UNITED STATES
                       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 June 30, 2002

                                       OR

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

             For the transition period from __________ to __________


                        Commission file number 000-25277


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


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


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


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


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

                    Common Stock, $0.001 par value per share:

           10,485,062 shares issued and outstanding at August 12, 2002
<PAGE>
Part I. - Financial Information

    Item 1. - Consolidated Financial Statements
                Consolidated balance sheets as of June 30, 2002
                (Unaudited) and December 31, 2001                            1-2

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

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

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

              Notes to consolidated financial statements                    6-16

    Item 2. - Management's Discussion and Analysis of Financial
                Condition and Results of Operations                        17-33

    Item 3. - Quantitative and Qualitative Disclosures About Market Risk      33

Part II - Other Information

    Item 1. - Legal Proceedings                                               34

    Item 2. - Recent Sales of Unregistered Securities                         34

    Item 4. - Submission of Matters to a Vote of Security Holders             34

    Item 5. - Other Information                                               34

    Item 6. - Exhibits and Reports on Form 8-K                                35
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                           CONSOLIDATED BALANCE SHEETS

                                                      June 30,      December 31,
                                                        2002           2001
                                                     -----------    -----------
                                                     (Unaudited)
ASSETS

Current Assets:
  Cash and cash equivalents                          $ 2,654,900    $ 3,110,000
  Restricted cash                                        250,000        250,000
  Accounts receivable, net of allowance for
    doubtful accounts of $400,000 as of June
    30, 2002 and December 31, 2001                     4,141,200      4,590,100
  Inventories                                          3,184,400      2,952,000
  Prepaid expenses and other current
    assets                                               350,200        387,300
  Deferred income taxes                                  941,700      1,212,200
                                                     -----------    -----------
Total Current Assets                                  11,522,400     12,501,600

Property and Equipment, net                            4,642,500      4,711,500

Deposits and Other Assets                                 84,300        110,200
                                                     -----------    -----------
                                                     $16,249,200    $17,323,300
                                                     ===========    ===========

          See accompanying notes to consolidated financial statements.

                                      -1-
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                           CONSOLIDATED BALANCE SHEETS

                                                       June 30,     December 31,
                                                         2002          2001
                                                      -----------   -----------
                                                      (Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
  Current portion of notes payable                    $    57,700   $    55,900
  Floor plan inventory loans                            1,116,100     1,545,000
  Accounts payable                                      5,298,300     4,786,600
  Accrued expenses                                        350,500       379,200
                                                      -----------   -----------
Total Current Liabilities                               6,822,600     6,766,700

Notes Payable, less current portion                     3,201,200     3,230,300

Deferred Tax Liabilities                                   26,400        34,200
                                                      -----------   -----------
Total Liabilities                                      10,050,200    10,031,200
                                                      -----------   -----------
Commitments and Contingencies

Minority Interest - PMIGA                                      --         2,200

Preferred Stock, $0.001 par value; 5,000,000
  Shares authorized;
    4% Series A Redeemable Convertible Preferred
    Stock; 1,000 shares designated; 600 shares
    issued and outstanding (Liquidation value of
    $602,000 as of June 30, 2002)                         281,800            --
                                                      -----------   -----------
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                          2,394,500     1,745,500
    Retained earnings                                   3,512,200     5,533,900
                                                      -----------   -----------
Total Shareholders' Equity                              5,917,200     7,289,900
                                                      -----------   -----------
                                                      $16,249,200   $17,323,300
                                                      ===========   ===========

          See accompanying notes to consolidated financial statements.

                                      -2-
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                    Three Months Ended               Six Months Ended
                                                         June 30,                        June 30,
                                               ----------------------------    ----------------------------
                                                   2002            2001            2002            2001
                                               ------------    ------------    ------------    ------------
                                               (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)
<S>                                            <C>             <C>             <C>             <C>
Sales:
  Products                                     $ 15,009,000    $ 14,932,200    $ 32,425,900    $ 34,839,400
  Services                                          368,800          29,200         584,200          78,500
                                               ------------    ------------    ------------    ------------
Total Sales                                      15,377,800      14,961,400      33,010,100      34,917,900
                                               ------------    ------------    ------------    ------------
Cost of Sales:
  Products                                       14,075,100      13,978,500      30,256,500      32,540,800
  Services                                          158,900           3,200         298,100          17,400
                                               ------------    ------------    ------------    ------------
Total Cost of Sales                              14,234,000      13,981,700      30,554,600      32,558,200
                                               ------------    ------------    ------------    ------------
Gross Margin                                      1,143,800         979,700       2,455,500       2,359,700
Selling, General and Administrative Expenses      2,289,700       2,051,100       4,676,800       4,141,200
                                               ------------    ------------    ------------    ------------
(Loss) from Operations                           (1,145,900)     (1,071,400)     (2,221,300)     (1,781,500)
                                               ------------    ------------    ------------    ------------
Other (Expense) Income:
  Interest income                                     3,700          34,300          10,300          88,000
  Interest expense                                  (46,700)        (67,800)        (93,100)       (141,700)
  Equity loss on investment                              --          (3,900)             --          (9,900)
  Impairment loss on investment                          --        (250,000)             --        (250,000)
  Other income (expense)                            (24,800)          7,000         (32,100)         14,200
                                               ------------    ------------    ------------    ------------
Total Other (Expense)                               (67,800)       (280,400)       (114,900)       (299,400)
                                               ------------    ------------    ------------    ------------
(Loss) Before Income Tax Benefit
   And Minority Interest                         (1,213,700)     (1,351,800)     (2,336,200)     (2,080,900)
Income Tax Benefit                                 (381,600)       (140,000)       (765,600)       (365,500)
                                               ------------    ------------    ------------    ------------
(Loss) Before Minority Interest                    (832,100)     (1,211,800)     (1,570,600)     (1,715,400)
Minority Interest                                        --              --           2,200          30,000
                                               ------------    ------------    ------------    ------------
Net (Loss)                                         (832,100)     (1,211,800)     (1,568,400)     (1,685,400)
Accretion and deemed dividend related
  to beneficial conversion of 4% Series
  A Convertible Preferred Stock and
  value of warrant                                 (453,300)             --        (453,300)             --
                                               ------------    ------------    ------------    ------------
Net (Loss) applicable to Common Shareholders   $ (1,285,400)   $ (1,211,800)   $ (2,021,700)   $ (1,685,400)
                                               ============    ============    ============    ============
Basic and diluted (loss) per share             $      (0.12)   $      (0.12)   $      (0.19)   $      (0.17)
                                               ============    ============    ============    ============
Basic and diluted weighted average
  common shares outstanding                      10,485,100      10,162,200      10,485,100      10,131,300
                                               ============    ============    ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      -3-
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

       CONSOLIDATED STATEMENT OF PREFERRED STOCK AND SHAREHOLDERS' EQUITY
                                   (Unaudited)

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

Issuance of 600 shares of
Series A Convertible
Preferred Stock and
300,000 common stock
warrants (net of cash
issuance costs of
$80,500) (unaudited)                  600       477,500             --            --            --             --             --

Proceeds allocated to
300,000 common stock
warrants issued to
preferred stock investor
(unaudited)                            --      (148,300)            --            --       148,300             --        148,300

Deemed dividend
associated with
beneficial conversion
feature of convertible
preferred stock
(unaudited)                            --            --             --            --       303,000       (303,000)            --

Deemed dividend
associated with 300,000
stock warrants issued in
connection with the
issuance of convertible
preferred stock
(unaudited)                            --            --             --            --       148,300       (148,300)            --

Issuance of 100,000
common stock warrants as
payment of stock issuance
costs (unaudited)                      --       (49,400)            --            --        49,400             --         49,400

Preferred stock accretion
(unaudited)                            --         2,000             --            --            --         (2,000)        (2,000)

Net Loss (unaudited)                   --                           --            --            --     (1,568,400)    (1,568,400)
                              -----------   -----------    -----------   -----------   -----------    -----------    -----------
Balances, June 30, 2002
  (unaudited)                         600   $   281,800     10,485,100   $    10,500   $ 2,394,500    $ 3,512,200    $ 5,917,200
                              ===========   ===========    ===========   ===========   ===========    ===========    ===========
</TABLE>

                                      -4-
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                           SIX MONTHS ENDED JUNE 30,
                                                          ----------------------------
                                                             2002             2001
                                                          -----------      -----------
                                                          (Unaudited)      (Unaudited)
<S>                                                       <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net (loss)                                              $(1,568,400)     $(1,685,400)
  Adjustments to reconcile net (loss) to
    net cash used in operating activities:
      Equity in loss in investment                                 --            9,900
      Impairment loss on investment - TargetFirst                  --          250,000
      Depreciation and amortization                           149,400          135,100
      Provision for doubtful accounts                              --           50,000
      (Gain) or Loss on disposal of fixed assets               (8,800)           1,400
      Minority interest losses                                 (2,200)         (30,000)
      Changes in operating assets and liabilities:
        Accounts receivable                                   448,900        1,342,600
        Inventories                                          (232,400)        (274,300)
        Prepaid expenses and other current assets              37,100          113,800
        Deferred income taxes                                 262,700         (234,600)
        Accounts payable                                      511,700         (443,500)
        Accrued expenses                                      (28,700)        (184,500)
                                                          -----------      -----------
  NET CASH USED IN OPERATING ACTIVITIES                      (430,700)        (949,500)
                                                          -----------      -----------
  CASH FLOWS FROM INVESTING ACTIVITIES:
      Notes and interest receivable from shareholders              --           42,800
      Acquisition of property and equipment                   (66,500)         (61,800)
      Increase in deposits and other assets                   (24,100)         (22,500)
      Proceeds from sale of property and equipment             44,900               --
                                                          -----------      -----------
  NET CASH USED IN INVESTING ACTIVITIES                       (45,700)         (41,500)

  CASH FLOWS FROM FINANCING ACTIVITIES:
      Net decrease in floor plan inventory loans             (428,900)      (1,326,000)
      Principal payments on notes payable                     (27,300)         (25,100)
      Treasury stock purchases                                     --           (1,100)
      Net proceeds from issuance of redeemable
        convertible preferred stock                           477,500               --
                                                          -----------      -----------
  NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES          21,300       (1,352,200)
                                                          -----------      -----------
  NET DECREASE IN CASH AND CASH EQUIVALENTS                  (455,100)      (2,343,200)

  CASH AND CASH EQUIVALENTS, beginning of period            3,110,000        4,874,200
                                                          -----------      -----------
  CASH AND CASH EQUIVALENTS, end of period                $ 2,654,900      $ 2,531,000
                                                          ===========      ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      -5-
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY

Pacific Magtron  International Corp. (formerly Wildfire Capital  Corporation,  a
Publicly traded shell  corporation)(the  Company or PMIC), a Nevada Corporation,
was incorporated on January 8, 1996.

On  July  17,  1998  the  Company  completed  the  acquisition  of  100%  of the
outstanding  common  stock of Pacific  Magtron,  Inc.  (PMI),  in  exchange  for
9,000,000  shares of the Company's $0.001 par value common stock. For accounting
purposes,  the acquisition has been treated as the acquisition of the Company by
PMI with PMI as the acquirer (reverse acquisition).

PMI, a  California  corporation,  was  incorporated  on August 11,  1989.  PMI's
principal  activity  consists of the importation  and wholesale  distribution of
electronics  products,  computer  components,  and computer peripheral equipment
throughout the United States.

In May 1998, the Company  formed its Frontline  Network  Consulting  (Frontline)
division,  a corporate  information systems group that serves the networking and
personal computer requirements of corporate customers. In July 2000, the Company
formed  Frontline  Network  Consulting,  Inc.  (FNC), a California  corporation.
Effective  October 1, 2000, PMI  transferred  the assets and  liabilities of the
Frontline division to FNC.

Concurrently,  FNC issued  20,000,000 shares to the Company and became a wholly-
owned subsidiary.  On January 1, 2001, FNC issued 3,000,000 shares of its common
stock to three key FNC employees for past services  rendered pursuant to certain
Employee  Stock  Purchase  Agreements.  As a  result  of this  transaction,  the
Company's  ownership  interest  in FNC was reduced to 87%. In August 2001 and in
March 2002, FNC  repurchased and retired a total of 2,000,000 of its shares from
former  employees at $0.01 per share,  resulting in an increase in the Company's
ownership of FNC from 87% to 96%.

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

                                      -6-
<PAGE>
In August  2000,  PMI formed  Pacific  Magtron  (GA),  Inc.  (PMIGA),  a Georgia
corporation  whose  principal  activity is the wholesale  distribution  of PMI's
products in the eastern  United States  market.  During 2001,  PMIGA sold 15,000
shares of its common stock to an employee for $15,000.  On June 19, 2002,  PMIGA
repurchased 15,000 shares of its common stock for $15,000. As a result, PMIGA is
100% owned by PMI.

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

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

2. CONSOLIDATION AND UNCONSOLIDATED INVESTEES

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

3. FINANCIAL STATEMENT PRESENTATION

The accompanying  consolidated financial statements at June 30, 2002 and for the
three and six month periods ended June 30, 2002 and 2001 are unaudited. However,
they 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 generally accepted accounting  principles
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, 2001.
Interim  operating  results are not necessarily  indicative of operating results
expected for the entire year.

Certain  reclassifications  have been made to prior period  balances in order to
conform to the current period presentation.

4. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2000,  the EITF  reached a  consensus  on Issue  00-14,  "Accounting  for
Certain Sales Incentives." This issue addresses the recognition, measurement and
income statement  classification for sales incentives  offered  voluntarily by a
vendor without charge to customers that can be used in, or are  exercisable by a

                                      -7-
<PAGE>
customer as a result of, a single exchange transaction.  In April 2001, the EITF
reached a consensus on Issue 00-25, "Vendor Income Statement Characterization of
Consideration  to a Purchaser of the Vendor's  Products or Services." This issue
addresses the recognition,  measurement and income statement  classification  of
consideration,  other than that directly addressed by Issue 00-14, from a vendor
to a retailer or  wholesaler.  Issue 00-25 is effective for the  Company's  2002
fiscal year.  Both Issue 00-14 and 00-25 have been  codified  under Issue 01-09,
"Accounting for  Consideration  Given by a Vendor to a Customer or a Reseller of
the Vendor's  Products." The adoption of Issue 01-09 during the first quarter of
2002 did not have a  material  impact on the  Company's  financial  position  or
results of operations.

In June 2001, the Financial  Accounting  Standards Board finalized SFAS No. 141,
BUSINESS  COMBINATIONS,  and No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. SFAS
No. 141 requires the use of the purchase  method of accounting and prohibits the
use of the  pooling-of-interests  method of accounting for business combinations
initiated  after June 30,  2001.  SFAS No. 141 also  requires  that the  Company
recognize  acquired  intangible  assets  apart  from  goodwill  if the  acquired
intangible  assets meet certain  criteria.  SFAS No. 141 applies to all business
combinations   initiated   after  June  30,  2001  and  for  purchase   business
combinations completed on or after July 1, 2001. It also requires, upon adoption
of SFAS No. 142 that the Company  reclassify the carrying  amounts of intangible
assets and goodwill based on the criteria in SFAS No. 141. The Company  recorded
its  acquisition  of Technical  Insights and LiveMarket in September and October
2001 in accordance with SFAS No. 141 and did not recognize any goodwill relating
to these transactions.  However, certain intangibles totaling $59,400, including
intellectual  property  and vendor  reseller  agreements,  were  identified  and
recorded in the consolidated financial statements in deposits and other assets.

SFAS No. 142 requires,  among other things,  that  companies no longer  amortize
goodwill,  but instead  test  goodwill  for  impairment  at least  annually.  In
addition,  SFAS No. 142 requires that the Company  identify  reporting units for
the purposes of assessing potential future impairments of goodwill, reassess the
useful  lives  of  other  existing  recognized   intangible  assets,  and  cease
amortization of intangible  assets with an indefinite useful life. An intangible
asset  with an  indefinite  useful  life  should be  tested  for  impairment  in
accordance  with the  guidance in SFAS No.  142.  SFAS No. 142 is required to be
applied in fiscal years  beginning  after  December 15, 2001 to all goodwill and
other intangible assets recognized at that date, regardless of when those assets
were  initially  recognized.  SFAS No. 142  requires  the  Company to complete a
transitional goodwill impairment test six months from the date of adoption.  The
Company is also required to reassess the useful lives of other intangible assets
within the first interim quarter after adoption of SFAS No. 142. The adoption of
SFAS No. 142 did not have a material effect on the Company's financial position,
results of operations or cash flows since the value of  intangibles  recorded is
relatively insignificant and no goodwill has been recognized.

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

                                      -8-
<PAGE>
In October 2001,  the FASB issued SFAS No. 144  Accounting for the Impairment or
Disposal  of  Long-Lived  Assets.  SFAS No. 144  supersedes  the SFAS No. 121 by
requiring  that one  accounting  model to be used for  long-lived  assets  to be
disposed of by sale, whether previously held and used or newly acquired,  and by
broadening the  presentation of discontinued  operation to include more disposal
transactions.  SFAS No.  144 is  effective  for  fiscal  years  beginning  after
December 15, 2001.  The adoption of SFAS No. 144 did not have a material  effect
on the Company's financial position, results of operations, or cash flows.

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

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

5. STATEMENTS OF CASH FLOWS

Cash was paid during the six months ended June 30, 2002 and 2001 for:

                                         SIX MONTHS ENDING JUNE 30,
                                         --------------------------
                                             2002          2001
                                           --------      --------
Income taxes                               $  1,200      $  1,500
                                           ========      ========
Interest                                   $ 93,100      $141,700
                                           ========      ========

6. RELATED PARTY TRANSACTIONS

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

                                      -9-
<PAGE>
The Company sells computer  products to a company owned by a member of our Board
of Directors. Management believes that the terms of these sales transactions are
no more  favorable  than  given to  unrelated  customers.  For the three and six
months ended June 30, 2002, and 2001, the Company recognized the following sales
revenues from this customer:

                                          SIX MONTHS   THREE MONTHS
                                            ENDING        ENDING
                                           JUNE 30       JUNE 30
                                           --------      --------
Year 2002                                  $371,400      $234,700
                                           ========      ========
Year 2001                                  $476,400      $163,000
                                           ========      ========

Included in accounts  receivable  as of June 30, 2002 is $125,400  due from this
related customer.

7. INCOME TAXES

On March 9, 2002,  legislation  was  enacted to extend the  general  Federal net
operating loss  carryback  period from two years to five years for net operating
losses  incurred  in 2001 and 2002.  As a result  of  Management's  analysis  of
estimated  future  operating  results  and other tax  planning  strategies,  the
Company did not record a valuation  allowance on the portion of the deferred tax
assets  relating to Federal net  operating  loss  carryforward  of $1,906,800 at
December 31, 2001 as the Company  believed that it was more likely than not that
this  deferred  tax asset  would be  realized.  On June 12,  2002,  the  Company
received a Federal income tax refund of $1,034,700.

8. FLOOR PLAN INVENTORY LOANS AND LETTER OF CREDIT

On July 13, 2001, PMI and PMIGA (the Companies)  obtained a $4 million  (subject
to credit and borrowing  base  limitations)  accounts  receivable  and inventory
financing   facility   from   Transamerica    Commercial   Finance   Corporation
(Transamerica).  This  credit  facility  has a term  of two  years,  subject  to
automatic  renewal  from year to year  thereafter.  The credit  facility  can be
terminated by  Transamerica  under certain  conditions  and the  termination  is
subject to a fee of 1% of the credit  limit.  The  facility  includes up to a $3
million  inventory  line  (subject to a borrowing  base of up to 85% of eligible
accounts  receivable  plus  up to  $1,500,000  of  eligible  inventories),  that
includes a sub-limit of $600,000 working capital line and a $1 million letter of
credit  facility used as security for inventory  purchased on terms from vendors
in Taiwan.  Borrowing  under the  inventory  loans are  subject to 30 to 45 days
repayment,  at which time interest begins to accrue at the prime rate, which was
4.75% at June 30, 2002.  Draws on the working  capital line also accrue interest
at the prime rate. The credit facility is guaranteed by both PMIC and FNC. As of
June 30, 2002,  the Companies had an  outstanding  balance of $875,600 due under
this credit facility.

Under  the  accounts   receivable   and   inventory   financing   facility  from
Transamerica,   the  Companies  are  required  to  maintain  certain   financial
covenants.  As of December  31,  2001,  the  Companies  were in violation of the
minimum  tangible net worth covenant.  On March 6, 2002,  Transamerica  issued a

                                      -10-
<PAGE>
waiver of the  default  and revised  the  covenants  under the credit  agreement
retroactively to September 30, 2001. The revised covenants require the Companies
to  maintain  certain   financial  ratios  and  to  achieve  certain  levels  of
profitability. As of December 31, 2001 and March 31, 2002, the Companies were in
compliance with these revised covenants.  As of June 30, 2002, the Companies did
not meet the revised  minimum  tangible net worth and  profitability  covenants.
This gives  Transamerica,  among  other  things,  the right to call the loan and
immediately terminate the credit facility.

In March 2001,  FNC obtained a $2 million  discretionary  credit  facility  from
Deutsche Financial Services  Corporation  (Deutsche) to purchase  inventory.  To
secure payment, Deutsche obtained a security interest in all of FNC's inventory,
equipment,  fixtures, accounts,  reserves,  documents, general intangible assets
and all judgments, claims, insurance policies, and payments owed or made to FNC.
Under the loan  agreement,  all draws  mature in 30 days.  Thereafter,  interest
accrues at the lesser of 16% per annum or at the maximum lawful contract rate of
interest  permitted  under  applicable law (16% as of June 30, 2002). As of June
30, 2002, FNC had an outstanding balance of $240,500 under this credit facility.

FNC is required  to  maintain  certain  financial  covenants  to qualify for the
Deutsche  bank credit  line,  and was not in  compliance  with  certain of these
covenants  as of June 30,  2002 and  December  31,  2001,  which  constituted  a
technical  default under the credit line.  This gives Deutsche the right to call
the loan and  terminate  the credit line.  The credit  facility is guaranteed by
PMIC and can be terminated by Deutsche  immediately given the default.  On April
30, 2002,  Deutsche  elected to terminate the credit facility  effective July 1,
2002. The entire outstanding balance will be repaid before September 26, 2002.

9. NOTES PAYABLE

In 1997,  the Company  obtained  financing of $3,498,000 for the purchase of its
office and warehouse  facility.  Of the amount  financed,  $2,500,000 was in the
form of a 10-year bank loan utilizing a 30-year  amortization  period. This loan
bears  interest at the bank's 90-day LIBOR rate (1.86% as of June 30, 2002) plus
2.5%,  and is secured  by a deed of trust on the  property.  The  balance of the
financing was obtained  through a $998,000 Small Business  Administration  (SBA)
loan due in monthly installments through April 2017. The SBA loan bears interest
at 7.569%, and is secured by the underlying property.

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

10. SEGMENT INFORMATION

The Company has five  reportable  segments:  PMI,  PMIGA,  FNC,  Lea and LW. PMI
imports and distributes electronic products,  computer components,  and computer
peripheral equipment to various distributors and retailers throughout the United

                                      -11-
<PAGE>
States, with PMIGA focusing on the east coast area. LW sells similar products as
PMI to the end-users  through a website.  FNC serves the networking and personal
computer requirements of corporate customers.  Lea designs and installs advanced
solutions and  applications  for internet  users,  resellers and providers.  The
accounting  policies  of the  segments  are the same as those  described  in the
summary of significant accounting policies presented in the Company's Form 10-K.
The Company  evaluates  performance  based on income or loss before income taxes
and minority interest, not including nonrecurring gains or losses. Inter-segment
transfers between  reportable  segments have been  insignificant.  The Company's
reportable  segments are strategic  business units that offer different products
and  services.  They are  managed  separately  because  each  business  requires
different  technology  and marketing  strategies.  PMI and PMIGA are  comparable
businesses with different locations of operations and customers.

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

Six Months Ended June 30, 2002:

<TABLE>
<CAPTION>
                                    PMI            PMIGA            FNC              LEA               LW            TOTAL
                                ------------    ------------    ------------     ------------     ------------    ------------
<S>                             <C>             <C>             <C>              <C>              <C>             <C>
Revenues external customers     $ 25,390,700    $  5,667,600    $  1,481,100(1)  $    333,000(2)  $    137,700    $ 33,010,100

Segment (loss) before income
  taxes and minority interest       (721,900)       (371,300)       (637,300)        (450,000)        (155,700)     (2,336,200)
</TABLE>

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

Six Months Ended June 30, 2001:

<TABLE>
<CAPTION>
                                    PMI            PMIGA            FNC              LEA               LW            TOTAL
                                ------------    ------------    ------------     ------------     ------------    ------------
<S>                             <C>             <C>             <C>              <C>              <C>             <C>
Revenues external customers     $ 28,000,100    $  5,371,900    $  1,545,900(1)            --               --    $ 34,917,900

Segment (loss) before income
  taxes and minority interest       (870,100)       (422,800)       (508,700)         (30,100)              --      (1,831,700)
</TABLE>

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

<TABLE>
<CAPTION>
                                    PMI            PMIGA            FNC              LEA               LW            TOTAL
                                ------------    ------------    ------------     ------------     ------------    ------------
<S>                             <C>             <C>             <C>              <C>              <C>             <C>
Revenues external customers     $ 11,960,000    $  2,222,600    $    881,500(3)  $    197,400(2)  $    116,300    $ 15,377,800

Segment (loss) before income
  taxes and minority interest       (416,400)       (229,300)       (298,900)        (183,700)         (85,400)     (1,213,700)
</TABLE>

                                      -12-
<PAGE>
The following table presents  information  about reported segment profit or loss
for the three months ended June 30, 2001:

<TABLE>
<CAPTION>
                                    PMI            PMIGA            FNC              LEA               LW            TOTAL
                                ------------    ------------    ------------     ------------     ------------    ------------
<S>                             <C>             <C>             <C>              <C>              <C>             <C>
Revenues external customers     $ 11,788,400    $  2,370,900    $    802,100(3)            --               --    $ 14,961,400

Segment (loss) before income
  taxes and minority interest      (650,900)        (193,900)       (232,400)         (30,100)              --      (1,107,300)
</TABLE>

----------
(1)  Includes  service  revenues  of  $251,200  and  $78,500  in 2002 and  2001,
     respectively.
(2)  Total amount was derived from service revenues.
(3)  Includes  service  revenues  of  $171,400  and  $29,200  in 2002 and  2001,
     respectively.

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

                                                   Three months     Six months
                                                  Ended June 30,  Ended June 30,
                                                      2001            2001
                                                   -----------     -----------
Total loss before income taxes and minority
  interest for reportable segments                 $(1,107,300)    $(1,831,700)
Inter-company transactions                               9,400          10,700
Equity in loss in investment in Rising Edge             (3,900)         (9,900)
Impairment loss on investment                         (250,000)       (250,000)
                                                   -----------     -----------
Consolidated loss before income taxes and
  Minority interest                                $(1,351,800)    $(2,080,900)
                                                   -----------     -----------

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

11. ACCOUNTS RECEIVABLE FACTORING AGREEMENT

Pursuant to a non-notification  accounts  receivable  factoring  agreement,  the
Company factors certain of its accounts receivable with a financial  institution
(the Factor) on a  pre-approved  non-recourse  basis.  The factoring  commission
charge  is  0.375%  and  2.375%  of  specific   approved  domestic  and  foreign
receivables  (Approved  Accounts),  respectively.  The agreement,  which expires
February  28, 2003,  is subject to  automatic  annual  renewal  provisions,  and

                                      -13-
<PAGE>
provides  for the Company to pay a minimum of $200,000 in annual  commission  to
the Factor.  The Company is required to maintain the  receivable  records and to
make reasonable  collection efforts on the Approved Accounts.  Approved Accounts
are transferred to the Factor as assigned accounts (Assigned  Accounts) when the
receivables  are not  collected  within  120  days  from  the due  dates  or the
customers  become  insolvent.  The title of the receivable is transferred to the
Factor  when it becomes an Assigned  Account.  As a  purchaser  of the  Assigned
Accounts,  the  Factor  has  the  title  to the  Assigned  Accounts  and has the
unilateral  right,  such as to demand and collect payments from customers on the
Assigned  Accounts,  compromise,  sue for,  and  foreclose.  The  Company has no
further  obligations and control over the receivable when it becomes an Assigned
Account.  The Factor is obligated  to pay the Company for the Assigned  Accounts
within 15 days  after the  receivable  becomes  an  Assigned  Account.  Security
interests in those Assigned Accounts are granted to the Factor upon the accounts
become Assigned Accounts.  In accordance with SFAS 140 "Accounting for Transfers
and  Servicing of Financial  Assets and  Extinguishments  of  Liabilities,"  the
Company accounts for the factored  receivables as sales of financial assets when
they become Assigned Accounts.  The total amount of receivables  approved by the
Factor as Approved  Accounts  was  $8,175,800  for the six months ended June 30,
2002. The amount of receivables  assigned to the Factor during the quarter ended
June 30,  2002 was  $24,100.  There were no  receivables  assigned to the Factor
prior to the quarter ended June 30, 2002. As of June 30, 2002, Assigned Accounts
of $24,100 were included in accounts receivable.

12. DEPOSITS AND OTHER ASSETS

Included in deposits  and other  assets at June 30, 2002 are  intangible  assets
relating to intellectual  property and reseller  agreements  acquired during the
fourth quarter of 2001 with a cost basis of $59,400 and accumulated amortization
of $14,400.  The Company is amortizing the  intangible  assets over a three-year
period.  Amortization  expense  for the six  months  ended  June  30,  2002  was
approximately $14,000.

13. SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK

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

On May 31, 2002 the Company  entered into a Preferred  Stock Purchase  Agreement
with an investor  (Investor).  Under the agreement,  the Company agreed to issue
1,000  shares of its Series A  Preferred  Stock at $1,000 per share.  On May 31,
2002,  the  Company  issued 600 shares of the  Series A  Preferred  Stock to the
Investor,  and the  remaining  400 shares will be issued  when the  registration
statement  that  registers  the common stock  underlying  the Series A Preferred
Stock becomes effective. As part of the Preferred Stock Purchase Agreement,  the
Company issued a common stock purchase warrant to the Investor.  The warrant may
be  exercised  at any time within 3 years from the date of issuance and entitles
the Investor to purchase  300,000 shares of the Company's  common stock at $1.20
per share and includes a cashless exercise provision.  The Company also issued a
common  stock  purchase  warrant  with the same  terms  and  conditions  for the
purchase  of  100,000  shares  of the  Company's  common  stock to a broker  who
facilitated the transaction as a commission.

                                      -14-
<PAGE>
The holder of the Series A Preferred  Stock is entitled to cumulative  dividends
at the rate of 4% per annum,  payable on each  Conversion  Date, as defined,  in
cash or by accretion of the stated  value.  Dividends  must be paid in cash,  if
among other circumstances,  the number of the Company's authorized common shares
is insufficient  for the conversion in full of the Series A Preferred  Stock, or
the Company's common stock is not listed or quoted on Nasdaq, NYSE or AMEX. Each
share of Series A Preferred  Stock is  non-voting  and entitled to a liquidation
preference  of the stated  value plus  accrued and unpaid  dividends.  A sale or
disposition  of 50% or more of the assets of the  Company,  or  effectuation  of
transactions  in which  more  than 33% of the  voting  power of the  Company  is
disposed of, would constitute liquidation.  At any time and at the option of the
holder,  each share of Series A Preferred  Stock is  convertible  into shares of
common  stock at the  Conversion  Ratio,  which is defined  as the stated  value
divided by the Conversion  Price. The Conversion Price is the lesser of (a) 120%
of the average of the 5 Closing Prices  immediately prior to the Closing Date on
which the preferred stock was issued (the Set Price), and (b) 85% of the average
of the 5 lowest VWAPs (the daily volume  weighted  average  price as reported by
Bloomberg  Financial  L.P.  using the VAP  function)  during the 30 trading days
immediately  prior to the Conversion Date but not less than $0.75 (Floor Price).
The Set Price and Floor  Price are  subjected  to certain  adjustments,  such as
stock dividends.

The Company  has the right to redeem the Series A Preferred  Stock for cash at a
price equal to 115% of the Stated Value plus accrued and unpaid dividends if (a)
the  Conversion  Price is less than $1 during  the 5 trading  days  prior to the
redemption,  or (b) the  Conversion  price is greater than 175% of the Set Price
during the 20 trading days prior to the  redemption.  Upon the  occurrence  of a
Triggering Event, such as failure to register the underlying common shares among
other  events as  defined,  the holder of the Series A  Preferred  Stock has the
right to require the Company to redeem the Series A Preferred Stock in cash at a
price equal to the sum of (a) the redemption  amount (the greater of (i) 150% of
the  Stated  Value or (ii) the  product  of the Per Share  Market  Value and the
Conversion  Ratio)  plus  other  costs,  and (b) the  product  of the  number of
converted  common  shares and Per Market Share Value.  As of June 30, 2002,  the
liquidation value of the Series A Preferred Stock was $602,000.  As the Series A
Preferred  Stock has conditions  for  redemption  that are not solely within the
control of the Company,  such Series A Preferred  Stock has been  excluded  from
shareholders'  equity. As of June 30, 2002, the redemption value of the Series A
Preferred  Stock,  if the holder had required the Company to redeem the Series A
Preferred Stock as of that date, was $903,000.

The Company has  accounted for the sale of preferred  stock in  accordance  with
Emerging  Issues  Task Force  (EITF)  00-27  "Application  of Issue No.  98-5 to
Certain  Convertible  Instruments."  Proceeds of $329,200  (net of $80,500  cash
issuance  costs) were allocated to the Series A Preferred Stock and $148,300 was
allocated to the detachable  warrant based upon its fair value as computed using
the  Black-Scholes  option pricing  model.  The $303,000 value of the beneficial
conversion option on the 600 shares of Series A Preferred Stock and the $148,300
value of the warrant  issued to the investor were recorded as a deemed  dividend
on the date of issuance.  The allocated  $49,400 value of the warrant  issued to
the broker who facilitated the transaction was recorded as a stock issuance cost
relating to the sale of preferred stock. As of June 30, 2002,  800,000 shares of
common  stock  could  have been  issued if the  Series A  Preferred  Stock  were
converted into common stock.

14. STOCK OPTIONS

For the six months ended June 30, 2002, the Company  granted options to purchase
30,000 shares of the Company's  common stock to certain  members of the board of

                                      -15-
<PAGE>
directors at exercise prices of $0.76 to $1.05 per share.  During the six months
ended June 30,  2002,  no  outstanding  options  were  exercised  and options to
purchase  66,555  shares of the  Company's  common stock were  cancelled  due to
employee terminations or expiration of options.

15. LOSS PER SHARE

Basic loss per share is computed by dividing loss applicable to common shares by
the weighted-average  number of common shares outstanding for the period. During
the three and six month  periods  ended June 30,  2002,  options and warrants to
purchase  1,058,056  shares of the Company's  common stock and 800,000 shares of
common stock issuable upon  conversion of Series A Preferred Stock were excluded
from the  calculation  of diluted  weighted  average  common shares  outstanding
because  their  effect  would be  antidilutive.  During  the three and six month
periods ended June 30, 2001, options to purchase 843,222 shares of the Company's
common stock were  excluded from the  calculation  of diluted  weighted  average
common shares outstanding because their effect would be antidilutive.

16. SUBSEQUENT EVENT

On July 24, 2002, the Company entered into a service agreement with a consultant
for a term of 180 days.  The  consultant  was paid by  granting  two  options to
purchase an aggregate of 200,000 shares of the Company's common stock. The first
option is exercisable to purchase  100,000 shares of the Company's  common stock
at $0.65 per  share,  was  exercisable  immediately  upon  grant and  expires on
September  22,  2002.  The fair  value of this first  option  was  approximately
$14,000 as computed using the  Black-Scholes  option  pricing model.  The second
option is exercisable to purchase an additional  100,000 shares of the Company's
common stock at $1 per share, becomes exercisable  beginning August 23, 2002, at
which time its fair value will be measured in  accordance  with EITF 98-16,  and
expires on October 22,  2002.  The  Company  will  record  compensation  expense
relating to these option issuances over the term of the service agreement.

                                      -16-
<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
below under the heading "Cautionary Factors That May Affect Future Results."

GENERAL

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

In 1999 we invested in a 50%-owned joint software venture, Lea Publishing,  LLC,
to  focus  on  Internet-based  software  application   technologies  to  enhance
corporate IT services.  Lea was a development  stage  company.  In June 2000, we
increased  our direct and indirect  interest in Lea to 62.5% by  completing  our
purchase of 25% of the  outstanding  common  stock of Rising Edge  Technologies,
Ltd., the other 50% owner of Lea. In December 2001, we entered into an agreement
with  Rising  Edge and its  principal  owners to  exchange  the 50% Rising  Edge
ownership in Lea for our 25% interest in Rising Edge. As a  consequence,  we now
own 100% of Lea and we 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 to  further  assist  in its
development  of internet  software.  On May 28, 2002, Lea  Publishing,  Inc. was
incorporated  in  California.  Effective  June  1,  2002,  Lea  Publishing,  LLC
transferred all of its assets and liabilities to Lea Publishing, Inc.

                                      -17-
<PAGE>
In  December  2001,  LiveWarehouse,  Inc.  was  incorporated  as a wholly  owned
subsidiary of PMIC, to provide  consumers a convenient way to purchase  computer
products via the internet.

RESULTS OF OPERATIONS

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

                                   Three Months Ended       Six Months Ended
                                         June 30,               June 30,
                                   -------------------     -------------------
                                    2002        2001        2002        2001
                                   -------     -------     -------     -------
Sales                                100.0%      100.0%      100.0%      100.0%
Cost of sales                         92.6        93.5        92.6        93.2
                                   -------     -------     -------     -------
Gross margin                           7.4         6.5         7.4         6.8
Operating expenses                    14.9        13.7        14.2        11.8
                                   -------     -------     -------     -------
(Loss)from operations                 (7.5)       (7.2)       (6.8)       (5.0)
Other income (expense), net           (0.4)       (1.9)       (0.3)       (1.0)
Income tax benefit                     2.5         1.0         2.3         1.1
Minority interest                      0.0         0.0         0.0         0.1
                                   -------     -------     -------     -------
Net (loss)                            (5.4)%      (8.1)%      (4.8)%      (4.8)%
                                   =======     =======     =======     =======

THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001

Sales for the three months ended June 30, 2002 were $15,377,800,  an increase of
$416,400,  or approximately  2.8%,  compared to $14,961,400 for the three months
ended June 30, 2001.  The combined sales of PMI and PMIGA were  $14,182,600  for
the three months ended June 30, 2002, an increase of $23,300,  or  approximately
0.2%,  compared to $14,159,300  for the three months ended June 30, 2001.  Sales
for PMI increased by $171,600,  or 1.5%,  from  $11,788,400 for the three months
ended June 30, 2001 to  $11,960,000  for the three  months  ended June 30, 2002.
PMIGA's sales  decreased by $148,300,  or 6.3%,  from  $2,370,900  for the three
months  ended June 30, 2001 to  $2,222,600  for the three  months ended June 30,
2002.  The  slight  increase  in PMI  sales was due to a slower  decline  in the
computer  component  market for the quarter ending June 30, 2002 compared to the
comparable  quarter  in 2001.  The  decrease  in  PMIGA's  sales  was due to the
continued  decline  in the  computer  component  market  and  the  inability  to
significantly  increase  its market  share on the U.S.  east coast in the second
quarter  2002.  Sales  generated by FNC for the three months ended June 30, 2002
were  $881,500,  an  increase of $79,400 or 9.9%,  compared to $802,100  for the
three months ended June 30, 2001. The increase in FNC sales was primarily due to
a higher level of revenues  recognized  for its completed  contracts  during the
three  months  ended June 30,  2002  compared  to the same  period in 2001.  FNC
recognizes its service revenues upon the completion of the contracts.

In the fourth  quarter of 2001,  PMICC  acquired  certain  assets of LiveMarket.
These  assets were  subsequently  transferred  to Lea.  Prior to the  LiveMarket

                                      -18-
<PAGE>
acquisition,  Lea did not  generate  any  revenues as it was in the  development
stage.  Revenues,  primarily  from  services  performed,  generated  by Lea were
$197,400 for the three months ended June 30, 2002.

In December 2001,  LiveWarehouse,  Inc. (LW) was  incorporated as a wholly-owned
subsidiary of PMIC, to provide  consumers a convenient way to purchase  computer
products via the  internet.  Sales  generated by LW were  $116,300 for the three
months ended June 30, 2002.

Consolidated  gross  margin  for the  three  months  ended  June  30,  2002  was
$1,143,800,  or 7.4% of sales,  compared to $979,700,  or 6.5% of sales, for the
three months ended June 30,  2001.  The combined  gross margin for PMI and PMIGA
was  $855,600,  or 6.0% of sales  for the  three  months  ended  June 30,  2002,
compared to $879,700 or 6.2% of sales for the three  months ended June 30, 2001.
PMI's gross margin was  $763,800,  or 6.4%,  of sales for the three months ended
June 30, 2002 compared to $764,300, or 6.5%, for the three months ended June 30,
2001.  PMIGA's gross margin was $91,700,  or 4.1%, of sales for the three months
ended June 30, 2002 compared to $115,400, or 4.9%, of sales for the three months
ended June 30, 2001.  The decrease in gross margin as a percentage  of sales for
PMI and PMIGA was due to  increased  price  cutting  pressures  in the  computer
products market during the three months ending June 30, 2002.

FNC's gross margin was $167,900,  or 19.0% of sales,  for the three months ended
June 30, 2002  compared to  $100,000,  or 12.5% of sales,  for the three  months
ended June 30, 2001.  The higher gross margin  percentage  in 2002 was due to an
increase  in service  revenues  earned as a percent of total sales for the three
months  ended June 30, 2002  compared to the three  months  ended June 30, 2001.
Service revenues were $171,400 for the three months ended June 30, 2002 compared
to $29,200 for the three  months  ended June 30,  2001.  In  general,  FNC has a
higher gross margin on  consulting  and  implementation  service  revenues  than
product sales revenues.

Lea experienced an overall gross margin of $97,600,  or 49.4% of sales,  for the
three  months ended June 30, 2002.  Lea's gross margin was  generated  primarily
from services performed.

Gross margin for LW was $22,800,  or 19.6% of sales,  for the three months ended
June 30,  2002.  The gross margin  realized in retail sales is generally  higher
than wholesale distribution.

Consolidated  operating  expenses,   which  consist  of  selling,   general  and
administrative  expenses,  were  $2,289,700  for the three months ended June 30,
2002, an increase of $238,600,  or 11.6%,  compared to $2,051,100  for the three
months ended June 30, 2001. Lea assumed LiveMarket's operations in October 2001,
and LW began its  operations  in the first  quarter of 2002.  The  increase  was
primarily due to the inclusion of the operating expenses of $281,200 for Lea and
$108,000 for LW for the three months ended June 30, 2002 which were not incurred
during the same period in 2001.  Consolidated expense for the Company's investor
relations and related expenses increased from $46,500 for the three months ended
June 30,  2001 to  $157,400  for the  three  months  ended  June 30,  2002.  The
increases were partially offset by the cost cutting measures  implemented by the
Company, such as reducing our employee count for PMI, PMIGA, and FNC and cutting
the expenses in professional  services. The Company has also experienced a lower
level of bad debt  write-offs for the three months ending June 30, 2002 compared
to 2001. The consolidated  bad debt expense  decreased by $177,500 for the three
months ended June 30, 2002 compared to the three months ended June 30, 2001.

                                      -19-
<PAGE>
PMI's  operating  expenses were  $1,119,400  for the three months ended June 30,
2002  compared to  $1,318,500  for the three  months  ended June 30,  2001.  The
decrease of $199,100, or 15.1%, was mainly due to a decrease in payroll expenses
of  approximately  $162,700 and a decrease in bad debt expense of $189,300,  and
was partially offset by an increase in promotion expense of $84,700.

PMIGA's  operating  expenses  were  $306,000 for the three months ended June 30,
2002, a decrease of $23,100,  or 7.0%, compared to $329,100 for the three months
ended June 30, 2001.  The decrease  was  primarily  due to a decrease in payroll
expense of  approximately  $47,300,  and was partially offset by the increase in
promotion expense of $19,600 and an increase in bad debt expense of $15,200.

FNC's operating expenses were $475,200 for the three months ended June 30, 2002,
an increase of $93,400 or 24.5%, compared to $381,600 for the three months ended
June 30,  2001.  FNC acquired  certain  assets of a computer  technical  support
company,  Technical  Insight (TI) on September 30, 2001. The operating  expenses
for the six months ended June 30, 2002  included the expenses for  operating TI.
The  increases  were  partially  offset by a decrease  in  professional  service
expenses of approximately $37,500.

Consolidated  loss from  operations for the three months ended June 30, 2002 was
$1,145,900  compared to $1,071,400  for the three months ended June 30, 2001, an
increase of 7.0%. As a percent of sales,  consolidated  loss from operations was
7.5% for the six  months  ended  June 30,  2002  compared  to 7.2% for the three
months ended June 30, 2001. The increase in  consolidated  loss from  operations
was primarily due to an 11.6% increase in consolidated  operating  expenses only
partially  offset by a 2.8%  increase in  consolidated  sales and an increase of
0.9% of sales in gross margin.  Loss from  operations for the three months ended
June 30, 2002, including allocations of PMIC corporate expenses, for PMI, PMIGA,
FNC,  Lea  and  LW  was  $496,800,   $89,200,  $60,600,  $36,800,  and  $76,300,
respectively.

Consolidated interest income was $3,700 for the three months ended June 30, 2002
compared to $34,300 for the three months  ended June 30,  2001.  The decrease in
interest  income was  mainly  due to a decline  in funds on deposit in  interest
bearing accounts.

Consolidated  interest  expense was $46,700 for the three  months ended June 30,
2002 compared to $67,800 for the three months ended June 30, 2001.  The decrease
in interest expense was largely due to a decrease in the floating  interest rate
charged on one of our  mortgages  on our  office  building  facility  located in
Milpitas, California.

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

In March  2002,  legislation  was  enacted to extend  the  general  Federal  net
operating loss carryback period from 2 years to 5 years for net operating losses
incurred  in 2001 and 2002.  As a result,  we  recorded an income tax benefit of
$381,600 on the net  operating tax loss incurred for the three months ended June
30, 2002.

On May 31,  2002 the  Company  issued 600  shares of its 4% Series A  Redeemable
Convertible  Preferred Stock and a warrant for 300,000 shares of common stock to
an investor.  The value of the beneficial  conversion option of these 600 shares

                                      -20-
<PAGE>
of 4%  Series A  Redeemable  Convertible  Preferred  Stock and the  warrant  was
$303,000 and $148,300,  respectively. The accretion of the 4% Series A Preferred
Stock was $2,000 from the issuance  date (May 31,  2002) to June 30,  2002.  The
value of the beneficial  conversion  option and the warrant and the accretion of
the  preferred  stock  was  included  in  the  loss  applicable  to  the  common
shareholders in the calculation of the loss per common share.

SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001

Sales for the six months  ended June 30,  2002 were  $33,010,100,  a decrease of
$1,907,800,  or approximately  5.5%,  compared to $34,917,900 for the six months
ended June 30, 2001.  The combined sales of PMI and PMIGA were  $31,058,300  for
the six months ended June 30, 2002, a decrease of  $2,313,700  or  approximately
6.9%,  compared to $33,372,000 for the six months ended June 30, 2001. Sales for
PMI decreased by $2,609,400,  or 9.3%, from $28,000,100 for the six months ended
June 30, 2001 to  $25,390,700  for the six months ended June 30,  2002.  PMIGA's
sales  increased by $295,700,  or 5.5%, from $5,371,900 for the six months ended
June 30, 2001 to $5,667,600 for the six months ended June 30, 2002. The decrease
in PMI sales was due to the continued overall decline in the computer  component
market  and  the  lack of any new and  innovative  high-demand  products  in the
multimedia arena during the period of economic slowdown. The increase in PMIGA's
sales was due to the  increase  in market  penetration  on the U.S.  east coast.
Sales  recognized by FNC for the six months ended June 30, 2002 were $1,481,100,
a decrease of $64,800 or 4.2%,  compared to  $1,545,900  for the six month ended
June 30,  2001.  The  decrease  in FNC sales is due to the  continued  weak U.S.
economy and the reduction of capital  expenditures by its existing and potential
customers.

In the fourth  quarter of 2001,  PMICC  acquired  certain  assets of LiveMarket.
Subsequently,  these assets were  transferred  to Lea.  Prior to the  LiveMarket
acquisition,  Lea did not  generate  any  revenues as it was in the  development
stage. Revenues generated by Lea were $333,000 for the six months ended June 30,
2002.

In December 2001,  LiveWarehouse,  Inc. (LW) was  incorporated as a wholly owned
subsidiary of PMIC to provide  consumers a convenient  way to purchase  computer
products  via the  internet.  Sales  generated  by LW were  $137,700 for the six
months ended June 30, 2002.

Consolidated gross margin for the six months ended June 30, 2002 was $2,455,500,
or 7.4% of sales,  compared to $2,359,700,  or 6.8% of sales, for the six months
ended June 30, 2001. The combined gross margin for PMI and PMIGA was $2,052,900,
or 6.6% of sales, for the six months ended June 30, 2002, compared to $2,178,300
or 6.5% of sales, for the six months ended June 30, 2001. PMI's gross margin was
$1,788,700, or 7.0% of sales, for the six months ended June 30, 2002 compared to
$1,950,000,  or 7.0% of sales,  for the six months ended June 30, 2001.  PMIGA's
gross margin was $264,100,  or 4.7% of sales,  for the six months ended June 30,
2002 compared to $228,300,  or 4.2% of sales,  for the six months ended June 30,
2001.  The increase in gross  margin as a percentage  of sales for PMI and PMIGA
was due to more  products  with higher  margins being sold during the six months
ended June 30, 2002 compared to the six months ended June 30, 2001.

FNC's gross  margin was  $249,400,  or 16.8% of sales,  for the six months ended
June 30, 2002 compared to $181,400,  or 11.7% of sales, for the six months ended
June 30, 2001. The higher gross margin percentage in 2002 was due to an increase
in service revenues earned as a percent of total sales for the six months ended

                                      -21-
<PAGE>
June 30, 2002 compared to the six months ended June 30, 2001.  Service  revenues
were $251,200 for the six months ended June 30, 2002 compared to $78,500 for the
six months  ended June 30,  2001.  In general,  FNC has a higher gross margin on
consulting and implementation service revenues than product sales revenues.

Lea experienced an overall gross margin of $126,000,  or 37.8% of sales, for the
six months ended June 30, 2002.  Lea's gross margin was derived  primarily  from
service revenues.

Gross  margin for LW was  $27,300,  or 19.8% of sales,  for the six months ended
June 30,  2002.  The gross margin  realized in retail sales is generally  higher
than wholesale distribution.

Consolidated  operating  expenses,   which  consist  of  selling,   general  and
administrative expenses, were $4,676,800 for the six months ended June 30, 2002,
an increase of  $535,600,  or 12.9%  compared to  $4,141,200  for the six months
ended June 30, 2001. Lea assumed LiveMarket's operations in October 2001, and LW
began its  operations in the first  quarter of 2002.  The increase was primarily
due to the inclusion of the operating  expenses of $576,000 for Lea and $182,500
for LW for the six months  ended June 30, 2002,  which were not incurred  during
the same period in 2001.  The Company has also  experienced a lower level of bad
debt write-offs.  The consolidated bad debt expense  decreased from $315,900 for
the six months ended June 30, 2001 to $189,900 for the six months ended June 30,
2002.  Subsequent  to March  31,  2001,  we  increased  our  investor  relations
expenditures.  Consolidated  expense for the  Company's  investor  relations and
related  expenses  was  $152,300  for the six months  ended June 30,  2002.  The
increases were partially offset by the cost cutting measures  implemented by the
Company,  such as reducing our employee count for PMI, PMIGA, and FNC from 97 as
of June 30, 2001 to 91 as of June 30, 2002.

PMI's operating  expenses were $2,427,000 for the six months ended June 30, 2002
compared to $2,702,700  for the six months ended June 30, 2001.  The decrease of
$275,700,  or 10.2%,  was mainly due to the  decrease  in  payroll  expenses  of
approximately  $301,700 and the decrease in bad debt expense of $165,100 and was
partially offset by an increase in promotion expense of $112,600.

PMIGA's operating expenses were $620,700 for the six months ended June 30, 2002,
a decrease of $51,400,  or 7.6%  compared to $672,100  for the six months  ended
June 30, 2001.  The decrease was primarily due to a decrease in payroll  expense
of  approximately  $111,100 and a decrease in  professional  service  expense of
$17,000, and was partially offset by the increase in bad debt expense of $28,600
and promotion expense of $29,300.

FNC's  operating  expenses were $870,600 for the six months ended June 30, 2002,
an increase of $126,100, or 16.9%, compared to $744,500 for the six months ended
June 30,  2001.  FNC acquired  certain  assets of a computer  technical  support
company,  Technical  Insight (TI) on September 30, 2001. The operating  expenses
for the six months ended June 30, 2002  included  the expenses of operating  the
newly acquired  computer  technical  support  business.  FNC also experienced an
increase in bad debt expense of $10,500 in 2002.  The increases  were  partially
offset by a decrease in professional service expenses of approximately $13,300.

Consolidated  loss from  operations  for the six months  ended June 30, 2002 was
$2,221,300  compared to  $1,781,500  for the six months ended June 30, 2001,  an
increase of 24.7%. As a percent of sales,  consolidated loss from operations was
6.8% for the six months ended June 30, 2002  compared to 5.0% for the six months

                                      -22-
<PAGE>
ended June 30,  2001.  The increase in  consolidated  loss from  operations  was
primarily due to a 5.5% decrease in  consolidated  sales and a 12.9% increase in
consolidated  operating expenses.  Loss from operations for the six months ended
June 30, 2002, includes allocations of PMIC corporate expenses,  for PMI, PMIGA,
FNC, Lea and LW was  $1,085,600,  $198,500,  $103,200,  $55,800,  and  $112,000,
respectively.

Consolidated  interest income was $10,300 for the six months ended June 30, 2002
compared  to $88,000 for the six months  ended June 30,  2001.  The  decrease in
interest income was mainly due to a decline in funds available to earn interest.

Consolidated interest expense was $93,100 for the six months ended June 30, 2002
compared to $141,700  for the six months  ended June 30,  2001.  The decrease in
interest  expense was largely due to a decrease in the  floating  interest  rate
charged on one of our  mortgages  on our  office  building  facility  located in
Milpitas, California.

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

In March  2002,  legislation  was  enacted to extend  the  general  Federal  net
operating loss carryback period from 2 years to 5 years for net operating losses
incurred  in 2001 and 2002.  As a result,  we  recorded an income tax benefit of
$765,600 on the net  operating  tax loss  incurred for the six months ended June
30, 2002.

On May 31,  2002 the  Company  issued 600  shares of its 4% Series A  Redeemable
Convertible  Preferred Stock and a warrant for 300,000 shares of common stock to
an investor.  The value of the beneficial  conversion option of these 600 shares
of 4%  Series A  Redeemable  Convertible  Preferred  Stock and the  warrant  was
$303,000 and $148,300,  respectively. The accretion of the 4% Series A Preferred
Stock was $2,000 from the issuance  date (May 31,  2002) to June 30,  2002.  The
value of the beneficial  conversion  option and the warrant and the accretion of
the  preferred  stock  were  included  in the  loss  applicable  to  the  common
shareholders in the calculation of the loss per common share.

LIQUIDITY AND CAPITAL RESOURCES

Since  inception,  we  have  financed  our  operations  primarily  through  cash
generated by operations and borrowings  under our floor plan inventory loans and
line of credit.  The continued  decline in sales,  the continuation of operating
losses or the loss of credit  facilities could have a material adverse effect on
the  operating  cash flows of the Company.  The Company did not meet the minimum
tangible  net  worth  and  profitability  covenants  required  by the  financing
arrangement with  Transamerica,  which gives the lender the right to immediately
call the loan and terminate the credit  agreement.  We are in  discussions  with
Transamerica  aimed  at  obtaining  a waiver  of the  covenant  violation  or an
amendment of the covenants; however, there can be no assurances that the Company
will be  successful  in this  regard.  There  could be an adverse  effect on the
operating  cash flows in the event that  Transamerica  terminates  the financing
facility.

On May 31, 2002 the Company  entered into a Preferred  Stock Purchase  Agreement
with an investor.  Under the agreement, the Company agreed to issue 1,000 shares
of its preferred stock at $1,000 per share. The Company issued 600 shares of its
preferred stock and 400,000 common stock warrants for a net proceeds of $477,500
on May 31, 2002. The remaining 400 shares of preferred  stock are expected to be
sold upon the completion of the required  registration of the underlying  common
stock.

                                      -23-
<PAGE>
At June 30,  2002,  the  Company  had  consolidated  cash  and cash  equivalents
totaling $2,654,900  (excluding $250,000 in restricted cash) and working capital
of  $4,699,800.  At  December  31,  2001,  we had  consolidated  cash  and  cash
equivalents totaling $3,110,000 and working capital of $5,734,900.

Net cash used in operating  activities during the six months ended June 30, 2002
was $430,700,  which  principally  reflected  the net loss  incurred  during the
period,  and an  increase  in  inventories,  which  was  partially  offset by an
increase in accounts payable and a decrease in accounts receivable.  On June 12,
2002, the Company received a Federal income tax refund of $1,034,700.

Net cash used by investing  activities during the six months ended June 30, 2002
was $45,700,  resulting  from the purchases of property and equipment of $66,500
and a  reduction  of  $24,100  in  deposits  and other  assets.  These uses were
partially offset by the proceeds from the sale of property and equipment.

Net cash provided by financing  activities  was $21,300 for the six months ended
June 30, 2002,  primarily from the net proceeds of $477,500 from the issuance of
preferred  stock,  which was  partially  offset by the $428,900  decrease in the
floor plan inventory loans and principal  payments on the mortgage on our office
facility.

On July 13,  2001,  PMI and PMIGA  (the  Companies)  obtained  a new $4  million
(subject to credit and  borrowing  base  limitations)  accounts  receivable  and
inventory  financing facility from Transamerica  Commercial Finance  Corporation
(Transamerica).  This  credit  facility  has a term  of two  years,  subject  to
automatic  renewal  from year to year  thereafter.  The credit  facility  can be
terminated by either party upon 60 days' prior written notice and immediately if
the  Companies  lose the right to sell or deal in any product line of inventory.
The Companies are subject to an early  termination fee equal to 1% of their then
established  credit limit. The facility  includes a $2.4 million  inventory line
(subject to a borrowing base of up to 85% of eligible  accounts  receivable plus
up to $1,500,000 of eligible inventories), a $600,000 working capital line and a
$1 million letter of credit facility used as security for inventory purchased on
terms from vendors in Taiwan. Borrowing under the inventory loans are subject to
30 to 60 days  repayment,  at which time interest  begins to accrue at the prime
rate,  which was 4.75% at June 30, 2002.  Draws on the working capital line also
accrue  interest at the prime rate.  The credit  facility is  guaranteed by both
PMIC and FNC. As of June 30, 2002, there were  outstanding  draws of $875,600 on
the credit line.

Under the agreement,  PMI and PMIGA granted  Transamerica a security interest in
all of their accounts,  chattel paper,  cash,  documents,  equipment,  fixtures,
general intangibles,  instruments,  inventories,  leases,  supplier benefits and
proceeds of the foregoing.  The Companies are also required to maintain  certain
financial covenants. As of December 31, 2001, the Companies were in violation of
the minimum tangible net worth covenant. On March 6, 2002, Transamerica issued a
waiver of the  default  and revised  the  covenants  under the credit  agreement
retroactively to September 30, 2001. As of December 31, 2001 and March 31, 2002,
the Companies were in compliance with these new covenants.  As of June 30, 2002,
the Companies did not meet certain of these financial  requirements.  This gives
Transamerica,  among other things,  the right to call the loan and terminate the
credit  facility.  This may reduce the  Companies'  ability to obtain credit for
purchases of  inventories,  which would have an adverse  effect on our financial
position,  results  of  operations  and  cash  flows.  As  noted  above,  we are
attempting to obtain a waiver of the covenant violation or amend the covenants.

                                      -24-
<PAGE>
In March 2001,  FNC obtained a $2 million  discretionary  credit  facility  from
Deutsche Financial Services  Corporation  (Deutsche) to purchase  inventory.  To
secure payment, Deutsche obtained a security interest in all of FNC's inventory,
equipment,  fixtures, accounts,  reserves,  documents, general intangible assets
and all judgments, claims, insurance policies, and payments owed or made to FNC.
Under the loan  agreement,  all draws  mature in 30 days.  Thereafter,  interest
accrues at the lesser of 16% per annum or at the maximum lawful contract rate of
interest permitted under applicable law.

FNC was  required to maintain  certain  financial  covenants  to qualify for the
Deutsche  bank credit  line,  and was not in  compliance  with  certain of these
covenants  as of June 30,  2002 and  December  31,  2001,  which  constitutes  a
technical  default  under the credit line.  This gave Deutsche the right to call
the loan and  terminate  the credit line.  The credit  facility is guaranteed by
PMIC and could be terminated by Deutsche immediately given the default. On April
30, 2002,  Deutsche  elected to terminate the credit facility  effective July 1,
2002. Upon  termination,  the  outstanding  balance must be repaid in accordance
with the terms and provisions of the financing  agreement.  As of June 30, 2002,
there  were  outstanding  draws of  $240,500  on the  credit  line.  The  entire
outstanding balance will be repaid before September 26, 2002.

Pursuant to one of our bank mortgage loans with a $2,399,900 balance at June 30,
2002, we are required to maintain certain financial  covenants.  During 2001, we
were in  violation  of a  consecutive  quarterly  loss  covenant  and an  EBITDA
coverage ratio  covenant,  which is an event of default under the loan agreement
that  gives the bank the right to call the  loan.  While a waiver of these  loan
covenant  violations  was obtained from the bank in March 2002,  retroactive  to
September 30, 2001, and through  December 31, 2002, we were required to transfer
$250,000 to a restricted  account as a reserve for debt  servicing.  This amount
has been reflected as restricted cash in the consolidated financial statements.

We presently have  insufficient  working capital to pursue our long-term  growth
plans with  respect to expansion  of our service and product  offerings,  either
internally  or  through  acquisitions.   Moreover,  we  expect  that  additional
resources are needed to fund the development and marketing of Lea's software and
related services.  We believe,  however,  that our existing cash available,  and
trade  credits from  suppliers  will satisfy our  anticipated  requirements  for
working capital to support our present operations through the next 12 months.

On May 31, 2002 we received  net  proceeds of $477,500  from the issuance of 600
shares of 4% Series A Preferred  Stock.  The remaining 400 shares will be issued
at $1,000 per share upon the  completion  of the  required  registration  of the
underlying  common stock.  There is no assurance these remaining 400 shares will
be sold or that we will be able to obtain additional capital beyond the issuance
of these 1,000 shares of Preferred  stock.  Upon the  occurrence of a Triggering
Event,  such as failure to register the underlying  common  shares,  among other
events, as defined,  the holder of the preferred stock has the rights to require
the Company to redeem its preferred  stock in cash at a minimum of 1.5 times the
Stated  Value.  As of June  30,  2002,  the  redemption  value  of the  Series A
Preferred  Stock,  if the holder had required the Company to redeem the Series A
Preferred  Stock as of that date,  was  $903,000.  Even  though we do not expect
those Triggering Events will occur, there is no assurance that those events will
not occur. In the event the Company is required to redeem its preferred stock in
cash,  the Company  might  experience  a reduction in the ability to operate the
business at the current level.

                                      -25-
<PAGE>
Presently we do not have sufficient  funds to pursue our business plan involving
acquisitions  to pursue new markets and the growth of our business.  Although we
are actively seeking and evaluating potential acquisition prospects, there is no
assurance that we will be able to obtain additional  capital for these potential
acquisitions.  We are actively seeking additional capital to augment our working
capital and to finance  our new  business  initiatives  such as  LiveMarket  and
LiveWarehouse.  However,  there is no assurance that we can obtain such capital,
or if we can obtain capital that it will be on terms that are acceptable to us.

Our stock is currently traded on the Nasdaq SmallCap Market.  We are required to
meet certain  financial  requirements,  such as a minimum market value of public
float of $1 million and a minimum bid price of $1.00 over 30 consecutive trading
days,  for  maintaining  our  stock  listing  on  the  Nasdaq  SmallCap  Market.
Presently,  we  believe  we are in  compliance  with  all the  requirements  for
continued listing on the Nasdaq SmallCap Market.  However, the current bid price
for our common stock is below $1.00.

RELATED PARTY TRANSACTIONS

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

We sell  computer  products  to a  company  owned  by a member  of our  Board of
Directors. Management believes that the terms of these sales transactions are no
more favorable than given to unrelated customers.  For the six months ended June
30, 2002, and 2001, the Company recognized $371,400 and $476,400,  respectively,
in sales revenues from this customer. Included in accounts receivable as of June
30, 2002 is $125,400 due from this related customer.

RECENT ACCOUNTING PRONOUNCEMENTS

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

In June 2001, the Financial  Accounting  Standards Board finalized SFAS No. 141,
BUSINESS  COMBINATIONS,  and No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. SFAS
No. 141 requires the use of the purchase  method of accounting and prohibits the
use of the  pooling-of-interests  method of accounting for business combinations
initiated  after June 30,  2001.  SFAS No. 141 also  requires  that the  Company
recognize  acquired  intangible  assets  apart  from  goodwill  if the  acquired
intangible  assets meet certain  criteria.  SFAS No. 141 applies to all business

                                      -26-
<PAGE>
combinations   initiated   after  June  30,  2001  and  for  purchase   business
combinations completed on or after July 1, 2001. It also requires, upon adoption
of SFAS No. 142 that the Company  reclassify the carrying  amounts of intangible
assets and goodwill based on the criteria in SFAS No. 141. The Company  recorded
its  acquisition  of Technical  Insights and LiveMarket in September and October
2001 in accordance with SFAS No. 141 and did not recognize any goodwill relating
to these transactions.  However, certain intangibles totaling $59,400, including
intellectual  property  and vendor  reseller  agreements,  were  identified  and
recorded in the consolidated financial statements in deposits and other assets.

SFAS No. 142 requires,  among other things,  that  companies no longer  amortize
goodwill,  but instead  test  goodwill  for  impairment  at least  annually.  In
addition,  SFAS No. 142 requires that the Company  identify  reporting units for
the purposes of assessing potential future impairments of goodwill, reassess the
useful  lives  of  other  existing  recognized   intangible  assets,  and  cease
amortization of intangible  assets with an indefinite useful life. An intangible
asset  with an  indefinite  useful  life  should be  tested  for  impairment  in
accordance  with the  guidance in SFAS No.  142.  SFAS No. 142 is required to be
applied in fiscal years  beginning  after  December 15, 2001 to all goodwill and
other intangible assets recognized at that date, regardless of when those assets
were  initially  recognized.  SFAS No. 142  requires  the  Company to complete a
transitional goodwill impairment test six months from the date of adoption.  The
Company is also required to reassess the useful lives of other intangible assets
within the first interim quarter after adoption of SFAS No. 142. The adoption of
SFAS No. 142 did not have a material effect on the Company's financial position,
results of operations or cash flows since the value of  intangibles  recorded is
relatively insignificant and no goodwill has been recognized.

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

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

Statement  of  Financial  Accounting  Standards  No.  145,  "Rescission  of SFAS
Statements No. 4, 44, and 64,  Amendment of SFAS Statement No. 13, and Technical
Corrections" ("SFAS 145"), updates, clarifies and simplifies existing accounting
pronouncements.  SFAS 145 rescinds SFAS No. 4, "Reporting  Gains and Losses from
Extinguishment  of Debt." SFAS 145 amends SFAS No. 13,  "Accounting for Leases,"
to eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required  accounting for certain lease  modifications  that

                                      -27-
<PAGE>
have  economic  effects  that are similar to  sale-leaseback  transactions.  The
provisions  of SFAS 145 related to SFAS No. 4 and SFAS No. 13 are  effective for
fiscal  years  beginning  and   transactions   occurring  after  May  15,  2002,
respectively. The Company does not expect the adoption of SFAS No. 145 to have a
material effect on its financial position, results of operations, or cash flows.

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

INFLATION

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

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

WE HAVE INCURRED  OPERATING LOSSES AND DECREASED REVENUES RECENTLY AND WE CANNOT
ASSURE YOU THAT THIS  TREND WILL  CHANGE.  We  incurred  net losses for the year
ended December 31, 2001 and the six months ended June 30, 2002 of $2,850,700 and
$1,568,400,  respectively, and we may continue to incur losses. In addition, our
revenues  decreased 15.6% during the year ended December 31, 2001 as compared to
the corresponding period in 2000 and 5.5% for the six months ended June 30, 2002
as compared to the  corresponding  period in 2001. Our future ability to execute
our business plan will depend on our efforts to increase  revenues and return to
profitability. We have implemented plans to reduce overhead and operating costs,
and to build upon our existing  business and capture new business.  No assurance
can be given,  however, that these actions will result in increased revenues and
profitable  operations,  which  may have an  adverse  impact on our  ability  to
execute our business plan.

WE CAN PROVIDE NO ASSURANCE  THAT WE WILL BE ABLE TO SECURE  ADDITIONAL  CAPITAL
REQUIRED BY OUR  BUSINESS.  We recently  completed  a private  placement  of 600
shares  of our  Series  A  Convertible  Preferred  Stock  with net  proceeds  of
$477,500.  Upon the  effectivity of a registration  statement that registers the
common stock  underlying the Series A Preferred Stock, we expect to complete the
sale of an additional 400 shares of Series A Preferred  Stock for gross proceeds
of $372,000.  Based on our present  operations,  we anticipate  that our working
capital,  including the $477,500 raised in our recent placement and the $372,000
expected to be raised upon the  effectivity  of a registration  statement,  will
satisfy our working  capital  needs for the next  twelve  months.  If we fail to
raise  additional  working  capital  prior to the end of that  time,  we will be
unable to pursue our business plan involving  acquisitions  and expansion of our
service and product offerings. We must obtain additional financing to complete

                                      -28-
<PAGE>
the marketing of Lea/LiveMarket's software products and expand that business, to
continue to expand our distribution  business,  and to develop our FNC business.
We also  intend to pursue new  markets  and the growth of our  business  through
acquisitions. We can give no assurance that we will be able to obtain additional
capital  when needed or, if  available,  that such  capital will be available at
terms acceptable to us.

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

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

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

     3)   We must  maintain  annual  EBITDA  of one and one half  times our debt
          service. We are currently in violation of covenant number 2 above, but
          we have received a waiver for such violation through the end of 2002.

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

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

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

     3)   The combined EBIT of PMI and PMIGA must be greater than  ($68,000) for
          the quarter ended March 31, 2002;  $140,000 for the quarter ended June
          30,  2002;  $200,000 for the quarter  ended  September  30, 2002;  and
          $275,000 for the quarter ended December 31, 2002.

We were in  violation of our  tangible  net worth  covenant  (prior to revisions
discussed  below) as of December  31,  2001.  However,  TransAmerica  waived the
violation and revised the credit agreement  retroactively to September 30, 2001.
As of March 31, 2002, we have received a letter from  TransAmerica  stating that
PMI and PMIGA were in compliance with all of the above  covenants.  We were also
in violation of our tangible net worth covenant and the EBIT covenant as of June
30, 2002 which gives  Transamerica,  among other  things,  the right to call the
loan and immediately  terminate the credit facility.  We are in discussions with
Transamerica  aimed  at  obtaining  a waiver  of the  covenant  violation  or an
amendment of the covenants; however, there can be no assurances that the Company
will be successful in this regard.

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

OUR FAILURE TO  ANTICIPATE  OR RESPOND TO  TECHNOLOGICAL  CHANGES  COULD HAVE AN
ADVERSE EFFECT ON OUR BUSINESS.  The market for computer systems and products is
characterized   by  constant   technological   change,   frequent   new  product
introductions and evolving industry  standards.  Our future success is dependent
upon the continuation of a number of trends in the computer industry,  including

                                      -29-
<PAGE>
the  migration  by  end-users  to  multi-vendor   and  multi-  system  computing
environments,  the overall increase in the sophistication and interdependency of
computing  technology,  and a focus by  managers on  cost-efficient  information
technology  management.   These  trends  have  resulted  in  a  movement  toward
outsourcing and an increased  demand for product and support  service  providers
that have the  ability  to provide a broad  range of  multi-vendor  product  and
support services.  There can be no assurance these trends will continue into the
future.  Our  failure to  anticipate  or  respond  adequately  to  technological
developments and customer  requirements  could have a material adverse effect on
our business, operating results and financial condition.

IF WE 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.

WE MAY NOT BE ABLE TO INTEGRATE OUR RECENT  ACQUISITIONS  OF TECHNICAL  INSIGHTS
AND  LIVEMARKET  IN AN EFFICIENT  MANNER.  A key element of our strategy for the
future is to expand through  acquisition  of companies  that have  complimentary
businesses, that can utilize or enhance our existing capabilities and resources,
that  expand our  geographic  presence  or that  expand our range of services or
products.  In September of 2001,  FNC  successfully  acquired  certain assets of
Technical Insights which has expertise to provide computer technical training to
corporate  clients.  Lea,  through  our  newly  incorporated  subsidiary  PMICC,
acquired  certain  assets of  LiveMarket  in October of 2001.  LiveMarket  is an
internet software development company that designs and develops online stores to
allow consumers to purchase products directly via a secured transaction network.
It also  designs  and  develops  e-store  site  management  tools to  administer
customer inquiry and support payment processing service. Moreover, we are always
evaluating potential acquisition prospects.

Acquisitions involve a number of special risks, some of which include:

     *    the  time  associated  with  identifying  and  evaluating  acquisition
          candidates;

     *    the diversion of  management's  attention by the need to integrate the
          operations  and  personnel  of the  acquired  businesses  into our own
          business and corporate culture;

     *    the  incorporation  of the  acquired  products  or  services  into our
          products and services;

     *    possible adverse short-term effects on our operating results;

     *    the realization of acquired intangible assets; and

     *    the loss of key employees of the acquired companies.

                                      -30-
<PAGE>
In  addition  to the  foregoing  risks,  we believe  that we will see  increased
competition for acquisition candidates in the future.  Increased competition for
candidates  could  raise  the cost of  acquisitions  and  reduce  the  number of
attractive  candidates.  We cannot  assure you that we will be able to  identify
additional  suitable  acquisition  candidates,  consummate  or finance  any such
acquisitions,   or  integrate  any  such  acquisition   successfully   into  our
operations.

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 are made against
these warranties our results of operations would suffer.

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

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

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

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

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

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

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

WE CANNOT ASSURE YOU THAT OUR PURSUIT OF NEW BUSINESS THROUGH LIVEMARKET WILL BE
SUCCESSFUL.  We plan to enter  the  proprietary  software  development  business
through  Lea/LiveMarket.  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

                                      -32-
<PAGE>
Lea/LiveMarket  will compete have greater  financial  and other  resources  than
Lea/LiveMarket.  There can be no assurance  Lea/LiveMarket will be successful in
developing commercial software products, or even if Lea/LiveMarket develops such
products, that it will find market acceptance for them. Finally, there can be no
assurance that Lea/LiveMarket will generate a profit.

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

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 profit,  that we will be able to hire and retain
personnel with  experience in online retail  marketing and  management,  that we
will be able to execute our business plan with respect to this market segment or
that we  will  be able to  adapt  to  technological  changes  once  operational.
Further, while we have experience in the wholesale marketing of computer-related
products,  we have no  experience  in  retail  marketing.  This  market  is very
competitive and some of our competitors  have  substantially  greater  resources
than we have.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk for changes in interest  rates relates  primarily to
one of our bank mortgage loans with a $2,399,900  balance at June 30, 2002 which
bears  fluctuating  interest based on the bank's 90-day LIBOR rate. In addition,
one of our flooring and working capital lines bears interest at the bank's prime
rate.  However,  interest  expenses  incurred in connection  with this financing
agreement have historically been insignificant.  We believe that fluctuations in
interest  rates in the near term would not  materially  affect our  consolidated
operating  results.  We are not exposed to material  risk based on exchange rate
fluctuation or commodity price fluctuation.

                                      -33-
<PAGE>
                                     PART II

ITEM 1. LEGAL PROCEEDINGS.

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

ITEM 2. RECENT SALES OF UNREGISTERED SECURITIES

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

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

     (a)  The Company's Annual Shareholders' Meeting was held on May 31, 2002.

     (b)  Theodore  S. Li, Hui Lee,  Jey Hsin Yao,  Hank C. Ta and Limin Hu were
          elected  as  directors  to serve  until  the next  Annual  Meeting  of
          Shareholders.

     (c)  At the Annual  Meeting,  the only  matter  submitted  to a vote of the
          shareholders was the election of the aforementioned  nominees to serve
          as  directors  of  the  Company  until  the  next  Annual  Meeting  of
          shareholders. The vote on the nominees was as follows:

Proposal             Votes For    Votes Against    Abstained    Broker Non-Votes
--------             ---------    -------------    ---------    ----------------
Election of
Theodore S. Li       6,877,262        31,700           --              --

Election of
Hui Lee              6,876,898        32,064           --              --

Election of
Jey Hsin Yao         6,877,262        31,700           --              --

Election of
Hank C. Ta           6,877,262        31,700           --              --

Election of
Limin Hu             6,877,262        31,700           --              --

ITEM 5. OTHER INFORMATION

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

                                      -34-
<PAGE>
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits

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

           3.2         Bylaws, as amended and restated                    (1)

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

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

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

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

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

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

           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-I26 filed January 20, 1999.

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

*    Filed herewith

     (b)  Reports on Form 8-K

     The Company filed a current  report on Form 8-K on June 30, 2002 under Item
5 reporting the sale of its Series A Preferred Stock in a private placement.

                                      -35-
<PAGE>
     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused this report on Form 10-Q to be signed on its behalf
by the undersigned, thereunto duly authorized, this 14th day of August 2002.


                                        PACIFIC MAGTRON INTERNATIONAL CORP.,
                                        a Nevada corporation


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

                                      -36-