SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 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, 2003

                                       OR

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

             For the transition period from __________ to __________

                        Commission file number 000-25277


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


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


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


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


Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

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 25, 2003
<PAGE>
Part I. - Financial Information

     Item 1. - Consolidated Financial Statements
                 Consolidated balance sheets as of March 31, 2003
                 and December 31, 2002 (Unaudited)                           1-2

                 Consolidated statements of operations for the three
                 months ended March 31, 2003 and 2002 (Unaudited)              3

                 Consolidated statements of cash flows for the three
                 months ended March 31, 2003 and 2002 (Unaudited)              4

                 Notes to consolidated financial statements                 5-11

     Item 2. - Management's Discussion and Analysis of Financial
               Condition and Results of Operations                         12-27

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

     Item 4. - Controls and Procedures                                        28

Part II - Other Information

     Item 1. - Legal Proceedings                                              29

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

Signature                                                                     30

Certification                                                                 31
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

                                                      March 31,     December 31,
                                                        2003            2002
                                                    ------------    ------------
ASSETS
Current Assets:
  Cash and cash equivalents                         $  2,643,500    $  1,901,100
  Restricted cash                                        250,000         250,000
  Accounts receivable, net of allowance for
    doubtful accounts of $339,700 and
    $305,000 in 2003 and 2002, respectively            4,186,700       5,124,100
  Inventories                                          3,532,100       3,370,500
  Prepaid expenses and other current
    assets                                               435,700         459,100
  Income tax refund receivable                                --       1,472,800
                                                    ------------    ------------
Total Current Assets                                  11,048,000      12,577,600

Property and equipment, net                            4,431,300       4,495,400

Deposits and other Assets                                136,400         194,000
                                                    ------------    ------------
                                                    $ 15,615,700    $ 17,267,000
                                                    ============    ============

          See accompanying notes to consolidated financial statements.

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

                                                      March 31,     December 31,
                                                        2003            2002
                                                    ------------    ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Current portion of notes payable                  $     62,000    $     60,800
  Floor plan inventory loans                           1,373,800         901,600
  Accounts payable                                     6,319,800       7,781,800
  Accrued expenses                                       631,500         559,100
  Warrants                                                46,700         161,600
                                                    ------------    ------------
Total Current Liabilities                              8,433,800       9,464,900

Notes Payable, less current portion                    3,153,800       3,169,500

Commitments and Contingencies

Preferred Stock, $0.001 par value; 5,000,000
  Shares authorized;
    4% Series A Redeemable Convertible Preferred
    Stock; 1,000 shares designated; 600 shares
    issued and outstanding (liquidation value of
    $620,200 as of March 31, 2003)                       930,300         190,400

Shareholders' Equity:
    Common stock, $0.001 par value; 25,000,000
      shares authorized; 10,485,100 shares
      issued and outstanding                              10,500          10,500
    Additional paid-in capital                         2,013,700       2,007,900
    Retained earnings                                  1,073,600       2,423,800
                                                    ------------    ------------
Total Shareholders' Equity                             3,097,800       4,442,200
                                                    ------------    ------------
                                                    $ 15,615,700    $ 17,267,000
                                                    ============    ============

          See accompanying notes to consolidated financial statements.

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

                                                  Three Months Ended March 31,
                                                  -----------------------------
                                                      2003             2002
                                                  ------------     ------------
Sales:
  Products                                        $ 18,946,500     $ 17,416,900
  Services                                             249,100          215,400
                                                  ------------     ------------
Total Sales                                         19,195,600       17,632,300
                                                  ------------     ------------
Cost of Sales:
  Products                                          17,777,200       16,181,400
  Services                                              97,800          139,200
                                                  ------------     ------------
Total Cost of Sales                                 17,875,000       16,320,600
                                                  ------------     ------------
Gross Margin                                         1,320,600        1,311,700
Selling, General and
  Administrative Expenses                            1,909,900        2,387,100
                                                  ------------     ------------
Loss from Operations                                  (589,300)      (1,075,400)
                                                  ------------     ------------
Other Income (Expense):
  Interest income                                          800            6,600
  Interest expense                                     (43,300)         (46,400)
  Litigation settlement                                (95,000)              --
  Change in fair value of warrants issued              114,900               --
  Other expense, net                                     1,600           (7,300)
                                                  ------------     ------------
Total Other Income (Expense)                           (21,000)         (47,100)
                                                  ------------     ------------
Loss Before Income Tax Benefit
  and Minority Interest                               (610,300)      (1,122,500)
Income Tax Benefit                                          --          384,000
                                                  ------------     ------------
Loss Before Minority Interest                         (610,300)        (738,500)
Minority Interest in PMIGA Loss                             --            2,200
                                                  ------------     ------------
Net Loss                                              (610,300)        (736,300)
Accretion of discount related to
  Series A Convertible Preferred Stock                  (6,000)              --
Accretion of redemption value of
  Series A Convertible Preferred Stock                (733,900)              --
                                                  ------------     ------------
Net loss applicable to common
  shareholders                                    $ (1,350,200)    $   (736,300)
                                                  ============     ============
Basic and diluted loss per share                  $      (0.13)    $      (0.07)
                                                  ============     ============
Shares used in basic and diluted
   per share calculation                            10,485,100       10,485,100
                                                  ============     ============

          See accompanying notes to consolidated financial statements.

                                       -3-
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED MARCH 31,
                                                           ----------------------------
                                                               2003            2002
                                                           ------------    ------------
<S>                                                        <C>             <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
  Net loss                                                 $   (610,300)   $   (736,300)
  Adjustments to reconcile net loss to
    net cash (used in) provided by operating activities:
      Deferred income taxes                                          --          (1,200)
      Depreciation and amortization                              90,400          75,300
      Provision for doubtful accounts                            34,700              --
      Gain on disposal of fixed assets                               --          (6,300)
      Change in fair value of warrants                         (114,900)             --
      Minority interest losses                                       --          (2,200)
      Changes in operating assets and liabilities:
        Accounts receivable                                     902,700         176,600
        Inventories                                            (161,600)       (134,800)
        Prepaid expenses and other
          current assets                                         23,400          43,800
        Income taxes receivable                               1,472,800        (388,500)
        Accounts payable                                     (1,462,000)        613,700
        Accrued expenses                                         72,400          (3,700)
                                                           ------------    ------------
NET CASH PROVIDED BY (USED IN)
  OPERATING ACTIVITIES                                          247,600        (363,600)
                                                           ------------    ------------
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
  Acquisition of property and equipment                          (6,200)         (1,500)
  Reduction in deposits and other assets                         43,300          20,700
  Advances to shareholder/officer                                    --         (30,000)
  Proceeds from sale of property and equipment                       --          20,500
                                                           ------------    ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES                        37,100           9,700
                                                           ------------    ------------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
  Net increase (decrease) in floor plan
    inventory loans                                             472,200        (630,000)
  Principal payments on notes payable                           (14,500)        (13,300)
                                                           ------------    ------------
NET CASH PROVIDED BY (USED IN) FINANCING
  ACTIVITIES                                                    457,700        (643,300)
                                                           ------------    ------------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                              742,400        (997,200)

CASH AND CASH EQUIVALENTS:
  Beginning of period                                         1,901,100       3,110,000
                                                           ------------    ------------
  End of period                                            $  2,643,500    $  2,112,800
                                                           ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       -4-
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                   NOTES TO 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), Frontline Network Consulting, Inc. (FNC), Lea
Publishing, Inc. (Lea), PMI Capital Corporation (PMICC), and LiveWarehouse, Inc.
(LW).

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

The Company has  incurred a net loss of $610,300  and a net loss  applicable  to
common shareholders of $1,350,200 for the three months ended March 31, 2003. The
Company  has  incurred a net loss of  $2,835,900  and a net loss  applicable  to
common  shareholders  of $3,110,100 for the year ended December 31, 2002.  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 downsizing or
disposal of its subsidiaries, FNC and Lea and continued cost-cutting measures to
reduce  overhead  at  all  of  its  subsidiaries   will  enable  it  to  achieve
profitability.   Management  is  also  pursuing   additional  capital  and  debt
financing. However, there is no assurance that these efforts will be successful.

PRINCIPLES OF CONSOLIDATION

The accompanying  consolidated financial statements include the accounts of PMIC
and  its  wholly-owned  subsidiaries,  PMI,  PMIGA,  Lea,  PMICC  and LW and its
majority-owned subsidiary, FNC. All inter-company accounts and transactions have
been eliminated in consolidation.

FINANCIAL STATEMENT PRESENTATION

While the financial information 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
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,  2002.  Interim  operating  results  are not
necessarily indicative of operating results expected for the entire year.

                                       -5-
<PAGE>
STOCK-BASED COMPENSATION

FASB Statement No. 123,  ACCOUNTING FOR STOCK-BASED  COMPENSATION,  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 based method prescribed in SFAS No.
123 as amended by SFAS No. 148.  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, 2003 and 2002. Had
the Company  adopted the provisions of FASB Statement No. 123, the Company's net
loss would have increased to the pro forma amounts indicated below:

THREE MONTHS ENDED MARCH 31,                           2003            2002
                                                   ------------    ------------
Net loss:
  As reported                                      $ (1,350,200)   $   (736,300)
    Add: total stock based employee
      compensation expense determined
      under fair value based method for
      all awards, net of tax                       $    (11,300)   $     (9,400)
  Pro forma                                        $ (1,361,500)   $   (745,700)
                                                   ------------    ------------
Basic and diluted loss per share:
  As reported                                      $      (0.13)   $      (0.07)
  Pro forma                                        $      (0.13)   $      (0.07)

2. RECENT ACCOUNTING PRONOUNCEMENTS

In  January  2003,  the FASB  issued  Interpretation  No. 46,  CONSOLIDATION  OF
VARIABLE INTEREST ENTITIES (FIN 46). This  interpretation of Accounting Research
Bulletin No. 51, Consolidated Financial Statements,  addresses  consolidation by
business  enterprises of variable  interest  entities.  Under current  practice,
enterprises   generally  have  been  included  in  the  consolidated   financial
statements  of another  enterprise  because one  enterprise  controls the others
through voting interests. FIN 46 defines the concept of "variable interests" and
requires existing  unconsolidated  variable interest entities to be consolidated
into the financial  statements of their  primary  beneficiaries  if the variable
interest entities do not effectively  disperse risks among the parties involved.
This  interpretation  applies  immediately to variable interest entities created
after  January 31, 2003.  It applies in the first fiscal year or interim  period
beginning  after  June 15,  2003,  to  variable  interest  entities  in which an
enterprise  holds a variable  interest that it acquired before February 1, 2003.
If it is reasonably  possible that an enterprise  will  consolidate  or disclose
information about a variable interest entity when FIN 46 becomes effective,  the
enterprise  must  disclose  information  about those  entities in all  financial
statements  issued after  January 31, 2003.  The  interpretation  may be applied
prospectively with a cumulative-effect  adjustment as of the date on which it is
first applied or by restating  previously issued financial statements for one or
more years, with a cumulative-effect adjustment as of the beginning of the first
year  restated.  The  adoption  of FIN 46 did not have a material  effect on the
Company's consolidated financial statements.

In November  2002,  the EITF issued  Issue No.  00-21,  "Accounting  for Revenue
Arrangements with Multiple  Deliverables." This issue addresses determination of
whether an arrangement  involving more than one  deliverable  contains more than
one unit of accounting and how arrangement  consideration should be measured and
allocated  to the  separate  units of  accounting.  EITF Issue No. 00-21 will be

                                       -6-
<PAGE>
effective for revenue  arrangements  entered into in fiscal  quarters  beginning
after June 15, 2003, or the Company may elect to report the change in accounting
as a cumulative-effect adjustment. The Company has reviewed EITF Issue No. 00-21
and has  determined  it will  not have a  material  impact  on its  consolidated
financial statements.

3. STATEMENTS OF CASH FLOWS

Cash was paid during the three months ended March 31, 2003 and 2002 for:

                                                   THREE MONTHS ENDING MARCH 31,
                                                   -----------------------------
                                                       2003            2002
                                                    ----------      ----------
Income taxes                                        $    5,200      $    4,100
                                                    ==========      ==========
Interest                                            $   43,300      $   47,200
                                                    ==========      ==========
The following are the noncash financing
activities for the three months ended
March 31, 2003 and 2002:

Accretion of discount related to
  Series A Convertible Preferred Stock              $    6,000      $       --
                                                    ==========      ==========
Accretion of redemption value of
  Series A Convertible Preferred Stock              $  733,900      $       --
                                                    ==========      ==========

4. RELATED PARTY TRANSACTIONS

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

The Company sells computer  products to a company owned by a member of 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.  For the three months ended March 31, 2003,  and 2002, the
Company  recognized $59,200 and $136,700,  respectively,  in sales revenues from
this customer.  Included in accounts receivable as of March 31, 2003 and 2002 is
$32,200 and $96,300, respectively, due from this related customer.

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,  the  Company  did not  record a
valuation  allowance  on the  portion of the  deferred  tax assets  relating  to
unutilized  federal net operating loss of $1,906,800 for the year ended December
31, 2001. On June 12, 2002, the Company  received a federal income tax refund of
$1,034,700  attributable  to 2001 net operating  losses carried back. The income
tax  benefits of $384,200  recorded  for the three  months  ended March 31, 2002
primarily  reflects  the  federal  income  tax  refund  attributable  to the net
operating  loss incurred for the three months ended March 31, 2002.  The Company
does not expect to receive a tax benefit  for losses  incurred in 2003 which are
not covered by the Act. As a result, no tax benefits were recorded for the three
months ended March 31, 2003. On March 20, 2003,  the Company  received a federal
income  tax  refund  of  $1,427,400  attributable  to 2002  net  operating  loss
carryback.

                                       -7-
<PAGE>
6. FLOOR PLAN INVENTORY LOANS AND LETTER OF CREDIT

On July 13, 2001, PMI and PMIGA (the Companies)  obtained a $4 million  (subject
to credit and borrowing  base  limitations)  accounts  receivable  and inventory
financing   facility   from   Transamerica    Commercial   Finance   Corporation
(Transamerica).  This credit facility had a term of two years and was subject to
automatic  renewal from year to year  thereafter.  The credit  facility could be
terminated  by  Transamerica.  Under certain  conditions,  the  termination  was
subject to a fee of 1% of the credit  limit.  The  facility  included up to a $3
million  inventory  line  (subject to a borrowing  base of up to 85% of eligible
accounts receivable plus up to $1,500,000 of eligible inventories) that included
a sub-limit  of $600,000 for working  capital and a $1 million  letter of credit
facility  used as security  for  inventory  purchased  on terms from  vendors in
Taiwan.  Borrowings  under the  inventory  loans  were  subject to 30 to 45 days
repayment,  at which time interest accrued at the prime rate, which was 4.25% at
March 31, 2003.  Draws on the working capital line also accrued  interest at the
prime rate. The credit facility was guaranteed by both PMIC and FNC.

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

On October 23, 2002,  Transamerica  issued a waiver of the default  occurring on
June 30, 2002 and revised the terms and  covenants  under the credit  agreement.
Under the revised  terms,  the credit  facility  includes  FNC as an  additional
borrower and PMIC  continues as a guarantor.  Effective  October  2002,  the new
credit limit was $3 million in aggregate for  inventory  loans and the letter of
credit  facility.  The letter of credit facility was limited to $1 million.  The
credit limits for PMI and FNC were  $1,750,000  and $250,000,  respectively.  At
December  31,  2002 and  September  30,  2002,  the  Companies  did not meet the
covenants as revised on October 23, 2002 relating to profitability  and tangible
net worth.  This constituted a technical  default and gave  Transamerica,  among
other things,  the right to call the loan and  immediately  terminate the credit
facility.

On January 7,  2003,  Transamerica  elected  to  terminate  the credit  facility
effective April 7, 2003.  However,  Transamerica  continues its guarantee of the
Letter of Credit Facility through July 25, 2003 and continues to accept payments
according to the terms of the agreement. As of March 31, 2003, the Companies had
an outstanding balance of $1,373,800 due under this credit facility.  The entire
outstanding balance is scheduled for repayment by May 20, 2003.

On April 9, 2003,  PMI  received a  conditional  approval  letter  from  Textron
Financial   Corporation   (Textron)  for  an  inventory  financing  facility  of
$3,500,000  and a $1 million  letter of credit  facility  used as  security  for
inventory  purchased  on terms from  vendors in Taiwan.  The credit  facility is
guaranteed by PMIC,  PMIGA,  FNC, Lea, LW and two  shareholders/officers  of the
Company.  The Company is required to maintain  collateral coverage equal to 120%

                                       -8-
<PAGE>
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 and
levels of  profitability.  The Company is  required  to  maintain  $250,000 in a
restricted account as a pledge to Textron.

7. NOTES PAYABLE

In 1997,  the Company  obtained  financing of $3,498,000 for the purchase of its
office and warehouse  facility.  Of the amount  financed,  $2,500,000 was in the
form of a 10-year bank loan utilizing a 30-year  amortization  period. This loan
bears  interest at the bank's  90-day  LIBOR rate  (1.375% as of March 31, 2003)
plus 2.5%, and is secured by a deed of trust on the property. The balance of the
financing was obtained  through a $998,000 Small Business  Administration  (SBA)
loan due in monthly installments through April 2017. The SBA loan bears interest
at 7.569%, and is secured by the underlying property.

Under the bank loan for the  purchase  of the  Company's  office  and  warehouse
facility,  the Company is required,  among other  things,  to maintain a minimum
debt  service  coverage,  a  maximum  debt  to  tangible  net  worth  ratio,  no
consecutive  quarterly losses,  and net income on an annual basis.  During 2002,
the  Company was in  violation  of two of these  covenants  which is an event of
default under the loan agreement that gives the bank the right to call the loan.
While a waiver  of the  loan  covenant  violations  was  obtained  from the bank
through  December  31, 2003,  the Company is required to maintain  $250,000 in a
restricted  account  as a  reserve  for debt  servicing.  This  amount  has been
reflected  as  restricted  cash  in  the  accompanying   consolidated  financial
statements.

8. SEGMENT INFORMATION

The Company has five  reportable  segments:  PMI,  PMIGA,  FNC,  Lea and LW. PMI
imports and distributes electronic products,  computer components,  and computer
peripheral equipment to various distributors and retailers throughout the United
States.  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 through a website.  FNC serves the networking and personal computer
requirements of corporate customers. Lea designs and installs advanced solutions
and  applications  for internet users,  resellers and providers.  The accounting
policies  of the  segments  are the same as those  described  in the  summary of
significant  accounting  policies  presented  in the  Company's  Form 10-K.  The
Company  evaluates  performance  based on income or loss before income taxes and
minority interest,  not including  nonrecurring  gains or losses.  Inter-segment
transfers between  reportable  segments have been  insignificant.  The Company's
reportable  segments are 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 segment profit or loss
for the three months ended March 31, 2003:

                                       -9-
<PAGE>
                                                  Segment loss
                             Revenues             before income
                             External               taxes and
                             Customers          Minority Interest
                            -----------         -----------------
PMI                         $14,744,000            $  (416,800)
PMIGA                         2,002,500               (113,000)
FNC                             970,600(1)             (94,900)
LEA                              99,500(2)             (46,200)
LW                            1,379,000                (46,300)
                            -----------            -----------
TOTAL                       $19,195,600            $  (717,200)
                            ===========            ===========

The following table presents  information  about reported segment profit or loss
for the three months ended March 31, 2002:

                                                  Segment loss
                             Revenues             before income
                             External               taxes and
                             Customers          Minority Interest
                            -----------         -----------------
PMI                         $13,430,700            $  (305,500)
PMIGA                         3,445,000               (142,000)
FNC                             599,600(1)            (338,400)
LEA                             135,600(2)            (266,300)
LW                               21,400                (70,300)
                            -----------            -----------
TOTAL                       $17,632,300            $(1,122,500)
                            ===========            ===========

(1)  Includes  service  revenues  of  $149,600  and  $79,800  in 2003 and  2002,
     respectively.
(2)  Includes  service  revenues  of  $99,600  and  $135,600  in 2003 and  2002,
     respectively.

The following is a reconciliation of reportable segment loss before income taxes
to the Company's consolidated total:

                                                   Three Months Ended March 31,
                                                   ----------------------------
                                                       2003            2002
                                                   ------------    ------------
Total loss before income taxes and minority
  interest for reportable segments                 $   (717,200)   $ (1,122,500)
Change in fair value of warrants issued                 114,900              --
Amortization of warrant issuance costs                   (8,000)             --
                                                   ------------    ------------
Consolidated loss before income taxes
  and minority interest                            $   (610,300)   $ (1,122,500)
                                                   ------------    ------------

9. ACCOUNTS RECEIVABLE FACTORING AGREEMENT

Pursuant to a non-notification  accounts  receivable  factoring  agreement,  the
Company factored certain of its accounts  receivable with GE Capital  Commercial
Services,  Inc.  (GE)  on  a  pre-approved   nonrecourse  basis.  The  factoring

                                      -10-
<PAGE>
commission  charge  was  0.375% and 2.375% of  specific  approved  domestic  and
foreign  receivables,  respectively.  The agreement,  which expired February 28,
2003 and was renewed  through March 31, 2003,  provided for the Company to pay a
minimum of $200,000  (pro-rated for March 2003) in annual  commission to GE. The
Company's  obligations  to  GE  were  collateralized  by  the  related  accounts
receivable sold and assigned to GE and the underlying  inventory.  However,  any
collateral  assigned to GE was  subordinated  to the  collateral  rights held by
Transamerica,  the Company's floor plan inventory  lender. GE agreed to remit to
Transamerica,  on behalf of the Company, any collections on assigned accounts to
repay  amounts due  Transamerica  under the  Company's  inventory  floor line of
credit.

In April 2003, the Company entered into a financing agreement with ENX, Inc. for
its  accounts  receivables  for one year  beginning  April 7,  2003.  Under  the
agreement, the Company factors its accounts receivable on pre-approved customers
with pre-approved credit limits. The factoring commission is 0.5% of the invoice
amounts  with a minimum  annual  commission  of $50,000.  The Company also has a
credit insurance policy covering certain accounts receivable up to $2,000,000 of
losses.

10. LITIGATION SETTLEMENT

In April 2003, the Company settled a lawsuit relating to a counterfeit  products
claim for $95,000 which is included in other expense in the first quarter 2003.

11. SUBSEQUENT EVENTS

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 Rule. On March 6, 2003 the Company requested a
hearing before a Listing  Qualifications Panel, at which it would seek 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  effective 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.  As of March 31, 2003,  the  redemption  value of the
Series A Preferred  Stock,  if the holder had required the Company to redeem the
Series  A  Preferred  Stock as of that  date,  was  $930,300.  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 $733,900 in the accompanying  consolidated  statement of
operations.

In March and April 2003, the Company entered into letters of intent with a third
party to sell  substantially all of the assets of FNC and with certain employees
to sell  substantially  all of the  assets of Lea.  The  Company  is  engaged in
on-going  preliminary  discussions with the prospective  buyers and is unable to
conclude that a sale is probable at this time.

                                      -11-
<PAGE>
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 consolidated financial statements, which are included
elsewhere in this Quarterly Report. The following discussion and analysis should
be read in conjunction  with the accompanying  financial  statements and related
notes thereto.  This discussion contains  forward-looking  statements within the
meaning of Section 27A of the  Securities  Act of 1933, as amended,  and Section
21E of the Securities Exchange Act of 1934, as amended. Our actual results could
differ  materially  from  those  set  forth in the  forward-looking  statements.
Forward-looking   statements,   by  their  very   nature,   include   risks  and
uncertainties.  Accordingly,  our actual  results could differ  materially  from
those discussed in this Report. A wide variety of factors could adversely impact
revenues,  profitability,  cash flows and capital needs.  Such factors,  many of
which are beyond our control,  include, but are not limited to, those identified
in the Company's Form 10-K for the fiscal year ended December 31, 2002 under the
heading "Cautionary Factors That May Affect Future Results", such as our ability
to reverse our trend of negative  earnings,  respond to  technological  changes,
obtain insurance and potential excess liability, the diminished marketability of
inventory,  the need for additional  capital,  the delisting of our common stock
from  the  Nasdaq  SmallCap  Market,  increased  warranty  costs,   competition,
recruitment  and  retention  of  technical  personnel,  dependence  on continued
manufacturer  certification,  dependence on certain suppliers,  risks associated
with the projects in which we are engaged to  complete,  and  dependence  on key
personnel.

GENERAL

As used herein and unless  otherwise  indicated,  the terms "Company," "we," and
"our" refer to Pacific Magtron International Corp. and each of our subsidiaries.
We provide solutions to customers in several segments of the computer  industry.
Our business is organized into five divisions:  PMI, PMIGA, FNC, Lea 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 commenced operations in October 2000 and distributes PMI's products in the
southeastern   United  States  market.  We  established  the  FrontLine  Network
Consulting  division  in 1998 to provide  professional  services  to  mid-market
companies focused on consulting, implementation and support services of Internet
technology  solutions.  During 2000,  this division was  incorporated as FNC. On
September 30, 2001,  FNC acquired  certain  assets of Technical  Insights,  Inc.
(Technical  Insights"),  a computer  technical support company,  in exchange for
16,142 shares of our common stock then valued at $20,000.  The acquired business
unit,  Technical  Insights,  enables FNC to provide computer  technical training
services  to  corporate   clients.   We  signed  a  letter  of  intent  to  sell
substantially  all of the assets of FNC to a third party.  However,  there is no
assurance that the sale will be consummated.

In 1999 we invested in a 50%-owned joint software venture, Lea Publishing,  LLC,
to  focus  on  Internet-based  software  application   technologies  to  enhance
corporate IT services.  Lea was a development  stage  company.  In June 2000, we
increased  our direct and indirect  interest in Lea to 62.5% by  completing  our

                                      -12-
<PAGE>
purchase of 25% of the  outstanding  common  stock of Rising Edge  Technologies,
Ltd.  ("Rising Edge"),  the other 50% owner of Lea. In December 2001, we entered
into an agreement with Rising Edge and its principal  owners to exchange the 50%
Rising  Edge  ownership  in Lea  for our  25%  interest  in  Rising  Edge.  As a
consequence,  we own 100% of Lea and no longer have an interest in Rising  Edge.
Certain  LiveMarket assets,  which were initially  purchased through PMICC, were
transferred  to Lea in the  fourth  quarter  of  2001.  On  May  28,  2002,  Lea
Publishing,  Inc. was  incorporated  in California.  Effective June 1, 2002, Lea
Publishing,  LLC transferred all of its assets and liabilities to Lea. We signed
a letter of intent to sell  substantially  all the  assets of Lea to  certain of
Lea's  employees.  However,  there  is  no  assurance  that  the  sale  will  be
consummated.

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

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, 2002. The following are our critical accounting policies:

REVENUE RECOGNITION

The Company  recognizes  sales of computer and related products upon delivery of
goods  to  the  customer  (generally  upon  shipment)  provided  no  significant
obligations  remain and  collectibility  is probable.  A provision for estimated
product returns is established at the time of sale based upon historical  return
rates,  which have typically been  insignificant,  adjusted for current economic
conditions.  The Company  generally does not provide volume discounts or rebates
to its customers.  Revenues relating to services performed by FNC are recognized
upon  completion of the  contracts.  Software and service  revenues  relating to
software design and  installation  performed by FNC and Lea, are recognized upon
completion of the installation and customer acceptance.

LONG-LIVED ASSETS

The Company  periodically  reviews its long-lived  assets for  impairment.  When
events or changes in circumstances indicate that the carrying amount of an asset
group  may not be  recoverable,  the  Company  adjusts  the  asset  group to its
estimated  fair  value.  The fair value of an asset group is  determined  by the
Company as the amount at which  that  asset  group  could be bought or sold in a
current  transaction  between  willing  parties  or  the  present  value  of the
estimated future cash flows from the asset. The asset value  recoverability test
is performed by the Company on an on-going basis.

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. 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.

                                      -13-
<PAGE>
INVENTORY

Our inventories, consisting primarily of finished goods, are stated at the lower
of cost  (moving  weighted  average  method)  or  market.  We  regularly  review
inventory  quantities on hand and record a provision,  if necessary,  for excess
and obsolete  inventory  based  primarily on our  estimated  forecast of product
demand.  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  protections  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

The Company  reports  income  taxes in  accordance  with  Statement of Financial
Accounting Standards (SFAS) No. 109, ACCOUNTING FOR INCOME TAXES, which requires
an asset and liability  approach.  This approach  results in the  recognition of
deferred  tax assets  (future tax  benefits)  and  liabilities  for the expected
future tax  consequences  of  temporary  differences  between the book  carrying
amounts and the tax basis of assets and liabilities. The deferred tax assets and
liabilities  represent the future tax consequences of those  differences,  which
will  either be  deductible  or  taxable  when the assets  and  liabilities  are
recovered or settled.  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.

RESULTS OF OPERATIONS

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

                                                            Three Months Ended
                                                                March 31,
                                                           -------------------
                                                            2003         2002
                                                           ------       ------
Sales                                                       100.0%       100.0%
Cost of sales                                                93.1         92.6
                                                           ------       ------
Gross margin                                                  6.9          7.4
Operating expenses                                           10.0         13.6
                                                           ------       ------
Loss from operations                                         (3.1)        (6.2)
Other income (expense), net                                  (0.1)        (0.2)
Income taxes (benefit) expense                                0.0         (2.2)
Minority interest                                             0.0          0.0
                                                           ------       ------
Net loss                                                     (3.2%)       (4.2%)
                                                           ======       ======

THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002

Sales for the three months ended March 31, 2003 were $19,195,600, an increase of
$1,563,300,  or approximately 8.9%, compared to $17,632,300 for the three months
ended March 31, 2002. The combined sales of PMI and PMIGA were  $16,746,500  for
the three months  ended March 31, 2003, a decrease of $129,200 or  approximately
0.8%,  compared to $16,875,700 for the three months ended March 31, 2002.  Sales

                                      -14-
<PAGE>
for PMI increased by $1,313,300  or 9.8% from  $13,430,700  for the three months
ended March 31, 2002 to  $14,744,000  for the three months ended March 31, 2003.
PMIGA's sales  decreased by $1,442,500  or 41.9% from  $3,445,000  for the three
months ended March 31, 2002 to  $2,002,500  for the three months ended March 31,
2003. The increase in PMI sales was due to an improved computer component market
condition  in the first  quarter of 2003  compared to the same period last year.
The decrease in PMIGA's sales was due to the intense  competition and a decrease
in market share on the U.S. east coast.

Sales recognized by FNC for the three months ended March 31, 2003 were $970,600,
an increase of $371,000 or 61.9%, compared to $599,600 for the three month ended
March 31,  2002.  The  increase  in FNC sales is due to the  increase in capital
expenditures by its customers.

Lea  generated  $99,500 in revenues for the three months ended March 31, 2003, a
decrease of $36,100 or 26.5%,  compared to $135,600  for the three  months ended
march 31, 2002. The decrease in revenues was due to the pricing  pressure on our
services.

Sales  generated  by LW were  $21,400 for the three months ended March 31, 2002,
compared to $1,379,000 for the three months ended March 31, 2003, an increase of
$1,357,600.  LW was an operating  entity during the three months ended March 31,
2003,  whereas it was in a development stage during the three months ended March
31, 2002.

Consolidated  gross  margin  for the  three  months  ended  March  31,  2003 was
$1,320,600,  or 6.9% of sales, compared to $1,311,700,  or 7.4% of sales for the
three months ended March 31, 2002.  The combined  gross margin for PMI and PMIGA
was  $940,000,  or 5.6% of sales  for the three  months  ended  March 31,  2003,
compared to  $1,197,300  or 7.1% of sales for the three  months  ended March 31,
2002.  PMI's gross  margin was  $815,800  or 5.5% of sales for the three  months
ended March 31, 2003,  compared to $1,024,900 or 7.6% for the three months ended
March 31, 2002. PMIGA's gross margin was $124,200 or 6.2% of sales for the three
months ended March 31, 2003, compared to $172,400 or 5.0% of sales for the three
months ended March 31, 2002. The decrease in gross margin for PMI was due to the
intense price  competition in the market for several major products sold by PMI.
We  anticipate  the intense  price  competition  will  continue in the  computer
component products market in the next 12 months. The increase in gross margin as
a percentage  of sales for PMIGA was due to more  products  with higher  margins
were being sold during the three  months  ended  March 31, 2003  compared to the
three months ended March 31, 2002.

FNC's gross  margin was  $180,800,  or 18.6% of sales for the three months ended
March 31, 2003, compared to $81,500 or 13.4% of sales for the three months ended
March 31, 2002.  The higher gross  margin  percentage  in the three months ended
March 31, 2003 was due to an increase in service revenues earned as a percent of
total sales for the three  months  ended March 31,  2003,  compared to the three
months ended March 31, 2002. Service revenues were $149,600 for the three months
ended March 31,  2003,  compared to $79,800 for the three months ended March 31,
2002. In general, FNC has a higher gross margin on consulting and implementation
service revenues than product sales revenues.

Lea`s gross  margin was  $66,500,  or 66.8% of sales for the three  months ended
March 31,  2003,  compared  to $28,400,  or 21.0% of sales for the three  months
ended March 31,  2002.  The  increase in gross  margin was due to more  billable
development work for the three months ended March 31, 2003, compared to the same
period in 2002.

                                      -15-
<PAGE>
Gross  margin for LW was  $133,300 or 9.7% of sales for the three  months  ended
March 31, 2003,  compared to $4,500,  or 21% of sales for the three months ended
March 31,  2002.  LW was in a  development  stage  during the three months ended
March 31, 2002.

Consolidated  operating  expenses,   which  consist  of  selling,   general  and
administrative  expenses,  were  $1,909,900 for the three months ended March 31,
2003, a decrease of $477,200,  or 20.0%,  compared to  $2,387,100  for the three
months ended March 31, 2002.  The Company  continued  its effort in cost cutting
during the three months ended March 31, 2003.  Substantially all of the expenses
were reduced for the three  months  ended March 31,  2003,  compared to the same
period in 2002.  Employee  count was reduced from 103 at March 31, 2002 to 96 at
March 31, 2003.  Through a  combination  of reducing the number of employees and
salary  reductions,  payroll  expense  declined by $234,500 for the three months
ended March 31, 2003,  compared to the same period in 2002. The Company has also
experienced  a lower level of bad debt  write-offs.  The  consolidated  bad debt
expense  decreased by $98,800 for the three months ended March 31, 2003 compared
to the same period in 2002. Consolidated  promotional expenses for our Company's
stock,  products  and  services  decreased by $64,700 for the three months ended
March 31, 2003, compared to the same period in 2002.

PMI's  operating  expenses were  $1,067,500 for the three months ended March 31,
2003,  compared to  $1,357,600  for the three months  ended March 31, 2002.  The
decrease  of  $253,100  or 21.4%,  was  mainly  due to the  decrease  in payroll
expenses  of  approximately  $53,300  and the  decrease  in bad debt  expense of
$113,000 and promotional expenses of $51,800.

PMIGA's  operating  expenses  were $235,900 for the three months ended March 31,
2003, a decrease of $78,800, or 25.0%, compared to $314,700 for the three months
ended March 31, 2002.  The decrease was  primarily due to a decrease in expenses
for accounts receivable  collection of approximately $21,300 and the decrease in
promotional expense of $10,700.

FNC's  operating  expenses  were  $310,900  for the three months ended March 31,
2003, a decrease of $84,500, or 21.4%, compared to $395,400 for the three months
ended March 31,  2002.  The  decrease  was mainly due to the decrease in payroll
expenses of approximately $76,700.

Lea's  operating  expenses  were  $112,700  for the three months ended March 31,
2003,  a decrease of  $182,100,  or 61.8%,  compared  to $294,800  for the three
months  ended  March 31,  2002.  The  decrease  was mainly due to a decrease  in
payroll expense of approximately  $92,200 and a decrease in professional service
expenses of approximately  $50,100.  Rent expense was reduced by $26,600 for the
three months ended March 31, 2003, compared to the same period in 2002 primarily
as a result of the  elimination of Lea's office in Utah in the fourth quarter of
2002.

LW's operating expenses were $174,900 for the three months ended March 31, 2003,
an increase of  $100,400,  or 134.8%,  compared to $74,500 for the three  months
ended March 31,  2002.  LW was in a  development  stage  during the three months
ended March 31,  2002.  The  increase  was mainly due to the increase in payroll
expenses,  bad debt  expense,  bank  charges,  and  e-commerce  service  fees of
approximately $44,100, $14,700, $13,600, and $18,600, respectively.

Consolidated  loss from operations for the three months ended March 31, 2003 was
$589,300,  compared to  $1,075,400  for the three months ended March 31, 2002, a

                                      -16-
<PAGE>
decrease  of $486,100 or 45.2%.  As a percent of sales,  consolidated  loss from
operations was 3.1% for the three months ended March 31, 2003,  compared to 6.2%
for the three  months ended March 31, 2002.  The decrease in  consolidated  loss
from operations was primarily due to a 20.0% decrease in consolidated  operating
expenses.  Loss from  operations  for the three  months  ended  March 31,  2003,
including  allocations of PMIC corporate expenses,  for PMI, PMIGA, FNC, Lea and
LW was $390,800, $56,000, $40,300, $23,700, and $72,600, respectively. Loss from
operations for the three months ended March 31, 2002,  including  allocations of
PMIC corporate expenses, for PMI, PMIGA, FNC, Lea and LW was $332,700, $142,400,
$264,000, $266,300, and $70,000, respectively.

Consolidated  interest  expense was $43,300 for the three months ended March 31,
2003,  compared  to $46,400  for the three  months  ended  March 31,  2002.  The
decrease in interest  expense was largely due to a rate decrease on the floating
interest rate charged on one of our mortgages for our office  building  facility
located in Milpitas, California.

Other income for the three months ended March 31, 2003 included $114,900 related
to the change in fair value of the warrants issued to a preferred stock investor
and a broker on May 31, 2002.

Other  expenses for the three months ended March 31, 2003  included  $95,000 for
the settlement of a lawsuit relating to a counterfeit products claim.

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,  the  Company  did not  record a
valuation  allowance  on the  portion of the  deferred  tax assets  relating  to
unutilized  federal net operating loss of $1,906,800 for the year ended December
31, 2001. On June 12, 2002, the Company  received a federal income tax refund of
$1,034,700  attributable  to 2001 net operating  losses carried back. The income
tax  benefits of $384,200  recorded  for the three  months  ended March 31, 2002
primarily  reflects  the  federal  income  tax  refund  attributable  to the net
operating  loss incurred for the three months ended March 31, 2002.  The Company
does not expect to receive a tax benefit  for losses  incurred in 2003 which are
not covered by the Act. As a result, no tax benefits were recorded for the three
months ended March 31, 2003. On March 20, 2003,  the Company  received a federal
income tax refund of  $1,427,400  attributable  to the 2002 net  operating  loss
carryback.

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 Rule. On March 6, 2003 the Company requested a
hearing before a Listing  Qualifications Panel, at which it would seek 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  effective 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.  As of March 31, 2003,  the  redemption  value of the
Series A Preferred  Stock,  if the holder had required the Company to redeem the
Series A Preferred Stock as of that date, was $930,300. The Company has

                                      -17-
<PAGE>
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 $733,900 in the accompanying  consolidated  statement of
operations.

LIQUIDITY AND CAPITAL RESOURCES

The Company has  incurred a net loss of $610,300  and a net loss  applicable  to
common shareholders of $1,350,200 for the three months ended March 31, 2003. The
Company  has  incurred a net loss of  $2,835,900  and a net loss  applicable  to
common  shareholders  of $3,110,100 for the year ended December 31, 2002.  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 downsizing or
disposal of its subsidiaries, FNC and Lea and continued cost-cutting measures to
reduce  overhead  at  all  of  its  subsidiaries   will  enable  it  to  achieve
profitability.   Management  is  also  pursuing   additional  capital  and  debt
financing. However, there is no assurance that these efforts will be successful.

At March  31,  2003,  we had  consolidated  cash and cash  equivalents  totaling
$2,643,500  (excluding  $250,000  in  restricted  cash) and  working  capital of
$2,614,200.  At December 31, 2002, we had consolidated cash and cash equivalents
of $1,901,100  (excluding  $250,000 in restricted  cash) and working  capital of
$3,112,700.

Net cash provided by operating  activities  for the three months ended March 31,
2003 was $247,600,  which principally  reflected the receipt of a federal income
tax refund of $1,427,400 and a decrease in accounts receivable of $902,700 which
was  partially  offset by a  decrease  in  accounts  payable of  $1,462,000,  an
increase in inventories  of $161,600 and a net loss of $610,300  incurred in the
three months ended March 31, 2003. Net cash used in operating  activities during
the three months ended March 31, 2002 was $363,600,  which principally reflected
the net loss  incurred  during  the  period,  and an  increase  in income  taxes
receivable  and  inventories,  which  was  partially  offset by an  increase  in
accounts payable and a decrease in accounts receivable.

Net cash provided by investing activities was $37,100 for the three months ended
March 31, 2003,  primarily  resulting from decrease in deposits and other assets
of $43,300.  Net cash provided by investing  activities  during the three months
ended March 31, 2002 was $9,700,  primarily resulting from the proceeds of sales
of property and equipment  and decrease in deposits and other assets,  which was
partially offset by the $30,000 advanced to a shareholder/officer.

Net cash  provided by  financing  activities  was  $457,700 for the three months
ended  March 31,  2003,  primarily  resulting  from an  increase  in floor  plan
inventory loans of $472,200.  Net cash used in financing activities was $643,300
for the three months ended March 31, 2002, primarily from a $630,000 decrease in
the floor plan inventory loans.

On July 13, 2001, PMI and PMIGA (the Companies)  obtained a $4 million  (subject
to credit and borrowing  base  limitations)  accounts  receivable  and inventory
financing   facility   from   Transamerica    Commercial   Finance   Corporation
(Transamerica).  This credit facility had a term of two years and was subject to
automatic  renewal from year to year  thereafter.  The credit  facility could be
terminated by Transamerica. Under certain conditions the termination was subject

                                      -18-
<PAGE>
to a fee of 1% of the credit  limit.  The  facility  included up to a $3 million
inventory  line (subject to a borrowing  base of up to 85% of eligible  accounts
receivable  plus up to  $1,500,000  of  eligible  inventories)  that  included a
sub-limit  of  $600,000  for working  capital and a $1 million  letter of credit
facility  used as security  for  inventory  purchased  on terms from  vendors in
Taiwan.  Borrowings  under the  inventory  loans  were  subject to 30 to 45 days
repayment,  at which time interest accrued at the prime rate, which was 4.25% at
March 31, 2003.  Draws on the working capital line also accrued  interest at the
prime rate. The credit facility was guaranteed by both PMIC and FNC.

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

On October 23, 2002,  Transamerica  issued a waiver of the default  occurring on
June 30, 2002 and revised the terms and  covenants  under the credit  agreement.
Under the revised  terms,  the credit  facility  includes  FNC as an  additional
borrower and PMIC  continues as a guarantor.  Effective  October  2002,  the new
credit limit was $3 million in aggregate for  inventory  loans and the letter of
credit  facility.  The letter of credit facility was limited to $1 million.  The
credit limits for PMI and FNC were  $1,750,000  and $250,000,  respectively.  At
December  31,  2002 and  September  30,  2002,  the  Companies  did not meet the
covenants as revised on October 23, 2002 relating to profitability  and tangible
net worth.  This constituted a technical  default and gave  Transamerica,  among
other things,  the right to call the loan and  immediately  terminate the credit
facility.

On January 7,  2003,  Transamerica  elected  to  terminate  the credit  facility
effective April 7, 2003.  However,  Transamerica  continues its guarantee of the
Letter of Credit Facility through July 25, 2003 and continues to accept payments
according to the terms of the agreement. As of March 31, 2003, the Companies had
an outstanding balance of $1,373,800 due under this credit facility.  The entire
outstanding balance is scheduled for repayment by May 20, 2003.

On April 9, 2003,  PMI  received a  conditional  approval  letter  from  Textron
Financial   Corporation   (Textron)  for  an  inventory  financing  facility  of
$3,500,000  and a $1 million  letter of credit  facility  used as  security  for
inventory  purchased  on terms from  vendors in Taiwan.  The credit  facility is
guaranteed by PMIC,  PMIGA,  FNC, Lea, LW and two  shareholders/officers  of the
Company.  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 and
levels of profitability.  The Company will be required to maintain $250,000 in a
restricted account as a pledge to Textron.

Pursuant to one of our bank mortgage loans,  with a $2,381,300  balance at March
31, 2003, we are required to maintain a minimum debt service coverage, a maximum

                                      -19-
<PAGE>
debt to tangible net worth ratio, no consecutive  quarterly losses,  and achieve
net  income  on an  annual  basis.  During  2002 and 2001,  the  Company  was in
violation of two of these covenants which  constituted an event of default under
the loan agreement and gave the bank the right to call the loan. A waiver of the
loan covenant  violations was obtained from the bank in March 2002,  retroactive
to September 30, 2001,  and through  December 31, 2002. In March 2003,  the bank
extended the waiver  through  December 31, 2003. As a condition for this waiver,
the Company  transferred  $250,000 to a restricted account as a reserve for debt
servicing. This amount has been reflected as restricted cash in the accompanying
consolidated financial statements.

On May 31, 2002 we received net proceeds of $477,500 from the sale of 600 shares
of 4% Series A Preferred  Stock.  An additional 400 shares were to be sold after
the completion of the registration of the underlying  common stock.  Even though
we completed the required registration of the underlying common stock in October
2002,  there is no assurance that the remaining 400 shares will be sold or, even
if we do, that we will be able to obtain additional  capital beyond the issuance
of the 1,000  shares of Preferred  stock.  Upon the  occurrence  of a Triggering
Event, such as if the Company were a party in a "Change of Control Transaction,"
among others,  as defined,  the holder of the preferred  stock has the rights to
require us to redeem its  preferred  stock in cash at a minimum of 1.5 times the
Stated Value. 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 Rule. On March 6, 2003 the Company requested a
hearing before a Listing  Qualifications Panel, at which it would seek 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  effective 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.  As of March 31, 2003,  the  redemption  value of the
Series A Preferred  Stock,  if the holder had required the Company to redeem the
Series  A  Preferred  Stock as of that  date,  was  $930,300.  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 $733,900 in the accompanying  consolidated  statement of
operations.  In the event we are required to redeem our Series A Preferred Stock
in cash, we might  experience a reduction in our ability to operate the business
at its current level.

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

In March and April 2003, the Company entered into letters of intent with a third
party to sell  substantially all of the assets of FNC and with certain employees
to sell  substantially  all of the  assets of Lea.  The  Company  is  engaged in
on-going  preliminary  discussions with the prospective  buyers and is unable to
conclude  that a sale is probable at this time.  There is no assurance  that the
sales will be consummated.

                                      -20-
<PAGE>
RELATED PARTY TRANSACTIONS

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

The Company sells computer  products to a company owned by a member of 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.  For the three months ended March 31, 2003,  and 2002, the
Company  recognized $59,200 and $136,700,  respectively,  in sales revenues from
this customer.  Included in accounts receivable as of March 31, 2003 and 2002 is
$32,200 and $96,300, respectively, due from this related customer.

RECENT ACCOUNTING PRONOUNCEMENTS

In  January  2003,  the FASB  issued  Interpretation  No. 46,  CONSOLIDATION  OF
VARIABLE INTEREST ENTITIES (FIN 46). This  interpretation of Accounting Research
Bulletin No. 51, Consolidated Financial Statements,  addresses  consolidation by
business  enterprises of variable  interest  entities.  Under current  practice,
enterprises   generally  have  been  included  in  the  consolidated   financial
statements  of another  enterprise  because one  enterprise  controls the others
through voting interests. FIN 46 defines the concept of "variable interests" and
requires existing  unconsolidated  variable interest entities to be consolidated
into the financial  statements of their  primary  beneficiaries  if the variable
interest entities do not effectively  disperse risks among the parties involved.
This  interpretation  applies  immediately to variable interest entities created
after  January 31, 2003.  It applies in the first fiscal year or interim  period
beginning  after  June 15,  2003,  to  variable  interest  entities  in which an
enterprise  holds a variable  interest that it acquired before February 1, 2003.
If it is reasonably  possible that an enterprise  will  consolidate  or disclose
information about a variable interest entity when FIN 46 becomes effective,  the
enterprise  must  disclose  information  about those  entities in all  financial
statements  issued after  January 31, 2003.  The  interpretation  may be applied
prospectively with a cumulative-effect  adjustment as of the date on which it is
first applied or by restating  previously issued financial statements for one or
more years, with a cumulative-effect adjustment as of the beginning of the first
year  restated.  The  adoption  of FIN 46 did not have a material  effect on the
Company's consolidated financial statements.

In November  2002,  the EITF issued  Issue No.  00-21,  "Accounting  for Revenue
Arrangements with Multiple  Deliverables." This issue addresses determination of
whether an arrangement  involving more than one  deliverable  contains more than
one unit of accounting and how arrangement  consideration should be measured and
allocated  to the  separate  units of  accounting.  EITF Issue No. 00-21 will be
effective for revenue  arrangements  entered into in fiscal  quarters  beginning
after June 15, 2003, or the Company may elect to report the change in accounting
as a cumulative-effect adjustment. The Company has reviewed EITF Issue No. 00-21
and has  determined  it will  not have a  material  impact  on its  consolidated
financial statements.

                                      -21-
<PAGE>
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

OUR REPORT OF INDEPENDENT AUDITORS CONTAINS A GOING CONCERN QUALIFICATION

We  received  a going  concern  opinion  from  our  auditors  for the  financial
statements for the year ended December 31, 2002. The opinion raises  substantial
doubts our  ability to continue  as a going  concern.  If we fail to replace our
Transamerica  floor  plan line of credit  or if we cannot  reverse  our trend of
negative earnings an investor could lose his/her entire investment.

WE HAVE INCURRED OPERATING LOSSES AND DECREASED REVENUES FOR THE LAST TWO FISCAL
YEARS AND WE CANNOT ASSURE YOU THAT THIS TREND WILL CHANGE

We have  incurred a net loss of  $610,300  and a net loss  applicable  to common
shareholders  of  $1,350,200  for the three months ended March 31, 2003. We also
have  incurred  a net loss of  $2,835,900  and a net loss  applicable  to common
shareholders  of  $3,110,100  for the year ended  December  31,  2002 and we may
continue to incur losses.  In addition,  our revenues  decreased 6.2% during the
year ended  December 31, 2002 as compared to 2001. Our future ability to execute
our business plan will depend on our efforts to increase revenues,  reduce costs
and return to  profitability.  We have implemented  plans to reduce overhead and
operating costs, and to build upon our core business. No assurance can be given,
however,  that these  actions will result in increased  revenues and  profitable
operations. If we are unable to return to profitable operations we may be unable
to continue as a going concern.

WE CAN PROVIDE NO ASSURANCE  THAT WE WILL BE ABLE TO SECURE  ADDITIONAL  CAPITAL
REQUIRED BY OUR BUSINESS

In the second quarter of 2002, we completed a private placement of 600 shares of
our Series A Convertible  Preferred  Stock at a stated price of $1,000 per share
for gross  proceeds of $600,000  and net  proceeds of  $477,500.  We also issued
common stock  purchase  warrants to the same  purchaser  exercisable to purchase
400,000  shares of our common  stock at $1.20 per share at any time within three
years from the date of issuance.

Based on our  projected  downsized  operations  we  anticipate  that our working
capital,  including the $477,500 raised in our second quarter 2002 placement and
a recently  received tax refund of $1,427,400,  will satisfy our working capital
needs  for the next  twelve  months.  However,  if we fail to  raise  additional
working  capital  prior  to  that  time  or if we  are  unable  to  replace  our
Transamerica  Flooring line in a timely fashion, we will be unable to pursue our
business  plan.  We may  give no  assurance  that  we  will  be  able to  obtain
additional  capital  when needed or, if  available,  that such  capital  will be
available at terms acceptable to us.

OUR COMMON STOCK IS NOT CURRENTLY LISTED ON THE NASDAQ SMALLCAP MARKET

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  Rule.  The  Company's  common  stock  was,
therefore,  subject to delisting from the SmallCap Market.  On March 6, 2003 the
Company requested a hearing before a Listing  Qualifications  Panel, at which it
would seek continued  listing.  The hearing was scheduled on April 24, 2003. The
Company has also been  notified by Nasdaq that the Company has not complied with
Marketplace  Rule,  which  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 had been delisted from the Nasdaq  SmallCap Market
effective April 30, 2003. The Company's common stock is eligible to be traded on
the Over the Counter Bulletin Board (OCTBB).  The market for our common stock is

                                      -22-
<PAGE>
not as broad as if it were traded on the Nasdaq  SmallCap  Market and it is more
difficult to trade in our common stock.

POTENTIAL SALES OF ADDITIONAL  COMMON STOCK AND SECURITIES  CONVERTIBLE INTO OUR
COMMON STOCK MAY DILUTE THE VOTING POWER OF CURRENT HOLDERS

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,
2003 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, 2003,  the Series A Preferred
was  convertible  into  826,900  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. At the time of issuance of the Series A Preferred Stock, it
was  intended  that an  additional  400  shares be issued to the same  investor;
however,  the  purchaser  has  not  fulfilled  its  obligations  to  close  this
transaction as of the date of this filing,  and we do not  anticipate  that such
sale will occur.

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

We have a mortgage  on our offices  with Wells  Fargo Bank,  under which we must
maintain the following financial covenants:

     i)   Total liabilities must not be more than twice our tangible net worth;

     ii)  Net income  after  taxes must not be less than one dollar on an annual
          basis and for no more than two consecutive quarters; and

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

We are currently in violation of covenants (ii) and (iii),  but we have received
a waiver for such violation through December 31, 2003. We cannot assure you that
we will be able to meet all of these  financial  covenants in the future.  If we
fail to meet the covenants, Wells Fargo may declare us in default and accelerate
the loan.

On  January  7,  2003,  Transamerica  terminated  its  credit  facility  with us
effective April 7, 2003.  However,  Transamerica  will continue its guarantee of
the Letter of Credit Facility  through July 25, 2003.  Unless we did not perform
our obligations in accordance with the agreement and certain  covenants were not
materially   worse  than  the  condition  at  the  level  on  January  7,  2003,
Transamerica  would  continue to accept  payments  according to the terms of the
agreement prior to April 7, 2003. The remaining  outstanding  balance is due and
payable in accordance with the terms of the agreement.  As of March 31, 2003, we
had an  outstanding  balance of $1,373,800  due under this credit  facility.  We
would be unable to continue our operations  without  replacement  loans or other
alternative financing.  We are in the process of replacing Transamerica Flooring
line with a similar line from Textron Financial.  However,  we cannot assure you

                                      -23-
<PAGE>
that we will be able to maintain  the Textron  flooring  line if we continue our
losses.

OUR  FAILURE TO  ANTICIPATE  OR RESPOND TO  TECHNOLOGICAL  CHANGES  COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS

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

IF WE ARE UNABLE TO SECURE PRICE PROTECTION PROVISIONS IN OUR VENDOR AGREEMENTS,
THE VALUE OF OUR INVENTORY WOULD QUICKLY DIMINISH

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

EXCESSIVE  CLAIMS AGAINST  WARRANTIES THAT WE PROVIDE COULD ADVERSELY EFFECT OUR
BUSINESS

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

WE MAY NOT BE ABLE TO SUCCESSFULLY COMPETE WITH SOME OF OUR COMPETITORS

All  aspects of our  business  are highly  competitive.  Competition  within the
computer products distribution industry is based on product availability, credit
availability,  price, speed and accuracy of delivery, effectiveness of sales and
marketing  programs,  ability to tailor  specific  solutions to customer  needs,
quality and  breadth of product  lines and  services,  and the  availability  of
product and technical support  information.  We also compete with  manufacturers
that sell directly to resellers and end users.

                                      -24-
<PAGE>
Competition within the corporate information systems industry is based primarily
on  flexibility  in  providing  customized  network  solutions,   resources  and
contracts to provide products for integrated systems and consultant and employee
expertise needed to optimize network performance and stability.  A number of our
competitors in the computer distribution  industry,  and most of our competitors
in the information  technology consulting industry, are substantially larger and
have greater financial and other resources than we do.

FAILURE TO RECRUIT AND RETAIN TECHNICAL PERSONNEL WILL HARM OUR BUSINESS

Our  success  depends  upon our ability to  attract,  hire and retain  technical
personnel who possess the skills and experience  necessary to meet our personnel
needs and the staffing requirements of our clients.  Competition for individuals
with proven  technical 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  systems   integrators  and  providers  of  outsourcing
services, as well as temporary personnel agencies, computer systems consultants,
clients  and  potential  clients.  Failure  to  attract  and  retain  sufficient
technical  personnel  would  have a  material  adverse  effect on our  business,
operating results and financial condition.

WE DEPEND UPON CONTINUED CERTIFICATION FROM CERTAIN OF OUR SUPPLIERS

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

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

One supplier,  Sunnyview/CompTronic  ("Sunnyview"),  accounted for approximately
21.2% and 9.0% of our total  purchases for the three months ended March 31, 2003
and 2002,  respectively.  We do not have a supply contract with  Sunnyview,  but
rather purchase  products from it 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 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 clients. This may cause a
loss of sales  that  could  have a  material  adverse  effect  on our  business,
financial condition and operating results.

IF A CLAIM IS MADE  AGAINST  US IN  EXCESS OF OUR  INSURANCE  LIMITS WE WOULD BE
SUBJECT TO POTENTIAL EXCESS LIABILITY

The nature of our  corporate  information  systems  engagements  exposes us to a
variety of risks. Many of our engagements  involve projects that are critical to
the  operations  of a client's  business.  Our  failure or  inability  to meet a
client's  expectations  in the  performance  of services or to do so in the time
frame required by such client could result in a claim for  substantial  damages,

                                      -25-
<PAGE>
regardless  of  whether  we were  responsible  for such  failure.  We are in the
business  of  employing  people  and  placing  them in the  workplace  of  other
businesses.  Therefore, we are also exposed to liability with respect to actions
taken by our employees  while on assignment,  such as damages caused by employee
errors and omissions, misuse of client proprietary information, misappropriation
of  funds,  discrimination  and  harassment,  theft of  client  property,  other
criminal  activity  or torts and other  claims.  Although  we  maintain  general
liability insurance coverage,  there can be no assurance that such coverage will
continue to be available on reasonable  terms or in sufficient  amounts to cover
one or more large claims,  or that the insurer will not disclaim  coverage as to
any future claim.  The successful  assertion of one or more large claims against
us  that  exceed  available  insurance  coverage  or  changes  in our  insurance
policies,  including  premium increases or the imposition of large deductible or
co-insurance requirements, could have a material adverse effect on our business,
operating results and financial condition.

WE ARE DEPENDENT ON KEY PERSONNEL

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

WE CANNOT ASSURE YOU THAT OUR PURSUIT OF NEW BUSINESS THROUGH LIVEMARKET WILL BE
SUCCESSFUL

We plan to enter the proprietary  software  development business through Lea. We
have limited  experience in developing  commercial  software  products.  We have
conducted no  independent,  formal market  studies  regarding the demand for the
software currently in development and planned to be developed. We have, however,
conducted  informal  surveys  of our  customers  and  have  relied  on  business
experience  in  evaluating  this market.  Further,  while we have  experience in
marketing  computer  related  products,  we  have  not  marketed  software  or a
proprietary line of our own products. This market is very competitive and nearly
all of the software  publishers or distributors  with whom Lea will compete have
greater  financial and other  resources  than Lea. There can be no assurance Lea
will be successful in developing  commercial  software products,  or even if Lea
develops such products,  that it will find market acceptance for them. There can
be no  assurance  that Lea will  generate a profit.  We have  signed a letter of
intent  to  sell  substantially  all  the  assets  of Lea to  certain  of  Lea's
employees. There is no assurance that the sale will be consummated.

ESTABLISHMENT OF OUR NEW BUSINESS-TO-CONSUMER  WEBSITE LIVEWAREHOUSE.COM MAY NOT
BE SUCCESSFUL

We have established a new business-to-consumer  website,  LiveWarehouse.com.  We
cannot assure you that we will achieve  market  acceptance  for this project and
achieve  a  profitable  level  of  operations,  that we will be able to hire and
retain personnel with experience in online retail marketing and management, that
we will be able to execute our business plan with respect to this market segment
or that we will be able to  adapt to  technological  changes  once  operational.
Further, while we have experience in the wholesale marketing of computer-related

                                      -26-
<PAGE>
products,  we have virtually no experience in retail  marketing.  This market is
very  competitive  and  many  of  our  competitors  have  substantially  greater
resources and experience than we have.

WE ARE SUBJECT TO RISKS BEYOND OUR CONTROL SUCH AS ECONOMIC AND GENERAL RISKS OF
OUR BUSINESS

Our success  will depend upon  factors that may be beyond our control and cannot
clearly be  predicted  at this  time.  Such  factors  include  general  economic
conditions,   both  nationally  and   internationally,   changes  in  tax  laws,
fluctuating operating expenses,  changes in governmental regulations,  including
regulations  imposed under federal,  state or local  environmental  laws,  labor
laws, and trade laws and other trade barriers.

INFLATION

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

                                      -27-
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk for changes in interest  rates relates  primarily to
our bank mortgage  loan with a $2,381,300  balance at March 31, 2003 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.  We are not exposed to material  risk based on
exchange rate fluctuation or commodity price fluctuation.

ITEM 4. CONTROLS AND PROCEDURES

Within  the 90 days  prior to the date of this  Form  10-Q,  we  carried  out an
evaluation  under the supervision and with the  participation of our management,
including  the Chief  Executive  Officer  and Chief  Financial  Officer,  of the
effectiveness  of the  design  and  operation  of our  disclosure  controls  and
procedures  as defined in Rule  13a-14(c) and Rule  15d-14(c) of the  Securities
Exchange Act of 1934.  Based on that evaluation,  our management,  including the
Chief  Executive  Officer  and  Chief  Financial  Officer,  concluded  that  our
disclosure  controls and procedures  were  effective in timely  alerting them to
material  information  relating to us (including our consolidated  subsidiaries)
required to be included in this quarterly  report Form 10-Q.  There have been no
significant  changes in our internal controls and procedures or in other factors
that could  significantly  affect  internal  controls  subsequent to the date we
carried out this evaluation.

                                      -28-
<PAGE>
                                     PART II

ITEM 1. - LEGAL PROCEEDINGS

Adaptec,  Inc. filed a lawsuit against Pacific Magtron,  Inc. and thirteen other
defendants, claiming amongst other things, copyright and trademark infringement,
and unfair  business  practices.  The Company has denied these  allegations.  On
April 4, 2003 Pacific Magtron, Inc. agreed to a out-of-court  settlement of this
claim with Adaptec,  Inc. for $95,000 after giving consideration to the on-going
legal costs.

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

(a)  Exhibits

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

     3.2       Bylaws, as amended and restated                            (1)

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

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

*    Filed herewith

(b)  Reports on Form 8-K

The  Company  filed a current  report on Form 8-K on April 30, 2003 under Item 5
reporting the delisting of the Company's  common stock from the Nasdaq  SmallCap
Market.

The  Company  filed a current  report on Form 8-K on March 7, 2003  under Item 5
reporting  that the Company had been  informed  that its shares of common  stock
would be subject to  delisting  from the Nasdaq  SmallCap  Market.  The  Company
requested a hearing on this matter.

                                      -29-
<PAGE>
                                   SIGNATURES

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


                                        PACIFIC MAGTRON INTERNATIONAL CORP.,
                                        a Nevada corporation


Date: May 15, 2003                      By /s/ Theodore S. Li
                                           -------------------------------------
                                           Theodore S. Li
                                           President and Chief Financial Officer

                                      -30-
<PAGE>
CERTIFICATION

I, Theodore Li, certify that:

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

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

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

     4.   I am responsible for establishing and maintaining  disclosure controls
          and  procedures  (as defined in Exchange  Act Rules 13a-14 and 15d-14)
          for the registrant and I have:

               a.   designed such  disclosure  controls and procedures to ensure
                    that  material   information  relating  to  the  registrant,
                    including its consolidated subsidiaries, is made known to me
                    by others  within those  entities,  particularly  during the
                    period in which this quarterly report is being prepared;
               b.   evaluated the  effectiveness of the registrant's  disclosure
                    controls and procedures as of a date within 90 days prior to
                    the filing date of this  quarterly  report (the  "Evaluation
                    Date"); and
               c.   presented in this quarterly  report my conclusion  about the
                    effectiveness  of the  disclosure  controls  and  procedures
                    based on our evaluation as of the Evaluation Date;

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

               a.   all  significant  deficiencies in the design or operation of
                    internal   controls   which  could   adversely   affect  the
                    registrant's  ability  to  record,  process,  summarize  and
                    report   financial   data  and  have   identified   for  the
                    registrant's  auditors any material  weaknesses  in internal
                    controls; and
               b.   any fraud, whether or not material, that involves management
                    or  other  employees  who  have a  significant  role  in the
                    registrant's internal controls; and

     6.   I have  indicated in this  quarterly  report whether or not there were
          significant  changes in  internal  controls or in other  factors  that
          could significantly affect internal controls subsequent to the date of
          my most recent  evaluation,  including  any  corrective  actions  with
          regard to significant deficiencies and material weaknesses.

Date: May 15, 2003

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

                                      -31-