UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                   FORM 10-Q/A

                                   (Mark One)
     {X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934.

                For the quarterly period ended September 30, 2002

                                       OR

     { } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934.

             For the transition period from __________ to __________


                        Commission file number 000-25277


                       PACIFIC MAGTRON INTERNATIONAL CORP.
             (Exact Name of Registrant as Specified in Its Charter)


            Nevada                                                88-0353141
(State or Other Jurisdiction of                               (I.R.S. Employer
 Incorporation or Organization)                              Identification No.)


               1600 California Circle, Milpitas, California 95035
                    (Address of Principal Executive Offices)

                                 (408) 956-8888
              (Registrant's Telephone Number, Including Area Code)


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 { }

                    Common Stock, $0.001 par value per share:

          10,485,100 shares issued and outstanding at November 6, 2002
<PAGE>
This  Form  10-Q/A  amends  the  Quarterly  Report of the  Company  on Form 10-Q
previously filed for the quarter ended September 30, 2002. This Quarterly Report
on Form 10-Q/A is filed in  connection  with the  Company's  restatement  of its
consolidated  balance  sheet  as of  September  30,  2002  and its  consolidated
statements of operations and  shareholders'  equity for the three month and nine
month periods ended September 30, 2002. The restatement is being made to reflect
the  proper  accounting  for 600  shares of 4% Series A  Redeemable  Convertible
Preferred  Stock and warrants  issued on May 31, 2002.  As a result of the these
adjustments,  additional  paid-in capital and retained  earnings as of September
30, 2002 have been restated by $240,700 and $233,800, respectively. In addition,
net loss per share applicable to common shareholders  decreased by $0.02 for the
nine month period ended September 30, 2002. The restatement is further described
in Note 3 to the consolidated financial statements

For purposes of this Form 10-Q/A,  and in accordance  with Rule 12b-15 under the
Securities  and  Exchange Act of 1934,  as amended,  the Company has amended and
restated in its entirety each item of the Company's  Form 10-Q for the quarterly
period ended  September 30, 2002,  which has been  affected by the  restatement.
This Form  10-Q/A  does not  reflect  events  occurring  after the filing of the
original  Form  10-Q or  modify  or  update  disclosures  in any way,  except as
required to reflect the effects of this restatement

Part I. - Financial Information

  Item 1. - Consolidated Financial Statements

              Consolidated balance sheets as of September 30, 2002
                (Unaudited) and December 31, 2001                            1-2

              Consolidated statements of operations for the three
                and nine months ended September 30, 2002 (Unaudited)
                and 2001 (Unaudited)                                           3

              Consolidated statement of preferred stock and
                shareholders' equity for the nine months ended
                September 30, 2002 (Unaudited)                                 4

              Consolidated statements of cash flows for the nine months
                ended September 30, 2002 (Unaudited) and 2001 (Unaudited)      5

              Notes to consolidated financial statements                    6-14

  Item 2. - Management's Discussion and Analysis of Financial Condition
              and Results of Operations                                    15-28

  Item 3. - Quantitative and Qualitative Disclosures About Market Risk        28

  Item 4. - Controls and Procedures                                           28

Part II - Other Information

  Item 1. - Legal Proceedings                                                 29

  Item 2. - Changes in Securities and Use of Proceeds                         29

  Item 5. - Other Information                                                 29

  Item 6. - Exhibits and Reports on Form 8-K                               29-30

Signature                                                                     31

Certifications                                                                32
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

                                                     September 30,   December 31
                                                         2002           2001
                                                     ------------   ------------
                                                      (Restated)
ASSETS
Current Assets:
  Cash and cash equivalents                          $  2,667,400   $  3,110,000
  Restricted cash                                         250,000        250,000
  Accounts receivable, net of allowance for
    doubtful accounts of $400,000 as of
    September 30, 2002 and December 31, 2001            4,133,500      4,590,100
  Inventories                                           3,843,900      2,952,000
  Prepaid expenses and other current
    assets                                                338,300        387,300
  Deferred income taxes                                 1,283,900      1,212,200
                                                     ------------   ------------
Total Current Assets                                   12,517,000     12,501,600

Property and Equipment, net                             4,584,200      4,711,500

Deposits and Other Assets                                 210,900        110,200
                                                     ------------   ------------
                                                     $ 17,312,100   $ 17,323,300
                                                     ============   ============

          See accompanying notes to consolidated financial statements.

                                       -1-
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

                                                     September 30,   December 31
                                                         2002           2001
                                                     ------------   ------------
                                                      (Restated)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Current portion of notes payable                   $     60,000   $     55,900
  Floor plan inventory loans                            1,002,400      1,545,000
  Accounts payable                                      7,218,600      4,786,600
  Accrued expenses                                        275,000        379,200
  Warrants                                                346,800             --
                                                     ------------   ------------
Total Current Liabilities                               8,902,800      6,766,700

Notes Payable, less current portion                     3,184,600      3,230,300

Deferred Tax Liabilities                                   26,400         34,200

Commitments and Contingencies

Minority Interest                                              --          2,200

Preferred Stock, $0.001 par value; 5,000,000
  Shares authorized;
    4% Series A Redeemable Convertible Preferred
    Stock; 1,000 shares designated; 600 shares
    issued and outstanding (Liquidation value
    of $608,100 as of September 30, 2002)                 184,300             --

Shareholders' Equity:
    Common stock, $0.001 par value; 25,000,000
      shares authorized; 10,485,100 shares
      issued and outstanding                               10,500         10,500
    Additional paid-in capital                          2,005,500      1,745,500
    Retained earnings                                   2,998,000      5,533,900
                                                     ------------   ------------
Total Shareholders' Equity                              5,014,000      7,289,900
                                                     ------------   ------------
                                                     $ 17,312,100   $ 17,323,300
                                                     ============   ============

          See accompanying notes to consolidated financial statements.

                                       -2-
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                          Three Months Ended              Nine Months Ended
                                             September 30,                   September 30,
                                     ----------------------------    ----------------------------
                                         2002            2001            2002            2001
                                     ------------    ------------    ------------    ------------
                                      (Restated)                      (Restated)
<S>                                  <C>             <C>             <C>             <C>
Sales:
  Products                           $ 18,036,500    $ 20,804,600    $ 50,462,400    $ 55,644,000
  Services                                194,600          35,600         778,800         114,100
                                     ------------    ------------    ------------    ------------
Total Sales                            18,231,100      20,840,200      51,241,200      55,758,100
                                     ------------    ------------    ------------    ------------
Cost of Sales:
  Products                             17,094,600      19,360,800      47,351,100      51,901,600
  Services                                 84,400          14,200         382,500          31,600
                                     ------------    ------------    ------------    ------------
Total Cost of Sales                    17,179,000      19,375,000      47,733,600      51,933,200
                                     ------------    ------------    ------------    ------------
Gross Margin                            1,052,100       1,465,200       3,507,600       3,824,900

Research and development                       --          46,800              --          68,500
Selling, General and
  Administrative Expenses               2,094,300       1,737,700       6,771,100       5,857,200
                                     ------------    ------------    ------------    ------------
(Loss) from Operations                 (1,042,200)       (319,300)     (3,263,500)     (2,100,800)
                                     ------------    ------------    ------------    ------------
Other (Expense) Income:
  Interest income                           4,300          20,000          14,600         107,900
  Interest expense                        (45,800)        (60,200)       (138,900)       (201,900)
  Equity loss on investment                    --          (4,600)             --         (14,500)
  Impairment loss on investment                --              --              --        (250,000)
  Change in fair value of
    warrants issued                        34,000          50,500              --
  Other income (expense)                   (7,600)        (14,100)        (39,700)          8,400
                                     ------------    ------------    ------------    ------------
Total Other (Expense)                     (15,100)        (58,900)       (113,500)       (350,100)
                                     ------------    ------------    ------------    ------------
(Loss) Before Income Tax Benefit
  and Minority Interest                (1,057,300)       (378,200)     (3,377,000)     (2,450,900)
Income Tax Benefit                       (341,400)             --      (1,107,000)       (365,500)
                                     ------------    ------------    ------------    ------------
(Loss) Before Minority Interest          (715,900)       (378,200)     (2,270,000)     (2,085,400)
Minority Interest                              --           8,200           2,200          30,000
                                     ------------    ------------    ------------    ------------
Net (Loss)                               (715,900)       (370,000)     (2,267,800)     (2,055,400)
Accretion and deemed dividend
  related to beneficial
  conversion of 4% Series A
  Convertible Preferred Stock              (6,100)             --        (268,100)             --
                                     ------------    ------------    ------------    ------------
Net (Loss) applicable to Common
  Shareholders                       $   (722,000)   $   (370,000)   $ (2,535,900)   $ (2,055,400)
                                     ============    ============    ============    ============
Basic and diluted (loss) per share   $      (0.07)   $      (0.04)   $      (0.24)   $      (0.20)
                                     ------------    ------------    ------------    ------------
Basic and diluted weighted average
  common shares outstanding            10,485,100      10,420,700      10,485,100      10,228,800
                                     ============    ============    ============    ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       -3-
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.
       CONSOLIDATED STATEMENT OF PREFERRED STOCK AND SHAREHOLDERS' EQUITY
                                   (Unaudited)

<TABLE>
<CAPTION>
                                    Preferred Stock                                 Shareholders' Equity
                               -------------------------    --------------------------------------------------------------------
                                                                   Common Stock          Additional
                                                            -------------------------     Paid-in      Retained
                                  Shares       Amount         Shares        Amount        Capital      Earnings        Total
                               -----------   -----------    -----------   -----------   -----------   -----------    -----------
<S>                            <C>           <C>            <C>           <C>           <C>           <C>            <C>
Balances, December 31, 2001             --            --     10,485,100   $    10,500   $ 1,745,500   $ 5,533,900    $ 7,289,900

Issuance of 600 shares of
Series A Convertible
Preferred (net of cash
issuance costs of
$83,800)(restated)                     600       176,200             --            --            --            --             --

Deemed dividend
associated with
beneficial conversion
feature of convertible
preferred stock (restated)              --            --             --            --       260,000      (260,000)            --

Preferred stock accretion               --         8,100             --            --            --        (8,100)        (8,100)

Net Loss (restated)                     --            --             --            --            --    (2,267,800)    (2,267,800)
                               -----------   -----------    -----------   -----------   -----------   -----------    -----------
Balances, September 30, 2002
  (restated)                           600   $   184,300     10,485,100   $    10,500   $ 2,005,500   $ 2,998,000    $ 5,014,000
                               ===========   ===========    ===========   ===========   ===========   ===========    ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       -4-
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                                                          NINE MONTHS ENDED
                                                             SEPTEMBER 30,
                                                      -------------------------
                                                         2002          2001
                                                      -----------   -----------
                                                      (Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)                                            $(2,267,800)  $(2,055,400)
Adjustments to reconcile net (loss) to
  net cash used in operating activities:
    Equity in loss in investment                               --        14,500
    Impairment loss on investment - TargetFirst                --       250,000
    Depreciation and amortization                         233,500       203,600
    Provision for doubtful accounts                            --        75,000
    (Gain) or Loss on disposal of fixed assets             (8,600)        1,400
    Change in fair value of warrants issued               (50,500)           --
    Minority interest losses                               (2,200)      (30,000)
    Changes in operating assets and liabilities:
      Accounts receivable                                 456,600      (214,100)
      Inventories                                        (891,900)      (69,300)
      Prepaid expenses and other current assets            49,000        51,400
      Deferred income taxes                               (79,500)     (234,600)
      Accounts payable                                  2,432,000       104,300
      Accrued expenses                                   (104,200)     (269,900)
                                                      -----------   -----------
NET CASH USED IN OPERATING ACTIVITIES                    (233,600)   (2,173,100)
                                                      -----------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Notes and interest receivable from shareholders            --        91,400
    Acquisition of property and equipment                (128,000)      (80,200)
    Increase in deposits and other assets                 (22,700)       (7,600)
    Proceeds from sale of property and equipment           48,400            --
                                                      -----------   -----------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES      (102,300)        3,600
                                                      -----------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Net decrease in floor plan inventory loans           (542,600)      326,400
    Principal payments on notes payable                   (41,600)      (38,300)
    Restricted cash                                            --      (175,000)
    Treasury stock purchases                                   --       (14,700)
    Proceeds from sale of FNC and PMIGA stock
      to minority shareholders                                 --        35,000
    Net proceeds from issuance of redeemable
      convertible preferred stock                         477,500            --
                                                      -----------   -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES      (106,700)      133,400
                                                      -----------   -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS                (442,600)   (2,036,100)

CASH AND CASH EQUIVALENTS, beginning of period          3,110,000     4,874,200
                                                      -----------   -----------
CASH AND CASH EQUIVALENTS, end of period              $ 2,667,400   $ 2,838,100
                                                      ===========   ===========

          See accompanying notes to consolidated financial statements.

                                       -5-
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY

The consolidated  financial  statements of Pacific Magtron  International  Corp.
(the Company or PMIC) include its  subsidiaries,  Pacific  Magtron,  Inc. (PMI),
Pacific Magtron (GA) Inc. (PMIGA), Frontline Network Consulting, Inc. (FNC), Lea
Publishing, Inc. (Lea), PMI Capital Corporation (PMICC), and LiveWarehouse, Inc.
(LW).

PMI's principal activity consists of the importation and wholesale  distribution
of electronics products,  computer components, and computer peripheral equipment
throughout the United States.

In May 1998, PMI formed its Frontline Network Consulting (Frontline) division, a
corporate  information  systems  group that serves the  networking  and personal
computer  requirements of corporate customers.  In July 2000, the Company formed
Frontline Network Consulting, Inc., a California corporation.  Effective October
1, 2000, PMI transferred the assets and liabilities of the Frontline division to
FNC.  Concurrently,  FNC issued  20,000,000  shares to the  Company and became a
wholly-owned subsidiary.  On January 1, 2001, FNC issued 3,000,000 shares of its
common stock to three key FNC employees for past services  rendered  pursuant to
certain Employee Stock Purchase Agreements. As a result of this transaction, the
Company's  ownership  interest  in FNC was reduced to 87%. In August 2001 and in
March 2002, FNC  repurchased and retired a total of 2,000,000 of its shares from
former  employees at $0.01 per share,  resulting in an increase in the Company's
ownership of FNC from 87% to 96%.

In May 1999, the Company  entered into a Management  Operating  Agreement  which
provided  for a 50%  ownership  interest in Lea  Publishing,  LLC, a  California
limited  liability  company formed in January 1999 to develop,  sell and license
software  designed to provide  internet  users,  resellers  and  providers  with
advanced solutions and applications. On June 13, 2000, the Company increased its
direct and indirect interest in Lea to 62.5% by completing its investment in 25%
of the outstanding common stock of Rising Edge Technologies, Ltd., the other 50%
owner of Lea,  which was a development  stage  company.  In December  2001,  the
Company entered into an agreement with Rising Edge Technology  (Rising Edge) and
its principal  owners to exchange the 50% Rising Edge ownership  interest in Lea
for its 25% ownership interest in Rising Edge. As a consequence,  PMIC owns 100%
of Lea and no longer has an ownership  interest in Rising Edge.  No amounts were
recorded  for the 50% Rising Edge  ownership  interest  in Lea  received in this
exchange  because of the write-down of the Rising Edge investment to zero in the
fourth quarter of 2001. On May 28, 2002, the Company formed Lea Publishing, Inc,
a  California  corporation.   Effective  June  1,  2002,  Lea  Publishing,   LLC
transferred all of its assets and liabilities to Lea Publishing, Inc.

In August 2000, PMI formed  Pacific  Magtron (GA),  Inc., a Georgia  corporation
whose principal activity is the wholesale  distribution of PMI's products in the
eastern  United  States  market.  During 2001,  PMIGA sold 15,000  shares of its
common  stock to an employee for $15,000.  On June 19, 2002,  PMIGA  repurchased
15,000 shares of its common stock for $15,000. As a result,  PMIGA is 100% owned
by PMI.

On October 15, 2001,  the Company  formed an  investment  holding  company,  PMI
Capital Corporation  (PMICC), a wholly owned subsidiary of the Company,  for the
purpose  of   acquiring   companies  or  assets   deemed   suitable  for  PMIC's
organization. In October 2001, the Company acquired through PMICC certain assets
and assumed the accrued  vacation of certain  employees of Live Market,  Inc. in
exchange  for a cash  payment of  $85,000.  These  LiveMarket  assets  were then
transferred to Lea.

In  December  2001,  the  Company  incorporated  LiveWarehouse,   Inc.  (LW),  a
wholly-owned subsidiary of the Company, to provide consumers a convenient way to
purchase computer products via the internet.

2. CONSOLIDATION AND UNCONSOLIDATED INVESTEES

The  accompanying  consolidated  financial  statements  include the  accounts of
Pacific Magtron  International  Corp. and its  wholly-owned  subsidiaries,  PMI,
PMIGA, Lea, PMICC and LW and majority-owned  subsidiary,  FNC. All inter-company
accounts and  transactions  have been eliminated in the  consolidated  financial
statements.  Investments in companies in which  financial  ownership is at least
20%, but less than a majority of the voting  stock,  are accounted for using the
equity method.  Equity investments with ownership of less than 20% are accounted
for on the cost method.

                                       -6-
<PAGE>
3. RESTATEMENT

The Company has restated its unaudited  consolidated  balance sheet at September
30, 2002, consolidated statement of operations and shareholders' equity and cash
flows for the three  months  and nine  months  ended  September  30,  2002.  The
restatement is being made to reflect the proper  accounting for 600 shares of 4%
Series A Redeemable  Convertible  Preferred Stock and warrants issued on May 31,
2002. The Company has adjusted the initial  proceeds  allocated to the preferred
shares and warrants from $409,700 and  $148,300,  respectively,  to $260,000 and
$298,000,  respectively.  The  Company has also  recalculated  the fair value of
warrants  granted to a broker as stock issuance  costs,  from $49,400 to $99,300
and  reallocated  the total  issuance  costs between the  purchaser's  preferred
shares and  warrants.  The  issuance  costs  related to the  warrants  have been
capitalized  and are being  amortized over the warrant term of three years.  The
purchaser and broker warrants have been reclassified to current  liabilities and
have been  adjusted to fair value as of September  30, 2002.  The change in fair
value of the warrants was $34,000 and $50,500 for the three month and nine month
periods ended September 30, 2002 and was recorded as other income.  In addition,
the  Company  restated  the amount of deemed  dividend  related to a  beneficial
conversion  feature of the preferred  stock from $453,300 to $260,000,  which is
also the amount of gross proceeds  allocated to the preferred stock. As a result
of the these adjustments, additional paid-in capital and retained earnings as of
September 30, 2002 have been restated by $240,700 and $233,800, respectively. In
addition,  net loss per share  applicable  to common  shareholders  decreased by
$0.02 for the nine month period ended September 30,2002.

The restatements have the following impact on the consolidated  balance sheet as
of September 30, 2002 and the related consolidated  statements of operations and
shareholder's equity for the three and nine month periods then ended:

                                                 As previously
                                                    Reported        As restated
                                                   -----------      -----------
Consolidated balance sheet:
  Deposits and other assets                        $   122,900      $   210,900
  Total assets                                      17,224,100       17,312,100
  Warrant liability                                         --          346,800
  Total current liabilities                          8,556,000        8,902,900
  Preferred stock                                      436,200          184,300
  Additional paid-in-capital                         2,246,200        2,005,500
  Retained earnings                                  2,764,200        2,998,000
  Total shareholders' equity                         5,020,900        5,014,000
  Total liabilities and shareholders'
    Equity                                          17,224,100       17,312,100

Consolidated statement of operations for three months ended September 30, 2002:

  Selling, general and administrative
    expense                                         (2,086,300)      (2,094,300)
  (Loss) from operations                            (1,034,200)      (1,042,200)
  Change in fair value of warrants issued          $        --           34,000
  Total other (expense)                                (49,000)         (15,100)
  (Loss) before income tax benefit and
    minority interest                               (1,083,300)      (1,057,300)
  (Loss) before minority interest                     (741,900)        (715,900)
  Net (loss)                                          (741,900)        (715,900)
  Net (loss) applicable to common
    shareholders                                      (748,000)        (722,000)

Consolidated statement of operations for nine months ended September 30, 2002:

  Selling, general and administrative
    expense                                          (6,763,100)     (6,771,100)
  (Loss) from operations                             (3,255,500)     (3,263,500)
  Change in fair value of warrants issued                    --          50,500
  Total other (expense)                                (164,000)       (113,500)
  (Loss) before income tax benefit and
    minority interest                                (3,419,500)     (3,377,000)
  (Loss) before minority interest                    (2,312,500)     (2,270,000)
  Net (loss)                                         (2,310,300)     (2,267,800)
  Accretion and deemed dividend related to
    Convertible preferred stock                         459,400         268,100
  Net (loss) applicable to common
    shareholders                                     (2,769,700)     (2,535,900)
  Basic and diluted (loss) per share                $     (0.26)    $     (0.24)


4. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2000,  the EITF  reached a  consensus  on Issue  00-14,  "Accounting  for
Certain Sales Incentives." This issue addresses the recognition, measurement and
income statement  classification for sales incentives  offered  voluntarily by a
vendor without charge to customers that can be used in, or are  exercisable by a
customer as a result of, a single exchange transaction.  In April 2001, the EITF
reached a consensus on Issue 00-25, "Vendor Income Statement Characterization of
Consideration  to a Purchaser of the Vendor's  Products or Services." This issue
addresses the recognition,  measurement and income statement  classification  of
consideration,  other than that directly addressed by Issue 00-14, from a vendor
to a retailer or  wholesaler.  Issue 00-25 is effective for the  Company's  2002
fiscal year.  Both Issue 00-14 and 00-25 have been  codified  under Issue 01-09,
"Accounting for  Consideration  Given by a Vendor to a Customer or a Reseller of
the Vendor's  Products." The adoption of Issue 01-09 during the first quarter of
2002 did not have a  material  impact on the  Company's  financial  position  or
results of operations.

In June 2001, the Financial  Accounting  Standards Board finalized SFAS No. 141,
BUSINESS  COMBINATIONS,  and 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. 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. The Company  recorded
its  acquisition  of Technical  Insights and LiveMarket in September and October
2001 in accordance with SFAS No. 141 and did not recognize any goodwill relating
to these transactions.  However, certain intangibles totaling $59,400, including
intellectual  property  and vendor  reseller  agreements,  were  identified  and
recorded in the consolidated financial statements in deposits and other assets.

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.  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. The adoption of
SFAS No. 142 did not have a material effect on the Company's financial position,
results of operations or cash flows since the value of  intangibles  recorded is
relatively insignificant and no goodwill has been recognized.

                                       -7-
<PAGE>
In  August  2001,  the FASB  issued  SFAS No.  143  Accounting  for  Obligations
associated  with the  Retirement  of Long-Lived  Assets.  SFAS No. 143 addresses
financial  accounting and reporting for the  retirement  obligation of an asset.
SFAS No. 143 states that companies  should  recognize the asset retirement cost,
at its fair value,  as part of the cost asset and classify the accrued amount as
a  liability  in the  balance  sheet.  The asset  retirement  liability  is then
accreted to the ultimate payout as interest expense.  The initial measurement of
the  ability  would  be  subsequently  updated  for  revised  estimates  of  the
discounted  cash  outflows.  SFAS No. 143 will be  effective  for  fiscal  years
beginning  after June 15, 2002. The Company does not expect the adoption of SFAS
No.  143 to  have a  material  effect  on its  financial  position,  results  of
operations, or cash flows.

In October 2001,  the FASB issued SFAS No. 144  Accounting for the Impairment or
Disposal  of  Long-Lived  Assets.  SFAS No. 144  supersedes  the SFAS No. 121 by
requiring  that one  accounting  model to be used for  long-lived  assets  to be
disposed of by sale, whether previously held and used or newly acquired,  and by
broadening the  presentation of discontinued  operation to include more disposal
transactions.  SFAS No.  144 is  effective  for  fiscal  years  beginning  after
December 15, 2001.  The adoption of SFAS No. 144 did not have a material  effect
on the Company's financial position, results of operations, or cash flows.

Statement  of  Financial  Accounting  Standards  No.  145,  "Rescission  of SFAS
Statements No. 4, 44, and 64,  Amendment of SFAS Statement No. 13, and Technical
Corrections" ("SFAS 145"), updates, clarifies and simplifies existing accounting
pronouncements.  SFAS 145 rescinds SFAS No. 4, "Reporting  Gains and Losses from
Extinguishment  of Debt." SFAS 145 amends SFAS No. 13,  "Accounting for Leases,"
to eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required  accounting for certain lease  modifications  that
have  economic  effects  that are similar to  sale-leaseback  transactions.  The
provisions  of SFAS 145 related to SFAS No. 4 and SFAS No. 13 are  effective for
fiscal  years  beginning  and   transactions   occurring  after  May  15,  2002,
respectively. The Company does not expect the adoption of SFAS No. 145 to have a
material effect on its financial position, results of operations, or cash flows.

Statement of  Financial  Accounting  Standards  No. 146,  "Accounting  for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"), requires companies to
recognize  costs  associated  with  exit or  disposal  activities  when they are
incurred  rather than at the date of a commitment  to an exit or disposal  plan.
SFAS 146 replaces Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)."  The provisions
of SFAS  146 are to be  applied  prospectively  to exit or  disposal  activities
initiated  after  December 31, 2002. The Company does not expect the adoption of
SFAS No. 146 to have a material  effect on its  financial  position,  results of
operations, or cash flows.

5. STATEMENTS OF CASH FLOWS

Cash was paid during the nine months ended September 30, 2002 and 2001 for:

                                         NINE MONTHS ENDING SEPTEMBER 30,
                                         --------------------------------
                                                2002          2001
                                              --------      --------
Income taxes                                  $  7,400      $  1,500
                                              ========      ========
Interest                                      $138,900      $201,900
                                              ========      ========
Non-cash financing activity:
  Accretion of preferred stock dividend       $  8,100      $     --
                                              ========      ========
  Deemed dividend related to beneficial
    conversion of 4% Series A Convertible
    Preferred Stock                           $260,000      $     --
                                              ========      ========

6. RELATED PARTY TRANSACTIONS

During the three months ended March 31, 2002, the Company made short-term salary
advances to a  shareholder/officer  totaling $30,000,  without  interest.  These
advances  were  recorded as a bonus paid to the  shareholder/officer  during the
second quarter ended June 30, 2002.

The Company sells computer  products to a company owned by a member of our Board
of Directors. Management believes that the terms of these sales transactions are
no more  favorable  than given to  unrelated  customers.  For the three and nine
months ended September 30, 2002, and 2001, the Company  recognized the following
sales revenues from this customer:

                                       -8-
<PAGE>
                                          NINE MONTHS       THREE MONTHS
                                            ENDING             ENDING
                                          SEPTEMBER 30      SEPTEMBER 30
                                          ------------      ------------
Year 2002                                   $494,400          $123,000
                                            ========          ========
Year 2001                                   $476,200          $     --
                                            ========          ========

Included in accounts  receivable  as of  September  30, 2002 is $96,300 due from
this related customer.

7. INCOME TAXES

On March 9, 2002,  legislation  was  enacted to extend the  general  Federal net
operating loss  carryback  period from two years to five years for net operating
losses  incurred  in 2001 and 2002.  As a result  of  Management's  analysis  of
estimated  future  operating  results  and other tax  planning  strategies,  the
Company did not record a valuation  allowance on the portion of the deferred tax
assets of  $1,107,000  and  $1,034,700  relating to Federal net  operating  loss
carryforward at September 30, 2002 and December 31, 2001,  respectively,  as the
Company  believed  that it was more likely than not that this deferred tax asset
would be realized.  On June 12, 2002, the Company  received a Federal income tax
refund of $1,034,700.

8. FLOOR PLAN INVENTORY LOANS AND LETTER OF CREDIT

On July 13, 2001, PMI and PMIGA (the Companies)  obtained a $4 million  (subject
to credit and borrowing  base  limitations)  accounts  receivable  and inventory
financing   facility   from   Transamerica    Commercial   Finance   Corporation
(Transamerica).  This  credit  facility  has a term  of two  years,  subject  to
automatic  renewal  from year to year  thereafter.  The credit  facility  can be
terminated by  Transamerica  under certain  conditions  and the  termination  is
subject to a fee of 1% of the credit  limit.  The  facility  includes up to a $3
million  inventory  line  (subject to a borrowing  base of up to 85% of eligible
accounts  receivable  plus  up to  $1,500,000  of  eligible  inventories),  that
includes a sub-limit of $600,000 working capital line and a $1 million letter of
credit  facility used as security for inventory  purchased on terms from vendors
in Taiwan.  Borrowing  under the  inventory  loans are  subject to 30 to 45 days
repayment,  at which time interest begins to accrue at the prime rate, which was
4.75% at  September  30,  2002.  Draws on the working  capital  line also accrue
interest at the prime rate.  The credit  facility is guaranteed by both PMIC and
FNC. As of September  30, 2002,  the  Companies  had an  outstanding  balance of
$990,800 due under this credit facility.

Under  the  accounts   receivable   and   inventory   financing   facility  from
Transamerica,   the  Companies  are  required  to  maintain  certain   financial
covenants.  As of December  31,  2001,  the  Companies  were in violation of the
minimum  tangible net worth covenant.  On March 6, 2002,  Transamerica  issued a
waiver of the  default  and revised  the  covenants  under the credit  agreement
retroactively to September 30, 2001. The revised covenants require the Companies
to  maintain  certain   financial  ratios  and  to  achieve  certain  levels  of
profitability. As of December 31, 2001 and March 31, 2002, the Companies were in
compliance with these revised covenants.  As of June 30, 2002, the Companies did
not meet the revised  minimum  tangible net worth and  profitability  covenants,
giving  Transamerica,  among  other  things,  the  right  to call  the  loan and
immediately terminate the credit facility.

On October 23, 2002,  Transamerica  issued a waiver of the default  occurring on
June 30, 2002 and revised the terms and  covenants  under the credit  agreement.
Under the revised  terms,  the credit  facility  includes  FNC as an  additional
borrower and PMIC  continues as a guarantor.  Effective  October  2002,  the new
credit limit is $3 million in aggregate  for  inventory  loans and the letter of
credit  facility.  The letter of credit  facility is limited to $1 million.  The
credit limits for PMI and FNC are $1,750,000 and $250,000,  respectively.  As of
September  30,  2002,  the  Companies  did not meet the  covenants as revised on
October  23,  2002  relating  to  profitability  and  tangible  net worth.  This
constitutes a technical default and gives Transamerica,  among other things, the
right to call the loan and immediately terminate the credit facility.

In March 2001,  FNC obtained a $2 million  discretionary  credit  facility  from
Deutsche Financial Services  Corporation  (Deutsche) to purchase  inventory.  To
secure payment, Deutsche obtained a security interest in all of FNC's inventory,
equipment,  fixtures, accounts,  reserves,  documents, general intangible assets
and all judgments, claims, insurance policies, and payments owed or made to FNC.
Under the loan  agreement,  all draws matured in 30 days.  Thereafter,  interest
accrued at the lesser of 16% per annum or at the maximum lawful contract rate of
interest permitted under applicable law (16% as of September 30, 2002).

                                       -9-
<PAGE>
FNC was  required to maintain  certain  financial  covenants  to qualify for the
Deutsche  bank credit  line,  and was not in  compliance  with  certain of these
covenants  as of June 30,  2002 and  December  31,  2001,  which  constituted  a
technical  default  under the credit line.  This gave Deutsche the right to call
the loan and terminate the credit line.  The credit  facility was  guaranteed by
PMIC and could be terminated by Deutsche immediately given the default. On April
30, 2002,  Deutsche  elected to terminate the credit facility  effective July 1,
2002.  As of September  30,  2002,  FNC had a remaining  outstanding  balance of
$11,600 under the normal terms of this credit facility.  On October 9, 2002, the
balance was repaid in full.

9. NOTES PAYABLE

In 1997,  the Company  obtained  financing of $3,498,000 for the purchase of its
office and warehouse  facility.  Of the amount  financed,  $2,500,000 was in the
form of a 10-year bank loan utilizing a 30-year  amortization  period. This loan
bears  interest at the bank's 90-day LIBOR rate (1.81% as of September 30, 2002)
plus 2.5%, and is secured by a deed of trust on the property. The balance of the
financing was obtained  through a $998,000 Small Business  Administration  (SBA)
loan due in monthly installments through April 2017. The SBA loan bears interest
at 7.569%, and is secured by the underlying property.

Under the bank loan for the  purchase  of the  Company's  office  and  warehouse
facility,  the Company is required,  among other  things,  to maintain a minimum
debt  service  coverage,  a  maximum  debt  to  tangible  net  worth  ratio,  no
consecutive  quarterly losses,  and net income on an annual basis.  During 2001,
the  Company was in  violation  of two of these  covenants  which is an event of
default under the loan  agreement and gives the bank the right to call the loan.
A waiver of these loan covenant  violations  was obtained from the bank in March
2002,  retroactive  to September 30, 2001,  and through  December 31, 2002. As a
condition for this waiver, we transferred  $250,000 to a restricted account as a
reserve for debt servicing. This amount has been reflected as restricted cash in
the accompanying consolidated financial statements.

10. SEGMENT INFORMATION

The Company has five  reportable  segments:  PMI,  PMIGA,  FNC,  Lea and LW. PMI
imports and distributes electronic products,  computer components,  and computer
peripheral equipment to various distributors and retailers throughout the United
States, with PMIGA focusing on the east coast area. LW sells similar products as
PMI to the end-users  through a website.  FNC serves the networking and personal
computer requirements of corporate customers.  Lea designs and installs advanced
solutions and  applications  for internet  users,  resellers and providers.  The
accounting  policies  of the  segments  are the same as those  described  in the
summary of significant accounting policies presented in the Company's Form 10-K.
The Company  evaluates  performance  based on income or loss before income taxes
and minority interest, not including nonrecurring gains or losses. Inter-segment
transfers between  reportable  segments have been  insignificant.  The Company's
reportable  segments are strategic  business units that offer different products
and  services.  They are  managed  separately  because  each  business  requires
different  technology  and marketing  strategies.  PMI and PMIGA are  comparable
businesses with different locations of operations and customers.

The following table presents  information  about reported segment profit or loss
for the nine months ended September 30, 2002:

                                                   Segment (loss)
                             Revenues              before income
                             External                taxes and
                             Customers          Minority Interest (4)
                            -----------         ---------------------
PMI                         $40,674,600             $(1,214,700)
PMIGA                         7,563,400                (520,500)
FNC                           2,131,200(1)             (890,000)
LEA                             412,000(3)             (611,900)
LW                              460,000                (182,400)
                            -----------             -----------
TOTAL                       $51,241,200             $(3,419,500)
                            ===========             ===========

                                      -10-
<PAGE>
The following table presents  information  about reported segment profit or loss
for the nine months ended September 30, 2001:

                                                   Segment (loss)
                             Revenues              before income
                             External                taxes and
                             Customers            Minority Interest
                            -----------           -----------------
PMI                         $44,993,700             $  (943,100)
PMIGA                         8,580,100                (509,200)
FNC                           2,184,300(1)             (664,200)
LEA                                  --                 (71,500)
LW                                   --                      --
                            -----------             -----------
TOTAL                       $55,758,100              (2,188,000)
                            ===========             ===========

The following table presents  information  about reported segment profit or loss
for the three months ended September 30, 2002:

                                                   Segment (loss)
                             Revenues              before income
                             External                taxes and
                             Customers          Minority Interest (5)
                            -----------         ---------------------
PMI                         $15,283,900             $  (492,800)
PMIGA                         1,895,800                (149,200)
FNC                             650,100(2)             (252,700)
LEA                              79,000(3)             (161,900)
LW                              322,300                 (26,700)
                            -----------             -----------
TOTAL                       $18,231,100             $(1,083,300)
                            ===========             ===========

The following table presents  information  about reported segment profit or loss
for the three months ended September 30, 2001:

                                                   Segment (loss)
                             Revenues              before income
                             External                taxes and
                             Customers            Minority Interest
                            -----------           -----------------
PMI                         $16,993,600             $   (72,900)
PMIGA                         3,208,200                 (86,400)
FNC                             638,400(2)             (155,500)
LEA                                  --                 (41,400)
LW                                   --                      --
                            -----------             -----------
TOTAL                       $20,840,200             $  (356,200)
                            ===========             ===========

(1)  Includes  service  revenues  of  $366,800  and  $114,100  in 2002 and 2001,
     respectively.
(2)  Includes  service  revenues  of  $115,600  and  $35,600  in 2002 and  2001,
     respectively.
(3)  Total amount was derived from service revenues.
(4)  Includes $1,591,500,  $252,600,  $141,200,  $69,900, and $151,700,  of PMIC
     corporate expenses allocated to PMI, PMIGA, FNC, Lea and LW, respectively.
(5)  Includes  $505,800,   $54,200,  $38,000,  $14,200,  and  $39,700,  of  PMIC
     corporate expenses allocated to PMI, PMIGA, FNC, Lea and LW, respectively.

                                      -11-
<PAGE>
The following is a reconciliation of reportable segment (loss) before income tax
benefit and minority interest to the Company's consolidated total:

<TABLE>
<CAPTION>
                                              Three months Ended    Nine months Ended
                                                 September 30,        September 30,
                                                     2002                 2002
                                                 ------------         ------------
                                                  (Restated)           (Restated)
<S>                                              <C>                  <C>
Total loss before income taxes and minority
  interest for reportable segments               $ (1.083,300)        $ (3,419,500)
Change in fair value of warrants issued                34,000               50,500
Amortization of warrants issuance costs                (8,000)              (8,000)
                                                 ------------         ------------
Consolidated loss before income taxes and
  Minority interest                              $ (1,057,300)        $ (3,377,000)
                                                 ------------         ------------

                                              Three months Ended    Nine months Ended
                                                 September 30,        September 30,
                                                     2001                 2001
                                                 ------------         ------------
Total loss before income taxes and minority
  interest for reportable segments               $   (356,200)        $ (2,188,000)
Inter-company transactions                            (17,400)               1,600
Equity in loss in investment in Rising Edge            (4,600)             (14,500)
Impairment loss on investment                              --             (250,000)
                                                 ------------         ------------
Consolidated loss before income taxes and
  Minority interest                              $   (378,200)        $ (2,450,900)
                                                 ------------         ------------
</TABLE>

The reportable  segment loss before income tax benefit and minority interest for
the three  months and nine  months  ended  September  30,  2002 was equal to the
Company's  consolidated  amounts  presented in the  consolidated  statements  of
operations.

11. ACCOUNTS RECEIVABLE FACTORING AGREEMENT

Pursuant to a non-notification  accounts  receivable  factoring  agreement,  the
Company factors certain of its accounts receivable with a financial  institution
(the Factor) on a  pre-approved  non-recourse  basis.  The factoring  commission
charge  is  0.375%  and  2.375%  of  specific   approved  domestic  and  foreign
receivables  (Approved  Accounts),  respectively.  The agreement,  which expires
February  28, 2003,  is subject to  automatic  annual  renewal  provisions,  and
provides  for the Company to pay a minimum of $200,000 in annual  commission  to
the Factor.  The Company is required to maintain the  receivable  records and to
make reasonable  collection efforts on the Approved Accounts.  Approved Accounts
are transferred to the Factor as assigned accounts (Assigned  Accounts) when the
receivables are not collected within 120 days from the due date or the customers
become insolvent.  The title of the receivable is transferred to the Factor when
it becomes an Assigned  Account.  As a purchaser of the Assigned  Accounts,  the
Factor has the title to the Assigned Accounts and has the unilateral right, such
as to demand and collect  payments  from  customers  on the  Assigned  Accounts,
compromise,  sue for, and foreclose.  The Company has no further obligations and
control over the receivable when it becomes an Assigned  Account.  The Factor is
obligated to pay the Company for the Assigned  Accounts within 15 days after the
receivable  becomes an Assigned  Account.  Security  interests in those Assigned
Accounts are granted to the Factor upon the accounts become  Assigned  Accounts.
In accordance with SFAS 140 "Accounting for Transfers and Servicing of Financial
Assets  and  Extinguishments  of  Liabilities,"  the  Company  accounts  for the
factored  receivables  as sales of  financial  assets when they become  Assigned
Accounts.  The total  amount of  receivables  approved by the Factor as Approved
Accounts was  $16,535,500  and  $8,359,700  for the nine months and three months
ended September 30, 2002,  respectively.  The amount of receivables  assigned to
the Factor during the year and the quarter ended September 30, 2002 was $101,800
and $77,800, respectively There were no receivables assigned to the Factor prior
to the quarter ended June 30, 2002. As of September 30, 2002,  Assigned Accounts
of $11,800 were included in accounts receivable.

12. DEPOSITS AND OTHER ASSETS

Included in  deposits  and other  assets at  September  30, 2002 are  intangible
assets relating to intellectual property and reseller agreements acquired during
the  fourth  quarter  of 2001  with a cost  basis  of  $59,400  and  accumulated
amortization of $19,500.  The Company is amortizing the intangible assets over a
three-year period.  Amortization expense for the nine months ended September 30,
2002 was approximately $19,000.

In  connection  with the  sales of  preferred  stock and  warrants  (see Note 13
below),  $88,000 (net of amortization of $8,000) of issuance costs was allocated
to warrants and included in deposits and other assets.  The  allocated  issuance
costs are being amortized over the warrant term of 3 years.

13. SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK

The  Company is  authorized  to issue up to  5,000,000  shares of its $0.001 par
value  preferred  stock  that may be issued in one or more  series and with such
stated  value and terms as may be  determined  by the  Board of  Directors.  The
Company  has  designated  1,000  shares  as 4% Series A  Redeemable  Convertible
Preferred  Stock (the "Series A Preferred  Stock") with a stated value per share
of $1,000 plus all accrued and unpaid dividends.

On May 31, 2002 the Company  entered into a Preferred  Stock Purchase  Agreement
with an investor  (Investor).  Under the agreement,  the Company agreed to issue
1,000  shares of its Series A  Preferred  Stock at $1,000 per share.  On May 31,
2002,  the  Company  issued 600 shares of the  Series A  Preferred  Stock to the
Investor,  and the  remaining  400 shares will be issued  when the  registration

                                      -12-
<PAGE>
statement  that  registers  the common stock  underlying  the Series A Preferred
Stock becomes effective. As part of the Preferred Stock Purchase Agreement,  the
Company issued a common stock purchase warrant to the Investor.  The warrant may
be  exercised  at any time within 3 years from the date of issuance and entitles
the Investor to purchase  300,000 shares of the Company's  common stock at $1.20
per share and includes a cashless exercise provision.  The Company also issued a
common  stock  purchase  warrant  with the same  terms  and  conditions  for the
purchase  of  100,000  shares  of the  Company's  common  stock to a broker  who
facilitated the transaction as a commission.

The holder of the Series A Preferred  Stock is entitled to cumulative  dividends
at the rate of 4% per annum,  payable on each  Conversion  Date, as defined,  in
cash or by accretion of the stated  value.  Dividends  must be paid in cash,  if
among other circumstances,  the number of the Company's authorized common shares
is insufficient  for the conversion in full of the Series A Preferred  Stock, or
the Company's common stock is not listed or quoted on Nasdaq, NYSE or AMEX. Each
share of Series A Preferred  Stock is  non-voting  and entitled to a liquidation
preference  of the stated  value plus  accrued and unpaid  dividends.  A sale or
disposition  of 50% or more of the assets of the  Company,  or  effectuation  of
transactions  in which  more  than 33% of the  voting  power of the  Company  is
disposed of, would constitute liquidation.  At any time and at the option of the
holder,  each share of Series A Preferred  Stock is  convertible  into shares of
common  stock at the  Conversion  Ratio,  which is defined  as the stated  value
divided by the Conversion  Price. The Conversion Price is the lesser of (a) 120%
of the average of the 5 Closing Prices  immediately prior to the Closing Date on
which the preferred stock was issued (the Set Price), and (b) 85% of the average
of the 5 lowest VWAPs (the daily volume  weighted  average  price as reported by
Bloomberg  Financial  L.P.  using the VAP  function)  during the 30 trading days
immediately  prior to the Conversion Date but not less than $0.75 (Floor Price).
The Set Price and Floor Price are subject to certain adjustments,  such as stock
dividends.

The Company  has the right to redeem the Series A Preferred  Stock for cash at a
price equal to 115% of the Stated Value plus accrued and unpaid dividends if (a)
the  Conversion  Price is less than $1 during  the 5 trading  days  prior to the
redemption,  or (b) the  Conversion  price is greater than 175% of the Set Price
during the 20 trading days prior to the  redemption.  Upon the  occurrence  of a
Triggering Event, such as failure to register the underlying common shares among
other  events as  defined,  the holder of the Series A  Preferred  Stock has the
right to require the Company to redeem the Series A Preferred Stock in cash at a
price equal to the sum of (a) the redemption  amount (the greater of (i) 150% of
the  Stated  Value or (ii) the  product  of the Per Share  Market  Value and the
Conversion  Ratio)  plus  other  costs,  and (b) the  product  of the  number of
converted  common  shares and Per Market Share Value.  As of September 30, 2002,
the  liquidation  value of the Series A  Preferred  Stock was  $608,100.  As the
Series A  Preferred  Stock has  conditions  for  redemption  that are not solely
within the  control  of the  Company,  such  Series A  Preferred  Stock has been
excluded from  shareholders'  equity.  As of September 30, 2002,  the redemption
value of the Series A Preferred Stock, if the holder had required the Company to
redeem the Series A Preferred Stock as of that date, was $912,200.

The Company has  accounted for the sale of preferred  stock in  accordance  with
Emerging  Issues  Task Force  (EITF)  00-27  "Application  of Issue No.  98-5 to
Certain  Convertible  Instruments."  Proceeds  of  $176,200  (net of a total  of
$83,800  issuance costs  prorated to the preferred  stock) were allocated to the
Series A Preferred  Stock and $298,000 was allocated to the  detachable  warrant
based upon its fair value as computed  using the  Black-Scholes  option  pricing
model.  The carrying  amount of the preferred  stock was classified as temporary
equity  and was  excluded  from  the  shareholders'  equity.  The  value  of the
beneficial  conversion  option on the 600 shares of Series A Preferred Stock was
$452,700.  However,  the  recording  of the deemed  dividend  on the date of the
issuance was limited to $260,000,  which is the gross proceeds  allocated to the
preferred  stock. The $99,300 fair value of the warrant issued to the broker who
facilitated  the  transaction  and $298,000 fair value of the warrants issued to
the preferred  stock  investor were  recorded as a current  liability.  The fair
values of the warrants are revalued at the end of each quarter and the change in
fair value of the warrants is recorded as income or expense in the period of the
change.  Included in other income was $34,000 and 50,500 representing the change
in fair value of the warrants for the three and nine months ended  September 30,
2002.  The  issuance  costs of  $96,000  allocated  to the  warrants  have  been
capitalized  and are being amortized over the warrant term of three years. As of
September 30, 2002, 810,800 shares of common stock could have been issued if the
Series A Preferred Stock were converted into common stock.

14. STOCK OPTIONS

For the nine months ended  September 30, 2002,  the Company  granted  options to
purchase  30,000 shares of the Company's  common stock to certain members of the
board of  directors at exercise  prices of $0.76 to $1.05 per share.  During the
nine months ended September 30, 2002, no outstanding  options were exercised and
options to purchase  271,560 shares of the Company's common stock were cancelled
due to employee  terminations  or expiration of options.  On July 24, 2002,  the
Company  entered into a service  agreement  with a consultant  for a term of 180
days. The  consultant  was paid by granting  options to purchase an aggregate of
200,000  shares of the Company's  common  stock.  On August 26, 2002 the Company
terminated the agreement and cancelled the two stock options.

                                      -13-
<PAGE>
15. LOSS PER SHARE

Basic loss per share is computed by dividing loss applicable to common shares by
the weighted-average  number of common shares outstanding for the period. During
the three and nine month periods ended September 30, 2002,  options and warrants
to purchase 1,153,100 shares of the Company's common stock and 810,800 shares of
common stock issuable upon  conversion of Series A Preferred Stock were excluded
from the  calculation  of diluted  weighted  average  common shares  outstanding
because  their  effect  would be  antidilutive.  During the three and nine month
periods ended  September  30, 2001,  options to purchase  835,222  shares of the
Company's  common stock were excluded from the  calculation of diluted  weighted
average common shares outstanding because their effect would be antidilutive.

                                      -14-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

This  Form  10-Q/A  amends  the  Quarterly  Report of the  Company  on Form 10-Q
previously filed for the quarter ended September 30, 2002. This Quarterly Report
on Form 10-Q/A is filed in  connection  with the  Company's  restatement  of its
consolidated  balance  sheet  as of  September  30,  2002  and its  consolidated
statements of operations and  shareholders'  equity for the three month and nine
month periods ended September 30, 2002. The restatement is being made to reflect
the  proper  accounting  for 600  shares of 4% Series A  Redeemable  Convertible
Preferred  Stock and warrants  issued on May 31, 2002.  As a result of the these
adjustments,  additional  paid-in capital and retained  earnings as of September
30, 2002 have been restated by $240,700 and $233,800, respectively. In addition,
net loss per share applicable to common shareholders  decreased by $0.02 for the
nine month period ended September 30, 2002. The restatement is further described
in Note 3 to the consolidated financial statements

FORWARD-LOOKING STATEMENTS

The accompanying  discussion and analysis of financial  condition and results of
operations is based on the consolidated financial statements, which are included
elsewhere in this Quarterly Report. The following discussion and analysis should
be read in conjunction  with the accompanying  financial  statements and related
notes thereto.  This discussion contains  forward-looking  statements within the
meaning of Section 27A of the  Securities  Act of 1933, as amended,  and Section
21E of the Securities Exchange Act of 1934, as amended. Our actual results could
differ  materially  from  those  set  forth in the  forward-looking  statements.
Forward-looking   statements,   by  their  very   nature,   include   risks  and
uncertainties.  Accordingly,  our actual  results could differ  materially  from
those discussed in this Report. A wide variety of factors could adversely impact
revenues,  profitability,  cash flows and capital needs.  Such factors,  many of
which are beyond our control,  include, but are not limited to, those identified
below under the heading "Cautionary Factors That May Affect Future Results."

GENERAL

As used herein and unless  otherwise  indicated,  the terms "Company," "we," and
"our" refer to Pacific Magtron International Corp. and each of our subsidiaries.
We provide solutions to customers in several  synergetic and growing segments of
the  computer  industry.  Our business is organized  into five  divisions:  PMI,
PMIGA, FNC, Lea/LiveMarket and LiveWarehouse.  Our subsidiaries,  PMI and PMIGA,
provide the wholesale distribution of computer multimedia and storage peripheral
products  and  provide  value-added  packaged  solutions  to  a  wide  range  of
resellers, vendors, OEMs and systems integrators.  PMIGA commenced operations in
October 2000 and distributes  PMI's products in the  southeastern  United States
market.  To  capture  the  expanding  corporate  IT  infrastructure  market,  we
established  the  FrontLine  Network  Consulting  division  in 1998  to  provide
professional   services  to   mid-market   companies   focused  on   consulting,
implementation  and support services of Internet  technology  solutions.  During
2000, this division was incorporated as FNC. On September 30, 2001, FNC acquired
certain  assets of  Technical  Insights,  Inc.,  a  computer  technical  support
company,  in  exchange  for  16,142  shares of our common  stock then  valued at
$20,000. The acquired business unit, Technical Insights,  enables FNC to provide
computer technical training services to corporate clients.

In 1999 we invested in a 50%-owned joint software venture, Lea Publishing,  LLC,
to  focus  on  Internet-based  software  application   technologies  to  enhance
corporate IT services.  Lea was a development  stage  company.  In June 2000, we
increased  our direct and indirect  interest in Lea to 62.5% by  completing  our
purchase of 25% of the  outstanding  common  stock of Rising Edge  Technologies,
Ltd., the other 50% owner of Lea. In December 2001, we entered into an agreement
with  Rising  Edge and its  principal  owners to  exchange  the 50% Rising  Edge
ownership in Lea for our 25% interest in Rising Edge. As a  consequence,  we own
100% of Lea and no longer have an interest in Rising  Edge.  Certain  LiveMarket
assets, which were initially purchased through PMICC, were transferred to Lea in
the  fourth  quarter  of  2001.  On May  28,  2002,  Lea  Publishing,  Inc.  was
incorporated  in  California.  Effective  June  1,  2002,  Lea  Publishing,  LLC
transferred all of its assets and liabilities to Lea Publishing, Inc.

In  December  2001,  LiveWarehouse,  Inc.  was  incorporated  as a  wholly-owned
subsidiary of PMIC, to provide  consumers a convenient way to purchase  computer
products via the internet.

RESULTS OF OPERATIONS

The following  table sets forth,  for the periods  indicated,  certain  selected
financial data as a percentage of sales:

                                 Three Months Ended        Nine Months Ended
                                    September 30,            September 30,
                               ---------------------     ---------------------
                                 2002         2001         2002         2001
                               --------     --------     --------     --------
                              (Restated)                (Restated)
Sales                             100.0%       100.0%       100.0%       100.0%
Cost of sales                      94.2         93.0         93.2         93.1
                               --------     --------     --------     --------
Gross margin                        5.8          7.0          6.8          6.9
Operating expenses                 11.5          8.6         13.2         10.6
                               --------     --------     --------     --------
(Loss)from operations              (5.7)        (1.6)        (6.4)        (3.7)
Other income (expense), net        (0.1)        (0.3)        (0.2)        (0.6)
Income tax benefit                  1.9          0.0          2.2          0.6
Minority interest                   0.0          0.0          0.0          0.0
                               --------     --------     --------     --------
Net (loss)                         (3.9)%       (1.9)%       (4.4)%       (3.7)%
                               ========     ========     ========     ========

                                      -15-
<PAGE>
THREE MONTHS ENDED  SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED  SEPTEMBER
30, 2001

Sales for the three months ended September 30, 2002 were $18,231,100, a decrease
of $2,609,100,  or  approximately  12.5%,  compared to $20,840,200 for the three
months ended June 30, 2001. The decrease was primarily attributable to decreased
revenues  at PMI and PMIGA  partially  offset by the  revenues  of newly  formed
LiveWarehouse and newly acquired Lea.

The combined sales of PMI and PMIGA were  $17,179,700 for the three months ended
September 30, 2002, a decrease of $3,022,100,  or approximately 15.0%,  compared
to  $20,201,800  for the three months ended  September  30, 2001.  Sales for PMI
decreased by $1,709,700,  or 10.1%,  from $16,993,600 for the three months ended
September 30, 2001 to $15,283,900 for the three months ended September 30, 2002.
PMIGA's sales decreased by $1,312,400,  or 40.9%,  from $3,208,200 for the three
months  ended  September  30,  2001 to  $1,895,800  for the three  months  ended
September  30, 2002.  The decrease in PMI and PMIGA sales was primarily due to a
continuing decline in the computer component market and the intense  competition
in pricing in the computer  component market during the quarter ending September
30, 2002 compared to the comparable quarter in 2001.

Sales  generated  by FNC for the three  months  ended  September  30,  2002 were
$650,100,  an  increase of $11,700 or 1.8%,  compared to $638,400  for the three
months ended September 30, 2001. FNC sales were  essentially  flat due to a slow
and stagnant  economy.  Our customers have not increased their purchases from us
in computer networking.

In the fourth  quarter of 2001,  PMICC  acquired  certain  assets of LiveMarket.
These  assets were  subsequently  transferred  to Lea.  Prior to the  LiveMarket
acquisition,  Lea did not  generate  any  revenues as it was in the  development
stage.  Revenues,  primarily  from  services  performed,  generated  by Lea were
$79,000 for the three months ended September 30, 2002.

In December 2001,  LiveWarehouse,  Inc. (LW) was  incorporated as a wholly-owned
subsidiary of PMIC, to provide  consumers a convenient way to purchase  computer
products via the  internet.  Sales  generated by LW were  $322,300 for the three
months ended September 30, 2002.

Consolidated  gross  margin for the three months  ended  September  30, 2002 was
$1,052,100,  or 5.8% of sales, compared to $1,465,200, or 7.0% of sales, for the
three  months  ended  September  30,  2001.  The  decrease  in gross  margin was
primarily  attributable  to the intense  competition  on pricing in the computer
component market experienced by PMI and PMIGA.

The combined  gross margin for PMI and PMIGA was $794,200,  or 4.6% of sales for
the three months ended  September  30, 2002,  compared to  $1,343,500 or 6.7% of
sales for the three months  ended  September  30,  2001.  PMI's gross margin was
$687,800,  or 4.5%,  of sales for the three  months  ended  September  30,  2002
compared to $1,141,700,  or 6.7%, for the three months ended September 30, 2001.
PMIGA's gross margin was $106,400,  or 5.6%, of sales for the three months ended
September 30, 2002 compared to $201,800,  or 6.3%, of sales for the three months
ended  September 30, 2001.  The decrease in gross margin was primarily due to an
intense  competition in market pricing of computer component products during the
three months ending  September 30, 2002 compared to the comparable  three months
in 2001. We expect the pricing competition in the market will continue in a slow
economy. This would have an adverse impact on our gross margin.

FNC's gross margin was $143,100,  or 22.0% of sales,  for the three months ended
September 30, 2002 compared to $121,700, or 19.1% of sales, for the three months
ended September 30, 2001. The higher gross margin  percentage in 2002 was due to
an increase in service revenues earned as a percent of total sales for the three
months ended September 30, 2002 compared to the three months ended September 30,
2001.  Service  revenues were $115,600 for the three months ended  September 30,
2002  compared to $35,600 for the three months  ended  September  30,  2001.  In
general, FNC has a higher gross margin on consulting and implementation  service
revenues than product sales  revenues.  We expect to maintain the similar mix of
service/equipment revenues as the economy continues to stagnate.

                                      -16-
<PAGE>
Lea experienced an overall gross margin of $49,600,  or 62.8% of sales,  for the
three  months  ended  September  30,  2002.  Lea's  gross  margin was  generated
primarily from services performed.

Gross margin for LW was $65,000,  or 20.1% of sales,  for the three months ended
September  30,  2002.  The gross  margin  realized in retail  sales is generally
higher than wholesale distribution.

Consolidated  operating expenses,  which consist of research and development and
selling,  general and  administrative  expenses,  were  $2,094,300 for the three
months ended September 30, 2002, an increase of $309,800,  or 17.4%, compared to
$1,784,500 for the three months ended September 30, 2001.

The  increase  in  consolidated  operating  expenses  was  partially  due to the
inclusion of the operating and development  support expenses of $211,500 for Lea
for the three months ended September 30, 2002 which were not incurred during the
same period in 2001.

LW  began  its  operations  in the  first  quarter  of  2002.  The  increase  in
consolidated  operating  expenses  was  partially  due to the  inclusion  of the
operating  expenses of $91,800 for LW for the three months ended  September  30,
2002 which were not incurred during the same period in 2001.

Consolidated expense for the Company's investor relations and other expenses for
maintaining the status of PMIC as a publicly-held company increased from $17,600
for the three  months ended  September  30, 2001 to $84,900 for the three months
ended September 30, 2002.  These expenses were partially  offset by, among other
cost-cutting  measures,  reducing our employee count from 97 as of September 30,
2001 to 93 as of September 30, 2002 for PMI,  PMIGA,  and FNC and decreasing our
labor cost by $146,500 for the three months ended September 30, 2002 compared to
the same period in 2001.

PMI's  operating  expenses were  $1,133,600 for the three months ended September
30, 2002 compared to $1,148,000  for the three months ended  September 30, 2001.
The decrease of $14,400,  or 1.3%, was mainly due to a reduction in our employee
count from 66 as of September 30, 2001 to 62 as of September 30, 2002  resulting
in a decrease  in payroll  expenses  of  approximately  $177,000  and was mostly
offset by an increase in allocated  corporate  expenses from PMIC to PMI.  These
allocated  expenses  primarily  relate to  maintaining  the  status of PMIC as a
publicly-held company, and include among others, investor relations expenses and
professional  service  expenses.  Investor  relations and  professional  service
expense  increased  by $58,200 and $67,200,  respectively,  for the three months
ended September 30, 2002 compared to the same period in 2001.

PMIGA's  operating  expenses were $257,500 for the three months ended  September
30,  2002, a decrease of $31,600,  or 10.9%,  compared to $289,100 for the three
months ended  September 30, 2001.  The decrease was primarily due to a reduction
in our employee count from 19 as of September 30, 2001 to 15 as of September 30,
2002 resulting in a decrease in payroll expense of approximately $52,800.

FNC's operating  expenses were $392,100 for the three months ended September 30,
2002, an increase of $94,300 or 31.7%, compared to $297,800 for the three months
ended September 30, 2001. The increase was primarily the result of the operating
expenses of Technical  Insight (TI), whose assets were acquired in September 20,
2001,  which  were not  incurred  in the  comparative  prior year  period.  This
increase was partially offset by a decrease in professional  service expenses of
approximately $21,900.

Consolidated  loss from operations for the three months ended September 30, 2002
was  $1,042,200  compared to $319,300 for the three months ended  September  30,
2001,  an  increase  of 226.4%.  As a percent of sales,  consolidated  loss from
operations  was 5.7% for the three months ended  September  30, 2002 compared to
1.6% for the three months ended September 30, 2001. The increase in consolidated
loss from  operations  was  primarily  due to a 17.4%  increase in  consolidated
operating expenses and a decrease in gross margin experienced during the current
period.  Loss from  operations  for the three months ended  September  30, 2002,
including  allocations of PMIC corporate expenses,  for PMI, PMIGA, FNC, Lea and
LW were $505,800, $54,200, $38,000, $14,200, and $39,700, respectively.

Consolidated interest income was $4,300 for the three months ended September 30,
2002  compared to $20,000 for the three months  ended  September  30, 2001.  The
decrease  in interest  income was mainly due to a decline in interest  rates and
funds on deposit in interest bearing accounts.

                                      -17-
<PAGE>
Consolidated  interest  expense was $45,800 for the three months ended September
30, 2002 compared to $60,200 for the three months ended  September 30, 2001. The
decrease  in  interest  expense  was mainly due to a  decrease  in the  floating
interest  rate charged on one of our mortgages on our office  building  facility
located in Milpitas, California.

In March  2002,  legislation  was  enacted to extend  the  general  federal  net
operating loss carryback period from 2 years to 5 years for net operating losses
incurred  in 2001 and 2002.  As a  result,  we  computed  the  weighted  average
effective tax rate which  originated  the net  operating  losses and recorded an
income tax benefit of $341,400 on the net  operating  tax loss  incurred for the
three months ended September 30, 2002 using the weighted  average  effective tax
rate.

On May 31,  2002 the  Company  issued 600  shares of its 4% Series A  Redeemable
Convertible  Preferred Stock and a warrant for 300,000 shares of common stock to
an  investor.  The  Company has  accounted  for the sale of  preferred  stock in
accordance  with Emerging  Issues Task Force (EITF) 00-27  "Application of Issue
No. 98-5 to Certain  Convertible  Instruments."  Proceeds of $176,200  (net of a
total of $83,800  issuance costs prorated to the preferred stock) were allocated
to the Series A Preferred  Stock and  $298,000 was  allocated to the  detachable
warrant  based upon its fair value as computed  using the  Black-Scholes  option
pricing model. The $260,000 value of the beneficial conversion option on the 600
shares of Series A Preferred Stock was recorded as a deemed dividend on the date
of  issuance.  The $99,300  fair value of the  warrant  issued to the broker who
facilitated  the  transaction  and $298,000 fair value of the warrants issued to
the preferred  stock  investor were  recorded as a current  liability.  The fair
values of the warrants are revalued at the end of each quarter and the change in
fair value of the warrants is recorded as income or expense in the period of the
change.  Included in other income was $34,000 and 50,500 representing the change
in fair value of the warrants for the three and nine months ended  September 30,
2002.  The  issuance  costs of  $96,000  allocated  to the  warrants  have  been
capitalized  and are being amortized over the warrant term of three years. As of
September 30, 2002, 810,800 shares of common stock could have been issued if the
Series A Preferred Stock were converted into common stock.

NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2001

Sales for the nine months ended September 30, 2002 were $51,241,200,  a decrease
of $4,516,900,  or  approximately  8.1%,  compared to  $55,758,100  for the nine
months ended  September  30, 2001.  The decrease was primarily  attributable  to
decreased  revenues at PMI and PMIGA  partially  offset by the revenues of newly
formed LiveWarehouse and newly acquired Lea.

The combined sales of PMI and PMIGA were  $48,238,000  for the nine months ended
September 30, 2002, a decrease of $5,335,800 or approximately 10.0%, compared to
$53,573,800  for the  nine  months  ended  September  30,  2001.  Sales  for PMI
decreased by $4,319,100,  or 9.6%,  from  $44,993,700  for the nine months ended
September 30, 2001 to $40,674,600  for the nine months ended September 30, 2002.
PMIGA's sales  decreased by $1,016,700,  or 11.8%,  from $8,580,100 for the nine
months  ended  September  30,  2001 to  $7,563,400  for the  nine  months  ended
September  30, 2002.  The decrease in PMI and PMIGA sales was primarily due to a
continuing decline in the computer component market and the intense  competition
in pricing in the  computer  component  market  during  the nine  months  ending
September 30, 2002 compared to the comparable nine months in 2001.

Sales  recognized  by FNC for the nine  months  ended  September  30,  2002 were
$2,131,200,  a decrease of $53,100 or 2.4%,  compared to $2,184,300 for the nine
month ended  September 30, 2001. FNC sales were  essentially  flat due to a slow
and stagnant economy. Our customers had not increased their purchases from us in
computer networking.

In the fourth  quarter of 2001,  PMICC  acquired  certain  assets of LiveMarket.
Subsequently,  these assets were  transferred  to Lea.  Prior to the  LiveMarket
acquisition,  Lea did not  generate  any  revenues as it was in the  development
stage.  Revenues  generated  by Lea  were  $412,000  for the nine  months  ended
September 30, 2002.

In December 2001,  LiveWarehouse,  Inc. (LW) was  incorporated as a wholly-owned
subsidiary of PMIC to provide  consumers a convenient  way to purchase  computer
products via the  internet.  Sales  generated  by LW were  $460,000 for the nine
months ended September 30, 2002.

Consolidated  gross  margin for the nine  months  ended  September  30, 2002 was
$3,507,600,  or 6.8% of sales, compared to $3,824,900, or 6.9% of sales, for the
nine months ended September 30, 2001. The decrease in gross margin was primarily
attributable  to the  intense  competition  on  pricing  of  computer  component
products in the market experienced by PMI and PMIGA.

The combined  gross margin for PMI and PMIGA was  $2,847,100,  or 5.9% of sales,
for the nine months ended September 30, 2002,  compared to $3,521,800 or 6.6% of
sales,  for the nine months ended  September  30,  2001.  PMI's gross margin was
$2,476,600,  or 6.1% of sales,  for the nine  months  ended  September  30, 2002
compared to $3,091,700,  or 6.9% of sales,  for the nine months ended  September
30, 2001.  PMIGA's  gross margin was  $370,500,  or 4.9% of sales,  for the nine
months ended September 30, 2002 compared to $430,100,  or 5.0% of sales, for the
nine months ended September 30, 2001. The decrease in PMI and PMIGA gross margin

                                      -18-
<PAGE>
was primarily  due to an intense  competition  on pricing of computer  component
products in the market during the nine months ending September 30, 2002 compared
to the comparable nine months in 2001. We expect the pricing  competition in the
market will continue in a slow economy. This would have an adverse impact on our
gross margin.

FNC's gross margin was  $392,600,  or 18.4% of sales,  for the nine months ended
September 30, 2002 compared to $303,100,  or 13.9% of sales, for the nine months
ended September 30, 2001. The higher gross margin  percentage in 2002 was due to
an increase in service  revenues earned as a percent of total sales for the nine
months ended  September 30, 2002 compared to the nine months ended September 30,
2001.  Service  revenues were  $366,800 for the nine months ended  September 30,
2002  compared to $114,100 for the nine months  ended  September  30,  2001.  In
general, FNC has a higher gross margin on consulting and implementation  service
revenues than product sales  revenues.  We expect to maintain the similar mix of
service/equipment revenues as the economy continues to stagnate.

Lea experienced an overall gross margin of $175,600,  or 42.6% of sales, for the
nine months ended September 30, 2002.  Lea's gross margin was derived  primarily
from service revenues.

Gross  margin for LW was $92,300,  or 20.1% of sales,  for the nine months ended
September  30,  2002.  The gross  margin  realized in retail  sales is generally
higher than wholesale distribution.

Consolidated  operating expenses,  which consist of research and development and
selling,  general and  administrative  expenses,  were  $6,771,100  for the nine
months ended  September 30, 2002, an increase of $845,400,  or 14.3% compared to
$5,925,700 for the nine months ended September 30, 2001.

The  increase  in  consolidated  operating  expenses  was  partially  due to the
inclusion of the operating and development  support expenses of $787,000 for Lea
for the nine months ended  September 30, 2002 which were not incurred during the
same period in 2001.

LW  began  its  operations  in the  first  quarter  of  2002.  The  increase  in
consolidated  operating  expenses  was  partially  due to the  inclusion  of the
operating  expenses of $274,000 for LW for the nine months ended  September  30,
2002 which were not incurred during the same period in 2001.

The  Company has also  experienced  a lower  level of bad debt  write-offs.  The
consolidated bad debt expense  decreased from $297,000 for the nine months ended
September  30, 2001 to $189,800  for the nine months ended  September  30, 2002.
Consolidated  expense for the Company's  investor  relations for maintaining the
status of PMIC as a publicly-held company was $335,300 for the nine months ended
September 30, 2002 compared to $116,400 for the nine months ended  September 30,
2001.  These  expenses  were  partially  offset  by,  among  other  cost-cutting
measures,  reducing our employee count from 97 to 93 for PMI, PMIGA, and FNC and
decreasing  our labor cost by $462,000 for the nine months ended  September  30,
2002 compared to the same period in 2001.

PMI's operating expenses were $3,561,200 for the nine months ended September 30,
2002 compared to $3,868,300  for the nine months ended  September 30, 2001.  The
decrease of  $307,100,  or 7.9%,  was mainly due to a reduction  in our employee
count from 66 as of September 30, 2001 to 62 as of September 30, 2002  resulting
in a decrease in payroll expenses of approximately  $462,600 and the decrease in
bad debt expense of $144,100  and was mostly  offset by an increase in allocated
corporate  expenses from PMIC to PMI. These allocated  expenses primarily relate
to maintaining the status of PMIC as a publicly-held  company, and include among
others, investor relations and professional service expenses. Investor relations
and   professional   service   expense   increased   by  $174,000  and  $83,000,
respectively,  for the nine months ended September 30, 2002 compared to the same
period in 2001.

PMIGA's operating expenses were $878,200 for the nine months ended September 30,
2002,  a decrease of $65,500,  or 6.9%  compared to $943,700 for the nine months
ended June 30,  2001.  The  decrease  was  primarily  due to a reduction  in our
employee  count from 19 as of September  30, 2001 to 15 as of September 30, 2002
resulting in a decrease in payroll expense of  approximately  $155,900 which was
partially  offset by the increase in bad debt  expense of $26,400 and  allocated
corporate expenses from PMIC to PMIGA. These allocated expenses primarily relate
to maintaining the status of PMIC as a publicly-held company, and include, among
others, investor relations and professional service expenses. Investor relations
expense  increased  by $35,500  for the nine  months  ended  September  30, 2002
compared to the same period in 2001.

                                      -19-
<PAGE>
FNC's operating expenses were $1,262,700 for the nine months ended September 30,
2002, an increase of $220,500,  or 21.2%,  compared to  $1,042,200  for the nine
months ended  September  30, 2001.  FNC  acquired  certain  assets of a computer
technical  support  company,  Technical  Insight (TI) on September 30, 2001. The
operating  expenses for the nine months ended  September  30, 2002  included the
expenses of operating TI.  Payroll  expense,  including TI, was $999,300 for the
nine months ended  September  30, 2002  compared to $838,900 for the nine months
ended  September  30,  2001,  an increase of  $160,400.  Rent expense for TI was
$27,400 for the nine months ended  September 30, 2002.  FNC also  experienced an
increase in bad debt expense of $10,500 for the nine months ended  September 30,
2002. The increases were partially offset by a decrease in professional  service
expenses of approximately $63,100.

Consolidated  loss from  operations for the nine months ended September 30, 2002
was $3,263,500  compared to $2,100,800  for the nine months ended  September 30,
2001,  an  increase  of 55.3%.  As a percent  of sales,  consolidated  loss from
operations  was 6.4% for the nine months ended  September  30, 2002  compared to
3.8% for the nine months ended  September 30, 2001. The increase in consolidated
loss from operations was primarily due to an 8.1% decrease in consolidated sales
and a 14.3% increase in consolidated  operating  expenses.  Loss from operations
for the nine months ended  September  30,  2002,  includes  allocations  of PMIC
corporate  expenses,  for PMI, PMIGA, FNC, Lea and LW was $1,591,500,  $252,600,
$141,200, $69,900, and $151,700, respectively.

Consolidated interest income was $14,600 for the nine months ended September 30,
2002  compared to $107,900 for the nine months  ended  September  30, 2001.  The
decrease  in interest  income was mainly due to a decline in interest  rates and
funds available to earn interest.

Consolidated  interest  expense was $138,900 for the nine months ended September
30, 2002 compared to $201,900 for the nine months ended  September 30, 2001. The
decrease  in interest  expense  was  largely  due to a decrease in the  floating
interest  rate charged on one of our mortgages on our office  building  facility
located in Milpitas, California.

In June 2001,  the  Company  established  a 100%  reserve on the  investment  in
TargetFirst  Inc. as a result of an  evaluation of the net  realizable  value of
this investment. An impairment loss of $250,000 was recorded in June 2001.

In March  2002,  legislation  was  enacted to extend  the  general  federal  net
operating loss carryback period from 2 years to 5 years for net operating losses
incurred  in 2001 and 2002.  As a  result,  we  computed  the  weighted  average
effective tax rate which  originated  the net  operating  losses and recorded an
income tax benefit of  $1,107,000 on the net operating tax loss incurred for the
nine months ended  September 30, 2002 using the weighted  average  effective tax
rate.

On May 31,  2002 the  Company  issued 600  shares of its 4% Series A  Redeemable
Convertible  Preferred Stock and a warrant for 300,000 shares of common stock to
an  investor.  The  Company has  accounted  for the sale of  preferred  stock in
accordance  with Emerging  Issues Task Force (EITF) 00-27  "Application of Issue
No. 98-5 to Certain  Convertible  Instruments."  Proceeds of $176,200  (net of a
total of $83,800  issuance costs prorated to the preferred stock) were allocated
to the Series A Preferred  Stock and  $298,000 was  allocated to the  detachable
warrant  based upon its fair value as computed  using the  Black-Scholes  option
pricing model. The $260,000 value of the beneficial conversion option on the 600
shares of Series A Preferred Stock was recorded as a deemed dividend on the date
of  issuance.  The $99,300  fair value of the  warrant  issued to the broker who
facilitated  the  transaction  and $298,000 fair value of the warrants issued to
the preferred  stock  investor were  recorded as a current  liability.  The fair
values of the warrants are revalued at the end of each quarter and the change in
fair value of the warrants is recorded as income or expense in the period of the
change.  Included in other income was $34,000 and 50,500 representing the change
in fair value of the warrants for the three and nine months ended  September 30,
2002.  The  issuance  costs of  $96,000  allocated  to the  warrants  have  been
capitalized  and are being amortized over the warrant term of three years. As of
September 30, 2002, 810,800 shares of common stock could have been issued if the
Series A Preferred Stock were converted into common stock.

LIQUIDITY AND CAPITAL RESOURCES

It is our business plan that we finance our  operations  primarily  through cash
generated by operations and borrowings  under our floor plan inventory loans and
line of credit.  The continued  decline in sales,  the continuation of operating
losses or the loss of credit  facilities could have a material adverse effect on
the operating cash flows of the Company.

As of June 30, 2002, the Companies did not meet the revised minimum tangible net
worth and profitability covenants, giving Transamerica,  among other things, the
right to call the loan and immediately terminate the credit facility. On October
23, 2002, Transamerica issued a waiver of the default occurring on June 30, 2002
and  revised  the terms and  covenants  under the  credit  agreement.  Under the
revised terms,  the credit facility  includes FNC as an additional  borrower and
PMIC continues as a guarantor.  Effective  October 2002, the new credit limit is
$3 million in aggregate for inventory  loans and the letter of credit  facility.
The letter of credit  facility is limited to $1 million.  The credit  limits for
PMI and FNC are $1,750,000 and $250,000, respectively. As of September 30, 2002,
the Companies did not meet the revised covenants relating to profitability and

                                      -20-
<PAGE>
tangible net worth. This gives  Transamerica,  among other things,  the right to
call the loan and immediately terminate the credit facility.

On May 31, 2002 the Company  entered into a Preferred  Stock Purchase  Agreement
with an investor.  Under the agreement, the Company agreed to issue 1,000 shares
of its preferred stock at $1,000 per share. The Company issued 600 shares of its
preferred  stock and warrants for  purchasing  400,000  shares of the  Company's
common stock for a net proceeds of $477,500 on May 31, 2002.  We expect to issue
the  additional  400 shares for an estimated  gross  proceeds of $370,000 in the
fourth quarter 2002. Even though we have completed the required  registration of
the  underlying  common  stock in  October  2002,  there is no  assurance  these
remaining 400 shares will be sold.

At September 30, 2002, the Company had  consolidated  cash and cash  equivalents
totaling $2,667,400  (excluding $250,000 in restricted cash) and working capital
of  $3,960,400,  a decrease of  $1,774,500  compared  to the working  capital at
December 31,  2001.  At December 31,  2001,  we had  consolidated  cash and cash
equivalents  totaling  $3,110,000  (excluding  $250,000) in restricted cash) and
working capital of $5,734,900.  The decrease in working capital is primarily due
to an increase in accounts payable.

Net cash used in operating activities during the nine months ended September 30,
2002 was $233,600,  which principally reflected the net loss incurred during the
period,  and an  increase  in  inventories,  which  was  partially  offset by an
increase in accounts payable and a decrease in accounts receivable.  On June 12,
2002, the Company received a Federal income tax refund of $1,034,700.

Net cash used by investing activities during the nine months ended September 30,
2002 was  $102,300,  resulting  from the  purchases of property and equipment of
$128,000  and an increase of $22,700 in deposits  and other  assets.  These uses
were partially offset by the proceeds from the sale of property and equipment.

Net cash used in  financing  activities  was  $106,700 for the nine months ended
September 30, 2002,  primarily due to net decreases in the floor plan  inventory
loans and principal  payments on the mortgages on our office facility.  This was
partially  offset by the net proceeds of $477,500 from the issuance of preferred
stock.

On July 13,  2001,  PMI and PMIGA  (the  Companies)  obtained  a new $4  million
(subject to credit and  borrowing  base  limitations)  accounts  receivable  and
inventory  financing facility from Transamerica  Commercial Finance  Corporation
(Transamerica).  This  credit  facility  has a term  of two  years,  subject  to
automatic  renewal  from year to year  thereafter.  The credit  facility  can be
terminated by either party upon 60 days' prior written notice and immediately if
the  Companies  lose the right to sell or deal in any product line of inventory.
The  Companies are subject to an early  termination  fee equal to 1% of the then
established  credit limit. The facility  includes a $2.4 million  inventory line
(subject to a borrowing base of up to 85% of eligible  accounts  receivable plus
up to $1,500,000 of eligible inventories), a $600,000 working capital line and a
$1 million letter of credit facility used as security for inventory purchased on
terms from vendors in Taiwan. Borrowing under the inventory loans are subject to
30 to 60 days  repayment,  at which time interest  begins to accrue at the prime
rate,  which was 4.75% at September 30, 2002.  Draws on the working capital line
also accrue interest at the prime rate.

Under the agreement,  PMI and PMIGA granted  Transamerica a security interest in
all of their accounts,  chattel paper,  cash,  documents,  equipment,  fixtures,
general intangibles,  instruments,  inventories,  leases,  supplier benefits and
proceeds of the foregoing.  The Companies are also required to maintain  certain
financial covenants. As of December 31, 2001, the Companies were in violation of
the minimum tangible net worth covenant. On March 6, 2002, Transamerica issued a
waiver of the  default  and revised  the  covenants  under the credit  agreement
retroactively to September 30, 2001. The revised covenants require the Companies
to  maintain  certain   financial  ratios  and  to  achieve  certain  levels  of
profitability. As of December 31, 2001 and March 31, 2002, the Companies were in
compliance with these revised covenants.  As of June 30, 2002, the Companies did
not meet the revised  minimum  tangible net worth and  profitability  covenants,
giving  Transamerica,  among  other  things,  the  right  to call  the  loan and
immediately terminate the credit facility.

On October 23, 2002,  Transamerica  issued a waiver of the default  occurring on
June 30, 2002 and revised the terms and  covenants  under the credit  agreement.
Under the revised  terms,  the credit  facility  includes  FNC as an  additional
borrower and PMIC  continues as a guarantor.  Effective  October  2002,  the new
credit limit was reduced to $3 million in aggregate for inventory  loans and the
letter of credit  facility.  The  letter of credit  facility  is  limited  to $1
million. The credit limits for PMI and FNC are $1,750,000 and $250,000,

                                      -21-
<PAGE>
respectively. As of September 30, 2002, there were outstanding draws of $990,800
on the credit facility. As of September 30, 2002, the Companies did not meet the
covenants as revised on October 23, 2002 relating to profitability  and tangible
net worth,  constituting a technical  default.  This gives  Transamerica,  among
other things,  the right to call the loan and  immediately  terminate the credit
facility.  We are currently in discussions with  Transamerica to obtain a waiver
of the covenant  default.  There is no assurance  that a waiver will be obtained
from Transamerica nor that the covenants will be revised with terms favorable to
us.

In March 2001,  FNC obtained a $2 million  discretionary  credit  facility  from
Deutsche Financial Services  Corporation  (Deutsche) to purchase  inventory.  To
secure payment, Deutsche obtained a security interest in all of FNC's inventory,
equipment,  fixtures, accounts,  reserves,  documents, general intangible assets
and all judgments, claims, insurance policies, and payments owed or made to FNC.
Under the loan  agreement,  all draws matured in 30 days.  Thereafter,  interest
accrued at the lesser of 16% per annum or at the maximum lawful contract rate of
interest permitted under applicable law.

FNC was  required to maintain  certain  financial  covenants  to qualify for the
Deutsche  bank credit  line,  and was not in  compliance  with  certain of these
covenants  as of June 30,  2002 and  December  31,  2001,  which  constituted  a
technical  default  under the credit line.  This gave Deutsche the right to call
the loan and terminate the credit line.  The credit  facility was  guaranteed by
PMIC and could be terminated by Deutsche immediately given the default. On April
30, 2002,  Deutsche  elected to terminate the credit facility  effective July 1,
2002. Upon  termination,  the  outstanding  balance must be repaid in accordance
with normal terms and provisions of the financing agreement. As of September 30,
2002,  there were  outstanding  draws of $11,600 on the credit line.  The entire
outstanding balance was repaid on October 9, 2002.

Pursuant  to one of our  bank  mortgage  loans  with  a  $2,393,700  balance  at
September 30, 2002,  we are required to maintain  certain  financial  covenants.
During 2001, we were in violation of a consecutive  quarterly  loss covenant and
an EBITDA coverage ratio  covenant,  which is an event of default under the loan
agreement that gives the bank the right to call the loan. A waiver of these loan
covenant  violations  was obtained from the bank in March 2002,  retroactive  to
September  30, 2001,  and through  December 31,  2002.  As a condition  for this
waiver,  we transferred  $250,000 to a restricted  account as a reserve for debt
servicing. This amount has been reflected as restricted cash in the consolidated
financial statements.

We presently have  insufficient  working capital to pursue our long-term  growth
plans with  respect to  expansion  of our  service  and  product  offerings.  We
believe,  however,  that  our  existing  cash,  trade  credits  from  suppliers,
anticipated  income tax  refunds,  and  proceeds  from  issuance  of  additional
preferred stock will satisfy our anticipated requirements for working capital to
support our present operations through the next 12 months,  provided we are able
to maintain our existing credit lines or obtain  comparable  replacement  credit
facilities.

On May 31, 2002 we received  net  proceeds of $477,500  from the issuance of 600
shares of 4% Series A Preferred  Stock.  We expect an additional 400 shares will
be issued in the fourth quarter 2002. Even though we have completed the required
registration  of the  underlying  common  stock  in  October  2002,  there is no
assurance  these  remaining  400 shares  will be sold or that we will be able to
obtain additional capital beyond the issuance of these 1,000 shares of Preferred
stock.  Upon the  occurrence of a Triggering  Event,  such as the Company were a
party in a "Change of Control Transaction," among others, as defined, the holder
of the  preferred  stock has the rights to  require  us to redeem its  preferred
stock in cash at a minimum of 1.5 times the Stated  Value.  As of September  30,
2002, the redemption  value of the Series A Preferred  Stock,  if the holder had
required  us to  redeem  the  Series  A  Preferred  Stock as of that  date,  was
$912,200. Even though we do not expect those Triggering Events will occur, there
is no assurance  that those events will not occur.  In the event we are required
to redeem our Series A Preferred Stock in cash, we might  experience a reduction
in our ability to operate the business at the current level.

We are actively seeking additional capital to augment our working capital and to
finance our new business. However, there is no assurance that we can obtain such
capital,  or if we can  obtain  capital  that  it  will  be on  terms  that  are
acceptable to us.

Our stock is currently traded on the Nasdaq SmallCap Market.  On August 19, 2002
we received a letter from the Nasdaq Stock  Market  informing us that we did not
meet the criteria  for  continued  listing on the Nasdaq  SmallCap  Market.  The
letter  stated that Nasdaq will  monitor our common stock and if it closes above
$1.00 for a minimum of ten  consecutive  trading days,  Nasdaq will notify us of
our compliance with its continued listing standards. If we do not meet the

                                      -22-
<PAGE>
continued  listing  standards by February 18, 2003, Nasdaq will evaluate whether
we meet the initial  listing  criteria  of the  SmallCap  Market.  If we do not,
Nasdaq will inform us of its intent to delist our common stock. If we do, Nasdaq
will provide an additional 180 days to come into  compliance  with the continued
listing criteria.  If we still do not meet the continued listing criteria at the
end of the additional period,  Nasdaq will inform us of its intent to delist our
common stock.  We cannot  assure you that we will meet any of such  deadlines or
criteria. If our common stock is delisted,  the market for our common stock will
decline and it will be more  difficult to trade in our common stock,  which will
likely cause a decrease in the price of our common stock.

RELATED PARTY TRANSACTIONS

During the three months ended March 31, 2002, the Company made short-term salary
advances to a  shareholder/officer  totaling $30,000,  without  interest.  These
advances were recorded as a bonus to the  shareholder/officer  during the second
quarter ended June 30, 2002.

We sell  computer  products  to a  company  owned  by a member  of our  Board of
Directors. Management believes that the terms of these sales transactions are no
more  favorable  than given to  unrelated  customers.  For the nine months ended
September  30, 2002,  and 2001,  the Company  recognized  $494,400 and $476,200,
respectively,  in sales  revenues  from  this  customer.  Included  in  accounts
receivable as of September 30, 2002 is $96,300 due from this related customer.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2000,  the EITF  reached a  consensus  on Issue  00-14,  "Accounting  for
Certain Sales Incentives." This issue addresses the recognition, measurement and
income statement  classification for sales incentives  offered  voluntarily by a
vendor without charge to customers that can be used in, or are  exercisable by a
customer as a result of, a single exchange transaction.  In April 2001, the EITF
reached a consensus on Issue 00-25, "Vendor Income Statement Characterization of
Consideration  to a Purchaser of the Vendor's  Products or Services." This issue
addresses the recognition,  measurement and income statement  classification  of
consideration,  other than that directly addressed by Issue 00-14, from a vendor
to a retailer or  wholesaler.  Issue 00-25 is effective for the  Company's  2002
fiscal year.  Both Issue 00-14 and 00-25 have been  codified  under Issue 01-09,
"Accounting for  Consideration  Given by a Vendor to a Customer or a Reseller of
the Vendor's  Products." The adoption of Issue 01-09 during the first quarter of
2002 did not have a  material  impact on the  Company's  financial  position  or
results of operations.

In June 2001, the Financial  Accounting  Standards Board finalized SFAS No. 141,
BUSINESS  COMBINATIONS,  and 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. 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. The Company  recorded
its  acquisition  of Technical  Insights and LiveMarket in September and October
2001 in accordance with SFAS No. 141 and did not recognize any goodwill relating
to these transactions.  However, certain intangibles totaling $59,400, including
intellectual  property  and vendor  reseller  agreements,  were  identified  and
recorded in the consolidated financial statements in deposits and other assets.

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.  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. The adoption of
SFAS No. 142 did not have a material effect on the Company's financial position,
results of operations or cash flows since the value of  intangibles  recorded is
relatively insignificant and no goodwill has been recognized.

                                      -23-
<PAGE>
In  August  2001,  the FASB  issued  SFAS No.  143  Accounting  for  Obligations
associated  with the  Retirement  of Long-Lived  Assets.  SFAS No. 143 addresses
financial  accounting and reporting for the  retirement  obligation of an asset.
SFAS No. 143 states that companies  should  recognize the asset retirement cost,
at its fair value,  as part of the cost asset and classify the accrued amount as
a  liability  in the  balance  sheet.  The asset  retirement  liability  is then
accreted to the ultimate payout as interest expense.  The initial measurement of
the  ability  would  be  subsequently  updated  for  revised  estimates  of  the
discounted  cash  outflows.  SFAS No. 143 will be  effective  for  fiscal  years
beginning  after June 15, 2002. The Company does not expect the adoption of SFAS
No.  143 to  have a  material  effect  on its  financial  position,  results  of
operations, or cash flows.

In October 2001,  the FASB issued SFAS No. 144  Accounting for the Impairment or
Disposal  of  Long-Lived  Assets.  SFAS No. 144  supersedes  the SFAS No. 121 by
requiring  that one  accounting  model to be used for  long-lived  assets  to be
disposed of by sale, whether previously held and used or newly acquired,  and by
broadening the  presentation of discontinued  operation to include more disposal
transactions.  SFAS No.  144 is  effective  for  fiscal  years  beginning  after
December 15, 2001.  The adoption of SFAS No. 144 did not have a material  effect
on the Company's financial position, results of operations, or cash flows.

Statement  of  Financial  Accounting  Standards  No.  145,  "Rescission  of SFAS
Statements No. 4, 44, and 64,  Amendment of SFAS Statement No. 13, and Technical
Corrections" ("SFAS 145"), updates, clarifies and simplifies existing accounting
pronouncements.  SFAS 145 rescinds SFAS No. 4, "Reporting  Gains and Losses from
Extinguishment  of Debt." SFAS 145 amends SFAS No. 13,  "Accounting for Leases,"
to eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required  accounting for certain lease  modifications  that
have  economic  effects  that are similar to  sale-leaseback  transactions.  The
provisions  of SFAS 145 related to SFAS No. 4 and SFAS No. 13 are  effective for
fiscal  years  beginning  and   transactions   occurring  after  May  15,  2002,
respectively. The Company does not expect the adoption of SFAS No. 145 to have a
material effect on its financial position, results of operations, or cash flows.

Statement of  Financial  Accounting  Standards  No. 146,  "Accounting  for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"), requires companies to
recognize  costs  associated  with  exit or  disposal  activities  when they are
incurred  rather than at the date of a commitment  to an exit or disposal  plan.
SFAS 146 replaces Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)."  The provisions
of SFAS  146 are to be  applied  prospectively  to exit or  disposal  activities
initiated  after  December 31, 2002. The Company does not expect the adoption of
SFAS No. 146 to have a material  effect on its  financial  position,  results of
operations, or cash flows.

INFLATION

Inflation has not had a material  effect upon our results of operations to date.
In the  event the rate of  inflation  should  accelerate  in the  future,  it is
expected  that to the  extent  increased  costs  are  not  offset  by  increased
revenues, our operations may be adversely affected.

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

WE HAVE INCURRED  OPERATING LOSSES AND DECREASED REVENUES RECENTLY AND WE CANNOT
ASSURE YOU THAT THIS  TREND WILL  CHANGE.  We  incurred  net losses for the year
ended  December  31,  2001 and the  nine  months  ended  September  30,  2002 of
$2,850,700 and $2,267,800, respectively, and we may continue to incur losses. In
addition,  our revenues  decreased 15.6% during the year ended December 31, 2001
as  compared  to the  corresponding  period in 2000 and 8.1% for the nine months
ended  September 30, 2002 as compared to the  corresponding  period in 2001. Our
future  ability to  execute  our  business  plan will  depend on our  efforts to
increase  revenues and return to  profitability.  We have  implemented  plans to
reduce overhead and operating  costs (such as reducing our labor costs),  and to
build upon our existing  business and capture new business.  No assurance can be
given, however, that these actions will result in increased revenues,  decreased
expenses,  and  profitable  operations,  which may have an adverse impact on our
ability to execute our business plan.

WE CAN PROVIDE NO ASSURANCE  THAT WE WILL BE ABLE TO SECURE  ADDITIONAL  CAPITAL
REQUIRED BY OUR  BUSINESS.  We recently  completed  a private  placement  of 600
shares  of our  Series  A  Convertible  Preferred  Stock  with net  proceeds  of
$477,500. We expect to complete the sale of an additional 400 shares of Series A

                                      -24-
<PAGE>
Preferred  Stock for gross  proceeds  of  approximately  $370,000  in the fourth
quarter 2002.  Based on our present  operations,  we anticipate that our working
capital,  including the $477,500  raised in our recent  placement,  the $370,000
expected to be raised in the fourth  quarter  2002 and the income tax refunds to
be received in 2003,  will satisfy our working capital needs for the next twelve
months,  provided we are able to maintain  our  existing  credit lines or obtain
comparable replacement credit facilities. If we fail to raise additional working
capital  prior  to the end of that  time or if the  sale of the  additional  400
shares of Series A Preferred Stock is not completed in a timely manner,  we will
be unable to pursue our  business  plan  involving  expansion of our service and
product offerings. We must obtain additional financing to continue to expand our
distribution business, and to develop our FNC business. We can give no assurance
that we will be able to obtain additional  capital when needed or, if available,
that such capital will be available at terms acceptable to us.

WE HAVE VIOLATED  CERTAIN  FINANCIAL  COVENANTS  CONTAINED IN TWO OF OUR CURRENT
LOANS AND MAY DO SO AGAIN IN THE FUTURE.  We have a mortgage on our offices with
Wells Fargo Bank under which we must maintain certain financial covenants.  They
are:

     1)   Our total  liabilities  must not be more than twice our  tangible  net
          worth;

     2)   Our net  income  after  taxes  must not be less than one  dollar on an
          annual basis and for net losses no more than two consecutive quarters;
          and

     3)   We must  maintain  annual  EBITDA  of one and one half  times our debt
          service.

We are  currently in violation  of covenants  number 2 and 3 above,  but we have
received a waiver for such violation through the end of 2002.

Our subsidiaries, PMI, PMIGA and FNC also have a flooring line with Transamerica
Commercial Finance  Corporation.  We must also meet certain financial  covenants
with respect to this line. These covenants are:

     1)   The  combined  total  indebtedness  of PMI and  PMIGA  and FNC may not
          exceed 3.25 times their tangible net worth on a quarterly basis;

     2)   The  combined  tangible  net worth of PMI and PMIGA and FNC may not be
          less than $4,250,000;

     3)   The combined EBIT of PMI and PMIGA and FNC must be greater than $0 for
          the quarter  ended  September  30, 2002 and  $275,000  for the quarter
          ended December 31, 2002.

We were in  violation of our  tangible  net worth  covenant  (prior to revisions
discussed  below) as of December  31,  2001.  However,  Transamerica  waived the
violation and revised the credit agreement  retroactively to September 30, 2001.
We  received  a letter  from  Transamerica  stating  that PMI and PMIGA  were in
compliance with all of the above covenants as of March 31, 2002. We were also in
violation of our tangible  net worth  covenant and the EBIT  covenant as of June
30, 2002 which gave Transamerica, among other things, the right to call the loan
and immediately terminate the credit facility. On October 23, 2002, Transamerica
issued a waiver of the  default as of June 30,  2002 and  revised  the terms and
covenants under the credit agreement. Under the revised terms, PMIC continues as
a guarantor of the loans and the credit facility and includes FNC as a borrower.
The new credit limit was reduced to $3 million in aggregate for inventory  loans
and the letter of credit  facility.  The letter of credit facility is limited to
$1  million.  The credit  limits for PMI and FNC are  $1,750,000  and  $250,000,
respectively. As of September 30, 2002, the Companies did not meet the covenants
as revised on October 23, 2002 relating to profitability and tangible net worth.
This constitutes a technical default and gives Transamerica, among other things,
the right to call the loan and immediately terminate the credit facility.

We  cannot  assure  you  that we will be  able to meet  all of  these  financial
covenants  in the  future.  If we fail to meet  the  covenants,  the  respective
lenders  may  declare us in default  and  accelerate  the loans.  If that was to
occur, we would be unable to continue our operations  without  replacement loans
or other alternate financing.

OUR COMMON STOCK DOES NOT MEET THE  REQUIREMENTS  FOR  CONTINUED  LISTING ON THE
NASDAQ  SAMLLCAP  MARKET.  Our stock is currently  traded on the Nasdaq SmallCap
Market.  On August 19, 2002 we received a letter  from the Nasdaq  Stock  Market
informing  us that we did not meet the  criteria  for  continued  listing on the

                                      -25-
<PAGE>
Nasdaq  SmallCap  Market.  The letter stated that Nasdaq will monitor our common
stock and if it closes  above  $1.00 for a minimum  of ten  consecutive  trading
days,  Nasdaq  will  notify  us of our  compliance  with its  continued  listing
standards.  If we do not meet the  continued  listing  standards by February 18,
2003,  Nasdaq will evaluate  whether we meet the initial listing criteria of the
SmallCap Market. If we do not, Nasdaq will inform us of its intent to delist our
common stock.  If we do, Nasdaq will provide an additional 180 days to come into
compliance  with the  continued  listing  criteria.  If we still do not meet the
continued  listing  criteria at the end of the  additional  period,  Nasdaq will
inform us of its intent to delist our common stock. We cannot assure you that we
will meet any of such  deadlines or  criteria.  If our common stock is delisted,
the market for our common  stock will  decline and it will be more  difficult to
trade in our common  stock,  which will likely  cause a decrease in the price of
our common stock.

OUR FAILURE TO  ANTICIPATE  OR RESPOND TO  TECHNOLOGICAL  CHANGES  COULD HAVE AN
ADVERSE EFFECT ON OUR BUSINESS.  The market for computer systems and products is
characterized   by  constant   technological   change,   frequent   new  product
introductions and evolving industry  standards.  Our future success is dependent
upon the continuation of a number of trends in the computer industry,  including
the  migration  by  end-users  to  multi-vendor   and   multi-system   computing
environments,  the overall increase in the sophistication and interdependency of
computing  technology,  and a focus by  managers on  cost-efficient  information
technology  management.   These  trends  have  resulted  in  a  movement  toward
outsourcing and an increased  demand for product and support  service  providers
that have the  ability  to provide a broad  range of  multi-vendor  product  and
support services.  There can be no assurance these trends will continue into the
future.  Our  failure to  anticipate  or  respond  adequately  to  technological
developments and customer  requirements  could have a material adverse effect on
our business, operating results and financial condition.

IF  WE  WERE  UNABLE  TO  SECURE  PRICE  PROTECTION  PROVISIONS  IN  OUR  VENDOR
AGREEMENTS, THE VALUE OF OUR INVENTORY WOULD QUICKLY DIMINISH. As a distributor,
we incur the risk that the value of our inventory will be adversely  affected by
industry wide forces. Rapid technology change is commonplace in the industry and
can quickly diminish the marketability of certain items, whose functionality and
demand  decline with the  appearance  of new  products.  These changes and price
reductions   by  vendors  may  cause  rapid   obsolescence   of  inventory   and
corresponding   valuation  reductions  in  that  inventory.  We  currently  seek
provisions  in the vendor  agreements  common to industry  practice that provide
price  protections  or credits for declines in inventory  value and the right to
return  unsold  inventory.  No  assurance  can be  given,  however,  that we can
negotiate  such  provisions  in each of our  contracts  or  that  such  industry
practice will continue.

EXCESSIVE  CLAIMS AGAINST  WARRANTIES THAT WE PROVIDE COULD ADVERSELY AFFECT OUR
BUSINESS.  Our suppliers  generally  warrant the products that we distribute and
allow us to return defective  products,  including those that have been returned
to us by  customers.  We do not  independently  warrant  the  products  that  we
distribute,  except that we do warrant services  provided in connection with the
products  that we  configure  for  customers  and that we  build  to order  from
components  purchased from other sources.  If excessive  claims are made against
these warranties our results of operations would suffer.

WE MAY NOT BE ABLE TO  SUCCESSFULLY  COMPETE WITH SOME OF OUR  COMPETITORS.  All
aspects of our business are highly competitive.  Competition within the computer
products  distribution  industry  is  based  on  product  availability,   credit
availability,  price, speed and accuracy of delivery, effectiveness of sales and
marketing  programs,  ability to tailor  specific  solutions to customer  needs,
quality and  breadth of product  lines and  services,  and the  availability  of
product and technical support  information.  We also compete with  manufacturers
that sell directly to resellers and end-users.

Competition within the corporate information systems industry is based primarily
on  flexibility  in  providing  customized  network  solutions,   resources  and
contracts to provide products for integrated systems and consultant and employee
expertise needed to optimize network performance and stability.

A number of our competitors in the computer distribution  industry,  and most of
our  competitors  in  the  information   technology  consulting  industry,   are
substantially larger and have greater financial and other resources than we do.

FAILURE TO RECRUIT AND RETAIN  TECHNICAL  PERSONNEL WILL HARM OUR BUSINESS.  Our
success depends upon our ability to attract, hire and retain technical personnel
who possess the skills and experience  necessary to meet our personnel needs and
staffing  requirements of our clients.  Competition for individuals  with proven
technical skills is intense, and the computer industry in general experiences a

                                      -26-
<PAGE>
high rate of attrition of such personnel.  We compete for such  individuals with
other systems  integrators  and providers of  outsourcing  services,  as well as
temporary  personnel  agencies,   computer  systems  consultants,   clients  and
potential clients.  Failure to attract and retain sufficient technical personnel
would have a material  adverse  effect on our  business,  operating  results and
financial condition.

WE DEPEND UPON CONTINUED CERTIFICATION FROM CERTAIN OF OUR SUPPLIERS. The future
success  of FNC  depends in part on our  continued  certification  from  leading
manufacturers.  Without such  authorizations,  we would be unable to provide the
range of  services  currently  offered.  There  can be no  assurance  that  such
manufacturers  will continue to certify us as an approved service provider,  and
the loss of one or more of such  authorizations  could have a  material  adverse
effect  on FNC  and  thus  to our  business,  operating  results  and  financial
condition.

WE DEPEND ON KEY SUPPLIERS FOR A LARGE PORTION OF OUR  INVENTORY,  LOSS OF THOSE
SUPPLIERS COULD HARM OUR BUSINESS. One supplier, Sunnyview/CompTronic, accounted
for  approximately  9%,  10%,  16% and 20% of our total  purchases  for the nine
months ended  September 30, 2002 and for the years ended December 31, 2001, 2000
and 1999, respectively.  During the year ended December 31, 1999, one additional
supplier  located  in  Taiwan  accounted  for  approximately  11% of  our  total
purchases. Although we have not experienced significant problems with suppliers,
there can be no assurance that such relationships will continue or, in the event
of a termination of our relationship  with any given supplier,  that we would be
able to obtain  alternative  sources  of supply on  comparable  terms  without a
material  disruption  in our  ability to provide  products  and  services to our
clients. This may cause a possible loss of sales that could adversely affect our
business, financial condition and operating results.

IF A CLAIM IS MADE  AGAINST  US IN  EXCESS OF OUR  INSURANCE  LIMITS WE WOULD BE
SUBJECT TO POTENTIAL EXCESS LIABILITY.  The nature of our corporate  information
systems  engagements  expose us to a variety of risks.  Many of our  engagements
involve projects that are critical to the operations of a client's business. Our
failure or  inability  to meet a client's  expectations  in the  performance  of
services or to do so in the time frame required by such client could result in a
claim for  substantial  damages,  regardless of whether we were  responsible for
such failure. We are in the business of employing people and placing them in the
workplace of other businesses.  Therefore, we are also exposed to liability with
respect to actions taken by our employees  while on assignment,  such as damages
caused  by  employee  errors  and  omissions,   misuse  of  client   proprietary
information,  misappropriation of funds, discrimination and harassment, theft of
client property,  other criminal activity or torts and other claims. Although we
maintain general liability  insurance  coverage,  there can be no assurance that
such coverage will continue to be available on reasonable terms or in sufficient
amounts to cover one or more large claims, or that the insurer will not disclaim
coverage as to any future claim.  The successful  assertion of one or more large
claims  against us that exceed  available  insurance  coverage or changes in our
insurance  policies,  including  premium  increases or the  imposition  of large
deductible or co-insurance requirements, could have a material adverse effect on
our business, operating results and financial condition.

WE ARE  DEPENDENT  ON KEY  PERSONNEL.  Our  continued  success  will depend to a
significant extent upon our senior management,  including Theodore Li, President
and Hui Cynthia Lee, Executive Vice President and head of sales operations,  and
Steve Flynn,  general manager of FrontLine.  The loss of the services of Messrs.
Li or Flynn  or Ms.  Lee,  or one or more  other  key  employees,  could  have a
material  adverse  effect on our  business,  financial  condition  or  operating
results.  We do not have key man insurance on the lives of any of members of our
senior management.

WE CANNOT ASSURE YOU THAT OUR PURSUIT OF NEW BUSINESS THROUGH LIVEMARKET WILL BE
SUCCESSFUL.  We  have  limited  experience  in  developing  commercial  software
products.  While we have experience in marketing  computer related products,  we
have not  marketed  software or a  proprietary  line of our own  products.  This
market  is  very  competitive  and  nearly  all of the  software  publishers  or
distributors  with whom  Lea/LiveMarket  will compete have greater financial and
other   resources   than   Lea/LiveMarket.   Presently  we  are   exploring  the
opportunities  to sell this line of  business.  There can be no  assurance  that
Lea/LiveMarket will generate a profit.

WE ARE SUBJECT TO RISKS BEYOND OUR CONTROL SUCH AS ECONOMIC AND GENERAL RISKS OF
OUR  BUSINESS.  Our  success  will depend  upon  factors  that may be beyond our
control and cannot  clearly be  predicted  at this time.  Such  factors  include
general economic conditions, both nationally and internationally, changes in tax
laws,  fluctuating  operating  expenses,  changes in  governmental  regulations,
including regulations imposed under federal,  state or local environmental laws,
labor laws, and trade laws and other trade barriers.

                                      -27-
<PAGE>
ESTABLISHMENT OF OUR NEW BUSINESS-TO-CONSUMER  WEBSITE LIVEWAREHOUSE.COM MAY NOT
BE  SUCCESSFUL.   We  have  established  a  new  business-to-consumer   website,
LiveWarehouse.com. While sales from this segment have been increasing, we cannot
assure you that we will achieve market acceptance for this project and achieve a
profit,  that we will be able to hire and retain  personnel  with  experience in
online  retail  marketing  and  management,  that we will be able to execute our
business  plan with  respect to this  market  segment or that we will be able to
adapt  to  technological  changes  once  operational.  Further,  while  we  have
experience in the wholesale marketing of computer-related  products,  we have no
experience in retail marketing.  This market is very competitive and some of our
competitors have substantially greater resources than we have.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk for changes in interest  rates relates  primarily to
one of our bank mortgage  loans with a $2,393,700  balance at September 30, 2002
which bears  fluctuating  interest  based on the bank's  90-day  LIBOR rate.  In
addition,  our  flooring and working  capital line bears  interest at the bank's
prime  rate.  However,  interest  expenses  incurred  in  connection  with  this
financing  agreement  have  historically  been  insignificant.  We believe  that
fluctuations in interest rates in the near term would not materially  affect our
consolidated  operating  results.  We are not exposed to material  risk based on
exchange rate fluctuation or commodity price fluctuation.

ITEM 4. CONTROLS AND PROCEDURES

Within  the 90 days  prior to the date of this  Form  10-Q,  we  carried  out an
evaluation  under the supervision and with the  participation of our management,
including  the Chief  Executive  Officer and Chief  Financial  Officer and other
accounting  officer,  of the  effectiveness  of the design and  operation of our
disclosure  controls and  procedures as defined in Rule 13a-14 of the Securities
Exchange Act of 1934.  Based on that evaluation,  our management,  including the
Chief  Executive  Officer  and Chief  Financial  Officer  and  other  accounting
officer, concluded that our disclosure controls and procedures were effective in
timely  alerting  them to material  information  relating to us  (including  our
consolidated subsidiaries) required to be included in this quarterly report Form
10-Q.  There have been no  significant  changes  in our  internal  controls  and
procedures or in other factors that could significantly affect internal controls
subsequent to the date we carried out this evaluation.

                                      -28-
<PAGE>
                                     PART II

ITEM 1. LEGAL PROCEEDINGS.

We are not involved as a party to any legal proceeding other than various claims
and lawsuits arising in the normal course of our business, none of which, in our
opinion, is individually or collectively material to our business.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On May 31, 2002 the Company  entered into a Preferred  Stock Purchase  Agreement
with an investor  (Investor).  Under the agreement,  the Company agreed to issue
1,000 shares of its Series Preferred Stock at $1,000 per share. On May 31, 2002,
the Company  issued 600 shares of the Series A Preferred  Stock to the Investor.
the Company  expects the remaining 400 shares to be issued in the fourth quarter
2002  as  the  last  condition  precedent  to the  sale,  the  effectivity  of a
registration  statement that registers the common stock  underlying the Series A
Preferred  Stock,  has been  completed.  As part of the Preferred Stock Purchase
Agreement,  the Company issued a common stock purchase  warrant to the Investor.
The  warrant  may be  exercised  at any  time  within  3 years  from the date of
issuance  and  entitles  the  Investor  to  purchase  of  300,000  shares of the
Company's  common  stock at $1.20 per share and  includes  a  cashless  exercise
provision. The Company also issued a common stock purchase warrant with the same
terms and condition for the purchase of 100,000  shares of the Company's  common
stock to a broker who facilitated the transaction as a commission.  The Series A
Preferred  Stock and the  related  warrants  were  issued  under  the  exemption
provided by Section 4(2) of the Securities Act of 1933.

ITEM 5. OTHER INFORMATION

Effective June 17, 2002, the Board of Directors  appointed  Raymond M. Crouse to
the Board and as the chairman of the Audit Committee.  Mr. Crouse,  age 43, is a
Director of Litigation & Recovery of De Lage Landen Financial Services.

ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

Exhibit   Description                                                  Reference
-------   -----------                                                  ---------
 3.1      Articles of Incorporation                                       (1)

 3.2      Bylaws, as amended and restated                                 (1)

 4.1      Certificate of Designations for the Series A Preferred Stock    (2)

 10.1     Securities Purchase Agreement dated May 31, 2002, between
          the Company and Stonestreet L.P.                                (2)

 10.2     Registration Rights Agreement dated May 31, 2002, between
          the Company and Stonestreet, L.P.                               (2)

 10.3     Escrow Agreement dated May 31, 2002, between the Company,
          Feldman Weinstein LLP and Stonestreet L.P.                      (2)

 10.4     Stock Purchase Warrant dated May 31, 2002 issued to
          Stonestreet L.P.                                                (2)

 10.5     Stock Purchase Warrant dated May 31, 2002 issued to
          M.H. Meyerson                                                   (2)

 10.6     Amendment No. 2 to Accounts Receivable and Inventory
          Financing Agreement by and between Transamerica
          Commercial Finance Corporation and Pacific Magtron,
          Inc. and Pacific Magtron (GA), Inc.                             (3)

 10.6     Amendment No. 1 to Accounts Receivable and Inventory
          Financing Agreement by and between Transamerica
          Commercial Finance Corporation and Pacific Magtron,
          Inc. and Pacific Magtron (GA), Inc.                             (3)

                                      -29-
<PAGE>
 10.6     Amendment No. 3 to Accounts Receivable and Inventory
          Financing Agreement by and between Transamerica
          Commercial Finance Corporation and Pacific Magtron,
          Inc. and Pacific Magtron (GA), Inc.                              *

 99.1     Certification of Chief Executive Officer and Chief
          Financial Officer pursuant to Section 906 of the
          Sarbanes-Oxley Act of 2002                                       *

(1)  Incorporated by reference from the Company's registration statement on Form
     10SB-12G filed January 20, 1999.

(2)  Incorporated  by reference  from the Company's  current  report on Form 8-K
     filed June 13, 2000.

(3)  Filed with Form 10-K, dated December 31, 2001, and  incorporated  herein by
     reference.

*    Filed herewith

                                      -30-
<PAGE>
                                   SIGNATURES

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused this report on Form 10-Q to be signed on its behalf
by the undersigned, thereunto duly authorized, this 31st day of March 2003.


                                        PACIFIC MAGTRON INTERNATIONAL CORP.,
                                        a Nevada corporation


                                        By /s/ Theodore S. Li
                                           -------------------------------------
                                           Theodore S. Li
                                           President and Chief Financial Officer

                                      -31-
<PAGE>
CERTIFICATION

I, Theodore Li, certify that:

     1.   I have reviewed this quarterly  report on Form 10-Q of Pacific Magtron
          International Corp.;

     2.   Based on my  knowledge,  this  quarterly  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 quarterly report;

     3.   Based on my knowledge,  the financial statements,  and other financial
          information  included in this quarterly 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 quarterly 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 we 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
               quarterly 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 quarterly report (the "Evaluation Date"); and
          c.   presented  in this  quarterly  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 function):

          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
          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 quarterly report whether or not 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: March 31, 2003

By: /s/ Theodore S. Li
    ------------------------------
    Theodore S. Li
    Chief Executive Officer/Chief
    Financial Officer

                                      -32-