UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                    FORM 10-K

(MARK ONE)

|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

                   For the fiscal year ended December 31, 2004

                                       OR

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

      For the transition period from ________________ to _________________

                         Commission file number 0-17521

                       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)                       (Zip Code)

        Registrant's telephone number, including area code (408) 956-8888

           Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class                  Name of Each Exchange on Which Registered
-------------------                  -----------------------------------------
     n/a                                                n/a

           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.001 par value
                                (Title of Class)

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

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

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


                                       1
<PAGE>

At June 30, 2004 the aggregate market value of common stock held by
non-affiliates of the registrant was approximately $419,400.

              APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes |_| No |_| N/A

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.

At February 23, 2005 the number of shares of common stock outstanding was
10,485,062

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None.


                                       2
<PAGE>

The  following  statement  is made  pursuant to the safe harbor  provisions  for
forward-looking statements described in the Private Securities Litigation Reform
Act  of  1995.  Pacific  Magtron   International  Corp.  and  subsidiaries  (the
"Company")  may make  certain  statements  in this  Annual  Report on Form 10-K,
including,  without  limitation,  statements that contain the words  "believes,"
"anticipates,"  "estimates," "expects," and words of similar import,  constitute
"forward-looking  statements."  Forward-looking  statements may relate to, among
other items, our future growth and profitability;  the anticipated trends in our
industry;  our  competitive  strengths  and  business  strategies;  and  our new
business  initiatives.  Further,  forward-looking  statements  are  based on our
current  expectations  and are subject to a number of risks,  uncertainties  and
assumptions  relating  to our  operations,  financial  condition  and results of
operations. For a discussion of factors that may affect the outcome projected in
such  statements,  see "Cautionary  Factors that May Affect Future  Results," in
this Report.  If any of these risks or uncertainties  materialize,  or if any of
the  underlying  assumptions  prove  incorrect,   actual  results  could  differ
materially  from  results  expressed  or implied  in any of our  forward-looking
statements.  We do not undertake any obligation to revise these  forward-looking
statements  to reflect  events or  circumstances  arising after the date of this
Annual Report on Form 10-K.

PART I
ITEM 1. BUSINESS
SUMMARY OF OUR BUSINESS

As used in this document and unless  otherwise  indicated,  the terms "Company,"
"PMIC,"  "we," "our" or "us" refer to Pacific  Magtron  International  Corp.,  a
Nevada  corporation  and its  subsidiaries.  Our  executive  offices are at 1600
California  Circle,  Milpitas,  California  95035  and our  telephone  number is
408-956-8888. Our website address is www.PacificMagtron.com.

Our primary business has been to distribute computer peripheral products through
our  wholly-owned  subsidiaries,  Pacific Magtron,  Inc. (PMI),  Pacific Magtron
(GA), Inc. (PMIGA), and LiveWarehouse, Inc. (LW). Our business is organized into
three divisions: PMI, PMIGA and LW.

Recent Developments

The Company has  historically  relied on credit terms from its suppliers to fund
inventory  purchases.   Our  vendors  have  been  progressively   imposing  more
restrictive  credit terms,  such that, during the first quarter of 2005, we were
unable to fund purchases.  Our business as of the date of this filing is limited
to selling  existing  inventory  with no ability to replenish or purchase  other
items  our  customer  may  need.  As  of  April  15,  2005,  our  inventory  was
approximately  $170,000,  compared to $2,760,000 at December 31, 2004. We do not
have the ability to draw on lines of credit to fund the shortfall  caused by the
elimination of terms by our vendors. We have reduced our staff from 58 employees
at the end of 2004 to 28  employees  on April 14,  2005.  Because of the reduced
sales  caused  by the lack of new  inventory,  we have not been  able to pay our
obligations  on  a  timely  basis.  We  have  been  sued  by  one  supplier  for
approximately  $680,000  in unpaid  invoices  and by another  for  approximately
$80,000. Other creditors have threatened suit. If we are unable to obtain credit
or find another method of operating, we will be forced to cease operations.


                                       1
<PAGE>

The text below  describes  our  development  and the  business as  traditionally
operated. At the time of this filing,  however, we were not engaging in business
as  described  below.  Our  activities  were  limited to  disposing  of existing
inventory.

DESRIPTION OF BUSINESS

Founded  in  1989,  PMI  fulfills  the  multimedia   hardware  needs  of  system
integrators, value added resellers, retailers, original equipment manufacturers,
software vendors,  and internet resellers through the wholesale  distribution of
computer related multimedia hardware components and software. In August 2000, we
formed  PMIGA for the  distribution  of PMI's  products  in the  eastern  United
States.  In December 2001, LW was  incorporated as a wholly-owned  subsidiary of
PMIC to provide consumers a convenient way to purchase computer products via the
internet. As part of the overall strategy on re-focusing on our core business in
wholesale  distribution,  we have  reduced  our  resources  allocated  to our LW
business segment beginning the third quarter 2004.

As part of the Company's  continued  efforts to cut cost and refocus on its core
business,  during the second  quarter  2003,  the Company  disposed of Frontline
Network  Consulting,  Inc.  (FNC) and Lea  Publishing,  Inc.  (Lea)  which  were
unprofitable  in 2003,  2002 and 2001.  The Company sold  substantially  all the
assets of FNC in exchange for a note in the amount of $15,000 and Lea for $5,000
in cash and  certain  electronic  commerce  support  services  to LW  valued  at
$48,000.  The results of operations of FNC and Lea have been reclassified in our
financial  statements  as  discontinued  operations.  FNC served as a  corporate
information   services   group   catering  to  the   networking   and   internet
infrastructure  requirements  of  corporate  clients.  Lea  was  engaged  in the
development and  distribution of software and e-business  products and services,
as well as integration and hosting services.

On October  15,  2001,  we formed an  investment  holding  company,  PMI Capital
Corporation  (PMICC) as a  wholly-owned  subsidiary of PMIC,  for the purpose of
acquiring  companies or assets deemed suitable for PMIC's  organization.  PMICC,
which was dissolved in 2003, had had no operating  activities  since 2002 and no
assets or liabilities at the time of dissolution.

On December 10,  2004,  Theodore S. Li and Hui  "Cynthia"  Lee, the holders of a
collective  majority  interest in PMI,  entered into a Stock Purchase  Agreement
(the "Stock  Purchase  Agreement")  with Advanced  Communications  Technologies,
Inc., a Florida  corporation  ("ACT"),  pursuant to which ACT agreed to purchase
from Mr. Li and Ms. Lee an aggregate of 6,454,300  shares of the common stock of
PMIC (the "PMIC  Shares") for the  aggregate  purchase  price of  $500,000.  The
closing on the sale of the PMI Shares  occurred on December 30,  2004.  The PMIC
Shares represent 61.56% of the currently issued and outstanding  common stock of
PMI.  ACT is a public  holding  company  based in New York City  with  operating
subsidiaries in the technology services  industries.  ACT files periodic reports
with the  Securities  and Exchange  Commission  (the "SEC") under the Securities
Exchange  Act of 1934,  as amended  (the  "Exchange  Act").  Effective as of the
closing on December 30, 2004, the financial results of PMIC will be consolidated
with those of ACT and its other consolidated subsidiaries. PMIC will continue to
be operated as separate  entity and its common stock will  continue to be traded
on the Over-the-Counter Bulletin Board ("OTCBB") under the symbol: PMIC.OB.


                                       2
<PAGE>

Financial information for each group or segment in each of the last three fiscal
years  is  presented  in  Note  16 to the  Company's  accompanying  Consolidated
Financial Statements.

INDUSTRY OVERVIEW
WHOLESALE MICRO COMPUTER PRODUCTS DISTRIBUTION

The  microcomputer   products   distribution   industry  generally  consists  of
wholesalers,   suppliers,   resellers,  and  end-users.  Wholesale  distributors
typically  sell only to resellers  and purchase a wide range of products in bulk
directly  from  manufacturers.  Different  types of  resellers  are  defined and
distinguished  by the  end-user  market  they  serve,  such as  large  corporate
accounts,  small and medium-sized  businesses or home users, and by the level of
value that they add to the basic products they sell.

INCREASED RELIANCE ON WHOLESALE MICRO COMPUTER PRODUCTS DISTRIBUTION

We believe that the growth of the microcomputer  products wholesale distribution
industry  exceeds that of the  microcomputer  industry as a whole.  In our view,
suppliers  and   resellers  are  relying  to  a  greater   extent  on  wholesale
distributors  for  their  distribution  needs.  Suppliers  are  faced  with  the
pressures  of  declining  product  prices  and the  increasing  costs of selling
directly to a large and  diverse  group of  resellers,  and they  therefore  are
increasingly  relying  upon  wholesale   distribution  channels  for  a  greater
proportion of their sales. Many suppliers outsource a growing portion of certain
functions, such as distribution, service, technical support, and final assembly,
to the wholesale  distribution  channel in order to minimize  costs and focus on
their core capabilities in manufacturing,  product  development,  and marketing.
Likewise,  vendors  are  finding  it more cost  efficient  to rely on  wholesale
distributors that can leverage  distribution costs across multiple vendors, each
of whom out  sources a portion of their  distribution,  credit,  marketing,  and
support services.

On the  reseller  side,  factors  such as growing  product  complexity,  shorter
product  life  cycles,  an  increasing  number of  microcomputer  products,  the
emergence of open systems architectures, and the recognition of certain industry
standards have led resellers to depend upon wholesale  distributors  for more of
their product,  marketing,  and technical support needs. Due to the large number
of vendors  and  products,  resellers  often  cannot or choose not to  establish
direct purchasing relationships with suppliers.  Instead, they rely on wholesale
distributors  that can leverage  purchasing  costs across multiple  resellers to
satisfy  a  significant  portion  of their  product  procurement  and  delivery,
financing,  marketing,  and technical support needs.  Rather than stocking large
inventories  themselves and maintaining  credit lines to finance working capital
needs,  resellers are also  increasingly  relying on wholesale  distributors for
product availability and flexible financing alternatives.


                                       3
<PAGE>

OPEN SOURCING

Another apparent reason for the growth of the wholesale distribution industry is
the  evolution  of open  sourcing,  a phenomenon  specific to the United  States
microcomputer  products wholesale  distribution  market.  Historically,  branded
computer  systems  from  large  suppliers  were sold in the United  States  only
through authorized master resellers. Under this single sourcing model, resellers
were required to purchase these products  exclusively  from one master reseller.
Competitive  pressures  led some of the major  computer  suppliers  to authorize
second sourcing,  in which resellers could purchase a supplier's  product from a
source other than their primary master reseller,  subject to certain restrictive
terms and  conditions.  All major  manufacturers  have authorized open sourcing,
under which  resellers  can purchase the  supplier's  product from any source on
equal terms and  conditions.  Open  sourcing  has thus  blurred the  distinction
between wholesale distributors and master resellers, which are increasingly able
to serve the same reseller  base.  We believe that open  sourcing  enables those
distributors of  microcomputer  products which provide the highest value through
superior  service and pricing to be in the best position to compete for reseller
customers.

FINANCIAL INFORMATION ABOUT SEGMENTS

The  Company  has  three  reportable  segments:  PMI,  PMIGA  and LW.  Financial
information  as to the revenue from external  customers,  a measure of profit or
loss and total assets for each such segment is set forth in Note 16 in the Notes
to Consolidated  Financial  Statements included in Item 8 - Financial Statements
and  Supplementary  Data in this Report on Form 10-K for the year ended December
31, 2004.

INTERNET SERVICES

The internet provides  wholesale  distributors with an additional means to serve
both  supplier  and  reseller  customers  through  the  development  and  use of
effective  electronic  commerce tools. The increasing  utilization of electronic
ordering,  including  the ability to transact  business over the World Wide Web,
has had, and is expected to continue to have, a  significant  impact on the cost
efficiency  of  the  wholesale  distribution  industry.  Distributors  with  the
financial and technical resources to develop, implement and operate state of the
art  management  information  systems  have  been  able  to  reduce  both  their
customers' and their own transaction costs through more efficient purchasing and
lower selling  costs.  The growing  presence and  importance of such  electronic
commerce capabilities also provide distributors with new business  opportunities
as new categories of products, customers, and suppliers develop.

PACIFIC MAGTRON, INC. AND PACIFIC MAGTRON (GA), INC. - COMPUTER PRODUCTS

Through  PMI and  PMIGA,  we  distribute  a wide  range  of  computer  products,
including  components and multimedia and systems  networking  products.  We also
provide  vertical  solutions for systems  integrators and internet  resellers by
combining  or bundling  the  products we offer to our  customers.  Our  computer
products group offers a broad  inventory of more than 1,800  products  purchased
from  approximately  30  manufacturers.  This wide  assortment  of  vendors  and
products  meets our  customers'  needs  for a cost  effective  link to  multiple
vendors' products through a single source. Among the products that we distribute
are systems and networking  peripherals,  and  components  such as high capacity
storage devices,  a full range of optical storage devices such as CD-ROMS,  DVDs
and CDR,  CDRW,  sound cards,  video cards,  small  computer  systems  interface
components,  video  phone  solutions,  floppy  and hard disk  drives,  and other
miscellaneous items such as audio cabling devices, keyboards, computer mice, and
zip drives for desktop and notebook computers.


                                       4
<PAGE>

INVENTORY LEVELS AND ASSET MANAGEMENT

Based on historical  order levels and our  knowledge of the market,  we maintain
sufficient  product  inventories  to achieve high order fill rates,  and believe
that  price  protection  and  stock  return  privileges  provided  by  suppliers
substantially  mitigate  the risks  associated  with slow  moving  and  obsolete
inventory.  We also operate a  computerized  inventory  system that allows us to
continually  assess slow moving  inventory.  If a supplier reduces its prices on
certain  products,  we  generally  receive  a credit  for such  products  in our
inventory.  In  addition,  we have the right to return a certain  percentage  of
purchases, subject to certain limitations. Historically, price protection, stock
return privileges, and inventory management procedures have helped to reduce the
risk of a significant decline in the value of our inventory.

However,  we have  recognized  losses due to  obsolete  inventory  in the normal
course of business.  Historically,  we have not experienced any material losses.
Inventory  levels may vary from period to period due in part to the  addition of
new suppliers or large  purchases of inventory due to favorable terms offered by
suppliers.

CREDIT TERMS

We offer various credit terms including open account, flooring arrangements,
company and personal checks and credit card payment to qualifying customers. We
closely monitor our customers' creditworthiness, and in most markets, utilize
various levels of credit insurance to control credit risks and enable us to
extend higher levels of credit. We also establish reserves for estimated credit
losses incurred in the normal course of business.

LIVEWAREHOUSE - BUSINESS TO CONSUMER E-COMMERCE STORE

In December 2001 we formed  LiveWarehouse,  Inc.,  an  e-commerce  site aimed at
increased  sales to  consumers.  LiveWarehouse.com's  main  products  consist of
consumer computer  electronics for the computer  after-market segment as well as
storage and related products for general consumer  electronic  devices.  LW also
distributes  certain  computer  products  to  resellers.  As part of the overall
strategy on re-focusing on our core business in wholesale distribution,  we have
reduced our resources  allocated to this business segment beginning in the third
quarter 2004.

LiveWarehouse  generate sales primarily through its e-store  (livewarehouse.com)
and operates a Yahoo store.  Supplemental  sales are generated  through internet
auction sites for liquidation electronic products.

SALES AND MARKETING

Sales for our computer products divisions are generated by a telemarketing sales
force, which consists of 9 people as of December 31, 2004 in our offices located
in Milpitas, California, and 4 people in our Georgia location.


                                       5
<PAGE>

The sales force is organized in teams generally consisting of a minimum of three
people.  We  believe  that  teams  provide  superior  customer  service  because
customers  can  contact one of several  people.  Moreover,  we believe  that the
long-term  nature of our customer  relationships  is better served by teams that
increase the depth of the relationship and improve the consistency of service.

We provide compensation incentives to our salespeople,  thus encouraging them to
increase their product knowledge and to establish  long-term  relationships with
existing  and new  customers.  Customers  can  contact  their sales team using a
toll-free number. Salespeople initiate calls to introduce our existing customers
to new products and to solicit orders. In addition,  salespeople seek to develop
new customer relationships by using targeted mailing lists and vendor leads.

The telemarketing  salespeople are supported by a variety of marketing programs.
For example, we regularly sponsor promotions for our resellers where we have new
product offerings and discuss industry developments, as well as regular training
sessions  hosted by  manufacturers.  In addition,  our in-house  marketing staff
prepares catalogs that list available  products and routinely produces marketing
materials and advertisements.

Our  salespeople  are  able  to  analyze  our  available   inventory  through  a
sophisticated  management  information system and recommend the most appropriate
cost-effective  systems  and  hardware  for each  customer,  whether a full-line
retailer or an industry-specific reseller.

We continually  evaluate our product mix and the needs of our customers in order
to minimize inventory  obsolescence and carrying costs. Our rapid delivery terms
are  available  to all of our  customers,  and we seek to pass  through our cost
effective shipping and handling expenses to our customers.

SUPPLIERS
SOURCES OF SUPPLY

Our industry  relationship  has enabled us to obtain contracts with many leading
manufacturers,  including  Creative  Labs,  Logitech  and Sony.  We purchase our
products directly from such manufacturers,  generally on a non-exclusive  basis.
We believe that our agreements with the manufacturers are in line with terms and
conditions  customarily offered by each manufacturer.  The agreements  typically
contain  provisions  allowing  termination by either party without prior notice,
and generally do not require us to meet minimum purchase commitments or restrict
us from selling products manufactured by competitors.  As a result, we generally
have the  flexibility to terminate or curtail sales of one product line in favor
of  another  product  line if we  consider  it  appropriate  to do so because of
technological change,  pricing  considerations,  product availability,  customer
demand or vendor distribution  policies.  For the years ended December 31, 2004,
2003 and 2002, one vendor,  Sunnyview/Real  Wisdom,  accounted for approximately
15%, 18% and 11%, respectively, of our total purchases. Another vendor accounted
for 17% of our purchases for the year ended  December 31, 2003. We do not have a
supply  contract  with  Sunnyview  nor the other  vendor,  but  rather  purchase
products from them through  individual  purchase orders,  none of which has been
large enough to be material to us. Although we have not experienced  significant
problems with Sunnyview or our other  suppliers,  and we believe we could obtain
the products  that we purchase  from  Sunnyview  and the other vendor from other
sources, there can be no assurance that our relationship with Sunnyview and with
our other  suppliers  will  continue  or, in the event of a  termination  of our
relationship  with  any  given  supplier,  that  we  would  be  able  to  obtain
alternative  sources of supply on comparable terms without a material disruption
in our ability to provide products and services to our clients. This may cause a
loss of sales  that  could  have a  material  adverse  effect  on our  business,
financial condition and operating results.


                                       6
<PAGE>

DISTRIBUTION

From our central  warehouse  facilities  in  Milpitas,  California  and Atlanta,
Georgia, we distribute  microcomputer products principally throughout the United
States.  No  individual  customer  accounts  for more than 10% of our  sales.  A
minority  of our  distribution  agreements  are limited by  territory.  In those
cases,  however,  North America is usually the territory  granted to us. We will
continue  to  seek  to  expand  the   geographical   scope  of  our  distributor
arrangements.

We do not have offices or  operations in foreign  countries.  Sales to customers
located in foreign countries  amounted to approximately $12 million in 2004. The
majority of the foreign sales were to Canada, Russia and Finland.

COMPETITION

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  and quality and breadth of product  lines.  We also compete
with some manufacturers that sell directly to resellers and end-users. Principal
regional competitors in the wholesale  distribution industry include Asia Source
and  Synnex  Information  Technology,  Inc.,  both of which are  privately  held
companies.  Ingram Micro Inc. and Tech Data  Corporation are among our principal
regional and  multi-regional  publicly  held  competitors.  We also compete with
manufacturers  that sell directly to resellers and end-users.  Nearly all of our
competitors are larger and have greater financial and other resources.

Competition within the e-commerce space is primarily based on having the product
available and shipping products ordered expediently and correctly at competitive
pricing.  Although there are many competitive  e-store websites on the internet,
most are relatively  small, and the market is highly  fragmented.  Of the larger
e-store  competitors,  we face  competition  from  companies  such  as  Buy.com,
Amazon.com,  Tigerdirect.com  and other major  e-retailers  such as  Newegg.com,
Yahoo.com, MSN.com and AOL.com.

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


                                       7
<PAGE>

EMPLOYEES

As of  December  31,  2004,  we  had  51  full-time  employees  and 2  part-time
employees,  all of whom are non-union, and 5 executive officers. We believe that
our employee relations are good.


                                       8
<PAGE>

ITEM 2. PROPERTIES

We own property located at 1600 California Circle,  Milpitas,  California 95035,
which was subject to mortgages in the amount of $3,103,400 at December 31, 2004.
Of this amount,  $2,331,700 is subject to a bank financing  which bears interest
at the bank's 90-day LIBOR rate (2.25% as of December 31, 2004) plus 2.5% and is
secured by a deed of trust on the property. The remaining balance of $771,700 is
subject to a Small Business Administration loan which bears interest at a 7.569%
rate and is secured by the  underlying  property.  As discussed in note 6 to the
Company's  consolidated  financial  statements,  the Company was in violation of
certain  of the  financial  covenants  in its bank  financing  agreement,  which
violations  have been waived by the bank through  December 31, 2005. See item 7,
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations - Liquidity and Capital  Resources for additional  discussion of this
matter. This property consists of 3.31 acres and a 44,820 square foot building.

The building  contains our  executive  office and  California  warehouse  and we
believe it is suitable for the current volume and the nature of our  operations.
We lease a  building  in  Georgia  to house our  branch  office  and a  regional
warehouse  pursuant to an operating  lease which  expires April 30, 2005. We are
currently negotiating the lease renewal for our Georgia facility. Future minimum
lease payments under this non-cancelable  operating lease agreement for 2005 are
estimated to be $22,400.

ITEM 3. LEGAL PROCEEDINGS

Subsequent to the end of 2004, in April 2005, PMI was sued by a supplier,  Micro
Technology  Concepts,  Inc. in the  Superior  Court of  California,  Los Angeles
County, # BC331483.  The suit alleges that approximately  $680,000 in unpaid and
overdue  invoices  are due and owing by PMIC.  Micro  Technology  has a security
interest in some of PMI's  assets,  subordinate  to the  interest of our lender,
Textron Financial  Corporation.  As of the date of this filing, Micro Technology
had made no attempts to enforce its security interest.

In March,  2005,  Pacific  Magtron was sued in the Superior Court of California,
Santa Clara County, #105cv037996, for $81,046 in unpaid invoices.

We are not  otherwise  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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

We did not submit any matter to a vote of our security holders during the fourth
quarter of the fiscal year covered by this report.


                                       9
<PAGE>

PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is presently traded on
the Over the Counter Bulletin Board (OCTBB) under the symbol PMIC. Our stock
first traded on the OTC Bulletin Board on July 28, 1998. Beginning January 31,
2000, our stock was traded on the Nasdaq SmallCap Market. The Company's common
stock was delisted from the Nasdaq SmallCap Market effective April 30, 2003
because the Company was out of compliance with NASDAQ's minimum market value and
minimum common stock bid price requirements. The following table shows the high
and low sale prices in dollars per share for the first quarter of 2003 as
reported by the Nasdaq Small Cap Market and for the second quarter of 2003
through the fourth quarter of 2004 as reported by the OTC Bulletin Board. These
prices may not be the prices that you would sell or would pay to purchase a
share of our common stock during the periods shown.

                                                       High         Low
     Fiscal Year Ended December 31, 2004              ------       ------
       First Quarter                                  $ 0.15       $ 0.06
       Second Quarter                                   0.07         0.04
       Third Quarter                                    0.10         0.04
       Fourth Quarter                                   0.15         0.04

     Fiscal Year Ended December 31, 2003
       First Quarter                                  $ 0.45       $ 0.11
       Second Quarter                                   0.56         0.10
       Third Quarter                                    0.20         0.10
       Fourth Quarter                                   0.15         0.03

We had  approximately  800  stockholders  of  record of our  common  stock as of
February 23, 2005.

DIVIDEND POLICY

We have not paid dividends on our common stock.  It is the present policy of our
Board of Directors to retain future earnings,  if any, to finance the growth and
development of our business.  Any future  dividends will be at the discretion of
our Board of Directors  and will depend upon our  financial  condition,  capital
requirements, earnings, liquidity, and other factors that our Board of Directors
may deem relevant.


                                       10
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The following table contains certain selected financial data and we refer you to
the more  detailed  consolidated  financial  statements  and the  notes  thereto
provided in Part II, Item 8 - Financial  Statements  and  Supplementary  Data of
this Form 10-K. The financial data regarding our continuing operations as of and
for the years ended  December  31, 2004,  2003,  2002,  2001 and 2000  presented
below,  have  been  derived  from our  consolidated  financial  statements.  The
financial  information  regarding the discontinued  operations in 2004, 2003 and
2002 are presented in note 2 to the Company's  Consolidated Financial Statements
included in this Form 10-K. Our consolidated  financial  statements for the year
ended  December  31,  2004  were  audited  by  Weinberg  &  Company,   P.A.  Our
consolidated financial statements for the years ended December 31, 2003 and 2002
were  audited by KPMG LLP, and our  consolidated  financial  statements  for the
years ended December 31, 2001 and 2000 were audited by BDO Seidman, LLP.

<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
Statement of Operations Data               2004           2003           2002           2001           2000
----------------------------          ------------    ------------   ------------   ------------   ------------
<S>                                   <C>             <C>            <C>             <C>           <C>
Net sales                             $ 71,473,500    $ 74,985,300   $ 67,969,900    $72,251,000   $81,167,000
Income (loss) from continuing
  operations before other income
  (expenses), income taxes and
  minority interest                     (1,834,400)     (1,510,500)    (2,252,700)    (2,639,900)       54,700
Net income (loss) from continuing
  operations                            (1,985,500)     (1,694,500)    (1,475,000)    (2,044,700)      139,800
Net income (loss) applicable to
  common shareholders                   (1,172,700)     (2,896,600)    (3,110,100)    (2,850,700)      121,800
Basic and diluted income (loss) per share
  applicable to common shareholders:
Income (loss) from continuing
     operations                             (0.12)          (0.24)         (0.17)         (0.20)          0.01
    Net income (loss)                       (0.11)          (0.28)         (0.30)         (0.28)          0.01
</TABLE>

<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
Balance Sheet Data                          2004            2003           2002           2001           2000
------------------                      ------------    ------------   ------------   ------------   ----------
<S>                                     <C>             <C>            <C>            <C>          <C>
Current Assets                          $  7,531,500    $ 10,278,300   $ 12,577,600   $ 12,501,600 $ 15,335,200
Current Liabilities                        8,073,700      10,094,900(1)   9,464,900      6,766,700    7,710,800
Total Assets                              11,740,700      14,772,400     17,267,000     17,323,300   20,861,100
Long-Term Debt                             3,031,500       3,103,400      3,169,500      3,230,300    3,286,200
Redeemable Convertible Preferred Stock            --              --        190,400             --           --
Convertible Preferred Stock                  234,100              --             --             --           --
Shareholders' Equity                         635,500       1,574,100      4,442,200      7,289,900    9,857,800
</TABLE>

(1) Includes Redeemable Convertible preferred stock of $958,600.


                                       11
<PAGE>

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

FORWARD-LOOKING STATEMENTS

The accompanying  discussion and analysis of financial  condition and results of
operations is based on our consolidated financial statements, which are included
elsewhere in this Form 10-K.  The following  discussion  and analysis  should be
read in conjunction with the accompanying  consolidated financial statements and
related notes  thereto.  This  discussion  contains  forward-looking  statements
within the meaning of Section 21E of the  Securities  Exchange  Act of 1934,  as
amended.  Our actual results could differ materially from those set forth in the
forward-looking  statements.  Forward-looking  statements, by their very nature,
include risks and  uncertainties.  Accordingly,  our actual results could differ
materially from those discussed in this Report.  A wide variety of factors could
adversely impact  revenues,  profitability,  cash flows and capital needs.  Such
factors,  many of which are beyond our control include,  but are not limited to,
our  ability  to  reverse  our  trend  of  negative  earnings,   the  diminished
marketability of inventory, the need for additional capital,  increased warranty
costs,  competition,  dependence  on certain  suppliers  and  dependence  on key
personnel.

LINES OF BUSINESS

As used herein and unless  otherwise  indicated,  the terms "Company," "we," and
"our" refer to Pacific Magtron International Corp. and each of our subsidiaries.
Our  business  is  organized  into  three  divisions:  PMI,  PMIGA  and LW.  Our
subsidiaries,  PMI and PMIGA, provide for the wholesale distribution of computer
multimedia  and storage  peripheral  products and provide  value-added  packaged
solutions to a wide range of resellers,  vendors,  OEMs and systems integrators.
PMIGA  distributes  PMI's  products  in the eastern  United  States  market.  In
December  2001, LW was  incorporated  as a  wholly-owned  subsidiary of PMIC, to
provide  consumers  a  convenient  way to  purchase  computer  products  via the
internet.  LW also  distributes  certain computer related products to resellers.
During the second quarter 2003, the Company sold substantially all the assets of
FNC to a third party. The Company also sold  substantially all assets of Lea, to
certain of the Lea's  employees.  In the fourth  quarter  of 2004,  the  Company
dissolved  Lea.  The  activities  of FNC  and  Lea for  all  periods  have  been
reclassified  for reporting  purposes as discontinued  operations.  In the third
quarter  of 2003,  the  Company  dissolved  its PMICC  subsidiary.  PMICC had no
activities since 2002 and had no assets or liabilities.

Recent Developments

The Company has  historically  relied on credit terms from its suppliers to fund
inventory  purchases.   Our  vendors  have  been  progressively   imposing  more
restrictive  credit terms,  such that, during the first quarter of 2005, we were
unable to fund purchases.  Our business as of the date of this filing is limited
to selling  existing  inventory  with no ability to replenish or purchase  other
items  our  customer  may  need.  As  of  April  15,  2005,  our  inventory  was
approximately  $170,000,  compared to $2,760,000 at December 31, 2004. We do not
have the ability to draw on lines of credit to fund the shortfall  caused by the
elimination of terms by our vendors. We have reduced our staff from 58 employees
at the end of 2004 to 28  employees  on April 14,  2005.  Because of the reduced
sales  caused  by the lack of new  inventory,  we have not been  able to pay our
obligations  on  a  timely  basis.  We  have  been  sued  by  one  supplier  for
approximately  $680,000  in unpaid  invoices  and by another  for  approximately
$80,000.  Other creditors have  threatened  suit. The existing suits are further
described  in Part I,  Item 4 - Legal  Proceedings  If we are  unable  to obtain
credit  or  find  another  method  of  operating,  we will be  forced  to  cease
operations in the foreseeable future.


                                       12
<PAGE>

OVERVIEW

The Company  incurred a  consolidated  net loss of  $1,172,700,  $2,896,600  and
$3,110,100 for the years ended December 31, 2004,  2003 and 2002,  respectively.
Due to the continuing  operations  losses,  the Company has been  experiencing a
tightening  of credits that are extended by our vendors  beginning in the fourth
quarter 2004. Our ability to maintain  certain  desirable  levels of inventories
has been impaired.  The  diminishment or loss of credit terms from vendors could
unfavorably affect our sales and cash flows. Currently we are seeking additional
capital to satisfy our financing needs for the next twelve months. If we fail to
achieve a profitable level of operations and raise  additional  working capital,
we will be unable to pursue our business  plan.  There is no  assurance  that we
will be able to obtain additional capital,  if available,  and that such capital
will be available at terms acceptable to us.

In December 2004, the Company entered into an agreement (the Series A Agreement)
with the  Investor  for  restructuring  certain  terms of the Series A Preferred
Stock.  In connection  with the closing of the  transactions  under the Series A
Agreement,  the Company  amended and restated its  Certificate of Designation of
Preferences,  Rights and Limitations of the Series A Preferred Stock on December
31, 2004.  Among the terms  amended are (1) the number of shares  designated  as
Series A Preferred Stock were decreased from 1,000 to 600 shares; (2) the Stated
Value of each  share of Series A  Preferred  Stock was  reduced  from  $1,000 to
$666.67;  (3) the  holders of the Series A  Preferred  Stock no longer  have the
right to require the  Company to redeem each share of Series A Preferred  Stock,
which rights were  triggered  upon the  occurrence  of certain  events;  (4) the
redemption  amount payable by the Company upon exercise of its redemption  right
was reduced  from 115% of Stated Value to 100% of Stated  Value;  (5) there is a
181-day  waiting  period  from the  date of  filing  the  Amended  and  Restated
Certificate of Designation before the holder may exercise conversion (unless the
Company initiates a redemption prior to the end of the 181-day period);  (6) the
conversion price of the Series A Preferred Stock was changed to a fixed price of
$0.50 per share, subject to customary and anti-dilution adjustments; and (7) the
Company has five  trading  days,  instead of three,  to comply  with  conversion
procedures.  As part of the Series A Agreement,  the Investor  forfeited a stock
purchase warrant,  exercisable for 300,000 shares of the Company's common stock,
that was issued in connection with the original issuance of the Company's Series
A Preferred  Stock. The Company  accounted for these  transactions in accordance
with  SFAS  15,   Accounting   by  Debtors  and   Creditors  for  Troubled  Debt
Restructurings.  The restructuring of the Series A Preferred Stock resulted in a
gain of $758,600 for the year ended  December  31,  2004.  The fair value of the
restructured  Series A Preferred  Stock was $234,100 as of December 31, 2004 and
was classified as shareholders' equity in the balance sheet.


                                       13
<PAGE>

Consolidated  sales  decreased from  $74,985,300 for the year ended December 31,
2003 to $71,473,500  for 2004. The decrease was mainly due to a decrease of LW's
sales from  $7,251,100  for the year ended  December 31, 2003 to $5,413,800  for
2004.  As part of the overall  strategy on  re-focusing  on our core business in
wholesale  distribution,  the  resources  allocated to LW business  segment were
reduced  beginning  the  third  quarter  2004.  The  Company  is  continuing  to
re-evaluate  LW's business model and anticipates  LW's sales will be expanded in
2005.  There is no guarantee  that the Company will be able to expand LW's sales
and that it will be profitable.  The computer products  distribution business is
highly  competitive.  Competition  is based on product and credit  availability,
speed and accuracy of delivery,  effectiveness  of sales and marketing  programs
and breath of product lines.  Beginning the fourth quarter of 2000, the computer
products distribution industry and the Company have been experiencing the effect
of the economic  downturn.  As the demand for computer products  decreases,  the
pricing pressure becomes intense. As a result, we experienced a decreasing sales
trend from 2001 to 2002 but a slight  increase from 2002 to 2004.  PMI sales for
the year ended  December 31, 2004  increased by  approximately  1.1% compared to
2003, which was partly attributable to the economic recovery.  PMIGA experienced
a decreasing sales trend and was unable to penetrate into the east coast market,
which was  dominated  by a number of larger  competitors.  PMIGA  experienced  a
substantial  decline in sales in 2004 and 2003. The lack of financial  resources
and the inability to compete with the larger  competitors  resulted in a loss in
market share.  Price  competition  remains  intense for  wholesale  distribution
business.  Gross profit for PMI decreased  from 5.8% in 2002 to 5.4% in 2003 and
4.7% in 2004. Gross profit for PMIGA increased from 4.9% in 2002 to 7.8% in 2003
and to 9.1% in 2004 as management  focused on assembling and marketing  complete
computer  systems and improving its product mix management.  Gross profit for LW
remained stable and was 7.7% in 2004 compared to 8.0% in 2003.

As of December 31, 2004,  we were in violation of certain loan  covenants  under
the inventory  financing agreement with Textron. A waiver for such violation was
obtained from Textron through March 31, 2005.  However, no subsequent waiver has
been received.  It is probable that we will be out of compliance with certain of
those  covenants  in the  future.  If this  was to occur  and a  waiver  for the
violation could not be obtained, Textron could terminate the credit facility and
require  acceleration in the loan payments.  If such  termination were to occur,
there is no  assurance  that the  Company  would have the funding  necessary  to
finance  its future  inventory  purchases  or would  able to obtain  alternative
financing.  As of December  31,  2004,  the Company was in  violation of certain
covenants  under the real estate  mortgage loan  agreement with Wells Fargo Bank
(Wells  Fargo).  A waiver of the default was obtained  from Wells Fargo  through
December  31,  2005.  It is  uncertain  that we will be able to meet  all  those
covenants  in the  future.  If this were to occur in the future and a waiver for
the violation  could not be obtained,  the Company would be required to classify
the bank loan as current,  which could cause the Company to be out of compliance
with  financial  covenants  included in its  inventory  financing  facility with
Textron.  It is  uncertain  as to the  Company's  ability to obtain  alternative
financing  in the event  Textron  terminates  the loan  facility  or Wells Fargo
elects to call the loan.


                                       14
<PAGE>

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our significant  accounting policies are described in Note 1 to the consolidated
financial  statements  included as Part II, Item 8 -  Financial  Statements  and
Supplementary Data in this Form 10-K. The following are our critical  accounting
policies:

REVENUE RECOGNITION

The Company  recognizes  sales of computer and related products upon delivery of
goods to the customer (generally upon shipment) and the customer takes ownership
and  assumes  risk of loss,  provided  no  significant  obligations  remain  and
collectibility  is  probable.  A  provision  for  estimated  product  returns is
established at the time of sale based upon historical  return rates,  which have
typically been  insignificant,  adjusted for current  economic  conditions.  The
Company generally does not provide volume discounts or rebates to its customers.

LONG-LIVED ASSETS

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

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

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

INVENTORY VALUATION

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


                                       15
<PAGE>

INCOME TAXES

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

RELATED PARTY TRANSACTIONS

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

The Company sold  computer  products to a company owned by a member of the Board
of Directors of the Company.  During 2003, 2002 and 2001, the Company recognized
$102,400,  $527,400 and  $476,200,  respectively,  in sales  revenues  from this
company.  There were no sales to this  customer for the year ended  December 31,
2004 and there were no amounts due from this  related  party as of December  31,
2004 and 2003.

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

See Part III - Item 13 - Certain  Relationships  and Related  Transactions for a
description of the sale of a majority of the Company's  common stock by Theodore
S. Li and Hui Cynthia Lee to Advanced  Communications  Technologies,  Inc.,  and
related transactions.


                                       16
<PAGE>

RESULTS OF OPERATIONS

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

Year Ended December 31,                            2004       2003       2002
                                                 ------     ------     ------
Sales                                             100.0%     100.0%     100.0%
Cost of sales                                      94.9       94.1       94.0
                                                 ------     ------     ------
Gross profit                                        5.1        5.9        6.0
Operating expenses                                  7.7        8.0        9.3
                                                 ------     ------     ------
Loss from operations                               (2.6)      (2.1)      (3.3)
Other income (expense)                             (0.2)      (0.2)       0.0
Income tax benefit                                  0.0        0.0        1.1
Minority interest                                   0.0        0.0        0.0
                                                 ------     ------     ------
Loss from continuing operations                    (2.8)      (2.3)      (2.2)
Loss from discontinued operations                   0.1       (0.6)      (2.0)
Gain on restructuring of Series A
  Preferred Stock                                   1.1        0.0        0.0
Accretion and deemed dividend relating to
  beneficial conversion of 4% Series A
  Convertible and Redeemable Preferred Stock       (0.0)      (1.0)      (0.4)
                                                 ------     ------     ------
Net loss applicable to Common shareholders         (1.6)%     (3.9)%     (4.6)%
                                                 ======     ======     ======

SALES

Consolidated  sales  decreased from  $74,985,300 for the year ended December 31,
2003 to $71,473,500  for 2004. The decrease was mainly due to a decrease of LW's
sales from  $7,251,100  for the year ended  December 31, 2003 to $5,413,800  for
2004.

PMI

The  computer  products   distribution   industry  and  the  Company  have  been
experiencing  the effect of the economic  downturn.  We experienced a decreasing
sales trend from 2001 to 2002 but a slight increase from 2002 to 2004. PMI sales
for the year ended December 31, 2004 increased by approximately 1.1% compared to
2003, which was partly  attributable to the economic recovery.  PMI's sales were
$61,101,100,  $60,410,600 and $56,814,300 for 2004, 2003 and 2002, respectively.
However, the pricing pressure remained intense.  PMI's gross profit for the year
ended  December 31, 2004 was 4.7%  compared to 5.4% and 5.8% for the years ended
December 31, 2003 and 2002,  respectively.  We anticipate  that PMI's sales will
follow the  condition  of the  economy  in 2005 and the  pricing  pressure  will
continue in the computer products distribution industry.

PMIGA

PMIGA experienced  intense competition on the U.S. east coast market and has not
been able to  penetrate  into the east coast  market,  which was  dominated by a
number of larger competitors.  The lack of financial resources and the inability
to compete with the larger competitors resulted in a loss in market share. Sales
declined from  $9,471,400 in 2002 to $7,323,600 in 2003 and  $4,958,600 in 2004.
Gross profit as a percent of sales for PMIGA  declined from 5.5% in 2001 to 4.9%
in 2002.  Gross profit for PMIGA increased from 4.9% in 2002 to 7.8% in 2003 and
to 9.1% in 2004 as  management  focused on  assembling  and  marketing  complete
computer  systems  and  improving  its product mix  management.  However,  it is
uncertain that we can maintain the pricing on those higher profit products.


                                       17
<PAGE>

LW

LW competes with a vast number of e-store websites on the internet. Most of them
are relatively  small, but a number of larger  e-stores,  such as Amazon.com and
Buy.com,  dominate in the e-commerce  space.  Competition is based on having the
products available and shipping expediently and correctly at competitive prices.
As part of the overall strategy on re-focusing on our core business in wholesale
distribution,  the  resources  allocated  to LW business  segment  were  reduced
beginning  the third  quarter  2004.  For the year ended  December 31, 2004,  LW
generated  $5,413,800 in sale  compared to $7,251,100 in 2003 and  $1,684,200 in
2002. LW was in a development  stage in 2002. LW sells its products to end-users
and  certain  of its  products  to  resellers.  Gross  profit for the year ended
December 31, 2004 was 7.7% compared to 8.0% in 2003. For the year ended December
31,  2002,  LW sold its products  primarily  to  end-users  and realized a gross
profit of 16.9%.  During the first  quarter 2005,  the Company is  re-evaluating
LW's business model and anticipating  LW's sales will be expanded in 2005. There
is no  guarantee  that the Company will be able to expand LW's sales and that it
will be successful or profitable.

EXPENSES

The Company has been reducing its operating expenses in all areas.  Consolidated
selling,  general and administrative  expenses decreased from $6,303,000 in 2002
to  $5,939,900 in 2003 and  $5,027,500  in 2004  (excluding a write-off of other
receivables of $487,200).  Consolidated payroll expense decreased by $571,300 in
2004  compared to 2003 and by $34,300 in 2003 compared to 2002.  Employee  count
for the Company was reduced  from 81 as of December  31, 2002 to 75 and 56 as of
December 31, 2003 and 2004, respectively.  Consolidated bad debt expense, except
for the write-off of other receivables, decreased by $46,600 in 2004 compared to
2003 and by $188,200 in 2003 compared to 2002,  excluding the impact of bad debt
expense in  discontinued  operations  of $45,000  and  $26,900 in 2002 and 2003,
respectively.  Our bad debt expense arises out of the fact that we offer various
credit terms to qualifying  customers,  closely monitor their credit  worthiness
and utilize  various  levels of credit  insurance to control  credit  risks.  We
provide allowances for bad debts based on reviews of loss,  adjustment  history,
current economic  conditions,  level of credit insurance and other factors which
deserve  recognition in estimating  potential losses.  While management uses the
best information available in making its determination, the ultimate recovery of
the receivables is also dependent upon future economic and other conditions that
may be beyond  management's  control.  In  addition,  it is  uncertain as to the
continuing  availability of cost-efficient  credit  insurance.  We are unable to
project the future trend of our bad debt expense.

In  December  2003,  the  Company  settled a claim  against a  customer  and its
principal  owner for a past due account  receivable  in the amount of  $734,500.
Under the settlement agreement, the customer agreed to pay the entire balance in
12 equal monthly installments of $61,200,  beginning December 2003. In addition,
the customer entered into a UCC-Financing Statement with the Company under which
the  customer  secured  its  payments  due to the  Company  with all its assets,
including  inventory,   accounts  receivable  and  equipment.  The  customer  is
presently in default of its obligations  under the settlement  agreement.  Thus,
the Company is in the process of foreclosing on all the assets,  including cash,
accounts  receivable,  inventories  and  real  estate  of the  customer  and its
principal owner. During the fourth quarter 2004, the Company wrote off $487,200,
the  entire  unpaid  balance  of this  receivable,  as a result of its  on-going
evaluation of the recoverability of this asset.


                                       18
<PAGE>

INCOME TAXES

In March 2002,  the Job Creation and Worker  Assistance  Act of 2002 ("the Act")
was enacted.  The Act extended the general federal net operating loss carry-back
period from 2 years to 5 years for net  operating  losses  incurred  for taxable
years  ending in 2001 and 2002.  The tax benefit  recorded in 2002  reflects the
federal  income tax refund  attributable  to the net operating loss incurred for
the year ended December 31, 2002. The Company does not receive a tax benefit for
losses  incurred  in 2004  and  2003 as they are not  covered  by the Act.  As a
result,  no tax benefits were recorded for the year ended  December 31, 2004 and
2003 as management  does not believe it is more likely than not that the benefit
from such assets will be realized.

DISCONTINUED OPERATIONS

On June 2, 2003, the Company entered into an agreement to sell substantially all
of FNC's  assets to a third party for  $15,000.  The Company  recorded a loss of
$13,700 on the sale of these assets.  On June 30, 2003, the Company entered into
an  agreement  to sell  substantially  all of Lea's  assets to  certain of Lea's
employees.  The Company also received a Proprietary Software License and Support
Agreement from the purchasers to provide  certain  electronic  commerce  support
services  to LW for a term of two  years.  The  Company  received  $5,000 on the
closing date. The electronic  commerce support  services  contract was valued at
$48,000.  The Company  recorded a loss of $16,000 on the sale of Lea  assets.

The operations of FNC and Lea were discontinued after the sales of their assets.
For financial statement reporting purposes, the operating results of FNC and Lea
are reclassified as discontinued  operations.  The operating  results of FNC and
Lea for the years ended December 31, 2004, 2003 and 2002 were as follows:

  Year Ending December 31,
                                      2004           2003           2002
                                   -----------    -----------    -----------

FNC:
Net sales                             $323,200     $1,313,500     $2,378,300
Loss before income tax benefit          93,300       (311,600)    (1,195,900)
Income tax benefit                          --             --       (360,600)
                                   -----------    -----------    -----------
Net income (loss)                     $ 93,300     $ (311,600)    $ (835,300)
                                   -----------    -----------    -----------
Lea:
Net sales                             $     --     $  179,700     $  496,600
Loss before income tax benefit              --       (122,300)      (751,000)
Income tax benefit                          --             --       (225,400)
                                   -----------    -----------    -----------
Net loss                              $     --     $ (122,300)    $ (525,600)
                                   -----------    -----------    -----------


                                       19
<PAGE>

RESTRUCTURING OF PREFERRED STOCK

In April 2003 we were  notified  by Nasdaq  that the Company did not comply with
the  Marketplace  Rule that  requires a minimum  bid price of $1.00 per share of
common  stock  and that our  common  stock  would be  delisted  from the  Nasdaq
SmallCap  Market and such  delisting took place on April 30, 2003. The Company's
common  stock is eligible to be traded on the Over the  Counter  Bulletin  Board
(OCTBB).  The delisting of the Company's  common stock enabled the holder of the
Company's  Series A  Redeemable  Convertible  Preferred  Shares to  request  the
redemption of such shares.  As of December 31, 2003, the redemption value of the
Series A Preferred Stock was $958,600.  The Company increased the carrying value
of the Series A Redeemable  Convertible  Preferred Stock to its redemption value
and recorded an increase in loss  applicable to common  shareholders of $743,300
for the year ended December 31, 2003.

In December 2004, the Company entered into an agreement (the Series A Agreement)
with the  Investor  for  restructuring  certain  terms of the Series A Preferred
Stock.  In connection  with the closing of the  transactions  under the Series A
Agreement,  the Company  amended and restated its  Certificate of Designation of
Preferences,  Rights and Limitations of the Series A Preferred Stock on December
31, 2004.  Among the terms  amended are (1) the number of shares  designated  as
Series A Preferred Stock were decreased from 1,000 to 600 shares; (2) the Stated
Value of each  share of Series A  Preferred  Stock was  reduced  from  $1,000 to
$666.67;  (3) the  holders of the Series A  Preferred  Stock no longer  have the
right to required the Company to redeem each share of Series A Preferred  Stock,
which rights were  triggered  upon the  occurrence  of certain  events;  (4) the
redemption  amount payable by the Company upon exercise of its redemption  right
was reduced  from 150% of Stated Value to 100% of Stated  Value;  (5) there is a
181-day  waiting  period  from the  date of  filing  the  Amended  and  Restated
Certificate of Designation before the holder may exercise conversion (unless the
Company initiates a redemption prior to the end of the 181-day period);  (6) the
conversion price of the Series A Preferred Stock was changed to a fixed price of
$0.50 per share, subject to customary and anti-dilution adjustments; and (7) the
Company has five  trading  days,  instead of three,  to comply  with  conversion
procedures.  As part of the Series A Agreement,  the Investor  forfeited a stock
purchase warrant,  exercisable for 300,000 shares of the Company's common stock,
that was issued in connection with the original issuance of the Company's Series
A Preferred  Stock. The Company  accounted for these  transactions in accordance
with  SFAS  15,   Accounting   by  Debtors  and   Creditors  for  Troubled  Debt
Restructurings.  The restructuring of the Series A Preferred Stock resulted in a
gain of $758,600 for the year ended  December  31,  2004.  The fair value of the
restructured  Series A Preferred  Stock was $234,100 as of December 31, 2004 and
was classified as shareholders' equity in the balance sheet.


                                       20
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The Company incurred a net loss applicable to common shareholders of $1,172,700,
$2,896,600 and $3,110,100 for the years ended December 31, 2004,  2003 and 2002,
respectively.  Due to the continuing operating losses, the Company has over time
experienced  progressively more restrictive credit terms from our vendors,  such
that,  by the first  quarter  of 2005 and  continuing  through  the date of this
filing,  Our  ability to purchase  inventory  has been  eliminated.  The loss of
credit  terms from  vendors has  severely  and  unfavorably  affected our sales.
Consequently, we have recently had difficulty paying our obligations on a timely
basis.  Currently we are seeking  additional  capital and  pursuing  alternative
methods of operations  which will eliminate our need for the credit terms. If we
fail to  achieve a  profitable  level of  operations  or find  other  methods of
operations,  we will be unable to pursue our business  plan and may be forced to
cease  doing  business.  There is no  assurance  that we will be able to  obtain
additional  capital,  or find  methods  of  operation  that  reduce our need for
credit.

As described in our results of  operations  above,  in December 2004 the Company
entered  into an  agreement  (the  Series A  Agreement)  with the  Investor  for
restructuring  certain terms of the Series A Preferred Stock. The  restructuring
of the Series A Preferred  Stock  resulted  in a gain of  $758,600  for the year
ended December 31, 2004. The fair value of the  restructured  Series A Preferred
Stock was $234,100 as of December 31, 2004 and was  classified as  shareholders'
equity in the balance sheet.

As of December 31, 2004 and 2003, we were in violation of certain loan covenants
under the  inventory  financing  facility  with  Textron  Financial  Corporation
(Textron) and our mortgage loan  agreement  with Wells Fargo Bank (Wells Fargo).
Even though  waivers for such  violations  were  obtained from Textron and Wells
Fargo,  it is probable that we will be out of  compliance  with certain of those
covenants  in the future.  If this was to occur and  waivers for the  violations
cannot be obtained,  Textron and Wells Fargo might terminate the credit facility
and accelerate  the loan payments.  The Wells Fargo loan would be required to be
classified as current liability  causing another out of compliance  condition on
the Textron loan. If such  termination were to occur, the Company would have the
funding  necessary  to  finance  its  future  inventory  or  operations.   These
conditions  raise  doubt  about the  Company's  ability to  continue  as a going
concern.  The Company's ability to continue as a going concern is dependent upon
its ability to achieve  profitability and generate sufficient cash flows to meet
its obligations as they come due.

At December 31, 2004, we had consolidated  cash and cash equivalents of $543,800
and a working  capital  deficit  of  $542,200.  At  December  31,  2003,  we had
consolidated cash and cash equivalents  totaling  $1,491,700 and working capital
of  $183,400.  The  decrease in working  capital was mainly due to the loss from
continuing operations in 2004.

Net cash used in operating activities for the year ended December 31, 2004, 2003
and 2002 was $1,896,900,  $470,400 and $898,000,  respectively. In June 2003, we
discontinued the operations of FNC and Lea.  Included in the total net cash used
in operating  activities was $34,700 cash provided by FNC's operating activities
in 2004.  Included  in the  total  net cash  used in  operating  activities  was
$146,800 and $956,600 cash used in FNC and Lea's  operating  activities for 2003
and 2002, respectively. We do not expect to have future operating activities for
FNC and Lea. The cash used in operating  activities  was primarily from the loss
in operations,  which was partially  offset by the federal income tax refunds of
$1,034,700 in June 2002 and $1,427,400 in March 2003. However, we do not have an
income tax refund in 2004 and we do not expect an income tax refund in 2005.


                                       21
<PAGE>

In  December  2003,  the  Company  settled a claim  against a  customer  and its
principal  owner for a past due account  receivable  in the amount of  $734,500.
Under the settlement agreement, the customer agreed to pay the entire balance in
12 equal monthly installments of $61,200,  beginning December 2003. In addition,
the customer entered into a UCC-Financing Statement with the Company under which
the  customer  secured  its  payments  due to the  Company  with all its assets,
including  inventory,   accounts  receivable  and  equipment.  The  customer  is
presently in default of its obligations  under the settlement  agreement.  Thus,
the Company is in the process of foreclosing on all the assets,  including cash,
accounts  receivable,  inventories  and  real  estate  of the  customer  and its
principal owner. During the fourth quarter 2004, the Company wrote off $487,200,
the  entire  unpaid  balance  of this  receivable,  as a result of its  on-going
evaluation of the recoverability of this asset.

In April 2003, the Company settled a lawsuit relating to a counterfeit  products
claim for $95,000, which was paid in the second quarter of 2003.

In May 2003,  PMI  obtained a $3,500,000  inventory  financing  facility,  which
includes a $1 million  letter of credit  facility used as security for inventory
purchased on terms from vendors in Taiwan,  from Textron  Financial  Corporation
(Textron).  The credit facility is guaranteed by PMIC,  PMIGA,  FNC, Lea, LW and
two  officers of the Company and may be  discontinued  by Textron at any time at
its sole  discretion.  Under the agreement,  the Company granted Textron a first
priority lien on all of its  corporate  assets.  Borrowings  under the inventory
line are subject to 30 days  repayment,  at which time  interest  accrues at the
prime rate plus 6% (11.25% at  December  31,  2004).  The Company is required to
maintain  collateral  coverage  equal  to 120%  of the  outstanding  balance.  A
prepayment is required when the  outstanding  balance  exceeds the sum of 70% of
the eligible accounts receivables and 90% of the Textron-financed  inventory and
100% of any cash  assigned or pledged to Textron.  PMI and PMIC are  required to
meet certain  financial  ratio  covenants,  including a minimum current ratio, a
maximum  leverage ratio, a minimum tangible capital funds and required levels of
profitability.  Beginning on September 30, 2003 through  December 31, 2004,  the
Company was out of compliance  with the maximum  leverage ratio covenant and the
minimum  tangible  capital funds covenant and other  covenants for which waivers
have been obtained through March 31, 2005. Based on anticipated  future results,
it is probable  that the Company  will be out of  compliance  with these  and/or
other  covenants  in 2005.  If this was to occur and a waiver for the  violation
cannot be obtained,  Textron might  terminate the credit facility and accelerate
the loan  payments.  Upon  termination,  there is no assurance  that the Company
would have the funding  necessary to finance its future inventory or operations.
We  cannot  assure  you  that we will be able to  comply  with  these  financial
requirements  in the  future or to  maintain  the  Textron  flooring  line if we
continue  our  losses.  We are  required to  maintain  $250,000 in a  restricted
account as a pledge to Textron.  This amount has been  reflected  as  restricted
cash in the accompanying  consolidated financial statements.  As of December 31,
2004, the outstanding balance of this loan was $2,243,100.


                                       22
<PAGE>

Pursuant to one of our Wells Fargo Bank (Wells  Fargo)  mortgage  loans,  with a
$2,331,700  balance at December  31, 2004,  we are required to maintain  minimum
debt  service  coverage,  a  maximum  debt  to  tangible  net  worth  ratio,  no
consecutive  quarterly losses, and achieve net income on an annual basis. During
2004 and 2003 the  Company  was in  violation  of two of these  covenants.  This
constituted  an event of default  under the loan  agreement and gave Wells Fargo
the right to call the loan.  However, a waiver of the defaults was obtained from
the bank through December 31, 2005. As a condition for this waiver,  the Company
transferred $250,000 to a restricted account as a reserve for debt servicing. It
is uncertain that we will be able to meet all these covenants in the future.  If
this  were to occur in the  future  and a waiver  for the  violation  cannot  be
obtained,  the Company  would be required to classify  the bank loan as current,
which  could  cause  the  Company  to be out of  compliance  with an  additional
financial covenant included in its inventory flooring facility with Textron.  It
is uncertain as to the Company's ability to obtain alternative  financing in the
event  Textron  terminates  the loan  facility or Wells Fargo elects to call the
loan.

The Company  purchased a credit  insurance  policy  through  March 31, 2005 from
American Credit Indemnity covering certain accounts  receivable up to $2,000,000
of losses.  The Company also entered into an insurance  agreement with ENX, Inc.
for its accounts  receivable  through April 30, 2005.  Under the agreement,  the
Company sells its past-due accounts receivables from pre-approved customers with
pre-approved credit limits under certain  conditions.  The commission is 0.5% of
the approved invoice amounts with a minimum quarterly  commission of $12,500. As
of December 31, 2004,  approximately  $1,059,000 of the outstanding  receivables
was approved by ENX. We are seeking renewal of this policy and agreement.  There
is no assurance  that we can renew the policy and  agreement at amounts that are
cost-effective.  In the event that we could not renew the  policy and  agreement
with our existing or other insurance carriers,  our future loss on uncollectible
receivables would probably be higher compared to 2004, 2003 and 2002.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off-balance  sheet  arrangements  that have or are reasonably
likely to have a current or future effect on the Company's financial  condition,
changes in  financial  condition,  revenue or expenses,  results of  operations,
liquidity,  capital  expenditures  or  capital  resources  that is  material  to
investors,  and the Company does not have any  non-consolidated  special purpose
entities.

AGGREGATE CONTRACTUAL OBLIGATIONS

The Company leases office space,  equipment and vehicles under various operating
leases. The following  summarizes the effect on the Company's liquidity and cash
flows from  contractual  obligations  of debt  arrangements  and  non-cancelable
operating leases as of December 31, 2004:


                                       23
<PAGE>

(Amounts in thousands)
Year Ending December 31,
<TABLE>
<CAPTION>
                                   2005     2006     2007      2008    2009   Thereafter
                                  ------   ------   ------   ------   ------   ------
<S>                               <C>      <C>      <C>      <C>      <C>      <C>
Debt maturities                   $   72   $   77   $2,312   $   50   $   54   $  539
Non-cancelable operating leases       49        2       --       --       --       --
                                  ------   ------   ------   ------   ------   ------
Total                             $  121   $   79   $2,312   $   50   $   54   $  539
                                  ======   ======   ======   ======   ======   ======
</TABLE>

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

OUR INDEPENDENT AUDITORS' REPORT CONTAINS A GOING CONCERN OPINION

We have received a going concern  opinion from our auditors.  The opinion raises
substantial doubts our ability to continue as a going concern.

We incurred net losses for the year ended December 31, 2004 and 2003 and 2002 of
$1,172,700,  $2,896,600 and  $3,110,100,  respectively,  and we most likely will
continue to incur losses.  Our future  ability to execute our business plan will
depend on our efforts to increase  revenues,  control our overhead and return to
profitability. We have implemented plans to reduce overhead and operating costs,
and capture new business. No assurance can be given, however, that these actions
will result in increased revenues and profitable operations.

WE HAVE  EXPERIENCED  SEVERE CREDIT  RESTRICTIONS  FROM OUR VENDORS,  AND ARE NO
CONDUCTING BUSINESS CONSISTENT WITH HISTORICAL PRACTICE

Our vendors have  severely  reduced the credit they extend to the  Company.  The
loss of credit  terms from  vendors  has  eliminated  our  ability  to  purchase
inventory and therefore our sales. Consequently, we have recently had difficulty
paying our  obligations  on a timely  basis.  If we are  unable to correct  this
situation,  find alternative financing or alternative methods of operation which
do not require credit, we will be required to cease operations.

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

Currently we are seeking  additional  capital to satisfy our financing needs for
the next twelve months.  If we fail to achieve a profitable  level of operations
and raise additional  working capital,  we will be unable to pursue our business
plan. There is no assurance that we will be able to obtain  additional  capital,
if available, and that such capital will be available at terms acceptable to us.


                                       24
<PAGE>

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

We may issue equity securities in the future whose terms and rights are superior
to those of our common  stock.  Our  Articles  of  Incorporation  authorize  the
issuance of up to 5,000,000 shares of preferred  stock.  These are "blank check"
preferred shares,  meaning our board of directors is authorized to designate and
issue the shares from time to time without  shareholder  consent. As of December
31,  2004 we had 600  shares of Series A  Preferred  outstanding.  The  Series A
Preferred are  convertible  into 800,000 shares of common stock.  Any additional
shares of preferred stock that may be issued in the future could be given voting
and conversion  rights that could dilute the voting power and equity of existing
holders of shares of common stock,  and have  preferences  over shares of common
stock with respect to dividends and liquidation rights.

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

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

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

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

      3)    Annual EBITDA of one and one half times the debt must be maintained.

We were in violation of covenants  (2) and (3) as of December 31, 2004 and 2003.
We received a waiver for such  violation  through  December 31, 2005.  We cannot
assure  you that we will be able to meet all these  financial  covenants  in the
future.  Based on anticipated future results, it is probable that we will be out
of compliance with certain of those covenants. If this was to occur and a waiver
for the violation cannot be obtained,  Wells Fargo may declare us in default and
accelerate  the loan  payments.  As a result,  the Company  would be required to
classify  the bank loan as  current,  which would cause the Company to be out of
compliance  with an  additional  financial  covenant  included in its  inventory
flooring facility with Textron Financial Corporation as discussed below.

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

      1)    Minimum current ratio of 1.0 to 1.0;

      2)    Maximum leverage of 5.0 for PMI and 6.0 for PMIC;

      3)    Positive EBITDA on a year-to-date basis for PMI; and

      4)    Minimum tangible capital funds of $2,500,000.

As of December 31,  2004,  we were in  violation  of the above  covenants  and a
waiver for such  violations  was obtained  through March 31, 2005.  However,  no
subsequent  waiver has been  received.  It is uncertain  that we will be able to
meet all those covenants in the future. If this was to occur in the future and a
waiver for the violation cannot be obtained,  Textron might terminate the credit
facility  and  accelerate  the  loan  payments.  Upon  termination,  there is no
assurance  that the  Company  would have the  funding  necessary  to finance its
future inventory or would be able to obtained  additional  financing.  We cannot
assume that we will be able to comply with these  financial  requirements in the
future or to maintain the Textron flooring line if we continue our losses. It is
uncertain as to the  Company's  ability to obtain  alternative  financing in the
event Textron  terminated  the loan facility and  accelerated  payments or Wells
Fargo elected to call the loan.


                                       25
<PAGE>

WE DEPEND ON CREDIT TERMS FROM OUR SUPPLIERS

We depend on the credit and payment terms extended by our suppliers. A reduction
of those credits and  shortening  those  payment  terms by our  suppliers  would
unfavorably  affect our cash flows and our ability to maintain certain inventory
levels and sales.

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

One supplier,  Sunnyview/Real Wisdom ("Sunnyview"),  accounted for approximately
15%, 18% and 11% of our total  purchases for the years ended  December 31, 2004,
2003 and 2002, respectively. One other vendor accounted for 17% of purchases for
the  year  ended  December  31,  2003.  We do not have a  supply  contract  with
Sunnyview nor the other vendor,  but rather purchase  products from them through
individual  purchase orders,  none of which has been large enough to be material
to us. Although we have not experienced  significant  problems with Sunnyview or
our other suppliers,  and we believe we could obtain the products that Sunnyview
and the other vendor's  supplies from other  sources,  there can be no assurance
that our relationship  with Sunnyview and with our other suppliers will continue
or, in the event of a termination of our  relationship  with any given supplier,
that we would be able to obtain  alternative  sources  of  supply on  comparable
terms  without a material  disruption  in our  ability to provide  products  and
services  to our  clients.  This may  cause a loss of sales  that  could  have a
material  adversely  effect on our business,  financial  condition and operating
results.

OUR COMMON STOCK IS NOT ACTIVELY TRADED

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

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


                                       26
<PAGE>

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

FAILURE TO RECRUIT AND RETAIN QUALIFIED PERSONNEL WILL HARM OUR BUSINESS

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

WE ARE DEPENDENT ON KEY PERSONNEL

Our  continued  success  will  depend to a  significant  extent  upon our senior
management,  including  Theodore Li, Chief  Financial  Officer and Hui "Cynthia"
Lee, head of sales operations. The loss of the services of Mr. Li or Ms. Lee, or
one or more other key  employees,  could have a material  adverse  effect on our
business,  financial  condition  or  operating  results.  We do not have key man
insurance on the lives of Mr. Li and Ms. Lee.

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

We  have  established  a  business-to-consumer  website,  LiveWarehouse.com.  LW
incurred  a net loss of  $248,800,  $258,100  and  $166,600  for the year  ended
December 31, 2004, 2003 and 2002, respectively.  As part of the overall strategy
on  re-focusing  in our core business in wholesale  distribution,  the resources
allocated to LW business segment were reduced  beginning the third quarter 2004.
During the first quarter 2005, the Company is re-evaluating  LW's business model
and anticipating LW's sales will be expanded in 2005. There is no assurance that
the Company will be able to expand LW's sales and that it will be  successful or
profitable.  We  cannot  assume  that we will  achieve  a  profitable  level  of
operations, that we will be able to hire and retain personnel with experience in
online  retail  marketing  and  management,  that we will be able to execute our
business  plan with  respect to this  market  segment or that we will be able to
adapt  to  technological  changes.  Further,  while  we have  experience  in the
wholesale marketing of computer-related  products, we have limited experience in
retail  marketing.  This market is very  competitive and many of our competitors
have substantially greater resources and experience than we have.


                                       27
<PAGE>

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.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk for changes in interest  rates relates  primarily to
one of our bank loans with a $2,331,700 balance at December 31, 2004 which bears
fluctuating  interest  based on the bank's  90-day  LIBOR rate.  We believe that
fluctuations in interest rates in the near term would not materially  affect our
consolidated  operating  results,  financial  position or cash flow.  We are not
exposed to material risk based on exchange rate  fluctuation or commodity  price
fluctuation.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

This information appears in a separate section of this report following Part IV.

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

On June 18,  2004  KPMG LLP  ("KPMG"),  the  Registrant's  independent  auditor,
tendered its resignation to the Registrant.  On July 21, 2004, the  Registrant's
board of  directors  appointed  and  engaged  Weinberg  & Company,  P.A.  as the
Registrant's independent auditor for the fiscal year ended December 31, 2004.

The  report  of KPMG for the  fiscal  years  ended  December  31,  2002 and 2003
contained  no  adverse  opinions,  disclaimer  of opinion  or  qualification  or
modification as to uncertainty, audit scope or accounting principles, except for
a modification as to uncertainty about the Registrant's ability to continue as a
going concern as described in the reports of KPMG in the Registrant's  Form 10-K
for the fiscal years ended December 31, 2002 and 2003.

The Registrant did not consult with Weinberg & Company,  P.A.  during the fiscal
years ended  December 31, 2002 and 2003,  and the interim period from January 1,
2004 through July 21, 2004, on the  application  of  accounting  principles to a
specific transaction, either completed or proposed; or the type of audit opinion
that might be rendered on the Registrant's  financial statements;  or any matter
that was either the subject of a disagreement or a reportable event.


                                       28
<PAGE>

There were no disagreements with Weinberg & Company,  P.A. or KPMG on accounting
or financial disclosure matters during 2004.

ITEM 9A. CONTROLS AND PROCEDURES

Our management,  including our Chief  Financial  Officer and our Chief Executive
Officer, has reviewed and evaluated the effectiveness of our disclosure controls
and  procedures  as of the end of the fiscal  period  covered by this Form 10-K,
which  included  inquiries  made  to  certain  other  employees.  Based  on this
evaluation,  our Chief  Executive  Officer  and  Chief  Financial  Officer  have
concluded  that,  as of the end of such  period,  our  disclosure  controls  and
procedures  are  effective  and  sufficient  to ensure that we record,  process,
summarize,  and report  information  required to be  disclosed in the reports we
file under the Securities Exchange Act of 1934 within the time periods specified
by the Securities and Exchange  Commission's rules and forms.  During the fiscal
quarter  ended  December  31,  2004,  there have been no changes in our internal
control over financial reporting,  or to our knowledge,  in other factors,  that
have  materially  affected or are  reasonable  likely to  materially  affect the
Company's internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.


                                       29
<PAGE>

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE  OFFICERS OF THE  REGISTRANT Our directors and
executive officers are as follows:

 NAME                    AGE        POSITION
----------------------   ---       ----------------------------------

   Martin Nielson        53           President, Chief Executive Officer
                                      and Director

   Theodore S. Li        48           Chief Financial Officer and Director

   John E. Donahue       55           Director

   Eric Martin           52           Executive Vice President

   Hui "Cynthia" Lee     42           Senior Vice President

   Anthony Lee           56           Secretary and Treasurer

   Jey Hsin Yao, PH.D.   42           Director (Resigned on December 31, 2004)

   Hank C. Ta            42           Director (Resigned on December 31, 2004)

   Raymond Crouse        45           Director (Resigned on December 31, 2004)

MARTIN NIELSON - Mr. Nielson was appointed President and Chief Executive Officer
of  the   Company  on   December   31,   2004.   He  is  also  the  Senior  Vice
President-Acquisitions  of Advanced Communications  Technologies,  Inc. ("ACT").
Mr.  Nielson  also  serves  as  Chief  Executive  Officer  of  Encompass,  ACT's
wholly-owned  subsidiary and principal operating unit. From 2003 to 2004, he was
Chairman of Innova Holdings,  Inc.  (formerly known as Hy-Tech Technology Group,
Inc.). He also served as Chairman of Inclusion  Technologies,  Inc. from 2000 to
2002. Since 1994, he has been the Chairman and Chief Executive  Officer of Altos
Bancorp,  Inc., a privately-held  mergers and acquisition  company. In 1991, Mr.
Nielson was founder and Chief Executive Officer of The Business  Superstore,  an
office  supply and computer  superstore/telesales  company in London that merged
with Office World in 1993.  In 1982,  Mr.  Nielson was part of the founding team
and served until 1991 as Vice President of Businessland,  Inc., a New York Stock
Exchanged  listed  computer and networking  reseller.  From 1972 until 1981, Mr.
Nielson was employed as an executive of The Gap Stores.  Mr.  Nielson  graduated
from  San  Jose  State  University  with  a BS in  business  management  with  a
concentration in mathematics and  engineering,  and attended San Francisco State
University's  Graduate  School of Business  with a  concentration  in operations
research.

THEODORE S. LI - Mr. Li has served as Chief  Financial  Officer and director for
our Company since 1998. He had served as our President and Treasurer to December
2004.  He has also served as the  President  and a Director of Pacific  Magtron,
Inc.,  a  California  corporation  that is our  principal  operating  subsidiary
("PMI"),  since 1995. He is responsible for our operations,  technical functions
and finance.


                                       30
<PAGE>

JOHN E. DONAHUE - John E. Donahue is Vice President and Chief Financial  Officer
of Online  Benefits,  Inc. a privately  held HR solutions  company that provides
internet based applications for  administering,  communicating and presenting HR
related  information  and data.  Mr.  Donahue has served in this position  since
August  1999.  Prior to that he served as  Executive  Vice  President  and Chief
Financial Officer of Lead America, a marketer of insurance products to customers
of  financial  institutions,  Managing  Director  of  Oxbridge  Incorporated,  a
boutique  investment  banking firm,  Chief  Financial  Officer at Mast Resources
Inc., a merchant bank, and Chief  Financial  Officer at Catalyst  Energy Corp, a
NYSE-listed  independent  power producer.  Mr. Donahue was with Price Waterhouse
from  September  1972 until  March  1985,  including  serving as a Senior  Audit
Manager.  Mr.  Donahue holds a B.A. in Economics  from Holy Cross College and an
MBA from Rutgers University.

ERIC MARTIN - Mr. Martin  joined the Company in November of 2004,  and serves as
the company's Chief Commercial  Officer,  with  responsibility for both supplier
and client business  relationships.  Prior to joining the Company,  he served as
Chairman and CEO of Positive  Communications,  a nationwide  wireless  messaging
company marketing through national  consumer  electronics  retailers and on-line
consumer channels. His experience in growing businesses includes Compaq Computer
Corporation,  where he was responsible for the development of the Presario brand
of computer products.  At BusinessLand,  Inc, a national distributor of personal
computer and related  products,  he was  responsible  for all aspects of product
management,  from the company's  early stages  through over $1B in annual sales.
Mr. Martin also has extensive retail  merchandising  experience,  having managed
both field and corporate merchandising programs for Sears and The Gap Stores. He
holds a Bachelor of Arts degree in Business Administration from Hanover College.

HUI "CYNTHIA"  LEE - Ms. Lee serves as our Senior Vice  President and had served
as our  Secretary  and a Director  from 1998 to 2004 and as a Director  and Vice
President,  Sales and Purchasing of PMI since 1995.  She is responsible  for our
sales and  purchasing  functions.  She  received  her  bachelor of language  and
literature  from Chang Chi  University in Taiwan.  Ms. Lee is married to Dr. Jey
Hsin Yao, a former director of our Company.

ANTHONY LEE - Anthony Lee was appointed  Secretary and Treasurer on December 31,
2004. He has been serving the Company in the capacity of a financial  controller
since 2002. Mr. Lee practiced as a certified public accountant in California and
was a partner in Alger & Lee, Certified Public Accountants,  for more than eight
years before joining the Company.  From 1987 to 1988, he was a senior accounting
research staff in Bank of America in San Francisco, California. Before he joined
Bank of America,  he was a senior audit  manager in Arthur  Young & Company,  an
international  accounting  firm, for more than 10 years.  Mr. Lee is a certified
public accountant in California. He graduated from Golden Gate University in San
Francisco,  California with a BS degree in accounting and from the University of
California at Berkeley with an MBA in finance.


                                       31
<PAGE>

JEY HSIN YAO,  PH.D. - Until December 31, 2004, Dr. Yao had served as a Director
since  1998 and as a  Director  and  Secretary  of PMI since  1995.  He has been
employed at Fujitsu as a senior  researcher since 1992. He received his bachelor
of science in electrical  engineering from National Taiwan  University,  and his
masters and PhD degrees from the Department of Electrical  Computer  Engineering
of the University of California at Santa Barbara.  Dr. Yao is married to Ms. Hui
"Cynthia" Lee.

HANK C. TA - Mr. Ta has served as a Director from 1999 to December 31, 2004. Mr.
Ta has been the President and Chief  Executive  Officer of CC  Integration/Micro
Age since 1992.  This company is an authorized  reseller from Compaq,  Cisco and
Hewlett Packard.  He received his bachelor of science in electrical  engineering
from San Jose State University.

RAYMOND  CROUSE - Mr.  Crouse served as a Director of the Board and the Chairman
of the Audit Committee from June 17, 2002 to December 31, 2004. He has served as
a Director of Litigation & Recovery of De Lage Landen  Financial  Services since
2002.  Mr.  Crouse was the Vice  President and National  Portfolio  Director for
Finova  Capital  Corporation in 2001 and 2000. He was a founder and President of
AMC Capital  Services,  Inc. from 1996 to 1999.  AMC Capital  Services  provides
financial and commercial lending services to various companies.

All executive officers are appointed by and serve at the discretion of the Board
for continuous terms.

AUDIT COMMITTEE

Mr. Raymond Crouse (Chair) and Mr. Hank C. Ta each served on the Company's Audit
Committee during 2003 until their resignation on December 31, 2004. The board of
directors  has  determined  that Mr.  Crouse  qualifies  as an  audit  committee
financial expert as defined by applicable  regulations of the SEC and that he is
independent  as  defined  by the  applicable  rules  under  the  Nasdaq  Listing
standards.  Mr. Raymond Crouse and Mr. Hank Ta resigned as of December 31, 2004.
The  Directors  also serve as members of the Audit  Committee  and are seeking a
financial expert to join the Audit Committee.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

We do not have a Compensation Committee,  and the entire Board of Directors made
executive officer compensation  decisions.  During 2004 both Mr. Theodore Li and
Ms.  Hui  "Cynthia"  Lee  were  executive   officers  and  participated  in  the
deliberations   of  our  Board  of  Directors   concerning   executive   officer
compensation.

SECTION 16(a) REPORTS OF BENEFICIAL OWNERSHIP

Based solely on its review of copies of reports  filed by  reporting  persons of
the  Company  pursuant  to  Section  16(a)  of  the  Exchange  Act,  or  written
representations  from  reporting  persons that no Form 5 filing was required for
such  person,  the  Company  believes  that all  filings  required to be made by
reporting   persons  of  the  Company  were  timely  made  in  accordance   with
requirements of the Exchange Act.


                                       32
<PAGE>

CODE OF ETHICS

The  Company  adopted a Code of  Business  Conduct  that  applies  to all of our
employees and has  particular  sections  that apply to our  principal  executive
officer and senior financial officers. We posted the text of our code of conduct
on our website,  www.pacificmagtron.com.  In addition, we will promptly disclose
on our  website  (1) the nature of any  amendment  to our code of  conduct  that
applies to our principal  executive officer and senior financial  officers,  and
(2) the nature of any waiver,  including an implicit waiver, from a provision of
our code of ethics that is granted to one of these specified officers,  the name
of such officer who is granted the waiver and the date of the waiver.

ITEM 11. EXECUTIVE COMPENSATION

The  following  table sets forth all cash  compensation  paid by us to the chief
executive  officer and the most highly  compensated  executive  officers and key
employees (the "Named  Executive  Officers") whose total  remuneration  exceeded
$100,000 for  services  rendered in all  capacities  to us during the last three
completed fiscal years.

Annual Compensation(1)

Name and                Year    Salary       Bonus    Long-Term      All Other
Principal Position                                   Compensation  Compensation
                                                     Securities
                                                     Underlying
                                                     Options(#)
Theodore Li (2)         2004   $108,000   $      --           --        $  --
Chief Financial         2003    108,000          --           --           --
Officer and Director    2002    120,000          --           --           --

Hui "Cynthia" Lee(3)    2004     54,000          --           --          --
Secretary and Director  2003     55,625          --           --          --
                        2002    120,000      33,333           --          --

(1)   No executive  officer named in the  Compensation  Table received  personal
      benefits or  perquisites  in excess of the lesser of $50,000 or 10% of his
      or her aggregate salary and bonus.

(2)   A company's  leased auto has been assigned to Mr. Li in 2004 and 2003. The
      Company  paid a total of $12,028 in 2004 and  $12,028 in 2003 for the auto
      lease.  Mr. Li was not required to reimburse  the Company for his personal
      use of the auto.

(3)   A company's leased auto has been assigned to Ms. Lee in 2004 and 2003. The
      Company  paid a total of $11,908 in 2004 and  $11,908 in 2003 for the auto
      lease.  Ms. Lee was not required to reimburse the Company for his personal
      use of the auto.

OPTION GRANTS IN LAST FISCAL YEAR

There were no options to purchase shares of our common stock granted during 2004
to the Named Executive Officers.


                                       33
<PAGE>

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE

The following  table shows the numbers of shares of common stock  represented by
outstanding  stock  options  held by each of the  Named  Executive  Officers  at
December 31, 2004.

                    Number of Securities
                   Underlying Unexercised         Value of Unexercised
                   Options at December 31,        In-The-Money Options
                           2004                 at December 31, 2004(1)
                  ------------------------     --------------------------
Name              Exercisable Unexercisable    Exercisable  Unexercisable
----------------- ----------- -------------    -----------  -------------
Theodore Li        250,000(2)        --        $      --            --
Hui "Cynthia" Lee  250,000(2)        --        $      --            --

(1)   Options are  in-the-money if the fair market value of the shares of common
      stock exceeds the exercise price.

(2)   These  options were  granted on May 4, 2001 and all of these  options were
      immediately  exercisable.  Of the options  granted,  103,092 are incentive
      stock options  granted under the 1998 Incentive Stock Option Plan and have
      an exercise price per share of $0.97.  The remaining  146,908  options are
      non-qualified  options not granted under any plan.  The exercise price per
      share is $0.88.

DIRECTOR COMPENSATION

Directors  currently  receive no cash  compensation  for their  services in that
capacity.  Reasonable  out-of-pocket  expenses may be reimbursed to directors in
connection with attendance at meetings.  During 2002, Mr. Hank C. Ta was granted
10,000  options at a price of $1.05 per share and Mr. Raymond Crouse was granted
10,000 options at a price of $.76 per share. The options are exercisable in five
years. Mr. Ta and Mr. Crouse are non-employee  directors.  There were no options
granted to the directors in 2004 and 2003.

COMPENSATION COMMITTEE INTERLOCKS

We do not have a Compensation  Committee.  Instead the entire Board of Directors
makes executive officer compensation decisions. Both Mr. Theodore Li and Ms. Hui
"Cynthia" Lee are executive officers and participate in the deliberations of our
Board of  Directors  concerning  executive  officer  compensation.  The Board of
Directors  has no  formal  compensation  criteria  it  uses in  determining  the
executive officers compensation. For 2003, the Board of Directors considered the
Company's  fiscal status and the Company's  overhead  reduction  plan in setting
compensation.

EMPLOYMENT AGREEMENTS WITH MR. THEODORE S. LI AND HUI "CYNTHIA" LEE

On December  10,  2004,  Theodore S. Li and Hui Cynthia Lee  (collectively,  the
"Stockholders"),  the  holders  of a  collective  majority  interest  in Pacific
Magtron  International  Corp.  (the  "Company")  entered  into a Stock  Purchase
Agreement  (the  "Stock  Purchase   Agreement")  with  Advanced   Communications
Technologies,  Inc., a Florida corporation ("ACT"), pursuant to which ACT agreed
to purchase from the Stockholders,  and the Stockholders  agreed to sell to ACT,
an aggregate  of 6,454,300  shares of the common stock of the Company (the "PMIC
Shares") for the aggregate purchase price of $500,000. On December 30, 2004, the
Stockholders and ACT closed on the sale of the PMIC Shares (the  "Closing").  In
connection with the sale, Mr. Li and Ms. Lee entered into employments agreements
with PMIC, ACT and ACT's  wholly-owned  subsidiary,  Encompass Group Affiliates,
Inc.


                                       34
<PAGE>

The Employment Agreements,  dated December 30, 2004, with each of Mr. Li and Ms.
Lee, respectively,  provide for a cash signing bonus of $225,000 each to be paid
within thirty days of the Closing and other bonus and earn-out  provisions  that
may be paid in cash or in  shares of common  stock of ACT.  Through  the date of
filing this Annual  Report on 10-K,  no part of the cash signing  bonus has been
paid.  The Employment  Agreements  also provide for an annual salary of not less
than  $120,000  each.  While any bonus paid in ACT's common stock will be in the
discretion  of the  Compensation  Committee  of ACT's  Board of  Directors,  the
earn-out provisions are set forth in the Employment  Agreements and are based on
achievement of certain financial milestones by certain operating subsidiaries of
the Company. Under the earn-out provisions in the Employment Agreements,  Mr. Li
and Ms. Lee may earn the right to receive up to 66,666,666 shares and 33,333,333
shares of ACT's common stock,  respectively,  which share amounts are subject to
adjustments  for any stock  splits or other  recapitalizations  effected by ACT;
provided that, the percentage of the outstanding common stock that Mr. Li or Ms.
Lee would have had the right to  receive  prior to the  adjustment  shall not be
changed by any such adjustment.  Upon earning the earn-out  shares,  such shares
will be placed in escrow,  pursuant to the terms of an escrow agreement  entered
into at the Closing  among ACT,  Mr. Li and Ms.  Lee.  If Mr. Li's or Ms.  Lee's
employment is terminated  for "cause" (as defined in the  applicable  Employment
Agreement)  prior  to the  expiration  of the  initial  term  of the  applicable
Employment Agreement,  all of the earn-out shares, whether earned or not, of Mr.
Li or Ms. Lee, as applicable,  will be forfeited.  If, however,  Mr. Li's or Ms.
Lee's  employment  is  terminated  for reasons  other than "cause"  prior to the
expiration of the initial term of the applicable  Employment  Agreement,  Mr. Li
and Ms. Lee, as the case may be, will be entitled to receive any of the earn-out
shares earned and placed in escrow prior to such termination.  Unless terminated
sooner,  the initial term of Mr. Li's Employment  Agreement expires on the third
anniversary  of the  Closing,  and  the  initial  term of Ms.  Lee's  Employment
Agreement  expires on the second  anniversary of the Closing.  Either Employment
Agreement may be terminated without cause by the Company at any time upon thirty
days prior written notice.  The Company may also terminate  either Mr. Li or Ms.
Lee for  "cause."  In  addition,  Mr.  Li or Ms.  Lee may  terminate  his or her
employment   agreement  for  "Good  Reason"  (as  defined  in  each   Employment
Agreement). In the event of termination without cause or for Good Reason, Mr. Li
or Ms.  Lee, as the case may be,  shall  receive,  in  addition to accrued,  but
unpaid  compensation and other benefits,  six months  severance.  The Employment
Agreements  also contain  non-compete  provisions for a period of two years post
termination.


                                       35
<PAGE>

PERFORMANCE GRAPH

The following  graph  compares the cumulative  shareholder  return on our common
stock from January 1, 2000 through  December 31, 2004, based on the market price
of the common stock, with the cumulative total return of the NASDAQ market Index
and a Peer Group Index comprised of the following  companies engaged in the sale
or distribution of microcomputer products:  Bridge Technology,  Inc., CDW Corp.,
En Pointe Technology Inc., Focus  Enhancements,  Genesis  Technology Group Inc.,
Ingram Micro Inc., Insight Enterprises Inc., Insignia Systems Inc., Jack Henry &
Assurantieconcern, Manchester Technologies Inc., McSi Inc., Merisel New, Nam Tai
Electronics Inc., Nova Communications  Limited,  Safeguard Scientifics Inc., SED
International  Holdings Inc.,  Soyo Group Inc.,  Syscan  Imaging Inc.,  Systemax
Inc., Tech Data Corp.,  Transnet Corp.,  United Stationers Inc., Vartech Systems
Inc., Wareforce One, Windsortech Inc., Zones Inc Commerce.

                 COMPARISION OF 5 YEAR CUMULATIVE TOTAL RETURN*
                    AMONG PACIFIC MAGTRON INTERNATIONAL CORP.
              THE NASDAQ STOCK MARKET (U.S) INDEX AND A PEER GROUP

                                [TABLE OMITTED]


                                       36
<PAGE>

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

The  following  table sets forth  information,  as of February  23,  2005,  with
respect  to the  number of  shares of our  common  stock  beneficially  owned by
individual  directors,  by all directors and officers as a group, and by persons
who we know own more  than 5% of our  common  stock.  We have no other  class of
voting stock outstanding. The address of Theodore S. Li and Hui "Cynthia" Lee is
1600 California Circle, Milpitas,  California 95035. Betty Lin's address is P.O.
Box 5267,  Berkeley,  California 94705.  Advanced  Communications  Technologies,
Inc.'s  address is 420 Lexington  Avenue,  New York,  NY 10170 and  Stonestreet,
L.P.'s address is 260 Town Centre Blvd., Suite 201, Markham, ON L3R 8H8, Canada.

<TABLE>
<CAPTION>
                                          Number of Shares            Number of Shares
                                          Owned                       Beneficially Owned(1)
                                          -------------------         ---------------------
                                                            Percent                     Percent
                                          Number            Of        Number            Of
                                          of                Common    of                Common
                                          Shares            Stock     Shares            Stock
                                          ----------        -------   -----------       -------

Name of Beneficial Owners:
<S>                                        <C>              <C>       <C>              <C>
Theodore S. Li(2)                                 --        --          250,000          2%
Hui "Cynthia" Lee(3)                              --        --          250,000          2%
Betty Lin(4)                               2,149,400        20%       2,149,400         18%
Advanced Communications
 Technologies, Inc.                        6,454,300        62%       6,454,300         54%
Stonestreet, L.P.(5)                              --        --          800,000          7%
All officers and Directors as a group
(5 persons)                                       --        --          500,000          4%
</TABLE>

----------

(1) Includes  550,000  shares  issuable  upon the  exercise of options,  200,000
shares  issuable upon the exercise of warrants and 800,000 shares  issuable upon
the conversion of Series A Preferred Stock.

(2) Includes 250,000 shares Mr. Li has the right to acquire upon the exercise of
options.

(3) Includes  250,000  shares Ms. Lee has the right to acquire upon the exercise
of options.

(4) Ms. Lin is neither a director nor an officer of the Company.

(5) Includes  800,000 shares of common stock would be obtained if the conversion
rights of the 4% Series A Convertible Preferred Stock were exercised.

CHANGE OF CONTROL

On December 10, 2004, Theodore S. Li and Hui Cynthia Lee, the holders of a
collective majority interest in the Company, entered into a Stock Purchase
Agreement (the "Stock Purchase Agreement") with Advanced Communications
Technologies, Inc., a Florida corporation ("ACT"), pursuant to which ACT agreed
to purchase from Mr. Li and Ms. Lee an aggregate of 6,454,300 shares of the
common stock of the Company for the aggregate purchase price of $500,000. These
shares represent 61.56% of the currently issued and outstanding common stock of
the Company. The sale of the shares closed on December 30, 2004. See Item 13 -
Certain Relationships and Related Transactions for more information about the
terms of the Stock Purchase Agreement and the transactions contemplated therein.


                                       37
<PAGE>

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The  following  provides  tabular  disclosure  of the number of securities to be
issued as of December 31, 2004 upon the  exercise of  outstanding  options,  the
weighted  average  exercise  price of  outstanding  options,  and the  number of
securities  remaining  available for future  issuance under equity  compensation
plans,   aggregated  into  two  categories-plans  that  have  been  approved  by
stockholders and plans that have not.


Plan Category       Number of           Weighted-average    Number of
                    Securities to be    Exercise Price of   Securities
                    Issued Upon         Outstanding Options Remaining Available
                    Exercise of         and Warrants        for Future Issuance
                    Outstanding Options                     Under Equity
                    and Warrants                            Compensation Plans
                                                            (Excluding
                                                            Securities
                                                            Reflected in 1st
                                                            Column)

-------------------------------------------------------------------------------
Equity compensation
plans approved by
stockholders               550,000                $0.91             394,000
Equity compensation
plans not approved
by stockholders            200,000                $1.20                  --

                    -----------------------------------------------------------
Total                      750,000                $0.99             394,000

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

The Company sold  computer  products to a company owned by a member of the Board
of  Directors  of the  Company.  During 2003 and 2002,  the  Company  recognized
$102,400 and $527,400,  respectively, in sales revenues from this company. There
were no sales to this  customer  for the year ended  December 31, 2004 and there
were no amounts due from this customer as of December 31, 2004 and 2003.

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


                                       38
<PAGE>

On December  10,  2004,  Theodore S. Li and Hui  Cynthia  Lee,  the holders of a
collective  majority  interest  in the  Company  and both of whom are  executive
officers and directors of the Company (the "Stockholders"), entered into a Stock
Purchase Agreement (the "Stock Purchase Agreement") with Advanced Communications
Technologies,  Inc., a Florida corporation ("ACT"), pursuant to which ACT agreed
to purchase from the Stockholders,  and the Stockholders  agreed to sell to ACT,
an  aggregate  of  6,454,300  shares of the  common  stock of her  Company  (the
"Company Shares") for the aggregate purchase price of $500,000.  On December 30,
2004,  the  Stockholders  and ACT closed on the sale of the Company  Shares (the
"Closing").  The Company  Shares  represent  61.56% of the currently  issued and
outstanding common stock of the Company.

In accordance with the terms of the Stock Purchase Agreement,  ACT issued at the
Closing two convertible  promissory notes (the "Notes") in the principal amounts
of $166,889 and $333,111 to Mr. Li and Ms. Lee, respectively,  as payment of the
purchase  price  for the  Company  Shares.  The Notes  will  mature on the first
anniversary  of the  Closing  and no  principal  or  interest  payments  will be
required prior to such date. The holders of the Notes, at their option,  will be
able to convert, at any time and from time to time, until payment in full of all
amounts due and owing under the Notes,  any unpaid principal amount of the Notes
into shares of common stock of ACT at a conversion  price per share of $0.01. If
the Notes were  converted  based  upon  their  original  principal  amounts,  an
aggregate  of  50,000,000  shares of ACT's  common  stock would be issued to the
Stockholders.  The conversion ratio is subject to customary  adjustments for any
stock splits, reverse stock splits and other recapitalizations  effected by ACT.
ACT has informed PMIC that it intends to satisfy its payment  obligations  under
the Notes with funds from its working capital.  ACT's payment  obligations under
the Notes are secured by the Company  Shares  pursuant to a Custodial  and Stock
Pledge Agreement  entered into at the Closing by ACT and the  Stockholders  (the
"Pledge Agreement").

In  addition,  pursuant  to the terms of the Stock  Purchase  Agreement,  Mr. Li
resigned his positions as President,  Chief  Executive  Officer and Treasurer of
the Company and all positions  held by him as a director  and/or  officer of the
Company's  subsidiaries at the Closing.  He remains Chief Financial  Officer and
was appointed  Chief Operating  Officer the Company  pursuant to the terms of an
Employment Agreement.  The terms of Mr. Li's Employment Agreement dated December
30, 2004 are described more fully under the caption  Employment  Agreements with
Mr. Theodore S. Li and Hui "Cynthia" Lee in Item 11 - Executive  Compensation of
this Report on Form 10-K.  Mr. Li remains a member of the Board of  Directors of
the  Company.  Ms. Lee  retains her  current  position of Senior Vice  President
pursuant to the terms of an Employment  Agreement  dated  December 30, 2004, but
resigned as a director of the  Company  and each  position  held by her with any
subsidiary  of the Company at the  Closing.  The terms of Ms.  Lee's  Employment
Agreement are described more fully under the caption Employment  Agreements with
Mr. Theodore S. Li and Hui "Cynthia" Lee in Item 11 - Executive  Compensation of
this Report on Form 10-K.


                                       39
<PAGE>

In connection  with the Closing,  ACT and Encompass  Group  Affiliates,  Inc., a
wholly-owned  subsidiary  of  ACT  ("Encompass"),   entered  into  an  Indemnity
Agreement with Mr. Li and Ms. Lee and their respective spouses pursuant to which
ACT and  Encompass  agreed to  indemnify  Mr. Li,  Ms. Lee and their  respective
spouses  against  certain  liabilities  that  Mr.  Li and Ms.  Lee may  incur in
connection with personal  guaranties they have given relating to PMI's inventory
financing  facility.  Mr. Li and Ms. Lee also  executed a release in  connection
with the transactions contemplated by the Stock Purchase Agreement.

Additionally,  in connection with the transaction,  Jey Hsin Yao, Hank C. Ta and
Raymond Crouse,  the remaining  members of the Board of Directors of the Company
prior to the Closing,  resigned as Directors of PMI and each other  position any
of them held with he Company or any of its subsidiaries at the Closing.

At the Closing,  Martin  Nielson was appointed  Chief  Executive  Officer of the
Company  and  Chairman  of the Board.  Currently,  Mr.  Nielson is a party to an
employment  agreement  with  ACT,  pursuant  to which he  agreed  to serve as an
officer or director of any  subsidiary of ACT in addition to the positions  held
by him with ACT. ACT, the Company and Mr. Nielson  contemplate  that Mr. Nielson
will enter into a separate  employment  agreement  with the Company  pursuant to
which Mr. Nielson will be paid a nominal fee for his services.  In addition,  at
the Closing,  Anthony Lee was appointed  Treasurer and Secretary of the Company,
and John E. Donahue was appointed as a member of the Board.

In connection  with the  consummation  of the  transactions  contemplated by the
Stock Purchase Agreement, the Company had entered into an agreement (the "Series
A Agreement") on December 10, 2004 with  Stonestreet L.P.  ("Stonestreet"),  the
holder  of all of the  Company's  issued  and  outstanding  Series A  Redeemable
Convertible  Preferred Stock (the "Series A Preferred Stock").  The transactions
contemplated  by the  Series  A  Agreement  closed  on  December  31,  2004.  In
connection  with the  closing of the  transaction  contemplated  by the Series A
Agreement,  the  Company  filed on December  31,  2004 an Amended  and  Restated
Certificate  of  Designation  of  Preferences,  Rights  and  Limitations  of the
Company's  Series A Preferred Stock, the terms of which are described more fully
under the caption  Results of Operations -  Restructuring  of Preferred Stock in
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of  Operations.  Additionally,  as part of the Series A  Agreement,  Stonestreet
forfeited  a Stock  Purchase  Warrant,  exercisable  for  300,000  shares  of he
Company's  common stock,  that was issued to Stonestreet in connection  with the
original issuance of the Company's Series A Preferred Stock.


                                       40
<PAGE>

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES

The aggregate fees billed by our independent auditors,  Weinberg & Company, P.A.
for the  audit of our  consolidated  financial  statements  for the  year  ended
December 31, 2004 was $65,510.  The aggregate fees billed by Weinberg & Company,
P.A. for the review of our  consolidated  financial  statements  included in the
Company's  Form 10-Q for the quarters ended June 30, 2004 and September 30, 2004
was $13,000.  Our prior auditor,  KPMG LLP billed $15,000 for review of our Form
10-Q for the first quarter of 2004,  $112,500 for the audit of our  consolidated
financial statements for the year ended December 31, 2003 and $36,000 for review
of our Form 10-Qs for 2003.

AUDIT-RELATED FEES

There  were no fees  billed by  Weinberg  &  Company,  P.A.  in fiscal  2004 for
assurance and related services except for the fees of $4,422 relating to certain
transactions related to the 2004 audit and the fees for services described under
"AUDIT  FEES" in above.  KPMG billed  $3,500 for audit  related fees in 2004 and
there were no fees  billed in 2003  except for the fees and  services  described
under "AUDIT FEES" in above.

TAX FEES

There were no tax fees billed in fiscal 2004 by Weinberg & Company,  P.A., or in
2003 by KPMG LLP, for tax compliance, tax advice and tax planning services.

ALL OTHER FEES

There were no other fees billed in fiscal 2004 by Weinberg & Company,  P.A.,  or
in 2003 by KPMG LLP, for all other services.

POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT

SERVICES OF INDEPENDENT AUDITORS

The Audit Committee pre-approves all audit and non-audit services provided by
the independent auditors prior to the engagement of the independent auditors
with respect to such services.


                                       41
<PAGE>

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Financial Statements

      (a)   (1)   Report of independent  registered  public  accounting  firm of
                  Weinberg & Company, P.A. and report of independent  registered
                  public accounting firm of KPMG, LLP.

            (2)   Consolidated  Financial  Statements  and Notes  thereto of the
                  Company including  Consolidated  Balance Sheets as of December
                  31,  2004 and  2003 and  related  Consolidated  Statements  of
                  Operations,  Shareholders'  Equity, and Cash Flows for each of
                  the years in the three year period ended December 31, 2004.

            (3)   Supplemental Schedule II - Valuation and Qualifying Accounts

      (B)   Exhibits:

EXHIBIT
NUMBER                              DESCRIPTION
------                              -----------

3.1         Articles  of  Incorporation,  as Amended and  Restated  (filed as an
            exhibit to our Form 10-12G, File No. 000-25277).

3.2         Bylaws,  as Amended  and  Restated  (filed as an exhibit to our Form
            10-12G, File No. 000-25277).

3.3         Amended and Restated  Certificate  of  Designation  of  Preferences,
            Rights and Limitations of Series A Redeemable  Convertible Preferred
            Stock (filed as an exhibit to our Form 8-K on January 5, 2005).

10.1        1998 Stock Option Plan (filed as an exhibit to our Form 10-12G, File
            No. 000-25277).

10.2        Sony Electronics Inc. Value Added Reseller  Agreement,  dated May 1,
            1996 (filed as an exhibit to our Form 10-12G, File No. 000-25277).

10.3        Logitech, Inc. Distribution and Installation Agreement,  dated March
            26,  1997  (filed  as an  exhibit  to  our  Form  10-12G,  File  No.
            000-25277).

10.4        Wells Fargo Term Note,  dated  February 4, 1997 (filed as an exhibit
            to our Form 10-12G, File No. 000-25277).

10.5        Credit  Line  for  Inventory   Financing   with  Textron   Financial
            Corporation  (filed  as an  exhibit  to our  Report on Form 10-Q for
            quarter ended June 30, 2003).

10.6        Agreement,  dated as of December 11, 2004,  between  Pacific Magtron
            International Corp. and Stonestreet L.P. (filed as an exhibit to our
            Report on Form 8-K on December 16, 2004).

10.7        Employment Agreement, dated as of December 30, 2004, between Pacific
            International  Corp.  and Theodore S. Li (filed as an exhibit to our
            Report on Form 8-K on January 5, 2005).


                                       42
<PAGE>

10.8        Employment Agreement, dated as of December 30, 2004, between Pacific
            International  Corp. and Hui Cynthia Lee (filed as an exhibit to our
            Report on Form 8-K on January 5, 2005).

21.1        Subsidiaries (filed herewith).

31.1        Certificate of Chief  Executive  Officer  pursuant to Section 302 of
            the Sarbanes-Oxley Act of 2002 (filed herewith).

31.2        Certificate of Chief  Financial  Officer  pursuant to Section 302 of
            the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1        Certification of Chief Executive Officer and Chief Financial Officer
            pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished
            herewith).

99.1        Stock  Purchase  Agreement,  dated as of December  10,  2004,  among
            Advanced Communications  Technologies,  Inc., Theodore S. Li and Hui
            Cynthia  Lee  (filed  as an  exhibit  to our  Report  on Form 8-K on
            December 16, 2004).


                                       43
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.

                                       PACIFIC MAGTRON INTERNATIONAL CORP.,
                                       a Nevada corporation

                                       By /s/ Martin Nielson
                                       -----------------------------------------
                                       Martin Nielson
                                       Chief Executive Officer
                                       Date:  April 20, 2005


                                       44
<PAGE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
on Form 10-K has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

       SIGNATURE                          TITLE                        DATE
       ---------                          -----                        ----

/s/ Martin Nielson            Chief Executive Officer          April 20, 2005
-------------------------     and Director
Martin Nielson


/s/ Theodore S. Li            Chief Financial                  April 20, 2005
-------------------------     Officer and Director
Theodore S. Li

/s/ John E. Donahue           Director                         April 20, 2005
-------------------------
John E. Donahue


                                       45
<PAGE>

              PACIFIC MAGTRON INTERNATIONAL CORP. and Subsidiaries
                        CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2004, 2003 AND 2002


CONTENTS
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
CONSOLIDATED FINANCIAL STATEMENTS
  Consolidated Balance Sheets                                              F-4
  Consolidated Statements of Operations                                    F-5
  Consolidated Statements of Shareholders' Equity                          F-6
  Consolidated Statements of Cash Flows                                    F-7
  Notes to Consolidated Financial Statements                               F-8


SUPPLEMENTAL SCHEDULE
  Schedule II - Valuation and Qualifying Accounts                          F-27


                                      F-1
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Pacific Magtron International Corp.

We have audited the accompanying  consolidated  balance sheet of Pacific Magtron
International  Corp.  and  subsidiaries  as of December 31, 2004 and the related
consolidated  statements of operations,  shareholders' equity and cash flows for
the year then ended. In connection with our audit of the consolidated  financial
statements, we have also audited the related financial statement schedule. These
consolidated  financial  statements and the financial  statement schedule is the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated  financial  statements and the financial statement
schedule based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Pacific  Magtron
International Corp. and subsidiaries as of December 31, 2004, and the results of
their operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.  Also,
in our opinion the related  financial  statement  schedule,  when  considered in
relation to the consolidated  financial  statements  taken as a whole,  presents
fairly, in all material respects, the information set forth therein.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company incurred a loss of $1,172,700 and
negative cash flows from  operations of $1,896,900  for the year ended  December
31, 2004 and had a working capital  deficiency of $542,200 at December 31, 2004.
In  addition,  the Company was in  violation  of certain of its debt  covenants,
which violations were waived.  These matters raise  substantial  doubt about its
ability to continue as a going  concern.  Management's  plans in regard to these
matters are also described in Note 1. The  accompanying  consolidated  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.

Weinberg & Company, P.A.

Boca Raton, Florida
February 3, 2005, except as to Note 1 - Recent Developments, for which the date
is April 19, 2005.


                                      F-2
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Pacific Magtron International Corp.

We have audited the accompanying  consolidated  balance sheet of Pacific Magtron
International  Corp.  and  subsidiaries  as of December 31, 2003 and the related
consolidated  statements of operations,  shareholders' equity and cash flows for
the years ended December 31, 2003 and 2002. In connection with our audits of the
consolidated  financial  statements,  we have also audited the related financial
statement schedule.  These consolidated  financial  statements and the financial
statement  schedule are the  responsibility  of the  Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements and the financial statement schedule based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Pacific  Magtron
International Corp. and subsidiaries as of December 31, 2003, and the results of
their  operations and their cash flows for the years ended December 31, 2003 and
2002 in conformity with accounting  principles  generally accepted in the United
States  of  America.  Also,  in our  opinion  the  related  financial  statement
schedule,  when considered in relation to the consolidated  financial statements
taken as a whole, presents fairly, in all material respects, the information set
forth therein.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated  financial  statements,  the Company has suffered  recurring losses
from operations.  Further,  during the year ended December 31, 2003, the Company
triggered  a  redemption  provision  in  its  Series  A  Redeemable  Convertible
Preferred Stock agreement thereby creating a current liability. In addition, the
Company was in violation of certain of its debt covenants, which violations were
waived,  and the  Company's  common  stock  has been  delisted  from the  NASDAQ
SmallCap  Market.  These  matters raise  substantial  doubt about its ability to
continue as a going concern.  Management's  plans in regard to these matters are
also described in Note 1. The accompanying  consolidated financial statements do
not  include  any  adjustments  that  might  result  from  the  outcome  of this
uncertainty.

KPMG LLP

Mountain View, California
March 12, 2004


                                      F-3
<PAGE>

              PACIFIC MAGTRON INTERNATIONAL CORP. and Subsidiaries
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                December 31,
                                                       ----------------------------
                                                           2004            2003
                                                       ------------    ------------
<S>                                                    <C>             <C>
ASSETS
Current Assets:
  Cash and cash equivalents                            $    543,800    $  1,491,700
  Restricted cash                                           255,000         395,000
  Accounts receivable, net of allowance for
    doubtful accounts of $314,100 and
    $281,800 in 2004 and 2003                             3,801,600       4,350,900
  Other receivables                                              --         673,300
  Inventories                                             2,760,400       2,853,100
  Prepaid expenses and other current assets                 154,500         280,800
  Assets of discontinued operations                          16,200         233,500
                                                       ------------    ------------
Total Current Assets                                      7,531,500      10,278,300

Property and equipment, net                               3,934,100       4,157,400

Restricted cash                                             250,000         250,000

Deposits and other assets                                    25,100          86,700
                                                       ------------    ------------
                                                       $ 11,740,700    $ 14,772,400
                                                       ============    ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Accounts payable                                     $  5,608,700    $  7,140,900
  Floor plan inventory loans                              2,243,100       1,369,200
  Accrued expenses                                          147,700         228,500
  Current portion of notes payable                           71,900          66,100
  Contingent settlement of Common Stock Warrants              2,300          55,700
  Series A Mandatorily Redeemable Convertible
    Preferred Stock                                              --         958,600
  Liabilities of discontinued operations                         --         275,900
                                                       ------------    ------------
Total Current Liabilities                                 8,073,700      10,094,900

Notes Payable, less current portion                       3,031,500       3,103,400

Commitments and Contingencies

Shareholders' Equity:
    Preferred Stock, $0.001 par value; 5,000,000
      shares authorized;
       4% Series A Convertible Preferred Stock;
       600 shares designated, issued and outstanding
       (liquidation value of $400,000)                      234,100              --
    Common stock, $0.001 par value; 25,000,000
      shares authorized; 10,485,062 shares issued
      and outstanding                                        10,500          10,500
    Additional paid-in capital                            2,036,400       2,036,400
    Accumulated deficit                                  (1,645,500)       (472,800)
                                                       ------------    ------------
Total Shareholders' Equity                                  635,500       1,574,100
                                                       ------------    ------------
                                                       $ 11,740,700    $ 14,772,400
                                                       ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.



                                      F-4
<PAGE>

              PACIFIC MAGTRON INTERNATIONAL CORP. and Subsidiaries
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                        YEARS ENDED DECEMBER 31,
                                                --------------------------------------------
                                                    2004            2003            2002
                                                ------------    ------------    ------------
<S>                                             <C>             <C>             <C>
Sales                                           $ 71,473,500    $ 74,985,300    $ 67,969,900
Cost of sales                                     67,793,200      70,555,900      63,919,600
                                                ------------    ------------    ------------
Gross profit                                       3,680,300       4,429,400       4,050,300
Selling, general and
  administrative expenses                          5,027,500       5,939,900       6,303,000
Write-off of other receivable                        487,200              --              --
                                                ------------    ------------    ------------
Loss from operations
  before other income (expense),
  income tax benefit,
  and minority interest                           (1,834,400)     (1,510,500)     (2,252,700)
                                                ------------    ------------    ------------
Other income (expense):
  Interest income                                      2,000           3,200          14,100
  Interest expense                                  (166,200)       (170,500)       (166,100)
  Litigation settlement                                   --         (95,000)             --
  Change in fair value of
   warrants issued                                    46,400         105,800         235,700
  Other expense, net                                 (33,300)        (27,500)        (44,500)
                                                ------------    ------------    ------------
Total other income (expense)                        (151,100)       (184,000)         39,200
                                                ------------    ------------    ------------
Loss from operations
  before income tax benefit
  and minority interest                           (1,985,500)     (1,694,500)     (2,213,500)
Income tax benefit                                        --              --        (736,300)
                                                ------------    ------------    ------------
Loss from operations
  before minority interest                        (1,985,500)     (1,694,500)     (1,477,200)
Minority interest                                         --              --           2,200
                                                ------------    ------------    ------------
Loss from operations                              (1,985,500)     (1,694,500)     (1,475,000)
                                                ------------    ------------    ------------
Discontinued operations:
  Gain (loss) from discontinued
   operations of:
    Frontline Network Consulting,
      Inc., net of tax benefit
      in 2002                                         93,300        (297,900)       (835,300)
    Lea Publishing Inc., net of
      tax benefit in 2002                                 --        (106,300)       (525,600)
  Loss from disposal of:
    Frontline Network Consulting,
      Inc                                                 --         (13,700)             --
    Lea Publishing Inc.                                   --         (16,000)             --
                                                ------------    ------------    ------------
Gain (loss) from discontinued
  operations                                          93,300        (433,900)     (1,360,900)
                                                ------------    ------------    ------------


Gain on restructuring of Series A Mandatorily
  Redeemable Convertible Preferred Stock             758,600              --              --

Accretion of discount and deemed
  dividend related to beneficial
  conversion of Series A Mandatorily
  Redeemable Convertible Preferred Stock             (26,100)        (24,900)       (274,200)

Accretion of redemption value of
  Series A Mandatorily Redeemable
  Convertible Preferred Stock                        (13,000)       (743,300)             --
                                                ------------    ------------    ------------
Net loss applicable to
  common shareholders                           $ (1,172,700)   $ (2,896,600)   $ (3,110,100)
                                                ============    ============    ============
Basic and diluted loss per share:

  Loss from operations                          $      (0.12)   $      (0.24)   $      (0.17)

  Gain (loss) from discontinued
    operations applicable to
    common shareholders                                 0.01           (0.04)          (0.13)
                                                ------------    ------------    ------------
  Net loss applicable to common
    shareholders                                $      (0.11)   $      (0.28)   $      (0.30)
                                                ============    ============    ============

Shares used in basic and diluted
   per share calculation                          10,485,062      10,485,062      10,485,062
                                                ============    ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-5
<PAGE>

              PACIFIC MAGTRON INTERNATIONAL CORP. and Subsidiaries
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                           Shareholders' Equity
                             ------------------------------------------------------------------------------------------------
                                                                                                    Retained
                                  Preferred Stock              Common Stock          Additional     Earnings
                             -------------------------   ------------------------      Paid-in    (Accumulated
                               Shares        Amount        Shares         Amount       Capital       Deficit)       Total
                             -----------   -----------   -----------   -----------   -----------   -----------    -----------
<S>                          <C>           <C>            <C>          <C>           <C>           <C>            <C>
Balance at December 31,
  2001                                --   $        --    10,485,062   $    10,500   $ 1,745,500   $ 5,533,900    $ 7,289,900

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

Vesting portion of 300,000
common stock warrants
issued as payment of
 consulting services                  --            --            --            --         2,400            --          2,400

Preferred stock accretion             --            --            --            --            --       (14,200)       (14,200)

Loss from operations                  --            --            --            --            --    (1,475,000)    (1,475,000)

Loss from discontinued
  Operations                          --            --            --            --            --    (1,360,900)    (1,360,900)

                             -----------   -----------   -----------   -----------   -----------   -----------    -----------
Balance at December 31,
  2002                                --            --    10,485,062        10,500     2,007,900     2,423,800      4,442,200

Vesting portion of 300,000
common stock warrants
issued as payment of
consulting services                   --            --            --            --        28,500            --         28,500

Preferred stock accretion             --            --            --            --            --      (768,200)      (768,200)

Loss from operations                  --            --            --            --            --    (1,694,500)    (1,694,500)
Loss from discontinued
  Operations                          --            --            --            --            --      (433,900)      (433,900)

                             -----------   -----------   -----------   -----------   -----------   -----------    -----------
Balance at December 31,
  2003                                --            --    10,485,062        10,500     2,036,400      (472,800)     1,574,100

Preferred stock accretion             --            --            --            --            --       (39,100)       (39,100)

Restructuring of Series A
  Preferred Stock                    600       234,100            --            --            --       758,600        992,700

Loss from operations                  --            --            --            --            --    (1,985,500)    (1,985,500)

Income from discontinued
  Operations                          --            --            --            --            --        93,300         93,300

                             -----------   -----------   -----------   -----------   -----------   -----------    -----------
Balance at December 31,
2004                                 600   $   234,100    10,485,062   $    10,500   $ 2,036,400   $(1,645,500)   $   635,500
                             ===========   ===========   ===========   ===========   ===========   ===========    ===========
</TABLE>

    See accompanying notes to consolidated financial statements.


                                      F-6
<PAGE>

              PACIFIC MAGTRON INTERNATIONAL CORP. and Subsidiaries
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                         YEARS ENDED DECEMBER 31,
                                                                 -----------------------------------------
                                                                     2004           2003           2002
                                                                 -----------    -----------    -----------
<S>                                                              <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                         $(1,172,700)   $(2,896,600)   $(3,110,100)
Less: Income (loss) from discontinued
        operations                                                    93,300       (433,900)    (1,360,900)
      Gain on restructuring of Series A
        Mandatorily Redeemable Convertible
        Preferred Stock                                              758,600             --             --
                            Accretion of discount and deferred
        dividend related to Series A
        Mandatorily Redeemable Convertible
        Preferred Stock                                              (26,100)       (24,900)      (274,200)
      Accretion of redemption value of Series A
        Mandatorily Redeemable Convertible
        Preferred Stock                                              (13,000)      (743,300)            --
                                                                 -----------    -----------    -----------
Loss from operations                                              (1,985,500)    (1,694,500)    (1,475,000)
Adjustments to reconcile loss from operations to
 net cash used in operating activities:
       Depreciation and amortization                                 356,900        315,700        244,100
       Gain on disposal of property and equipment                       (100)            --         (8,100)
       Provision (benefit) for doubtful accounts                      51,500        (45,400)      (140,000)
       Deferred income taxes                                              --             --        778,800
       Write-off of other receivable                                 487,200             --             --
       Changes in fair value of warrants                             (46,400)      (105,800)      (235,700)
       Minority interest in losses of subsidiary                          --             --         (2,200)
       Changes in operating assets and liabilities:
           Accounts receivable                                       497,800        266,300       (423,700)
           Other receivables                                         186,100       (673,300)            --
           Inventories                                                92,700        485,500       (563,400)
           Prepaid expenses and other current assets                  41,200         (1,900)       122,700
           Income tax refunds receivable                                  --      1,472,800     (1,073,600)
           Accounts payable                                       (1,532,200)      (360,100)     2,886,200
           Accrued expenses                                          (80,800)        17,100        (51,500)
                                                                 -----------    -----------    -----------
NET CASH (USED IN) PROVIDED BY OPERATIONS                         (1,931,600)      (323,600)        58,600
NET CASH (USED IN) PROVIDED BY DISCONTINUED
  OPERATIONS                                                          34,700       (146,800)      (956,600)
                                                                 -----------    -----------    -----------
NET CASH USED IN OPERATING ACTIVITIES                             (1,896,900)      (470,400)      (898,000)
                                                                 -----------    -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
       Acquisition of property and equipment                              --             --        (63,000)
       Proceeds from sale of property and equipment                    1,300          5,100         36,400
       Deposits and other assets                                          --             --         24,300
                                                                 -----------    -----------    -----------
NET CASH PROVIDED BY (USED IN) INVESTING
  ACTIVITIES OF OPERATIONS                                             1,300          5,100         (2,300)
NET CASH PROVIDED BY (USED IN) INVESTING
  ACTIVITIES OF DISCONTINUED OPERATIONS                                   --         44,100        (86,800)
                                                                 -----------    -----------    -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                    1,300         49,200        (89,100)
                                                                 -----------    -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
       Net increase (decrease) in floor plan
        inventory loans                                              873,900        467,600       (520,500)
       Principal payments on notes payable                           (66,100)       (60,800)       (55,900)
       Restricted cash                                               139,900       (395,000)            --
       Net proceeds from issuance of mandatorily
        redeemable convertible preferred stock
        and warrants                                                      --             --        477,500
                                                                 -----------    -----------    -----------
NET CASH PROVIDED BY (USED IN) FINANCING
  ACTIVITIES OF OPERATIONS                                           947,700         11,800        (98,900)
NET CASH USED IN FINANCING ACTIVITIES OF
  DISCONTINUED OPERATIONS                                                 --             --       (122,900)
                                                                 -----------    -----------    -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                  947,700         11,800       (221,800)
                                                                 -----------    -----------    -----------

NET DECREASE IN CASH AND CASH EQUIVALENTS                           (947,900)      (409,400)    (1,208,900)
CASH AND CASH EQUIVALENTS:
       Beginning of year                                           1,491,700      1,901,100      3,110,000
                                                                 -----------    -----------    -----------
       End of year                                               $   543,800    $ 1,491,700    $ 1,901,100
                                                                 ===========    ===========    ===========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-7
<PAGE>

              PACIFIC MAGTRON INTERNATIONAL CORP. and Subsidiaries
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

The consolidated  financial  statements of Pacific Magtron  International  Corp.
(the "Company" or "PMIC") include its subsidiaries, Pacific Magtron, Inc. (PMI),
Pacific Magtron (GA) Inc. (PMIGA) and  LiveWarehouse,  Inc. (LW).PMI and PMIGA's
principal  activity  consists of the importation  and wholesale  distribution of
electronics  products,  computer  components,  and computer peripheral equipment
throughout the United States.  LW distributes  certain  computer and electronics
products and sells consumer computer products on the internet.

In August 2000, PMI formed PMIGA, a Georgia corporation whose principal activity
is the wholesale  distribution  of PMI's  products in the eastern  United States
market. PMIGA is 100% owned by PMI.

In December 2001, the Company incorporated LW, a wholly-owned  subsidiary of the
Company,  to provide consumers a convenient way to purchase computer products on
the  internet.  As part of the  overall  strategy  on  re-focusing  on our  core
business in  wholesale  distribution,  the  resources  allocated  to LW business
segment were reduced beginning the third quarter 2004.

In December 2004, certain stockholders (the "Stockholders") holding a collective
majority  interest in the Company  entered into a Stock Purchase  Agreement with
Advanced  Communications  Technologies,  Inc.,  a Florida  corporation  ("ACT"),
pursuant  to  which  ACT  agreed  to  purchase  from the  Stockholders,  and the
Stockholders  agreed to sell to ACT, an  aggregate  of  6,454,300  shares of the
common stock of the Company (the "PMIC Shares") for the aggregate purchase price
of $500,000.  On December 30, 2004, the  Stockholders and ACT closed on the sale
of the PMIC Shares (the  "Closing").  The PMIC  Shares  represent  61.56% of the
currently  issued and  outstanding  common  stock of the  Company  (see Note 9).
Effective  as of the  Closing,  the  financial  results of the  Company  will be
consolidated with those of ACT and its other consolidated  subsidiaries in ACT's
financial statements that will be included in ACT's future SEC filings.

BASIS OF ACCOUNTING

Going Concern

The Company incurred a net loss applicable to common shareholders of $1,172,700,
$2,896,600,  and  $3,110,100  and  a  negative  cash  flow  from  operations  of
$1,896,900,  $470,400 and $898,000 for the years ended December 31, 2004,  2003,
and 2002,  respectively,  and had a working  capital  deficiency  of $542,200 at
December 31, 2004.  During 2004,  the Company was in violation of certain of its
debt covenants which violations were subsequently  waived.  However,  the waiver
obtained  from Textron  Financial  Corporation  expired on March 31, 2005. It is
uncertain that the Company will be able to meet all the covenants in the future.
If this was to occur in the future and waivers for the  violations  could not be
obtained,  the Company's  inventory  flooring line might be terminated  and loan
payments on its inventory  flooring line and mortgage loan might be accelerated.
These conditions raise substantial doubt about the Company's ability to continue
as a going  concern.  The  Company's  ability to continue as a going  concern is
dependent upon it achieving  profitability and generating  sufficient cash flows
to meet its obligations as they come due.  Management  believes that its plan to
diversify into other higher profit margin  products and to continue  controlling
its  overhead  will  enable  it to  achieve  profitability.  Management  is also
pursuing additional capital and debt financing.  However,  there is no assurance
that these efforts will be successful.  The accompanying  consolidated financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.

Recent Developments

The  Company  relies  on  credit  terms  from its  suppliers  to fund  inventory
purchases.  Vendors have  progressively  imposed more restrictive  credit terms,
such  that,  beginning  in March  2005,  the  Company  has been  unable  to find
purchases.  As of April 15, 2005,  the Company's  business is limited to selling
existing  inventory  with no ability to obtain  credit to  replenish or purchase
other items our  customers  may need.  As of April 15,  2005,  inventories  were
approximately $170,000, compared to $2,760,000 at December 31, 2004. The Company
doesn't have the ability to draw on lines of credit to fund the shortfall caused
by the elimination of terms by vendors.  The Company's staff has decreased to 28
employees on April 15, 2005 from 58  employees on December 31, 2004.  Because of
the reduced sales caused by the lack of new inventory,  the Company has not been
able to pay its obligations on a timely basis.  The Company has been sued by one
supplier  for  approximately  $680,000  in unpaid  invoices  and by another  for
approximately  $80,000. Other creditors have threatened suit. Unless the Company
obtains credit or finds another method of operating,  the Company will be forced
to cease operations.

                                       F-8
<PAGE>

USE OF ESTIMATES IN THE PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ materially from such estimates.

PRINCIPLES OF CONSOLIDATION

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

RECLASSIFICATIONS

Certain 2003 and 2002  financial  statement  amounts have been  reclassified  to
conform to the 2004 financial statement presentation.

CASH EQUIVALENTS

The Company considers highly liquid investments with original  maturities of one
year or less to be cash equivalents.

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

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

INVENTORIES

Inventories, consisting primarily of finished goods, are stated at the lower of
cost (weighted average cost method) or market.

PROPERTY AND EQUIPMENT AND OTHER LONG-LIVED ASSETS

Property and equipment are stated at cost.  Det 0 0 preciation is provided using
the  straight-line  method over the  estimated  useful  lives of the assets,  as
follows:

         Building and improvements                             39 years
         Furniture and fixtures                            5 to 7 years
         Computers and equipment                           3 to 5 years
         Automobiles                                            5 years
         Software                                               3 years


                                       F-9
<PAGE>

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

REVENUE RECOGNITION

The Company  recognizes  sales of computer and related products upon delivery of
goods to the customer (generally upon shipment) and the customer takes ownership
and  assumes  risk of loss,  provided  no  significant  obligations  remain  and
collectibility  is  probable.  A  provision  for  estimated  product  returns is
established at the time of sale based upon historical  return rates,  which have
typically been  insignificant,  adjusted for current  economic  conditions.  The
Company  generally  does not provide  volume  discounts or rebates to its resale
customers.

WARRANTY REPAIRS

The Company is principally a distributor of numerous electronics  products,  for
which the original equipment  manufacturer is responsible and liable for product
repairs and service. Amounts claimed in excess of manufacturers'  warranties are
estimated and charged to expense  based on  historical  amounts and the mixed of
products  recently sold. The Company has experienced an insignificant  amount of
claims in excess of the manufacturers' warranties.

INCOME TAXES

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

IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with FASB Statement No. 144, Accounting for Impairment or Disposal
of Long-Lived Assets, the Company periodically reviews its long-lived assets for
impairment.  When events or changes in circumstances  indicate that the carrying
amount of an asset group may not be  recoverable,  the Company adjusts the asset
group  to its  estimated  fair  value.  The  fair  value  of an  asset  group is
determined  by the  Company as the amount at which  that  asset  group  could be
bought or sold in a current  transaction  between willing parties or the present
value of the  estimated  future  cash  flows  from the  asset.  The asset  value
recoverability  test is  performed  by the Company on an on-going  basis.  As of
December 31, 2004, all long-lived assets were estimated to be recoverable.

FAIR VALUES OF FINANCIAL INSTRUMENTS

The fair value of  long-term  debt and floor plan  inventory  loans is estimated
based on current  interest rates  available to the Company for debt  instruments
with similar terms and remaining maturities.  At December 31, 2004 and 2003, the
fair value of  long-term  debt,  which  consisted of a bank loan and an SBA loan
relating to the Company's  facility in Milpitas,  California,  was approximately
$3,205,100  and  $3,316,000,  respectively.  The bank  loan  had an  outstanding
balance  of  $2,331,700  and  $2,360,900  as of  December  31,  2004  and  2003,
respectively.  The carrying value of the bank loan, which contains an adjustable
interest rate provision based on the market interest rate, approximates its fair
value.  The SBA loan had an  outstanding  amount of  $771,700  and  $808,600  at
December 31, 2004 and 2003,  respectively.  The estimated  fair value of the SBA
loan was $873,400  and $955,100 as of December 31, 2004 and 2003,  respectively.
The fair value of the SBA loan was  estimated  based on the present value of the
future  payments  discounted  by the market  interest  rate for similar loans at
December  31,  2004 and  2003.  The fair  values  of cash and cash  equivalents,
accounts  receivable,  other  receivable,  accounts payable floor plan inventory
loans and accrued liabilities  approximates their carrying values because of the
short maturity of these instruments.


                                      F-10
<PAGE>

LOSS PER SHARE

Basic  loss  per  share  is  computed  by  dividing  loss  available  to  common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflect the potential dilution of securities,
using the  treasury  stock method that could share in the earnings of an entity.
During the year ended  December  31,  2004,  options  and  warrants  to purchase
750,000 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 loss per share as their  effect would be  anti-dilutive.
During the year ended  December  31,  2003,  options  and  warrants  to purchase
1,094,000  shares of the  Company's  common  stock and 852,200  shares of common
stock  issuable upon  conversion of Series A Preferred  Stock were excluded from
the   calculation   of  diluted   loss  per  share  as  their  effect  would  be
anti-dilutive.  During the year ended December 31, 2002, options and warrants to
purchase  1,302,800  shares of the Company's  common stock and 818,900 shares of
common stock issuable upon  conversion of Series A Preferred Stock were excluded
from the  calculation  of  diluted  loss per  share  as  their  effect  would be
anti-dilutive.

STOCK OPTION PLAN

The Company applies the intrinsic-value-based method of accounting prescribed by
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees,  and related  interpretations  including FASB  Interpretation No. 44,
Accounting  for  Certain   Transactions   involving   Stock   Compensation,   an
interpretation  of APB  Opinion  No. 25, to  account  for its  fixed-plan  stock
options.  Under this  method,  compensation  expense is  recorded on the date of
grant only if the current  market  price of the  underlying  stock  exceeded the
exercise price. FASB Statement No. 123, Accounting for Stock-Based  Compensation
and FASB Statement No. 148, Accounting for Stock-Based Compensation - Transition
and  Disclosure  and FASB  Statement No. 123R,  amendments of FASB Statement No.
123, established accounting and disclosure requirements using a fair-value-based
method  of  accounting  for  stock-based   employee   compensation   plans.  The
requirements  of FASB  Statement No 123, as amended,  are  effective  for fiscal
periods beginning after June 15, 2005.

The following table illustrates the effect on net loss if the  fair-valued-based
method had been applied to all  outstanding  and unvested awards in each period.
The  Company  estimates  the fair  value and stock  options at the grant date by
using the Black-Scholes option pricing model with the following weighted average
assumptions  use for  grants in 2002:  no yield;  expected  volatility  of 311%,
risk-free  interest  rates of 4% and  expected  lives of four years for the plan
options.

Had the Company  adopted the  provisions of SFAS No. 123, the Company's net loss
and loss per share would have been increased to the pro forma amounts  indicated
below:

<TABLE>
<CAPTION>
                                                       Year Ended December 31,
                                              -----------------------------------------
                                                 2004           2003           2002
                                              -----------    -----------    -----------
<S>                                           <C>            <C>            <C>
Net loss applicable to common shareholders:
  As reported                                 $(1,172,700)   $(2,896,600)   $(3,110,100)
    Add: total stock based employee
      compensation expense determined
      using the fair value method for
      all awards, net of tax                      (11,200)       (17,600)       (71,200)
                                              -----------    -----------    -----------
  Pro forma                                   $(1,183,900)   $(2,914,200)   $(3,181,300)
                                              -----------    -----------    -----------
Basic and diluted loss per share:
  As reported                                 $     (0.11)   $     (0.28)   $     (0.30)
  Pro forma                                   $     (0.11)   $     (0.28)   $     (0.30)
</TABLE>


                                      F-11
<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2003, the FASB issued FASB  Interpretation  No. 46 (revised December
2003),  Consolidation  of Variable  Interest  Entities,  which  addresses  how a
business  enterprise  should  evaluate  whether it has a  controlling  financial
interest in an entity  through  means other than voting  rights and  accordingly
should  consolidate  the entity.  FIN 46R replaces FASB  Interpretation  No. 46,
Consolidation of Variable Interest  Entities (VIE),  which was issued in January
2003.  The Company  will be required to apply FIN 46R to variable  interests  in
VIEs created  after  December 31, 2003.  For variable  interests in VIEs created
before January 1, 2004, the assets, liabilities and non-controlling interests of
the VIE  initially  would  be  measured  at  their  carrying  amounts  with  any
difference  between the net amount added to the balance sheet and any previously
recognized  interest being recognized as the cumulative  effect of an accounting
change.  If determining the carrying amounts is not  practicable,  fair value at
the date FIN 46R first  applies may be used to measure  the assets,  liabilities
and non-controlling interest of the VIE. The adoption of FIN 46R did not have an
impact  on  the  Company's   consolidated   financial  position  or  results  of
operations.

In May 2003,  the FASB  issued SFAS No. 150,  Accounting  for Certain  Financial
Instruments with  Characteristics  of both Liabilities and Equity.  SFAS No. 150
establishes  standards  for  classifying  and measuring as  liabilities  certain
financial   instruments   that  embody   obligations  of  the  issuer  and  have
characteristics  of both  liabilities and equity.  SFAS No. 150 is effective for
all financial  instruments  created or modified after May 31, 2003 and otherwise
is effective at the beginning of the first interim period  beginning  after June
15, 2003. Restatement of financial statements for earlier years presented is not
permitted. FASB Staff Position No. FAS 150-3 deferred certain provisions of SFAS
No. 150 for certain mandatory redeemable  non-controlling interests. The Company
adopted SFAS No. 150 beginning the third quarter 2003. The Company's adoption of
SFAS No. 150 did not impact its  consolidated  financial  position or results of
operations.

In December 2003, FASB Statement No. 132 (revised), Employers' Disclosures about
Pensions and Other Postretirement  Benefits, was issued. Statement 132 (revised)
prescribes  employers'  disclosures about pension plans and other postretirement
benefit plans; it does not change the measurement or recognition of those plans.
The Statement retains and revises the disclosures about the assets, obligations,
cash flows,  and net periodic  benefit cost of defined benefit pension plans and
other  postretirement  benefit plans.  The Statement  generally is effective for
fiscal years ending after December 15, 2003. The Company's  adoption of SFAS No.
132 did not impact its consolidated financial statements.

In November 2004, the FASB issued SFAS No. 151,  Inventory  Costs - an amendment
of ARB No. 43,  Chapter 4. This  Statement  amends the  guidance  in ARB No. 43,
Chapter 4, "Inventory  Pricing," to clarify the accounting for abnormal  amounts
of  idle  facility  expense,   freight,  handling  costs,  and  wasted  material
(spoilage).  Paragraph  5 of ARB 43,  Chapter 4,  previously  stated that ". . .
under  some  circumstances,  items  such as  idle  facility  expense,  excessive
spoilage,  double freight, and rehandling costs may be so abnormal as to require
treatment as current period charges.  . . ." This Statement  requires that those
items be recognized as  current-period  charges  regardless of whether they meet
the  criterion of "so  abnormal."  In addition,  this  Statement  requires  that
allocation of fixed production  overheads to the costs of conversion be based on
the normal  capacity of the production  facilities.  This statement is effective
for inventory  costs incurred during fiscal years beginning after June 15, 2005.
Management  believes the adoption of this  Statement  will have no impact on the
financial statements of the Company.


                                      F-12
<PAGE>

In December 2004, the FASB issued SFAS No.153,  Exchange of Nonmonetary  Assets.
This Statement addresses the measurement of exchanges of nonmonetary assets. The
guidance in APB Opinion No. 29,  Accounting  for  Nonmonetary  Transactions,  is
based on the principle that  exchanges of nonmonetary  assets should be measured
based on the fair value of the assets  exchanged.  The guidance in that Opinion,
however,  included certain  exceptions to that principle.  This Statement amends
Opinion 29 to  eliminate  the  exception  for  nonmonetary  exchanges of similar
productive  assets and  replaces it with a general  exception  for  exchanges of
nonmonetary  assets  that  do not  have  commercial  substance.  A  nonmonetrary
exchange  has  commercial  substance  if the future cash flows of the entity are
expected to change significantly as a result of the exchange.  This Statement is
effective for financial  statements  for fiscal years  beginning  after June 15,
2005. Earlier  application is permitted for nonmonetary asset exchanges incurred
during  fiscal  years  beginning  after the date of this  statement  is  issued.
Management  believes the adoption of this  Statement  will have no impact on the
financial statements of the Company.

In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment." SFAS No.
123R requires  employee stock options and rights to purchase  shares under stock
participation  plans to be  accounted  for  under  the fair  value  method,  and
eliminates  the ability to account  for these  instruments  under the  intrinsic
value method  prescribed  by APB Opinion No. 25, and allowed  under the original
provisions of SFAS No. 123. SFAS No. 123R requires the use of an option  pricing
model for estimating fair value,  which is amortized to expense over the service
periods.  The  requirements  of SFAS No. 123R are effective  for fiscal  periods
beginning  after June 15,  2005.  SFAS No.  123R  allows for either  prospective
recognition of compensation expense or retrospective  recognition,  which may be
back to the original  issuance of SFAS No. 123 or only to interim periods in the
year of adoption. The company is currently evaluating these transition methods.

2. DISCONTINUED OPERATIONS

In May 1998, PMI formed its Frontline Network Consulting (Frontline) division, a
corporate  information  systems  group that served the  networking  and personal
computer  requirements of corporate customers.  In July 2000, the Company formed
Frontline Network Consulting,  Inc. (FNC), a California corporation.  On June 2,
2003, the Company entered into an agreement to sell  substantially  all of FNC's
intangible assets to an unrelated party for a note in the amount of $15,000. The
Company  recorded a loss of $13,700 on the sale of the FNC  assets.In  May 1999,
the  Company  became a 50% owner in Lea  Publishing,  LLC  (Lea),  a  California
limited  liability  company formed in January 1999 to develop,  sell and license
software  designed to provide  internet  users,  resellers  and  providers  with
advanced solutions and applications.  In December 2001, the Company entered into
an agreement whereby it obtained 100% of Lea. On June 30, 2003, the Company sold
substantially all of Lea's intangible assets and certain equipment to certain of
the Lea's  employees.  The Company  also  entered  into a  Proprietary  Software
License  and  Support  Agreement  requiring  the  purchaser  to provide  certain
electronic  commerce  support  services to LW for a term of two years  beginning
July 1, 2003. The Company  received $5,000 on the  transaction  closing date and
the electronic  commerce  support  services  contract valued at $48,000 which is
based on the number of service hours to be provided. The Company recorded a loss
of  $16,000  on the sale of the Lea  assets.  Lea was  dissolved  in the  fourth
quarter 2004.

The operating  results,  including the loss from disposal of assets,  of FNC and
Lea for the years ended December 31, 2004, 2003 and 2002 were as follows:

                                               Year Ended December 31,
                                       ----------------------------------------
                                          2004          2003           2002
                                       -----------   -----------    -----------
FNC:
Net sales                              $   323,200   $ 1,313,500    $ 2,378,300
Income (loss) before income taxes
 (benefit)                                  93,300      (311,600)    (1,195,900)
Income tax benefit                              --            --       (360,600)
                                       -----------   -----------    -----------
Net income (loss)                      $    93,300   $  (311,600)   $  (835,300)
                                       -----------   -----------    -----------
Lea:
Net sales                              $        --   $   179,700    $   496,600
Loss before income tax benefit                  --      (122,300)      (751,000)
Income tax benefit                              --            --       (225,400)
                                       -----------   -----------    -----------
Net loss                               $        --   $  (122,300)   $  (525,600)
                                       -----------   -----------    -----------


                                      F-13
<PAGE>

3. RELATED PARTY TRANSACTIONS

During the first quarter of 2002, the Company made short-term salary advances to
a shareholder/officer  totaling $30,000,  without interest.  These advances were
recorded as a salary paid to the  shareholder/officer  during the second quarter
ended June 30, 2002.The  Company sold computer  products to a company owned by a
member of the Board of  Directors  of the  Company.  During  2003 and 2002,  the
Company recognized $102,400 and $527,400,  respectively,  in sales revenues from
this company.  There were no sales to this customer for the year ended  December
31,  2004 and there were no amounts due from this  customer  as of December  31,
2004 and 2003.

On June 30, 2003, the Company sold  substantially all of Lea's intangible assets
and  certain  equipment  to  certain of the Lea's  employees  (see note 2 to the
consolidated financial statements).

4. ACCOUNTS RECEIVABLE AGREEMENTS

On April 1, 2003, the Company  purchased a credit insurance policy from American
Credit Indemnity (ACI) covering certain accounts  receivable up to $2,000,000 of
losses.  The Company  also has an  agreement  with ENX,  Inc.  (ENX) to sell its
past-due  accounts  receivables from  pre-approved  customers with  pre-approved
credit limits under certain  conditions.  The commission is 0.5% of the approved
invoice amounts with a minimum quarterly  commission of $12,500.  As of December
31, 2004,  approximately  $1,059,000 of the outstanding receivables was approved
by ENX. The ACI policy  expires on March 31, 2005 and the ENX policy  expires on
April 30, 2005.

5. PROPERTY AND EQUIPMENT

The following is a summary of property and equipment as of December 31, 2004 and
2003:

     DECEMBER 31,                                    2004           2003
     ------------                                 ----------     ----------
     Building and improvements                    $3,274,400     $3,274,400
     Land                                          1,158,600      1,158,600
     Furniture and fixtures                          369,800        374,800
     Computers and equipment                         691,500        693,100
     Automobiles                                     116,500        116,500
                                                  ----------     ----------
                                                   5,610,800      5,617,400
     Less accumulated depreciation                 1,676,700      1,460,000
                                                  ----------     ----------
                                                  $3,934,100     $4,157,400
                                                  ==========     ==========


                                      F-14
<PAGE>

Depreciation  expense was $227,700,  $233,000 and $213,800,  for the years ended
December 31, 2004, 2003 and 2002, respectively.

6. NOTES PAYABLE

The Company's wholly-owned subsidiary, PMI, has 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
(2.25% as of December 31, 2004) plus 2.5%,  and is secured by a deed of trust on
the property. The balance of the financing was obtained through a $998,000 Small
Business  Administration  (SBA) loan due in monthly  installments  through April
2017.  The SBA loan bears  interest at 7.569%,  and is secured by the underlying
property.

Under the bank loan, PMI is required,  among other things, to maintain a minimum
debt service  coverage,  a maximum debt to tangible net worth ratio, and to have
no consecutive  quarterly  losses.  In addition,  PMI is required to achieve net
income on an annual basis.  PMI was in violation of the annual  income  covenant
and the  minimum  EBIDTA  coverage  ratio  as of  December  31,  2004 and was in
violation of the annual income,  minimum EBITA coverage ratio and quarterly loss
covenants as of December 31, 2003.  These  covenant  violations  constituted  an
event of default  under the loan  agreement  and gave the bank the right to call
the loan.  Waivers of the loan covenant  violations  were obtained from the bank
that extended through  December 31, 2005. As a condition for these waivers,  the
Company  maintained  $250,000  in a  restricted  account  as a reserve  for debt
service as of December  31, 2004 and 2003.  This  amount has been  reflected  as
long-term restricted cash in the accompanying  consolidated balance sheet. It is
uncertain that the Company be able to meet all these covenants in the future. If
this  was to occur  in the  future  and a waiver  for the  violation  cannot  be
obtained,  the Company  would be required to classify  the bank loan as current,
which would cause the Company to be out of  compliance  with  another  financial
covenant  included in its inventory  flooring  facility  with Textron  Financial
Corporation as discussed in note 7 to the consolidated financial statements.

The  outstanding  balances of the notes payable as of December 31, 2004 and 2003
are as follows:

                                                     2004              2003
                                                  ----------       ----------
       Bank loan                                  $2,331,700       $2,360,900
       SBA loan                                      771,700          808,600
                                                  ----------       ----------
                                                   3,103,400        3,169,500
       Less current portion                           71,900           66,100
                                                  ----------       ----------
                                                  $3,031,500       $3,103,400
                                                  ==========       ==========

The aggregate amounts of future maturities for notes payable are as follows:

  YEARS ENDING DECEMBER 31,                                      Amount
  -------------------------                                  ----------
              2005                                               71,900
              2006                                               76,600
              2007                                            2,312,200
              2008                                               49,900
              2009                                               53,800
         Thereafter                                             539,000
                                                             ----------
                                                             $3,103,400
                                                             ==========


                                      F-15
<PAGE>

7. FLOOR PLAN INVENTORY LOANS AND LETTER OF CREDIT

In May 2003,  PMI  obtained a $3,500,000  inventory  financing  facility,  which
includes a $1 million  letter of credit  facility used as security for inventory
purchased on terms from vendors in Taiwan,  from Textron  Financial  Corporation
(Textron).  The credit facility is guaranteed by PMIC,  PMIGA,  FNC, Lea, LW and
two  officers of the Company and may be  discontinued  by Textron at any time at
its sole  discretion.  Under the agreement,  the Company granted Textron a first
priority lien on all of its  corporate  assets.  Borrowings  under the inventory
line are subject to 30 days  repayment,  at which time  interest  accrues at the
prime rate plus 6% (11.25% at  December  31,  2004).  The Company is required to
maintain  collateral  coverage  equal  to 120%  of the  outstanding  balance.  A
prepayment is required when the  outstanding  balance  exceeds the sum of 70% of
the eligible accounts receivables and 90% of the Textron-financed  inventory and
100% of any cash  assigned or pledged to Textron.  PMI and PMIC are  required to
meet certain  financial  ratio  covenants,  including a minimum current ratio, a
maximum  leverage ratio, a minimum tangible capital funds and required levels of
profitability.  Beginning on September 30, 2003 through  December 31, 2004,  the
Company was out of compliance  with the maximum  leverage ratio covenant and the
minimum  tangible  capital funds for which  waivers have been  obtained  through
December 31, 2004. Based on the anticipated future results,  it is probable that
the Company will be out of compliance with certain of these  covenants.  If this
was to occur and a waiver for the  violation  cannot be obtained,  Textron might
terminate  the  credit   facility  and  accelerate   the  loan  payments.   Upon
termination,  there is no  assurance  that the  Company  would have the  funding
necessary  to finance its future  inventory  purchases  at levels  necessary  to
achieve  profitability.  The Company is also required to maintain  $250,000 in a
restricted  account as a pledge to Textron.  This amount has been  reflected  as
restricted cash in the accompanying  consolidated  financial  statements.  As of
December 31, 2004, the outstanding  balance of this loan was $2,243,100 which is
classified  as a current  liability  on the  accompanying  consolidated  balance
sheet.

8. INCOME TAXES

There was no income tax benefit (expense) recorded for the year ended December
31, 2004 and 2003. For the year ended December 31, 2002, income tax benefit
(expense) comprises:
                             2002            2002             2002
                           Current         Deferred           TOTAL
                        ------------     ------------     ------------
  Federal               $   873,000        (131,000)     $   742,000
    State                    (5,700)             --           (5,700)
                        ------------     ------------     ------------
                        $   867,300        (131,000)     $   736,300
                        ============     ============     ============

The  following  summarizes  the  differences  between  the income tax  (benefit)
expense and the amount  computed by applying the Federal  income tax rate of 34%
in 2004, 2003 and 2002 to income before income taxes:

YEAR ENDING DECEMBER 31,                  2004           2003          2002
-------------------------------------  -----------    -----------   -----------
Federal income tax benefit
  at statutory rate                    $   643,300    $   723,700   $ 1,414,300
State income taxes benefit (expense),
  net of federal benefit                        --             --        (5,700)
Other non-taxable income and
  non-deductible expenses                  (17,400)       (33,000        55,100
Change in deferred tax assets              194,200         94,800      (432,500)
Change in valuation allowance             (797,800)      (784,100)     (380,500)
Benefits recognized due to changes
  in tax laws                                   --             --       648,000
Other                                      (22,300)        (1,400)       23,600
Federal income tax benefit allocated
  to discontinued operations                    --             --      (586,000)
                                       -----------    -----------   -----------
Income tax benefit                     $        --    $        --   $   736,300
                                       ===========    ===========   ===========


                                      F-16
<PAGE>

The  Company  reported  income tax  benefits  of  $1,322,300  for the year ended
December 31, 2002 arising from the losses  incurred in 2002. In March 2002,  the
Job Creation and Worker Assistance Act of 2002 ("the Act") was enacted.  The Act
extended the general federal net operating loss carryback period from 2 years to
5 years for net  operating  losses  incurred for any taxable year ending in 2001
and 2002. On March 20, 2003, the Company received a federal income tax refund of
$1,427,400  attributable  to 2002 net operating  loss carried back.  The Company
recorded a valuation  allowance  for its net deferred tax assets,  including its
federal and state net  operating  loss for the year ended  December 31, 2004 and
2003. There was no tax benefit recorded relating to the increase in deferred tax
assets.  As of December 31,  2004,  the Company had a total net  operating  loss
carry forwards of  approximately  $3,802,600 of which  $1,775,600 and $2,027,000
will expire in 2024 and 2023,  respectively,  available to offset future federal
taxable income.

California  limits the amount that could be carried forward to 60% of the losses
incurred in 2002 and 2003.  As of  December  31,  2004,  the Company had a total
California state net operating loss carry forwards of  approximately  $6,318,800
to offset future taxable income. California net operating loss carry forwards of
$5,260,500  and  $1,058,300   expire,  if  not  utilized,   in  2014  and  2015,
respectively.

Deferred  tax assets  and  liabilities  as of  December  31,  2004 and 2003 were
comprised of the following:

                                                       2004             2003
                                                   -----------      -----------
      Deferred tax assets:
      Reserves (primarily the allowance for
        doubtful accounts) not currently
        deductible                                 $   165,300      $   130,300
      Accrued compensation and benefits                 16,900           19,000
      Capital loss carryover                           334,300          333,800
      NOL carryover                                  1,851,500        1,106,800
      Others                                             7,300            6,900
      Accumulated depreciation                         (10,000)         (29,300)
                                                   -----------      -----------
                                                     2,365,300        1,567,500
      Valuation allowance                           (2,365,300)      (1,567,500)
                                                   -----------      -----------
      Net deferred tax assets                      $        --      $        --
                                                   ===========      ===========

Realization  of the  Company's  deferred  tax assets is  dependent  upon  future
earnings  in  specific  tax   jurisdictions.   The  Company  has  evaluated  all
significant available positive and negative evidence, the existence of losses in
the recent years and forecast of future taxable income (loss) in determining the
need for a valuation  allowance.  At December 31, 2004 and 2003, the Company has
recorded  a  valuation  allowance,  relating  principally  to the  capital  loss
carryover,  Federal and California net operating loss carryover and reserves not
currently  deductible,  against  the net  deferred  tax assets to reduce them to
amounts  that are more likely than not to be  realized.  The net increase in the
total  valuation  allowance  for the year ended  December  31, 2004 and 2003 was
$797,800 and $784,100, respectively.


                                      F-17
<PAGE>

9. COMMITMENTS

The Company leases office space, equipment, and vehicles under various operating
leases.  The leases for office  space  provide  for the  payment of common  area
maintenance  fees and the  Company's  share of any  increases in  insurance  and
property taxes over the lease term.

Future minimum  obligations under these  non-cancelable  operating leases are as
follows:

YEAR ENDING DECEMBER 31,                       Amount
------------------------                      -------
2005                                          $48,600
2006                                            2,000
                                              -------
                                              $50,600
                                              =======

Total rent  expense  associated  with all  operating  leases for the years ended
December  31,  2004,  2003  and  2002  was  $101,600,   $133,800  and  $164,700,
respectively.

In December 2004, two  stockholders/executives  (the  "Stockholders")  holding a
collective  majority  interest  in the  Company  entered  into a Stock  Purchase
Agreement with Advanced Communications Technologies, Inc., a Florida corporation
("ACT"), pursuant to which ACT agreed to purchase from the Stockholders, and the
Stockholders  agreed to sell to ACT, an  aggregate  of  6,454,300  shares of the
common stock of the Company (the "PMIC Shares") for the aggregate purchase price
of $500,000.  On December 30, 2004, the  Stockholders and ACT closed on the sale
of  the  PMIC  Shares  (the  "Closing").   In  connection  with  the  sale,  the
Stockholders  entered into  employment  agreements with the Company and ACT. The
Employment  Agreements,  dated  December  30,  2004  provide for a cash bonus of
$225,000  each to be paid  within 30 days of the  Closing  and  other  bonus and
earn-out  provisions  that may be paid in cash or in shares  of common  stock of
ACT.  Under the  earn-out  provisions,  the  Stockholders  may earn the right to
receive in aggregate up to 99,999,999 shares of ACT's common stock. In the event
the Company  terminates  the  Employment  Agreements  without cause upon 30 days
prior written notice, the Stockholders are entitled to 6 months severance pay.

10. MAJOR VENDORS

One vendor  accounted for  approximately  15%, 18% and 11% of total purchases by
the Company for the years ended December 31, 2004, 2003 and 2002,  respectively.
One other vendor  accounted for 17% of purchases for the year ended December 31,
2003.  Management  believes  other  vendors  could  supply  similar  products on
comparable terms as those provided by the major vendors.  A change in suppliers,
however,  could cause a delay in availability of products and a possible loss of
sales, which could adversely affect operating results.

11. EMPLOYEE BENEFIT PROGRAM-401(k) PLAN

The  Company  has a  401(k)  plan  (the  Plan)  for its  employees.  The Plan is
available to all employees  who have reached the age of twenty-one  and who have
completed  three months of service with the  Company.  Under the Plan,  eligible
employees may defer a portion of their  salaries as their  contributions  to the
Plan.  Company  contributions  are  discretionary,  subject to statutory maximum
levels. There were no contributions by the Company in 2004, 2003 and 2002.

12. CONCENTRATION OF CREDIT RISK

Financial  instruments which potentially subject the Company to concentration of
credit  risk  consist  principally  of  cash  and  cash  equivalents  and  trade
receivables.  The  Company  places  its cash and cash  equivalents  with what it
believes are reputable financial institutions. As of December 31, 2004 and 2003,
the  Company  had  deposits,   including   restricted  cash,  at  one  financial
institution  which  aggregated  $562,200  and  $1,191,700,  respectively.  As of
December 31, 2004 and 2003,  the Company had deposits  amounting to $234,600 and
$692,300,  respectively,  at two other  financial  institutions.  Such funds are
insured by the Federal  Deposit  Insurance  Company up to $100,000 for each bank
account.  The Company has another $250,000 deposited into a reserve account with
Textron.


                                      F-18
<PAGE>

A significant  portion of the  Company's  revenues and accounts  receivable  are
derived  from  sales made  primarily  to  unrelated  companies  in the  computer
industry and related fields located  throughout the United States. For the years
ended  December 31, 2004,  2003 and 2002, no individual  customer  accounted for
more  than  10% of  sales.  The  Company  believes  any risk of  credit  loss is
significantly  reduced  due to the use of  various  levels of credit  insurance,
diversity in customers,  geographic  sales areas and  extending  credit based on
established  limits or terms.  The Company  performs  credit  evaluations of its
customers'  financial  condition  whenever  necessary,  and  generally  does not
require collateral for sales on credit.

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 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 would be issued when the  registration
statement  that  registers  the common stock  underlying  the Series A Preferred
Stock became 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. The Company also issued a common stock purchase warrant with the same
terms and conditions for the purchase of 100,000 shares of the Company's  common
stock to a broker who facilitated the transaction as a commission.

The holder of the Series A Preferred Stock was 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.  The amount  recorded as accretion of
the  stated  value for the years  ended  December  31,  2004,  2003 and 2002 was
$26,100, $24,900 and $14,200,  respectively.  Dividends were required to 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 was not  listed or quoted on
Nasdaq,  NYSE or AMEX. Each share of Series A Preferred Stock was 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
completion  of a  transaction  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 was  convertible
into shares of common stock at the Conversion  Price,  as defined,  but not less
than $0.75.  The Conversion  Price was subject to certain  adjustments,  such as
stock dividends.

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 had the right to require  the Company to redeem the Series A
Preferred  Stock in cash at 150% of the Stated Value.  As the Series A Preferred
Stock had conditions  for redemption  that were not solely within the control of
the  Company,  such Series A Preferred  Stock was  excluded  from  shareholders'
equity as of December 31, 2003. The  redemption  value of the Series A Preferred
Stock,  if the holder had  required the Company to redeem the Series A Preferred
Stock as of December 31, 2003, was $958,600.


                                      F-19
<PAGE>

The Company  accounted for the sale of preferred  stock and related  warrants in
accordance  with Emerging  Issues Task Force (EITF) 00-27  "Application of Issue
No. 98-5 to Certain  Convertible  Instruments"  and EITF 00-19  "Accounting  for
Derivative  Financial  Instruments  Indexed  to, and  Potentially  Settled in, a
Company's  Owned  Stock."  Proceeds of $477,500  (net of $80,500  cash  issuance
costs) were  received of which  $222,500  (net of  allocated  issuance  costs of
$37,500)  was  allocated to the Series A Preferred  Stock and  $255,000  (net of
allocated  issuance  costs of $43,000) was allocated to the  detachable  warrant
based upon its fair value as computed  using the  Black-Scholes  option  pricing
model. The $260,000 value of the beneficial  conversion option on the 600 shares
of Series A Preferred  Stock was  recorded  as a deemed  dividend on the date of
issuance.  The allocated $46,300 value (net of $53,000 allocated issuance costs)
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 a result, a
total amount of $397,300  was  allocated to the warrants and was included in the
current  liabilities.  The related  issuance  costs of $96,000  allocated to the
warrants  were  included in deposits and other  assets and were being  amortized
over a 3-year period using a straight-line  method.  As of December 31, 2004 and
2003,  the carrying  amount of the warrants was adjusted to the fair value.  The
change in fair value of the warrants  from the  issuance  date (May 31, 2002) to
December  31,  2002  and for the  year  ended  December  31,  2003  and 2004 was
$235,700,  $105,800 and $46,400,  respectively.  The change in fair value of the
warrants is included as other income.

Effective  April 30,  2003,  our  Company  stock was  delisted  from the  Nasdaq
SmallCap Market. The Company's common stock is eligible to be traded on the Over
the Counter Bulletin Board (OCTBB).  The delisting of the Company's common stock
enabled  the holder of the  Company's  Series A  Preferred  Stock to request the
redemption of such shares.  As of December 31, 2003,  the Company  increased the
carrying  value of the Series A Redeemable  Convertible  Preferred  Stock to its
redemption  value of $958,600  and  recorded an increase in loss  applicable  to
common  shareholders  of $743,300  for the year ended  December  31, 2003 in the
accompanying  consolidated statement of operations.  The Company included its 4%
Series A Redeemable  Convertible  Preferred  Stock in current  liabilities as of
December 31, 2003.

In December 2004, the Company entered into an agreement (the Series A Agreement)
with the  Investor  for  restructuring  certain  terms of the Series A Preferred
Stock.  In connection  with the closing of the  transactions  under the Series A
Agreement,  the Company  amended and restated its  Certificate of Designation of
Preferences,  Rights and Limitations of the Series A Preferred Stock on December
31, 2004.  Among the terms  amended are (1) the number of shares  designated  as
Series A Preferred Stock were decreased from 1,000 to 600 shares; (2) the Stated
Value of each  share of Series A  Preferred  Stock was  reduced  from  $1,000 to
$666.67;  (3) the  holders of the Series A  Preferred  Stock no longer  have the
right to required the Company to redeem each share of Series A Preferred  Stock,
which rights were  triggered  upon the  occurrence  of certain  events;  (4) the
redemption  amount payable by the Company upon exercise of its redemption  right
was reduced  from 150% of Stated Value to 100% of Stated  Value;  (5) there is a
181-day  waiting  period  from the  date of  filing  the  Amended  and  Restated
Certificate of Designation before the holder may exercise conversion (unless the
Company initiates a redemption prior to the end of the 181-day period);  (6) the
conversion price of the Series A Preferred Stock was changed to a fixed price of
$0.50 per share, subject to customary and anti-dilution adjustments; and (7) the
Company has five  trading  days,  instead of three,  to comply  with  conversion
procedures.  As part of the Series A Agreement,  the Investor  forfeited a stock
purchase warrant,  exercisable for 300,000 shares of the Company's common stock,
that was issued in connection with the original issuance of the Company's Series
A Preferred  Stock. The Company  accounted for these  transactions in accordance
with  SFAS  15,   Accounting   by  Debtors  and   Creditors  for  Troubled  Debt
Restructurings.  The restructuring of the Series A Preferred Stock resulted in a
gain of $758,600 (or $0.07 per share) for the year ended  December 31, 2004. The
fair value of the  restructured  Series A  Preferred  Stock was  $234,100  as of
December  31, 2004 and was  classified  as  shareholders'  equity in the balance
sheet.


                                      F-20
<PAGE>

14. CAPITAL STOCK INVESTMENT BANKING SERVICES

On December  16,  2002,  the Company  issued  warrants for the purchase of up to
300,000  shares of its common stock under terms of an agreement  for  investment
banking  services.  Warrants to purchase  100,000 shares of the Company's common
stock were to vest  immediately and warrants to purchase  200,000 shares were to
vest 50% on June 16, 2003 and 50% on December  16, 2003.  The Company  accounted
for this  transaction in accordance  with EITF No. 96-18,  Accounting for Equity
Instruments  that are issued to Employees for Acquiring,  or in Conjunction with
Selling  Goods or  Services.  On June 16,  2003,  the  Company  terminated  this
agreement and the warrants to purchase  200,000 shares were  cancelled.  For the
years ended December 31, 2003 and 2002, the Company recorded $28,500 and $2,400,
respectively, in expense related to this transaction.

STOCK ISSUED FOR SERVICES

On June 14, 2001,  the Company  issued  333,400 shares of its common stock to an
unrelated party in exchange for radio advertising services to be received over a
three-year  period.  The shares vested upon  issuance and were  non-forfeitable,
resulting in a measurement  date and final  valuation of shares in the amount of
$200,000  based upon the market price of the Company's  common stock on the date
of  issuance.  Under  the  terms  of  the  agreement,  one-third  of  the  radio
advertising  service credits  expired in two years.  Radio  advertising  service
credits were expensed when utilized and are included in other  selling,  general
and  administrative  expenses in the  accompanying  consolidated  statements  of
operations. Included in prepaid expenses and other current assets as of December
31, 2003 are radio advertising credits in the amount of $61,100.

STOCK OPTION PLAN

On July 16, 1998 the Company adopted the 1998 Stock Option Plan and reserved
1,000,000 shares of Common Stock for issuance under the Plan. Activity under the
Plan is as follows:

<TABLE>
<CAPTION>
                                                                                                Weighted
                                                               Weighted       Weighted           Average
                                Shares                          Average        Average         Remaining
                             Available          Options        Exercise           Fair       Contractual
                             for Grant      Outstanding           Price          Value              Life
                             ---------      -----------        --------       --------         ---------
<S>                            <C>              <C>             <C>             <C>            <C>
DECEMBER 31, 2001              149,400          794,600         $1.40           $1.08          3.8 Years
Options granted                (30,000)          30,000          0.95            0.85                 --
Options forfeited              172,600         (172,600)         2.41            2.24                 --
                             ---------      -----------        --------       --------
DECEMBER 31, 2002              292,000          652,000          1.11            0.76          3.1 Years
Options forfeited               58,000          (58,000)         2.63            2.33                 --
                             ---------      -----------        --------       --------
DECEMBER 31, 2003              350,000          594,000          0.96            0.82         2.3 Years
Options forfeited                2,000           (2,000)         1.50            1.30                --
Options expired                 42,000          (42,000)         1.50            1.33                 --
                             ---------      -----------        --------       --------
DECEMBER 31, 2004              394,000          550,000         $0.91           $0.78         1.4 Years
                               =======      ===========        ========       ========
</TABLE>


                                      F-21
<PAGE>

The following table summarizes information about stock options outstanding as of
December 31, 2004:

                       Options Outstanding                 Options Exercisable
              --------------------------------------      ----------------------
                              Weighted
                Number         Average      Weighted        Number     Weighted
              Outstanding     Remaining      Average      Exercisable   Average
Exercise        as of        Contractual    Exercise        as of      Exercise
Price         12/31/2004        Life          Price       12/31/2004     Price
-----         ----------     ----------       -----       ----------     -----
$0.76            10,000       2.5 Years       $0.76          10,000      $0.76
$0.88           323,800       1.3 Years       $0.88         323,800      $0.88
$0.97           206,200       1.3 Years       $0.97         206,200      $0.97
$1.05            10,000       2.4 Years       $1.05          10,000      $1.05
               --------                                     -------
                550,000       1.7 Years       $0.91         550,000      $0.91
               ========                                     =======

Under the terms of the Plan,  options are generally  exercisable  on the date of
grant and expire from four to five years from the date of grant as determined by
the Board of Directors.  The Company applies  Accounting  Principles Board (APB)
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations in
accounting for the plan. Under APB Opinion No. 25, because the exercise price of
the Company  stock  options  equals or exceeds the  estimated  fair value of the
underlying stock on the measurement date, no compensation cost is recognized.

In January 2002, the Securities  and Exchange  Commission  adopted new rules for
the disclosure of equity  compensation  plans. The purpose of the new rues is to
summarize  the  potential  dilution that could occur from past and future equity
grants under all equity  compensation  plans.  The  following  provides  tabular
disclosure of the number of securities to be issued as of December 31, 2004 upon
the exercise of  outstanding  options,  the weighted  average  exercise price of
outstanding options, and the number of securities remaining available for future
issuance under equity compensation plans, aggregated into two categories - plans
that have been approved by stockholders and plans that have not.

<TABLE>
<CAPTION>
                                                                             Number of
                             Number of                                       Securities Remaining
                             Securities to be                                Available for Future
                             Issued Upon             Weighted-average        Issuance Under
                             Exercise of             Exercise Price of       Equity Compensation
                             Outstanding             Outstanding             Plans (Excluding
                             Options and             Options and             Securities Reflected
Plan Category                Warrants                Warrants                in 1st Column)
-------------------------------------------------------------------------------
<S>                             <C>                     <C>                      <C>
Equity compensation
 plans approved by
 stockholders                   550,000                 $0.91                    394,000

Equity compensation
 plans not approved
 by stockholders                200,000                 $1.20                         --
                             ----------------------------------------------------------
Total                           750,000                 $0.99                    394,000
                                =======                                          =======
</TABLE>


                                      F-22
<PAGE>

15. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION

Cash was paid during the years ended December 31, 2004, 2003 and 2002 for:

                                                YEAR ENDED DECEMBER 31,
                                      ------------------------------------------
                                        2004             2003             2002
                                      --------         --------         --------
Income taxes                          $  3,600         $  3,600         $  5,700
                                      ========         ========         ========
Interest                              $166,200         $170,500         $183,700
                                      ========         ========         ========

Non-cash  investing and financing  activities  for the years ended  December 31,
2004, 2003 and 2002 were as follows:

On May 31, 2002, the Company issued  warrants to purchase  400,000 shares of the
Company's  common  stock to the  preferred  stock  investor  and the  broker  in
connection with the issuance of preferred stock. In connection with the issuance
of the  preferred  stock,  the Company  recorded a non-cash  deemed  dividend of
relating to the beneficial conversion feature of the preferred stock of $260,000
for the year ended  December  31,  2002.  Accretion  of the stated  value of the
preferred  stock,  including the recording of increases in redemption  value, of
$39,100,  $768,200  and $14,200 was  recorded  for the years ended  December 31,
2004, 2003 and 2002, respectively.

In December 2002,  the Company issued  warrants to purchase up to 300,000 shares
of the Company's  common stock at $1.20 per share for  consulting  services.  On
June 16, 2003,  the Company  terminated  this agreement and warrants to purchase
200,000 shares of the Company's common stock were cancelled. For the years ended
December  31,  2003  and  2002,  the  Company   recorded   $28,500  and  $2,400,
respectively,  in non-cash  expense  related to this  transaction  and increased
additional paid-in capital for the same amount.

As a consideration for the sale of Lea's assets to certain of Lea's employees on
June 30, 2003,  the Company  received an electronic  commerce  support  services
contract  for a term of 2 years valued at $48,000.  The value of the  electronic
commerce  support  services  is being  amortized  over the  2-year  term using a
straight-line method.

On December 31, 2004,  the certain terms of the Series A Redeemable  Convertible
Preferred Stock were  restructured  with the holder of the preferred  stock. The
restructuring of the preferred stock resulted in a non-cash gain of $758,600.

16. SEGMENT INFORMATION

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

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

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. They are managed  separately
because each business requires different technology and/or marketing strategies.
PMI and PMIGA are comparable  businesses with different  locations of operations
and  customers.  The  Company  does not have  offices  or  operation  in foreign
countries. Sales to foreign countries have been insignificant for the year ended
December 31, 2002. Sales to customers  located in foreign countries for the year
ended December 31, 2004 and 2003 are as follows:


                                      F-23
<PAGE>

                                              2004                 2003
                                           -----------          -----------
               North America
                (excluding U.S.)           $ 5,188,200          $ 1,272,900
               Europe                        6,406,300            1,969,700
               Asia                            134,600              150,900
               Others                          222,200                7,100
                                           -----------          -----------
               Total                       $11,951,300          $ 3,400,600
                                           -----------          -----------


The following table presents information about reported segment profit or loss
and segment assets for the years ended December 31, 2004, 2003 and 2002:

<TABLE>
<CAPTION>
Year Ended December 31, 2004:
                                       PMI            PMIGA            LW          Totals
                                   ------------    ------------    ------------    ------------
<S>                                <C>             <C>             <C>             <C>
Revenues from external customers   $ 61,101,100    $  4,958,600    $  5,413,800    $ 71,473,500
Interest income                           2,000              --              --           2,000
Interest expense                        166,200              --              --         166,200
Depreciation and
 amortization (1)                       206,500          21,000             300         227,800
Segment loss before taxes
 and minority interest               (1,523,100)       (228,000)       (248,800)     (1,999,900)
Segment assets (2)                   20,615,400       1,130,800         724,800      22,471,000
Expenditures for segment
 assets                                      --              --              --              --
</TABLE>

<TABLE>
<CAPTION>
Year Ended December 31, 2003:
                                       PMI            PMIGA            LW          Totals
                                   ------------    ------------    ------------    ------------
<S>                                <C>             <C>             <C>             <C>
Revenues from external customers   $ 60,410,600    $  7,323,600    $  7,251,100    $ 74,985,300
Interest income                           3,200              --              --           3,200
Interest expense                        153,000           3,800          13,700         170,500
Depreciation and
 amortization (1)                       202,500          28,600           7,600         238,700
Segment loss before taxes
 and minority interest               (1,143,300)       (366,900)       (258,100)     (1,768,300)
Segment assets (2)                   22,707,300       1,087,100       1,687,600      25,482,000
Expenditures for segment
 assets                                      --              --              --              --
</TABLE>

<TABLE>
<CAPTION>
Year Ended December 31, 2002:
                                       PMI            PMIGA            LW          Totals
                                   ------------    ------------    ------------    ------------
<S>                                <C>             <C>             <C>             <C>
Revenues from external customers   $ 56,814,300    $  9,471,400    $  1,684,200    $ 67,969,900
Interest income                          13,500             600              --          14,100
Interest expense                        164,400             700           1,000         166,100
Depreciation and
 amortization (1)                       190,800          28,000             800         219,600
Segment loss before taxes
 and minority interest               (1,470,400)       (796,200)       (166,600)     (2,433,200)
Segment assets (2)                   21,442,300         842,200         412,300      22,696,800
Expenditures for segment
 assets                                  58,900             800           1,500          61,200
</TABLE>

(1) The total of  reportable  segment  depreciation  and  amortization  does not
include  $32,000,  $32,000 and $16,000 of  amortization  expense  related to the
warrant  issuance  costs for the years ended  December 31, 2004,  2003 and 2002,
respectively.


                                      F-24
<PAGE>

(2) Segment assets before Intercompany eliminations.

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

<TABLE>
<CAPTION>
                                               2004            2003            2002
                                          ------------    ------------    ------------
<S>                                       <C>             <C>             <C>
LOSS BEFORE INCOME TAXES:
Loss before income taxes and
  minority interest for reportable
  segments                                $ (1,999,900)   $ (1,768,300)   $ (2,433,200)
Change in fair value of warrants                46,400         105,800         235,700
Amortization of warrants issuance costs        (32,000)        (32,000)        (16,000)
                                          ------------    ------------    ------------
Consolidated loss before income taxes
  and minority interest                   $ (1,985,500)   $ (1,694,500)   $ (2,213,500)
                                          ============    ============    ============
ASSETS:
Total assets for reportable segments      $ 11,699,100    $ 14,416,900    $ 14,985,600
Assets of FNC and Lea                           16,200         223,700       1,363,100
Other assets                                    25,400         131,800         918,300
                                          ------------    ------------    ------------

Consolidated total assets                 $ 11,740,700    $ 14,772,400    $ 17,267,000
                                          ============    ============    ============
</TABLE>

17. LITIGATION SETTLEMENT AND CONTINGENCIES

In  December  2003,  the  Company  settled a claim  against a  customer  and its
principal  owner for a past due account  receivable  in the amount of  $734,500.
Under the settlement agreement, the customer agreed to pay the entire balance in
12 equal monthly installments of $61,200,  beginning December 2003. In addition,
the customer entered into a UCC-Financing Statement with the Company under which
the  customer  secured  its  payments  due to the  Company  with all its assets,
including  inventory,   accounts  receivable  and  equipment.  The  customer  is
presently in default of its obligations  under the settlement  agreement.  Thus,
the Company is in the process of foreclosing on all the assets,  including cash,
accounts  receivable,  inventories  and  real  estate  of the  customer  and its
principal owner.  During the fourth quarter 2004, the Company reserved $487,200,
the entire unpaid balance of this receivable, based on the length of time it has
been defaulted. The Company continues to seek recovery.

In April 2003, the Company settled a lawsuit relating to a counterfeit  products
claim for  $95,000  which was  included in other  expenses  in the  accompanying
consolidated  statement of operations.  There are various claims,  lawsuits, and
pending  actions  against  the  Company  involving  matters  incidental  to  the
Company's  operations.  It is  the  opinion  of  management  that  the  ultimate
resolution  of these  matters  will not have a  material  adverse  effect on the
Company's consolidated financial position or results of operations.

18. UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL DATA

Summarized quarterly financial data for 2004 and 2003 is as follows:

<TABLE>
<CAPTION>
                                                     Quarter
                                 First           Second           Third           Fourth
                              ------------    ------------    ------------    ------------
<S>                           <C>             <C>             <C>             <C>
2004:
Sales                         $ 21,964,800    $ 17,105,000    $ 17,083,500    $ 15,320,200
Gross profit                     1,177,400         788,700         850,600         863,600
Loss from Operations              (309,600)       (549,100)       (259,900)       (866,900)
Net loss applicable to
 common shareholders              (319,200)       (558,900)       (176,400)       (118,200)
Basic and diluted loss
 per share (1):
   Loss from Operations              (0.03)          (0.05)          (0.03)          (0.12)
   Net loss applicable
     To common shareholders          (0.03)          (0.05)          (0.02)          (0.11)

2003:
Sales                         $ 18,288,000    $ 17,467,700    $ 19,514,100    $ 19,715,500
Gross profit                     1,086,100       1,086,000       1,040,200       1,217,100
Loss from Operations              (429,100)       (480,100)       (494,700)       (290,600)
Net loss applicable to
 common shareholders            (1,350,200)       (723,300)       (523,300)       (299,800)
Basic and diluted loss
 per share (1):
   Loss from Operations              (0.11)          (0.05)          (0.05)          (0.03)
   Net loss applicable
     To common shareholders          (0.13)          (0.07)          (0.05)          (0.03)
</TABLE>


                                      F-25
<PAGE>

(1)  Loss  per  share  are  computed  independently  for  each  of the  quarters
presented.  The sum of the  quarterly  loss per  share in 2004 and 2003 does not
equal the total computed for the year due to rounding.


                                      F-26
<PAGE>

                              SUPPLEMENTAL SCHEDULE

              PACIFIC MAGTRON INTERNATIONAL CORP. and Subsidiaries

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                      Charged to
                                     Beginning          Costs         Write-offs            Ending
Allowance for Doubtful Accounts       Balance        and Expense      of Accounts          Balance
-------------------------------      ---------       -----------      -----------         ---------
<S>                                   <C>               <C>             <C>                <C>
Year ended December 31, 2002          $400,000          $331,300        $(426,300)         $305,000

Year ended December 31, 2003          $305,000          $125,000        $(148,200)         $281,800

Year ended December 31, 2004          $281,800         $ 538,700        $(506,400)         $314,100
</TABLE>


                                      F-27