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

                                    FORM 10-K

       FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

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

For the fiscal year ended December 31, 2002

                                       OR

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

                          Commission File No.: 0-27878

                           NORTHGATE INNOVATIONS, INC.


                Delaware                                  13-3779546
      (State or other jurisdiction                      (IRS Employer
    of incorporation or organization)                Identification No.)

             801 Sentous Street, City of Industry, California 91748
               (Address of principal executive offices)    (Zip code)

       Registrant's telephone number, including area code: (626) 923-6000

       SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: None

         SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:

                                    TITLE OF CLASS

                             Common Stock, $.03 par value

         Indicate by check mark 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 mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained in herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.   X
                                     ---

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

         The aggregate market value of shares of Common Stock held by
non-affiliates of the registrant on the last business day of the registrant's
most recently completed second fiscal quarter (June 30, 2002) was approximately
$1,287,000 (computed on the basis of $0.30 per share, the last reported sale
price for shares of the Company's Common Stock on the OTC Bulletin Board on such
date).

         As of April 14, 2003, the registrant had outstanding 14,694,084 shares
of Common Stock.

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                                TABLE OF CONTENTS

                                                                            PAGE

PART I.

       ITEM 1.    BUSINESS.....................................................1
       ITEM 2.    DESCRIPTION OF PROPERTY.....................................15
       ITEM 3.    LEGAL PROCEEDINGS...........................................15
       ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........15

PART II.

       ITEM 5.    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS....15
       ITEM 6.    SELECTED FINANCIAL DATA.....................................16
       ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS.........................17
       ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                  MARKET RISKS................................................23
       ITEM 8.    FINANCIAL STATEMENTS........................................23
       ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE.........................23

PART III.

       ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS; COMPLIANCE WITH
                  SECTION 16(A) OF THE EXCHANGE ACT...........................23
       ITEM 11.   EXECUTIVE COMPENSATION......................................24
       ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT..................................................26
       ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............27
       ITEM 14.   CONTROLS AND PROCEDURES.....................................28

PART IV.

       ITEM 15.   EXHIBITS AND REPORTS ON FORM 8-K............................29

SIGNATURES....................................................................31

                                      -i-
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                                     PART I

ITEM 1.  BUSINESS

FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K and, in particular, the management discussion
and analysis included in this report, incorporate a number of forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). The
documents incorporated herein by reference also may contain forward-looking
statements. Forward looking statements are based on current expectations,
estimates and projections about our industry, management's beliefs and certain
assumptions made by management. When used in this report and elsewhere by
management, from time to time, the words "believes," "plans," "estimates,"
"intends," "anticipates," "seeks," and "expects" and similar expressions are
intended to identify forward-looking statements. These forward-looking
statements are not guarantees of future performance, are not statements of
historical fact, are subject to certain risks and uncertainties that are
difficult to predict and should be read in conjunction with our consolidated
financial statements and notes to consolidated financial statements included in
this report. Accordingly, actual results may differ materially from those
anticipated or expressed in such statements. Potential risks and uncertainties
include, among others, those set forth herein under "Additional Factors That May
Affect Future Results." Particular attention should be paid to the cautionary
statements involving our limited operating history, unpredictability of future
revenues, potential fluctuations in operating results, systems failures,
business interruptions, capacity constraints, systems development, management of
growth, the intensely competitive nature of the electronic commerce industry and
reliance on third parties, manufacturers, distributors and suppliers. Readers
are cautioned not to place undue reliance on the forward-looking statements,
which speak only as of the date made. Except as required by law, we undertake no
obligation to update any forward-looking statement, whether as a result of new
information, future events or otherwise. Readers, however, should carefully
review the factors set forth in other reports or documents that we file from
time to time with the Securities and Exchange Commission ("SEC").

GENERAL

As used in the following section, "Northgate," "we," "the Company" and "our"
refer to Northgate Innovations, Inc. (formerly known as Mcglen Internet Group,
Inc.) and our subsidiaries including Western Technologies, Inc., Mcglen Micro,
Inc., AMT Components, Inc. and Lan Plus Corporation ("Lan Plus"), unless the
context requires otherwise. We were incorporated in Delaware in May 1994. In
March 1995, we changed our name to Wanderlust Interactive, Inc., and in May
1998, we changed our name to Adrenalin Interactive, Inc. On December 2, 1999, we
completed a reverse acquisition with Mcglen Micro, Inc. in which the
stockholders of Mcglen Micro, Inc. acquired control of the Company. On December
17, 1999, we changed our name to Mcglen Internet Group, Inc.

On October 11, 2000, we entered into an agreement and plan of merger with Lan
Plus Corporation, a manufacturer of both private-label and branded turnkey
computer products and services, with over ten years of operating history. On
March 21, 2001, we entered into an amended and restated merger agreement that,
among other things, eliminated certain conditions to closing contained in the
original merger agreement. The amended and restated merger agreement was
subsequently amended in June and September 2001 and March 2002. On March 20,
2002, the merger, a reverse acquisition pursuant to which the shareholders of
Lan Plus acquired control of Mcglen Internet Group, Inc., was completed. As a
result of the acquisition, each share of Lan Plus was converted into 3.128
shares of Mcglen's common stock, with approximately 9,854,000 shares being
issued (after consideration of a 10:1 reverse stock split instituted by the
Company at the close of the merger). In addition, at the closing of the merger,
the Company's accounts payable to, and advances from Lan Plus, in the amount of
approximately $2.3 million were converted into common stock, eliminating the
debt; the stock was then retired to Treasury and cancelled. The Company has
reported combined operations with Lan Plus beginning March 20, 2002. As a
result, for financial accounting purposes, the merger is treated as a purchase
of Northgate by Lan Plus. Therefore, the historical financial statements of Lan
Plus are presented for comparison purposes for all periods presented.

Andy Teng, founder, Chairman and Chief Executive Officer of Lan Plus, became the
Chief Executive Officer and Chairman of the Board of the combined company and
Richard Shyu, Vice President of Lan Plus, became President of the combined

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company. Grant Trexler, formerly Mcglen's Chief Financial Officer, became Chief
Financial Officer of the combined company. One of Mcglen's founders, Mike Chen,
remained on the Company's Board of Directors.

At the close of the merger the Company changed its name to Northgate
Innovations, Inc., and on March 28, 2002, the Company's ticker symbol on the OTC
Bulletin Board was changed to "NGTE." Northgate's executive offices are located
at 801 Sentous Street, City of Industry, California 91748. Northgate's Internet
address is http://www.Northgate.com. Information contained on Northgate's web
site is not, and should not be considered, part of this filing.

Northgate is a leading marketer of personal computers ("PCs") and related
products and services. Northgate manufactures, markets and supports a broad line
of desktop PCs, Notebooks servers and workstations used by individuals,
families, businesses, government agencies and educational institutions. The
Company also offers diversified products and services such as software,
peripherals, Internet access service and support programs.

Northgate's strategy is to deliver the best value to customers by offering
quality, high-performance PCs and other products and services employing the
latest technology at competitive prices and by providing outstanding service and
support.

BUSINESS OPERATIONS

Northgate's business model is based on delivering turnkey drop-ship programs
allowing its channel partners in catalog, TV Shopping and Retail Chain Stores,
to market PCs while reducing inventory risk and maximizing its partners' and the
Company's profit. This concept, together with its flexible, build-to-order
manufacturing process, enables Northgate to achieve high inventory turnover and
reduced inventory levels, and further allows the Company to rapidly incorporate
new technologies and components into its product offerings.

Northgate maintains a database of its customers to provide a broader range of
services to these customers. Northgate maintains the following web sites:
www.northgate.com, www.accessmicro.com and www.mcglen.com.

PRODUCTS AND SERVICES

The Company's PC Systems business develops, markets, manufactures, sells and
supports a wide range of high performance desktop systems, notebook computers
and network servers under the Northgate, Northstar, Lan Plus, Protek, and Netway
brand names. Northgate also sells, resells and supports a variety of additional
peripherals, software and services. Systems built by the Company use
microprocessors manufactured by Advanced Micro Devices and Intel Corporation.
Northgate offers pre-configured computers with differing memory and storage
configurations, and various operating systems and application software, as well
as built-to-order systems. The Company also offers a variety of hardware
components and peripherals to complement its desktop systems, notebook computers
and network servers, including monitors, modems, graphics cards, accelerators,
CD-ROM and DVD drives, software and services. In addition, Northgate offers
numerous hardware services and e-services, many through third party service
providers. Phone support is available 18 hours a day, seven days a week, 365
days per year; web-based support and services are also available.

TECHNICAL SUPPORT

Technical support and customer service representatives respond to a variety of
inquiries from customers, including questions concerning product offerings,
order status and post-installation hardware and software issues. Many inquiries
are resolved over the telephone without the need to repair or replace system
components. When repairs are necessary, Northgate may ship a replacement part or
system and advise customers via telephone regarding installation.

Alternatively, customers may elect to ship a system directly to Northgate for
repair. Technical support services are also provided through the Company's web
sites. These services enable customers to access system-specific information and
recent software updates for many of the software programs and drivers included
with the computer systems. In addition, many of systems are sold with system
diagnostic and repair software that has been optimized for the Company's
products.

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SALES AND MARKETING

End-user customers are comprised primarily of small- and medium-sized
businesses, governmental entities and private consumers. In general, similar
sales and marketing approaches are used across all of these different customer
groups, as the demand levels of the various groups respond similarly to changes
in market prices and overall general economic conditions.

Northgate markets its systems primarily through high profile business partners
in retail, catalog, telemarketing, and other industries. The Company also sells
a limited number of systems through customer-direct relationships supported by
advertising, direct mail, telephone sales, field sales representatives, and its
web sites.

INTERNET BUSINESS - ACCESS AND E-COMMERCE

In April 1999, Northgate announced a marketing agreement with the Microsoft
Network, Inc. (MSN); this agreement was terminated in 2001. The Company
currently sells Earthlink Internet service bundled with its systems.

The PC is the primary means by which consumers access the Internet. According to
IDC, PCs accounted for approximately 95% of the access devices connected to the
Internet in the United States at the end of 1998. The increase in the number of
people with Internet access that was enabled by the proliferation of
lower-priced PCs has fueled the growth of Internet shopping, or e-commerce.

Northgate is committed to refining and extending the advantages of its business
model by moving even greater volumes of product sales, service and support to
the Internet. The Internet provides greater convenience and efficiency to
customers and, in turn, to the Company.

MERCHANDISING

We currently host three sites with product compositions including computing,
entertainment and communication products. By utilizing these three sites
(www.northgate.com, www.accessmicro.com and www.mcglen.com), we have the ability
to gear our marketing campaigns to three different segments of the market--the
Company's resellers, the consumer and small office/home office market, and the
IT professionals market. Our approach to merchandising allows us to offer each
segment of our target audience a unique shopping experience, giving us the
advantage of pricing flexibility, the ability to offer our customers only what
is relevant to their needs, focused cross-selling and up-selling of products,
and the potential of expanding our products and services to each one of these
markets.

Our Northgate.com site focuses on information for our reseller program which was
begun in the second quarter of 2002. Through this program, the Company has
signed up approximately thirty new resellers of the Company's computers.

CUSTOMERS

Northgate develops and utilizes its customer relationships to understand
end-users' needs and to deliver high quality computer products and services
tailored to meet those needs. For large corporate and institutional customers,
the Company works with the customer prior to the sale to plan a strategy to meet
that customer's current and future technology needs. After a sale, it begins a
direct relationship with the end user by establishing customer service and
technical personnel contact with the customer, often on a pro-active basis.
Northgate also establishes direct relationships with small-to-medium businesses
and individuals, through account representatives, telephone sales
representatives or Internet contact. These direct customer relationships provide
information about customers' plans and requirements and enable the Company to
weigh customers' needs against emerging technologies.

For the year ended December 31, 2002, approximately 66% of Northgate's gross
revenues were from sales of PCs through channel partners drop-shipped to
consumers. This concentration of sales allows the Company to maintain a low-cost

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infrastructure while establishing preferred vendor status with large leading
retailers. Northgate intends to continue to sell the majority of our PCs and
monitors to a limited number of large customers for the foreseeable future.

The growth in Northgate's net sales and earnings to date has resulted primarily
from the sale of desktop PCs to individuals, home offices, small businesses and
corporate customers, and to governmental entities and educational institutions
in the U.S. market. Sales and earnings have also grown due to the ongoing
diversification of the Company's revenue stream with the introduction and
expansion of new products and services, including software, peripheral devices,
Internet access and general merchandise. Management believes that most of our
continued growth will come from four areas: (a) the domestic consumer market,
including the developing market for family-use PCs such as Internet Appliances
and Home Networking; (b) businesses and institutions, including home offices,
small to medium-size businesses, as well as Fortune 1000 companies, governmental
entities and educational institutions; (c) the expansion of distribution sales
of mother boards and other system components; and (d) the expansion of service
and product offerings to customers, including Internet access, e-commerce, and
peripherals.

MANUFACTURING

Northgate operates manufacturing facilities in City of Industry, California. The
Company's manufacturing process consists of assembly, functional testing and
quality control of its computer systems. Production teams are used to assemble
most of the Company's desktop PCs with each member of a production team trained
to do several tasks, increasing flexibility and efficiency. Testing and quality
control processes are also applied to components, parts and subassemblies
obtained from suppliers. The Company's build-to-order manufacturing process is
designed to allow it to quickly produce customized computer systems and to
achieve rapid inventory turnover and reduced inventory levels, which lessens
exposure to the risk of declining inventory values. This flexible manufacturing
process also allows Northgate to incorporate new technologies or components into
product offerings quickly. Each PC is shipped from the Company's manufacturing
facilities ready-for-use, with an operating system and application software
already installed.

Quality control is maintained through the testing of components, parts and
subassemblies at various stages in the manufacturing process. Quality control
also includes a burn-in period for completed units after assembly, on-going
production reliability audits, failure tracking for early identification of
production and component problems and information from our customers obtained
through our direct relationships and service and support programs. Northgate's
computer manufacturing operations have been assessed and certified as meeting
the requirements of the International Organization for Standardization (ISO)
9002. ISO 9002 certification recognizes compliance with international standards
for quality assurance.

PRODUCT DEVELOPMENT

The Company maintains close and cooperative relationships with many of its
suppliers and with other technology developers. These working partnerships allow
Northgate to use its business model and build-to-order manufacturing process to
deliver, on a timely and cost-effective basis, those emerging technologies that
are most relevant to its customers. These relationships have also enabled
Northgate to evaluate the latest developments in PC technology and to quickly
introduce new products and new product features to the market. Northgate
believes that its strong relationships with suppliers will continue to give it
access to new technology and enhance the Company's ability to bring the latest
technology to market on a timely basis. Direct relationships with customers also
enable Northgate to obtain valuable market information, which it uses to assist
in developing new product offerings.

Northgate must evaluate, obtain and incorporate new hardware, software, storage,
communications and peripherals technologies that are primarily developed by
others while taking steps to ensure that new products are compatible with
industry standards and that they meet cost objectives based on competitive
pricing targets.

PRODUCT QUALITY, WARRANTIES AND TECHNICAL SUPPORT

Northgate believes PC customers have in recent years become increasingly
sophisticated in their purchasing decisions, with quality and reliability
becoming increasingly important. The Company works closely with its suppliers to
develop high-quality components, manufactured to Northgate specifications.

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Northgate believes that customers judge quality by evaluating the performance
and reliability of a company's products, as well as a company's ability to
provide comprehensive service and support for its PCs.

Northgate believes product warranties are an important part of achieving
customer satisfaction and maintaining its image. In general, we provide a 30-day
money-back guarantee for our customer returns. Shipping and handling charges to
and from the customer are non-refundable. Northgate provides competitive
warranty packages on all of our manufactured products, ranging from one year to
five years. In many cases, customers have the option of customizing their
limited warranty to suit their particular needs.

On-line support solutions combine preloaded, automated system-repairing software
and online diagnostic and computer maintenance programs to deliver automated
technical support for Northgate customers.

Northgate provides a number of other basic technical support options to its
customers through their web sites, as well as through a variety of other
methods, including e-mail, fax and telephone support. Many of these technical
support options are available to customers without charge.

CUSTOMER SERVICE

We believe that our ability to establish and maintain long-term relationships
with our customers, and to encourage repeat visits and purchases, depends, in
part, on the strength of our customer support and service operations as well as
our staff. We seek to achieve frequent automated e-mail communication with our
customers to continually improve customer service for our stores and services.
We offer toll-free phone numbers and e-mail addresses for sales, technical
support, return merchandise and general customer service. Many of our
competitors only offer e-mail support. We will continue to acquire new tools and
technology to improve customer satisfaction.

PATENTS, TRADEMARKS AND LICENSES

Northgate works closely with PC component suppliers and other technology
developers to stay abreast of the latest developments in PC technology and has
obtained patent licenses for some technologies where these licenses are
necessary or advantageous, some of which require significant royalty payments.
In addition, we have entered into nonexclusive licensing agreements with
Microsoft Corporation for various operating system and application software, as
well as various software licensing agreements with other companies.

From time to time, other companies and individuals assert exclusive patent,
copyright, trademark or other intellectual property rights to technologies or
marks that are important to the technology industry or our business. We evaluate
each claim relating to our products and, if appropriate, seek a license to use
the protected technology. The licensing agreements generally do not require the
licensor to assist us in duplicating its patented technology nor do these
agreements protect us from trade secret, copyright or other violations by us or
our suppliers in developing or selling these products.

COMPETITION

The PC industry is highly competitive, especially with respect to pricing and
the introduction of new products and product features. Northgate competes
primarily by expanding the total available market with flexible services, while
avoiding conflict in "high volume but low profit channels".

Northgate competes with a number of personal computer manufacturers including
Dell Computer, Inc., Gateway, Inc., Hewlett-Packard Company, e-Machines,
Systemax, among others. These manufacturers sell their products through
different combinations of national and regional distributors, dealers,
value-added resellers, retail stores and through the direct channel.

Most of Northgate's current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, significantly greater name recognition and a substantially larger
installed base of customers than we do. In addition, many of our competitors
have nationally-known brands or well-established relationships and have
extensive knowledge of our industry. Moreover, current and potential competitors
have established or may establish cooperative relationships among themselves or

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with third parties to increase the ability of their products to address consumer
needs or to combine hardware product and service offerings. The introduction of
low-priced PCs combined with the brand strength, extensive distribution channels
and financial resources of the larger PC vendors may cause Northgate to lose
market share.

Competitive factors in our markets include logistics, on-line technical support
and services, Call Center management, OEM relationships with major component
manufacturers, price, new technology, variety of products, software and
features, marketing and sales capability.

SEASONALITY

Operating results have been subject to seasonality and to quarterly and annual
fluctuations. Factors involved include new product developments or
introductions, availability of components, changes in product mix and pricing
and product reviews and other media coverage. Historically, sales have increased
in the third and fourth quarters due, in part, to back-to-school and holiday
spending.

FACILITIES

Northgate's corporate headquarters and distribution facility is located in City
of Industry, California. The Company leases approximately 80,000 square feet
pursuant to a lease that expires in 2006, unless terminated earlier or extended.
Under the terms of the lease, Northgate makes monthly payments of approximately
$37,000 to an unaffiliated third party.

TECHNOLOGY

Our site management, search, customer interaction, transaction processing and
fulfillment systems consist of a combination of our own proprietary technologies
and third-party technology. We have enhanced the capability and scalability of
our systems through acquisition of new third-party technologies and in-house
development. In 2002, the Company implemented new enterprise software for its
procurement, accepting and verifying orders, managing orders, creating customer
interaction instructions, automatically selecting fulfillment methods, assigning
inventory to customer orders, managing shipment of products to customers,
recording tracking numbers, and authorizing and charging customer credit cards
with address verification.

The hosting of our Web servers is subcontracted to an Internet data center
specialist, Exodus Communications, Inc. Exodus has an extensive national network
backbone with redundant Internet connections to multiple Internet access points,
a secure physical environment, climate control and redundant power supply.
Exodus provides Northgate access to the facility 24 hours a day, seven days a
week. Exodus also monitors our Web servers continuously.

EMPLOYEES

As of April 14, 2003, we employed approximately 150 employees. We consider our
employee relations to be good. None of our employees is represented by a labor
union, and we have experienced no work stoppages. Competition for qualified
personnel in the electronic commerce industry is intense, particularly for
software development and other technically-oriented positions.

GOVERNMENT REGULATION

Northgate's business is subject to regulation by various federal and state
governmental agencies including the U.S. Federal Communications Commission, the
U.S. Federal Trade Commission, Department of Justice, the U.S. Department of
Commerce and the U.S. Consumer Products Safety Commission.

Some risks of costs and liabilities related to environmental matters are
inherent in Northgate's business, and its operations are subject to federal,
state and local environmental regulatory requirements relating to environmental
and waste management. Northgate periodically generates and handles limited
amounts of materials that are considered hazardous waste under applicable law
and contracts for the off-site disposal of these materials. Northgate's
management believes its business is operated in compliance with applicable
environmental regulations.

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BACKLOG

Northgate does not believe that backlog is a meaningful indicator of sales that
can be expected for any period, and there can be no assurance that the backlog
at any point in time will translate into sales in any subsequent period. Levels
of unfilled orders for systems fluctuate depending upon component availability,
demand for some products, the timing of large volume customer orders and
production schedules. Customers frequently change delivery schedules and orders
depending on market conditions and other reasons.

RESEARCH AND DEVELOPMENT

During the three years ended December 31, 2002, $162,000, $52,000 and $62,000
was expensed, respectively, for research and development.

ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS

In addition to other information contained in this report, the following factors
could affect our actual results and could cause such results to differ
materially from those achieved in the past or expressed in our forward-looking
statements.

An investment in our common stock involves a high degree of risk. You should
carefully review and consider the information below, as well as the other
information contained in this report and incorporated by reference.

OUR STOCK IS TRADED ON NASD'S OVER THE COUNTER ELECTRONIC BULLETIN BOARD AND THE
SALE OF OUR STOCK IS SUBJECT TO SIGNIFICANT RESTRICTIONS

Our securities trading is conducted in the NASD's OTC Electronic Bulletin Board.
As a result, an investor may find it more difficult to purchase, dispose of, and
obtain accurate quotations as to the value of, our securities.

In addition, since the trading price of our common stock is less than $5.00 per
share, trading in the common stock is also be subject to the requirements of
Rule 15g-9 under the Exchange Act. Under that rule, broker/dealers who recommend
such low-priced securities to persons other than established customers and
accredited investors must satisfy special sales practice requirements, including
requirements that they:

         o    make an individualized written suitability determination for the
              purchaser; and

         o    receive the purchaser's written consent prior to the transaction.

The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 also
requires additional disclosure in connection with any trades involving a stock
defined as a penny stock (generally, any equity security not traded on an
exchange or quoted on Nasdaq SmallCap that has a market price of less than $5.00
per share), including the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
with that market. Such requirements may severely limit the market liquidity of
our securities and the ability of purchasers of our stock to sell their
securities in the secondary market.

OUR FUTURE REVENUES AND OUR OPERATING RESULTS MAY FLUCTUATE.

Because we have historically relied on a few customers for a large percentage of
our revenues, we cannot accurately forecast our revenues. While our revenues may
increase in certain quarters depending upon shipments to these customers, an
investor should not use these past results to predict our future results. We
base our current and future expenditures on our plans and estimates of future
revenues. Our expenses are, to a large degree, fixed. We may be unable to adjust
spending in a timely manner if we experience an unexpected shortfall in our
revenues or lose a significant key customer. We expect that our future quarterly
operating results will fluctuate significantly because of many factors, many of
which we do not control. These factors include:

         o    our ability to satisfy and retain existing customers and attract
              new customers at a sufficient rate;

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         o    pricing competition, including, but not limited to, pricing which
              results in no gross margin on certain products;

         o    our ability to acquire, price and market merchandise inventory
              such that we maintain gross margins in our existing business and
              in future product lines and markets;

         o    our ability to fulfill customer orders;

         o    the level of traffic at our web sites;

         o    the amount the Internet is used generally and, more specifically,
              for the purchase of products such as those that we offer;

         o    our ability to upgrade and develop our systems and infrastructure
              and attract new employees;

         o    the occurrence of technical or communications failures, system
              downtime and Internet disruptions, including disruptions which may
              be caused by periodic interruptions in electrical service;

         o    the amount and timing of operating costs and capital expenditures
              that we incur to expand our business;

         o    governmental regulation and taxation policies;

         o    disruptions in service by common carriers such as United Parcel
              Service or unanticipated increases in shipping and
              transaction-processing costs; and

         o    general economic conditions, international economic conditions,
              political instability, and economic conditions specific to the
              Internet and the computer industry.

OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE.

Our operating results have fluctuated from quarter to quarter in the past, and
we expect that they will continue to do so in the future. Our earnings may not
continue to grow at rates similar to the growth rates achieved in recent years
and may fall short of either a prior fiscal period or investors' expectations.
Factors that could cause these quarterly fluctuations include the following: the
mix of products sold; pricing actions of competitors; the level of advertising
and promotional expenses; and seasonality, primarily because the sales and
profitability of the Company are typically slightly lower in the first and
second quarter of the fiscal year than in other quarters. Most of our operating
expenses, such as rent expense, advertising expense and employee salaries, do
not vary directly with the amount of sales and are difficult to adjust in the
short term. As a result, if sales in a particular quarter are below expectations
for that quarter, we may not proportionately reduce operating expenses for that
quarter, and therefore this sales shortfall would have a disproportionate effect
on our net income for the quarter.

WE MAY SUFFER SYSTEMS FAILURES AND BUSINESS INTERRUPTIONS.

Our success, especially our ability to receive and fulfill customer orders,
largely depends on the efficient and uninterrupted operation of our computer and
telephone communications systems. Almost all of our computer and communications
systems are located at a single leased facility. We have experienced temporary
power failures and telecommunications failures from time to time at this
facility. Our systems are vulnerable to damage from fire, earthquakes, floods,
power loss, telecommunications failures, break-ins and other events. Despite any
precautions we may take, the occurrence of natural disasters or other
unanticipated problems could cause system interruptions, delays and loss of
critical data and could prevent Northgate from providing services. Moreover,
although we have implemented network security measures, our servers are
vulnerable to computer viruses, physical or electronic break-ins, attempts by
third parties deliberately to exceed the capacity of our systems and similar
disruptions. Any of these events could lead to interruptions or delays in
service, loss of data or the inability to accept and confirm customer orders.
Generally, we do not have redundant systems or a formal disaster recovery plan,
and our coverage limits on our property and business interruption insurance may
not be adequate to compensate for losses that may occur.

                                       8
<PAGE>

WE FACE RISKS OF CAPACITY CONSTRAINTS.

We depend on the satisfactory performance, reliability and availability of our
web sites, transaction-processing systems, network infrastructure, customer
support center, and delivery and shipping systems. These factors are critical to
our reputation, our ability to attract and retain customers and to maintain
adequate customer service levels, and our operating results. Our production
facility has experienced periodic temporary capacity constraints from time to
time, and we may continue to experience capacity constraints at our customer
support center primarily related to inbound customer telephone inquiries.
Capacity constraints could prevent customers from gaining access to our on-line
stores or our customer support center for extended periods of time and decrease
our level of customer acquisition or retention. If we incur a significant
increase in revenues, we may be unable to increase our capacity at our customer
support center in a timely manner to handle the amount of customer telephone
inquiries.

WE FACE RISKS RELATING TO SYSTEMS DEVELOPMENT.

We are heavily dependent on our technological systems. Although we replaced our
transaction-processing systems in March 2002 and our phone system in November
2001, these systems are relatively new and untested. In the future, we may also
upgrade and expand our systems to add automated customer service, proactive
e-mail and customer feedback features to provide enhanced customer service, more
complete customer data and better management reporting information. These
efforts would require Northgate to integrate newly developed and/or purchased
technologies into our systems and to hire more engineering and information
technology personnel in the future. If we are unable in a timely manner to hire
required personnel, to add new software and hardware, or to upgrade our existing
systems to handle increased revenue, we could experience unanticipated system
disruptions, slower response times, degraded customer service and a decrease in
our ability to fulfill customer orders.

THE PERSONAL COMPUTER MARKET IS INTENSELY COMPETITIVE.

The personal computer industry continues to be rapidly evolving and intensely
competitive. In the past eighteen months, several companies have merged, been
sold or are repositioning themselves due to continued losses. Many of these
companies have larger financial resources than Northgate. We may not be
successful in competing against our present and future competitors. It is not
difficult to enter the computer industry, and we expect competition to increase
with soft demand for computer systems and excess capacity in the market.
Furthermore, competition has increased to the extent that mergers and
acquisitions result in companies with greater market share and revenues.
Increased competition, or failure by Northgate to compete successfully, is
likely to result in price reductions, fewer customer orders, reduced gross
margins, increased marketing costs, loss of market share, or any combination of
these problems. It is possible that increased competition or improved
performance by our competitors may reduce our market share, may reduce our
profit margin, and may adversely affect our business and financial performance
in other ways.

We believe that the principal competitive factors affecting our market are brand
name recognition, competitive pricing, quality of customer service, quality of
product information, and breadth of merchandise offerings. Although we believe
we compete adequately with respect to such factors, we cannot assure you that we
can maintain our competitive position against current and potential competitors,
especially those with greater financial, marketing, customer support, technical
and other resources. For instance, currently some competitors sell certain
products at or near the purchase price paid by them to acquire the products to
cover their fixed overhead costs. To improve our competitive position, we are
focused on increasing our level of customer service and maintaining competitive
pricing.

Current and potential competitors have established or may establish cooperative
relationships among themselves or directly with suppliers to obtain exclusive or
semi-exclusive sources of merchandise. New competitors or alliances among
competitors, or among competitors and suppliers, may emerge and rapidly acquire
market share. Many of our current and potential competitors have significantly
greater financial, marketing, customer support, technical and other resources
than we do. As a result, they may be able to secure merchandise from suppliers
on more favorable terms than we can, and they may be able to respond more
quickly to changes in customer preferences or to devote greater resources to the
development, promotion and sale of their merchandise than we can.

                                       9
<PAGE>

WE RELY HEAVILY ON CERTAIN MANUFACTURERS, DISTRIBUTORS AND SUPPLIERS.

We rely heavily on certain manufacturers, distributors and suppliers to supply
Northgate with merchandise for our production needs. We cannot assure you that
we will be able to develop and maintain satisfactory relationships with such
parties on acceptable commercial terms, or that we will be able to obtain
sufficient quality and quantities of merchandise at competitive prices. Also,
the quality of service provided by such parties may fall below the standard
needed to enable Northgate to conduct our business effectively. We acquire
products for sale both directly from manufacturers and indirectly through
distributors and suppliers. Purchases from one manufacturer of computers and
related computer products, accounted for approximately 15% of our aggregate
merchandise purchases for 2002. We have no long-term contracts or arrangements
with manufacturers, distributors or suppliers that guarantee the availability of
merchandise to us. We cannot assure you that current manufacturers, distributors
and suppliers will continue to sell merchandise to Northgate or otherwise
provide merchandise for sale, or that we will be able to establish new
manufacturer, distributor or supplier relationships that ensure merchandise will
be available to Northgate.

WE RELY HEAVILY ON CERTAIN OTHER THIRD PARTIES, INCLUDING INTERNET SERVICE
PROVIDERS, TELECOMMUNICATIONS COMPANIES AND DELIVERY COMPANIES.

Our operations depend on a variety of third parties for Internet access,
telecommunications, operating software, order fulfillment, merchandise delivery
and credit card transaction processing. We have limited control over these third
parties, and we cannot assure you that we will be able to maintain satisfactory
relationships with any of them on acceptable commercial terms. We cannot assure
you that the quality of products and services that they provide will remain at
the levels needed to enable Northgate to conduct our business effectively.

We rely on Internet service providers to connect our web site to the Internet.
From time to time, we have experienced temporary interruptions in our web site's
connections and also our telecommunications access. Frequent or prolonged
interruptions of these web site connection services could result in significant
losses of revenues. Our web site software depends on operating systems, database
and server software that were produced by and licensed from third parties. From
time to time, we have discovered errors and defects in such software and, in
part, we rely on these third parties to correct these errors and defects
promptly.

We use United Parcel Service as the primary delivery service for our products.
Our business would suffer if labor problems or other causes prevented this
carrier from delivering our products for significant time periods. Third-party
distribution centers fulfill a portion of the sales for which we are
responsible. Accordingly, any service interruptions experienced by these
distribution centers as a result of labor problems or otherwise could disrupt or
prevent the fulfillment of some of our customers' orders. In addition, we rely
on a single credit card processing service for the processing of credit card
transactions. If computer systems failures or other problems were to prevent our
credit card service from processing our credit card transactions, we would
experience delays and business disruptions. Any such delays or disruptions in
customer service may damage our reputation or result in a loss of customers.

We cannot assure you that we will be able to maintain satisfactory relationships
with any of these parties on acceptable commercial terms. Moreover, we have
limited control over these third parties, and we cannot assure you that the
quality of products and services that they provide will remain at the levels
needed to enable us to conduct our business effectively. In addition, we could
experience delays or business disruptions as a result of labor problems, systems
failures or other business interruptions suffered by these third parties. The
loss of these business relationships on favorable terms, or the inability or
unwillingness of these third parties to provide us with efficient and
cost-effective services, could adversely affect our results of operations.

                                       10
<PAGE>

WE MAY EVENTUALLY BE REQUIRED TO COLLECT SALES TAX FROM MOST OR ALL OF OUR
CUSTOMERS.

We currently collect sales tax on sales of products delivered to residents in
the state of California and drop-shipped from Ingram Micro to residents of
Massachusetts. Various states have tried to impose on direct marketers the
burden of collecting sales taxes on the sale of products shipped to state
residents. The United States Supreme Court affirmed its position that it is
unlawful for a state to impose sales tax collection obligations on an
out-of-state mail order company whose only contacts with the state are the
distribution of catalogs and other advertising materials through the mail and
subsequent delivery of purchased goods from out-of-state locations by parcel
post and interstate common carriers. It is possible that legislation may be
passed to supersede the Supreme Court's decision, or that the Court may change
its position. Additionally, it is uncertain whether any new rules and
regulations may be adopted, in terms of sales tax collection obligations, to
govern sales via electronic commerce as the Internet continues on its explosive
pace of growth and states face significant budget deficits. There have been
recent legislative initiatives to impose a standardized national sales tax on
e-commerce. The imposition of new sales tax collection obligations on Northgate
in states to which we ship products would result in additional administrative
expenses to Northgate. More importantly, though, we may lose one of our most
competitive advantages because of a higher total price of products for our
customers.

SHIPPING AND POSTAGE COULD INCREASE OUR OPERATING EXPENSES.

We ship our products to customers generally by United Parcel Service and other
overnight delivery and surface services. We generally invoice customers for
shipping and handling charges. If we are unable to pass on to our customers
future increases in the cost of commercial delivery services, our operating
results will be adversely affected. Moreover, any increases in postal costs
could have an adverse effect on our operating results.

WE FACE RISKS RELATING TO OUR INVENTORY.

We directly purchase the majority of the merchandise that we sell and we assume
the inventory, inventory obsolescence and price erosion risks for products that
we purchase directly. These risks are especially significant because much of the
merchandise we sell (computer hardware, software and consumer electronics) is
characterized by rapid technological change, obsolescence and price erosion. In
the recent past we have recorded charges for obsolete inventory, our inventory
turnover declined in 2002, and we have had to sell certain merchandise at a
discount or loss. It is impossible to determine with certainty whether an item
will sell for more than the price we pay for it. Because we rely heavily on
purchased inventory, our success will depend on our ability to liquidate our
inventory rapidly, the ability of our buying staff to purchase inventory at
attractive prices relative to its resale value, and our ability to manage
customer returns and the shrinkage resulting from theft, loss and mis-recording
of inventory. If we are unsuccessful in any of these areas, we may be forced to
sell our inventory at a discount or loss.

MOST MERCHANDISE SOLD BY US CARRIES A WARRANTY FROM THE MANUFACTURER OR THE
SUPPLIER, AND WE ARE NOT OBLIGATED TO ACCEPT MERCHANDISE RETURNS.

Nevertheless, we in fact have accepted returns from customers for which we did
not receive reimbursements from our manufacturers or suppliers, and the levels
of returned merchandise in the future might exceed our expectations. We may also
find that we have to accept more returns in the future to maintain customer
satisfaction. Merchandise returns as a percentage of total sales were 12.8% in
2002, 6.6% in 2001, and 8.6% in 2000.

OUR SYSTEMS ARE VULNERABLE TO SECURITY BREACHES.

A significant barrier to electronic commerce and communications is the secure
transmission of confidential information over public networks. We rely upon
encryption and authentication technology licensed from third parties to provide
secure transmission of confidential information. Northgate has experienced
security breaches in the past. Although we believe current security measures are
adequate, we cannot assure you that our security measures will prevent future
security breaches, and such breaches could expose the Company to operating
losses, litigation and possible liability. Advances in computer capabilities,
new discoveries in the field of cryptography or other events or developments may
result in a compromise or breach of the algorithms that we use to protect
customer transaction data. A party who is able to circumvent our security
measures could steal proprietary information or interrupt our operations. We may

                                       11
<PAGE>

need to spend a great deal of money and use other resources to protect against
the threat of such security breaches or to alleviate problems caused by such
breaches. Concerns over the security of on-line transactions and the privacy of
users may also inhibit the growth of the Internet generally, and the World Wide
Web in particular, especially as a means of conducting commercial transactions.

WE ARE VULNERABLE TO THE RAPID EVOLUTION OF THE COMPUTER INDUSTRY.

The computer industry is characterized by rapid technological change, changes in
user and customer requirements, frequent new service or product introductions
embodying new technologies, and the emergence of new industry standards and
practices. Changes in technology could render our existing inventory and
products obsolete. To remain competitive, we must continue to enhance and
improve our product offerings. Our success in achieving these goals depends on
our ability to develop or license new technologies and respond promptly and
cost-effectively to technological advances and emerging industry standards and
practices. The development, licensing, and production of computer products
involves significant technical, financial and business risks. We may not be
successful in developing, licensing or integrating new technologies or promptly
adapting our production methods, proprietary technology and
transaction-processing systems to customer needs or emerging industry standards.

WE ARE DEPENDENT ON THE CONTINUED DEVELOPMENT OF THE INTERNET INFRASTRUCTURE.

Approximately 15 percent of our 2002 revenue was derived from sales via the
Internet and the increased use of the Internet for commerce is essential for our
business to grow. Accordingly, our success depends on the continued development
of the infrastructure for providing Internet access and services. The Internet
could lose its viability or its usage could decline due to many factors beyond
our control, including:

         o    Delays in the development of the internet infrastructure;

         o    Power outages;

         o    the adoption of new standards or protocols for the Internet; or

         o    changes or increases in governmental regulation.

We cannot be certain that the infrastructure or complementary services necessary
to maintain the Internet as a useful and easy means of buying goods will be
developed or that, if they are developed, the Internet will remain a viable
marketing and sales channel for the types of products and services that we offer
at our on-line stores.

OUR DEBT LEVEL COULD IMPACT OUR ABILITY TO OBTAIN FUTURE FINANCING.

Our consolidated outstanding debt at December 31, 2002 was approximately $8.2
million. Our consolidated debt may have the effect generally of restricting our
flexibility in responding to changing market conditions and could make us more
vulnerable in the event of a downturn in our business. In addition, our level of
indebtedness may have other important consequences, including: restricting our
growth; making it more difficult for us to satisfy our obligations; limiting our
ability to borrow additional amounts for working capital, capital expenditures,
debt service requirements, future acquisitions or other corporate purposes; and
limiting our ability to use operating cash flow in other areas of our business.
In such a situation, additional funds may not be available on satisfactory terms
when needed, or at all, whether in the next twelve to eighteen months or
thereafter.

VOLATILITY IN THE UNITED STATES STOCK MARKET, THE NASD OTC MARKET, THE
TECHNOLOGY SECTOR, THE WORLD POLITICAL ENVIRONMENT, AS WELL AS OTHER FACTORS,
MAY AFFECT THE MARKET PRICE OF OUR COMMON STOCK.

The trading price of our common stock has been and may continue to be subject to
fluctuations in response to quarter-to-quarter variations in operating results,
announcements of technological innovations or new products introduced by
Northgate or our competitors and other events or factors. The trading price of
our common stock has been and may continue to be subject to fluctuations in

                                       12
<PAGE>

response to quarter-to-quarter variations in operating results, announcements of
technological innovations or new products introduced by us or our competitors,
limited trading volume of our securities on the Over-the-Counter Bulletin Board,
regulatory and judicial actions, and other events or factors. From January 2,
2002 through March 31, 2003, the closing price of our common stock has ranged
from a low of $0.12 per share to a high of $2.10 per share, as adjusted for the
10:1 reverse stock split. The stock market in general, and the shares of
technology companies in particular, have experienced extreme price fluctuations
in recent years. This volatility has had a substantial impact on the market
prices of securities issued by many companies for reasons unrelated to the
operating performance of the companies affected. These broad market fluctuations
may adversely affect the market price of our common stock.

OUR OPERATING RESULTS MAY BE IMPACTED BY CHANGES IN THE ECONOMY AND
INTERNATIONAL CONFLICT.

Our operating results are directly impacted by the health of the North American
and Asian economies. Current economic conditions and the current war with Iraq
may adversely affect our business and our results of OPERATIONS.

WE MAY FACE INTERRUPTION OF PRODUCTION AND SERVICES DUE TO INCREASED SECURITY
MEASURES IN RESPONSE TO TERRORISM.

Our business depends on the free flow of products and services through the
channels of commerce. Recently, in response to terrorist's activities and
threats aimed at the United States, transportation, mail, financial, and other
services have slowed or stopped altogether. Further delays or stoppages in
transportation, mail, financial or other services could have a material adverse
effect on our business, results of operations and financial condition.

Furthermore, we may experience an increase in operating costs, such as costs for
transportation, insurance and security, as a result of terrorists' activities
and potential activities. We may also experience delays in receiving payments
from payers that have been affected by the terrorist activities. Any general
economic downturn as a result of terrorist activities could adversely impact our
results of operations, impair our ability to raise capital or otherwise
adversely affect our ability to grow our business.

WE ARE DEPENDENT ON INTELLECTUAL PROPERTY.

Our performance and ability to compete depend to a significant degree on our
proprietary technology. We rely on a combination of trademark, copyright and
trade secret laws to establish and protect our proprietary rights. While we have
applied for trademark protection for the Mcglen.com name, we cannot assure you
that we will receive a registered trademark for this name in the United States,
or that competitors will not adopt similar marks, thereby impeding our ability
to build brand identity and possibly confusing customers. Existing copyright,
trademark, patent and trade secret laws afford only limited protection, and
intellectual property laws (particularly those of other countries) may be
inadequate to prevent misappropriation of our technology or other proprietary
rights. It might be possible for a third party to copy or otherwise obtain and
use our software or other proprietary information without authorization, or to
develop similar software independently. Policing unauthorized use of our
technology is difficult, particularly because the global nature of the Internet
makes it difficult to control the ultimate destination or security of software
or other data transmitted.

OUR INTELLECTUAL PROPERTY MAY INFRINGE ON THAT OF OTHERS AND EXPOSE US TO COSTS
RELATED TO LITIGATION.

In the systems and software industries, it is common that companies receive
notices from time to time alleging infringement of patents, copyrights or other
intellectual property rights of others. We may from time to time be notified of
claims that we may be infringing upon patents, copyrights or other intellectual
property rights owned by third parties. Companies may pursue claims against us
with respect to the alleged infringement of patents, copyrights or other
intellectual property rights owned by third parties. Although we believe we have
not violated or infringed upon any intellectual property rights and have taken
measures to protect our own rights, there is no assurance that we will avoid
litigation. Litigation may be necessary to protect our intellectual property
rights and trade secrets, to determine the validity of and scope of the
proprietary rights of others or to defend against third party claims of
invalidity. Any litigation could result in substantial costs and diversion of
resources away from the day-to-day operation of our business.

                                       13
<PAGE>

A SUBSTANTIAL PORTION OF OUR STOCK IS HELD BY THREE PARTIES.

Upon completion of our reverse merger with Lan Plus Corporation in March 2002,
its shareholders, Andy Teng, Richard Shyu and the Lan Plus Corporation ESOP
influence all fundamental matters affecting Northgate. As of March 31, 2003,
these three entities/persons controlled approximately 75% of the total combined
voting power of the outstanding common stock, on a fully diluted basis.
Accordingly, they are able to wield considerable influence in, among other
things, determining the outcome of corporate decisions, effecting corporate
transactions (including mergers, consolidations and the sale of all or
substantially all of our assets), or preventing or causing a change in control
in the company.

WE ARE EXPOSED TO THE RISKS OF A GLOBAL MARKETPLACE.

A significant portion of our products are either produced in, or have major
components produced in, the Asia Pacific region. We have business relationships
with companies located in the region directly, and we engage in U.S. Dollar
denominated transactions with these companies and U.S. divisions and
subsidiaries of these companies. As a result, we may be indirectly affected by
risks associated with international events, including economic and labor
conditions, political instability, tariffs and taxes, availability of products
and currency fluctuations in the U.S. Dollar versus the regional currencies.
Countries in the Asia Pacific region, including Japan, have experienced
weaknesses in their currency, banking and equity markets from time to time.
These weaknesses could adversely affect the supply and prices of products and
components and, ultimately, our results of operations.

THE ISSUANCE OF ADDITIONAL PREFERRED STOCK COULD AFFECT VOTING RIGHTS OR DELAY
OR PREVENT A CORPORATE TAKEOVER.

Our Board of Directors is authorized to determine the rights and restrictions
granted to and imposed upon our preferred stock. They can decide the number of
shares of any series of preferred stock and the designation of any such series.
Our Board of Directors may authorize and issue additional preferred stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of common stock. In addition, the potential issuance
of preferred stock may:

         o    have the effect of delaying, deferring or preventing a change in
              control of the company;

         o    discourage bids for the common stock at a premium over the market
              price of the common stock; and

         o    adversely affect the market price of the common stock.

THE SUCCESS OF THE COMPANY DEPENDS ON ITS ABILITY TO RETAIN KEY PERSONNEL.

The success of the Company depends in a large part on the continued service of
key personnel. Despite its efforts to hire and retain quality employees, the
Company might lose some of its key employees. Competitors may recruit key
employees who could take key customers with them. As a result, the company may
be required to provide significant incentives for some employees to remain with
the Company.

Similarly, the future performance of the Company depends on its continuing
ability to attract and retain highly qualified technical and managerial
personnel. Competition for qualified management, engineering, technical, sales
and marketing employees is intense. If employees leave, or if the Company cannot
attract and retain qualified personnel, the Company's business would be harmed.

FROM TIME TO TIME NORTHGATE HAS INVESTED IN SHORT SALES OF SECURITIES

Northgate's management routinely invested the Company's excess operating funds
in the stock market. From time to time, management invests these funds in short
sales of stock that they typically cover within 60 days of the date of the short
purchase. Short sales typically have a higher degree of risk than traditional
stock purchases and management attempts to limit the concentration of short
sales in the Company's overall invested and cash portfolio. At December 31,

                                       14
<PAGE>

2001, approximately $426,000 was invested in short sales of common stock and
unrealized losses of $102,000 were recorded on these investments. Management
covered the December 31, 2001 short sale in January and April 2002, recording a
loss of $60,000. The Company had no such investments at December 31, 2002.

ITEM 2.  PROPERTIES

In September 2002, we moved our operations to a 80,000 square foot warehouse,
located in the City of Industry, California. Prior to this time, the Company
leased a 47,000 square foot warehouse from its CEO and Chairman. The Company
believes that its present facilities are adequate for its current needs.

ITEM 3.  LEGAL PROCEEDINGS

The Company is not presently a party to any pending litigation.

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

No matters were submitted to a vote of security holders during the fourth
quarter of 2002.

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Northgate's common stock is traded on the Over-the-Counter Bulletin Board under
the symbol "NGTE." The following table sets forth the range of the high and low
closing sales prices for our common stock, for the periods indicated, as
reported by the Nasdaq SmallCap Market (for periods on and prior to April 12,
2001) and the Over-the-Counter Bulletin Board (for periods after April 12,
2001). Quotations reflect inter-dealer prices without retail mark-ups,
mark-downs or commissions and may not necessarily represent actual transactions:

                                                 Price Range of Common Stock
                                                 ---------------------------
                                                  High                 Low
                                                 ------               ------
               Year Ended December 31, 2001
               ----------------------------
               FIRST QUARTER                     $0.88                $0.16
               SECOND QUARTER                    $0.33                $0.10
               THIRD QUARTER                     $0.27                $0.09
               FOURTH QUARTER                    $0.21                $0.07

               Year Ended December 31, 2002
               ----------------------------
               FIRST QUARTER                     $0.03                $1.15*
               SECOND QUARTER*                   $0.55                $1.00
               THIRD QUARTER*                    $0.08                $0.90
               FOURTH QUARTER*                   $0.16                $0.51


* The pricing of the Company's stock beginning March 28, 2002 reflects a 10:1
reverse stock split that was effective upon close of the Company's merger with
Lan Plus Corporation.

On April 14, 2003, the closing price of the Company's Common Stock as reported
on the Over the Counter Market was $0.17 per share. On April 14, 2003, there
were 116 holders of record of our Common Stock.

                                       15
<PAGE>

The Company has never paid cash dividends on its Common Stock, and does not
anticipate paying cash dividends on its Common Stock in the future. The Company
intends to retain its earnings to finance the growth and development of its
business.

In March 2002, we entered into a corporate consulting agreement with Investor
Relation Resources ("IRR"). In exchange for various corporate consulting and
public relations services, we agreed to issue 10,000 shares of the Company's
common stock. The Company valued these shares at the market price on the date of
the agreement, $1.00 per share. These shares were not registered under the
Securities Act of 1934 pursuant to Section 4(2).

ITEM 6.  SELECTED FINANCIAL DATA

The following selected consolidated financial data has been derived from the
financial statements of the Company, which have been prepared in accordance with
United States generally accepted accounting principles. The consolidated
financial statements of the Company for the year ended December 31, 2002, and as
of December 31, 2002, and the related report of Corbin & Company LLP are
included elsewhere in this report. The financial statements for the years ended
December 31, 2001 and 2000, and as of December 31, 2001, and the related report
of Singer Lewak Greenbaum & Goldstein LLP are included elsewhere in this report.
The financial statements as of December 31, 2000, 1999 and 1998, and for the
years ended December 31, 1999 and 1998 , have been derived from financial
statements audited by Singer Lewak Greenbaum & Goldstein LLP. The following data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements
included elsewhere in this report.

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                1998        1999       2000         2001        2002
                                             ---------   ---------   ---------   ---------   ---------
                                                       (in thousands, except per share data)
<S>                                          <C>         <C>         <C>         <C>         <C>
STATEMENT OF OPERATIONS DATA:
Net sales ................................   $ 78,919    $ 87,158    $ 69,101    $ 73,883    $ 65,176
Cost of sales ............................     69,718      76,845      60,326      64,872      57,589
                                             ---------   ---------   ---------   ---------   ---------
Gross profit .............................      9,201      10,313       8,775       9,011       7,587
   Selling, general and administrative ...      6,186      10,176       7,700       7,273       8,032
                                             ---------   ---------   ---------   ---------   ---------
   Income (loss) from operations .........      3,015         137       1,075       1,738        (445)
   Other  (income) expense ...............        (46)       (282)        202        (217)        268

Income (loss) before income taxes ........      3,061         419         873       1,955        (713)
Provision for income taxes ...............      1,060         173         358         467        (870)
                                             ---------   ---------   ---------   ---------   ---------
Net income ...............................   $  2,001    $    246    $    515    $  1,488    $    157
                                             =========   =========   =========   =========   =========


Basic income per share ...................   $   0.20    $   0.02    $   0.05    $   0.15    $   0.01
                                             =========   =========   =========   =========   =========

Diluted income per share .................   $   0.20    $   0.02    $   0.05    $   0.13    $   0.01
                                             =========   =========   =========   =========   =========
Weighted average shares of common stock
   outstanding:
   Basic .................................      9,854       9,854       9,854       9,854      13,694
                                             =========   =========   =========   =========   =========
    Diluted ..............................     10,129      10,129      10,714      11,305      15,145
                                             =========   =========   =========   =========   =========

                                                                    DECEMBER 31,
                                                1998        1999       2000         2001        2002
                                             ---------   ---------   ---------   ---------   ---------
Balance Sheet Data:
Cash and cash equivalents ................   $     51    $  1,307    $  2,884    $  8,555    $  2,135
Working capital ..........................      2,629       5,483       3,836       5,245       3,199
Total assets .............................     19,688      20,775      13,913      24,091      16,014
Long-term debt ...........................         --      11,303       9,880       9,263       8,050
Total stockholders' equity (deficit) .....      2,946      (5,412)     (5,609)     (3,238)      1,258
</TABLE>

                                       16
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the Company's
consolidated financial statements and notes thereto included elsewhere herein.
The following table sets forth for the periods indicated the percentage of net
sales represented by certain items reflected in the Company's consolidated
statements of operations. There can be no assurance that the trends in sales
growth or operating results will continue in the future.

OVERVIEW

Northgate is a leading marketer of personal computers, or PCs, and related
products and services and manufactures, markets, and supports a broad line of
desktop PCs, servers and workstations used by individuals, families, businesses,
government agencies and educational institutions. The Company also offers
diversified products and services such as software, peripherals, Internet access
services, support programs and general merchandise.

Net sales of the Company are primarily derived from the sale of personal
computer hardware, software, peripherals and accessories. Gross profit consists
of net sales less product and shipping costs.

On March 20, 2002, the Company closed its merger with Lan Plus. At the closing
of the merger, Lan Plus shareholders received a number of shares such that they
now own approximately 75% of the Company. In addition, at the close of the
merger, the Company also instituted a 10:1 reverse stock split and changed its
name to Northgate Innovations, Inc. Pursuant to the merger agreement, upon close
of merger, the Company's accounts payable to, and advances from Lan Plus, in the
amount of approximately $2.3 million was converted to common stock eliminating
the debt; the stock was then retired to Treasury and cancelled. The Company has
reported combined operations with Lan Plus beginning with its 10-Q for the
period ended March 31, 2002.

The Company purchases a substantial percentage of its products from a single
manufacturer. Purchases from this manufacturer accounted for more than 15% of
our aggregate merchandise purchases for 2002. The Company has no long-term
contracts or arrangements with this manufacturer, or other vendors, that
guarantee the availability of merchandise.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses Northgate's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, management evaluates its
estimates and judgments, including those related to customer incentives, product
returns, bad debts, inventories, intangible assets, financing operations,
warranty obligations, and contingencies and litigation. Management bases its
estimates and judgments on historical experience and on various other factors
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.

Management believes the following critical accounting policies, among others,
affect its more significant judgments and estimates used in the preparation of
its consolidated financial statements.

                                       17
<PAGE>

ALLOWANCE FOR DOUBTFUL ACCOUNTS: Northgate maintains allowances for doubtful
accounts for estimated losses resulting from the inability of its customers to
make required payments. If the financial condition of Northgate's customers were
to deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. Northgate provides for the estimated cost
of product warranties at the time revenue is recognized.

WARRANTIES: While certain of the products Northgate sells are covered by third
party manufacturer warranties, Northgate may have products returned by customers
that Northgate may not be able to recover from the manufacturer. Returns of this
nature have been immaterial in the past; however, should actual product failure
rates increase or the manufacturers go out of business, Northgate may be forced
to cover these warranty costs and the costs may differ from Northgate's
estimates.

INVENTORY: Northgate writes down its 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 future demand or market conditions are less favorable than
those projected by management, additional inventory write-downs may be required.

PURCHASE AND ADVERTISING REBATES: We earn rebates from our vendors which are
based on various quantitative contract terms. Amounts expected to be received
from vendors relating to the purchase of merchandise inventories are recognized
as a reduction of cost of goods sold as the merchandise is sold. Amounts that
represent a reimbursement of incremental costs, such as advertising, are
recorded as a reduction to the related expense in the period that the related
expense is incurred. Several controls are in place that we believe allow us to
ensure that these amounts are recorded in accordance with the terms of the
contracts. Should vendors reach different judgments regarding the terms of these
contracts, they may seek to recover amounts from us.

IMPAIRMENT OF LONG-LIVED ASSETS: We review our long-lived assets for impairment
when indicators of impairment are present and the undiscounted cash flow
estimated to be generated by those assets are less than the assets' carrying
amount. If actual market conditions are less favorable than management's
projections, future write-offs may be necessary.

IMPAIRMENT OF GOODWILL AND INDEFINITE LIVED INTANGIBLE ASSETS: As a result of
our adoption of Statement of Financial Accounting Standards No. 142 "Goodwill
and Other Intangible Assets" ("SFAS No. 142"), we now annually review goodwill
and other intangible assets that have indefinite lives for impairment and when
events or changes in circumstances indicate the carrying value of these assets
might exceed their current fair values. These reviews require the Company to
estimate the fair value of its identified reporting units and compare those
estimates against the related carrying values. For each of the reporting units,
the estimated fair value is determined as compared to the Company's stock price.

DEFERRED TAXES: We record a valuation allowance to reduce our deferred tax
assets to the amount that is more likely than not to be realized. We have
considered estimated future taxable income and ongoing tax planning strategies
in assessing the amount needed for the valuation allowance. If actual results
differ unfavorably from those estimates used, we may not be able to realize all
or part of our net deferred tax assets and additional valuation allowances may
be required.

RESULTS OF OPERATIONS

The following table sets forth for the years indicated the percentage of net
sales represented by certain items reflected in the Company's consolidated
statements of operations. There can be no assurance that the trends in sales
growth or operating results will continue in the future. The discussion of the
"Results of Operations" includes both Northgate and Mcglen since the date of
merger, March 15, 2002.

                                       18
<PAGE>

                                                    PERCENTAGE OF NET SALES
                                                    YEAR ENDED DECEMBER 31,
                                                 2002         2001        2000
                                                ------       ------      ------
     Net sales                                  100.0%       100.0%      100.0%
     Cost of sales                               88.4         87.8        87.3
                                                ------       ------      ------
     Gross profit                                11.6         12.2        12.7
     Operating expenses                          12.3          9.8        11.1
                                                ------       ------      ------
     Operating (loss) income                     (0.7)         2.4         1.6
     Other (income)expense, net                   0.4         (0.3)        0.3
                                                ------       ------      ------
     (Loss) income before income taxes           (1.1)         2.7         1.3
     (Benefit) provision for income taxes        (1.3)         0.7         0.5
                                                ------       ------      ------
     Net income                                  0.2%          2.0%        0.8%
                                                ======       ======      ======

YEAR ENDED DECEMBER 31, 2002 COMPARED TO THE YEAR ENDED DECEMBER 31, 2001

         Net sales decreased by $8.7 million, or 11.8%, to $65.2 million for the
year ended December 31, 2002, compared to $73.9 million for the year ended
December 31, 2001. The decrease in net sales was a result of a decrease in the
number of computer systems shipped during the period as well as a decrease in
the average selling price per system due to lower component costs and also
competition in the marketplace. The fourth quarter of 2002 was significantly
impacted by price reductions in the marketplace by competitors such as Dell and
Gateway as well as reduction in consumer demand. In addition, in the fourth
quarter of 2002 the Company's airtime on one of the home shopping networks
decreased significantly as compared to the prior year.

         Gross profit decreased by $1.4 million or 15.6% to $7.6 million for the
year ended December 31, 2002, compared to $9.0 million for the year ended
December 31, 2001. The decrease in gross profit was due to the decrease in
sales. Gross profit, as a percentage of net sales decreased to 11.6% for the
year ended December 31, 2002 from 12.2% for the year ended December 31, 2001.
The decrease in gross profit margin as a percentage of sales was due to: an
increase in labor and applied overhead costs associated with the integration of
the two companies following the merger; an increase in costs due to integration
of the Company's new enterprise software in 2002; and less units being produced
in 2002 as compared to 2001.

         On a forward-looking basis, future gross profit margins may fluctuate
from recent levels. The statement concerning future gross profit is a forward
looking statement that involves certain risks and uncertainties which could
result in a fluctuation of gross margins below those achieved for the year ended
December 31, 2002. Although the Company believes it provides a high level of
value and added services, pricing and gross profit could be negatively impacted
by the activities of larger computer manufacturers.

         Operating expenses increased by $0.7 million or 9.6%, to $8.0 million
for the year ended December 31, 2002, from $7.3 million for 2001. The increase
in operating expenses was attributable to a increase in payroll and related
costs and an increase in advertising costs in 2002. ESOP compensation expense
decreased by $0.2 million for the year ended December 31, 2002 as the Company
did not make an discretionary ESOP contribution in 2002. Payroll and related
costs (e.g., employer taxes, health and workers compensation insurance)
increased by approximately $0.9 million, or 19.1% for the year ended December
31, 2002 compared to 2001. The increase in payroll and payroll related costs was
due to a 15% increase in insurance costs in 2002 and a 20% increase in average
head count for the year ended December 31, 2002 as the Company exceeded sales
forecasts through September 2002. Advertising expense increased by approximately
$250,000 in 2002 as Northgate received less market development funds from OEM
suppliers such as Intel. Northgate also increased its print advertising
expenditures as the Company began to advertise the Northgate brand.

         Other (income) expense decreased by approximately $485,000 or 223.5%,
to $268,000 for the year ended December 31, 2002, from ($217,000) for the prior
year. The increase was partially due to decreased gains on the Company's
marketable securities portfolio in 2002 and lower interest income in 2002. In
addition, during the fourth quarter of 2002 the Company reviewed its MSN royalty
accrual and determined that the accrual was overstated by approximately $1.0
million; the result was an increase in other income by $1.0 million.
Additionally, also in the fourth quarter of 2002, the Company reviewed its
marketable securities portfolio for permanent impairment. Due to the overall
decline in the stock and bond markets from when the Company purchased the
investments, as well as specific factors affecting individual investments within
the portfolio, the Company recorded a $827,000 loss on its marketable securities
portfolio.

           Income tax (benefit) provision for the year ended December 31, 2002
was ($870,000) versus a provision of $467,000 for the year ended December 31,
2001. The effective tax rate for 2002 decreased to (122.0%) from 23.9% in 2001
primarily as a result of certain changes in the estimates for the Company's past
income tax liabilities.

                                       19
<PAGE>

YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000

         Net sales increased by $4.8 million, or 6.9%, to $73.9 million for the
year ended December 31, 2001, compared to $69.1 million for the year ended
December 31, 2000. The increase in net sales was a result of an increase in the
number of computer systems shipped during the year ended December 31, 2000,
mainly in the fourth quarter of 2001. Northgate recorded record revenues for the
fourth quarter of 2001 as compared to prior years.

         Gross profit increased by $0.2 million or 2.3% to $9.0 million for the
year ended December 31, 2001, compared to $8.8 million for the year ended
December 31, 2000. The increase in gross profit was due to the increase in
sales. Gross profit, as a percentage of net sales decreased to 12.2% for the
year ended December 31, 2001 from 12.7% for the year ended December 31, 2000.
The decrease in gross profit margin was due to lower royalties paid during 2000,
Lan Plus developing more relationships with original equipment manufacturers
(OEM) that provide component products at lower costs than distributors, and the
acquisition of new customers in 2001with sales at a higher margin.

         Operating expenses decreased by $0.4 million or 5.2%, to $7.3 million
for the year ended December 31, 2001, from $7.7 million for 2000. The decrease
in operating expenses was attributable to a $640,000 decrease in bad debt
expense in 2001. In 2000, one of the Company's largest accounts filed for
bankruptcy resulting in the Northgate writing off more than $1.0 million for
this account. In 2001, a customer closed resulting in approximately $300,000 of
write-offs. The decrease in bad debt expense was offset with a $180,000 increase
in payroll and payroll related costs due to a higher average headcount in 2001
as compared to 2000; a $200,000 increase in the Company's ESOP expense in 2001
as the discretionary contribution increased in 2001 as compared to 2000; and a
$100,000 increase in professional fees, primarily related to the merger of the
Company and Mcglen.

         Other (income) expense increased by $419,000 or 207.4%, to ($217,000)
for the year ended December 31, 2001, from $202,000 for the prior year. The
increase was a result of lower interest costs associated with Lan Plus' ESOP due
to a reduction in the average amount outstanding during the year as well as a
decrease in the ESOP loan interest rate from 8% to 6%. Additionally, the Company
recorded larger capital gains on its investments in 2001 as compared to 2000.

         Income tax provision for the year ended December 31, 2001 was $467,000
versus a provision of $358,000 for the year ended December 31, 2000. The
effective tax rate for 2001 decreased to 23.9% from 41.0% in 2000. The decrease
in income taxes was a result of increased ESOP contributions in 2001 as compared
to 2000.

INCOME TAXES

For the three years ended December 31, 2002, the difference between the amount
of income tax recorded and the amount of income tax expense calculated using the
federal statutory rate of 34% is due to state income taxes and other permanent
differences.

As a result of the Company's reverse merger in March 2002, the Company has
federal and state net operating loss carryforwards of approximately $16 million
and $10 million. The net operating loss carryforwards will expire at various
dates beginning in 2012 through 2022 for federal purposes and 2003 through 2009
for state purposes, if not utilized. Utilization of the net operating loss
carryforwards is subject to a substantial annual limitation due to the ownership
change limitations provided by the Internal Revenue Code of 1986, as amended,
and similar state provisions. The annual limitation will result in the Company
being able to only utilize $3.8 million and $0.5 million, to offset federal and
state income, respectively as of December 31, 2002. The remaining net operating
loss carryforwards will go unused.

LIQUIDITY AND CAPITAL RESOURCES

Northgate's primary capital need has been the funding of working capital
requirements created by its growth. Historically, Northgate's primary sources of
financing have been cash provided by operations and borrowings from private
investors and financial institutions. Cash (used in) provided by operations was

                                       20
<PAGE>

approximately ($2.8 million), $3.5 million, and $5.0 million for the three years
ended December 31, 2002. Cash was used to pay down Northgate's working capital
obligations during the year ended December 31, 2002.

During the year ended December 31, 2002, Northgate's capital expenditures were
approximately $337,000 compared to $511,000 for the same period in 2001,
primarily for computer hardware and leasehold improvements related to
Northgate's new facility that it occupied in September 2002.

The Company has a $2,500,000 line of credit with a bank. The line of credit
provides for borrowings secured by substantially all of the Company's assets and
is guaranteed by the Company's majority shareholder. Borrowings under the line
are advanced based upon 70% of eligible accounts receivable, as defined, less
any letters of credit issued on the Company's behalf. The line of credit was
extended in February, 2003 and expires April 30, 2003. Advances under the line
bear interest at the bank's prime rate plus 0.5% (4.75% at December 31, 2002).
The line contains certain covenants that required Northgate to maintain
profitability in the third and fourth quarter of 2002, a minimum of ($4.25
million) tangible net worth (as defined), a Current Ratio of at least 1.2:1,
Working Capital of at least $2.5 million, and limits the capital expenditures
the Company can make in any one year to $750,000. At December 31, 2002,
approximately $1.0 million of the Company's short term investments were held as
collateral for letters of credit taken out to secure open account terms with one
of the Company's primary vendors. The Company believes that current working
capital, together with cash flows from operations and available lines of credit,
will be adequate to support the Company's current operating plans through 2003.

In August 2002, the Company renegotiated its $1.3 million note payable,
extending the due date to January 1, 2005. In September 2002, the Company
reached a settlement with the Mcglen line of credit holder whereby Northgate
repaid $40,000 of the $90,000 due under the line. The resulting gain of $50,000
is included in other income for the year ended December 31, 2002.

In September 2002, the Company paid the $186,000 dividends payable to holders of
the Company's preferred stock, and funded $1,067,000 to the Company's ESOP to
reduce the ESOP note.

At December 31, 2002 and 2001, the Company had cash and short-term investments
of $2.3 million and $8.6 million, respectively, and working capital of $3.2
million and $5.2 million, respectively. However, if the Company needs extra
funds, such as for acquisitions or expansion or to fund a significant downturn
in sales that causes losses, there are no assurances that adequate financing
will be available at acceptable terms, if at all. The Company operates in a very
competitive market against many companies that are substantially larger than
Northgate. Pricing and gross profit could be negatively impacted by the
activities of larger computer manufacturers and product supply and demand in the
market.

Northgate's management has routinely invested excess operating funds in the
stock market. From time to time, management invests these funds in short sales
of stock that they typically cover within 60 days of the date of the short
purchase. Short sales typically have a higher degree of risk than traditional
stock purchases and management attempts to limit their concentration in
Northgate's overall invested and cash portfolio. At December 31, 2001,
approximately $426,000 was invested in short sales of common stock and an
unrealized loss of $102,000 was recorded on these investments. Management
covered the short sales in January and April 2002 recording a loss of $60,000.
The Company had no such investments at December 31, 2002.

Since computer retailers typically have low product gross margins, Northgate's
ability to remain profitable is dependent upon its ability to continue to drive
down the cost of its computer systems through its product sourcing, inventory
management and labor management systems. To the extent that Northgate does not
continue to effectively manage its business, Northgate may be materially
adversely affected. Northgate may also experience significant fluctuations in
its future operating results due to a variety of factors, many of which are
outside its control.

Factors that may affect its operating results include: the frequency and success
of new product introductions, mix of product sales and seasonality of sales
typically experienced by retailers, political unrest, and the pricing of
component parts in the world-wide marketplace. Many of Northgate's competitors
offer broader product lines, have substantially greater financial, technical,
marketing and other resources than Northgate and may benefit from component
volume purchasing arrangements that are more favorable in terms of pricing and
component availability than the arrangements enjoyed by the Company. Sales in
the computer retail industry are significantly affected by the release of new
products. Infrequent or delayed new product releases can negatively impact the
overall growth in retail sales.

                                       21
<PAGE>

As part of its growth strategy, Northgate may, in the future, acquire other
companies, in the same or complementary lines of business. Any such acquisition
and the ensuing integration of the operations of the acquired company with those
of Northgate would place additional demands on Northgate's management, and
operating and financial resources.

INFLATION AND SEASONALITY

While neither inflation nor deflation has had, nor do we expect it to have, a
material impact upon operating results, there can be no assurance that our
business will not be affected by inflation or deflation in the future. We
believe that our business is somewhat seasonal, with sales and profitability
slightly lower during the first and second quarters of our fiscal year.

NEW ACCOUNTING PRONOUNCEMENTS

In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities", an interpretation of Accounting
Research Bulletin 51, " Consolidated Financial Statements," to improve financial
reporting of special purpose and other entities. In accordance with the
interpretation, business enterprises that represent the primary beneficiary of
another entity by retaining a controlling financial interest in that entity's
assets, liabilities, and results of operations must consolidate the entity in
their financial statements. Prior to the issuance of FIN 46, consolidation
generally occurred when an enterprise controlled another entity through voting
interests. FIN 46 is effective immediately for all new variable interest
entities created or acquired after January 31, 2003. For variable interest
entities created or acquired prior to February 1, 2003, the provisions of FIN 46
must be applied for the first interim or annual period beginning after June 15,
2003. The Company does not expect FIN 46 to have a material impact on its
financial statements as it has no variable interest entities.

In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148 ("SFAS 148"), "Accounting for Stock-Based Compensation - Transition and
Disclosure - an amendment of FASB Statement No. 123." SFAS 148 amends SFAS 123
to provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The transition guidance and annual disclosure
provisions of SFAS 148 are effective for financial statements issued for fiscal
years ending after December 15, 2002. The interim disclosure provisions are
effective for financial reports containing financial statements for interim
periods beginning after December 15, 2002. The Company has applied the
disclosure provisions in SFAS 148 in its consolidated financial statements and
the accompanying notes.

In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." FIN 45 elaborates on the disclosures to
be made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also clarifies that
a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and initial measurement provisions of FIN 45
are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The disclosure requirements in FIN 45 are effective for
financial statements of interim or annual periods ending after December 15,
2002. The Company does not expect FIN 45 to have a material impact on its
financial position or results of operations as it does not act as a guarantor.

In June 2002, the FASB issued Statement of Financial Accounting Standards No.
146 ("SFAS 146"), "Accounting for Costs Associated with Exit or Disposal
Activities." SFAS 146 requires recording costs associated with exit or disposal
activities at their fair values when a liability has been incurred. Under
previous guidance, certain exit costs were accrued upon management's commitment
to an exit plan, which is generally before an actual liability has been
incurred. Adoption of SFAS 146 is required with the beginning of fiscal year
2003. The Company does not anticipate a significant impact on its results of
operations from adopting this Statement.

                                       22
<PAGE>

ITEM 7A. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

We are exposed to market risk from changes in interest rates. We have a risk
management control process to monitor our interest rate risk. The risk
management process uses analytical techniques, including market value,
sensitivity analysis, and value at risk estimates.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company's financial statements listed below are included on pages F-1
through F-22 following the signature page to this report:

                                                                            Page
                                                                            ----
         Independent Auditors' Reports                                       F-1

         Consolidated Financial Statements:
         Balance Sheets as of December 31, 2002 and 2001                     F-3

         Statements of Income for the Years Ended December
         31, 2002, 2001 and 2000                                             F-4

         Statements of Stockholders' Equity (Deficit) and Comprehensive
         Income (Loss) for the Years Ended December 31, 2002, 2001 and 2000  F-5

         Statements of Cash Flows for the Years Ended December 31, 2002,
         2001 and 2000                                                       F-6

         Notes to Consolidated Financial Statements                          F-7

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

In connection with the reverse acquisition of Mcglen in March 2002, the Board of
Directors of Northgate changed accountants to Corbin & Wertz replacing Mcglen's
prior accountants, BDO Seidman, LLP, and Lan Plus' prior accountants, Singer,
Lewak, Greenbaum and Goldstein LLP. Such change was reported on Form 8-K filed
May 15, 2002. On January 9, 2003, in connection with a reorganization of Corbin
& Wertz, the Company filed another Form 8-K reporting a change in accountants to
Corbin & Company, LLP. There were no disagreements with the Company's current or
prior accountants.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

INFORMATION RELATING TO EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information relating to our current
executive officers and directors*:

         Name           Age   Position
         ----           ---   --------
         Andy Teng       49   Chairman of the Board, Chief Executive Officer and
                              Secretary
         Richard Shyu    37   President and Director
         Mike Chen       30   Director
         Grant Trexler   41   Chief Financial Officer

                                       23
<PAGE>

ANDY TENG was elected our Chairman of the Board, Chief Executive Officer and
Secretary on March 20, 2002. He has served as Chairman of the Board and Chief
Executive Officer of Lan Plus Corporation since March 1992. From March 1992 to
September 2000, Mr. Teng also served as Lan Plus' President. Prior to purchasing
Lan Plus, Mr. Teng was the President and principal shareholder of Syntax
Computers, Inc. from 1987 to 1992. From 1985 to 1987, Mr. Teng was the President
and principal shareholder of Anncoa Chemical Company. Mr. Teng holds Masters and
Bachelor of Science degrees from Texas A&M University.

RICHARD SHYU was elected our President and to our board of directors on March
20, 2002. He has served as President of Lan Plus Corporation since September
2000, and as Lan Plus' Vice President of Sales and Marketing since 1996. Prior
to joining Lan Plus in August 1992, Mr. Shyu served as the General Manager of
DTC, Inc., a mainboard distributor located in Pico Rivera, California, servicing
VARs, instructional buyers and regional retail chain stores for two years. From
1988 to 1990, Mr. Shyu co-owned and managed a real estate development company
and also worked for Unisys Corporation designing Fault Tolerant SCSI Storage
Systems for the financial industry. Mr. Shyu holds a Bachelor of Science degree
in Electrical Engineering from California Polytechnic State University - Pomona
and later continued his post graduate studies in Computer Engineering at the
University of Southern California.

MIKE CHEN is one of our founders and served as our Chief Executive Officer from
January 2001 until the election of Mr. Teng in March 2002. Mr. Chen has served
as our President, Chief Technology Officer, and Secretary from May 1996 to March
2002. Mr. Chen has served as a director of the Company since May 1996. Prior to
founding the Company in 1996, he was an independent software programmer. Mr.
Chen received his Bachelor of Science in Electrical Engineering and Computer
Science in 1995 from the University of California at Berkeley.

GRANT TREXLER has served as our Chief Financial Officer since January 2000.
Prior to this, Mr. Trexler served as the Director of Finance and Administration
for El Monte RV, the nation's second largest motor home rental dealer, beginning
in July 1996. From August 1994 through May 1996, Mr. Trexler was the CFO of
Creative Computers, which completed its initial public offering and one
follow-on offering during this period. At Creative Computers, he was responsible
for implementing internal accounting and budgeting systems, financial reporting,
and financial due diligence. Prior to joining Creative, Mr. Trexler spent nine
years at PricewaterhouseCoopers, most recently as a Senior Manager in its
Mergers and Acquisitions group. Mr. Trexler holds Masters in Business
Administration and Bachelor of Arts degrees from California Polytechnic State
University - San Luis Obispo, and is a Certified Public Accountant.

* There are no family relationships among any of our directors or executive
officers.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Our board does not currently have a compensation committee or a committee
performing similar functions. Our board of directors as a whole performs all
functions relating to executive compensation. None of our executive officers
serves as a member of the board of directors or compensation committee of any
entity that has one or more executive officers serving on our board of
directors.

SECTION 16(a) REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company's executive officers and
directors, among others, to file certain beneficial ownership reports with the
Securities and Exchange Commission. The Company believes that no late filings
were made, or that there have been any failures to file any required reports, by
its executive officers and directors.

ITEM 11. EXECUTIVE COMPENSATION

The following Summary Compensation Table sets forth the names, positions and
annual compensation paid by the Company for the years ended December 31, 2002,
2001,and 2000, to Andy Teng, our Chairman and Chief Executive Officer, Richard
Shyu, our President, and Grant Trexler, our Chief Financial Officer.

                                       24
<PAGE>

<TABLE>
                                               SUMMARY COMPENSATION TABLE
<CAPTION>
                                                    ANNUAL COMPENSATION                                LONG TERM
                                                                                                     COMPENSATION
                                                                                                        AWARDS
                                        Fiscal                                  All Other        Securities Underlying
Name and Position                        Year    Salary ($)    Bonus ($)    Compensation ($)         Options (#)(1)
-----------------                        ----    ----------    ---------    ----------------         --------------
<S>                                      <C>       <C>          <C>            <C>                       <C>
Andy Teng, Chief Executive Officer       2002      154,000         -                -                      -
                                         2001      106,000       1,200              -                      -
                                         2000      173,000         -                -                      -

Richard Shyu, President                  2002      153,000         -            7,000(2)                   -
                                         2001       60,000       2,000          5,000(2)                   -
                                         2000       57,000         -            6,000(2)                   -

Grant Trexler, Chief Financial Officer   2002      120,000         -            3,000(3)                 25,000
                                         2001      123,900      25,000         12,200(3)                   -
                                         2000      122,200         -           10,150(3)                 15,000
</TABLE>

(1) Reflects the Company's 10:1 reverse stock split in March 2002.

(2) Reflects an automobile allowance paid by the Company on Mr. Shyu's behalf.

(3) Reflects a health insurance allowance and an automobile allowance paid by
    the Company to Mr. Trexler.

The following table sets forth certain information with respect to all stock
options granted by the Company during the last fiscal year to Messrs. Teng, Shyu
and Trexler:

<TABLE>
                                  OPTION GRANTS IN LAST FISCAL YEAR
                                          INDIVIDUAL GRANTS
<CAPTION>
                                                    % of Total Options
                             Number of Securities       Granted to       Exercise
                   Fiscal     Underlying Options        Employees         Price          Expiration
        Name        Year            Granted           in Fiscal Year      ($/Sh)            Date
        ----        ----            -------           --------------      ------            ----
<S>                 <C>             <C>                    <C>            <C>              <C>
Andy Teng           2002               -                     -              -                 -
Richard Shyu        2002               -                     -              -                 -
Grant Trexler       2002            25,000                 4.9%           $0.35            6/20/07
</TABLE>

(1) Reflects the Company's 10:1 reverse stock split in March 2002.

The following table sets forth certain information with respect to the exercise
of stock options during the last fiscal year and the value of unexercised stock
options held by Messrs. Teng, Shyu and Trexler at December 31, 2002:

<TABLE>
                                             AGGREGATED OPTION EXERCISES IN LAST
                                            YEAR AND YEAR-END (YE) OPTION VALUES
<CAPTION>
                                                                    Number of Securities
                                                                   Underlying Unexercised           Value of Unexercised
                      Fiscal     Shares Acquired      Value             Options at YE           In-the-Money Options YE ($)
     Name              Year      On Exercise (#)    Realized      Exercisable/Unexercisable      Exercisable/Unexercisable
     ----              ----      ---------------    --------      -------------------------      -------------------------
<S>                    <C>            <C>              <C>              <C>                                  <C>
Andy Teng              2002           None             N/A                  None                             -
Richard Shyu           2002           None             N/A                  None                             -
Grant Trexler          2002           None             N/A              15,000/25,000                        -
</TABLE>

                                       25
<PAGE>

DIRECTORS' COMPENSATION

Non-employee directors receive a fee of $750 for each meeting of the Board
attended, no additional fees for any meetings of any committee of the Board
attended, and reimbursement of their actual expenses. Directors who are also our
employees are not paid any fees or additional remuneration for their service as
members of the Board of Directors.

EXECUTIVE OFFICER EMPLOYMENT CONTRACTS

On January 17, 2000 we entered into a three-year employment agreement with Grant
Trexler. Mr. Trexler terminated his employment contract upon completion of the
merger with Lan Plus Corporation.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The following table sets forth, as of March 31, 2003, the number of shares of
our Common Stock (after consideration of the Company's 10:1 reverse stock split
that was effective with the close of the merger with Lan Plus) held of record or
beneficially: (i) by each person who held of record, or was known by Mcglen to
own beneficially, more than 5% of the outstanding shares of the our Common
Stock; (ii) by each of our current executive officers and directors; and (iii)
by all of our current executive officers and directors as a group:

      NAME AND ADDRESS OF                NUMBER OF        PERCENT OF OUTSTANDING
       BENEFICIAL OWNER               SHARES OWNED(1)     SHARES OF COMMON STOCK
Andy Teng                              12,857,450(2)             67.8%
16700 Gale Avenue
City of Industry, CA 91745
Richard Shyu                            1,285,323                 6.8%
16700 Gale Avenue
City of Industry, CA 91745
Mike Chen                                 408,295                 2.2%
16700 Gale Avenue
City of Industry, CA 91745
Grant Trexler                             115,252(3)               *
16700 Gale Avenue
City of Industry, CA 91745
All current executive officers and     14,666,320(3)             76.8%
directors as a group (4 persons)

*        Less than 1%.

(1)      Except as otherwise indicated and subject to applicable community
         property and similar statutes, the persons listed as beneficial owners
         of the shares of our common stock have sole voting and dispositive
         power with respect to such shares.

(2)      Includes 4,223,182 shares issuable upon conversion of the Lan Plus
         Corporation Employee Stock Ownership Plan (ESOP) Preferred Stock into
         common stock. Mr. Teng is the Trustee of the ESOP.

(3)      Includes 15,000 shares purchasable by Mr. Trexler within 60 days upon
         exercise of outstanding stock options, the remaining 25,000 shares
         become exercisable beginning in June 2003.

                                       26
<PAGE>

The Company currently maintains the following equity compensation plans: (1) the
1999 Stock Option Plan of Mcglen Micro, Inc., as amended, and (2) the Mcglen
Internet Group, Inc. 2000 Stock Option Plan. Each of these plans was approved by
the Company's stockholders. The Company maintains no equity compensation plans
that were not approved by stockholders. The following table sets forth, for each
of these plans, the number of shares of the Company's common stock subject to
outstanding options and rights, the weighted-average exercise price of
outstanding options, and the number of shares remaining available for future
award grants as of December 31, 2002.


<TABLE>
<CAPTION>
                                 Number of shares                       Number of shares of
                                   of Company                          Company common stock
                                 common stock to      Weighted-       remaining available for
                                 be issued upon    average exercise    future issuance under
                                  exercise of         price of          equity compensation
                                  outstanding        outstanding      plans (excluding shares
                                  options and        options and      reflected in the first
Plan category                       warrants          warrants                column)
-----------------------------    --------------      ------------   -------------------------
<S>                                    <C>                 <C>                     <C>
Equity compensation plans
approved by stockholders               599,500             $1.53                   1,400,500
Equity compensation plans
not approved by stockholders           235,500             $5.65                         N/A

Total                                  834,000             $2.69                   1,400,500
                                 ==============      ============   =========================
</TABLE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

BRIDGE LOAN FROM AMRO INTERNATIONAL, S.A.

On April 10, 2000, we received a bridge loan in the amount of $1,500,000 from
AMRO International, S.A. (AMRO), and simultaneously issued a 10% Convertible
Debenture (the "Debenture"). On January 26, 2001, AMRO converted $508,000 of
principal into 3,445,710 shares of our common stock. These shares have been
registered under the Company's SB-2 registration statement that went effective
March 21, 2001. In February 2002, AMRO agreed to convert the remaining balance
and accrued interest into common stock. In March 2002, the Company issued
1,420,000 shares of common stock (after taking into consideration the Company's
10:1 reverse split) to AMRO for the remaining unpaid balance and accrued
interest under the convertible note.

In connection with the bridge loan, we issued a warrant (the "Warrant") to AMRO
to purchase up to 37,245 shares of our common stock for $23.16 per share. AMRO
can demand that we file a registration statement to register any shares covered
by the Warrant.

CONSULTING AGREEMENT WITH PETER JANSSEN ASSOCIATES

In May 2000, we entered into a consulting agreement with Peter Janssen
Associates ("PJA"), a technology consulting firm of which Peter Janssen, our
former Chairman of the Board, is President. Pursuant to the agreement, PJA
provided business and strategic planning, sales marketing, channel marketing and
related services. Pursuant to the agreement PJA received 175,000 shares of our
common stock, which were distributed to three principals of PJA, including Mr.
Janssen.

                                       27
<PAGE>

MCGLEN FOUNDERS AGREEMENT

On August 15, 2000, we entered into an agreement with George Lee, Mike Chen and
Alex Chen (the "Mcglen Founders") under which the Mcglen Founders agreed to
provide up to 10 million shares of their common stock, comprising approximately
one-half of their total holdings, to assist in raising capital to fund our
operations, growth and development, without causing additional dilution for our
other shareholders.

Upon the close of our merger with Lan Plus Corporation, all of the shares in the
Founders Pool had been allocated.

MERGER AGREEMENT WITH LAN PLUS CORPORATION

On October 11, 2000, we entered into an agreement and plan of merger with Lan
Plus Corporation, a manufacturer of both private-label and branded turnkey
computer products and services, with over ten years of operating history. The
merger closed on March 20, 2002. At the closing of the merger, each share of Lan
Plus was converted into 3.128 shares of Mcglen's common stock, with
approximately 9,854,000 shares being issued (after consideration of a 10:1
reverse stock split instituted by the Company at the close of the merger). In
addition, at the closing of the merger, the Company's accounts payable to, and
advances from Lan Plus, in the amount of approximately $2.3 million were
converted into common stock, eliminating the debt; the stock was then retired to
Treasury and cancelled.

Andy Teng, founder, Chairman and Chief Executive Officer of Lan Plus, became the
Chief Executive Officer and Chairman of the Board of the combined company and
Richard Shyu, Vice President of Lan Plus, became President of the combined
company. Grant Trexler, formerly Mcglen's Chief Financial Officer, became Chief
Financial Officer of the combined company. One of Mcglen's founders, Mike Chen,
remained on the Company's Board of Directors.

LEASE PAYMENTS TO ANDY TENG

The Company leased its office/manufacturing facility under a non-cancelable
operating lease with its Chairman and Chief Executive Officer (CEO) that was
terminated in September 2002. The lease provided for minimum annual rentals and
escalations based on increases in real estate taxes and other operating
expenses. Rent paid to Mr. Teng was approximately $258,000, $345,000 and
$344,000 for the years ended December 31, 2002, 2001, and 2000, respectively.

ITEM 14. CONTROLS AND PROCEDURES

In the 90-day period before the filing of this report, the Chief Executive
Officer and Chief Financial Officer of the Company (collectively, the
"certifying officers") have evaluated the effectiveness of the Company's
disclosure controls and procedures (as such term is defined in Rules 13a-14(c)
and 15d-14(c) under the Exchange Act). These disclosure controls and procedures
are designed to ensure that the information required to be disclosed by the
Company in its periodic reports filed with the Commission is recorded,
processed, summarized and reported within the time periods specified by the
Commission's rules and forms, and that the information is communicated to the
certifying officers on a timely basis.

The certifying officers concluded, based on their evaluation, that the Company's
disclosure controls and procedures are effective for the Company, taking into
consideration the size and nature of the Company's business and operations.

No significant changes in the Company's internal controls or in other factors
were detected that could significantly affect the Company's internal controls
subsequent to the date when the internal controls were evaluated.

                                       28
<PAGE>

                                    PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

 Exhibit No.    Description
 -----------    ----------------------------------------------------------------
     2.1        Amended and Restated Agreement and Plan of Merger, dated as of
                March 21, 2001, by and among Mcglen Internet Group, Inc., Mcglen
                Acquisition Company, Lan Plus Corporation and Andy Teng
                incorporated by reference to Appendix A to the Proxy
                Statement/Prospectus dated February 12, 2002.
     2.2        Amendment No. 4 dated March 14, 2002 to the Amended and Restated
                Agreement and Plan of Merger, incorporated by reference to
                Exhibit 2.1 to our Current Report on Form 8-K, filed April 9,
                2002.
     3.1        Amended Certificate of Incorporation of Mcglen Internet Group,
                Inc., incorporated by reference from Exhibit 3.2 to our Form
                10-K, dated April 16, 2002.
     3.2        Certificate of Amendment of Certificate of Incorporation of
                Mcglen Internet Group, Inc., filed with the Delaware Secretary
                of State on March 15, 2002, incorporated by reference from
                Exhibit 3.2 to our Form 10-K, dated April 16, 2002.
     3.3        Bylaws of Mcglen Internet Group, Inc., incorporated by reference
                from Exhibit 3.2 to Amendment No. 1 filed April 17, 2000 to our
                Form 10-KSB for the year ended December 31, 1999 ("April 2000
                Form 10-KSB/A").
    10.1*       1999 Stock Option Plan of Mcglen Micro, Inc., as amended, as
                adopted by the Company after the merger with Adrenalin
                Interactive, Inc., incorporated by reference from Exhibit 10.1
                to our April 2000 Form 10-KSB/A.
    10.2*       2000 Stock Option Plan, incorporated by reference from Exhibit
                10.21 to Amendment No. 1 filed September 27, 2000 to our
                Registration Statement on Form SB-2, No. 333-41070 ("Form
                SB-2").
    10.3        Convertible Promissory Note, dated March 20, 2000, by and
                between Mcglen Internet Group, Inc. and various Lenders
                introduced by Institutional Equity Holdings Corporation,
                incorporated by reference from Exhibit 10.14 to our April 2000
                Form 10-KSB/A.
    10.4*       Employment Agreement, dated January 1, 2000, between Mcglen
                Internet Group, Inc. and Grant Trexler, incorporated by
                reference from Exhibit 10.15 to our April 2000 Form 10-KSB/A.
    10.5*       Employment Agreement, dated December 2, 1999, between Adrenalin
                Interactive, Inc. and George Lee, incorporated by reference from
                Exhibit 10.16 to our April 2000 Form 10-KSB/A.
    10.6*       Employment Agreement, dated December 2, 1999, between Adrenalin
                Interactive, Inc. and Mike Chen, incorporated by reference from
                Exhibit 10.17 to our April 2000 Form 10-KSB/A.
    10.7*       Employment Agreement, dated December 2, 1999, between Adrenalin
                Interactive, Inc. and Alex Chen, incorporated by reference from
                Exhibit 10.18 to our April 2000 Form 10-KSB/A.
    10.8*       Founders Agreement, dated August 15, 2000, between Mcglen
                Internet Group, Inc. and George Lee, Mike Chen and Alex Chen,
                incorporated by reference from Exhibit 10.22 to Amendment No. 1
                filed September 27, 2000 to our Form SB-2.
    10.9        Financing Agreement, dated December 22, 2000, between Mcglen
                Internet Group, Inc. and Dillow and Dillow, Inc., incorporated
                by reference from Exhibit 10.23 to Amendment No. 2 filed January
                10, 2001 to our Form SB-2.
    10.10       Consulting Agreement, dated August 17, 2000, between Mcglen
                Internet Group, Inc. and Peter Janssen Associates incorporated
                by reference to Exhibit 10.10 to our 2000 Form 10-KSB.
    21          Subsidiaries of Northgate Innovations, Inc.

                                       29
<PAGE>

    23.1        Consent of Singer Lewak Greenbaum & Goldstein LLP
    23.1        Consent of Corbin & Company, LLP
    99.1        Section 906 CEO Certification
    99.2        Section 906 CFO Certification

           * Indicates management contract or compensatory plan.

The following consolidated financial statements of Registrant are filed as part
of this report:

     (a) (1) Consolidated Financial Statements. See Index to Consolidated
Financial Statements.

       (2) Financial Statement Schedules. See Index to Consolidated Financial
Statements.

       (3) Exhibits.

          The exhibits listed in the Exhibit Index following the Consolidated
Financial Statements are incorporated herein by reference or are filed with this
Form 10-K as indicated.

     (b) Reports on Form 8-K.

           Not applicable.

                                       30
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) 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.

                                            NORTHGATE INNOVATIONS, INC.

                                            By:  /s/ Andy Teng
                                            ------------------------------------
                                            Andy Teng, Chief Executive Officer

                                            Date:  April 14, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
     Signatures                            Title                                          Date
     ----------                            -----                                          ----

<S>                   <C>                                                            <C>
/s/Andy Teng          Chairman, Chief Executive Officer, Secretary, and Director     April 14, 2003
--------------------  (Principal Executive Officer)
Andy Teng

/s/ Grant Trexler     Chief Financial Officer (Principal Financial Officer           April 14, 2003
--------------------  and Principal Accounting Officer)
Grant Trexler

/s/ Richard Shyu      President and Director                                         April 14, 2003
--------------------
Richard Shyu

/s/ Mike Chen         Director                                                       April 14, 2003
--------------------
Mike Chen
</TABLE>

                                       31
<PAGE>

                                  CERTIFICATION


                  I, Andy Teng, Chief Executive Officer of Northgate
Innovations, Inc., certify that:

                  1. I have reviewed this annual report on Form 10-K of
Northgate Innovations, Inc.;

                  2. Based on my knowledge, this annual report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this annual report;

                  3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;

                  4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

                           a) Designed such disclosure controls and procedures
         to ensure that material information relating to the registrant,
         including its consolidated subsidiaries, is made known to us by others
         within those entities, particularly during the period in which this
         annual report is being prepared;

                           b) Evaluated the effectiveness of the registrant's
         disclosure controls and procedures as of a date within 90 days prior to
         the filing date of this annual report (the "Evaluation Date"); and

                           c) Presented in this annual report our conclusions
         about the effectiveness of the disclosure controls and procedures based
         on our evaluation as of the Evaluation Date;

                  5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons performing
the equivalent functions):

                           a) All significant deficiencies in the design or
         operation of internal controls which could adversely affect the
         registrant's ability to record, process, summarize and report financial
         data and have identified for the registrant's auditors any material
         weaknesses in internal controls; and

                                       32
<PAGE>

                           b) Any fraud, whether or not material, that involves
         management or other employees who have a significant role in the
         registrant's internal controls; and

                  6. The registrant's other certifying officers and I have
indicated in this annual report whether there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.


Date: April 14, 2003

/s/ Andy Teng
-------------------------------------
Andy Teng
Chief Executive Officer

                                       33
<PAGE>

                                  CERTIFICATION

                  I, Grant Trexler, Chief Financial Officer of Northgate
Innovations, Inc. , certify that:

                  1. I have reviewed this annual report on Form 10-K of
Northgate Innovations, Inc.;

                  2. Based on my knowledge, this annual report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this annual report;

                  3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;

                  4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

                           a) Designed such disclosure controls and procedures
         to ensure that material information relating to the registrant,
         including its consolidated subsidiaries, is made known to us by others
         within those entities, particularly during the period in which this
         annual report is being prepared;

                           b) Evaluated the effectiveness of the registrant's
         disclosure controls and procedures as of a date within 90 days prior to
         the filing date of this annual report (the "Evaluation Date"); and

                           c) Presented in this annual report our conclusions
         about the effectiveness of the disclosure controls and procedures based
         on our evaluation as of the Evaluation Date;

                  5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons performing
the equivalent functions):

                           a) All significant deficiencies in the design or
         operation of internal controls which could adversely affect the
         registrant's ability to record, process, summarize and report financial
         data and have identified for the registrant's auditors any material
         weaknesses in internal controls; and

                                       34
<PAGE>

                           b) Any fraud, whether or not material, that involves
         management or other employees who have a significant role in the
         registrant's internal controls; and

                  6. The registrant's other certifying officers and I have
indicated in this annual report whether there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.


Date: April 14, 2003


/s/ Grant Trexler
-------------------------------------
Grant Trexler
Chief Financial Officer

                                       35
<PAGE>

                              FINANCIAL STATEMENTS
                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

   Independent Auditors' Reports                                             F-1

   Consolidated Financial Statements:
   Balance Sheets as of December 31, 2002 and 2000                           F-3

   Statements of Income for the Years Ended December 31, 2002,
   2001, and 2000                                                            F-4

   Statements of Stockholders' Equity (Deficit) and Comprehensive Income
   (Loss) for the Years Ended December 31, 2002, 2001 and 2000               F-5

   Statements of Cash Flows for the Years Ended December 31, 2002, 2001
   and 2000                                                                  F-6

   Notes to Consolidated Financial Statements                                F-7

                                       36
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Northgate Innovations, Inc. (formerly known as Mcglen Internet Group, Inc.)

We have audited the accompanying consolidated balance sheet of Northgate
Innovations, Inc., as of December 31, 2002 and the related consolidated
statements of income, stockholders' equity (deficit) and comprehensive income
(loss) and cash flows for the year then ended. In connection with our audit, we
have also audited the related consolidated financial statement schedule for the
year ended December 31, 2002. These consolidated financial statements, and the
consolidated financial statement schedule, are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and the related consolidated financial
statement schedule based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Northgate
Innovations, Inc., at December 31, 2002, and the results of their operations and
their cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the consolidated financial statements, taken as a whole, presents fairly, in
all material respects, the information set forth therein.

/s/Corbin & Company, LLP





Irvine, CA
March 31, 2003

                                      F-1
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders of Northgate Innovations, Inc. (formerly
known as Mcglen Internet Group, Inc.)
City of Industry, California

We have audited the accompanying balance sheets of Northgate Innovations, Inc.
as of December 31, 2001 and the related statements of operations, cash flows and
changes in stockholders' equity (deficit) for each of the two years in the
period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Northgate Innovations, Inc., at
December 31, 2001, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America.

/s/ Singer Lewak Greenbaum & Goldstein LLP

Los Angeles, California
April 12, 2002


                                      F-2
<PAGE>

<TABLE>
                                NORTHGATE INNOVATIONS, INC.
                                CONSOLIDATED BALANCE SHEETS
                           (In thousands, except per share data)

<CAPTION>
                                                               DECEMBER 31,  DECEMBER 31,
                                  ASSETS (Note 4)                  2002         2001
                                                                 ---------   ---------
<S>                                                              <C>         <C>
Current Assets:
Cash and cash equivalents (Note 1)                               $  1,837    $  7,178
Certificates of deposit                                                --         187
Certificates of deposit - restricted (Note 1)                       1,016          --
Marketable securities (Note 1)                                        490       1,377
Accounts receivable, net of allowance for doubtful accounts of
 $280 and $254 in 2002 and 2001, respectively  (Note 1)             2,898       9,475
Inventories, net (Note 1)                                           2,984       3,944
Prepaid expenses and other current assets (Note 6)                    262         182
Advances to Mcglen Internet Group, Inc. (Note 2)                       --         845
Deferred tax asset - current (Note 6)                                 418         123
                                                                 ---------   ---------
         Total current assets                                       9,905      23,311
Equipment, net (Notes 1 and 3)                                        900         750
Deferred tax asset (Note 6)                                         1,247          --
Goodwill (Notes 1 and 2)                                            3,886          --
Other assets                                                           76          30
                                                                 ---------   ---------
                                                                 $ 16,014    $ 24,091
                                                                 =========   =========
                     LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable                                                 $  3,983    $ 10,048
Securities sold, not yet purchased (Note 1)                            --         426
Accrued expenses (Note 1)                                             450       1,076
Income taxes payable (Note 6)                                          --       1,053
Accrued royalties (Note 1)                                          1,427       4,999
Convertible notes payable (Note 5)                                    100          --
Dividends payable                                                      --         186
ESOP interest payable (Note 8)                                        746         278
                                                                 ---------   ---------
         Total current liabilities                                  6,706      18,066
Note payable (Notes 5)                                              1,300       1,300
Guarantee of ESOP loan payable (Note 8)                             6,750       7,963
                                                                 ---------   ---------
         Total liabilities                                         14,756      27,329
                                                                 ---------   ---------
Commitments and contingencies (Note 12)
Stockholders' Equity (deficit) (Notes 1, 7, 8 and 9):
Preferred stock, no par value; 5,000 shares authorized,
  1,350 shares issued and outstanding, liquidation
  preference of $1,350 (Note 8)                                       285         285
Common stock, $0.03 par value; 50,000 shares authorized,
  14,694 and 9,854 shares issued and outstanding in 2002 and
  2001, respectively                                                  441         296
Additional paid in capital                                          3,493          --
Accumulated other comprehensive loss (Note 1)                          (7)       (496)
Retained earnings                                                   3,609       3,452
                                                                 ---------   ---------
                                                                    7,821       3,537
Less: Unearned ESOP shares (Note 8)                                (6,563)     (6,775)
                                                                 ---------   ---------
         Total stockholders' equity (deficit)                       1,258      (3,238)
                                                                 ---------   ---------
                                                                 $ 16,014    $ 24,091
                                                                 =========   =========

              See accompanying notes to the consolidated financial statements

                                           F-3
</TABLE>
<PAGE>

<TABLE>
                           NORTHGATE INNOVATIONS, INC.
                        CONSOLIDATED STATEMENTS OF INCOME

                      (In thousands, except per share data)

<CAPTION>
                                                                  DECEMBER 31,
                                                       ---------------------------------
                                                         2002         2001        2000
                                                       ---------   ---------   ---------

<S>                                                    <C>         <C>         <C>
NET SALES                                              $ 65,176    $ 73,883    $ 69,101

COST OF SALES                                            57,589      64,872      60,326
                                                       ---------   ---------   ---------

GROSS PROFIT                                              7,587       9,011       8,775

OPERATING EXPENSES (INCLUDING ESOP CONTRIBUTIONS OF
   $ 0, $525 AND $322 IN 2002, 2001 AND 2000)             8,032       7,273       7,700
                                                       ---------   ---------   ---------
OPERATING (LOSS) PROFIT                                    (445)      1,738       1,075
                                                       ---------   ---------   ---------

OTHER INCOME (EXPENSE):
INTEREST EXPENSE (INCLUDING $468, $502 AND $762
   RELATED TO ESOP DEBT IN 2002, 2001 AND 2000)            (636)       (647)       (914)

INTEREST INCOME                                             118         205         177

OTHER INCOME, NET                                           250         659         535
                                                       ---------   ---------   ---------

TOTAL OTHER (EXPENSE) INCOME                               (268)        217        (202)
                                                       ---------   ---------   ---------

(LOSS) INCOME BEFORE INCOME TAXES                          (713)      1,955         873

PROVISION FOR INCOME TAXES                                 (870)        467         358
                                                       ---------   ---------   ---------

NET INCOME                                             $    157    $  1,488    $    515
                                                       =========   =========   =========

BASIC NET INCOME PER SHARE                             $   0.01    $   0.15    $   0.05
                                                       =========   =========   =========
DILUTED NET INCOME PER SHARE                           $   0.01    $   0.13    $   0.05
                                                       =========   =========   =========
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
BASIC                                                    13,694       9,854       9,854
                                                       =========   =========   =========
DILUTED                                                  15,145      11,305      10,714
                                                       =========   =========   =========

         See accompanying notes to the consolidated financial statements

                                       F-4
</TABLE>
<PAGE>

<TABLE>
                                               NORTHGATE INNOVATIONS, INC.
                                     CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                        (DEFICIT) AND COMPREHENSIVE INCOME (LOSS)

                                                     (in thousands)

<CAPTION>
                                                                                                                   TOTAL
                                                                                   ACCUMULATED                     STOCK-   COMPRE-
                                                                         ADDITIONAL   OTHER   UNEARNED            HOLDERS'  HENSIVE
                                    PREFERRED STOCK      COMMON STOCK     PAID-IN COMPREHENSIVE ESOP    RETAINED   EQUITY    INCOME
                                   SHARES    AMOUNT    SHARES    AMOUNT   CAPITAL     LOSS     SHARES   EARNINGS  (DEFICIT)  (LOSS)
                                  --------  --------  --------  --------  --------  --------  --------  --------  --------  --------

<S>                                 <C>     <C>        <C>      <C>       <C>       <C>       <C>       <C>       <C>       <C>
Balance at January 1, 2000          1,350   $   285     9,854   $   296   $   369   $    (4)  $(8,580)  $ 2,222   $(5,412)
Unrealized loss on marketable
  Securities                                                                         (1,016)                       (1,016)  $(1,016)
Dividends declared on allocated
  ESOP shares                                                                                              (192)     (192)
Release of ESOP shares                                                                            616                 616
Decrease in fair value of
  released ESOP shares                                                       (120)                                   (120)
Net income                                                                                                  515       515       515
                                  --------  --------  --------  --------  --------  --------  --------  --------  --------  --------
Balance at December 31, 2000        1,350       285     9,854       296       249    (1,020)   (7,964)    2,545    (5,609)  $  (501)
Unrealized gain on marketable
  Securities                                                                            524                           524   $   524
Dividends declared on allocated
  ESOP shares                                                                                              (285)     (285)
Release of ESOP shares                                                                          1,189               1,189
Decrease in fair value of
  released ESOP shares                                                       (249)                         (296)     (545)
Net income                                                                                                1,488     1,488     1,488
                                  --------  --------  --------  --------  --------  --------  --------  --------  --------  --------
Balance at December 31, 2001        1,350       285     9,854       296        --      (496)   (6,775)    3,452    (3,238)  $ 2,012
Unrealized gain on marketable
  securities                                                                            489                           489   $   489
Shares issued in recapitalization                       4,830       145     3,695                                   3,840
Shares issued to consultant                                10                  10                                      10
Adjustment to prior year
 decrease in fair value of
 released ESOP shares                                                        (212)                212                  --
Net income                                                                                                  157       157       157
                                  --------  --------  --------  --------  --------  --------  --------  --------  --------  --------

Total comprehensive income                                                                                                  $   646
                                                                                                                            ========
Balance at December 31, 2002        1,350   $   285    14,694   $   441   $ 3,493   $    (7)  $(6,563)  $ 3,609   $ 1,258
                                  ========  ========  ========  ========  ========  ========  ========  ========  ========

                             See accompanying notes to the consolidated financial statements

                                                          F-5
</TABLE>
<PAGE>

<TABLE>
                                NORTHGATE INNOVATIONS, INC.
                           CONSOLIDATED STATEMENTS OF CASH FLOWS

<CAPTION>
Cash flows from operating activities: (In thousands)                              DECEMBER 31,
                                                                       ---------------------------------
                                                                         2002        2001         2000
                                                                       ---------   ---------   ---------
<S>                                                                    <C>         <C>         <C>
    Net income                                                         $    157    $  1,488    $    515
                                                                       ---------   ---------   ---------
    Adjustments to reconcile net income to net
    cash (used in) provided by
    operating activities:
    Depreciation and amortization                                           282         158          88
    Gain on debt settlement                                                 (50)         --          --
    Stock issued for services                                                10          --          --
    Provision for losses on accounts receivable                              30         661       1,300
    Release of shares to ESOP                                                --         903         616
    Deferred taxes                                                         (219)         15         192
    Realized and permanent losses on marketable securities                  928          --          --
    Decrease in fair value of released ESOP shares                           --        (545)       (120)

    Changes in operating assets and liabilities, net of acquisition:
    Accounts receivable                                                   6,782      (5,758)      8,929
    Inventories                                                           1,308      (1,320)       (396)
    Prepaid expenses and other current assets                               (52)        216        (277)
    Other assets                                                             31           8          (2)
    Accounts payable                                                     (6,637)      5,675      (5,261)
    Accrued expenses                                                       (900)        709         (92)
    Income taxes payable                                                 (1,053)      1,053        (324)
    Dividends payable                                                        --         186         (96)
    ESOP interest payable                                                   468        (536)        757
    Advances to Mcglen                                                     (307)       (845)         --
    Accrued royalties                                                    (3,572)      1,467        (878)
                                                                       ---------   ---------   ---------
    Total Adjustments                                                    (2,951)      2,047       4,436
                                                                       ---------   ---------   ---------
Net cash (used in) provided by operating activities                      (2,794)      3,535       4,951
                                                                       ---------   ---------   ---------

Cash flows from investing activities:
    Purchase of investment                                                 (200)         --          --
    Sale of investment                                                      200          --          --
    Purchases of equipment                                                 (337)       (511)       (113)
    Proceeds from sale of securities and certificates of deposit          3,231      21,188          --
    Purchases of marketable securities                                   (3,088)    (19,205)     (1,544)
    Purchases of  certificates of deposit                                (1,022)         --        (294)
    Acquisition of Mcglen, net of cash                                      108          --          --
                                                                       ---------   ---------   ---------
Net cash (used in) provided by investing activities                      (1,108)      1,472      (1,951)
                                                                       ---------   ---------   ---------

Cash flows from financial activities:
    Payments on line of credit                                           (6,433)         --          --
    Borrowings on line of credit                                          6,393          --          --
    Dividends paid on preferred stock                                      (186)        (96)         --
    Payment on ESOP debt                                                 (1,213)       (617)     (1,423)
                                                                       ---------   ---------   ---------
    Net cash used in  financing activities                               (1,439)       (713)     (1,423)
                                                                       ---------   ---------   ---------

    Net (decrease) increase in cash and cash equivalents                 (5,341)      4,294       1,577

    Cash and cash equivalents, beginning of year                          7,178       2,884       1,307
                                                                       ---------   ---------   ---------

    Cash and cash equivalents, end of year                             $  1,837    $  7,178    $  2,884
                                                                       =========   =========   =========

             See accompanying notes to the consolidated financial statements.

                                           F-6
</TABLE>
<PAGE>

                           NORTHGATE INNOVATIONS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         DESCRIPTION OF COMPANY

The consolidated financial statements include the accounts of Northgate
Innovations, Inc. (a Delaware corporation) (formerly Mcglen Internet Group, Inc.
"Mcglen") and its wholly owned subsidiaries ("Northgate" or the "Company"). The
Company is a developer, manufacturer and distributor of innovative PCs,
peripherals, software, and over 100,000 computer products. The Company
specializes in selling its computers through television shopping networks, mail
order catalog companies and large electronic chain stores as well as targeting
specific business-to-business and business-to-consumer markets through the
Internet to customers principally in the United States. The operations division,
which includes a call center, sourcing, warehousing, fulfillment, accounting,
business development and information technology, supports order processing,
logistics, customer service, financial transactions and core technology for the
business divisions located in the City of Industry, California. The business
divisions include sales, marketing, content management, product management and
service management teams focused on building unique customer experiences for
each business division.

         CASH EQUIVALENTS

All highly liquid debt instruments purchased with an original maturity of three
months or less are considered cash equivalents.

         RESTRICTED CERTIFICATES OF DEPOSIT

Certain of Northgate's certificates of deposit with a bank are held as
collateral against letters of credit issued by the bank to one of Northgate's
primary suppliers (see Note 12). The supplier allows Northgate to purchase up to
double the aggregate amount of the restricted certificates of deposit under open
account terms.

         REVENUE RECOGNITION

For sales of merchandise owned and warehoused by Northgate, Northgate recognizes
revenue when title to products sold has transferred to the customer in
accordance with shipping terms. Northgate also sells merchandise from suppliers
on a "drop-ship" basis. Northgate takes title to this merchandise from the time
it is shipped by the supplier until the time it is received by the customer.

         ACCOUNTING FOR SHIPPING AND HANDLING REVENUE, FEES AND COSTS

The Company classifies amounts billed for shipping and handling as revenue in
accordance with EITF 00-10 "Accounting for Shipping and Handling Fees and
Costs." Shipping and handling fees and costs are included in cost of sales.

         INVENTORIES

Northgate accounts for inventory under the average cost method. Inventory costs
include raw materials, labor and overhead. Inventory is carried at lower of cost
or market realization. The following are the major classes of inventory as of
December 31:

                                                             2002         2001
                                                           --------     --------
Raw materials                                              $ 2,563      $ 1,800
WIP and finished goods                                         614        2,449
                                                           --------     --------
                                                             3,177        4,249
Obsolescence and lower of cost or market reserves             (193)        (305)
                                                           --------     --------
                                                           $ 2,984      $ 3,944
                                                           ========     ========

                                      F-7
<PAGE>

         MERCHANDISE RETURN AND WARRANTY POLICY

Computers manufactured by Northgate carry a one-year return policy. The majority
of products used by Northgate in the production of computers are covered by the
original manufacturers warranties, which are generally one to three years. Other
products sold by Northgate are covered by the third-party manufacturer's
warranty. Northgate provides for allowances for estimated future returns and
product warranty (included in accrued liabilities) at the time of shipment to
the customer based on historical experience.

         SOFTWARE DEVELOPMENT COSTS

In accordance with SOP 98-1 and EITF 00-2, internal and external costs incurred
to develop internal-use computer software are expensed during the preliminary
project stage. During the three years ended December 31, 2002, $162,000
,$52,000, and $62,000, respectively was expensed for software development costs.
The Company capitalized $32,000 and $331,000 for the years ended December 31,
2002 and 2001, respectively.

         EQUIPMENT

Equipment is stated at cost. Depreciation is computed using the straight-line
method based on the estimated useful lives of the assets, which range from three
to five years. Leasehold improvements are stated at cost and amortization is
computed using the straight-line method over the shorter of the useful life of
the asset or the term of the lease.

         GOODWILL

The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
142 "Goodwill and Other Intangible Assets." Under SFAS No. 142, goodwill
associated with acquisitions consummated after June 30, 2001 is not to be
amortized, and effective January 1, 2002, goodwill and other intangible assets
with indefinite lives are no longer subject to periodic amortization but are
instead reviewed annually, or more frequently if impairment indicators arise.
These reviews require the Company to estimate the fair value of its identified
reporting units and compare those estimates against the related carrying values.
For each of the reporting units, the estimated fair value is determined as
compared to the Company's stock price.

Identifiable assets and liabilities acquired in connection with business
combinations accounted for under the purchase method are recorded at their
respective fair values. Deferred income taxes have been recorded to the extent
of differences between the fair value and the tax basis of the assets acquired
and liabilities assumed. Company management has allocated the intangible assets
between identifiable intangibles and goodwill.

         LONG-LIVED ASSETS

Northgate's management assesses the recoverability of its long-lived assets by
determining whether the depreciation and amortization of long-lived assets over
their remaining lives can be recovered through projected undiscounted future
cash flows. The amount of long-lived asset impairment, if any, is measured based
on fair value and is charged to operations in the period in which long-lived
asset impairment is determined by management. At December 31, 2002 and 2001, the
Company's management believes there is no impairment of its long-lived assets.
There can be no assurance however, that market conditions will not change or
demand for the Company's services will continue, which could result in
impairment of long-lived assets in the future.

         ADVERTISING REVENUE AND COSTS

Advertising revenue is recognized upon receipt of income. Advertising costs are
charged to expense as incurred. Net advertising (expense) income was ($76,000),
$178,000 and $235,000 for the years ended December 31, 2002, 2001 and 2000,
respectively, and is included in operating expenses.

         INCOME TAXES

Northgate follows the provisions of SFAS No. 109, "Accounting for Income Taxes,"
which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the

                                      F-8
<PAGE>

financial statements and tax returns. Deferred tax assets and liabilities are
determined based upon the difference between the financial statement and tax
bases of assets and liabilities, using the enacted tax rates in effect for the
year in which the differences are expected to reverse. A valuation allowance is
provided when it is more likely than not that deferred tax assets will not be
realized.

         MARKETABLE SECURITIES

Northgate accounts for marketable securities in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." This
standard requires Northgate to classify and account for investments in equity
securities that have readily determinable fair values and all debt securities as
follows: (1) debt securities that Northgate has the intent and the ability to
hold to maturity are classified as held-to-maturity securities and are reported
at amortized cost; (2) debt and equity securities that are bought and held
principally for the purpose of selling them in the near-term are classified as
trading securities and are reported at fair value, with unrealized gains and
losses included in earnings; and (3) debt and equity securities not classified
as held-to-maturity securities or trading securities are classified as
available-for-sale securities and reported at fair value, with unrealized gains
and losses excluded from earnings and reported as a separate component of
stockholders' equity.

In the fourth quarter of 2002, the Company reviewed its marketable securities
portfolio for permanent impairment. Due to the overall decline in the stock and
bond markets from when the Company purchased the investments, as well as
specific factors affecting individual investments within the portfolio, the
Company recorded a $827,000 "other than temporary" loss on its marketable
securities portfolio, which is included in other income for the year ended
December 31, 2002.

At December 31, 2002 and 2001, all of Northgate's trading securities were
classified as available for sale. Cost and fair market value for available
for-sale securities were as follows at December 31 (in thousands):

                                                       2002               2001
                                                     --------           --------
Adjusted cost                                        $   497            $ 1,873
Unrealized losses                                         (7)              (496)
                                                     --------           --------
Fair value                                           $   490            $ 1,377
                                                     ========           ========


         FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of Northgate's financial instruments, consisting primarily of
certificates of deposit and marketable securities, receivables, accounts payable
and notes payable, approximates fair value due to the maturity of these
financial instruments and the borrowing costs to Northgate.

         STOCK-BASED COMPENSATION

Northgate has adopted SFAS No. 123, "Accounting for Stock-Based Compensation."
SFAS No. 123 requires disclosure of the compensation cost for stock-based
incentives granted after January 1, 1995 based on the fair value at grant date
for awards. At December 31, 2002, the Company has one stock-based employee
compensation plan, which is described more fully in Note 7. The Company accounts
for those plans under the recognition and measurement principles of APB 25, and
related interpretations. No stock-based employee compensation cost is reflected
in the statement of operations, as all options granted under those plans had
exercise prices equal to the market value of the underlying common stock on the
date of grant. The following table illustrates the effect on net income and
earnings per share if the Company had applied the minimum value recognition
provisions SFAS 123, to stock-based employee compensation.

<TABLE>
<CAPTION>
                                                              FOR THE YEARS ENDED DECEMBER 31,
                                                           --------------------------------------
                                                            IN THOUSANDS, EXCEPT PER SHARE DATA
                                                           --------------------------------------
                                                               2002          2001         2000
                                                           -----------   -----------  -----------
<S>                                            <C>         <C>           <C>          <C>
Net income as reported                                     $      157    $    1,488   $      515
Deduct:
   Total stock-based employee compensation
     expense under fair value based method
     for all awards, net of related tax effects                   (56)           --           --
                                                           -----------   -----------  -----------

Pro forma net income                                       $      101    $    1,488   $      515
                                                           ===========   ===========  ===========


                                      F-9
<PAGE>

Basic EPS                                      As reported      $0.01         $0.15        $0.05
Diluted EPS                                    As reported      $0.01         $0.13        $0.05
Basic EPS                                        Pro forma      $0.01         $0.15        $0.05
Diluted EPS                                      Pro forma      $0.01         $0.13        $0.05
</TABLE>

         401K PLAN

Northgate has a 401K plan that covers all full time employees who are not a
covered by a collective bargaining agreement. Employees are eligible for the
plan following one year of service. Northgate made matching contributions to
participants equal to 50% of the first 6% of the employee's contribution through
June 2001. Expenses relating to Northgate's 401K plan were approximately $3,000,
$19,000 and $39,000 for the years ended December 31, 2002, 2001, and 2000,
respectively.

         OFF- BALANCE SHEET RISK

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which Northgate
adopted effective in 2000. SFAS No. 133 requires Northgate to record all
derivatives on the balance sheet at fair value. The Company had no derivatives
at December 31, 2002 and 2001.

         SECURITIES SOLD, NOT YET PURCHASED

Securities sold not yet purchased represent obligations of Northgate to make a
future delivery of a specific security and, correspondingly create an obligation
to purchase the security at prevailing market prices. As a result, short sales
create the risk that Northgate's ultimate obligation to satisfy the delivery
requirements may exceed the amount of liability recorded in the financial
statements. At December 31, 2001, approximately $426,000 was invested in short
sales of common stock and an unrealized loss of $102,000 was recorded on these
investments. Management covered the short sales in January and April 2002
recording a loss of $60,000. The Company had no such investments at December 31,
2002.


         NET INCOME PER SHARE

Basic net income per share excludes dilution and is computed by dividing net
income by the weighted average number of common shares outstanding during the
reported periods. Diluted net income per share reflects the potential dilution
that could occur if other commitments to issue common stock were exercised. Each
share of ESOP preferred stock is convertible into 3.12828 shares of common
stock. Allocated ESOP shares (including shares released for allocation) are
considered dilutive for all periods presented. The computation of basic and
diluted shares outstanding is as follows for the years ended December 31(in
thousands):

                                                   2002       2001        2000
                                                 -------     -------     -------
Weighted average shares - Basic                  13,694       9,854       9,854
Effect of dilutive preferred shares               1,451       1,451         860
Weighted average shares - Diluted                15,145      11,305      10,714

         CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject Northgate to a concentration of
credit risk consist of accounts receivable from individuals and merchants,
located in the United States. Northgate maintains an allowance for doubtful
accounts receivable based upon the expected collectibility of accounts
receivable and potential credit losses.

         CONCENTRATION OF SUPPLIERS

Northgate is dependent upon key suppliers for merchandise. For the years ended
December 31, 2002, one supplier accounted for approximately 15.6 % of total
purchases while in 2001 another supplier accounted for approximately 10.2% of

                                      F-10
<PAGE>

total purchases. For the year ended December 31, 2000, two suppliers accounted
for approximately 27.4% of total purchases. Management believes other suppliers
could provide similar merchandise on comparable terms. A change in suppliers,
however, could cause a delay in fulfillment of customer orders and a possible
loss of sales, which would adversely affect operating results.

Northgate has entered into nonexclusive licensing agreements with Microsoft
Corporation for various operating system and application software, for which,
Northgate pays Microsoft a royalty. Royalty expense was $2,962,000, $3,448,000,
and $3,728,000, respectively, for the three years ended December 31, 2002.
During the fourth quarter of 2002, the Company revised its estimate for accruals
related to its liability for certain subscriber fees to the Microsoft Network
("MSN") resulting in recognition of other income of approximately $1,000,000.


         PRODUCT LICENSES

From time to time, Northgate receives notices from companies and individuals
asserting exclusive patent, copyright, trademark or other intellectual property
rights to technologies or marks that are important to the technology industry
and/or Northgate's business. Northgate evaluates each claim relating to its
products and, if appropriate, seeks a license to use the protected technology.
The licensing agreements generally do not require the licensor to assist
Northgate in duplicating its patented technology nor do these agreements protect
Northgate from trade secret, copyright or other violations by Northgate or its
suppliers in developing or selling these products. Liabilities are recorded when
claims asserted are probable and such costs to Northgate can be estimated. No
such costs have been recorded at December 31, 2002 or 2001.

         SIGNIFICANT CUSTOMERS

Northgate has historically been dependent upon key customers for its sales. For
the years ended December 31, 2002, 2001 and 2000, three customers accounted for
approximately 54.4%, 66.5% and 58.4%, respectively, of total sales. At December
31, 2002, 2001 and 2000, $1.5 million, $8.6 million and $2.4 million,
respectively, of accounts receivable related to these customers. Management
believes other customers could be located which would purchase merchandise on
comparable terms; however, the establishment of new customer relationships could
take several months. One of these companies announced plans for its closure in
the first quarter of 2002 and was sold to new owners who began operations in the
fourth quarter of 2002. The loss of any one of these customers could cause a
loss of sales that would adversely affect operating results.

In addition to the customers mentioned above, sales to Mcglen Internet Group,
Inc., with whom the Company merged in March 2002 (see Note 2) were $8.9 million
and $300,000 for the years ended December 31, 2001 and 2000, respectively. The
Company also had an accounts receivable balance from Mcglen of $184,000 at
December 31, 2001.

         COMPREHENSIVE INCOME

Northgate has adopted SFAS No. 130, Reporting Comprehensive Income. This
statement established standards for the reporting of comprehensive income and
its components. Comprehensive income, as defined, includes all changes in equity
(net assets) during a period from non-owner sources. For the years ended
December 31, 2002, 2001 and 2000, the difference between net income and
comprehensive net income was unrealized (losses) gains on available-for-sale
securities of $489,000, $524,000, and ($1,016,000), respectively.

         NEW ACCOUNTING PRONOUNCEMENTS

In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities", an interpretation of Accounting
Research Bulletin 51, " Consolidated Financial Statements," to improve financial
reporting of special purpose and other entities. In accordance with the
interpretation, business enterprises that represent the primary beneficiary of
another entity by retaining a controlling financial interest in that entity's
assets, liabilities, and results of operations must consolidate the entity in
their financial statements. Prior to the issuance of FIN 46, consolidation
generally occurred when an enterprise controlled another entity through voting
interests. FIN 46 is effective immediately for all new variable interest
entities created or acquired after January 31, 2003. For variable interest
entities created or acquired prior to February 1, 2003, the provisions of FIN 46
must be applied for the first interim or annual period beginning after June 15,
2003. The Company does not expect FIN 46 to have a material impact on its
financial statements as it has no variable interest entities.

                                      F-11
<PAGE>

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123." SFAS No. 148 amends SFAS No. 123 to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The transition guidance and annual disclosure provisions of SFAS No.
148 are effective for financial statements issued for fiscal years ending after
December 15, 2002. The interim disclosure provisions are effective for financial
reports containing financial statements for interim periods beginning after
December 15, 2002. The Company has applied the disclosure provisions in SFAS No.
148 in its consolidated financial statements and the accompanying notes.

In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." FIN 45 elaborates on the disclosures to
be made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also clarifies that
a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and initial measurement provisions of FIN 45
are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The disclosure requirements in FIN 45 are effective for
financial statements of interim or annual periods ending after December 15,
2002. The Company does not expect FIN 45 to have a material impact on its
financial position or results of operations as it does not act as a guarantor.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS 146 requires recording costs associated
with exit or disposal activities at their fair values when a liability has been
incurred. Under previous guidance, certain exit costs were accrued upon
management's commitment to an exit plan, which is generally before an actual
liability has been incurred. Adoption of SFAS No. 146 is required with the
beginning of fiscal year 2003. The Company does not anticipate a significant
impact on its results of operations from adopting this Statement.

In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS 4, 44, and 64,
Amendment of SFAS 13, and Technical Corrections." SFAS No. 145 eliminates the
requirement (in both SFAS No. 4 and SFAS No. 64) that gains and losses from the
extinguishment of debt be aggregated and, if material, classified as an
extraordinary item, net of the related income tax effect. However, an entity is
not be prohibited from classifying such gains and losses as extraordinary items,
so long as certain criteria are met. SFAS No. 145 also amends paragraph 14(a) of
SFAS No. 13, "Accounting for Leases," to eliminate an inconsistency between the
accounting for sale-leaseback transactions and certain lease modifications that
have economic effects that are similar to sale-leaseback transaction. The
Company has adopted this Statement in its 2002 financial statements (see Note
4).

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived ASSETS." SFAS No. 144 requires that those long-lived
assets be measured at the lower of carrying amount or fair value less cost to
sell, whether reported in continuing operations or in discontinued operations.
Therefore, discontinued operations will no longer be measured at net realizable
value or include amounts for operating losses that have not yet occurred. SFAS
No. 144 is effective for financial statements issued for fiscal years beginning
after December 15, 2001 and, generally, is to be applied prospectively. The
Company's adoption of this Statement in 2002 had no material impact on its
financial statements.

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires the fair value of a liability for an asset
retirement obligation to be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset.
SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The
Company's adoption of this Statement had no material impact on its financial
statements.

In June 2001, the FASB finalized SFAS No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets". Sfas No. 141 requires the use
of the purchase method of accounting and prohibits the use of the
pooling-of-interests method of accounting for business combinations initiated
after June 30, 2001. SFAS No. 141 also requires that the Company recognize
acquired intangible assets apart from goodwill if the acquired intangible assets
meet certain criteria. SFAS No. 141 applies to all business combinations
initiated after June 30, 2001 and for purchase business combinations completed
on or after July 1, 2001 (see Note 2). It also requires, upon adoption of SFAS
No. 142, that the Company reclassify the carrying amounts of intangible assets
and goodwill based on the criteria in SFAS No. 141.

                                      F-12
<PAGE>

SFAS No. 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS No. 142 requires that the Company identify reporting units for
the purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS No. 142. SFAS No. 142 is required to be
applied in fiscal years beginning after December 15, 2001 to all goodwill and
other intangible assets recognized at that date, regardless of when those assets
were initially recognized. SFAS No. 142 requires the Company to complete a
transitional goodwill impairment test six months from the date of adoption, see
above. The Company is also required to reassess the useful lives of other
intangible assets within the first interim quarter after adoption of SFAS No.
142.

         USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

Our Consolidated Financial Statements have been prepared in accordance with
accounting principles 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 but not limited to, those related to (i) the
allowance for doubtful accounts receivable, (ii) allowance for inventories,
(iii) sales allowances, (iv) useful life or impairment of intangible assets, (v)
deferred tax asset valuation allowances and (vi) litigation settlements accrual.
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 of 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.

         RECLASSIFICATIONS

Certain reclassifications have been made to the December 31, 2001 and 2000
financial statements to conform to the December 31, 2002 presentation.


2.       MERGER WITH MCGLEN INTERNET GROUP, INC.

On October 11, 2000, Northgate entered into a definitive merger agreement and
plan of merger with Lan Plus Corporation ("Lan Plus"). Lan Plus manufactures
both private-label and branded turnkey computer products and services, with over
ten years of operating history. On March 21, 2001, the companies entered into an
amended and restated merger agreement that, among other things, eliminated
certain conditions to closing contained in the original merger agreement. The
amended and restated merger agreement was subsequently amended several times,
ending on March 14, 2002. Upon the close of the merger on March 20, 2002, Lan
Plus shareholders received approximately 3.128 shares of Northgate common stock
for each Lan Plus share they owned, totaling 9,854,000 shares, and owned
approximately seventy-five percent (75%), on a fully diluted basis, of the
outstanding stock of Northgate (after taking into account a 10:1 reverse split
that took place immediately prior to the close of the merger). Pursuant to the
merger agreement, upon close of merger, the Company's accounts payable to, and
advances from Lan Plus, in the amount of approximately $2.3 million was
converted to common stock eliminating the debt; the stock was then retired to
Treasury and cancelled.

Although Lan Plus was merged into a subsidiary of Northgate, the merger was
accounted for as a reverse acquisition since Lan Plus shareholders controlled
the combined entity after the merger. As a result, for financial accounting
purposes, the merger is treated as a purchase of Northgate by Lan Plus.
Therefore, the historical financial statements of Lan Plus are presented for
comparison purposes for all periods presented.

After the 10:1 reverse stock split, Mcglen shareholders held 4,830,000 shares of
Northgate's $0.03 par value common stock. For accounting purposes, the shares
retained by Mcglen in the merger were valued on Lan Plus' books as an issuance
of new shares at $0.788 per share (after the 10:1 reverse stock split and based
on the weighted average closing price of the shares just prior to and after the
merger date), totaling $3,806,000. In addition, Lan Plus assumed previously
issued options and warrants resulting in additional fair value of $34,000 (see
Notes 7 and 9).

                                      F-13
<PAGE>

Upon closing of the merger, Andy Teng, founder, Chairman and Chief Executive
Officer of Lan Plus, became the Chief Executive Officer and Chairman of the
Board of the combined company. Richard Shyu, previously President and Chief
Operating Officer of Lan Plus, became President of the combined company. Both
were added to the Board of Directors in March 2002. Grant Trexler, Mcglen's
Chief Financial Officer, became Chief Financial Officer of the combined company.

The following represents the estimated fair value of net assets acquired by Lan
Plus in the reverse acquisition at March 14, 2002 (in thousands):

        Cash                                           $   108
        Other current assets                               539
        Fixed assets                                        95
        Deferred income taxes                            1,400
        Intangibles                                      3,886
        Accounts payable and accrued expenses             (846)
        Inter-company payables                          (1,152)
        Notes payable                                     (190)
                                                       --------
                                                       $ 3,840
                                                       ========

Deferred income taxes represent the Company's estimate of Mcglen's net operating
loss carryforwards ("NOLs") that can be used to offset Northgate's future
taxable income, after considering limitations imposed on NOLs upon a change in
control.

Intangibles represent the excess of the purchase price of Mcglen over the
estimated fair value of the tangible assets acquired. The Company has not yet
determined if any specifically identifiable intangibles should be recorded
related to this purchase in accordance with SFAS No. 141. Any unidentified
intangibles will be reflected as non-amortizable goodwill and will be evaluated
periodically for recoverability in accordance with SFAS No. 142. For the year
ended December 31, 2002, the Company has recorded no intangible amortization.

On a pro forma basis, the statements of operations would have been as follows
for the years ended December 31, if the acquisition had occurred on January 1,
2002 and 2001, respectively:

         (in thousands, except per share data)                2002        2001
                                                            ---------  ---------
         Net sales                                          $ 69,615   $ 86,214
         Gross profit                                          8,078     11,306
         Loss (income) before taxes and extraordinary item      (707)       108
         Extraordinary item, gain on debt settlements             --        639
         Net income                                              163        746
         Net income per share                               $   0.01   $   0.01

3.       EQUIPMENT, LEASE COMMITMENTS AND RELATED PARTY TRANSACTIONS

Equipment consists of the following at December 31:

              (In thousands)                                   2002       2001
                                                             --------   --------
              Machinery and equipment                        $   708    $   479
              Software                                           353        331
              Leasehold improvements                             349        171
              Vehicles                                            71         71
              Furniture and fixtures                              80         77
                                                             --------   --------
                                                               1,561      1,129
                         Less accumulated depreciation          (661)      (379)
                                                             --------   --------
                                                             $   900    $   750
                                                             ========   ========

                                      F-14
<PAGE>

The company leased its office/manufacturing facility under a non-cancelable
operating lease with its Chairman and Chief Executive Officer (CEO) that was
terminated in September 2002. The lease provided for minimum annual rentals and
escalations based on increases in real estate taxes and other operating
expenses.

Minimum annual operating lease commitments at December 31, 2002 are $445,000
through December 31, 2006. Rent expense was approximately $421,000, $345,000 and
$344,000 for the years ended December 31, 2002, 2001, and 2000 respectively; of
these amounts $258,000, $345,000 and $344,000 was paid to the Company's Chairman
and CEO.

4.       LINE OF CREDIT

At December 31, 2002, Northgate had a $2,500,000 line of credit with a bank. The
line of credit provides for borrowings secured by substantially all of
Northgate's assets and is guaranteed by Northgate's majority shareholder.
Borrowings under the line are advanced based upon 70% of eligible accounts
receivable, as defined, less any letters of credit issued on Northgate's behalf,
and a $500,000 holdback for potential chargebacks on credit cards processed. The
line of credit expires on April 30, 2003. Advances under the line bear interest
at the bank's prime rate (4.25%) plus 0.5% (a total of 4.75% at December 31,
2002). The line contains certain covenants (as defined) that required Northgate
to maintain profitability in the third and fourth quarter of 2002, a minimum of
($4.25 million) tangible net worth (as defined), a Current Ratio of at least
1.2:1, Working Capital of at least $2.5 million, and limits the capital
expenditures the Company can make in any one year to $750,000.

In September 2002, the Company reached a settlement with the holder of the
Mcglen line of credit whereby Northgate repaid $40,000 of the $90,000 due under
the line. The resulting gain of $50,000 is included in other income for the year
ended December 31, 2002.

5.       NOTES PAYABLE

At December 31, 2002, Northgate had a $1,300,000 note payable to an individual.
Interest on the note is payable monthly at 9% and the note is due January 1,
2005. Accrued but unpaid interest of approximately $58,000 and $78,000 is
included in accrued expenses at December 31, 2002 and 2001, respectively. At
December 31, 2002, the Company also had $100,000 convertible notes payable to an
individual, dated June 18, 1999. Interest was payable at 10% per annum through
December 18, 2000 and is payable at 12% thereafter. The note and accrued
interest were due December 18, 2000. The note is convertible at $20.00 per share
and is currently in default. Management has held settlement discussions with the
note holder but has been unable to reach a settlement for payment.

6.       INCOME TAXES

The components of the income tax provision were as follows for the years ended
December 31(in thousands):

<TABLE>
<CAPTION>
                                                            2002     2001     2000
                                                           ------   ------   ------
         <S>                                               <C>      <C>      <C>
         Current                                           $(651)   $ 452    $ 167
         Deferred                                           (219)      15      191
                                                           ------   ------   ------
                                                           $(870)   $ 467    $ 358
                                                           ======   ======   ======

At December 31, 2002, 2001 and 2000, income tax expense differed from the
amounts computed applying the federal statutory rate of 34% to pre-tax income as
follows (in thousands):

                                                            2002     2001     2000
                                                           ------   ------   ------
         Computed "expected" tax expense                   $(242)   $ 665    $ 297
         (Decrease)  increase in income taxes resulting
         from expenses not deductible for tax purposes        47     (267)       8
         Release of accrual for change in estimate          (637)      --       --
         State and local income taxes, net of federal
           effect                                            (38)      69       53
                                                           ------   ------   ------
                                                           $(870)   $ 467    $ 358
                                                           ======   ======   ======
</TABLE>

                                      F-15
<PAGE>

Under SFAS No. 109, "Accounting for Income Taxes," deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to reverse.

Deferred taxes consist of the following at December 31 (in thousands):

         Deferred tax assets:                                2002         2001
                                                           --------     --------
              Net operating loss carryforward              $ 1,322      $    --
              Reserves and allowances                          120          386
              Marketable securities                            197
              State taxes - current                             --           53
              Other                                             58           25
                                                           --------     --------
                  Total deferred tax assets                  1,697          464
                                                           --------     --------

         Deferred tax liabilities:
              ESOP deduction                                    --         (288)
              Fixed assets                                     (12)         (25)
              State tax                                        (20)         (28)
                                                           --------     --------
                   Total deferred tax liabilities              (32)        (341)
                                                           --------     --------
                                                           $ 1,665      $   123
                                                           ========     ========

As a result of the Company's reverse merger in March 2002, the Company has
federal and state net operating loss carryforwards of approximately $16 million
and $10 million. Utilization of the net operating loss carryforwards is subject
to a substantial annual limitation due to the ownership change limitations
provided by the Internal Revenue Code of 1986, as amended, and similar state
provisions. The annual limitation will result in the Company being able to only
utilize $3.8 million and $0.5 million, to offset federal and state income,
respectively as of December 31, 2002. The remaining net operating loss
carryforwards will go unused. The net operating loss carryforwards will expire
at various dates beginning in 2012 through 2022 for federal purposes and 2003
through 2009 for state purposes, if not utilized.

During the fourth quarter of 2002, the Company revised its estimate for tax
accruals related to its 1997 and 1998 tax years resulting in a tax benefit of
$637,000.


7.       STOCKHOLDERS' EQUITY

         STOCK SPLIT

In connection with the merger with Mcglen in March 2002, Northgate effected a
3.12828 split of its Common Stock and changed its par value to $0.03 per share.
All common shares and per share data have been retroactively adjusted to reflect
the stock split.

         DIVIDENDS

In December 2001 and 2000, the Board of Directors of Northgate approved a
dividend of $1.00 per share for all preferred shareholders. The dividends were
paid in September 2002 and 2001, respectively, and were used to service the ESOP
debt. No dividends were declared in 2002.

NON-PLAN OPTIONS

At December 31, 2002, there were 4,500 non-plan options outstanding. At December
31, 2002, outstanding non-plan options are exercisable at prices $7.50 per
share. In 2002, 51,700 options expired per their terms.

EMPLOYEE STOCK OPTION PLANS

Terms and conditions of the Company's option plans, including exercise price and
the period in which options are exercisable, generally are at the discretion of
the Board of Directors; however, no options are exercisable for more than 10
years after date of grant.

                                      F-16
<PAGE>

In February 2000, the Board of Directors of Northgate approved the 1999 Stock
Option Plan (the 1999 Plan) for issuance of common stock to eligible
participants. The Plan provides for the granting of incentive stock options and
non-qualified stock options. Options generally expire after 10 years.

The following table summarizes employee stock option plan activity:

<TABLE>
<CAPTION>
                                                          OPTIONS OUTSTANDING
                                              --------------------------------------------
                                                                                WEIGHTED
                                                NUMBER         PRICE         AVERAGE PRICE
                                              OF SHARES       PER SHARE        PER SHARE
                                              ----------   ----------------  -------------
<S>                                             <C>        <C>                   <C>
Options assumed in reverse acquisition          124,000    $1.00 to $15.90       $6.70
Options granted                                 518,000     $0.35 to $.050       $0.43
Options forfeited                               (39,000)             $0.35       $0.35
                                              ----------   ----------------  -------------
Outstanding December 31, 2002                   603,000    $0.35 to $15.90       $1.53
</TABLE>

The following table summarizes information about Northgate's stock options
outstanding at December 31, 2002:

<TABLE>
<CAPTION>
                                       Options Outstanding               Options Exercisable
                                       -------------------               -------------------
                         Number             Weighted         Weighted      Number      Weighted
                     Outstanding at         Average           Average  Exercisable at   Average
      Range of        December 31,         Remaining         Exercise   December 31,   Exercise
   Exercise Price         2002       Contractual Life (Yrs)    Price        2002         Price
  -----------------  --------------  ----------------------  --------  --------------  --------
   <C>                   <C>                  <C>              <C>         <C>          <C>
        $0.35            259,000              3.0              $0.35         0          $0.35
         0.50            259,000              4.5               0.50         0           0.50
         1.00             28,000              0.3               1.00       28,000        1.00
    9.40 to 15.90         57,000              2.5              11.86       57,000       11.86
  -----------------  --------------  ----------------------  --------  --------------  --------
   $0.35 to $15.90       603,000              3.2              $1.53       85,000       $8.28
  =================  ==============  ======================  ========  ==============  ========
</TABLE>

Pro forma information regarding net (loss) income and net (loss) income per
share is required by SFAS 123, and has been determined as if the Company had
accounted for its employee stock purchase plan and employee stock options
granted under the fair value method of SFAS 123. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model for the single option approach with the following assumptions: risk-free
interest rate of 4.0%, volatility factor of the expected market price of the
Company's common stock of 150%, an expected life of the options of 2 years from
the grant date, a 33% forfeiture rate, and a dividend yield of zero. The average
fair value of options at the date of grant was $0.20 per share during 2002.

8.       EMPLOYEE STOCK OWNERSHIP PLAN

On December 1, 1999, Northgate established a leveraged employee stock ownership
plan (ESOP) that covers all employees who complete 1,000 or more hours of
service in a Plan year. To establish the plan, the ESOP borrowed $10,000,000
from Northgate's majority shareholder which it then used to purchase all of
Northgate's outstanding Preferred stock (a total of 1,350,000 shares) from
Northgate's majority shareholder at the then market price, $7.05 per share.

The Preferred Stock is convertible into common stock at an exchange rate of 1
share of Preferred to 3.12828 shares of Common, has a liquidation preference of
$1.00 per share, and has certain protective provisions which allow the preferred
shareholders to vote on matters that would alter the preferred shareholders
rights, privileges, powers or restrictions from those currently granted to the
preferred shareholders.

Northgate received no funds from this transaction; however, it is required to
record the liability on its books as it has guaranteed the ESOP debt, in
accordance with the American Institute of Certified Public Accountants Statement
of Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans"
(SOP 93-6). Under SOP 93-6, the loan obligation is considered unearned employee
benefit expense and, as such, Northgate records it as a reduction to
stockholders' equity, "Unearned ESOP shares."

Northgate makes annual contributions to the ESOP equal to a minimum of the
ESOP's required debt service less dividends received by the ESOP. All dividends

                                      F-17
<PAGE>

received by the ESOP are used to pay debt service. The ESOP shares initially
were pledged as collateral for its debt. As the debt is repaid, shares are
released from collateral and allocated to active employees, based on the
proportion of debt service paid in the year. As shares are released from
collateral, Northgate reports compensation expense equal to the current market
price of the shares and the released shares become outstanding for
earnings-per-share computations. Northgate recognized compensation expense of
$0, $550,000, and $322,000 for the years ended December 31, 2002, 2001, and
2000, respectively. Dividends on allocated ESOP shares are recorded as a
reduction of retained earnings; dividends on unallocated ESOP shares are
recorded as a reduction of debt and accrued interest when paid. ESOP interest
expense related to the ESOP note was $468,000, $502,000, and $762,000 for the
years ended December 31, 2002, 2001, and 2000, respectively.

The ESOP note payable required monthly principal payments of $119,000 commencing
January 1, 2000 plus interest at 8% for the first two years. In January 2001,
the ESOP renegotiated its note with the Company's majority stockholder reducing
the interest rate from 8% to 6% and lowering the required monthly principal
payments from $119,000 to $25,000. The note's maturity date was also extended to
December 2009 from January 2006. The Company has prepaid required principal
payments through January 2007. Future principal payments are due as follows:

         During the year ending December 31:                     (In thousands)
           2007                                                     $  275
           Due thereafter                                            6,475
                                                                    -------
           Total amounts due                                        $6,750
                                                                    =======

Preferred Shares of Northgate held by the ESOP are as follows at December 31(in
thousands):

                                                           2002           2001
                                                         -------        --------
       Allocated shares                                     464             275
       Shares released for allocation                        --             189
       Unreleased (unearned) shares                         886             886
                                                         -------        --------
       Total ESOP shares                                  1,350           1,350
                                                         =======        ========
       Fair value of unreleased (unearned shares)        $  760         $ 3,702
                                                         =======        ========
In the event a terminated ESOP participant desires to sell his or her shares of
Northgate's Preferred stock, or for certain employees who elect to diversify
their account balances, Northgate may be required to purchase the shares from
the participant at their fair market value. During the years ended December 31,
2002, 2001 and 2000, Northgate did not purchase any stock from ESOP
participants. In addition, at December 31, 2002, approximately 8,000 shares of
Northgate's Preferred stock, with an aggregate fair market value of
approximately $3,000 are held by ESOP participants who are eligible to elect
their diversification privileges under the ESOP.

9.       WARRANTS

         Warrant activity for the year ended December 31, 2002 is as follows:

<TABLE>
<CAPTION>
                                                             WARRANTS OUTSTANDING
                                                             --------------------
                                                                                 WEIGHTED
                                                    NUMBER         PRICE       AVERAGE PRICE
                                                  OF SHARES      PER SHARE      PER SHARE
                                                  ----------  ---------------  -------------
<S>                                                <C>        <C>                 <C>
Warrants assumed in reverse acquisition             237,000   $2.00 to $61.70     $12.50
Issued in connection with consulting agreement      100,000        $1.50           $1.50
Expired                                            (106,000)  $3.00 to $61.70     $12.50
                                                  ----------  ---------------  -------------
Outstanding and exercisable at December 31, 2002    231,000   $1.50 to $10.00      $5.61
                                                  ==========  ===============  =============
</TABLE>

                                      F-18
<PAGE>

The following table summarizes information about Northgate's warrants
outstanding at December 31, 2002:

<TABLE>
<CAPTION>
                                      Warrants Outstanding               Warrants Exercisable
                                      --------------------               --------------------
                         Number             Weighted         Weighted      Number      Weighted
                     Outstanding at         Average           Average  Exercisable at   Average
      Range of        December 31,         Remaining         Exercise   December 31,   Exercise
   Exercise Price         2002       Contractual Life (Yrs)    Price        2002         Price
  ----------------   --------------  ----------------------  --------  --------------  --------
  <S>                   <C>                  <C>              <C>        <C>            <C>
        $1.50           100,000              2.3              $1.50      100,000        $1.50
        2.50             12,000              2.5               2.50       12,000         2.50
        5.00             15,000              1.2               5.00       15,000         5.00
       10.00            104,000              1.2              10.00      104,000        10.00
  ----------------   --------------  ----------------------  --------  --------------  --------
  $1.50 to $10.00       231,000              1.7              $5.61      231,000        $5.61
</TABLE>

10.      SEGMENT INFORMATION

Statement of Financial Accounting Standards No. 131 "Disclosure about Segments
of an Enterprise and Related Information" (SFAS No. 131) requires companies to
report financial and descriptive information about its reportable operating
segments, including segment profit or loss, certain specific revenue and expense
items, and segment assets, as well as information about the revenues derived
from Northgate's products or services, the countries in which Northgate earns
revenues and holds assets, and major customers. SFAS No. 131 also requires
companies that have a single reportable segment to disclose information about
products and services, information about geographic areas, and information about
major customers. SFAS No. 131 requires the use of the management approach to
determine the information to be reported. The management approach is based on
the way management organizes the enterprise to assess performance and make
operating decisions regarding the allocation of resources. It is management's
opinion that Northgate has only one reportable segment, and has no concentration
of customers in one specific geographic area within the United States. Major
customers, as defined, have been discussed in Note 1 above.

11.      SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

                                                           DECEMBER 31,
                    (In thousands)                  2002      2001      2000
                                                   -------   -------   -------
Cash paid during the period ended:
         Interest                                  $  126    $1,076    $  835
         Income Taxes                              $  417    $  178    $  679
Non-cash investing and financing activities:
         Purchase of Mcglen with the Company's
         common stock                              $3,840        --        --

12.  COMMITMENTS AND CONTINGENCIES

The Company has a $1 million standby letter of credit issued by its bank in
favor of one of its major suppliers. The letter of credit was renewed in
February 2003 and expires in August 2003. The letter of credit is secured by a
$1 million certificate of deposit.

From time to time, other companies and individuals assert exclusive patent,
copyright, trademark or other intellectual property rights to technologies or
marks that are important to the technology industry or our business. Certain
companies have asserted such rights related to products that we manufacture. We
evaluate each claim relating to our products and, if appropriate, seek a license
to use the protected technology. The licensing agreements generally do not
require the licensor to assist us in duplicating its patented technology nor do
these agreements protect us from trade secret, copyright or other violations by
us or our suppliers in developing or selling these products. The Company also
may be responsible for any product liability issues that may arise from the sale
of its products.

13.      SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following tables contain selected unaudited consolidated quarterly financial
data for the Company (in thousands, except per share data):

                                      F-19
<PAGE>

<TABLE>
<CAPTION>
                                                                                 QUARTER ENDED
                                              MARCH       JUNE       SEPT.      DEC.      MARCH       JUNE       SEPT.      DEC.
                                             31, 2001   30, 2001   30, 2001   31, 2001   31, 2002   30, 2002   30, 2002   31, 2002
                                             ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
<S>                                          <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:

Net sales ................................   $ 14,454   $  7,839   $ 18,733   $ 32,857   $ 19,432   $ 15,645   $ 18,562   $ 11,537
Cost of sales ............................     13,551      5,996     16,163     29,162     17,376     12,750     16,171     11,292
                                             ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------

Gross Profit .............................        903      1,843      2,570      3,695      2,056      2,895      2,391        245
    Selling, general and administrative ..      1,468      1,464      2,123      2,218      2,461      2,196      2,304      1,071
                                             ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
    (Loss) income from operations ........       (565)       379        447      1,477       (405)       699         87       (826)
    Other income (expense) ...............        574        307        (61)      (603)         5       (372)        36         63
                                             ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
Income (loss) before income taxes ........          9        686        386        874       (400)       327        123       (763)
Provision for income taxes ...............          4        203        128        132       (160)       127         45       (882)
                                             ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
Net income (loss) ........................   $      5   $    483   $    258   $    742   $   (240)  $    200   $     78   $    119
                                             =========  =========  =========  =========  =========  =========  =========  =========

Basic and diluted income (loss) per
    share ................................   $   0.00   $   0.05   $   0.03   $   0.07   $  (0.02)  $   0.01   $   0.00   $   0.01
                                             =========  =========  =========  =========  =========  =========  =========  =========
Weighted average shares of common
    stock outstanding:
    Basic ................................      9,854      9,854      9,854      9,854     10,666     14,737     14,737     14,737
                                             =========  =========  =========  =========  =========  =========  =========  =========
      Diluted ............................     10,129     10,129     10,129     11,012     10,666     16,927     16,927     16,927
                                             =========  =========  =========  =========  =========  =========  =========  =========
</TABLE>

                                      F-20
<PAGE>

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN THOUSANDS)


                 Column A                Column B   Column C  Column D  Column E
                -----------               -------   --------  ---------  -------
                                         Balance at                      Balance
                                         Beginning                       at End
                Description               of year  Additions  Deductions of Year
                -----------               -------   --------  ---------  -------
2002
----
Allowance for doubtful accounts
deducted from accounts receivable
in the balance sheet                      $  254    $    30   $      4   $  280
Reserve for obsolescence deducted
from inventories on the balance sheet        305      1,322      1,434      193
                                          $  559    $ 1,352   $  1,438   $  473
                                          =======   ========  =========  =======
2001
----
Allowance for doubtful accounts
deducted from accounts receivable
in the balance sheet                      $  559    $   661   $    966   $  254
Reserve for obsolescence deducted
from inventories on the balance sheet        292      3,689      3,676      305
                                          -------   --------  ---------  -------
                                          $  851    $ 4,350   $  4,642   $  559
                                          =======   ========  =========  =======
2000
----
Allowance for doubtful accounts
deducted from accounts receivable
in the balance sheet                      $  254    $ 1,300   $    995   $  559
Reserve for obsolescence deducted
from inventories on the balance sheet        248      1,215      1,171      292
                                          -------   --------  ---------  -------
                                          $  502    $ 2,515   $  2,166   $  851
                                          =======   ========  =========  =======

                                      F-21