
(Address  of  Principal  Executive  Offices)          (Zip  Code)

                                 (949) 707-4800
                                 --------------
              (Registrant's Telephone Number, Including Area Code)

                  1300 E. Wakeham Avenue, Santa Ana, CA 92705
              ----------------------------------------------------
              (Former Name, Former Address and Former Fiscal Year,
                          if Changed Since Last Report)

Indicate by check whether the registrant:  (1) has filed all reports required to
be  filed  by  Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding  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  [     ]

Indicate  by check whether the registrant is an accelerated filer (as defined in
Rule  12b-2  of  the  Exchange  Act).   Yes  [   ]    No  [  X  ]

As  of  November  14,  2003,  there were 4,529,672 shares of the issuer's common
stock  issued  and  outstanding.

<PAGE>

                      I/OMAGIC CORPORATION AND SUBSIDIARY

                                TABLE OF CONTENTS

                                                                        Page
                                                                        Number
                                                                        ------

PART I  - FINANCIAL  INFORMATION

Item 1.   Financial  Statements

          Consolidated Balance Sheets - December 31, 2002
          and September 30, 2003   (unaudited)                              3

          Consolidated  Statements  of  Income  - For the nine and
          three months ended September 30, 2003 and 2002 (unaudited)        5

          Consolidated Statements of Cash Flows - For the nine months
          ended September 30, 2003 and 2002 (unaudited)                     6

          Notes  to  Consolidated  Financial  Statements                    7

Item 2.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations                                        12

Item 3.   Quantitative and Qualitative Disclosures About Market Risk       23

Item 4.   Controls  and  Procedures                                        24


PART II - OTHER  INFORMATION

Item 1.   Legal  Proceedings                                               24

Item 2.   Changes  in  Securities  and  Use  of  Proceeds                  24

Item 3.   Defaults  Upon  Senior  Securities                               24

Item 4.   Submission of Matters to a Vote of Security Holders              24

Item 5.   Other Information                                                25

Item 6.   Exhibits  and  Reports  on  Form  8-K                            25

SIGNATURES                                                                 25

EXHIBITS  FILED  WITH  THE  REPORT                                         26


                                        2
<PAGE>
                         PART I - FINANCIAL INFORMATION


ITEM  1.           FINANCIAL  STATEMENTS


                              I/OMAGIC CORPORATION
                                 AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
              DECEMBER 31, 2002 AND SEPTEMBER 30, 2003  (UNAUDITED)

<TABLE>
<CAPTION>
                                     ASSETS


                                                                   DECEMBER 31,  SEPTEMBER 30,
                                                                       2002          2003
                                                                    ------------  -----------
                                                                                  (unaudited)
<S>                                                                 <C>           <C>
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . .  $  7,320,143  $ 1,588,261
Accounts receivable, net of allowance for doubtful
      accounts of $2,135,660 and $2,031,310 (unaudited). . . . . .    19,055,201   15,300,838
Inventory, net of allowance for obsolete inventory of  $1,046,812
      and $324,485 (unaudited) . . . . . . . . . . . . . . . . . .     4,274,852    5,659,695
Inventory, consigned . . . . . . . . . . . . . . . . . . . . . . .     3,965,428    3,479,682
Inventory in transit . . . . . . . . . . . . . . . . . . . . . . .       675,000      140,584
Prepaid expenses and other current assets. . . . . . . . . . . . .        28,955      184,395
                                                                    ------------  -----------
     Total current assets. . . . . . . . . . . . . . . . . . . . .    35,319,579   26,353,455
PROPERTY AND EQUIPMENT, net. . . . . . . . . . . . . . . . . . . .     1,059,067      587,106
TRADEMARK, net of accumulated amortization
      of $4,292,308 and $4,726,360 (unaudited) . . . . . . . . . .     5,353,371    4,919,319
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . .        25,952       52,984
                                                                    ------------  -----------
     TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . .  $ 41,757,969  $31,912,864
                                                                    ============  ===========
</TABLE>

      The accompanying notes are an integral part of these financial statements.


                                        3
<PAGE>

                              I/OMAGIC CORPORATION
                                 AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
              DECEMBER 31, 2002 AND SEPTEMBER 30, 2003 (UNAUDITED)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                                   DECEMBER 31,    SEPTEMBER 30,
                                                                       2002            2003
                                                                    ------------    -----------
                                                                                    (unaudited)
<S>                                                                 <C>            <C>
CURRENT LIABILITIES
 Line of credit  . . . . . . . . . . . . . . . . . . . . . . . . .  $ 10,372,827   $  3,774,788
 Accounts payable and accrued expenses . . . . . . . . . . . . . .     7,285,246      4,539,410
 Accounts payable - related parties. . . . . . . . . . . . . . . .     2,607,278      6,179,351
 Reserves for customer returns and allowances. . . . . . . . . . .       765,898        651,525
 Current portion of settlement payable . . . . . . . . . . . . . .     3,000,000      1,000,000
                                                                    -------------  -------------
   Total current liabilities . . . . . . . . . . . . . . . . . . .    24,031,249     16,145,074
 SETTLEMENT PAYABLE, net of current portion. . . . . . . . . . . .     1,000,000              -
   Total liabilities . . . . . . . . . . . . . . . . . . . . . . .    25,031,249     16,145,074
                                                                    -------------  -------------
STOCKHOLDERS' EQUITY
 Preferred Stock
   10,000,000 shares authorized, $0.001 par value
   0 and 0 (unaudited) shares issued and outstanding . . . . . . .             -              -
 Class A common stock, $0.001 par value
   100,000,000 shares authorized
   4,529,672 and 4,529,672 (unaudited) shares issued and outstanding       4,530          4,530
Additional paid-in capital . . . . . . . . . . . . . . . . . . . .    31,557,988     31,557,988
Treasury stock, 4,226 and 13,493 (unaudited) shares, at cost . . .       (42,330)      (126,014)
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . .   (14,793,468)   (15,668,714)
                                                                    -------------  -------------
   Total stockholders' equity. . . . . . . . . . . . . . . . . . .    16,726,720     15,767,790
                                                                    -------------  -------------
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. . . . . . . . . .  $ 41,757,969   $ 31,912,864
                                                                    =============  =============
</TABLE>

      The accompanying notes are an integral part of these financial statements.

                                        4
<PAGE>
<TABLE>
<CAPTION>

                              I/OMAGIC CORPORATION
                                 AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
        FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
                                  (UNAUDITED)

                                                              NINE MONTHS ENDED         THREE MONTHS ENDED
                                                                 SEPTEMBER  30,            SEPTEMBER  30,
                                                            2003           2002           2003          2002
                                                        ------------  -------------  ------------  -------------
                                                         (unaudited)    (unaudited)   (unaudited)    (unaudited)
<S>                                                     <C>           <C>            <C>           <C>
NET SALES. . . . . . . . . . . . . . . . . . . . . . .  $43,362,247   $ 61,199,231   $13,505,327   $ 20,393,164
COST OF SALES. . . . . . . . . . . . . . . . . . . . .   36,953,579     54,750,691    11,443,776     18,838,477
                                                        ------------  -------------  ------------  -------------
GROSS PROFIT . . . . . . . . . . . . . . . . . . . . .    6,408,668      6,448,540     2,061,551      1,554,687
                                                        ------------  -------------  ------------  -------------
OPERATING EXPENSES
Selling, marketing, and advertising. . . . . . . . . .      940,539      1,147,916       275,935        443,953
General and administrative . . . . . . . . . . . . . .    5,137,422      5,767,854     1,202,693      1,674,732
Depreciation and amortization. . . . . . . . . . . . .    1,058,647      1,000,363       346,062        219,136
                                                        ------------  -------------  ------------  -------------
   Total operating expenses. . . . . . . . . . . . . .    7,136,608      7,916,133     1,824,690      2,337,821
                                                        ------------  -------------  ------------  -------------
INCOME (LOSS) FROM OPERATIONS. . . . . . . . . . . . .     (727,940)    (1,467,593)      236,861       (783,134)
                                                        ------------  -------------  ------------  -------------
OTHER INCOME (EXPENSE)
Interest income. . . . . . . . . . . . . . . . . . . .          307          1,411            36          1,299
Interest expense . . . . . . . . . . . . . . . . . . .     (196,412)      (282,818)      (40,759)       (90,678)
Other income (expense) . . . . . . . . . . . . . . . .       45,719       (242,473)       (3,596)      (169,168)
                                                        ------------  -------------  ------------  -------------

          Total other income (expense) . . . . . . . .     (150,386)      (523,880)      (44,319)      (258,547)
                                                        ------------  -------------  ------------  -------------

INCOME (LOSS) BEFORE INCOME TAXES. . . . . . . . . . .     (878,326)    (1,991,473)      192,542     (1,041,681)
PROVISION FOR (BENEFIT FROM) INCOME TAXES. . . . . . .       (3,083)       999,132        (1,885)       499,132
                                                        ------------  -------------  ------------  -------------
NET INCOME (LOSS). . . . . . . . . . . . . . . . . . .    ($875,243)   ($2,990,605)  $   194,427    ($1,540,813)
                                                        ============  =============  ============  =============


BASIC AND DILUTED EARNINGS PER SHARE . . . . . . . . .       ($0.19)        ($0.66)  $      0.04         ($0.34)
                                                        ============  =============  ============  =============



BASIC AND DILUTED WEIGHTED-AVERAGE SHARES OUTSTANDING.    4,529,672      4,529,672     4,529,672      4,529,672
                                                        ============  =============  ============  =============
</TABLE>
      The accompanying notes are an integral part of these financial statements.

                                        5
<PAGE>

<TABLE>
<CAPTION>
                              I/OMAGIC CORPORATION
                                 AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
                                   (UNAUDITED)


                                                       NINE MONTHS ENDED SEPTEMBER 30,
                                                             2003           2002
                                                         ------------  -------------
                                                          (unaudited)    (unaudited)

<S>                                                      <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss). . . . . . . . . . . . . . . . . . . . . . .    ($875,243)   ($2,990,605)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization . . . . . . . . . . . . .      624,594        228,715
Amortization of trademarks. . . . . . . . . . . . . . .      434,052        771,648
Allowance for doubtful accounts . . . . . . . . . . . .     (104,350)     1,100,000
Reserve for customer returns and allowances . . . . . .     (114,373)    (1,475,326)
Reserve for obsolete inventory. . . . . . . . . . . . .     (722,327)     1,425,000
Net (gain) loss from sale of property and equipment . .           61        (38,759)
Deferred income tax . . . . . . . . . . . . . . . . . .            -      1,000,000
(Increase) decrease in
Accounts receivable . . . . . . . . . . . . . . . . . .    3,858,711     10,081,186
Inventory . . . . . . . . . . . . . . . . . . . . . . .      357,645       (335,483)
Prepaid expenses and other current assets . . . . . . .     (155,440)     1,852,377
Other assets. . . . . . . . . . . . . . . . . . . . . .      (27,032)             -
Increase (decrease) in
Accounts payable and accrued expenses . . . . . . . . .   (2,745,838)    (5,523,788)
Accounts payable - related parties. . . . . . . . . . .    3,572,073     (2,379,658)
Settlement payable. . . . . . . . . . . . . . . . . . .   (3,000,000)             -
                                                         ------------  -------------
Net cash provided by (used in) operating activities . .    1,102,533      3,715,307
                                                         ------------  -------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of property and equipment . . . . . . . . .     (153,192)      (140,328)
   Proceeds from sale of property and equipment . . . .          500         74,000
                                                         ------------  -------------
   Net cash provided by (used in) investing activities.     (152,692)       (66,328)
                                                         ------------  -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) on line of credit . . . . . .   (6,598,039)    (4,407,066)
Purchase of treasury shares . . . . . . . . . . . . . .      (83,684)       (40,410)
Payments on capital lease obligations . . . . . . . . .            -         (9,188)
                                                         ------------  -------------
Net cash provided by (used in) financing activities . .   (6,681,723)    (4,456,664)
                                                         ------------  -------------
Net increase (decrease) in cash and cash equivalents. .   (5,731,882)      (807,685)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD. . . . .    7,320,143      4,423,623
                                                         ------------  -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD. . . . . . . .  $ 1,588,261   $  3,615,938
                                                         ============  =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 INTEREST PAID. . . . . . . . . . . . . . . . . . . . .  $   229,379   $    279,757
                                                         ============  =============
 INCOME TAXES PAID (REFUNDED) . . . . . . . . . . . . .      ($3,083)  $        800
                                                         ============  =============
</TABLE>

      The accompanying notes are an integral part of these financial statements.

                                        6
<PAGE>

                              I/OMAGIC CORPORATION
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  1  -  ORGANIZATION  AND  BUSINESS

I/OMagic  Corporation  ("I/OMagic"),  a  Nevada  corporation, and its subsidiary
(collectively,  the  "Company")  develop,  manufacture  through  subcontractors,
market,  and  distribute  optical  storage  and  media, multimedia, input-output
peripheral  products and solutions for the desktop and mobile computing markets,
and  digital  entertainment  products  for the consumer electronics market.  The
Company  sells  its products in the United States and Canada to distributors and
retail  customers.


NOTE  2  -  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES

BASIS  OF  PRESENTATION

The  accompanying unaudited consolidated financial statements have been prepared
in  accordance  with  the  rules  and regulations of the Securities and Exchange
Commission  and,  therefore,  do not include all information and notes necessary
for  a  fair presentation of financial position, results of operations, and cash
flows  in  conformity  with  generally  accepted  accounting  principles.  The
unaudited consolidated financial statements include the accounts of I/OMagic and
subsidiary.  The operating results for interim periods are unaudited and are not
necessarily  an  indication  of  the  results to be expected for the full fiscal
year.  In  the  opinion of management, the results of operations as reported for
the  interim  periods  reflect  all  adjustments  which are necessary for a fair
presentation of operating results.  These financial statements should be read in
conjunction  with  the Company's Form 10-K for the year ended December 31, 2002.

USE  OF  ESTIMATES

The  preparation  of  financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets and liabilities and the disclosures of
contingent  assets  and  liabilities at the date of the financial statements, as
well  as  the  reported  amounts  of  revenues and expenses during the reporting
period.

Significant  estimates  made  by management include, but are not limited to, the
provisions  for  allowance of doubtful accounts and price protection on accounts
receivable,  the  net  realizability  of  inventory, the evaluation of potential
impairment  of  furniture and equipment, and the provision for sales returns and
warranties.  Actual  results  could  materially  differ  from  those  estimates.

STOCK  BASED  COMPENSATION

SFAS  No.  123,  "Accounting  for  Stock-Based  Compensation,"  establishes  and
encourages  the use of the fair value based method of accounting for stock-based
compensation  arrangements under which compensation cost is determined using the
fair value of stock-based compensation determined as of the date of grant and is
recognized  over  the  periods  in  which the related services are rendered. The
statement also permits companies to elect to continue using the current implicit
value  accounting  method  specified  in  Accounting Principles Bulletin ("APB")
Opinion  No.  25,  "Accounting  for  Stock  Issued to Employees," to account for
stock-based compensation issued to employees. The Company has elected to use the
implicit  value based method and has disclosed the pro forma effect of using the
fair  value  based  method  to  account  for  its  stock-based compensation. For
stock-based  compensation  issued  to  non-employees,  the Company uses the fair
value  method  of  accounting  under  the  provisions  of  SFAS  No.  123.


                                        7
<PAGE>
EARNINGS  PER  SHARE

The  Company  calculates  earnings  per  share  in accordance with SFAS No. 128,
"Earnings  Per  Share."  SFAS  No.  128 replaced the presentation of primary and
fully  diluted  earnings  per  share  with the presentation of basic and diluted
earnings  per  share.  Basic  earnings  per  share  excludes  dilution  and  is
calculated  by  dividing  income  available  to  common  stockholders  by  the
weighted-average  number  of  common shares outstanding for the period.  Diluted
earnings  per  share includes the potential dilutive effects that could occur if
securities  or other contracts to issue common stock were exercised or converted
into  common  stock  ("potential  common  stock")  that  would then share in the
earnings  of  the  Company.

As  of  September  30,  2002  (unaudited) and September 30, 2003 (unaudited) the
Company  had  potential  common  stock  as  follows:

                                                             2002         2003
                                                             ----         ----

Weighted  average  common  shares
     outstanding  during  the  period                    4,528,686     4,529,672

Incremental  shares  assumed  to  be  outstanding
     since  the  beginning  of  the  period
     related to  stock  options  and  warrants
     outstanding (unaudited)                                     -             -

Fully  diluted  weighted  average  common
     shares  and potential  common  stock                4,528,686     4,625,368


The following potential common shares have been excluded from the computation of
diluted  earnings per share as of September 30, 2002 due to being anti-dilutive.

                                                             2002
                                                             ----

Stock  Options                                             111,309
Redeemable  convertible  preferred  stock                   75,000
                                                        ----------
                                                           186,309

The following potential common shares have been excluded from the computation of
diluted  earnings  per  share as of September 30, 2003 due to the exercise price
being  greater  than  the Company's weighted average stock price for the period.

                                                              2003
                                                              ----

Stock  Options                                             126,167
Warrants  (committed)                                       20,004
                                                       -----------
                                                           146,171

RECENTLY  ISSUED  ACCOUNTING  PRONOUNCEMENTS

In April 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No.
149,  "Amendment  of  Statement  133  on  Derivative  Instruments  and  Hedging
Activities."  SFAS  No.  149  amends  and clarifies accounting and reporting for
derivative  instruments  and  hedging activities under SFAS No. 133, "Accounting
for  Derivative  Instruments and Hedging Activities."  SFAS No. 149 is effective
for derivative instruments and hedging activities entered into or modified after
June  30,  2003,  except  for certain forward purchase and sale securities.  For
these  forward  purchase and sale securities, SFAS No. 149 is effective for both
new  and  existing  securities  after September 30, 2003.  This statement is not
applicable  to  the  Company.

                                        8
<PAGE>

In  May  2003,  the  FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments  with  Characteristics of both Liabilities and Equity." SFAS No. 150
establishes standards for how an issuer classifies and measures in its statement
of financial position certain financial instruments with characteristics of both
liabilities  and equity.  In accordance with the standard, financial instruments
that  embody  obligations  for  the  issuer  are  required  to  be classified as
liabilities.  SFAS  No.  150 will be effective for financial instruments entered
into  or  modified  after  May  31,  2003 and otherwise will be effective at the
beginning  of  the  first  interim  period  beginning  after June 15, 2003. This
statement  is  not  applicable  to  the  Company.


NOTE  3  -  ACCOUNTS  PAYABLE  AND  ACCRUED  EXPENSES

Accounts  payable  and  accrued  liabilities  consisted  of  the  following:

                                                September  30,
                                                     2003
                                                     ----
                                                  (unaudited)

Accounts  payable                                $ 1,638,701
Accrued  rebates  and  marketing                   2,247,509
Accrued  compensation  and  related  benefits        264,760
Other                                                388,440
                                                 ------------
TOTAL                                            $ 4,539,410
                                                 ============

NOTE  4  -  INVENTORY

Inventory  consisted  of  the  following:

                                                 September 30,
                                                     2003
                                                     ----
                                                  (unaudited)

Component  parts                                 $ 2,937,140
Finished  goods                                    3,047,040
Reserves for obsolete and
  slow  moving  inventory                           (324,485)
                                                 ------------
TOTAL                                            $ 5,659,695
                                                 ============

NOTE  5  -  LINE  OF  CREDIT

On  August  15,  2003,  the  Company entered into a business loan agreement with
United  National  Bank.  Under  the  terms  of  the loan agreement, which became
effective  August 18, 2003, the Company may borrow up to $6,000,000.  The credit
facility  expires  September  1, 2004 and is secured by substantially all of the
Company's assets.  Advances on the line bear interest at the floating commercial
loan  rate  of  Wells  Fargo  Bank  plus  0.75%.  As  of September 30, 2003, the
interest rate was 4.75%.  The credit facility also requires the Company to be in
compliance  with certain financial covenants, all of which were complied with at
September  30,  2003.  The agreement also calls for the Company to be profitable
for  the  year  ended  December  31,  2003.


                                        9
<PAGE>
The  new  line  of  credit was initially used to pay off the outstanding balance
with  ChinaTrust  Bank (USA) as of September 2, 2003, which was $3,379,827.  The
outstanding  balance  with  United  National  Bank  as of September 30, 2003 was
$3,774,788.  The Company has available to it $2,225,212 of additional borrowings
under  the  credit  facility  as  of  September 30, 2003.  The line of credit is
included  in current liabilities in the accompanying consolidated balance sheet.

NOTE  6  -  CREDIT  LINES  FROM  RELATED  PARTIES

In  connection  with  a  1997  Strategic  Alliance  Agreement,  the  Company has
available  a  trade  line  of credit through a related party for purchases up to
$2,000,000. Purchases are non-interest bearing and are due 75 days from the date
of  receipt.  The  credit agreement can be terminated or changed at any time. As
of  December  31, 2002 and September 30, 2003 (unaudited), there were $0 and $0,
respectively,  in  trade  payables  outstanding  under  this  arrangement.

In  connection with a December 2000 subscription agreement, the Company also has
available  an  additional  trade  line  of  credit  through a related party that
provides  a trade credit facility of up to $3,000,000 carrying net 60 day terms,
as  defined.  As  of December 31, 2002 and September 30, 2003 (unaudited), there
were  $0  and  $0,  respectively,  in  trade  payables  outstanding  under  this
arrangement.

In January 2003, the Company entered into a trade credit facility with a related
party,  whereby  the related party has agreed to purchase inventory on behalf of
the  Company.  The  agreement  allows the Company to purchase up to $10,000,000,
with  payment  terms  of 120 days following the date of invoice by the supplier.
The  third  party will charge the Company a 5% handling charge on the supplier's
unit  price.  A  2%  discount to the handling fee will be applied if the Company
reaches  an  average  running  monthly  purchasing  volume  of $750,000 a month.
Returns  made by the Company, which are agreed by the supplier, will result in a
credit  to  the  Company  for  the  handling  charge.

As  security  for  the  trade  facility,  the  Company  paid the related party a
security  deposit  of $1,500,000, which may be applied against outstanding trade
payables  after six months.  As of September 30, 2003, $500,000 has been applied
against  outstanding  trade payables.   This deposit has been offset by Accounts
Payables  -  Related  Parties  in  the  accompanying financial statements.   The
agreement is for 12 months.  At the end of the 12-month period, either party may
terminate  the  agreement upon 30 days' written notice. Otherwise, the agreement
will  remain  continuously valid without effecting a newly signed agreement.  As
of  September  30, 2003 (unaudited), there were $3,345,578 in trade payables net
of  the  deposit  still  outstanding  ($1,000,000)  under  this  arrangement.

In  February  2003,  the Company entered into an agreement with a related party,
whereby the related party will supply and store at the Company's warehouse up to
$10,000,000  of  inventory  on  a  consignment  basis.  Under the agreement, the
Company  will  insure the consignment inventory, store the consignment inventory
for  no  charge, and furnish the related party with weekly statements indicating
all products received and sold and the current consignment inventory level.  The
agreement  may  be  terminated  by either party with 60 days written notice.  In
addition,  this  agreement  provides  for  a  trade  line  of  credit  of  up to
$10,000,000  with  payment  terms  of  net 30 days, non-interest bearing.  As of
September  30,  2003  (unaudited),  there  were  $2,833,773  in  trade  payable
outstanding  under  this  arrangement.  As  of  December  31,  2002,  there were
$2,607,278  in  trade  payables  outstanding under a prior arrangement with this
related  party.

NOTE  7  -  COMMITMENTS  AND  CONTINGENCIES

LEASES

The  Company  leases  its facilities and certain equipment under non-cancelable,
operating  lease  agreements,  expiring  through  August  2006.

Rent  expense  was $332,024 and $340,966 for the nine months ended September 30,
2003  and  2002,  respectively,  and  is  included in general and administrative
expenses  in  the  accompanying  statements  of  income.

                                       10
<PAGE>

LITIGATION

On  May  30,  2003,  an action for breach of contract and legal malpractice, IOM
Holdings, Inc. and I/OMagic Corporation v. Lawrence W. Horwitz, Gregory B. Beam,
Horwitz  &  Beam,  Lawrence  M.  Cron,  Horwitz & Cron, Kevin J. Senn, and  Senn
Palumbo  Meulemans, LLP, was filed by the Company and its subsidiary against its
former  attorneys  and  their  law  firms  in the Superior Court of the State of
California  for  the County of Orange  (Case no. 03CC07383).  The claims alleged
arose  out  of the defendant's representation of the Company and its subsidiary.
A  claim  of $15 million in damages has been alleged against the defendants.  As
of  the  date  of this report, the Company filed its first amended complaint and
defendants  have  not  answered.  The  outcome  of  this  action  is  presently
uncertain.

In  addition,  the  Company  is involved in certain legal proceedings and claims
which  arise in the normal course of business.  Management does not believe that
the  outcome  of  these  matters  will  have  a material effect on the Company's
financial  position  or  results  of  operations.

EMPLOYMENT  CONTRACT

The  Company  entered  into  an  employment contract with one of its officers on
October  15,  2002,  which expires on October 15, 2007.  The agreement, which is
effective  as  of  January 1, 2002, calls for a minimum base salary and provides
for  certain  expense  allowances.  In  addition,  the  agreement provides for a
quarterly  bonus  equal  to 7% of the Company's quarterly net income.  A $14,649
bonus  was  paid  during  the  nine months ended September 30, 2003.  An $18,000
bonus  was  paid  during  the nine months ended September 30, 2002 under a prior
employment  contract.

RETAIL  AGREEMENTS

In  connection with certain retail agreements, the Company has agreed to pay for
certain  marketing  development  and  advertising  costs  on  an  ongoing basis.
Marketing  development  and  advertising  costs are generally agreed upon at the
time  of  the  event.  The  Company also records a liability for co-op marketing
based  on  management's evaluation of historical experience and current industry
and  Company  trends.  During the nine months ended September 30, 2003 and 2002,
the  Company  incurred  $2,045,470  (unaudited)  and  $2,009,730  (unaudited),
respectively, related to these agreements.  Such is netted against sales revenue
in  the  accompanying  statements  of  income.

NOTE  8  -  RELATED  PARTY  TRANSACTIONS

During  the  nine  months  ended  September  30, 2003 and 2002, the Company made
purchases  from  related  parties totaling approximately $22,158,082 (unaudited)
and  $13,039,419  (unaudited),  respectively.

During  the  nine  months  ended  September  30,  2003 and 2002, the Company had
accounts  payable  to  related  parties  totaling  approximately  $6,179,351
(unaudited)  and  $3,142,062  (unaudited),  respectively.

Until  March  28, 2003, the Company leased its warehouse and office space from a
related  party  under  the  control  of an officer of the Company which required
minimum monthly payments of $28,673.  The Company's lease with the related party
expired  on  March  28,  2003.  For the nine months ended September 30, 2003 and
2002,  rent  expense to the related party was $86,018 and $258,053 respectively,
and  is  included  in  general  and  administrative expenses in the accompanying
statements  of  operations.



                                       11
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF  OPERATIONS

The  following  discussion  and  analysis should be read in conjunction with our
unaudited  consolidated  financial  statements and notes to financial statements
included  elsewhere  in  this report. This report and our consolidated financial
statements and notes to financial statements contain forward-looking statements,
which  generally  include  the  plans  and  objectives  of management for future
operations,  including  plans  and  objectives  relating  to our future economic
performance  and  our current beliefs regarding revenues we might earn if we are
successful  in  implementing  our  business  strategies.  The  forward-looking
statements  and associated risks may include, relate to or be qualified by other
important  factors,  including,  without  limitation:

-     the  projected  growth  or  contraction  in  the  computer peripherals and
      consumer  electronics  markets  in  which  we  operate;
-     our  business  strategy  for  expanding,  maintaining  or  contracting our
      presence  in  these  markets;
-     anticipated  trends  in our financial condition and results of operations;
      and
-     our  ability  to  distinguish  ourselves  from  our  current  and  future
      competitors.

     We  do  not  undertake  to  update,  revise  or correct any forward-looking
     statements.

The  information  contained  in this report is not a complete description of our
business  or the risks associated with an investment in our common stock. Before
deciding to buy or maintain a position in our common stock, you should carefully
review  and  consider the various disclosures we made in this report, and in our
other  materials  filed with the Securities and Exchange Commission that discuss
our  business  in  greater detail and that disclose various risks, uncertainties
and  other  factors  that  may  affect  our  business,  results of operations or
financial condition. In particular, you should review the "Risk Factors" section
of  this  report.

Any  of  the  factors  described  above or in the "Risk Factors" section of this
report  could  cause  our  financial results, including our net income (loss) or
growth  in  net  income (loss) to differ materially from prior results, which in
turn could, among other things, cause the price of our common stock to fluctuate

OVERVIEW

We  offer  products  in  both the personal computer and the consumer electronics
marketplace.  These  products  include  a  variety  of  peripheral  upgrades for
desktop  and  portable  applications.  Our  sales  are to national North America
retail  chains and major regional North America retail chains.  We experienced a
29.1%  decrease  in  net  sales  for  the  nine  months ended September 30, 2003
compared  to  the  nine  months  ended  September  30,  2002.  While the current
economic  climate  makes  it  difficult  for  us to look forward into the fourth
quarter  of  2003  and  the  year  2004, we believe that the introduction of our
advanced DVD/RW products in the third quarter of 2003, which have higher average
selling  prices  and  higher  margins  than  our  other products, as well as our
addition  of  Staples  as  a  customer  in September 2003, have strengthened our
potential  for  profitability  in the fourth quarter 2003 and for the year 2004.

Our  net loss for the nine months ended September 30, 2003 decreased by 70.7% as
compared  to  the  nine  months  ended  September 30, 2002, primarily due to the
expensing  of  $1,000,000  in  deferred income taxes in the first nine months of
2002  and  the  reduction of operating expenses by $779,000 and the reduction of
other  expenses  by  $373,000  during  the  first  nine  months  of  2003.

CRITICAL  ACCOUNTING  POLICIES  AND  ESTIMATES

The discussion and analysis of our financial condition and results of operations
are  based  upon our consolidated financial statements, which have been prepared
in  accordance  with  accounting  principals  generally  accepted  in the United
States.  The  preparation  of  these  financial  statements  requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues  and  expenses,  and  related  disclosure  of  contingent  assets  and
liabilities.  On  an  on-going basis, we evaluate our estimates, including those
related  to  customer  programs  and  incentives,  product  returns,  bad debts,
inventories,  intangible assets, income taxes, and contingencies and litigation.
We  base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form  the  basis  for  making  judgments about the carrying values of assets and
liabilities  that  are  not readily apparent from other sources.  Actual results
may  differ  from  these  estimates  under  different assumptions or conditions.

                                       12
<PAGE>

We  believe  the  following  critical  accounting  policies  affect  our  more
significant  judgments and estimates used in the preparation of our consolidated
financial  statements.  We  record  estimated reductions to revenue for customer
programs  and  incentive  offerings  including special pricing agreements, price
protection,  promotions and other volume-based incentives.  If market conditions
were  to  decline,  we may take actions to increase customer incentive offerings
possibly  resulting  in  an  incremental  reduction  of  revenue at the time the
incentive  is  offered.  We  maintain  allowances  for  doubtful  accounts  for
estimated  losses resulting from the inability of our customers to make required
payments.  If  the  financial  condition  of  our customers were to deteriorate,
resulting  in  the  impairment  of  their  ability  to make payments, additional
allowances  may  be  required.

We write down our inventory for estimated obsolescence or unmarketable inventory
equal  to  the difference between the cost of inventory and the estimated market
value  based  upon  assumptions  about  future demand and market conditions.  If
actual  market conditions are less favorable than those projected by management,
additional  inventory  write-downs  may  be  required.

We  record a valuation allowance to reduce our deferred tax assets to the amount
that  is  more  likely than not to be realized.  While we have considered future
taxable  income  and  ongoing  prudent  and  feasible tax planning strategies in
assessing  the  need  for  the  valuation  allowance,  in  the  event we were to
determine that we would be able to realize our deferred tax assets in the future
in  excess  of  our net recorded amount, an adjustment to the deferred tax asset
would  increase  income  in  the  period such determination was made.  Likewise,
should  we determine that we would not be able to realize all or part of our net
deferred  tax asset in the future, an adjustment to the deferred tax asset would
be  charged  to  income  in  the  period  such  determination  was  made.

RESULTS  OF  OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2003 (UNAUDITED) COMPARED TO THREE MONTHS ENDED
SEPTEMBER  30,  2002  (UNAUDITED)

Net  sales decreased by $6,887,837 (33.8%) from $20,393,164 for the three months
ended  September  30,  2002  to $13,505,327 for the three months ended September
30,  2003.  The  decrease  in net sales is primarily due to the fact that we did
not  sell  any  of  our  products  to  Office  Max during the three months ended
September  30, 2003.  We mutually agreed with Office Max to discontinue the sale
of  our  products to them.  We anticipate making a new proposal to Office Max in
the  near  future  as  we  introduce  new  products.

Cost of sales as a percentage of net sales decreased from 92.4% ($18,838,477) in
the  three  months  ended September 30, 2002 to 84.7% ($11,443,776) in the three
months  ended  September  30,  2003.  Cost  of  units  decreased  from  83.0%
($16,929,775) of net sales in the three months ended September 30, 2002 to 81.8%
($11,046,403) of net sales in the three months ended September 30, 2003 due to a
change  in  product mix.  Freight in/out decreased from 5.6% ($1,146,115) of net
sales  in  the  three  months ended September 30, 2002 to 2.4% ($322,373) of net
sales  in  the three months ended September 30, 2003.  Freight in decreased from
$539,942  for the three months ended September 30, 2002 to $19,017 for the three
months  ended  September 30, 2003 as a result of higher freight in costs in 2002
when  we  shipped  products by airfreight to meet customers' shipping deadlines.
Freight  out  decreased  from  $606,173 for the three months ended September 30,
2002  to  $303,355  for  the  three months ended September 30, 2003 due to lower
sales  in  2003.  Inventory shrink/adjustments decreased from 3.7% ($762,587) of
net  sales in the three months ended September 30, 2002 to 0.6% ($75,000) of net
sales in the three months ended September 30, 2003 since we  wrote down to lower
of  cost  or  market  $762,587  in  inventory  in  2002  and  $75,000  in  2003.

                                       13
<PAGE>

Operating  expenses  as  a  percentage  of  net  sales  increased  from  11.5%
($2,337,821)  in the three months ended September 30, 2002 to 13.5% ($1,824,690)
in  the  three  months  ended  September 30, 2003.  This percentage increase was
primarily  due  to  total operating expenses decreasing 21.9%, to $1,824,690 for
the  three  months  ended September 30, 2003 from $2,337,821 in the three months
ended  September  30,  2002, while net sales decreased 33.8% in the three months
ended  September  30,  2003  from  the  three  months  ended September 30, 2002.
Operating expenses declined primarily as a result of the following: (1) selling,
marketing  and  advertising  expenses decreased by $168,018 (37.8%), to $275,935
for the three months ended September 30, 2003 from $443,953 for the three months
ended  September  30, 2002; (2) general and administrative expenses decreased by
$472,039  (28.2%),  to  $1,202,693 for the three months ended September 30, 2003
from  $1,674,732  for  the  three  months  ended  September  30,  2002;  and (3)
depreciation  and  amortization  expenses  increased  by  $126,926  (57.9%),  to
$346,062  for  the  three  months ended September 30, 2003 from $219,136 for the
three  months  ended  September  30,  2002.

Selling, marketing and advertising expenses for the three months ended September
30,  2003  were  $275,935  (2.0%  of  net  sales) and for the three months ended
September  30,  2002 were $443,953 (2.2% of net sales).   Selling, marketing and
advertising expenses decreased by $168,018 primarily as a result of $89,467 less
outside  sales representative commissions due to less sales, $49,216 less travel
and  related  expenses  and  $30,036  less  customer  performance  charges.

General  and  administrative  expenses  for the three months ended September 30,
2003  were  $1,202,693  (8.9%  of  net  sales)  and  for  the three months ended
September  30,  2002  were  $1,674,732  (8.2%  of  net  sales).  General  and
administrative  expenses decreased $472,039 primarily as a result the following:
(1)  an  aggregate  of $272,963 less in legal expenses as a result of an accrual
for  a  $180,000  settlement  in  2002 and abnormally high legal fees in 2002 in
connection  with  the  preparation  of  reports  filed  with  the Securities and
Exchange Commission; (2) $89,277 less payroll and related fringe benefits due to
lower  sales;  (3)  $86,389  less  subcontract  work due to lower sales; and (4)
$38,384  less  warehouse  supplies  due  to  lower  sales.

Depreciation  and amortization expenses for the three months ended September 30,
2003  were $346,062 (2.6% of net sales) and for the three months ended September
30,  2002  were  $219,136  (1.1%  of  net  sales).  The increase of $126,926 was
primarily  the  result of increased amortization of leasehold improvements.  The
amortization  of  the  leasehold  improvements  at  the  Santa  Ana location was
accelerated  due  to  an  anticipated move to a larger facility that occurred in
September  2003.

Other income (expenses) decreased to $44,319 (0.3% of net sales) expense for the
three months ended September 30, 2003 from  $258,547 expense (1.3% of net sales)
for  the  three  months ended September 30, 2002.  This decrease of $214,228 was
primarily  due  to  $175,630  of  legal  fees  in  2002  versus $0 in 2003 for a
litigation  matter  and  $49,919  less  interest  expense  in  2003  due to less
borrowings.

NINE  MONTHS  ENDED SEPTEMBER 30, 2003 (UNAUDITED) COMPARED TO NINE MONTHS ENDED
SEPTEMBER  30,  2002  (UNAUDITED)

Net  sales decreased by $17,836,984 (29.1%) from $61,199,231 for the nine months
ended September 30, 2002  to $43,362,247 for the nine months ended September 30,
2003  .  The  decrease  in  net  sales  is primarily attributable to no sales to
Office  Max  after  March 2003 and a significant decrease in sales to two of our
major  customers  due  to a reduction in current products carried in the optical
storage category.  We mutually agreed with Office Max to discontinue the sale of
our  products to them.  We anticipate making a new proposal to Office Max in the
near  future  as  we  introduce  new  products.  We  believe  that  the  recent
introduction  of  new  products  such  as our dual format DVD Rewritable drives,
digital  photo  library,  duplicator and media station products will result in a
reverse  of  the  decrease  in  revenues.

                                       14
<PAGE>

Cost  of  sales  as a percentage of net sales decreased from 89.5% ($54,750,691)
for the nine months ended September 30, 2002 to 85.2% ($36,953,579) for the nine
months  ended  September  30,  2003.  Cost  of units increased from 80.6% of net
sales ($49,335,795) for the nine months ended September 30, 2002 to 81.5% of net
sales  ($35,336,274) for the nine months ended September 30, 2003 due to product
mix.  Freight in/out decreased from 5.6% of net sales  ($3,452,310) for the nine
months  ended  September 30, 2002 to 3.6% of net sales ($1,542,305) for the nine
months  ended  September 30, 2003.  Freight in decreased from $1,677,776 for the
nine  months  ended  September  30,  2002  to $467,398 for the nine months ended
September  30, 2003 due to less product shipped in by airfreight in 2003 to meet
shipping  deadlines to customers.  Freight out decreased from $1,774,534 for the
nine  months  ended  September  30, 2002 to $1,074,907 for the nine months ended
September  30,  2003  due  to lower sales in 2003.  Inventory shrink/adjustments
decreased  from  3.2%  of  net  sales  ($1,962,587)  for  the  nine months ended
September  30,  2002  to  0.2%  of net sales ($75,000) for the nine months ended
September  30,  2003.  We  wrote  down  to lower of cost or market $1,962,587 in
inventory  for the nine months ended September 30, 2002 and $75,000 for the nine
months  ended  September  30,  2003.

Operating  expenses  as  a  percentage  of  net  sales  increased  from  12.9%
($7,916,133)  for the nine months ended September 30, 2002 to 16.5% ($7,136,608)
for  the  nine  months  ended  September 30, 2003.  This percentage increase was
primarily  the result of total operating expenses decreasing $779,525 (9.8%) for
the  nine  months  ended September 30, 2003 from the nine months ended September
30,  2002,  while  net  sales  decreased $17,836,984 (29.1%) for the nine months
ended  September  30,  2003  from  the  nine  months  ended  September 30, 2002.
Operating  expenses  declined  primarily  as  a  result  of  the following:  (1)
selling,  marketing  and  advertising expenses decreased by $207,377 (18.1%), to
$940,539  for  the  nine months ended September 30, 2003 from $1,147,916 for the
nine  months  ended  September 30, 2002; (2) general and administrative expenses
decreased by $630,432 (10.9%), to $5,137,422 for the nine months ended September
30,  2003  from  $5,767,854  for  the  nine months ended September 30, 2002; (3)
depreciation  and  amortization  expenses  increased  by  $58,284  (5.8%),  to
$1,058,647  for the nine months ended September 30, 2003 from $1,000,363 for the
nine  months  ended  September  30,  2002.

Selling, marketing and advertising expenses  for the nine months ended September
30,  2003  were  $940,539  (2.2%  of  net  sales)  and for the nine months ended
September  30  2002 were $1,147,916 (1.9% of net sales).  Selling, marketing and
advertising  expenses  decreased by $207,377 mainly due to $142,604 less outside
sales  representatives  commissions  due  to  lower  sales,  $39,208 less travel
expense  and  $33,137  less  trade  shows  expense.

General  and  administrative  expenses  for  the nine months ended September 30,
2003  were  $5,137,422  (11.8%  of  net  sales)  and  for  the nine months ended
September  30,  2002  were  $5,767,854  (9.4%  of  net  sales).  General  and
administrative  expenses  decreased  $630,432  primarily  as  a  result  of  the
following:  (1)  an  aggregate  of  $518,784  less  in legal expenses due to the
reduction  in  2002  in  estimated  accruals  relating  to  a  lawsuit,  a  2002
settlement,  and higher legal fees in 2002 in connection with the preparation of
reports  filed  with  the  Securities and Exchange Commission; (2) $133,671 less
insurance primarily due to overaccrual of prior years, $114,743 less payroll and
related fringe benefits due to lower sales; (3) $106,285 less warehouse supplies
due  to  lower sales; (4) $69,108 less offsite storage expense; (5) $55,370 less
travel;  (6)  $45,817  less  outside  assembly due to lower sales; (7) offset by
$378,700  more bad debt expense related to the additional write down of accounts
receivable acquired from Hi-Val; (8) $70,264 more product design for new product
tooling;  (9)  $53,262  more  audit  expense;  and  (10)  $50,000 more in moving
expense.

                                       15
<PAGE>

Depreciation  and amortization expenses  for the nine months ended September 30,
2003  were  $1,058,647  (2.4%  of  net  sales)  and  for  the  nine months ended
September 30, 2002 were $1,000,363 (1.6% of net sales).  The increase of $58,284
was  mainly  as  a  result  of  $397,572  increased  amortization  of  leasehold
improvements  offset  by $337,596 decreased amortization of trademarks.  In 2002
we had an outside valuation service review the value of the trademarks and their
useful  lives.  Based upon the valuation, we determined (with concurrence of our
independent  auditors)  that  there  had  been no impairment to the value of the
trademarks  and  that  the useful lives of the trademarks should be increased by
ten  years  due to additional historical information of their value.  Therefore,
the  amount  of  annual  trademark  amortization  was decreased beginning in the
second  quarter  2002.  The  amortization  of  the leasehold improvements at the
current  Santa  Ana  location  were  accelerated  as  of  January 2003 due to an
anticipated  move  to  a  larger  facility  that  occurred  in  September  2003.

Other  income  (expenses) decreased to $150,386 (0.3% of net sales) expense  for
the  nine  months  ended  September 30, 2003 from  $523,880 expense (0.9% of net
sales)  for the nine months ended September 30, 2002.  This decrease of $373,494
was  primarily  due  to  $287,694  legal  fees  in  2002 versus $0 in 2003 for a
litigation  matter,  $40,940  in  currency exchange gain in relation to sales to
Canadian retailers, $86,406 less interest expense due to less borrowings, offset
by  $38,759  gain  in  2002  on  the  sale  of  fixed  assets.

LIQUIDITY  AND  CAPITAL  RESOURCES

During  the  nine  months ended September 30, 2003 we had a net decrease in cash
relative  to  December  31,  2002 in the amount of $5,731,882 to $1,558,261 from
$7,320,143,  respectively. This was due to cash provided by operating activities
of $1,102,533 offset by cash used in financing activities of $6,681,723 and cash
used in investing activities of $152,692. Cash provided by operations was from a
decrease  in  accounts receivable of $3,858,711, an increase in accounts payable
to  related  parties  of  $3,572,073,  a  decrease  in inventory of $357,645, an
increase  in  non-cash  entries of $117,657, offset by a decrease in the reserve
for  settlements  of  $3,000,000,  a  decrease  in  accounts payable and accrued
expenses  of $2,745,838, a net loss of $875,243, an increase in prepaid expenses
and  other  current  assets  of  $155,440,  and  an  increase in other assets of
$27,032.  Cash used for financing activities was for net payments on the line of
credit  of  $6,598,039  and purchase of treasury stock of $83,684. Cash used for
investing  activities  was  for  leasehold  improvements, furniture and computer
equipment.   Leasehold  improvements  of  $634,453  were written off.  They were
fully  amortized and, thus, had no effect on the statement of operations.  These
leasehold improvements pertained to the Santa Ana facility, which was vacated in
September  2003.

Effective  January  1, 2003, we obtained a $9 million asset-based line of credit
(with  a  sub-limit of $8 million) with ChinaTrust Bank (USA) that was to expire
December  31,  2003.  The  ChinaTrust Bank (USA) line of credit provided for the
maintenance  of certain financial covenants.  As of December 31, 2002, March 31,
2003,  and  June  30, 2003, we were in violation of certain covenants.  On April
11,  2003  (effective  April  15,  2003),  May  15,  2003,  and August 15, 2003,
respectively, we obtained waivers from ChinaTrust Bank (USA) as to our violation
of  such  covenants.  The  waivers  for  the  violations  of the convenants were
subject  to  a  Forbearance  Agreement  and  Release  entered into June 16, 2003
between  ChinaTrust  Bank and us.  The expiration date of the line of credit was
October  15,  2003.

On  August  15,  2003,  we  entered  into  a business loan agreement with United
National  Bank.  Under  the  terms of the loan agreement, which became effective
August  18,  2003,  we may borrow up to $6,000,000.  The credit facility expires
September  1,  2004 and is secured by substantially all of our assets.  Advances
on  the  line  bear interest at the floating commercial loan rate of Wells Fargo
Bank  plus  0.75%.  As  of September 30, 2003, the interest rate was 4.75%.  The
credit  facility  also  requires  us  to be in compliance with certain financial
covenants, all of which were complied with at September 30, 2003.  The agreement
also  calls  for  us  to  be  profitable  for  the year ended December 31, 2003.

The  new  line  of  credit was initially used to pay off the outstanding balance
with  ChinaTrust  Bank (USA) as of September 2, 2003, which was $3,379,827.  The
outstanding  balance  with  United  National  Bank  as of September 30, 2003 was
$3,774,788.  The Company has available to it $2,225,212 of additional borrowings
under  the  credit  facility  as  of  September 30, 2003.  The line of credit is
included  in current liabilities in the accompanying consolidated balance sheet.

                                       16
<PAGE>

In  1997, we entered into a trade credit facility with Hou Electronics for up to
$2,000,000  with  75  day  terms.  We  owed  $0  and $0 on December 31, 2002 and
September  30, 2003, respectively.  We purchased $0 and $0 for the twelve months
ended  December  31,  2002  and  for  the  nine months ended September 30, 2003,
respectively.

In  2000,  we entered into a trade credit facility with Ritek Corporation for up
to  $3,000,000  with  60  day  terms. We owed $0 and $0 on December 31, 2002 and
September  30,  2003, respectively. We purchased $0 and $0 for the twelve months
ended  December  31,  2002  and  for  the  nine months ended September 30, 2003,
respectively.

In  January  2003,  we  entered  into  a  trade  credit  facility  with Lung Hwa
Electronics  Co.,  Ltd.  ("Lung  Hwa"),  whereby Lung Hwa has agreed to purchase
inventory on our behalf.  The agreement allows us to purchase up to $10,000,000,
with  payment  terms  of 120 days following the date of invoice by the supplier.
Lung Hwa will charge us a 5% handling charge on the supplier's unit price.  A 2%
discount  to  the  handling  fee  will be applied if we reach an average running
monthly  purchasing  volume  of  $750,000 a month. Returns made by us, which are
agreed  to  by  the  supplier,  will  result  in a credit to us for the handling
charge.  As security for the trade facility, we paid Lung Hwa a security deposit
of  $1,500,000  in  2003.  As  of  September 30, 2003, $500,000 has been applied
against  outstanding  trade  payables.  This  deposit  has  been  offset against
Accounts  Payables -Related Parties in the accompanying financial statements, as
the  agreement  allows us the right to offset against outstanding trade payables
after six months.  The agreement will remain in force continuously. Both parties
have  the right to terminate the agreement one year following the inception date
by giving the other party 30 days' written notice. Otherwise, the agreement will
remain  in  force without effecting a new signed agreement.  As of September 30,
2003,  we  owed  Lung  Hwa  $3,345,578  in  trade payables net of the $1,000,000
deposit  outstanding  under  this  arrangement.

In February 2003, we entered into an agreement with Behavior Tech Computer (USA)
Corp.  ("BTC  USA") whereby BTC USA will supply and store at our warehouse up to
$10,000,000  of  inventory on a consignment basis.  Under the agreement, we will
insure the consignment inventory, store the consignment inventory for no charge,
and  furnish BTC USA with weekly statements indicating all products received and
sold  and  the  current  consignment  inventory  level.  The  agreement  may  be
terminated by either party upon 60 days' prior written notice.  Also in February
2003,  we  entered  into an agreement with the related party for a trade line of
credit  of  up  to  $10,000,000  with payment terms of net 30 days, non-interest
bearing.  As  of  September  30,  2003,  we  owed  BTC  USA  $2,833,773.

We  believe  that  current  and  future  available  capital  resources, revenues
generated  from  operations,  and other existing sources of liquidity, including
the  credit facilities we have, will be adequate to meet our anticipated working
capital  and  capital  requirements  for  at  least the next twelve months under
current  operating  conditions.  If,  however,  our capital requirements or cash
flow vary materially from our current projections or if unforeseen circumstances
occur,  we  may  require  additional  financing.  Deteriorating  global economic
conditions  may  cause  prolonged  declines  in  investor  confidence  in  and
accessibility to capital markets. Our failure to raise capital, if needed, could
restrict our growth, limit our development of new products or hinder our ability
to  compete.

We  have no firm long-term sales commitments from any of our customers and enter
into  individual  purchase  orders  with  our  customers.  We  have  experienced
cancellations  of  orders and fluctuations in order levels from period to period
and expect we will continue to experience such cancellations and fluctuations in
the  future.  In  addition,  customer  purchase orders may be canceled and order
volume  levels can be changed, canceled or delayed with limited or no penalties.
The  replacement  of  canceled,  delayed  or  reduced  purchase  orders with new
business  cannot  be  assured.  Moreover,  our business, financial condition and
results  of  operations  will  depend upon our ability to obtain orders from new
customers,  as well as the financial condition and success of our customers, our
customers'  products  and  the  general  economy.

Our  backlog  at  September  30, 2003 was $6,273,514 as compared to a backlog at
September  30,  2002  of  $21,767,978.  Over  one-half of the September 30, 2002
backlog,  which  was significantly greater than all previous quarters, was later

                                       17
<PAGE>

cancelled  by customers as customer sell-through was not as high as anticipated.
The  amount  of backlog orders represents revenue that we anticipate recognizing
in  the  future,  as evidenced by purchase orders and other purchase commitments
received  from  customers.  The  shipment  of  such  orders  for  non-consigned
customers  or  the  sell-through  of  our  product by consigned customers causes
recognition  of such purchase commitments as revenue.   However, there can be no
assurance  that  we will be successful in fulfilling such orders and commitments
in  a  timely manner, that customers will not cancel purchase orders, or that we
will ultimately recognize as revenue the amounts reflected as backlog based upon
industry  trends,  historical  sales information, returns and price protections.
Accordingly,  our  backlog  may  not  be indicative of our actual sales beyond a
rotating  six-week  cycle.

RISK  FACTORS
-------------

An investment in our common stock involves a high degree of risk. In addition to
the  other  information  in  this  report,  you  should  carefully  consider the
following  risk  factors  before deciding to invest or maintain an investment in
shares of our common stock. If any of the following risks actually occurs, it is
likely  that  our  business,  financial condition and operating results would be
harmed.  As  a  result, the trading price of our common stock could decline, and
you  could  lose  part  or  all  of  your  investment.

WE  HAVE  INCURRED  SIGNIFICANT  LOSSES AND MAY CONTINUE TO INCUR LOSSES.  IF WE
CONTINUE  TO  INCUR  LOSSES,  WE  MAY  HAVE  TO  CURTAIL  OUR  OPERATIONS.

We  have  not  been profitable the last three years and the first nine months of
2003  and may not be profitable in the foreseeable future. Historically, we have
relied  upon  cash  from  operations and financing activities to fund all of the
cash  requirements  of  our business and have incurred significant losses. As of
September  30, 2003, we had an accumulated deficit of $15,668,714.  During 2002,
2001,  and 2000, we incurred net losses in the amount of $8,347,231, $5,547,645,
and  $6,410,849,  respectively,  and we have incurred a net loss of $875,243 for
the  nine  months  ended  September  30,  2003.  We cannot predict if we will be
profitable  in  future  quarters  and  we  may  continue  to incur losses for an
indeterminate  period  of  time  and  may  never  achieve  or  sustain  annual
profitability. An extended period of losses may result in negative cash flow and
may  prevent  us from operating or expanding our business.  We cannot assure you
that  our business will ever become continuously profitable or that we will ever
generate  sufficient  revenues  to meet our expenses and support our operations.
Even  if  we  are  able to achieve profitability, we may be unable to sustain or
increase  our  profitability  on  a  quarterly  or  annual  basis.

OUR CONCENTRATION OF SALES TO FIVE MAJOR CUSTOMERS MAY ADVERSELY AFFECT OUR
BUSINESS  IF  ANY  ONE  OR  MORE  OF  THEM DECIDES TO DISCONTINUE PURCHASING OUR
PRODUCTS.

During  the  first  nine months of 2003, net sales to our five largest customers
represented  31%,  15%, 11%, 10% and 10%, respectively, of total net sales.  Our
sales  and  our  profitability would be adversely affected if any one or more of
these  customers  ceased purchasing from us.  We have no guarantee that we would
be able to replace the loss of such sales with existing or new customers or in a
timely  manner  to  avoid  an  adverse  financial  impact  to  our  business.

FIERCE  COMPETITION  IN  THE  COMPUTER  PERIPHERAL  AND  CONSUMER  ELECTRONICS
MARKETPLACE  MAY  CAUSE  A DECLINE IN OUR REVENUES AND FORCE US TO REDUCE PRICES
FOR  OUR  PRODUCTS.

The  market  for  our  products  is  highly competitive. Our competitors for our
hardware  products  include Hewlett-Packard, Iomega, Memorex, Phillips, Samsung,
Sony,  TDK  and  Yamaha.  Our  competitors  for  our  media  products  include
Fuji,Imation, Maxell, Memorex, PNY, TDK and Verbatim. We also indirectly compete
against  original  equipment  manufacturers  such  as  Dell  Computer  and
Hewlett-Packard  to  the  extent  that  they  manufacture  their  own  computer
peripheral  products  or  incorporate  on  personal  computer  motherboards  the
functionalities  provided  by  our  products.  We  believe  that the strategy of
certain  of  our  current and potential competitors is to compete largely on the
basis  of  price,  which  may  result  in lower prices and lower margins for our
products or otherwise adversely affect the market for our products. There can be
no  assurance  that  we  will be able to continue to compete successfully in the
marketplace.

                                       18
<PAGE>

MANY  OF  OUR  COMPETITORS  HAVE  GREATER RESOURCES THAN US. IN ORDER TO COMPETE
SUCCESSFULLY,  WE  MUST  KEEP  PACE  WITH  OUR  COMPETITORS  IN ANTICIPATING AND
RESPONDING  TO RAPID CHANGES IN THE COMPUTER PERIPHERAL AND CONSUMER ELECTRONICS
INDUSTRIES.

Our  future success will depend upon our ability to enhance our current products
and  services  and  to develop and introduce new products and services that keep
pace  with  technological  developments,  respond  to the growth in the computer
peripheral  and  consumer  electronics  markets  in  which we compete, encompass
evolving  consumer  requirements,  provide a broad range of products and achieve
market  acceptance  of  our  products.  Many  of  our  existing  and  potential
competitors  have larger technical staffs, more established and larger marketing
and  sales  organizations  and significantly greater financial resources than we
do.  Our  lack  of resources relative to our competitors may cause us to fail to
anticipate  or  respond  adequately  to  technological developments and consumer
requirements  or  may cause us to experience significant delays in developing or
introducing new products and services. These failures or delays could reduce our
competitiveness,  revenues,  profit  margins  and  market  share.

OUR  LACK  OF  LONG-TERM PURCHASE ORDERS OR COMMITMENTS MAY ADVERSELY AFFECT OUR
BUSINESS  IF  DEMAND  DECLINES.

During  the  nine  months  ended  September  30,  2003,  sales  of  our computer
peripheral products accounted for 98.3% of our total net sales, and sales of our
consumer electronics products accounted for 1.7% of our total net sales. In many
cases  we  have  long-term  contracts  with our computer peripheral and consumer
electronics  retailers  that  cover  the  general  terms  and  conditions of our
relationships  with  them  but  that do not include long-term purchase orders or
commitments.  Rather,  our  retailers  issue  purchase  orders  requesting  the
quantities  of  computer  peripheral  or consumer electronics products that they
desire to purchase from us, and if we are able and willing to fill those orders,
then  we fill them under the terms of the contracts. Accordingly, we cannot rely
on  long-term  purchase  orders  or  commitments to protect us from the negative
financial effects of a decline in demand for our products that could result from
a  general  economic  downturn,  from  changes  in  the  computer peripheral and
consumer  electronics  marketplaces, including the entry of new competitors into
the  market, from the introduction by others of new or improved technology, from
an  unanticipated  shift  in  the  needs of our retailers, or from other causes.

OUR  BUSINESS  COULD  SUFFER  IF  WE  ARE UNABLE TO OBTAIN OUR PRODUCTS FROM OUR
SUPPLIERS.

Most of our products are available from multiple sources.  However, we currently
obtain  most  of our products from limited sources.  We have, from time to time,
experienced  difficulty  in  obtaining some products.  We do not have guaranteed
supply  arrangements  with  any  of our suppliers, and there can be no assurance
that  our  suppliers  will  continue  to meet our requirements.  If our existing
suppliers  are  unable  to  meet  our requirements, we could be required to find
other  suppliers  or  even  eliminate  products  from our product line.  Product
shortages  could limit our sales capacity and also could result in lower margins
due  to higher product costs resulting from limited supply or the need to obtain
substitute  products  which  are  available  only  at higher costs.  Significant
increases  in  the  prices of our products could adversely affect our results of
operations  because  our products compete on price and, therefore, we may not be
able  to  pass  along  price  increases  to  our  retailers.  Also,  an extended
interruption  in  the  supply  of  products  or  a reduction in their quality or
reliability  would  adversely  affect  our  financial  condition  and results of
operations  by  operations  by  impairing  our ability to timely deliver quality
products  to  our retailers. Delayed product deliveries due to product shortages
or  other  factors may result in cancellation by our retailers of all or part of
their  orders.  We  cannot  assure  you  that  cancellations  will  not  occur.

                                       19
<PAGE>

OUR  DEPENDENCE ON SALES OF OUR OPTICAL STORAGE AND OPTICAL MEDIA PRODUCTS COULD
HAVE  A MATERIAL ADVERSE EFFECT ON OUR BUSINESS IF THE MARKET FOR THOSE PRODUCTS
DECLINES.

Net  sales  of  our  optical  storage  and  related media products accounted for
approximately  91.4%  of  our  net sales for the nine months ended September 30,
2003.  Although  we  have  introduced products in other segments of the computer
peripheral  market  and  in the consumer electronics market, optical storage and
optical media products are expected to continue to account for a majority of our
sales  for  at  least  the next year. A decline in the demand or average selling
prices for optical storage or optical media products, whether as a result of new
competitive  product  introductions,  price  competition,  excess  supply,
technological  changes,  incorporation  of  the  products'  functionality  onto
personal  computer  motherboards  or  otherwise,  would  have a material adverse
effect  on  our  sales  and  operating  results.

IF  WE  FAIL TO KEEP PACE WITH THE RAPID TECHNOLOGICAL CHANGES THAT CHARACTERIZE
THE  MARKETPLACE  FOR  OUR  PRODUCTS,  WE  WILL  LIKELY EXPERIENCE A SIGNIFICANT
DECLINE  IN  OUR COMPETITIVE ADVANTAGE RESULTING IN A MATERIALLY NEGATIVE IMPACT
ON  OUR  BUSINESS,  FINANCIAL  CONDITION  AND  RESULTS  OF  OPERATIONS.

The  markets  for our products are characterized by rapidly changing technology,
evolving  industry  standards,  frequent  new  product  introductions  and rapid
product  obsolescence. Product life cycles in the markets for our products often
range from as few as three up to twelve months. We believe that our success will
be substantially dependent upon our ability to continue to develop and introduce
competitive  products  and  technologies  on  a  timely  basis with features and
functions  that  meet changing consumer requirements in a cost-effective manner.
Even  if  we  are  successful  in the development and market introduction of new
products, we still must correctly forecast consumer demand for those products to
avoid  either excessive unsold inventory or excessive unfilled orders related to
our products. The task of forecasting consumer demand is extremely difficult for
new  products  for  which  there is little or no sales history, and for indirect
channels, where our customers are not the final end-users. Moreover, whenever we
offer  new products, we also must successfully manage the resulting obsolescence
and  price  erosion  of  our  older  products,  as  well  as any resulting price
protection  charges and inventory returns from our retailers. Accordingly, if we
are  unable  to  keep  pace  with  the  rapid  technological  changes within the
marketplace  for  our products, or unable to manage effectively the introduction
of  new  products,  our  business, financial condition and results of operations
will  be  negatively  impacted.

OUR  FAILURE  TO FORECAST SALES IN THE VOLATILE COMPUTER PERIPHERAL AND CONSUMER
ELECTRONICS  MARKETPLACES  COULD RESULT IN LOST REVENUES AND SIGNIFICANT LOSSES.

We develop and market products in the highly competitive computer peripheral and
consumer  electronics  marketplaces.  Our  products  are  very  susceptible  to
obsolescence  and  typically  exhibit  a  high  degree of volatility of shipment
volumes  over  relatively short product life cycles. The timing of introductions
of  new  products  can materially affect sales volumes. In addition, new product
releases by competitors and accompanying price adjustments to competing products
can  materially  and  adversely  affect  our  revenues  and  gross  margins.

We  sell  our  products  to  retailers  such  as  mass  merchandisers  and large
electronics  chains  which sell products primarily off-the-shelf directly to end
users.  Our  reliance  on indirect channels of distribution typically results in
little  or  no  ability to predict end user demand. We rely upon sales forecasts
provided  by  our  retailers  in order to comply with order placement demands by
these  retailers. If these forecasts are inaccurate, we could either have excess
inventory,  resulting  in significant finance costs and product obsolescence, or
insufficient  inventory,  resulting  in  lost  revenues  due to our inability to
promptly  meet  consumer  demand.  Accordingly, our future operating results are
largely  dependent  on  our  ability  to  accurately  predict the demand for our
products.  Our  failure  to accurately predict the demand for our products could
result  in significant losses from inventory obsolescence and finance charges or
substantial  lost  revenues.

                                       20
<PAGE>

WE  RELY  HEAVILY  ON  OUR  MANAGEMENT,  AND  THE  LOSS  OF THEIR SERVICES COULD
ADVERSELY  AFFECT  OUR  BUSINESS.

Our  success  is  highly dependent upon the continued services of key members of
our  management, including our Chairman of the Board, President, Chief Executive
Officer and Secretary, Tony Shahbaz. Mr. Shahbaz has developed personal contacts
and other skills that we rely upon in connection with our financing, acquisition
and  general  business  strategies.  Mr. Shahbaz has also developed key personal
relationships  with  our  vendors  and frequently is extensively involved in our
sales  and  promotional efforts with our key customers. Although we have entered
into  an  employment  agreement  with  Mr. Shahbaz, that agreement is of limited
duration  and  is  subject  to  early  termination  by  Mr.  Shahbaz  under some
circumstances.  Consequently,  the  loss of Mr. Shahbaz or one or more other key
members  of  management  could  adversely  affect  our  business.

OUR  FAILURE  TO  MANAGE  GROWTH  EFFECTIVELY  COULD  IMPAIR  OUR  BUSINESS.

Our  expansion  into  new  product  categories  in  the  computer peripheral and
consumer  electronics  marketplaces  has  required  and will continue to require
significant  investment  and  management  attention  to  improve our information
systems,  product  data  management,  control accounting, telecommunications and
networking  systems,  coordination  of  suppliers and distribution channels, and
general  business  processes  and  procedures.  We  are continuing to expand our
product  base  in  the  consumer  electronics marketplace and expect significant
challenges  in  coordinating  supply  and distribution processes in what we hope
will  be  a  rapidly  growing  product  category.

Our  strategy  envisions  a period of rapid growth that may impose a significant
burden  on  our  administrative  and  operational  resources.  Our  ability  to
effectively  manage  growth  will  require  us  to  substantially  expand  the
capabilities  of  our  administrative  and operational resources and to attract,
train,  manage  and  retain  qualified  marketing,  technical  support, customer
service,  sales  and  other personnel. There can be no assurance that we will be
able to do so. If we are unable to successfully manage our growth, our business,
prospects, results of operations and financial condition could be materially and
adversely  affected.

THE  EMERGENCE  OF NEW SALES CHANNELS AND THE ACCEPTANCE OF EXISTING ALTERNATIVE
SALES CHANNELS MAY RESULT IN FEWER SALES OF OUR PRODUCTS DUE TO OUR INABILITY TO
ADAPT  TO  THESE  SALES  CHANNELS.

We  are  accustomed  to conducting business through traditional distribution and
retail  sales channels. Traditional computer peripheral and consumer electronics
distribution and retail channels have suffered from the emergence of alternative
sales  channels, such as direct mail order, telephone sales by personal computer
manufacturers  and  Internet  commerce.  The emergence of additional alternative
sales channels or increased acceptance of existing alternative sales channels by
retailers  or  consumers  may cause a rapid decline in the sales of our products
unless  we  are  able  to  capitalize on those new or more widely accepted sales
channels. In addition, new products or changes in the types of products we sell,
such  as our digital entertainment products, may require specialized value-added
reseller  channels, which we have not yet fully established. We may be unable to
effectively  compete  in  a marketplace that supports numerous alternative sales
channels  because  we  do  not  have  experience  in  sales  channels other than
traditional  distribution  and  retail  sales  channels.  As  a  result,  in  a
marketplace  in  which  alternative  sales  channels  continue to emerge, we may
suffer  from  a  competitive  disadvantage which may have a material and adverse
effect  on  our  business.

POLITICAL  AND ECONOMIC INSTABILITY IN EAST ASIA COULD HAVE AN ADVERSE IMPACT ON
THE  SUPPLY  OF  OUR  PRODUCTS  WHICH  COULD MATERIALLY AND ADVERSELY AFFECT OUR
BUSINESS.

We  order nearly all of our products from large manufacturing facilities located
primarily in Taiwan, Korea and the People's Republic of China. In the event of a
severe  political  disruption  in the governments of any country located in East
Asia,  the  economic  ramifications to our suppliers could be devastating.  As a

                                       21
<PAGE>

result,  our  ability  to  conduct  operations might be materially and adversely
affected.  In  addition,  our suppliers acquire components and raw materials for
the  manufacturing  of our products from a number of countries, many of which do
not  conduct  business  in  United States dollars. Any severe fluctuation in the
value  of  foreign  currencies  could  materially increase our costs to purchase
products.  Accordingly, as a result of political or economic instability in East
Asia,  our  operations  could  be  materially  and  adversely  affected.

THE MIGRATION OF OUR PRODUCTS' FUNCTIONALITIES TO PERSONAL COMPUTER MOTHERBOARDS
COULD  MAKE  SOME  OF  OUR  COMPUTER  PERIPHERAL  PRODUCTS  OBSOLETE WHICH COULD
ADVERSELY  AFFECT  OUR  BUSINESS.

Many of our products are individual computer peripheral products that operate in
conjunction  with  personal  computers  to  provide  additional functionalities.
Historically,  as  new  functionalities become technologically stable and widely
accepted  by personal computer users, the cost of providing such functionalities
declines  dramatically  by  means  of large-scale integration into semiconductor
chips,  which  can  be  incorporated into personal computer motherboards. If the
migration  of  the  functionalities  of  our  products  into  personal  computer
motherboards  occurs, demand for our products will likely decline significantly.
There  can  be  no  assurance that the incorporation of new functionalities into
personal  computer  motherboards  will  not  adversely affect the market for our
products.

IF  OUR  PRODUCTS FAIL TO COMPLY WITH EVOLVING GOVERNMENT AND INDUSTRY STANDARDS
AND  REGULATIONS,  WE  MAY  HAVE  DIFFICULTY  SELLING  OUR  PRODUCTS.

Our  products  are  designed  to  comply  with  a significant number of industry
standards  and  regulations,  some of which are evolving as new technologies are
deployed.  In  the  United  States,  our  products  must  comply  with  various
regulations  defined  by  the  United  States Federal Communications Commission,
Underwriters  Laboratories  and  the  Food  and  Drug  Administration as well as
numerous industry standards. The failure of our products to comply, or delays in
compliance,  with  the  various  existing  and evolving regulations or standards
could  negatively  impact  our  ability  to  sell  our  products.

BECAUSE  WE  BELIEVE  THAT  PROPRIETARY  RIGHTS  ARE  MATERIAL  TO  OUR SUCCESS,
MISAPPROPRIATION OF THESE RIGHTS COULD ADVERSELY IMPACT OUR FINANCIAL CONDITION.

We  rely  primarily on trademark protection for our I/OMagic, Hi-Val and Digital
Research  Technologies brand names.  There can be no assurance that our means of
protecting  our  proprietary  rights  in these brand names will deter or prevent
their  unauthorized use.  Our financial condition would be adversely affected if
we  were  to  lose  our  competitive position due to our inability to adequately
protect  our  proprietary  rights  in  our  brand  names.

We own, license or have otherwise obtained the right to use certain technologies
incorporated  in  our  products.  We  may receive infringement claims from third
parties  relating to our products and technologies. In those cases, we intend to
investigate the validity of the claims and, if we believe the claims have merit,
to respond through licensing or other appropriate actions.  To the extent claims
relate  to  technology included in components purchased from third-party vendors
for  incorporation  into  our  products,  we  would  forward those claims to the
appropriate  vendor.  If we or our component manufacturers are unable to license
or  otherwise  provide  any  necessary  technology on a cost-effective basis, we
could  be  prohibited  from marketing products containing that technology, incur
substantial  costs  in  redesigning  products  incorporating that technology, or
incur  substantial  costs  defending  any  legal  action  taken  against  us.

OUR  STOCK PRICE HAS BEEN VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR
INVESTORS  PURCHASING  SHARES  OF OUR COMMON STOCK AND IN LITIGATION AGAINST US.

The  market prices of securities of technology-based companies have historically
been  highly  volatile.  The  market  price  of  our common stock has fluctuated
significantly  in  the past. In fact, during 2003, the high and low closing sale

                                       22
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prices  of  a share of our common stock were $10.00 and $3.00, respectively. The
market  price  of  our common stock may continue to fluctuate in response to the
following  factors,  many  of  which  are  beyond  our  control:

     -  changes in market valuations of similar companies and stock market price
        and volume  fluctuations  generally;
     -  economic  conditions  specific  to  the computer peripheral and consumer
        electronics  industries;
     -  announcements  by  us  or  our  competitors of new or enhanced products,
        technologies  or  services  or  significant  contracts,  acquisitions,
        strategic relationships,  joint  ventures  or  capital  commitments;
     -  regulatory  developments;
     -  fluctuations  in  our  quarterly  or  annual  operating  results;
     -  additions  or  departures  of  key  personnel;  and
     -  future  sales  of  our  common  stock  or  other  securities.

The  price at which you purchase shares of common stock may not be indicative of
the  price  of  our  stock  that  will prevail in the trading market. You may be
unable  to  sell  your  shares  of common stock at or above your purchase price,
which may result in substantial losses to you. Moreover, in the past, securities
class  action  litigation  has  often  been  brought against a company following
periods  of  volatility  in  the  market  price of its securities. We may in the
future  be  the target of similar litigation. Securities litigation could result
in  substantial  costs  and  divert  management's  attention  and  resources.

BECAUSE  WE  MAY  BE  SUBJECT  TO  THE "PENNY STOCK" RULES, THE LEVEL OF TRADING
ACTIVITY  IN  OUR  STOCK  MAY  BE  REDUCED.

Broker-dealer  practices  in  connection with transactions in "penny stocks" are
regulated  by  penny  stock  rules  adopted  by  the  Securities  and  Exchange
Commission.  Penny stocks, like shares of our common stock, generally are equity
securities  with a price of less than $5.00 (other than securities registered on
some  national  securities exchanges or quoted on Nasdaq). The penny stock rules
require  a  broker-dealer, prior to a transaction in a penny stock not otherwise
exempt  from  the rules, to deliver a standardized risk disclosure document that
provides information about penny stocks and the nature and level of risks in the
penny  stock  market.  The  broker-dealer  also  must  provide the customer with
current  bid  and  offer quotations for the penny stock, the compensation of the
broker-dealer  and its salesperson in the transaction, and, if the broker-dealer
is  the  sole  market  maker,  the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market, and monthly account statements
showing  the market value of each penny stock held in the customer's account. In
addition,  broker-dealers  who  sell  these  securities  to  persons  other than
established  customers  and  "accredited  investors" must make a special written
determination  that  the  penny stock is a suitable investment for the purchaser
and  receive the purchaser's written agreement to the transaction. Consequently,
these  requirements  may  have  the  effect  of  reducing  the  level of trading
activity,  if  any,  in the secondary market for a security subject to the penny
stock  rules,  and  investors  in our common stock may find it difficult to sell
their  shares.

BECAUSE  OUR STOCK IS NOT LISTED ON A NATIONAL SECURITIES EXCHANGE, YOU MAY FIND
IT  DIFFICULT  TO  DISPOSE  OF  OR  OBTAIN  QUOTATIONS  FOR  OUR  COMMON  STOCK.

Our  common  stock  trades  under  the  symbol "IOMG" on the OTC Bulletin Board.
Because  our  stock  trades  on the OTC Bulletin Board rather than on a national
securities  exchange,  you  may  find  it  difficult to either dispose of, or to
obtain  quotations  as  to  the  price  of,  our  common  stock.

ITEM  3.  QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK

Our  operations  were not subject to commodity price risk during the nine months
ended  September  30,  2003.  Our  sales to a foreign country (Canada) were less
than  3% of our total sales, and thus we experienced negligible foreign currency
exchange  rate  risk.    We  have  entered into a new line of credit with United
National  Bank,  effective  August 18, 2003.  The line of credit provides for an
interest  rate  equal  to  the floating commercial loan rate of Wells Fargo Bank

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plus  three quarters of one percent.  This interest rate is adjustable upon each
movement  in  the  prime  lending rate. If the prime lending rate increases, our
interest  rate expense will increase on an annualized basis by the amount of the
increase  multiplied  by  the  principal  amount  outstanding  under the  United
National  Bank  line  of  credit.

ITEM  4.  CONTROLS  AND  PROCEDURES

Our Chief Executive Officer and Chief Financial Officer (our principal executive
officer  and principal financial officer, respectively) have concluded, based on
their  evaluation  as of September 30, 2003 ("Evaluation Date"), that the design
and  operation  of our "disclosure controls and procedures" (as defined in Rules
13a-14(c)  and  15d-14(c)  under the Securities Exchange Act of 1934, as amended
("Exchange  Act"))  are  effective  to  ensure  that  information required to be
disclosed  by  us in the reports filed or submitted by us under the Exchange Act
is  accumulated, recorded, processed, summarized and reported to our management,
including  our  Chief  Executive  Officer  and  our  Chief Financial Officer, as
appropriate  to  allow  timely  decisions regarding whether or not disclosure is
required.

During  the  quarter  ended  September  30,  2003,  there were no changes in our
"internal  controls  over  financial reporting" (as defined in Rules 13a - 15(f)
under  the Exchange Act) that have materially affected, or are reasonably likely
to  materially  affect,  our  internal  controls  over  financial  reporting.

                           PART II - OTHER INFORMATION

ITEM  1.  LEGAL  PROCEEDINGS

On  May  30,  2003,  an action for breach of contract and legal malpractice, IOM
Holdings, Inc. and I/OMagic Corporation v. Lawrence W. Horwitz, Gregory B. Beam,
Horwitz  &  Beam,  Lawrence  M.  Cron,  Horwitz & Cron, Kevin J. Senn, and  Senn
Palumbo  Meulemans, LLP, was filed by the Company and its subsidiary against its
former  attorneys  and  their  law  firms  in the Superior Court of the State of
California  for  the County of Orange  (Case no. 03CC07383).  The claims alleged
arose  out  of the defendant's representation of the Company and its subsidiary.
A  claim  of $15 million in damages has been alleged against the defendants.  As
of  the  date of this report,  the Company filed its first amended complaint and
defendants  have  not  answered.  The  outcome  of  this  action  is  presently
uncertain.

In addition, we are involved in certain legal proceedings and claims which arise
in  the normal course of business.  Management does not believe that the outcome
of  these  matters  will  have  a  material  effect on our financial position or
results  of  operations.

ITEM  2.  CHANGES  IN  SECURITIES  AND  USE  OF  PROCEEDS

To  date we have not paid dividends on our common stock. Our line of credit with
United  National  Bank  prohibits  the  payment  of cash dividends on our common
stock. We currently intend to retain future earnings to fund the development and
growth  of  our business and, therefore, do not anticipate paying cash dividends
on  our  common  stock  within  the  foreseeable  future.  Any future payment of
dividends  on  our common stock will be determined by our board of directors and
will  depend  on  our  financial  condition,  results of operations, contractual
obligations  and  other  factors  deemed  relevant  by  our  board of directors.

ITEM  3.  DEFAULTS  UPON  SENIOR  SECURITIES

     None

ITEM  4.  SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS

     None.


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ITEM  5.  OTHER  INFORMATION

     None.

ITEM  6.  EXHIBITS  AND  REPORTS  ON  FORM  8-K

     (a)     Exhibits:

          Number   Description
          ------   -----------

Certifications  Required by Rule 13a-14(a) of the Securities
                   Exchange Act of 1934, as amended, as Adopted Pursuant to
                   Section 302 of the Sarbanes-Oxley Act.

Certifications  of  Chief  Executive  Officer and Chief
       Financial Officer pursuant to 18 U.S.C. Section 1350, as
       Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act.

     (b)     Reports  on  Form  8-K:
             ----------------------

             None


                                   SIGNATURES

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

                              I/OMAGIC  CORPORATION




DATED:   November  14, 2003   By:  /s/ Tony Shahbaz
                                 ----------------------------------
                                 Tony  Shahbaz,  President  and  Chief
                                 Executive Officer (principal executive officer)




                              By:  /s/ Steve Gillings
                                 ----------------------------------
                                 Steve  Gillings,  Chief  Financial  Officer
                                 (principal financial  and  accounting  officer)





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                         EXHIBITS FILED WITH THIS REPORT

Exhibit
Number     Description
------          -----------
31          Certifications Required by Rule 13a-14(a) of the Securities Exchange
            Act  of  1934,  as  amended,  as  Adopted  Pursuant  to  Section 302
            of  the Sarbanes-Oxley  Act

32          Certifications  of  Chief  Executive  Officer and Chief Financial
            Officer pursuant  to  18  U.S.C. Section 1350, as Adopted Pursuant
            to Section 906 of the Sarbanes-Oxley  Act

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