SECURITIES AND EXCHANGE COMMISSION
                                                         WASHINGTON, DC 20549FORM 10-Q
                                                              (Mark One)[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                                                         EXCHANGE ACT OF 1934.
                                             For the quarterly period ended March 31, 2004
                                                                  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 000-25277PACIFIC MAGTRON INTERNATIONAL CORP.
                                        (Exact Name of Registrant as Specified in Its Charter)

|                                                               |                                                      |                                     
|-------------------------------------------------------------- | ---------------------------------------------------- | ------------------------------------
|Nevada                                                         |                                                      | 88-0353141                          
|(State or Other Jurisdiction of Incorporation or Organization) |                                                      | (I.R.S. Employer 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 [ ] Indicate by check
mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Exchange Act). Yes [ ] No [X]

Common
Stock, $0.001 par value per share: 10,485,062 shares issued and outstanding at April 26,
2004

---

|                                          |           |                                                                                                               |   
|----------------------------------------- | --------- | ------------------------------------------------------------------------------------------------------------- | --
|Part I. - Condensed Financial Information |           |                                                                                                               |   
|                                          | Item 1. - | Condensed Consolidated Financial Statements                                                                   |   
|                                          |           |                                                                                                               |   
|                                          |           | Condensed consolidated balance sheets as ofMarch 31, 2004 and December 31, 2003 (unaudited)                   |   
|                                          |           |                                                                                                               |   
|                                          |           | Condensed consolidated statements of operations forthe three months ended March 31, 2004 and 2003 (unaudited) |   
|                                          |           |                                                                                                               |   
|                                          |           | Condensed consolidated statements of cash flows forthe three months ended March 31, 2004 and 2003 (unaudited) |   
|                                          |           |                                                                                                               |   
|                                          |           | Notes to condensed consolidated financial statements (unaudited)                                              |   
|                                          |           |                                                                                                               |   
|                                          | Item 2. - | Management's Discussion and Analysis of FinancialCondition and Results of Operations                          |   
|                                          |           |                                                                                                               |   
|                                          | Item 3. - | Quantitative and Qualitative Disclosures AboutMarket Risk                                                     |   
|                                          |           |                                                                                                               |   
|                                          | Item 4. - | Controls and Procedures                                                                                       |   
|                                          |           |                                                                                                               |   
|Part II. - Other Information              |           |                                                                                                               |   
|                                          | Item 1. - | Legal Proceedings                                                                                             |   
|                                          |           |                                                                                                               |   
|                                          | Item 6. - | Exhibits and Reports on Form 8-K                                                                              |   
|                                          |           |                                                                                                               |   
|Signature                                 |           |                                                                                                               | 26

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PACIFIC MAGTRON
INTERNATIONAL CORP. and SubsidiariesCONDENSED CONSOLIDATED
BALANCE SHEETS (Unaudited)

|                                               | March 31, 2004 | December 31, 2003
|---------------------------------------------- | -------------- | -----------------
|ASSETS                                         |                |                  
|Current Assets:                                |                |                  
|Cash and cash equivalents                      |                | $   1,886,700    
|Restricted cash                                |                | 385,100          
|Accounts receivable, net of allowance for      |               
|doubtful accounts of $303,800 and              |               
|$281,800 in 2004 and 2003, respectively        |                | 4,699,200        
|Other receivables                              |                | 550,900          
|Inventories                                    |                | 3,502,200        
|Prepaid expenses and other current             |               
|assets                                         |                | 192,400          
|Assets from discontinued operations            |                | 233,500          
|                                               |                |                  
|Total Current Assets                           |                | 11,450,000       
|Property and equipment, net                    |                | 4,098,300        
|Deposits and other assets                      |                | 254,100          
|                                               |                |                  
|                                               |                | $ 15,802,400     
|                                               |                |                  
|LIABILITIES AND SHAREHOLDERS' EQUITY           |               
|Current Liabilities:                           |               
|Current portion of notes payable               |                | $        67,500  
|Floor plan inventory loans                     |                | 2,185,700        
|Accounts payable                               |                | 7,436,400        
|Accrued expenses and other liabilities         |                | 503,000          
|Contingent settlement of Common Stock Warrants |                | 24,400           
|Series A Mandatorily Redeemable Convertible    |               
|Preferred Stock                                |                | 968,300          
|Liabilities from discontinued operations       |                | 275,900          
|                                               |                |                  
|Total Current Liabilities                      |                | 11,461,200       
|Notes Payable, less current portion            |                | 3,086,300        
|Shareholders' Equity:                          |               
|Common stock, $0.001 par value; 25,000,000     |               
|shares authorized; 10,485,100 shares issued    |               
|and outstanding                                |                | 10,500           
|Additional paid-in capital                     |                | 2,036,400        
|Accumulated deficit                            |                | (792,000         
|                                               |                |                  
|Total Shareholders' Equity                     |                | 1,254,900        
|                                               |                |                  
|                                               |                | $ 15,802,400     
|                                               |                |                  

See accompanying notes to condensed
consolidated financial statements.

1

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PACIFIC MAGTRON
INTERNATIONAL CORP. and SubsidiariesCONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS(Unaudited)

|                                          | Three Months Ended          March 31,
|----------------------------------------- | -------------------------------------
|                                          |                                      
|
|                                          |                                      
|Sales                                     |                                      
|Cost of sales                             |                                      
|                                          |                                      
|Gross profit                              |                                      
|Selling, general and                      |                                      
|administrative expenses                   |                                      
|                                          |                                      
|Loss from continuing operations before    |                                      
|other income (expense)                    |                                      
|                                          |                                      
|Other income (expense):                   |                                      
|Interest income                           |                                      
|Interest expense                          |                                      
|Litigation settlement                     |                                      
|Change in fair value of warrants issued   |                                      
|Other expense, net                        |                                      
|                                          |                                      
|Total other expense                       |                                      
|                                          |                                      
|Loss from continuing operations           |                                      
|                                          |                                      
|Discontinued operations:                  |                                      
|Loss from discontinued operations of:     |                                      
|Frontline Network Consulting, Inc.        |                                      
|Lea Publishing Inc.                       |                                      
|                                          |                                      
|Loss from discontinued operations         |                                      
|                                          |                                      
|Accretion of discount and deemed          |                                      
|dividend related to beneficial            |                                      
|conversion of Series A                    |                                      
|Convertible Preferred Stock               |                                      
|Accretion of redemption value of Series A |                                      
|Convertible Preferred Stock               |                                      
|                                          |                                      
|Net Loss applicable to                    |                                      
|common shareholders                       |                                      
|                                          |                                      
|Basic and diluted loss per share:         |                                      
|Loss from continuing operations           |                                      
|applicable to common shareholders         |                                      
|Loss from discontinued operations         |                                      
|applicable to common shareholders         |                                      
|                                          |                                      
|Net loss applicable to common             |                                      
|shareholders                              |                                      
|                                          |                                      
|Shares used in basic and diluted          |                                      
|per share calculation                     |                                      
|                                          |                                      

See accompanying notes to condensed
consolidated financial statements.

2

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PACIFIC MAGTRON
INTERNATIONAL CORP. and Subsidiaries CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS(Unaudited)

|                                              | THREE MONTHS ENDED MARCH 31,
|--------------------------------------------- | ----------------------------
|
|                                              |                             
|CASH FLOWS (USED IN) PROVIDED BY              |                             
|OPERATING ACTIVITIES:                         |                             
|Net loss applicable to common shareholders    |                             
|Less: Loss from discontinued operations       |                             
|Accretion of discount related to Series       |                             
|A Convertible Preferred Stock                 |                             
|Accretion of redemption value of Series       |                             
|A Convertible Preferred Stock                 |                             
|                                              |                             
|Net loss from continuing operations           |                             
|Adjustments to reconcile net loss to net cash |                             
|(used in) provided by operating activities:   |                             
|Depreciation and amortization                 |                             
|Provision for doubtful accounts               |                             
|Change in fair value of warrants              |                             
|Changes in operating assets and               |                             
|liabilities:                                  |                             
|Accounts receivable                           |                             
|Other receivables                             |                             
|Inventories                                   |                             
|Prepaid expenses and other                    |                             
|assets                                        |                             
|Income taxes receivable                       |                             
|Accounts payable                              |                             
|Accrued expenses and other liabilities        |                             
|                                              |                             
|NET CASH (USED IN) PROVIDED BY CONTINUING     |                             
|OPERATIONS                                    |                             
|NET CASH USED IN DISCONTINUED OPERATIONS      |                             
|                                              |                             
|NET CASH (USED IN) PROVIDED BY OPERATING      |                             
|ACTIVITIES                                    |                             
|                                              |                             
|CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:  |                             
|NET INVESTING ACTIVITIES OF DISCONTINUED      |                             
|OPERATONS                                     |                             
|                                              |                             
|CASH FLOWS PROVIDED BY FINANCING              |                             
|ACTIVITIES:                                   |                             
|Net decrease in floor plan inventory loans    |                             
|Decrease in restricted cash                   |                             
|Principal payments on notes payable           |                             
|                                              |                             
|NET FINANCING ACTIVITIES OF CONTINUING        |                             
|OPERATIONS                                    |                             
|NET FINANCING ACTIVITIES OF DISCONTINUED      |                             
|OPERATIONS                                    |                             
|                                              |                             
|NET CASH PROVIDED BY FINANCING ACTIVITIES     |                             
|                                              |                             
|NET INCREASE IN CASH AND CASH EQUIVALENTS     |                             
|CASH AND CASH EQUIVALENTS:                    |                             
|Beginning of period                           |                             
|                                              |                             
|End of period                                 |                             
|                                              |                             

See accompanying notes to condensed
consolidated financial statements.

3

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PACIFIC MAGTRON
INTERNATIONAL CORP. and Subsidiaries NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

1.    
  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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) and LiveWarehouse, Inc. (LW).

PMI and PMIGAs principal
  activity consists of the importation and wholesale distribution of electronics
  products, computer components, and computer peripheral equipment throughout
  the United States. LW sells consumer computer products through the internet
  and distributes certain computer products to resellers.

During the second quarter
  2003, the Company sold substantially all the intangible assets of its majority
  owned subsidiary Frontline Network Consulting, Inc. (FNC) to a third party.
  The Company also sold all the intangible assets and certain tangible assets
  of its wholly owned subsidiary Lea Publishing, Inc. (Lea) to certain of Leas
  employees. PMI Capital Corporation (PMICC), a wholly owned subsidiary, formed
  for the purpose of acquiring companies or assets deemed suitable for PMICs
  organization, was dissolved in the third quarter of 2003.

The Company incurred a net
  loss applicable to common shareholders of $319,200 for the three months ended
  March 31, 2004 and $2,896,600 and $3,110,100 for the years ended December 31,
  2003 and 2002, respectively. During 2003, the Company also triggered a redemption
  provision in its Series A redeemable convertible preferred stock agreement and
  as a result, has increased the value of such stock to its redemption value and
  reclassified it as a current liability. In addition, the Company is in violation
  of certain of its debt covenants, which violations have been subsequently waived
  through June 30, 2004. Based on anticipated future results, it is probable that
  the Company will be out of compliance with certain of the covenants in future
  quarters. If this were to occur and waivers for the violations could not be
  obtained, the Companys inventory flooring line might be terminated and
  loan payments on its inventory flooring line and mortgage loan might be accelerated.
  Further, the Companys common stock was delisted from the NASDAQ SmallCap
  market effective April 30, 2003 as a result of the Company being out of compliance
  with the NASDAQs minimum market value and minimum common stock bid price
  requirements. These conditions raise substantial doubt about the Companys
  ability to continue as a going concern. The Companys ability to continue
  as a going concern is dependent upon it achieving profitability and generating
  sufficient cash flows to meet its obligations as they come due. Management believes
  that its downsizing through the disposal of its subsidiaries, FNC, Lea and PMICC,
  and its continued cost-cutting measures to reduce overhead at its remaining
  subsidiaries and an improving economy will enable it to achieve profitability.
  However, there can be no assurance that the Company will be able to achieve
  a profitable level of operations. If the Company were unable to do so, it would
  have to obtain additional equity or debt financing or sell a sufficient amount
  of its assets to retire the Textron and Wells Fargo credit facilities. There
  can be no assurance the Company will be able to obtain debt or equity financing
  or obtain it on terms acceptable to the Company. If the Company were forced
  to liquidate its assets, there can be no assurance that the Company could raise
  sufficient proceeds to meet its obligations. The accompanying condensed consolidated
  financial statements do not include any adjustments that might result from the
  outcome of this uncertainty.

5

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FINANCIAL STATEMENT PRESENTATION
  AND PRINCIPLES OF CONSOLIDATION

The financial information
  included herein is unaudited. The interim consolidated financial statements
  have been prepared on the same basis as the annual financial statements and,
  in the opinion of management, reflect all adjustments, which include only normal
  recurring adjustments, necessary for a fair presentation of the Companys
  consolidated financial position and results of operations for the periods presented.
  Certain information and footnote disclosures normally included in the financial
  statements prepared in accordance with accounting principles generally accepted
  in the United States of America have been omitted. These consolidated financial
  statements should be read in conjunction with the audited consolidated financial
  statements and accompanying notes presented in the Companys Form 10-K
  for the year ended December 31, 2003. Interim operating results are not necessarily
  indicative of operating results expected for the entire year.

The accompanying consolidated
  financial statements include the accounts of PMIC and its wholly owned subsidiaries,
  PMI, PMIGA and LW. All inter-company accounts and transactions have been eliminated
  in consolidation. During the second quarter 2003, the Company sold substantially
  all the intangible assets of FNC and all of the intangible assets and certain
  tangible assets of Lea. During the third quarter 2003, PMICC was dissolved.
  The activities of FNC, Lea and PMICC have been reclassified for reporting purposes
  as discontinued operations for all periods presented in the accompanying condensed
  consolidated financial statements.

STOCK-BASED COMPENSATION

Statement of Financial Accounting
  Standards (SFAS) No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, as amended
  by SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
  Disclosure, requires the Company to provide pro forma information regarding
  net income and earnings per share as if compensation cost for the Companys
  stock option plan had been determined in accordance with the fair value method.
  The Company estimates the fair value of stock options at the grant date by using
  the Black-Scholes option pricing-model. There were no options granted for the
  three months ended March 31, 2004 and 2003. During the three months ended March
  31, 2004 and 2003, no outstanding options were exercised and options to purchase
  2,000 shares of the Companys common stock in 2004 and 2,000 shares of
  the Companys common stock in 2003 were cancelled due to employee terminations.
  Had the Company adopted the fair value method of accounting for stock option
  provided by FASB Statement No. 123, the Companys net loss would have increased
  as follows:

|                                                                | THREE MONTHS ENDED MARCH 31,
|--------------------------------------------------------------- | ----------------------------
|
|                                                                |                             
|Net loss applicable to common shareholders:                    
|As reported                                                     |                             
|Add: total stock based employee compensation expense determined |                             
|using the fair value method for all awards                      |                             
|                                                                |                             
|Pro forma                                                       |                             
|                                                                |                             
|Basic and diluted loss per share:                               |                             
|As reported                                                     |                             
|Pro forma                                                       |                             

LOSS PER SHARE

Basic loss per share is computed by
dividing loss applicable to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflect the potential
dilution of securities, using the treasury stock method that could share in the earnings
of an entity. During the three months ended March 31, 2004, options and warrants to
purchase 1,092,000 shares of the Companys common stock and 860,700 shares of common
stock issuable upon conversion of Series A Preferred Stock were excluded from the
calculation of diluted loss per share as their effect would be anti-dilutive. During the
three months ended March 31, 2003, options and warrants to purchase 1,150,000 shares of
the Companys common stock and 826,900 shares of common stock issuable upon
conversion of Series A Preferred Stock were excluded from the calculation of diluted loss
per share as their effect would be anti-dilutive.

6

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The following is the computation of
the Companys basic and diluted loss per share:

|                                   | Three Months Ended March 31,
|---------------------------------- | ----------------------------
|
|                                   |                             
|Loss from continuing operations    |                             
|Accretion of discount and deemed   |                             
|dividend related to beneficial     |                             
|conversion of Series A             |                             
|Convertible Preferred Stock        |                             
|Accretion of redemption value of   |                             
|Series A Convertible Preferred     |                             
|Stock                              |                             
|                                   |                             
|Loss from continuing operations    |                             
|applicable to common               |                             
|shareholders                       |                             
|Loss from discontinued             |                             
|operations                         |                             
|                                   |                             
|Net Loss applicable to             |                             
|common shareholders                |                             
|                                   |                             
|Basic and diluted loss per share - |                             
|Loss from continuing operations    |                             
|applicable to common               |                             
|shareholders                       |                             
|Loss from discontinued             |                             
|operations                         |                             
|                                   |                             
|Net loss applicable to common      |                             
|shareholders                       |                             
|                                   |                             
|Shares used in basic and diluted   |                             
|per share calculation              |                             
|                                   |                             

2.    
  DISCONTINUED OPERATIONS

On June 2, 2003, the Company
  entered into an agreement to sell substantially all of FNCs intangible
  assets to an unrelated party for $15,000. The Company recorded a loss of $13,700
  on the sale of the FNC assets.

On June 30, 2003, the Company
  sold substantially all of Leas intangible assets and certain equipment
  to certain of the Leas employees. The Company also entered into a Proprietary
  Software License and Support Agreement with the purchaser requiring the purchaser
  to provide certain electronic commerce support services to LW for a term of
  two years beginning July 1, 2003. The Company received $5,000 on the transaction
  closing date and an electronic commerce support services contract valued at
  $48,000 which is based on the number of service hours to be provided. The Company
  recorded a loss of $16,000 on the sale of the Lea assets.

7

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On June 6, 2003 the Board
  of Directors authorized the dissolution of PMICC. PMICC, which was dissolved
  in the third quarter 2003, had no activities since 2002 and had no assets or
  liabilities.

There were no operating activities
  of FNC and Lea for the three months ended March 31, 2004. The operating results
  of FNC and Lea for the three months ended March 31, 2003 were as follows:

|          | 
|--------- | 
|          | 
|          | 
|          | 
|Net sales | 
|          | 
|Net loss  | 
|          | 

As of March 31, 2004, the assets and
liabilities of discontinued operations consisted of costs accumulated and related deferred
revenue on an FNC contract for which final acceptance has not yet occurred. The company
expects final customer acceptance in the third quarter of 2004.

3.    
  STATEMENTS OF CASH FLOWS

Cash was paid during the
  three months ended March 31, 2004 and 2003 for:

|THREE MONTHS ENDING MARCH 31, | 2004    | 2003    
|----------------------------- | ------- | --------
|
|Income taxes                  | $    -- | $  5,200
|
|Interest                      | $40,400 | $ 38,600
|

|THREE MONTHS ENDING MARCH 31,                                          | 2004     | 2003    
|---------------------------------------------------------------------- | -------- | --------
|
|Accretion of preferred stock dividend                                  | $  6,400 | $  6,000
|
|Accretion of redemption value of  Series A Convertible Preferred Stock | $  3,200 | $733,900
|

On June 30, 2003 the Company
  entered into an agreement to sell certain assets of Lea. In addition to $5,000
  in cash consideration, the Company received an electronic commerce support service
  contract from the purchaser for two years valued at $48,000. The service contract
  is being amortized using a straight-line method over the term of the contract.

4. RELATED PARTY TRANSACTIONS

The Company sells computer
  products to a company owned by a member of the Board of Directors and Audit
  Committee of the Company. Management believes that the terms of these sales
  transactions are no more favorable than those given to unrelated customers.
  There were no sales to this company for the three months ended March 31, 2004.
  For the three months ended March 31, 2003, the Company recognized $59,200 sales
  revenues from this customer. Included in accounts receivable as of March 31,
  2003 is $32,200 due from this related party. There was no amount due from this
  related party as of March 31, 2004.

8

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On June 30, 2003, the Company
  sold substantially all of Lea's intangible assets and certain equipment to certain
  of the Lea's employees (see note 3 to the condensed consolidated financial statements).

5. INCOME TAXES

In March 2002, the Job
  Creation and Worker Assistance Act of 2002 ("the Act") was enacted. The Act
  extended the general federal net operating loss carryback period from 2 years
  to 5 years for net operating losses incurred for any taxable year ending in
  2001 and 2002. As a result, on March 20, 2003, the Company received a federal
  income tax refund of $1,427,400 attributable to its 2002 net operating loss
  carryback. The Company recorded a full valuation allowance against the net deferred
  tax assets, including its federal and state net operating loss, for the three
  months ended March 31, 2004 and 2003.

6. FLOOR PLAN INVENTORY
  LOANS AND LETTER OF CREDIT

In May 2003, PMI obtained
  a $3,500,000 inventory financing facility, which includes a $1 million letter
  of credit facility used as security for inventory purchased on terms from vendors
  in Taiwan, from Textron Financial Corporation (Textron). The credit facility
  is guaranteed by PMIC, PMIGA, FNC, Lea, LW and two shareholders/officers of
  the Company and may be discontinued by Textron at any time at its sole discretion.
  Borrowings under the inventory line are subject to 30 days repayment, at which
  time interest accrues at the prime rate plus 6% (10% at March 31, 2004). The
  Company is required to maintain collateral coverage equal to 120% of the outstanding
  balance. A prepayment is required when the outstanding balance exceeds the sum
  of 70% of the eligible accounts receivables and 90% of the Textron-financed
  inventory and 100% of any cash assigned or pledged to Textron. PMI and PMIC
  are required to meet certain financial ratio covenants, including a minimum
  current ratio, a maximum leverage ratio, a minimum tangible capital funds and
  required levels of profitability. As of March 31, 2004 and December 31, 2003,
  the Company was out of compliance with the maximum leverage ratio covenant and
  the minimum tangible capital funds for which waivers have been obtained through
  June 30, 2004. Based on the Company's anticipated future results, it is probable
  that it will be out of compliance with certain of these covenants. If this were
  to occur and a waiver for the violation cannot be obtained, Textron might terminate
  the credit facility and accelerate the loan payments. Upon termination, there
  is no assurance that the Company would have the funding necessary to finance
  its future inventory purchases at levels necessary to achieve profitability.
  The Company is also required to maintain $250,000 in a restricted account as
  a pledge to Textron. This amount has been reflected as restricted cash in the
  accompanying condensed consolidated financial statements. As of March 31, 2004,
  the outstanding balance of this loan was $2,185,700 and is classified as a current
  liability on the accompanying condensed consolidated balance sheet.

7. NOTES PAYABLE

The Company's wholly owned
  subsidiary, PMI, 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 (1.25% as of March 31, 2004) 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.

9

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Under the bank loan, PMI
  is required, among other things, to maintain a minimum debt service coverage,
  a maximum debt to tangible net worth ratio, and to have no consecutive quarterly
  losses. In addition, PMI is required to achieve net income on an annual basis.
  As of March 31, 2004, PMI was in compliance with the loan covenants. As of December
  31, 2003 and 2002, PMI was in violation of the quarterly loss and annual income
  covenants which constituted an event of default under the loan agreement and
  gave the bank the right to call the loan. Waivers of the loan covenant violations
  were obtained from the bank that extended through December 31, 2003. As a condition
  for these waivers, the Company transferred $250,000 to a restricted account
  as a reserve for debt service. The reserve for debt service was subsequently
  reduced to $182,700 and has been reflected as long-term restricted cash and
  included in Deposits and Other Assets in the accompanying condensed consolidated
  balance sheet. Based on anticipated future results, it is probable that the
  Company will be out of compliance with certain of these covenants. If this were
  to occur and a waiver for the violation cannot be obtained, the Company would
  be required to classify the bank loan as current, which would cause the Company
  to be out of compliance with another financial covenant included in its inventory
  flooring facility with Textron Financial Corporation as discussed in note 6
  to the condensed consolidated financial statements.

8. SEGMENT INFORMATION

The Company has three reportable
  segments: PMI, PMIGA and LW.

PMI imports and distributes
  electronic products, computer components, and computer peripheral equipment
  to various distributors and retailers throughout the United States. PMIGA imports
  and distributes similar products focusing on customers located in the east coast
  of the United States. LW sells similar products as PMI to end-users and resellers
  through a website.

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 separate strategic business units. They are managed separately because each
  business requires different technology and/or marketing strategies. PMI and
  PMIGA are comparable businesses with different locations of operations and customers.
  Sales to foreign countries have been insignificant for the Company.

The following table presents
  information about reported continuing segment profit or loss for the three months
  ended March 31, 2004 and 2003:

|                             | Three Months Ended March 31,
|---------------------------- | ----------------------------
|
|Revenues from external       |                             
|customers:                   |                             
|PMI                          |                             
|PMIGA                        |                             
|LW                           |                             
|                             |                             
|TOTAL                        |                             
|                             |                             
|Segment loss before          |                             
|income taxes:                |                             
|PMI                          |                             
|PMIGA                        |                             
|LW                           |                             
|                             |                             
|Loss before income taxes for |                             
|reportable segments          |                             
|Change in fair value of      |                             
|warrants issued              |                             
|Amortization of warrant      |                             
|issuance costs               |                             
|                             |                             
|Consolidated loss from       |                             
|continuing operations        |                             
|                             |                             

10

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9. ACCOUNTS RECEIVABLE AGREEMENTS

On April 1, 2003, the Company
  purchased a credit insurance policy from American Credit Indemnity covering
  certain accounts receivable up to $2,000,000 of losses. This policy expired
  on March 31, 2004 and renewed for the same amount for the fiscal year through
  March 31, 2005. The Company also entered into an insurance agreement with ENX,
  Inc. for its accounts receivables for one year beginning April 7, 2003. The
  agreement was renewed for an additional year through March 31, 2005. Under the
  ENX agreement, the Company may sell its past-due accounts receivables from pre-approved
  customers with pre-approved credit limits under certain conditions. The commission
  is 0.5% of the approved invoice amounts with a minimum annual commission of
  $50,000. As of March 31, 2004 approximately $1,044,600 of the outstanding receivables
  were approved for participation in the program by ENX.

10.    
  LITIGATION SETTLEMENT AND CONTINGENCIES

In December 2003, the Company
  settled a claim against a customer and its principal owner for a past due account
  receivable of $734,500. Under the settlement agreement, the customer agreed
  to pay the entire balance in 12 equal monthly installments of $61,200 each beginning
  December 2003. In addition, the customer entered into a UCC-Financing Statement
  with the Company under which the customer secured its payments due to us with
  all its assets, including inventory, accounts receivables and equipment. The
  customer had made three payments, and then became delinquent on its next two
  scheduled payments. The customer has requested and the Company has approved
  a 60-day extension for the payments in the repayment schedule beginning from
  the original due date of the first delinquent payment (April 1, 2004). In May
  2004 the customer resumed payments. As of March 31, 2004, the remaining unpaid
  balance was $550,900.

In April 2003, the Company settled a
lawsuit relating to a counterfeit products claim for $95,000, which was included in other
expenses in the accompanying condensed consolidated statement of operations.

There are various claims, lawsuits,
and pending actions against the Company involving matters incidental to the Companys
operations. It is the opinion of management that the ultimate resolution of these matters
will not have a material adverse effect on the Companys consolidated financial
position or results of operations.

11

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11.    
  CAPITAL STOCK

On February 28, 2003, Nasdaq
  notified the Company that its common stock had failed to comply with the minimum
  market value of publicly held shares requirement of Nasdaq Marketplace Rules.
  On March 6, 2003 the Company requested a hearing before the Listing Qualifications
  Panel, at which it would request continued listing. The hearing was held on
  April 24, 2003. The Company was also notified by Nasdaq that the Company did
  not comply with the Marketplace Rule that requires a minimum bid price of $1.00
  per share of common stock. Subsequent to the hearing on April 24, 2003, Nasdaq
  notified the Company that its common stock would be delisted from the Nasdaq
  SmallCap Market and such delisting took place on April 30, 2003. The Companys
  common stock is eligible to be traded on the Over the Counter Bulletin Board
  (OCTBB). The delisting of the Companys common stock enables the holder
  of the Companys Series A Redeemable Convertible Preferred Shares to request
  the repurchase of such shares 60 days after the delisting date. The Company
  has increased the carrying value of the Series A Redeemable Convertible Preferred
  Stock to its redemption value and has recorded an increase in loss applicable
  to common shareholders in the accompanying consolidated statement of operations.
  As of March 31, 2004, no demand for payment from the shareholder has been received.
  If such demand were to occur, there is no assurance that the Company would have
  the funding necessary to satisfy the liability. The Company has included its
  4% Series A Redeemable Convertible Preferred Stock in current liabilities.

12

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ITEM 2. MANAGEMENTS
  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

The accompanying discussion
  and analysis of financial condition and results of operations is based on the
  condensed 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 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
  in the Companys Form 10-K for the fiscal year ended December 31, 2003
  and included herein under the heading Cautionary Factors That May Affect
  Future Results.

LINES OF BUSINESS

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 segments of the computer industry.
  Our business is organized into three divisions: PMI, PMIGA and LW. Our subsidiaries,
  PMI and PMIGA, provide for 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 distributes
  PMIs products in the southeastern United States market. LW provides consumers
  a convenient way to purchase computer products via the internet. LW also distributes
  certain computer related products to resellers. During the second quarter 2003,
  the Company sold substantially all the assets of its FNC subsidiary to a third
  party. The Company also sold substantially all assets of its Lea subsidiary
  to certain of Leas employees. The activities of FNC and Lea for all periods
  have been reclassified for reporting purposes as discontinued operations. In
  the third quarter of 2003, the Company dissolved its PMICC subsidiary. PMICC
  had no activities since 2002 and had no assets or liabilities.

OVERVIEW

Competition in the computer products
distribution business continued to be intense during the three months ended March 31,
2004. Sales generated by PMI increased 22.8% for the quarter ended March 31, 2004 compared
to 2003. However, we experienced a continued intense pricing pressure. In addition,
pricing was negatively impacted by the Companys decision to sell more products under
cash on delivery arrangements in order to improve cash flows. PMI realized a
gross profit percent of 4.8% for the quarter ended March 31, 2004 compared to 5.5% in
2003. PMIGA was unable to penetrate into the east coast market, which is dominated by a
number of larger competitors and experienced a decreasing sales trend that began in the
second quarter of 2002. The lack of financial resources and the inability to compete with
the larger competitors resulted in a loss in market share. LW generated $2,065,300 in
sales and a loss of $27,000 for the quarter ended March 31, 2004 compared to $1,379,000 in
sales and a loss of $46,300 in 2003. LW was in a development stage in 2002 and experienced
growth in sales beginning in 2003. We do not expect LWs sales will increase at this
pace in the next 12 months.

13

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As of March 31, 2004 and December 31,
2003, we were in violation of certain loan covenants under our inventory financing
facility with Textron Financial Corporation (Textron). Even though waivers for such
violation were obtained from Textron through June 30, 2004, it is probable that we will be
out of compliance with certain of those covenants in the future. If this were to occur and
a waiver for the violation cannot be obtained, Textron might terminate the credit facility
and accelerate the loan payments. If such termination were to occur, there is no assurance
that the Company would have the funding necessary to finance its future inventory
purchases or would be able to obtain alternative financing. During 2003, the Company was
in violation of certain covenants under our real estate mortgage loan agreement with Wells
Fargo Bank (Wells Fargo). A waiver of the default was obtained from Wells Fargo through
December 31, 2003. Although the Company was in compliance with these covenants as of March
31, 2004, it is probable that we will be out of compliance again in the next 12 months. If
this were to occur and a waiver for the violation cannot be obtained, the Company would be
required to classify the bank loan as current, which could cause the Company to be out of
compliance with the financial covenants included in its inventory flooring facility with
Textron. It is uncertain as to the Companys ability to obtain alternative financing
in the event Textron terminated the loan facility or Wells Fargo elected to call the loan.

---

The Company incurred a net loss
applicable to common shareholders of $319,200 for the three months ended March 31, 2004
and $2,896,600 for the year ended December 31, 2003. During 2003, the Company triggered a
redemption provision in its Series A redeemable convertible preferred stock agreement. As
a result, we have classified such stock as a current liability. While no demand for
payment from the shareholder has been received, if such demand were to occur, there is no
assurance the Company would have the funding necessary to satisfy the liability. The
Companys common stock was delisted from the NASDAQ Small Cap market effective April
30, 2003 because the Company was out of compliance with the NASDAQs minimum market
value and minimum common stock bid price requirements. These conditions raise doubt about
the Companys ability to continue as a going concern. The Companys ability to
continue as a going concern is dependent upon its ability to achieve profitability and
generate sufficient cash flows to meet its obligations as they come due. Management
believes that the continued downsizing and continued cost-cutting measures to reduce
overhead at all of its remaining subsidiaries and an improved economy will enable the
Company to eventually achieve profitability. However, there can be no assurance that the
Company will be able to achieve a profitable level of operations in 2004 or beyond.

CRITICAL ACCOUNTING POLICIES

Our significant accounting
  policies are described in Note 1 to the consolidated financial statements included
  as Part II Item 8 to the Form 10-K for the year ended December 31, 2003. The
  following are our critical accounting policies:

REVENUE RECOGNITION

LONG-LIVED ASSETS

14

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ACCOUNTS RECEIVABLE
  AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company grants credit to its
customers after undertaking an investigation of credit risk for all significant amounts.
An allowance for doubtful accounts is provided for estimated credit losses at a level
deemed appropriate to adequately provide for known and inherent risks related to such
amounts. The allowance is based on reviews of loss, adjustment history, current economic
conditions, level of credit insurance and other factors that deserve recognition in
estimating potential losses. Our allowance for doubtful accounts includes receivables past
due over 90 days, returned checks and an estimated percentage of the receivables currently
due. While management uses the best information available in making its determination, the
ultimate recovery of recorded accounts receivable is also dependent upon future economic
and other conditions that may be beyond managements control. In addition, it is
uncertain as to the continuing availability of cost-efficient credit insurance. We are
unable to project the future trend of our bad debt expense.

INVENTORY VALUATION

Our inventories, consisting primarily
of finished goods, are stated at the lower of cost (moving weighted average method) or
market. We regularly review inventory turnover and quantities on hand for excess, slowing
moving and obsolete inventory based primarily on our estimated forecast of product demand.
Excess, obsolete and slow-moving inventory items, including items that have no purchase
and sales activities for more than one year, are written down to their net realizable
values. Due to a relatively high inventory turnover rate and the inclusion of provisions
in the vendor agreements common to industry practice that provide us price protection or
credits for declines in inventory value and the right to return certain unsold inventory,
we believe that our risk for a decrease in inventory value is minimized. No assurance can
be given, however, that we can continue to turn over our inventory as quickly in the
future or that we can negotiate such provisions in each of our vendor contracts or that
such industry practice will continue.

INCOME TAXES

Income taxes are accounted for using
the asset and liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. Future tax benefits are subject to a
valuation allowance when management believes it is more likely than not that the deferred
tax assets will not be realized.

RELATED PARTY TRANSACTIONS

The Company sells computer
  products to a company owned by a member of the Board of Directors and Audit
  Committee of the Company. Management believes that the terms of these sales
  transactions are no more favorable than those given to unrelated customers.
  There were no sales to this company for the three months ended March 31, 2004.
  For the three months ended March 31, 2003, the Company recognized $59,200 sales
  revenues from this customer. Included in accounts receivable as of March 31,
  2003 is $32,200 due from this related party. There was no amount due from this
  related party as of March 31, 2004.

---



RESULTS OF OPERATIONS

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

15

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|                                           |  |    
|------------------------------------------ |  | ---
|
|
|
|                                           |  |    
|Sales                                      |  | 100
|Cost of sales                              |  | 94 
|                                           |  |    
|Gross profit                               |  | 5  
|Operating expenses                         |  | 7  
|                                           |  |    
|Loss from operations                       |  | (1 
|Other expense, net                         |  | (0 
|                                           |  |    
|Loss from continuing operations            |  | (1 
|Loss from discontinued operations          |  | -- 
|Accretion and deemed dividend              | 
|relating to Series A Convertible           | 
|and Redeemable Preferred Stock             |  | (0 
|                                           |  |    
|Net loss applicable to Common Shareholders |  | (1 
|                                           |  |    

SALES

We experienced an increasing sales
trend from 2003 to the quarter ended March 31, 2004, which was partly attributable to the
recovery of the economy. Consolidated sales for the three months ended March 31, 2004 were
$21,791,700 compared to $18,125,600 in 2003. We anticipate that PMI and PMIGAs sales
will follow the condition of the economy in 2004 and the pricing pressure will continue in
the computer products distribution industry.

PMI

PMIs sales increased from
$14,744,000 for the quarter ended March 31, 2003 to $18,108,800 in 2003, an increase of
22.8%, which was primarily attributable to the recovery of the economy. However, the
pricing pressure remained intense for the quarter ended March 31, 2004. PMIs gross
profit for the quarter ended March 31, 2004 was 4.8% compared to 5.5% for 2003.

PMIGA

PMIGA has not been able to penetrate
into the east coast market, which is dominated by a number of larger competitors. The lack
of financial resources and the inability to compete with the larger competitors resulted
in a loss in market share in the quarter ended March 31, 2004 and during the year 2003.
Sales declined from $2,002,600 for the quarter ended March 31, 2003 to $1,617,600 for the
quarter ended March 31, 2004. During 2003, management focused on selling certain higher
profit products and improved its product management. As a result, gross profit as a
percent of sales for PMIGA increased from 6.2% for the three months ended March 31, 2003
to 8.5% for the three months ended March 31, 2004. However, it is uncertain that we can
maintain the pricing on those higher profit products.

LW

LW competes with a vast number of
e-store websites on the internet. Most of them are relatively small, but a number of
larger e-stores, such as Amazon.com and Buy.com, dominate in the e-commerce space.
Competition is based on having the products available and shipping expediently and
correctly at competitive prices. For the three months ended March 31, 2004, LW generated
$2,065,300 in sales, of which approximately $882,800 and $1,182,500 were sales to
end-users and resellers, respectively. For the three months ended March 31, 2003, LW
generated $1,379,000 in sales, of which approximately $478,500 and $900,500 were sales to
end-users and resellers, respectively. LW was in a development stage in 2002 and
experienced the growth in sales beginning 2003. We do not anticipate LWs sales will
increase in 2004 at the rate we experienced in 2003. Gross profit for sales to end-users
was 23.1% of sales for the three months ended March 31, 2004 compared to 14.9% in 2003.
The increase in gross profit is due to managements focus on selling certain higher
profit products. However, it is uncertain that we can maintain the pricing on those higher
profit products. We expect the intense price competition will continue in 2004 for sales
to the end-users. Gross profits for sales to resellers are generally lower than sales to
end-users. LWs gross profit for sales to resellers was 5.7% for the three months
ended March 31, 2004 compared to 7.4%. The variation of the gross profit was due to the
mix of the products sold.

16

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EXPENSES

Consolidated selling, general and
administrative expenses increased from $1,486,200 for the quarter ended March 31, 2003 to
$1,564,500 for the quarter ended March 31, 2004. Consolidated shipping expense and bank
fees for merchant accounts increased by $116,300 and $38,700, respectively, for the three
months ended March 31, 2004 compared to 2003. The increase in shipping expense and bank
fees was primarily due to a 47% increase in LWs sales for the three months ended
March 31, 2004 compared to 2003. Beginning in the fourth quarter 2003, we have sponsored
consumer rebate programs with a vendor. Consolidated advertising and promotion expense
increased by $44,900 for the quarter ended March 31, 2004 compared to 2003. We anticipate
that the advertising and promotion expense will increase in 2004. Consolidated payroll
expense decreased by $73,400 for the three months ended March 31, 2004 compared to 2003.
We continued our overhead reduction effort in 2004 and employee count for the Company was
reduced from 82 as of March 31, 2003 to 71 as of March 2004.

INCOME TAXES

The Company did not record a tax
benefit for losses incurred in 2004 and 2003. No tax benefits were recorded in 2003 and
2004, as management does not believe it is more likely than not that the benefit from such
deferred tax assets will be realized.

LOSS FROM CONTINUING
  OPERATIONS

Consolidated loss from continuing
operations for the three months ended March 31, 2004 was $309,600 compared to $429,100 in
2003. The decrease in the consolidated loss was primarily resulted from an increase of in
gross profit by $197,000 and an increase of expenses by $78,300 for the three months ended
March 31, 2004 compared to 2003. Loss from operations for PMI, PMIGA and LW for the three
months ended March 31, 2004 was $265,700, $40,200 and $27,000, respectively. The loss from
operations for PMI, PMIGA and LW decreased for the three months ended March 31, 2004
compared to 2003. The decrease was primarily due to an increase in gross profit and a
decrease in expenses. Loss from operations for PMI, PMIGA and LW for the three months
ended March 31, 2003 was $376,700, $113,000 and $46,300, respectively.

DISCONTINUED
  OPERATIONS

The operations of FNC and Lea were
discontinued during the second quarter in 2003. For financial statement reporting
purposes, the operating results of FNC and Lea have been reclassified as discontinued
operations.

EFFECT OF DELISTING

Effective April 30, 2003, our Company
stock was delisted from the Nasdaq SmallCap Market and is being traded on the Over the
Counter Bulletin Board (OCTBB). The delisting of the Companys common stock enables
the holder of the Companys Series A Redeemable Convertible Preferred Shares to
request the redemption of such shares. As of March 31, 2004, the redemption value of the
Series A Preferred Stock was $968,300. The Company has increased the carrying value of the
Series A Redeemable Convertible Preferred Stock to its redemption value and has recorded
an increase in loss applicable to common shareholders of $3,200 and $733,900 for the three
months ended March 31, 2004 and 2003, respectively. As of March 31, 2004, no demand from
the preferred shareholder has been received. If such demand were to occur, it is probable
that the Company would not have the funding necessary to satisfy the liability.

17

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LIQUIDITY AND CAPITAL
RESOURCES

The Company incurred a net loss
applicable to common shareholders of $319,200 for the three months ended March 31, 2004
and $2,896,600 for the year ended December 31, 2003. During 2003, the Company triggered a
redemption provision in its Series A redeemable convertible preferred stock agreement. As
a result, we have classified such stock as a current liability. While no demand for
payment from the shareholder has been received, if such demand were to occur, there is no
assurance the Company would have the funding necessary to satisfy the liability. The
Companys common stock was delisted from the NASDAQ Small Cap market effective April
30, 2003 because the Company was out of compliance with the NASDAQs minimum market
value and minimum common stock bid price requirements. As of March 31, 2004 and December
31, 2003, we were in violation of certain loan covenants under our inventory financing
facility with Textron Financial Corporation (Textron) and during 2003 we were in violation
of certain loan covenants under our mortgage loan agreement with Wells Fargo Bank (Wells
Fargo). Even though waivers for such violations were obtained from Textron and Wells Fargo
through June 30, 2004 and December 31, 2003, respectively, it is probable that we will be
out of compliance with certain of those covenants in the future. If this were to occur and
waivers for the violations could not be obtained, Textron might terminate the credit
facility and accelerate the loan payments and the Wells Fargo loan would be required to be
classified as current liability causing another out of compliance condition on the Textron
loan. If such termination were to occur, there is no assurance that the Company would have
the funding necessary to finance its future inventory or would be able to obtain
additional financing. These conditions raise doubt about the Companys ability to
continue as a going concern. The Companys ability to continue as a going concern is
dependent upon its ability to achieve profitability and generate sufficient cash flows to
meet its obligations as they come due. Management believes that the continued downsizing
and continued cost-cutting measures to reduce overhead at all of its remaining
subsidiaries and an improved economy will enable the Company to eventually achieve
profitability. However, there can be no assurance that the Company will be able to achieve
a profitable level of operations in 2004 or beyond. Based on our present operations, we
anticipate that our working capital will satisfy our financing needs for the next twelve
months provided that we can maintain our credit facilities with Textron, Wells Fargo and
our key suppliers. If one or more of these credit facilities are withdrawn and we fail to
replace it with comparable credit facilities, we would have to obtain additional equity or
debt financing or liquidate a sufficient amount of our assets to replace or retire those
credit facilities that were withdrawn. There can be no assurance that we will be able to
obtain debt or equity financing or obtain it on terms acceptable to us.

At March 31, 2004 and December 31,
2003, we had consolidated cash and cash equivalents totaling $1,886,700 and $1,491,700,
respectively. We have included the redemption value of $968,300 and $958,600 of our
redeemable Series A Preferred Stock in the current liabilities as of March 31, 2004 and
December 31, 2003, respectively. After giving the effect of the inclusion of the
redeemable preferred stock in the current liabilities, our working capital deficiency was
$11,200 as of March 31, 2004 compared to a working capital of $183,400 as of December 31,
2003.

Net
cash used by operating activities for the three months ended March 31, 2004 was $415,700,
which principally reflected the net loss from continuing operations of $309,600, an
increase in inventory of $629,400 and an increase in accounts receivable of $370,200,
which was partially offset by an increase in accounts payable of $295,500 and an increase
in accrued expenses of $274,500.

Net
cash provided by financing activities was $810,700 for the three months ended March 31,
2004, primarily resulting from an increase in floor plan inventory loans of $816,500.

18

---

On March 20, 2003, the Company
received a federal income tax refund of $1,427,400 attributable to the 2002 net operating
loss carryback.

In April 2003, the Company settled a
lawsuit relating to a counterfeit products claim for $95,000, which was paid in the second
quarter of 2003. In December 2003, the Company settled a claim against a customer and its
principal owner for a past due account receivable of $734,500. Under the settlement
agreement, the customer agreed to pay the entire balance in 12 equal monthly installments
of $61,200 each beginning December 2003. In addition, the customer entered into a
UCC-Financing Statement with the Company under which the customer secured its payments due
to us with all its assets, including inventory, accounts receivable and equipment. The
customer had made three payments, and then became delinquent on its next two scheduled
payments. The customer has requested and the Company has approved a 60-day extension for
the payments in the repayment schedule beginning from the original due date of the first
delinquent payment (April 1, 2004). In May 2004 the customer resumed payments. As of March
31, 2004, the remaining unpaid balance was $550,900.

Effective April 30, 2003, our Company
stock was delisted from the Nasdaq SmallCap Market. The delisting of the Companys
common stock enables the holder of the Companys Series A Redeemable Convertible
Preferred Shares to request the redemption of such shares. As of March 31, 2004, the
redemption value of the Series A Preferred Stock was $968,300. Under the preferred stock
purchase agreement, the holder of the preferred stock has the right to require us to
redeem the preferred stock in cash at a minimum of 1.5 times the Stated Value. As of March
31, 2004, the Company has not received a demand for redemption from the preferred
shareholder. If such demand were to occur, there is no assurance that the Company would
have the funding necessary to satisfy the liability.

Effective April 30, 2003,
Transamerica Commercial Finance Corporation elected to terminate the $4 million accounts
receivable and inventory financing credit facility we had with them. In May 2003, PMI
obtained a $3,500,000 inventory financing facility, which includes a $1 million letter of
credit facility used as security for inventory purchased on terms from vendors in Taiwan,
from Textron Financial Corporation (Textron). The credit facility is guaranteed by PMIC,
PMIGA, FNC, Lea, LW and two shareholders/officers of the Company. Borrowings under the
inventory line are subject to 30 days repayment, at which time interest accrues at the
prime rate plus 6% (10% at March 31, 2004). The Company is required to maintain collateral
coverage equal to 120% of the outstanding balance. A prepayment is required when the
outstanding balance exceeds the sum of 70% of the eligible accounts receivables and 90% of
the Textron-financed inventory and 100% of any cash assigned or pledged to Textron. PMI
and PMIC are required to meet certain financial ratio covenants, including a minimum
current ratio, a maximum leverage ratio, a minimum tangible capital funds and required
levels of profitability. As of March 31, 2004 and December 31, 2003, the Company was out
of compliance with the maximum leverage ratio covenant and the minimum tangible capital
funds covenant. The Company obtained waivers from Textron with regard to these covenants
through June 30, 2004. Based on anticipated future results, it is probable that the
Company will be out of compliance with these and/or other covenants in future periods. If
this were to occur and a waiver for the violation cannot be obtained, Textron might
terminate the credit facility and accelerate the loan payments. Upon termination, there is
no assurance that the Company would have the funding necessary to finance its future
inventory purchases or would be able to obtain additional financing. We cannot assure you
that we will be able to comply with these financial requirements in the future or to
maintain the Textron flooring line if we continue our losses. We are required to maintain
$250,000 in a restricted account as a pledge to Textron. This amount has been reflected as
restricted cash in the accompanying condensed consolidated financial statements. As of
March 31, 2004, the outstanding balance of this loan was $2,185,700.

19

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Pursuant to our Wells Fargo Bank
(Wells Fargo) mortgage loans, with a $2,354,100 balance at March 31, 2004, we are required
to maintain a minimum amount of debt service coverage, a maximum debt to tangible net
worth ratio, no consecutive quarterly losses, and achieve net income on an annual basis.
During 2003 the Company was in violation of two of these covenants. This constituted an
event of default under the loan agreement and gave Wells Fargo the right to call the loan.
However, a waiver of the defaults was obtained from the bank through December 31, 2003. As
a condition for this waiver, the Company transferred $182,700 to a restricted account as a
reserve for debt servicing. While the Company is currently not in violation of the Wells
Fargo covenants as of March 31, 2004, based on our projections, it is probable that we
will be out of compliance with these covenants in future periods. If this were to occur
and a waiver for the violation cannot be obtained, the Company would be required to
classify the bank loan as current, which could cause the Company to be out of compliance
with an additional financial covenant included in its inventory flooring facility with
Textron. It is uncertain as to the Companys ability to obtain alternative financing
in the event Textron terminated the loan facility or Wells Fargo elected to call the loan.

On April 1, 2003, the Company
purchased a credit insurance policy from American Credit Indemnity covering certain
accounts receivable up to $2,000,000 of losses. This policy expired on March 31, 2004 and
renewed for the same amount for the fiscal year through March 31, 2005. The Company also
entered into an insurance agreement with ENX, Inc. for its accounts receivables for one
year beginning April 7, 2003. The agreement was renewed for an additional year through
March 31, 2005. Under the ENX agreement, the Company may sell its past-due accounts
receivables from pre-approved customers with pre-approved credit limits under certain
conditions. As of March 31, 2004 approximately $1,044,600 of the outstanding receivables
were approved for participation in the program by ENX. There is no assurance that we can
renew the policy and agreement beyond March 31, 2005 at amounts that are cost-effective.
In the event that we could not renew the policy and agreement with our existing or other
insurance carriers, our future loss on uncollectible receivables would probably be higher.

CAUTIONARY FACTORS THAT
MAY AFFECT FUTURE RESULTS

We have received a going concern
opinion from our auditors for the financial statements for the year ended December 31,
2003. The opinion raises substantial doubts about our ability to continue as a going
concern. We incurred a net loss applicable to common shareholders of $319,200 for the
three months ended March 31, 2004. We also have incurred a net loss applicable to common
shareholders of $2,896,600 for the year ended December 31, 2003 and we most likely will
continue to incur losses in fiscal 2004. 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, and to build upon our existing
business and capture new business. We are also dependent upon the continuing improvement
in economic conditions. No assurance can be given, however, that these actions will result
in increased revenues and profitable operations.

Effective April 30, 2003, our Company
stock was delisted from the Nasdaq SmallCap Market. The delisting of the Companys
common stock enables the holder of the Companys Series A Redeemable Convertible
Preferred Shares to request the redemption of such shares. As of March 31, 2004, the
redemption value of the Series A Preferred Stock was $968,300. Under the preferred stock
purchase agreement, the holder of the preferred stock has the right to require us to
redeem the preferred stock in cash at a minimum of 1.5 times the Stated Value. As of March
31, 2004, there the Company has not received a demand for redemption from the preferred
shareholder. If such demand were to occur, it is probable that the Company would not have
the funding necessary to satisfy the liability.

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WE CAN PROVIDE NO ASSURANCE THAT WE
WILL HAVE SUFFICIENT WORKING CAPITAL FOR OUR OPERATIONS AND BE ABLE TO SECURE ADDITIONAL
CAPITAL REQUIRED BY OUR BUSINESS

Based on our present operations we
anticipate that our working capital will satisfy our financing needs for the next twelve
months provided that we can maintain our credit facilities with Textron, Wells Fargo and
our key suppliers. If one or more of these credit facilities are withdrawn and we fail to
replace it with comparable credit facilities, we would have to obtain additional equity or
debt financing or sell a sufficient amount of our assets to replace or retire those credit
facilities that were withdrawn. There can be no assurance that we will be able to obtain
debt or equity financing or obtain it on terms acceptable to us. If we were forced to
liquidate our assets, through whatever means that are most appropriate to us, there can be
no assurance that we could raise sufficient proceeds to meet our obligations or remain as
an economically viable enterprise.

We may issue equity securities in the
future whose terms and rights are superior to those of our common stock. Our Articles of
Incorporation authorize the issuance of up to 5,000,000 shares of preferred stock. These
are blank check preferred shares, meaning our board of directors is authorized
to designate and issue the shares from time to time without shareholder consent. As of
March 31, 2004, we had 600 shares of Series A Preferred outstanding. The Series A
Preferred are convertible based on a sliding scale conversion price referenced to the
market price of our common stock. As of March 31, 2004, the Series A Preferred would have
been convertible into 860,700 shares of common stock based on the floor conversion price
of $.75. Any additional shares of preferred stock that may be issued in the future could
be given voting and conversion rights that could dilute the voting power and equity of
existing holders of shares of common stock, and have preferences over shares of common
stock with respect to dividends and liquidation rights.

WE HAVE VIOLATED CERTAIN
FINANCIAL COVENANTS CONTAINED IN OUR LOANS AND MAY DO SO AGAIN IN THE FUTURE

Pacific Magtron, Inc. (PMI) has a
mortgage on our offices with Wells Fargo Bank, under which PMI must maintain the following
financial covenants:

1) Total liabilities
  must not be more than twice our tangible net worth;2) Net income after
  taxes must not be less than one dollar on an annual basis and for no more than
  two consecutive quarters; and3) Annual EBITDA of one and
  one half times the debt must be maintained.

PMI was in violation of covenants
  (2) and (3) as of December 31, 2003 and 2002. PMI received a waiver for such
  violation through December 31, 2003. While we were in compliance with our Wells
  Fargo debt covenants as of March 31, 2004, we cannot assure you that we will
  be able to meet all these financial covenants in the future. Based on anticipated
  future results, it is probable that we will be out of compliance with certain
  of those covenants. If this were to occur and a waiver for the violation cannot
  be obtained, Wells Fargo may declare us in default and accelerate the loan payments.
  As a result, the Company would be required to classify the bank loan as current,
  which would cause the Company to be out of compliance with an additional financial
  covenant included in its inventory flooring facility with Textron Financial
  Corporation as discussed below.

In May 2003 we obtained a $3,500,000
inventory financing facility of which a $1 million letter of credit facility is used as
security for inventory purchased on terms from vendors in Taiwan from Textron Financial
Corporation (Textron). Under this financing facility, we are required to meet the
following financial covenants:

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1) Minimum current ratio
  of 1.0 to 1.0; 
  2) Maximum leverage of 5.0 for PMI and 6.0 for PMIC; 
  3) Positive EBITDA on a year-to-date basis for PMI; and 
  4) Minimum tangible capital funds of $2,500,000.

As of March 31, 2004 and December 31,
2003, we were in violation of covenants (2) and (4) and waivers for such violations were
obtained through June 30, 2004. Based on anticipated future results, it is probable that
we will be out of compliance with certain of those covenants. If this were to occur and a
waiver for the violation cannot be obtained, Textron might terminate the credit facility
and accelerate the loan payments. Upon termination, there is no assurance that the Company
would have the funding necessary to finance its future inventory or would be able to
obtained additional financing. We cannot assure you that we will be able to comply with
these financial requirements in the future or maintain our Textron flooring line if we
continue our losses.

It is uncertain as to the
Companys ability to obtain alternative financing in the event Textron terminated the
loan facility and accelerated payments or Wells Fargo elected to call the loan.

OUR COMMON STOCK IS NOT
ACTIVELY TRADED

Our common stock was delisted from
the Nasdaq SmallCap Market effective April 30, 2003 due to our inability to maintain a
minimum bid price of $1.00 per share. The Companys common stock is eligible to be
traded on the Over the Counter Bulletin Board (OCTBB). Our stock has not been actively
traded since such delisting.

IF WE ARE UNABLE
  TO SECURE PRICE PROTECTION PROVISIONS IN OUR VENDORAGREEMENTS, 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 our 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.

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. If excessive claims were made against these warranties our results of
operations would suffer.

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, quality
  and breadth of product lines. We also compete with manufacturers that sell directly
  to resellers and end users. Most of our competitors are substantially larger
  and have greater financial and other resources than we do.

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FAILURE TO RECRUIT AND
RETAIN QUALIFIED PERSONNEL WILL HARM OUR BUSINESS

Our success depends upon our ability
to attract, hire and retain highly qualified personnel who possess the skills and
experience necessary to meet our personnel needs. Competition for individuals with proven
highly qualifying skills is intense, and the computer industry in general experiences a
high rate of attrition of such personnel. We compete for such individuals with other
companies as well as temporary personnel agencies. Failure to attract and retain
sufficient qualifying personnel would have a material adverse effect on our business,
operating results and financial condition.

WE DEPEND ON KEY
SUPPLIERS FOR A LARGE PORTION OF OUR INVENTORY, LOSS OF THOSESUPPLIERS COULD HARM OUR
BUSINESS

One supplier, Sunnyview/Real Wisdom
(Sunnyview), accounted for approximately 11% and 18% of our total purchases
for the quarter ended March 31, 2004 and for the year ended December 31, 2003,
respectively. One other vendor accounted for 8% and 17% of purchases for the quarter ended
March 31, 2004 and for the year ended December 31, 2003, respectively. We do not have a
supply contract with Sunnyview nor the other vendor, but rather purchase products from
them through individual purchase orders, none of which has been large enough to be
material to us. Although we have not experienced significant problems with Sunnyview or
our other suppliers, and we believe we could obtain the products that Sunnyview and the
other vendors supplies from other sources, there can be no assurance that our
relationship with Sunnyview and with our other suppliers 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 customers. This may cause a loss of sales
that could have a material adverse effect on our business, financial condition and
operating results.

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. The loss
of the services of Mr. Li 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 ARE SUBJECT TO RISKS
BEYOND OUR CONTROL SUCH AS ECONOMIC AND GENERAL RISKSOF 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.

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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 loans with
  a $2,354,100 balance at March 31, 2004 which bears fluctuating interest based
  on the banks 90-day LIBOR rate. We believe that fluctuations in interest
  rates in the near term would not materially affect our consolidated operating
  results, financial position or cash flow. We are not exposed to material risk
  based on exchange rate fluctuation or commodity price fluctuation.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure
  Controls and Procedures.

Our management, with the
participation of our principal executive officer and principal financial officer, has
evaluated the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended) as of the end of the period covered by this quarterly report. Based
on this evaluation, our principal executive officer and principal financial officer
concluded that these disclosure controls and procedures are effective and designed to
ensure that the information required to be disclosed in our reports filed or submitted
under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the requisite time periods.

(b)    
          Changes in Internal Controls.

There was no change in our internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934, as amended) identified in connection with the evaluation
of our internal control performed during our last fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our internal control over
financial reporting.

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PART II

ITEM 1.  LEGAL PROCEEDINGS

None

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

|        |             |                                                                  
|------- | ----------- | -----------------------------------------------------------------
|Exhibit | Description |                                                                  
|       
|3.1     |             | Articles of Incorporation                                        
|       
|3.2     |             | Bylaws, as amended and restated                                  
|       
|31.1    |             | Certificate of Chief Executive Officer and Chief Financial       
|        |             | Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|       
|32.1    |             | 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.*

Filed herewith

(b) Reports on Form 8-K

None



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SIGNATURES

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

|                    |     |                                                                      
|------------------- | --- | ---------------------------------------------------------------------
|                    |     | PACIFIC MAGTRON INTERNATIONAL CORP.,   a Nevada corporation          
|                    |     |                                                                      
|Date: June 11, 2004 | By: | /s/ Theodore S. LiTheodore S. LiPresident and Chief Financial Officer
|                    |     |                                                                      

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