SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K

                    FOR ANNUAL REPORT AND TRANSITION REPORTS
                        PURSUANT TO SECTIONS 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                                   (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, 2002

                                       OR

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

      For the transition period from ________________ to _________________


                         COMMISSION FILE NUMBER 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)
<PAGE>
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. [X]

     Indicate by checkmark  whether the registrant is an  accelerated  filer (as
defined in Exchange Act Rule 126-2). Yes [ ] No [X]

     At June 28, 2002 the  aggregate  market  value of common  stock  held by
non-affiliates of the registrant was approximately $10,485,100.

              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 March 11,  2003 the  number of shares of common  stock  outstanding  was
10,485,062.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the  Registrant's  Proxy Statement  relating to the 2003 Annual
Meeting of Stockholders  are  incorporated by reference into Part III, Items 10,
11, 12 and 13.

                                       -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;  our business
initiatives and our goal of returning to profitability. 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 primary  business is to provide  computer  and  information  technology
solutions through our wholly-owned subsidiaries,  Pacific Magtron, Inc. ("PMI"),
Pacific  Magtron  (GA),  Inc.   ("PMIGA"),   Lea   Publishing,   Inc.   ("Lea"),
LiveWarehouse, Inc. ("LiveWarehouse"),  PMI Capital Corporation ("PMICC"), and a
majority-owned  subsidiary,  FrontLine Network  Consulting,  Inc.  ("FNC").  Our
business is organized into five divisions:  PMI, PMIGA,  FNC,  LiveWarehouse and
Lea/LiveMarket.

DEVELOPMENT OF BUSINESS

     Our computer products group operates through two wholly-owned subsidiaries,
Pacific Magtron,  Inc. and Pacific Magtron (GA), Inc. Our corporate  information
systems  group  operates  as  a  majority-owned  subsidiary,  FrontLine  Network
Consulting,  Inc. Our software development and publishing group, Lea Publishing,
Inc.,  operates  as a  wholly-owned  subsidiary.  LiveWarehouse,  Inc.  provides
consumers a convenient way to purchase computer products via the internet. PMICC
is an  investment  holding  company for the purpose of  acquiring  companies  or
assets deemed suitable for PMIC's organization.

     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 to enhance the distribution of PMI's products in the eastern United
States.

                                       -3-
<PAGE>
     FNC  serves as a  corporate  information  services  group  catering  to the
networking and internet infrastructure requirements of corporate clients.

     Lea/LiveMarket  is engaged in the development and  distribution of software
and  e-business  products  and  services,  as well as  integration  and  hosting
services.  In January  1999,  we formed Lea, as a California  limited  liability
company,  to develop,  sell and license  software  designed to provide  Internet
users, resellers and providers advanced solutions and applications. Prior to the
ownership  exchange  discussed  below,  we  owned a 62.5%  combined  direct  and
indirect (through our 25% ownership interest in Rising Edge Technology) interest
in Lea, which is a development  stage  company.  Michael Lee, the brother of Hui
Cynthia Lee, one of our officers and  directors,  is the  president and director
and a majority  shareholder of Rising Edge. In December 2001, we entered into an
agreement  with Rising Edge and its principal  owners to exchange  Rising Edge's
50%  ownership  interest  in Lea for our  25%  interest  in  Rising  Edge.  As a
consequence,  we now own 100% of Lea and no longer have an ownership interest in
Rising Edge. In the fourth quarter of 2001,  certain  assets of LiveMarket  were
purchased by PMICC and subsequently transferred to Lea. These assets, consisting
primarily of computer  equipment,  furniture and fixtures,  certain  Web-hosting
contracts,  rights to certain  intellectual  properties,  including LiveSell and
LiveExchange,  and non-tangible assets such as domain names and trademarks, were
acquired for $85,000,  plus $59,100 in acquisition  costs, and the assumption of
$20,000 in accrued  vacation  obligations  (investment of $164,100 in total) and
recorded under the purchase method of accounting as prescribed by FASB Statement
No. 141, Business  Combinations.  LiveMarket is an internet software development
company which designs and develops  online stores  (LiveSell) to allow consumers
to purchase products directly via a secured transaction network. It also designs
and develops  enterprise  document  exchange  solutions  (LiveExchange)  for its
client's  integration of disparate systems.  On May 28, 2002, the Company formed
Lea  Publishing,  Inc., a California  corporation.  Effective  June 1, 2002, Lea
Publishing, LLC transferred all of its assets and liabilities to Lea Publishing,
Inc.

     On October 15, 2001, we formed PMICC as a wholly-owned  subsidiary of PMIC,
for the purpose of  acquiring  companies  or assets  deemed  suitable for PMIC's
organization.

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

     Financial  information  for each division for each of the last three fiscal
years is included in the Audited Consolidated Financial Statements.

INDUSTRY OVERVIEW

WHOLESALE MICRO COMPUTER PRODUCTS DISTRIBUTION

     The  microcomputer  products  distribution  industry consists of suppliers,
wholesalers,  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.

                                       -4-
<PAGE>
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
because the wholesale  distribution industry serves both the aftermarket upgrade
market as well as  system  integrators  that  build  new  systems.  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 outsources a portion of its distribution, credit, marketing, and support
services.

     On the reseller side,  growing  product  complexity,  shorter  product life
cycles,  an increasing number of microcomputer  products,  the emergence of open
system 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 power 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.

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. More recently, 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 that provide
the  highest  value  through  superior  service  and  pricing  to be in the best
position to compete for reseller customers.

INTERNET SERVICES

     The Internet provides  wholesale  distributors with an additional method of
serving both suppliers 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

                                       -5-
<PAGE>
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 provides  distributors with new business  opportunities as new
categories of products, customers, and suppliers develop.

CORPORATE INFORMATION SYSTEMS CONSULTING

     Factors  similar to those  encouraging  the  increased  reliance  by target
clients on wholesale  distributors  are also driving  corporations to specialist
service  organizations,  such as FNC, to support the development and maintenance
of their information technology systems or networks.  Accelerating technological
advancement,   migration  of  organizations   toward  multi-vendor   distributed
networks, and increased  globalization of corporate activity have contributed to
an  increase  in  the   sophistication  of  information   delivery  systems  and
interdependency of corporate  computing  systems.  The desire by corporations to
focus  upon  their  core   activities   while  enjoying  the  benefits  of  such
multi-vendor  distributed  networks,  together with  increasing  skill shortages
within the information technology industry, have led businesses to outsource the
development  and maintenance of their  computing  systems to network  consulting
professionals.

SOFTWARE SOLUTIONS AND PUBLISHING

     With  increased  use  of  the  internet  for  business   transactions   and
businesses'  growing  reliance on their network  infrastructure  to process data
timely and accurately,  the software  requirements to accomplish these tasks has
created  growth in the  software  solution  provider  and  consulting  segments.
Businesses  are  looking  for  Application  Service  Providers  (ASP) and custom
software  solution  providers  such as  Lea/LiveMarket  to solve their needs and
improve their  systems,  such as to interface  legacy systems with more advanced
applications  and  control  of data flow and  communications  between  disparate
systems.  The other area of growth for software  providers is the increased need
for B2B or B2C to  communicate  effectively  to other  systems  on the  internet
through a hybrid of communication means.

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

     Through PMI and PMIGA,  we  distribute  a wide range of computer  products,
including  components,  multimedia  and  systems  networking  products.  We also
provide  vertical  solutions for systems  integrators and internet  resellers by
combining  or bundling our  products.  Our  computer  products  group offers our
customers a broad  inventory of more than 1,800 products from  approximately  30
manufacturers. We believe 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, CDR and 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.

                                       -6-
<PAGE>
INVENTORY LEVELS AND ASSET MANAGEMENT

     Based on  historical  order  levels and our  knowledge  of the  market,  we
maintain sufficient quantities of 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 look at and deal with 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 inventory.

     However,  we have recognized losses due to obsolete inventory in the normal
course of  business,  but  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  in  response 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  creditworthiness  of our customers,  and in most
markets,  utilize various levels of credit insurance to control credit risks and
enable us to extend higher levels of credit.  We have also established  reserves
for estimated credit losses in the normal course of business.

FRONTLINE NETWORK CONSULTING - CORPORATE INFORMATION SYSTEMS

INFORMATION TECHNOLOGY (IT) CONSULTING SERVICES

     We assist our end-user  corporate  clients in  identifying  solutions  that
match   available   technology,    their   current   IT   infrastructure,    and
situation-appropriate  IT  management  philosophy  to their  business  needs and
initiatives.  We endeavor to understand the client's  business and how it relies
on the availability and flow of information  from its technology  solutions,  as
well as  assessing  the value of that  information.  We baseline  the current IT
infrastructure  through  network,   systems,  security  and  business-continuity
assessments.  Subsequently,  we assist in quantifying solution benefits in terms
of competitive advantage,  better e-commerce transaction  efficiency,  increased
productivity of personnel and processes, reduced cost of ownership and return on
investment.

IT DESIGN, PLANNING, AND PROJECT MANAGEMENT SERVICES

     As part of our specific  solution sets, we provide  design,  planning,  and
project   management   services   within  the   specializations   of  enterprise
high-availability   services,   enterprise  and  network  management,   advanced
internetworking,  LAN  engineering,  telephony/video/data  convergence,  systems
engineering,  storage  and data  management,  and  inter-network/network/systems
security.

                                       -7-
<PAGE>
IT IMPLEMENTATION AND CONFIGURATION SERVICES

     We provide configuration,  testing, troubleshooting, and knowledge-transfer
training to our corporate clients based on their needs and requirements on a per
project basis.

IT PROCUREMENT SERVICES

     By taking advantage of the relationships  established between manufacturers
and our  wholesale  distribution  business,  we are  able to  provide  specialty
procurement  services to our corporate  customers.  Our professionals manage the
details of receiving,  configuring, testing, and shipping integrated systems for
our  customers,  and  assist  them  in  dealing  with  issues  such  as  product
availability  forecasting,  redeployment  and  disposal  of  technology  assets,
warehousing,  and  packaging,  tracking,  and  confirmation  of  shipments.  Our
procurement  services afford an additional benefit to our customers by providing
a single source for software and hardware orders, and by making available volume
discounts that might otherwise be unavailable to them.

IT TRAINING SERVICES

     We enhance our client's  efficiency and  productivity  through training and
knowledge-transfer.   We  have  the   capability   to   deliver   using   either
custom-designed or pre-established courseware.

FRONTLINE STRATEGIC PARTNERSHIPS

     One of the factors that permits us to provide our corporate  customers with
a high level of service is the development of strategic supply partnerships with
leading manufacturers, such as CISCO Systems, Hewlett-Packard, AT&T, Checkpoint,
Microsoft,  Nortel, Novell and others. Certification from these manufacturers is
based on  their  recognition  of our  expertise  at  implementing  their  client
solutions,  and  allows  us to offer  our  clients  the  products  that they are
currently using, along with continuous  education  regarding each technology and
the  applications  for which it is used.  We believe that forming  relationships
with suppliers is important in providing us with credibility in contacting large
corporate clients.

LEA/LIVEMARKET - SOFTWARE DEVELOPMENT AND PUBLISHING

     Lea/LiveMarket  provides  product and services  solutions  that connect and
manage  consumers,  distributors,  manufacturers  and  suppliers  by providing a
fully-managed   trading   network   enabled   by  proven   business   processes,
state-of-the-art  internet technologies,  and a network of established partners.
Lea/LiveMarket provides the following products and services.

SYSTEM INTEGRATION & SUPPLY CHAIN CONSULTING SERVICE

     Lea/LiveMarket    provides   business   case   and    recommendations    on
business-to-business (B2B) build-out,  return on investment analysis, direct and
indirect material spending  analysis,  inventory  reduction analysis and product
cycle time reduction analysis.

INTERNET SOFTWARE DEVELOPMENT AND DEPLOYMENT

     Using LiveSell and  LiveExchange,  Lea/LiveMarket  can design and implement
B2B  and   business-to-customer   (B2C)  sites   expeditiously   and  bring  EDI
capabilities to its client's current environment.

                                       -8-
<PAGE>
APPLICATIONS SERVICE PROVIDER AND MANAGED SERVICES

     Lea/LiveMarket  provides managed hosting services,  application monitoring,
application support and help desk support.

CUSTOM PROGRAMMING

     Lea/LiveMarket  also provides Microsoft Biztalk programming through the use
of  LiveExchange,  enabling  legacy  systems to  interface  with  other  systems
effectively.  All  offerings  are based on  Microsoft.NET  architecture  and are
marketed under four specific  point  solutions,  as well as general  consulting.
Prior to the  transfer of  LiveMarket's  assets to Lea,  Lea's only  significant
activity consisted of the software development noted above.

LIVEWAREHOUSE - BUSINESS TO CONSUMER E-COMMERCE STORE

     In December 2001 we formed LiveWarehouse, Inc., an e-commerce site aimed at
increasing  sales and gross  profit  marginsby  selling  directly  to  consumers
through  the  Internet.  LiveWarehouse.com's  main  focus is  consumer  computer
electronics for the computer after-market segment as well as storage and related
products for general consumer electronic devices.

SALES AND MARKETING

     We  generate  our  sales  for our  computer  products  divisions  through a
telemarketing  sales force,  which  consisted of  approximately  12 people as of
February 28, 2003 in our offices located in Milpitas,  California and six people
in our Georgia location.

     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
salespersons 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 pride ourselves on being  service-oriented and have a number of on-going
value-added  services  intended to benefit both our vendors and their resellers.
We train members of our sales staff through  intensive  in-house  sales training
programs,  along with vendor-sponsored product seminars. This training helps our
sales  people  provide  our  customers  with  product  information,  answer  our

                                       -9-
<PAGE>
customers  questions  about  important  new  product  considerations,   such  as
compatibility  and  capability,  and to  advise  which  products  meet  specific
performance  and price  criteria.  The core  competency our sales people develop
about the  products  that  they sell  supplements  the  sophisticated  technical
support and configuration services we provide. Salespeople who are knowledgeable
about the  products  that they sell  often can  assist in the  configuration  of
microcomputer  systems  according to specifications  given by the resellers.  We
believe  that our  salespeople's  ability  to listen to a  reseller's  needs and
recommend a cost-efficient  solution  strengthens the  relationship  between the
salesperson and his or her reseller and promotes  customer loyalty to a vendor's
products. In addition, we provide such other value-added services as new product
descriptions and technical education programs for resellers.

     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.

     FNC sales  are  generated  primarily  through  its  employees  and  through
referrals from manufacturers and customers. FNC's sales force currently consists
of seven persons.

     Lea/LiveMarket  currently  generates its sales  primarily from customer and
direct and online vendor referrals.

     LiveWarehouse    generates    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.
LiveWarehouse utilizes a staff of ____ to handle its sales volume and respond to
telephone inquiries.

SUPPLIERS

SOURCES OF SUPPLY

     Our financial and industry  positions  have enabled us to obtain  contracts
with many leading  manufacturers,  including Microsoft Creative Labs,  Logitech,
Toshiba,  Sony,  Network  Associates and TEAC. We purchase our products directly
from such manufacturers, generally on a non-exclusive basis. We believe that our
agreements  with  the  manufacturers  are in  forms  customarily  used  by  each
manufacturer.  The agreements  typically contain provisions allowing termination
by either party without prior notice,  and generally do not require us to sell a
specific quantity of products 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.

DISTRIBUTION

     From our central warehouse facilities in Milpitas,  California and Atlanta,
Georgia, we distribute  microcomputer products principally throughout the United
States.  No individual  customer or customers in any foreign country account 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

                                      -10-
<PAGE>
territory  granted to us. We will  continue  to seek to expand the  geographical
scope of our distributor arrangements.

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,  ability to tailor  specific  solutions to customer  needs,
quality and  breadth of product  lines and  services,  and the  availability  of
product  and  technical   support   information.   We  also  compete  with  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., all of which are privately held companies.
Ingram  Micro  Inc.,  Tech  Data  Corporation  Insight.com,  yahoo,  MSN and AOL
shopping portals 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 corporate  information  systems industry is based on
technical  know-how,  breadth of available  engineering  services,  flexibility,
resources in providing  customized  network solutions and the ability to provide
the right hardware  products for integration.  Our principal  competitors in the
corporate information systems industry varies depending on the project size from
IBM Global  Services,  SBC and other major  consulting  groups to local VARs and
network  integrators.  In some  cases we compete  with  those that have  greater
financial and other resources.

     Competition  within the software solution and publishing  industry is based
on the ability to identify,  program and deliver  efficient  and  cost-effective
solutions within the scope of the projects,  as well as the breadth of knowledge
available through its programmers and consultants necessary to bring any project
to conclusion successfully. Lea/LiveMarket faces competition from such companies
as Manugistics,  I2, Compuware,  and occasionally  local independent  consulting
firms.

     Competition  within the e-commerce  space is primarily  based on having the
products  available  and the  ability to ship  products  ordered on our  website
expediently  and  correctly  at  competitive  pricing.  Although  there are many
smaller  competitive  e-store  websites  on  the  Internet,  many  of  them  are
relatively  small and the  market is quite  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 Insight.com,  Yahoo, MSN and
AOL.

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

EMPLOYEES

     As of February 28, 2003, we had  approximately 90 full time employees,  all
of whom are  non-union,  and  three  executive  officers.  We  believe  that our
employee relations are good.

                                      -11-
<PAGE>
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

OUR REPORT OF INDEPENDENT AUDITORS CONTAINS A GOING CONCERN QUALIFICATION

     We have  received a going concern  opinion from our  auditors.  The opinion
raises substantial doubts our ability to continue as a going concern. If we fail
to replace our  Transamerica  floor plan line of credit or if we cannot  reverse
our trend of negative earnings an investor could lose his entire investment.

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

     We  incurred  net losses for the year ended  December  31, 2002 and 2001 of
$2,835,900 and $2,850,700, respectively, and we may continue to incur losses. In
addition, our revenues decreased 6.2% during the year ended December 31, 2002 as
compared to 2001. Our future ability to execute our business plan will depend on
our efforts to increase revenues,  reduce costs and return to profitability.  We
have implemented plans to reduce overhead and operating costs, and to build upon
our core business.  No assurance can be given,  however, that these actions will
result in increased  revenues  and  profitable  operations.  If we are unable to
return to profitable operations we may be unable to continue as a going concern.

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

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

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

POTENTIAL SALES OFF 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, 2002 we had 600 shares of Series A Preferred  outstanding.  The
Series A Preferred are  convertible  based on a sliding scale  conversion  price
referenced to the market price of our common stock. As of December 31, 2002, the
Series A Preferred was convertible  into 818,900 shares of common stock based on
the floor  conversion  price of $.75. Any additional  shares of preferred  stock
that may be issued in the future  could be given  voting and  conversion  rights
that could dilute the voting  power and equity of existing  holders of shares of
common  stock and have  preferences  over shares of common stock with respect to
dividends  and  liquidation  rights.  At the time of  issuance  of the  Series A

                                      -12-
<PAGE>
Preferred  Stock, it was intended that an additional 400 shares be issued to the
same investor; however, the purchaser has not fulfilled its obligations to close
this  transaction as of the date of this filing,  and we do not anticipate  that
such sale will occur.

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

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

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

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

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

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

     On January 7, 2003,  Transamerica  terminated  its credit  facility with us
effective April 7, 2003.  However,  Transamerica  will continue its guarantee of
the Letter of Credit  Facility  through July 25, 2003.  Unless we do not perform
our obligations in accordance  with the agreement and certain  covenants are not
materially   worse  than  the  condition  at  the  level  on  January  7,  2003,
Transamerica  will  continue to accept  payments  according  to the terms of the
agreement prior to April 7, 2003. The remaining  outstanding  balance is due and
payable in full on April 7, 2003. As of December 31, 2002, we had an outstanding
balance  of  $901,600  due under  this  credit  facility.  We would be unable to
continue  our  operations   without   replacement  loans  or  other  alternative
financing.  We are in the process of seeking a replacement for the  Transamerica
Flooring  line with a similar line from Textron  Financial.  However,  we cannot
assure you that we will be able to either  secure the Textron  flooring  line or
maintain it if we continue our losses.

OUR COMMON STOCK DOES NOT CURRENTLY MEET THE REQUIREMENTS FOR CONTINUED  LISTING
ON THE NASDAQ SMALLCAP MARKET

     Our common  stock is currently  traded on the Nasdaq  SmallCap  Market.  On
August 19, 2002 we received a letter from the Nasdaq Stock  Market  informing us
that we did not meet the criteria for continued  listing on the Nasdaq  SmallCap
Market.  The letter  stated that Nasdaq will  monitor our common stock and if it
closes above $1.00 for a minimum of ten  consecutive  trading days,  Nasdaq will
notify us of our compliance with the continued listing  standards.  We have also
been notified by Nasdaq that we have not complied with the Marketplace Rule that
requires a minimum bid price of $1.00 per share of common  stock.  We have until
August 18, 2003 to comply with this Rule.

     On February 28, 2003,  Nasdaq  notified us that our common stock had failed
to comply with the minimum  market value of publicly held shares  requirement of
Nasdaq  Marketplace Rule. Our common stock is,  therefore,  subject to delisting
from the Nasdaq SmallCap Market.  On March 6, 2003 we requested a hearing before
a Listing  Qualifications  Panel, at which we will seek continued  listing.  The

                                      -13-
<PAGE>
hearing has been  scheduled on April 24,  2003.  We intend to detail our plan to
comply  with  both  Rules at the  hearing  referred  to  above.  There can be no
assurance  that the Panel will grant our request for continued  listing.  If our
common stock is  delisted,  we would seek to have our common stock traded on the
OTC Bulletin Board. In such case, the market for our common stock will not be as
broad as if it were  traded on the  Nasdaq  SmallCap  Market and it will be more
difficult  to trade in our common  stock,  which will likely cause a decrease in
the price of our common stock.

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

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

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

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

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

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

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

     All aspects of our business are highly competitive.  Competition within the
computer products distribution industry is based on product availability, credit
availability,  price, speed and accuracy of delivery, effectiveness of sales and
marketing  programs,  ability to tailor  specific  solutions to customer  needs,

                                      -14-
<PAGE>
quality and  breadth of product  lines and  services,  and the  availability  of
product and technical support  information.  We also compete with  manufacturers
that sell directly to resellers and end users.

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

FAILURE TO RECRUIT AND RETAIN TECHNICAL PERSONNEL WILL HARM OUR BUSINESS

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

WE DEPEND UPON CONTINUED CERTIFICATION FROM CERTAIN OF OUR SUPPLIERS

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

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

     One   supplier,    Sunnyview/CompTronic   ("Sunnyview"),    accounted   for
approximately  11%,  10% and 16% of our  total  purchases  for the  years  ended
December 31, 2002, 2001 and 2000, respectively. We do not have a supply contract
with Sunnyview, but rather purchase products from it through individual purchase
orders,  none of which has been large  enough to be material to us.  Although we
have not experienced significant problems with Sunnyview or our other suppliers,
and we believe we could obtain the products that  Sunnyview  supplies from other
sources, there can be no assurance that our relationship with Sunnyview and with
our other  suppliers,  will  continue or, in the event of a  termination  of our
relationship  with  any  given  supplier,  that  we  would  be  able  to  obtain
alternative  sources of supply on comparable terms without a material disruption
in our ability to provide products and services to our clients. This may cause a
loss of sales  that  could have a  material  adversely  effect on our  business,
financial condition and operating results.

                                      -15-
<PAGE>
IF A CLAIM IS MADE  AGAINST  US IN  EXCESS OF OUR  INSURANCE  LIMITS WE WOULD BE
SUBJECT TO POTENTIAL EXCESS LIABILITY

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

WE ARE DEPENDENT ON KEY PERSONNEL

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

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

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

                                      -16-
<PAGE>
ESTABLISHMENT OF OUR NEW BUSINESS TO-CONSUMER WEBSITE  LIVEWAREHOUSE.COM MAY NOT
BE SUCCESSFUL

     We have established a new business-to-consumer website,  LiveWarehouse.com.
We cannot assure you that we will achieve market acceptance for this project and
achieve  a  profitable  level  of  operations,  that we will be able to hire and
retain personnel with experience in online retail marketing and management, that
we will be able to execute our business plan with respect to this market segment
or that we will be able to  adapt to  technological  changes  once  operational.
Further, while we have experience in the wholesale marketing of computer-related
products,  we have virtually no experience in retail  marketing.  This market is
very  competitive  and  many  of  our  competitors  have  substantially  greater
resources and experience than we have.

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

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

ITEM 2. PROPERTIES

     We own property  located at 1600 California  Circle,  Milpitas,  California
95035,  which was subject to mortgages in the amount of  $3,230,300  at December
31, 2002. Of this amount,  $2,387,500 is subject to bank  financing  which bears
interest at the bank's  90-day  LIBOR rate (1.875% as of December 31, 2002) plus
2.5% and is secured by a deed of trust on the property.  The remaining  $842,800
is subject to a Small  Business  Administration  loan which bears  interest at a
7.569% rate and is secured by the  underlying  property.  This  property of 3.31
acres  includes  a 44,820  square  foot  building.  The  building  contains  our
executive  office and  warehouse  and we believe it is suitable  for the current
size and the nature of our  operations.  We lease a building in Georgia to house
our branch office pursuant to a three-year operating lease which expires October
31,  2003.  We have an option to renew this lease for an  additional  three-year
term.  Future minimum lease payments under this  non-cancelable  operating lease
agreement for 2003 are estimated to be $89,900.

     LiveMarket  leases an office  in  Orange  County.  The term of the lease is
currently  on a  month-to-month  basis at a cost to the  company  of $1,060  per
month.

     Frontline Network Consulting,  Inc. leases an office in Tempe, Arizona with
a term expired on February 28, 2003. Currently, the lease is on a month-to-month
basis and requires a monthly payment of $3,069.

ITEM 3. LEGAL PROCEEDINGS

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

                                      -17-
<PAGE>
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.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

     Our common stock is listed on the Nasdaq SmallCap  Market.  It first traded
on the Nasdaq  SmallCap  Market on January 31, 2000,  and prior to such date our
common stock was traded on the OTC Bulletin Board. Our stock first traded on the
OTC Bulletin Board on July 28, 1998. The following  table shows the high and low
sale  prices in  dollars  per share  for the last two years as  reported  by the
Nasdaq Small Cap Market and the OTC Bulletin Board.  These prices may not be the
prices  that you would pay to  purchase a share of our common  stock  during the
periods shown.

                                                               HIGH        LOW
                                                              ------      ------
Fiscal Year Ended December 31, 2002
  First Quarter                                               $ 2.11      $ 0.86
  Second Quarter                                              $ 1.70      $ 0.50
  Third Quarter                                               $ 1.25      $ 0.26
  Fourth Quarter                                              $ 1.03      $ 0.25

Fiscal Year Ended December 31, 2001
  First Quarter                                               $ 2.88      $ 1.00
  Second Quarter                                              $ 1.15      $ 0.47
  Third Quarter                                               $ 2.00      $ 0.45
  Fourth Quarter                                              $ 2.95      $ 1.00

     We had 1,260  stockholders of record of our common stock as of February 14,
2003.

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  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.

                                      -18-
<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 of this Form 10-K.  The financial  data as of and for
the years ended December 31, 2002,  2001,  2000, 1999 and 1998, has been derived
from  our  consolidated   financial  statements.   Our  consolidated   financial
statements for the year ended December 31, 2002 were audited by KPMG LLP and the
consolidated  financial  statements for the years ended December 31, 2001, 2000,
1999 and 1998 were audited by BDO Seidman, LLP.

<TABLE>
<CAPTION>
                                                             Fiscal Year Ended December 31
                                      ----------------------------------------------------------------------------
Statement of Operations Data              2002            2001            2000            1999            1998
                                      ------------    ------------    ------------    ------------    ------------
<S>                                   <C>             <C>             <C>             <C>             <C>
Net Sales .........................   $ 70,328,700    $ 75,011,700    $ 88,872,700    $104,938,700    $105,431,200
Income (Loss) from Operations .....     (4,176,000)     (3,829,500)         10,200       1,682,100       3,080,000
Net Income (Loss) .................     (2,835,900)     (2,850,700)        121,800         827,300       1,775,700
Net Income (Loss) applicable to
  Common Shareholders .............     (3,110,100)     (2,850,700)        121,800         827,300       1,775,700
Net Income (Loss) per share to
  Common Shareholders - Basic and
  Diluted .........................          (0.30)          (0.28)           0.01            0.08            0.19

                                                             Fiscal Year Ended December 31
                                      ----------------------------------------------------------------------------
Balance Sheet Data                        2002            2001            2000            1999            1998
                                      ------------    ------------    ------------    ------------    ------------
Current Assets ....................   $ 12,577,600    $ 12,501,600    $ 15,335,200    $ 15,221,100    $ 16,886,600
Current Liabilities ...............      9,464,900       6,766,700       7,710,800       7,614,400       8,955,100
Total Assets ......................     17,267,000      17,323,300      20,861,100      20,689,000      21,108,400
Long-Term Debt ....................      3,169,500       3,230,300       3,286,200       3,337,600       3,377,100
Redeemable Convertible Preferred
  Stock ...........................        190,400              --              --              --              --
Long-Term Obligations and
  Redeemable Convertible
  Preferred Stock .................      3,359,900       3,230,300       3,286,200       3,337,600       3,377,100
Shareholders' Equity ..............      4,442,200       7,289,900       9,857,800       9,736,000       8,744,700
</TABLE>

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

FORWARD-LOOKING STATEMENTS

     The accompanying discussion and analysis of financial condition and results
of  operations  is based on 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  financial  statements and
related notes  thereto.  This  discussion  contains  forward-looking  statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the  Securities  Exchange  Act of 1934,  as  amended.  Our actual
results  could  differ  materially  from those set forth in the  forward-looking
statements.  Forward-looking statements, by their very nature, include risks and
uncertainties.  Accordingly,  our actual  results could differ  materially  from
those discussed in this Report. A wide variety of factors could adversely impact
revenues,  profitability,  cash flows and capital needs, including our objective
of  returning  to  profitabiltiy.  Such  factors,  many of which are  beyond our
control include,  but are not limited to,  technological  changes,  our need for
additional  capital,  insurance  and  potential  excess  liability,   diminished
marketability of inventory,  increased warranty costs, competition,  recruitment

                                      -19-
<PAGE>
and retention of technical personnel, dependence on continued OEM certification,
dependence on certain suppliers,  risks associated with the projects in which we
are engaged to complete, and dependence on key personnel.

GENERAL

     We provide solutions to customers in several synergetic and rapidly growing
segments of the computer industry. Our operating business is organized into five
divisions: PMI, PMIGA, FNC, Lea/LiveMarket,  and LiveWarehouse (LW). We also use
PMICC as an investment vehicle for the purpose of acquiring  companies or assets
deemed suitable for our operations.

     Our  subsidiaries,  PMI and PMIGA,  provide the wholesale  distribution  of
computer  multimedia  and storage  peripheral  products and provide  value-added
packaged  solutions  to a wide range of  resellers,  vendors,  OEMs and  systems
integrators.  PMIGA commenced  operations in October 2000 and distributes  PMI's
products in the eastern United States market.

     To capture the expanding corporate IT infrastructure market, we established
the  FrontLine  Network  Consulting  division  in 1998 to  provide  professional
services to  mid-market  companies  focused on  consulting,  implementation  and
support services of Internet  technology  solutions.  During 2000, this division
was  incorporated as FNC. On September 30, 2001, FNC acquired  certain assets of
Technical Insights,  Inc., a computer technical support company, in exchange for
$20,000 worth of PMIC common stock (16,142 shares). This acquired business unit,
Technical Insights,  enables FNC to provide computer technical training services
to corporate clients.

     We also invested in a 50%-owned joint software venture, Lea Publishing, LLC
(Lea  Publishing),  in 1999 to  focus  on  Internet-based  software  application
technologies to enhance corporate IT services.  Lea Publishing was a development
stage  company.  In June 2000, we increased our direct and indirect  interest in
Lea  Publishing  to 62.5% by completing  our purchase of 25% of the  outstanding
common  stock of  Rising  Edge  Technologies,  Ltd.,  the other 50% owner of Lea
Publishing.  In December 2001, we entered into an agreement with Rising Edge and
its principal owners to exchange the 50% Rising Edge ownership in Lea Publishing
for our 25% interest in Rising  Edge.  As a  consequence,  PMIC owns 100% of Lea
Publishing and no longer has an interest in Rising Edge. Certain assets acquired
and liabilities  assumed originated from the acquisition of LiveMarket that were
initially  purchased  through PMICC,  were  transferred to Lea Publishing in the
fourth  quarter  of  2001 to  further  assist  in the  development  of  internet
software.  In May 2002,  the  Company  formed  Lea,  a  California  corporation.
Effective  June 1,  2002,  Lea  Publishing  transferred  all of its  assets  and
liabilities to Lea.

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

     As used herein and unless  otherwise  indicated,  the terms "Company," "we"
and  "our"  refer  to  Pacific  Magtron  International  Corp.  and  each  of our
subsidiaries.

                                      -20-
<PAGE>
CRITICAL ACCOUNTING POLICIES

     Our  significant  accounting  policies  are  described  in  Note  1 to  the
consolidated  financial statements included as Part II Item 8 to 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,  provided  no  significant  obligations  remain  and
collectibility  is  probable.  A  provision  for  estimated  product  returns is
established at the time of sale based upon historical  return rates,  which have
typically been  insignificant,  adjusted for current  economic  conditions.  The
Company generally does not provide volume discounts or rebates to its customers.
Revenues relating to services performed by FNC are recognized upon completion of
the contracts.  Software and service  revenues  relating to software  design and
installation  performed by FNC and Lea, are  recognized  upon  completion of the
installation and customer acceptance.

LONG-LIVED ASSETS

     The Company periodically reviews its long-lived assets for impairment. When
events or changes in circumstances indicate that the carrying amount of an asset
group  may not be  recoverable,  the  Company  adjusts  the  asset  group to its
estimated  fair group value.  The fair value of an asset group 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 group the present value of the
estimated future cash flows from the asset. The asset value  recoverability test
is performed by the Company on an on-going basis.

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

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

INVENTORY

     Our inventories,  consisting primarily of finished goods, are stated at the
lower of cost (moving  weighted  average method) or market.  We regularly review
inventory  quantities on hand and record a provision,  if necessary,  for excess
and obsolete  inventory  based  primarily on our  estimated  forecast of product
demand.  Due to a relatively high inventory  turnover rate and vendor agreements
common in  industry  practice  that  provide  price  protections  or credits for
declines in inventory value and the right to return 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.

                                      -21-
<PAGE>
INCOME TAXES

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

USE OF ESTIMATES

     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 those estimates.

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,
                                                   ----------------------------
                                                    2002       2001       2000
                                                   ------     ------     ------
Sales ..........................................    100.0%     100.0%     100.0%
Cost of Sales ..................................     93.4       92.9       92.1
                                                   ------     ------     ------
Gross Margin ...................................      6.6        7.1        7.9
Operating Expenses .............................     12.5       12.2        7.9
                                                   ------     ------     ------
(Loss) Income from operations ..................     (5.9)      (5.1)       0.0
Other income (expense) .........................      0.0       (0.2)       0.2
Income Tax Benefit (expense) ...................      1.9        1.5       (0.1)
Minority Interest in FNC and PMIGA .............      0.0        0.0        0.0
                                                   ------     ------     ------
Net Income (loss) ..............................     (4.0)      (3.8)       0.1
Accretion and deemed dividend relating to
  beneficial conversion of 4% Series A
  Convertible Preferred Stock ..................     (0.4)       0.0        0.0
                                                   ------     ------     ------
Net income (loss) applicable to Common
  shareholders .................................     (4.4)%     (3.8)%      0.1%
                                                   ======     ======     ======

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

     Consolidated sales for the year ended December 31, 2002 were $70,328,700, a
decrease of $4,683,000,  or approximately  6.2%, compared to $75,011,700 for the
year ended December 31, 2001. Approximately $65,862,100, or 93.6% of total sales
recognized by us for the year ended  December 31, 2002 was  attributable  to PMI
and PMIGA,  our wholesale  computer  distribution  business.  For the year ended
December 31,  2001,  the combined  sales of PMI and PMIGA were  $71,738,800,  or
95.7% of total sales. Sales generated by FNC and Lea in 2002 were $2,378,300 and
$496,600, respectively, as compared to $3,022,200 and $250,700, respectively, in
2001.  Sales from FNC, Lea, and LW as a percent of total sales were 3.4%,  0.7%,

                                      -22-
<PAGE>
and 2.3%, respectively, for the year ended December 31, 2002. Sales from FNC and
Lea as a percent of total sales were 4.0% and 0.3%,  respectively,  for the year
ended  December 31, 2001.  LW was  incorporated  in December  2001 and generated
$1,591,700 sales in 2002.

     The combined sales of PMI and PMIGA, our computer products  segments,  were
$65,862,100  for the year ended December 31, 2002, a decrease of $5,876,700,  or
approximately  8.2%,  compared to  $71,738,800  for the year ended  December 31,
2001.  Sales  recognized  by PMIGA  were  approximately  $9,374,200  in 2002,  a
decrease of $2,071,100, compared to $11,445,300 in 2001. Sales for PMI decreased
by $3,805,600,  or 6.3% from $60,293,500 for the year ended December 31, 2001 to
$56,487,900  for the year ended December 31, 2002. The decrease in PMI and PMIGA
sales was primarily due to a continuing decline in the computer component market
and the intense competition in pricing in the computer component market in 2002.
In addition,  we believe that the continued  slow down in the economy  depressed
our sales in 2002.

     Total  sales  generated  by FNC for the year ended  December  31, 2002 were
$2,378,300 of which  $1,904,700  was from  products  sales and $473,600 was from
service sales.  For the year ended December 31, 2001,  total sales  generated by
FNC were  $3,022,200,  of which  $2,907,200 was from products sales and $115,000
was from service sales. The total sales in 2002 decreased by $643,900, or 21.3%,
compared to 2001.  Products  sales in 2002  decreased by  $1,002,500,  or 34.5%,
compared to 2001 and service  sales in 2002  increased by  $358,600,  or 311.8%,
compared to 2001.  The decrease in FNC's  products  sales was primarily due to a
continued  slow and stagnant  U.S.  economy and the  over-capacity  built by our
existing and potential  customers in the past few years.  In September 2001, FNC
purchased  certain assets of Technical  Insights,  a computer  technical support
company  which  provides  computer  technical  training for its  customers.  The
increase in service  sales for 2002 was  primarily  due to three months of sales
for  Technical  Insights  that were  included  in FNC's  service  sales for 2001
compared to twelve  months of sales that were included in FNC's service sales in
2002.

     In the fourth quarter of 2001 PMICC acquired  certain assets of an internet
software  development  company,  LiveMarket.  Subsequently,  these  assets  were
transferred to Lea. During the fourth quarter of 2001,  Lea/LiveMarket generated
$250,700 in revenues  which related  entirely to the newly  acquired  LiveMarket
operations.  For the year ended  December  31,  2002,  Lea/LiveMarket  generated
$496,600 in revenue.

     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.  Sales generated by LW were $1,591,700 for the year ended December 31,
2002. There were no sales generated by LW in 2001.

     Consolidated  gross  margin  for the  year  ended  December  31,  2002  was
$4,610,300,  a decrease of $691,800,  or 13.0%,  compared to $5,302,100  for the
year ended December 31, 2001. The  consolidated  gross margin as a percentage of
consolidated  sales  decreased from 7.1% for the year ended December 31, 2001 to
6.6% for year ended December 31, 2002.

     The combined gross margin for PMI and PMIGA was $3,723,700, or 5.7% for the
year ended December 31, 2002 compared to $4,687,000, or 6.5%, for the year ended
December 31, 2001.  PMI's gross margin for the year ended  December 31, 2002 was
$3,266,900,  or 5.8% of PMI's  sales  compared to  $4,066,400,  or 6.7% of PMI's
sales for the year ended  December 31, 2001.  PMIGA's  gross margin for the year
ended  December  31, 2002 was  $456,800,  or 4.9% of PMIGA's  sales  compared to

                                      -23-
<PAGE>
$620,600,  or 5.4% of PMIGA's  sales for the year ended  December 31, 2001.  The
decrease in PMI and PMIGA sales was primarily due to a continuing decline in the
computer component market and the intense competition in pricing in the computer
component  market in 2002  compared to 2001. We believe that there was an excess
supply of computer  products in 2002 resulting in intense pricing  pressure that
adversely affected the gross margin.

     Gross  margin  related  to FNC for the year  ended  December  31,  2002 was
$430,900, or 18.1% of total FNC's sales, compared to $391,800, or 13.0% of FNC's
sales for the year ended  December  31,  2001.  The higher  gross margin in 2002
compared  to 2001 was  primarily  due to a higher mix of service  sales in 2002.
FNC's service revenue was $473,600,  or 19.9% of total FNC's sales,  compared to
$115,000, or 3.8% of total FNC's sales in 2001. FNC has a higher gross margin on
service sales than product sales as part of the  consulting  and  implementation
and training  services.  Since FNC's sales  accounted  for only 3% and 4% of our
consolidated  sales  that  occurred  in 2002 and 2001,  respectively,  the gross
margin  percentage  earned  by  FNC  had  only a  minor  effect  on our  overall
consolidated gross margin in 2002 and 2001.

     The gross margin for Lea was $229,700,  or 46.3% of Lea's  revenues for the
year ended December 31, 2002, compared to $214,900, 85.7% of Lea's revenues from
October 2001 (acquisition date for LiveMarket) to December 2001. The decrease in
gross margin was  primarily due to the increase in labor time and labor costs in
servicing fixed fee maintenance contracts for the year ended December 31, 2002.

     LiveWarehouse   experienced  a  gross  margin  of  $226,000,  or  14.2%  of
LiveWarehouse's sales in 2002.

     Consolidated    operating    expenses,    including    selling,    general,
administrative,  and  research  and  development  expenses,  for the year  ended
December 31, 2002 were $8,786,300,  a decrease of $345,300, or 3.8%, compared to
$9,131,600 for the year ended  December 31, 2001.  The decrease in  consolidated
operating  expenses was  primarily  due to our  implementation  of  cost-cutting
measures,  such as reducing our employee  count from 104 as of December 31, 2001
to 96 as of December 31, 2002, and expenses  relating to 2001  acquisitions that
were not incurred in 2002.  The decrease in payroll in 2002 also resulted from a
bonus of $171,400 paid to certain  officers in 2001 which did not recur in 2002.
Proceeds  received by the officers for these  bonuses in 2001 were used to repay
the officer notes  receivable  during 2001.  Consolidated  professional  service
expense  was reduced by $172,100  in 2002  compared  to 2001.  The Company  also
experienced a lower level of bad debt write-offs in 2002. The  consolidated  bad
debt expense  decreased  from $450,500 in 2001 to $348,200 in 2002. The decrease
was also due to the write-offs of our investment in TargetFirst  Inc. and Rising
Edge  Technologies,  Ltd. in 2001.  During the year ended  December 31, 2001, as
result of our ongoing evaluation of the net realizable value of our investments,
we wrote off our investments in TargetFirst  Inc. and Rising Edge  Technologies,
Ltd.,  resulting in an impairment  loss of $250,000 and $468,000,  respectively.
The decreases in consolidated  operating  expenses were partially  offset by the
inclusion  of   operating   expenses  of  $980,700  and  $392,100  for  Lea  and
LiveWarehouse,  respectively,  for the year ended December 31, 2002.  LiveMarket
was acquired in October  2001 and incurred an operating  expense of $424,500 for
the three months ended  December 31, 2001.  LiveWarehouse  was  incorporated  in
December 2001 and did not incur  operating  expenses in 2001. As a percentage of
consolidated sales, consolidated operating expenses was 12.5% for the year ended
December 31, 2002 compared to 12.2% for the year ended December 31, 2001. During
2002 the  Company  continued  to  implement  its  cost-cutting  measures  as the
consolidated sales declined.

                                      -24-
<PAGE>
     PMI's  operating  expenses were  $4,604,200 for the year ended December 31,
2002 compared to $5,448,800  for the year ended  December 31, 2001. The decrease
of  $844,600,  or 15.5%,  was  mainly due to a  decrease  in our labor  costs of
$652,500 and a decrease in our  professional  service  expense of $112,500.  PMI
also  experienced a lower level of bad debt write-offs in 2002. The consolidated
bad debt expense decreased by $246,900 in 2002 compared to 2001.

     PMIGA's operating  expenses were $1,242,400 for the year ended December 31,
2002, a decrease of $42,900,  or 3.3%, compared to $1,285,300 for the year ended
December 31, 2001.  The decrease was mainly due to a decrease in our labor costs
of $167,500,  which was  partially  offset by an increase in bad debt expense of
$104,300.

     FNC's  operating  expenses were  $1,566,900 for the year ended December 31,
2002, an increase of $180,600,  or 13.0%,  compared to  $1,386,300  for the year
ended December 31, 2001. The increase in FNC's operating  expenses was primarily
due to an  increase in labor costs and rent  expense of  $107,400  and  $27,100,
respectively,  mainly as a result of our Technical  Insights  acquisition in the
fourth  quarter  2001.  The  increase  was  partially  offset by a  decrease  in
professional service expenses of $63,500.

     Consolidated  loss from operations for the year ended December 31, 2002 was
$4,176,000 as compared to $3,829,500  for the year ended December 31, 2001. As a
percentage of sales, loss from consolidated operations increased to 5.9% for the
year ended  December 31, 2002,  compared to 5.1% for the year ended December 31,
2001. This  consolidated  operating loss was mainly due to the 13.0% decrease in
consolidated  operating  expenses and the 6.2%  decrease in  consolidated  sales
experienced  during the year ended December 31, 2002.  Loss from  operations for
the year ended  December  31,  2002,  including  allocations  of PMIC  corporate
expenses, for PMI, PMIGA, FNC, Lea, and LW was $1,337,300, $785,600, $1,135,900,
$751,100,  and $166,100,  respectively.  Loss from operations for the year ended
December 31, 2001,  including  allocations of PMIC corporate expenses,  for PMI,
PMIGA,  FNC,  and  Lea  was  $1,416,700,   $624,700,   $878,400,  and  $191,700,
respectively. LW was not operating in 2001.

     Consolidated  interest  income was $18,100 for the year ended  December 31,
2002, compared to $125,100 for the year ended December 31, 2001. Interest income
for the year ended December 31, 2002 for PMI, PMIGA, and FNC was $13,500,  $700,
and $3,900,  respectively.  Interest income for the year ended December 31, 2001
for PMI, PMIGA,  and FNC was $85,500,  $5,500,  and $34,100,  respectively.  The
decrease  in PMI's  interest  income was  principally  due to a decline in funds
available to earn interest and lower  interest  rates  available for  short-term
investments in cash and cash equivalents.

     Consolidated  interest  expense  for the year ended  December  31, 2002 was
$183,700,  a decrease of $72,100,  or 28.2%,  compared to $255,800  for the year
ended December 31, 2001.  Interest  expense for the year ended December 31, 2002
for  PMI,  PMIGA,  FNC  and  LW  was  $164,400,   $700,  $17,600,   and  $1,000,
respectively.  For the year ended December 31, 2001,  interest  expense for PMI,
PMIGA and FNC was $230,700, $600 and $24,500, respectively. LW was not operating
in 2001.  This decrease in PMI's  interest  expense was due to a decrease in the
floating  interest  rate charged on our mortgage  loans for our office  building
located in Milpitas, California.

     We reported  income tax benefits of $1,322,300  for the year ended December
31, 2002 and  $1,078,200  for the year ended  December 31, 2001 arising from the
loss  incurred  in those  years.  In March  2002,  the Job  Creation  and Worker
Assistance  Act of 2002 ("the Act") was  enacted.  The Act  extended the general

                                      -25-
<PAGE>
federal  net  operating  loss  carryback  period from 2 years to 5 years for net
operating  losses  incurred for any taxable  year ending in 2001 and 2002.  As a
result,  we did not record a valuation  allowance on the portion of the deferred
tax assets  relating to unutilized  federal net operating loss of $1,906,800 for
the year ended  December 31,  2001.  On June 12,  2002,  the Company  received a
federal income tax refund of $1,034,700  attributable to 2001 net operating loss
carried back.  The tax benefits  recorded for 2002 primarily  reflect  potential
federal income tax refund attributable to the 2002 net operation loss carryback.
On March  20,  2003,  the  Company  received  a  federal  income  tax  refund of
$1,427,400.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

     Consolidated sales for the year ended December 31, 2001 were $75,011,700, a
decrease of $13,861,000, or approximately 15.6%, compared to $88,872,700 for the
year ended December 31, 2000.

     Approximately  $3,022,200 of the sales  recognized by us for the year ended
December  31,  2001  was  attributable  to the FNC  subsidiary,  a  decrease  of
$5,083,300,  or approximately  62.7%,  compared to $8,105,500 for the year ended
December  31,  2000.  The  decrease in FNC sales was due to a weak U.S.  economy
combined with a reduction of capital  expenditures by our existing and potential
future customers.  The Frontline division was spun off as a separate  subsidiary
effective  October 1, 2000 to better serve the networking and personal  computer
requirements of corporate customers.

     The combined sales of PMI and PMIGA, our computer products  segments,  were
$71,738,800  for the year ended  December 31, 2001, a decrease of  $9,028,400 or
approximately  11.2%,  compared to  $80,767,200  for the year ended December 31,
2000.  Sales  recognized by PMIGA,  which commenced  operations in October 2000,
were approximately  $11,445,300 in 2001 as compared to $1,156,900 in 2000. Sales
for PMI decreased by $19,316,800,  or 24.3% from  $79,610,300 for the year ended
December 31, 2000 to  $60,293,500  for the year ended  December  31,  2001.  The
decrease in PMI sales was due to the overall  decline in the computer  component
market  and  the  lack of any new and  innovative  high-demand  products  in the
multimedia arena during a period of economic slowdown.  In addition,  we believe
that the continuous  uncertainty  regarding the economy  depressed  sales during
2001 as customers were delaying their buying decisions.

     In the fourth quarter of 2001, PMICC acquired certain assets of an internet
software  development  company,  LiveMarket.  Subsequently,  these  assets  were
transferred  to  Lea  Publishing  (Lea).   During  the  last  quarter  of  2001,
Lea/LiveMarket  generated  $250,700  in revenue  which  related  entirely to the
newly-acquired LiveMarket operations.

     Consolidated  gross  margin  for the  year  ended  December  31,  2001  was
$5,302,100,  a decrease of $1,749,900 or 24.8%,  compared to $7,052,000  for the
year ended December 31, 2000. The  consolidated  gross margin as a percentage of
consolidated  sales  decreased from 7.9% for the year ended December 31, 2000 to
7.1% for the year ended December 31, 2001.

     Gross  margin  relating  to FNC for the year ended  December  31,  2001 was
$391,800,  or 13% of FNC's sales during the same period as compared to $962,700,
or 12% of FNC's sales  during the year ended  December  31,  2000.  The slightly
higher gross margin percentage experienced by FNC in 2001 was attributed to more
service  revenues  earned as a percent of total sales in 2001  compared to 2000.
FNC's service revenues were $115,000, or 3.8% of FNC's total revenues in 2001 as
compared to $275,400,  or 3.4% of FNC's total revenues in 2000. In general,  FNC

                                      -26-
<PAGE>
has a higher gross margin on service revenues than products sales as part of the
consulting and implementation  services.  Since FNC's sales levels accounted for
only 4% and 9% of our  consolidated  sales in 2001 and 2000,  respectively,  the
gross  margin  percentage  earned by FNC had only a minor  effect on our overall
consolidated gross margin in both years.

     The  combined  gross  margin  for  PMI and  PMIGA,  our  computer  products
segments, was $4,687,000,  or 6.5% for the year ended December 31, 2001 compared
to  $5,917,800,  or 7.3% of the  combined  sales of PMI and PMIGA,  for the year
ended  December 31, 2000.  PMI's gross margin for the year ended in December 31,
2001 was  $4,066,400,  or 6.7% of PMI's sales  compared to $5,858,900 or 7.4% of
PMI's  sales,  for  the  year  ended  December  31,  2000.   Because  our  major
manufacturers  focused on lower  margin  products,  PMI sold more  lower  margin
products during 2001. Additionally, PMI experienced pricing pressures in selling
its  products.  We believe that because of the economic  slowdown,  there was an
excess supply of computer  products  throughout  2001 which  reduced  demand and
increased pressure on gross margins.  Thirdly,  vendors also reduced rebates and
product  advertising  funding to minimize  their costs.  Finally the lower gross
margin is further  compounded  by an increase  in freight  costs.  Gross  margin
relating to PMIGA in 2001 was $620,600,  or 5.4% of PMIGA's sales as compared to
year 2000 gross  margin  percentage  in the amount of $58,900 or 5.1% of PMIGA's
sales.  The  increase in PMIGA 2001 gross margin was due to more  products  with
higher margin being sold in 2001.

     Lea  experienced  a gross  margin of  $214,900,  or 85.7% of Lea's sales in
2001.

     Consolidated    operating    expenses,    including    selling,    general,
administrative,  and  research  and  development  expense,  for the  year  ended
December 31, 2001 were $9,131,600, an increase of $2,089,800, or 29.7%, compared
to $7,041,800 for the year ended December 31, 2000. Although we implemented cost
cutting measures in anticipation of the economic slowdown,  such as reducing our
employee  count from 114 as of December 31, 2000 to 104 as of December 31, 2001,
expenses increased  primarily due to the continued  establishment of our FNC and
PMIGA operations,  including among other things,  additional expenses associated
with our new  distribution  facility in Georgia.  During 2001, we also increased
spending for consulting and accounting services to assist in the formation of an
acquisition  strategy.  Consolidated  consulting  and  accounting  expenses were
$217,000 and  $115,400,  in 2001 and 2000,  respectively.  During 2001, we had a
higher level of bad debt  write-offs  and  increased  the allowance for doubtful
accounts.  As such, the consolidated bad debt expense increased from $182,200 in
2000 to $450,500 in 2001.  During the year ended  December 31, 2001, as a result
of our  ongoing  evaluation  of the net  realized  value of our  investments  in
TargetFirst  Inc.  and  Rising  Edge  Technologies,  Ltd,  we  wrote  off  these
investments   resulting  in  an  impairment   loss  of  $250,000  and  $468,000,
respectively.  We also  increased  our  advertising  spending for  promoting our
Company, products and services. Consolidated advertising expense was $178,000 in
2001 compared to $3,600 in 2000.  Additionally,  $171,400 in officer bonuses was
paid in 2001.  Proceeds  received by the officers for these bonuses were used to
repay the officer notes receivable during 2001. There were no officer bonuses in
2000. As a percentage of consolidated  sales,  consolidated  operating  expenses
increased to 12.2% for the year ended  December 31, 2001 as compared to 7.9% for
the year ended December 31, 2000 resulting from an increase in our  consolidated
fixed operating expenses during a period of decreased sales.

     PMI's  operating  expenses were  $5,448,800 for the year ended December 31,
2001, compared to $5,608,700 for the year ended December 31, 2000, a decrease of
$159,900, or 2.9%. The decrease in PMI's operating expenses was primarily due to
the reduction in payroll  expense of $368,900,  a cost  reduction of $129,900 in
professional  services,  and was  partially  offset by an  increase  in bad debt

                                      -27-
<PAGE>
expense of $206,800 and repair and maintenance  and internet  service expense of
$132,100. PMIGA's operating expenses were $1,285,300 for the year ended December
31, 2001.  PMIGA began  business in October 2000 and its operating  expenses for
the three months in 2000 were $197,000.

     FNC's  operating  expenses  for the  year  ended  December  31,  2001  were
$1,386,400  compared to  $1,105,200  for the year ended  December 31, 2000.  The
increase in FNC's operating expenses was primarily due to an increase in payroll
expense,  from our Technical  Insights  acquisition,  of $108,600,  professional
services expense of $73,500, and insurance expense of $24,200.  Although FNC had
14 employees as of December 31, 2001 compared to 15 as of December 31, 2000, FNC
recruited  and  retained  employees  with  higher  qualifications  in 2001.  The
increase in FNC's professional  services expense in 2001 was due to the increase
in the search for acquisition opportunities.

     Lea's newly-acquired LiveMarket operations began in October 2001. Operating
expenses were $424,500,  including research and development  expense of $68,500,
for the three months in 2001.  Lea's  research and  development  expense for the
year ended December 31, 2000 was $100,000.

     As a result of an ongoing  evaluation  of the net  realizable  value of its
investments,  PMIC recognized an impairment loss totaling  $718,000 during 2001,
of which  $250,000  related  to the cost  investment  in  Target  First  and was
recorded in the second quarter and $468,000 (including the equity in the loss in
the  investment  of $14,500  during 2001)  related to the equity  investment  in
Rising Edge and was recorded in the fourth quarter. These impairment losses were
due to a change in the  focus of the  investees'  business  and  current  period
operating losses combined with a projection of the future  continuing  losses on
those investments.

     Consolidated  loss from operations for the year ended December 31, 2001 was
$3,829,500 as compared to consolidated income from operations of $10,200 for the
year ended December 31, 2000. As a percentage of sales,  loss from  consolidated
operations increased to 5.1% for the year ended December 31, 2001 as compared to
0.0% of  consolidated  income from  operations  for the year ended  December 31,
2000. This  consolidated  operating loss was mainly due to the 28.7% increase in
consolidated  operating  expenses and the 15.6% decrease in  consolidated  sales
experienced  during the year ended December 31, 2001.  Loss from  operations for
the year ended  December  31,  2001,  including  allocations  of PMIC  corporate
expenses, for PMI, PMIGA, FNC, and Lea was $1,416,700,  $624,700,  $878,400, and
$191,700, respectively. For the year ended December 31, 2000, PMI and FNC had an
income from operations of $390,400 and $56,300,  respectively, and PMIGA and Lea
had an operating loss of $137,800 and $100,800, respectively.

     Consolidated  interest  income was $125,100 for the year ended December 31,
2001 compared to $227,300 for the year ended December 31, 2000.  Interest income
for the year  ended  December  31,  2001 for PMI,  PMIGA,  and FNC was  $85,500,
$5,500,  and $34,100,  respectively.  For the year ended December 31, 2000, PMI,
PMIGA and FNC had interest income of $226,800,  $500 and $0,  respectively.  The
decrease  in PMI's  interest  income was  principally  due to a decline in funds
available to earn interest and lower  interest  rates  available for  short-term
investments in cash and cash equivalents.

     Consolidated  interest  expense  for the year ended  December  31, 2001 was
$255,800,  a decrease of $40,200 or 13.6%,  compared  to  $296,000  for the year
ended December 31, 2000.  Interest  expense for the year ended December 31, 2001
for PMI, PMIGA, and FNC was $230,700, $600, and $24,500,  respectively.  For the
year ended  December  31,  2000,  interest  expense  for PMI,  PMIGA and FNC was

                                      -28-
<PAGE>
$295,000, $200 and $0, respectively. This decrease in PMI's interest expense was
due to a decrease in the floating  interest rate charged on our mortgages on our
office building  facility located in Milpitas,  California and the allocation of
$24,500 of interest expense to FNC for the year ended December 31, 2001.

     In March 2002,  legislation  was enacted to extend the general  Federal net
operating loss carryback period from 2 years to 5 years for net operating losses
incurred in 2001 and 2002. As a result, we did not record a valuation  allowance
on the portion of the deferred tax assets relating to Federal net operating loss
carryforward  of $1,906,800 as we believed that it was more likely than not that
this deferred tax asset will be realized as of December 31, 2001.

UNAUDITED QUARTERLY FINANCIAL DATA

     Summarized quarterly financial data for 2002 and 2001 is as follows:

<TABLE>
<CAPTION>
2002 (2)                                                                  Quarter
                                                ------------------------------------------------------------
                                                   First           Second          Third           Fourth
                                                ------------    ------------    ------------    ------------
<S>                                             <C>             <C>             <C>             <C>
Sales                                           $ 17,632,300    $ 15,377,800    $ 18,231,100    $ 19,087,500
Gross Profit                                       1,311,700       1,143,800       1,052,100       1,102,700
Net Loss                                            (736,300)       (815,600)       (715,900)       (567,300)
Accretion and deemed dividend related to
  beneficial conversion of convertible
  preferred stock                                         --        (262,000)         (6,100)         (6,100)
Net (loss) applicable to Common
  Shareholders                                      (736,300)     (1,077,600)       (722,000)       (573,400)
Basic and diluted (loss) per common share (1)          (0.07)          (0.10)          (0.07)          (0.05)

2001                                                                      Quarter
                                                ------------------------------------------------------------
                                                   First           Second          Third           Fourth
                                                ------------    ------------    ------------    ------------
Sales                                           $ 19,956,500    $ 14,961,400    $ 20,840,200    $ 19,253,600
Gross Profit                                       1,380,000         979,700       1,465,200       1,597,600
Net Loss                                            (473,600)     (1,211,800)       (370,000)       (795,300)
Basic and diluted (loss) per common share (1)          (0.05)          (0.12)          (0.04)          (0.08)
</TABLE>

(1)  (Loss)  per  share  are  computed  independently  for each of the  quarters
     presented.  The sum of the  quarterly  loss per share in 2002 and 2001 does
     not equal the total computed for the year due to rounding.

(2)  Certain amounts reported in our previously filed Form 10-Q's were restated.
     The restated financial information is included in our Form 10-Q/A's for the
     quarters ended June 30, 2002 and September 30, 2002.

LIQUIDITY AND CAPITAL RESOURCES

The  Company  incurred a net loss of  $2,835,900  and a net loss  applicable  to
common  shareholders  of $3,110,100  for the year ended  December 31, 2002.  The
Company also incurred a net loss applicable to common shareholders of $2,850,700
for the year ended  December 31, 2001.  These  recurring  losses  combined  with
existing levels of working capital and existing  commitments  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 its ability to achieve
profitability and generate sufficient cash flows to meet its obligations as they
come  due,  which  management  believes  it will be  able  to do.  In  addition,
management has continued to implement  cost-cutting  measures to reduce overhead
at all of its subsidiaries with a goal to achieve profitability.  The Company is
also exploring the possibility of obtaining additional debt financing.  However,
there is no assurance that these efforts will be successful.

As described  below,  the  Company's  Flooring line with  Transamerica  has been
terminated  and all amounts owed under that line are due and payable on April 7,
2003.  If we are unable to replace  this line,  we will have to pay such amounts
out of currently  available assets  including a recently  received tax refund of
$1,427,400 and a possible refinancing of the Company's headquarters building. If
we fail to  downsize in a timely  manner or if we fail to replace  the  flooring
line, we will not have sufficient liquidity to operate for Fiscal 2003.

At December 31, 2002, the Company had consolidated  cash and cash equivalents of
$1,901,100  (excluding  $250,000  in  restricted  cash) and  working  capital of
$3,112,700.  At December 31, 2001, we had consolidated cash and cash equivalents
totaling $3,110,000 and working capital of $5,734,900.

                                      -29-
<PAGE>
Net cash used in operating  activities  for the year ended December 31, 2002 was
$898,000, which principally reflected the net loss of $2,835,900 incurred during
the year,  an  increase in  accounts  receivable  of  $439,000,  inventories  of
$418,500, and income taxes refunds receivable of $1,073,600, which was partially
offset by a decrease in  deferred  income  taxes of $778,800  and an increase in
accounts payable of $2,995,200.

Net cash used in investing  activities  was $89,100 for the year ended  December
31, 2002,  primarily resulting from the payment for acquisition of equipment and
property of $126,200  and an increase in deposits  and other  assets of $24,000,
which were  partially  offset by the proceeds of $61,100  received from sales of
equipment.

Net cash used in financing  activities  was $221,800 for the year ended December
31, 2002, primarily resulting from the decrease in floor plan inventory loans of
$643,400 and principal repayment of $55,900 on notes payable,  which were offset
by the proceeds of $477,500 from issuance of  redeemable  convertible  preferred
stock.

On July 13, 2001, PMI and PMIGA (the Companies)  obtained a $4 million  (subject
to credit and borrowing  base  limitations)  accounts  receivable  and inventory
financing   facility   from   Transamerica    Commercial   Finance   Corporation
(Transamerica).  This  credit  facility  has a term  of two  years,  subject  to
automatic  renewal  from year to year  thereafter.  The credit  facility  can be
terminated  under certain  conditions and the termination is subject to a fee of
1% of the credit limit. The facility includes an up to $3 million inventory line
(subject to a borrowing base of up to 85% of eligible  accounts  receivable plus
up to $1,500,000 of eligible inventories), that includes a sub-limit of $600,000
working  capital  line,  and a $1  million  letter  of credit  facility  used as
security for  inventory  purchased  on terms from  vendors in Taiwan.  Borrowing
under the inventory loans is subject to 30 to 45 days  repayment,  at which time
interest  begins to accrue at the prime rate,  which was 4.25% at  December  31,
2002.  Draws on the working capital line also accrue interest at the prime rate.
The credit facility is guaranteed by both PMIC and FNC available capacity.

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

On October 23, 2002,  Transamerica  issued a waiver of the default  occurring on
June 30, 2002 and revised the terms and  covenants  under the credit  agreement.
Under the revised  terms,  the credit  facility  includes  FNC as an  additional
borrower and PMIC  continues as a guarantor.  Effective  October  2002,  the new
credit limit was $3 million in aggregate for  inventory  loans and the letter of
credit  facility.  The letter of credit  facility is limited to $1 million.  The
credit limits for PMI and FNC are $1,750,000 and $250,000,  respectively.  As of
December  31,  2002 and  September  30,  2002,  the  Companies  did not meet the
covenants as revised on October 23, 2002 relating to profitability  and tangible

                                      -30-
<PAGE>
net worth.  This constituted a technical  default and gave  Transamerica,  among
other things,  the right to call the loan and  immediately  terminate the credit
facility.

On January 7,  2003,  Transamerica  elected  to  terminate  the credit  facility
effective April 7, 2003.  However,  Transamerica  will continue its guarantee of
the letter of credit facility through July 25, 2003. Unless the Companies do not
perform their  obligations in accordance with the agreement and the Indebtedness
to tangible net worth  covenant is  materially  worse than the  condition at the
level on  January  7,  2003,  Transamerica  will  continue  to  accept  payments
according to the terms of the  agreement  prior to April 7, 2003.  The remaining
outstanding  balance is due and payable in full on April 7, 2003. As of December
31, 2002,  the Companies had an  outstanding  balance of $901,600 due under this
credit facility.  The Company is in the process of seeking a replacement for the
Transamerica Flooring line with a similar line from Textron Financial.  However,
the Company  cannot assure you that it will be able to either secure the line or
maintain it if we continue to incur operating losses.

Pursuant to one of our bank mortgage loans with a $2,387,500 balance at December
31, 2002, we are required to maintain a minimum debt service coverage, a maximum
debt to tangible  net worth  ratio,  no  consecutive  quarterly  losses,  and to
achieve net income on an annual basis.  During 2002 and 2001, the Company was in
violation of two of these covenants which  constituted an event of default under
the loan  agreement  and gives the bank the right to call the loan.  A waiver of
these  loan  covenant  violations  was  obtained  from the  bank in March  2002,
retroactive to September 30, 2001, and through December 31, 2002. In March 2003,
the bank extended the waiver through  December 31, 2003. As a condition for this
waiver,  the Company  transferred  $250,000 to a restricted account as a reserve
for debt  servicing.  This amount has been  reflected as restricted  cash in the
accompanying consolidated financial statements.

On May 31, 2002 we received  net  proceeds of $477,500  from the issuance of 600
shares of 4% Series A Preferred  Stock.  An additional  400 shares can be issued
after the  completion  of the required  registration  of the  underlying  common
stock.  Even though we completed  the required  registration  of the  underlying
common stock in October  2002,  there is no  assurance  that the  remaining  400
shares will be sold or that we will be able to obtain additional  capital beyond
the issuance of the 1,000 shares of Preferred  stock.  Upon the  occurrence of a
Triggering  Event,  such as if the Company  were a party in a "Change of Control
Transaction,"  among others,  as defined,  the holder of the preferred stock has
the rights to require us to redeem its  preferred  stock in cash at a minimum of
1.5 times the Stated Value. As of December 31, 2002, the redemption value of the
Series A Preferred  Stock,  if the holder had required us to redeem the Series A

                                      -31-
<PAGE>
Preferred Stock as of that date, was $921,300. Even though we do not expect that
a Triggering Event will occur, there is no assurance that one will not occur. In
the event we are  required  to redeem our Series A Preferred  Stock in cash,  we
might  experience  a reduction  in our  ability to operate  the  business at its
current level.

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

The Company's common stock is currently traded on the Nasdaq SmallCap Market. On
August 19,  2002 the  Company  received a letter  from the Nasdaq  Stock  Market
informing  it that the  Company's  common  stock did not meet the  criteria  for
continued  listing on the Nasdaq SmallCap Market.  The letter stated that Nasdaq
will  monitor  the  Company's  common  stock and if it closes  above $1.00 for a
minimum of ten consecutive  trading days,  Nasdaq will notify the Company of its
compliance  with the  continued  listing  standards.  The  Company has also been
notified  by  Nasdaq  that it does not  comply  with the  Marketplace  Rule that
requires a minimum  bid price of $1.00 per share of common  stock.  The  Company
have until August 18, 2003 to comply with this Rule.

On February  28,  2003,  Nasdaq  notified  the Company that its common stock had
failed  to  comply  with the  minimum  market  value  of  publicly  held  shares
requirement  of the Nasdaq  Marketplace  Rules.  The Company's  common stock is,
therefore,  subject to delisting from the Nasdaq  SmallCap  Market.  On March 6,
2003 the Company requested a hearing before a Listing  Qualifications  Panel, at
which it will seek  continued  listing.  The hearing has been scheduled on April
24,  2003.  The Company  intends to detail its plan to comply with both Rules at
the hearing  referred to above.  There can be no  assurance  that the Panel will
grant the Company's request for continued listing. If the Company's common stock
is  delisted,  it would seek to have its common stock traded on the OTC Bulletin
Board.  In such case,  the market for the Company's  common stock will not be as
broad as if it were  traded on the  Nasdaq  SmallCap  Market and it will be more
difficult  to trade in the  Company's  common  stock,  which will likely cause a
decrease in its price.

FUTURE CONTRACTUAL OBLIGATIONS

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
     ------------------------                                     --------
              2003                                                $132,700
              2004                                                  31,800
              2005                                                  26,300
              2006                                                   2,000
                                                                  --------
                                                                  $192,800
                                                                  ========

Total rent  expense  associated  with all  operating  leases for the years ended
December  31,  2002,  2001  and  2000  was  $232,100,   $136,000,  and  $16,700,
respectively.

RELATED PARTY TRANSACTIONS

     At December 31, 1999, the Company had unsecured  notes  receivable from two
officer/shareholders  with interest at 6%. In December 2000, the repayment terms
of these notes were renegotiated to require monthly principal payments,  without
interest,  to pay off the  loan by  December  31,  2001.  Additionally,  accrued
interest  receivable  of $43,600  pertaining  to these notes as of December  31,
1999,  was  forgiven by the Company and charged to expense  during  2000.  As of
December  31,  2000,  notes  receivable  from  these  two   officer/shareholders
aggregated $171,400 and were repaid in full during 2001.

     The Company sold  computer  products to a company  owned by a member of the
Board of Directors and Audit Committee of the Company.  Management believes that
the terms of these sales  transactions are no more favorable than those given to
unrelated  customers.  During  2002,  2001  and  2000,  the  Company  recognized
$527,400, $476,200, and $1,476,100 in sales revenues from this company. Included
in accounts  receivable  as of  December  31, 2002 and 2001 is $27,000 and $200,
respectively, due from this related customer.

     In 2001 FNC acquired  certain assets of Technical  Insights in exchange for
16,100 shares of PMIC common stock.  Under the purchase  agreement,  among other

                                      -32-
<PAGE>
terms,  FNC was required to pay $126,000 to the sellers upon completion and full
settlement of a sale transaction as specified in the agreement.  On October 2001
the  sellers  became  employees  of FNC.  As a  result  of this  profit  sharing
arrangement,   the  $126,000   payment  due  to  the  sellers  was  recorded  as
compensation  expense by the Company.  In January 2002, this balance was paid to
the sellers/employees under the terms of the purchase agreement.

     Prior to June 13,  2000,  the  Company  and  Rising  Edge each  owned a 50%
interest  in Lea  Publishing,  LLC.  The  brother of a  director,  officer,  and
principal  shareholder  of the Company is a director,  officer and the  majority
shareholder of Rising Edge. See Note 15 in the consolidated financial statements
for a  description  of the related  party  transactions  between the Company and
Rising Edge.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 2001, the Financial  Accounting  Standards Board finalized SFAS No.
141, BUSINESS  COMBINATIONS,  and No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS.
SFAS No. 141 requires the use of the purchase method of accounting and prohibits
the  use  of  the   pooling-of-interests   method  of  accounting  for  business
combinations  initiated after June 30, 2001. SFAS No. 141 also requires that the
Company recognize acquired intangible assets apart from goodwill if the acquired
intangible  assets meet certain  criteria.  SFAS No. 141 applies to all business
combinations   initiated   after  June  30,  2001  and  for  purchase   business
combinations completed on or after July 1, 2001. It also requires, upon adoption
of SFAS No. 142 that the Company  reclassify the carrying  amounts of intangible
assets and goodwill based on the criteria in SFAS No. 141. The Company  recorded
its  acquisition  of Technical  Insights and LiveMarket in September and October
2001 in accordance with SFAS No. 141 and did not recognize any goodwill relating
to these transactions.  However, certain intangibles totaling $59,400, including
intellectual  property  and vendor  reseller  agreements,  were  identified  and
recorded in the consolidated  financial statements in deposits and other assets.
These  intangible  assets are being  amortized  over a 3-year  period  using the
straight-line  method.  As of  December  31,  2002,  a total of $24,300 has been
amortized.

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

     In August 2001,  the FASB issued SFAS No. 143  Accounting  for  Obligations
associated  with the  Retirement  of Long-Lived  Assets.  SFAS No. 143 addresses
financial  accounting and reporting for the  retirement  obligation of an asset.
SFAS No. 143 states that companies  should  recognize the asset retirement cost,
at its fair value,  as part of the asset cost and classify the accrued amount as

                                      -33-
<PAGE>
a  liability  in the  balance  sheet.  The asset  retirement  liability  is then
accreted to the ultimate payout as interest expense.  The initial measurement of
the  liability  would be  subsequently  updated  for  revised  estimates  of the
discounted cash outflows.  SFAS No. 143 was effective for fiscal years beginning
after June 15, 2002. The Company  believes the adoption of SFAS No. 143 will not
have  a  material  effect  on  the  Company's  financial  position,  results  of
operations, or cash flows.

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

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

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

     In  November  2002,  the FASB  issued  Interpretation  No. 45,  Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees  of  Indebtedness  of Others (FIN 45). FIN 45 requires a guarantor to
(i) include  disclosure of certain  obligations  and (ii) if applicable,  at the
inception of the  guarantee,  recognize a liability  for the fair value of other
certain obligations undertaken in issuing a guarantee. The disclosure provisions
of the  Interpretation  are  effective  for  financial  statements of interim or
annual  reports that end after  December 15, 2002. The adoption of FIN 45 had no
impact on the Company's disclosures as of December 31, 2002. The recognition and
measurement provisions of FIN 45 are effective for guarantees issued or modified
after  December 29, 2002.  The Company does not expect FIN 45 to have a material
effect on the Company's financial position or results of operations.

     In December 2002, the FASB issued SFAS No. 148,  Accounting for Stock-Based
Compensation--Transition and Disclosure--an Amendment of FASB Statement No. 123.
SFAS  No.  148  amends  FASB  Statement  No.  123,  Accounting  for  Stock-Based
Compensation,  to provide  alternative  methods of transition for an entity that

                                      -34-
<PAGE>
chooses to change to the  fair-value-based  method of accounting for stock-based
employee  compensation.  It  also  amends  the  disclosure  provisions  of  that
statement to require prominent  disclosure about the effects that accounting for
stock-based employee  compensation using the fair-value-based  method would have
on  reported  net  income  and  earnings  per  share  and to  require  prominent
disclosure  about the  entity's  accounting  policy  decisions  with  respect to
stock-based employee  compensation.  Certain of the disclosure  requirements are
required  for all  companies,  regardless  of whether  the fair value  method or
intrinsic value method is used to account for stock-based employee  compensation
arrangements.  The Company accounts for its stock option plan in accordance with
the recognition and measurement  principles of Accounting Principles Opinion No.
25, Accounting for Stock Issued to Employees. The amendments to SFAS No. 123 are
effective for  financial  statements  for fiscal years ended after  December 15,
2002 and for interim periods  beginning after December 15, 2002. The adoption of
the disclosure  requirements  of SFAS No. 148 did not have a material  effect on
the Company's financial position or results of operations.

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

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  resulting  increased  costs  are not  offset  by
increased revenues, our operations may be adversely affected.

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  $2,387,500  balance at December  31, 2002 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.

                                      -35-
<PAGE>
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 December 20, 2002, the Company's board of directors  passed a resolution
dismissing BDO Seidman, LLP ("BDO") as its independent accountant for the fiscal
year ended December 31, 2002. On the same date,  the Company  appointed KPMG LLP
("KPMG") to replace  BDO as the  Company's  independent  auditor for the current
fiscal year.

     The report of BDO for the fiscal  years  ended  December  31, 2000 and 2001
contained  no  adverse  opinions,  disclaimer  of opinion  or  qualification  or
modification as to uncertainty, audit scope or accounting principles.

     Except for the disagreement  discussed below, during the Company's two most
recent  fiscal  years  and  subsequent  interim  periods  through  the  date  of
dismissal,  December  20,  2002,  there  were no  other  disagreements  with BDO
Seidman,  LLP on any matter of accounting  principles  or  practices,  financial
statement  disclosure  or  auditing  scope or  procedures  or any other  matters
considered reportable events as contemplated by Regulation S-K 304 (a)(1)(iv)(A)
and (B).

     In  accounting  for the issuance of its  preferred  stock in May 2002,  the
Company  recorded a deemed  dividend of $303,000  associated with the beneficial
conversion  feature as a charge  against  retained  earnings  and an increase in
Additional Paid-in Capital. BDO reviewed the Company's Form 10-Q for the quarter
ended June 30, 2002, and advised the Company that an additional  deemed dividend
of $148,300 associated with 300,000 common stock warrants issued to the investor
should be recorded as a charge against retained  earnings and an increase in the
carrying amount of preferred stock. After further research and consultation with
BDO, the Company agreed to record this additional deemed dividend.  However, the
Company's  management  believed  it was proper to  increase  Additional  Paid-in
Capital for both of these deemed  dividends and reflected such  presentation  in
the Company's  Form 10-Q for the quarter  ended June 30, 2002.  BDO reviewed the
Company's  Form  10-Q for the  quarter  ended  September  30,  2002,  and at the
conclusion of further  research and  consultation,  advised the Company that the
$148,300  deemed  dividend  relating to the common stock warrants  issued to the
investor should be reclassified from Additional  Paid-in Capital to the carrying
amount of the  preferred  stock.  Management  did not concur  with the  proposed
reclassification.  BDO discussed the basis for their position,  and the proposed
adjustment  with the  Chairman of the Audit  Committee  on November 7, 2002.  On
November  12,  2002,  after  discussion  of the above matter with BDO, the Audit
Committee  Chairman  recommended  that the  Company not  reclassify  this deemed
dividend to the carrying amount of the preferred stock until the Audit Committee
could analyze the issue closely  during the fourth  quarter of 2002. On November
13, 2002,  BDO  notified the Audit  Committee  Chairman  and  management  of the
Company  that there was an  unresolved  reportable  disagreement  regarding  the
accounting  treatment  of this deemed  dividend.  On November 14, 2002 BDO had a
telephone  conversation with the Company's outside counsel to discuss the issue.
Following  that  conversation,  the  Company  elected to  reclassify  the credit
associated  with the deemed  dividend to the preferred  stock in accordance with
the advice of BDO.

                                      -36-
<PAGE>
     The  Company  did not  consult  with KPMG  during  the fiscal  years  ended
December 31, 2000 and 2001,  and the interim period from January 1, 2002 through
December  20,  2002,  on any matter  which was the subject of any  disagreement,
including the disagreement  reported  herein,  or any reportable event or on the
application  of  accounting  principles  to  a  specified  transaction,   either
completed  or  proposed.   Further,  the  Company  has  consented  to  the  free
consultation of KPMG with BDO,  including the disagreement with management noted
above and other matters.

                                    PART III

     The information required to be presented in Part III is, in accordance with
General  Instruction G(3) to Form 10-K,  incorporated herein by reference to the
information  contained in our  definitive  Proxy  Statement  for our 2003 Annual
Meeting  which will be filed with the  Securities  and Exchange  Commission  not
later than 120 days after December 31, 2002.

ITEM 14. CONTROLS AND PROCEDURES

     Within the 90-day period prior to the filing of this report,  an evaluation
was  carried  out  under  the  supervision  and  with the  participation  of our
management,  including our Chief Executive  Officer/Chief  Financial Officer, of
the  effectiveness  of the design and operation of our  disclosure  controls and
procedures  (as defined in Rule 13a-14(c)  under the Securities  Exchange Act of
1934). Based upon that evaluation,  our Chief Executive  Officer/Chief Financial
Officer concluded that the design and operation of these disclosure controls and
procedures were effective.

     No  significant  changes  were made in our  internal  controls  or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.

                                      -37-
<PAGE>
                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     Financial Statements

     (a)  (1)  Report of KPMG, LLP and report of BDO Seidman, LLP

          (2)  Consolidated  Financial  Statements  and  Notes  thereto  of  the
Company including  Consolidated  Balance Sheets as of December 31, 2002 and 2001
and related  Consolidated  Statements of Operations,  Shareholders'  Equity, and
Cash Flows for each of the years in the three year  period  ended  December  31,
2002.

     (b)  Reports on Form 8-K

          (1)  Form 8-K filed on March 7, 2003 to report that the Company issued
a press  release  announcing  that Nasdaq  informed us that our shares  would be
subject  to  delisting  from the  SmallCap  Market for  failure  to comply  with
Nasdaq's  Marketplace  Rules regarding minimum value of publicly held shares and
minimum bid price per share. The delisting has been suspended until a hearing is
held on these matters.

     (2) Form 8-K filed on December 24, 2002 to report that the Company's  board
of directors passed a resolution  dismissing BDO Seidman, LLP as our independent
accountant  for the fiscal year ended  December 31, 2002, and to report that the
Company  appointed  KPMG LLP to  replace  BDO  Seidman,  LLP as our  independent
auditor for the current  fiscal year. The Form 8-K also discussed a disagreement
between the Company and BDO Seidman, LLP.

          (3)  Form 8-K  filed  on June  13,  2002 to  report  that the  Company
completed  a  private  placement  of $1  million  of its  Series  A  Convertible
Preferred Stock and a warrant  exercisable to purchase  300,000 shares of common
stock with Stonestreet  L.P., a private  Canadian based investor,  as of May 31,
2002.

     (c)  Exhibits:

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

  2.1          Stock  Purchase  Agreement,  dated July 17, 1998,  by and between
               Pacific Magtron, Inc., the Shareholders of Pacific Magtron, Inc.,
               and Wildfire Capital Corporation (filed as an exhibit to our Form
               10-12G, File No. 000-25277).
  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).
 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).

                                      -38-
<PAGE>
 10.3          Logitech,  Inc.  Distribution and Installation  Agreement,  dated
               March  26,  1997  (filed  as an et  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          Limited Liability Company Operating  Agreement for Lea Publishing
               L.L.C.   dated   February  1,  1999   between   Pacific   Magtron
               International  Corp.  and  Rising  Edge  Technology  (filed as an
               exhibit to our Report on Form 10-K for fiscal year ended December
               31, 2000).
 10.6          Accounts  Receivable and Inventory  Financing  Agreement  between
               Transamerica  Commercial  Finance  Corporation,  Pacific Magtron,
               Inc. and Pacific Magtron (GA), Inc. dated July 13, 2001 (filed as
               an exhibit to our Report on Form 10-Q for quarter  ended June 30,
               2001).
 10.7          Amendment No. 2 to Accounts  Receivable  and Inventory  Financing
               Agreement  by  and  between   Transamerica   Commercial   Finance
               Corporation and Pacific  Magtron,  Inc. and Pacific Magtron (GA),
               Inc. (filed herewith).
 10.8          Amendment No. 1 to Accounts  Receivable  and Inventory  Financing
               Agreement  by  and  between   Transamerica   Commercial   Finance
               Corporation and Pacific  Magtron,  Inc. and Pacific Magtron (GA),
               Inc. (filed herewith).
 21.1          Subsidiaries (filed herewith).
 23.1          Consent of KPMG LLP (filed herewith).
 23.2          Consent of BDO Seidman, LLP (filed herewith)
 99.1          Sarbanes-Oxley Certification

                                      -39-
<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, this 31st
day of March, 2003.

                                        PACIFIC MAGTRON INTERNATIONAL CORP.,
                                        a Nevada corporation


                                        BY /s/ Theodore S. Li
                                           -------------------------------------
                                           THEODORE S. LI
                                           President and Chief Financial Officer

                                      -40-
<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/ Theodore S. Li                 President, Chief Executive     March 31, 2003
------------------------------     Officer Treasurer and
THEODORE S. LI                     Director

/s/ Hui Cynthia Lee                Director and Secretary         March 31, 2003
------------------------------
HUI CYNTHIA LEE

/s/ Jey Hsin Yao                   Director                       March 31, 2003
------------------------------
JEY HSIN YAO

/s/ Hank C. Ta                     Director                       March 31, 2003
------------------------------
HANK C. TA

/s/ Limin Hu, Ph.D                 Director                       March 31, 2003
------------------------------
LIMIN HU, Ph.D.

/s/ Raymond Crouse                 Director                       March 31, 2003
------------------------------
RAYMOND CROUSE

                                      -41-
<PAGE>
                                  CERTIFICATION

I, Theodore Li, certify that:

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

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

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

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

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

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

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

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

By: /s/ Theodore S. Li                                      Date: March 31, 2003
    ------------------------------
    Theodore S. Li, Chief Executive
    Officer/Chief Financial Officer
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.
                        CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

CONTENTS

INDEPENDENT AUDITORS' REPORT                                                F-2

REPORT OF BDO SEIDMAN LLP, INDEPENDENT AUDITORS                             F-3

CONSOLIDATED FINANCIAL STATEMENTS
  Consolidated balance sheets                                               F-4
  Consolidated statements of operations                                     F-6
  Consolidated statements of shareholders' equity                           F-7
  Consolidated statements of cash flows                                     F-8
  Notes to consolidated financial statements                                F-9

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

                                       F-1
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

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, 2002, 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 2002 financial  information in 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 audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  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, 2002, 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 2002 financial information in 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.  This  matter  raises  substantial  doubt about its ability to
continue as a going concern. Management's plans in regard to this matter is also
described in Note 1. The accompanying  consolidated  financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

/s/ KPMG LLP

Mountain View, California
February 21, 2002

                                       F-2
<PAGE>
                 REPORT OF BDO SEIDMAN LLC, INDEPENDENT AUDITORS

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 (the Company) as of December 31, 2001, and
the related  consolidated  statements of operations,  shareholders'  equity, and
cash flows for each of the years in the two-year period ended December 31, 2001.
We have also audited  Schedule II - Valuation  and  Qualifying  Accounts for the
years ended December 31, 2001 and 2000. These consolidated  financial statements
and  schedule  are  the   responsibility  of  the  Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform our audits to obtain reasonable assurance about whether the consolidated
financial  statements and schedule are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures  in the financial  statements  and schedule.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial  statement and schedule
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 consolidated financial position of Pacific
Magtron  International  Corp. and  subsidiaries as of December 31, 2001, and the
results  of their  operations  and their cash flows for each of the years in the
two-year   period  ended  December  31,  2001,  in  conformity  with  accounting
principles generally accepted in the United States of America.

     Also, in our opinion,  the schedule  referred to above presents fairly,  in
all material  respects,  the  information  set forth therein for the years ended
December 31, 2001 and 2000.

/s/ BDO SEIDMAN, LLP

San Francisco, California
March 6, 2002

                                       F-3
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.
                           CONSOLIDATED BALANCE SHEETS

                                                            December 31,
                                                    ----------------------------
                                                        2002            2001
                                                    ------------    ------------
ASSETS
Current Assets:
  Cash and cash equivalents                         $  1,901,100    $  3,110,000
  Restricted cash                                        250,000         250,000
  Accounts receivable, net of allowance for
    doubtful accounts of $305,000 in 2002
    and $400,000 in 2001                               5,124,100       4,590,100
  Inventories                                          3,370,500       2,952,000
  Prepaid expenses and other current
    assets                                               459,100         387,300
  Income tax refunds receivable                        1,472,800         399,200
  Deferred income taxes                                       --         813,000
                                                    ------------    ------------
Total Current Assets                                  12,577,600      12,501,600

Property and Equipment, net                            4,495,400       4,711,500

Deposits and Other Assets                                194,000         110,200
                                                    ------------    ------------
                                                    $ 17,267,000    $ 17,323,300
                                                    ============    ============

          See accompanying notes to consolidated financial statements.

                                       F-4
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.
                           CONSOLIDATED BALANCE SHEETS

                                                            December 31,
                                                    ----------------------------
                                                        2002            2001
                                                    ------------    ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Current portion of notes payable                  $     60,800    $     55,900
  Floor plan inventory loans                             901,600       1,545,000
  Accounts payable                                     7,781,800       4,786,600
  Accrued expenses                                       559,100         379,200
  Warrants                                               161,600              --
                                                    ------------    ------------
Total Current Liabilities                              9,464,900       6,766,700

Notes Payable, less current portion                    3,169,500       3,230,300

Deferred Tax Liabilities                                      --          34,200

Commitments and Contingencies

Minority Interest                                             --           2,200

Preferred Stock, $0.001 par value; 5,000,000
  Shares authorized;
    4% Series A Redeemable Convertible Preferred
    Stock; 1,000 shares designated; 600 shares
    issued and outstanding (liquidation value
    of $614,200 as of December 31, 2002)                 190,400              --

Shareholders' Equity:
    Common stock, $0.001 par value; 25,000,000
      shares authorized; 10,485,100 shares
      issued and outstanding                              10,500          10,500
    Additional paid-in capital                         2,007,900       1,745,500
    Retained earnings                                  2,423,800       5,533,900
                                                    ------------    ------------
Total Shareholders' Equity                             4,442,200       7,289,900
                                                    ------------    ------------
                                                    $ 17,267,000    $ 17,323,300
                                                    ============    ============

          See accompanying notes to consolidated financial statements.

                                       F-5
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                               --------------------------------------------
                                                   2002            2001            2000
                                               ------------    ------------    ------------
<S>                                            <C>             <C>             <C>
Sales:
  Products                                     $ 69,358,500    $ 74,853,100    $ 88,597,300
  Services                                          970,200         158,600         275,400
                                               ------------    ------------    ------------
Total Sales                                      70,328,700      75,011,700      88,872,700
                                               ------------    ------------    ------------
Cost of Sales:
  Products                                       65,234,300      69,660,600      81,691,100
  Services                                          484,100          49,000         129,600
                                               ------------    ------------    ------------
Total Cost of Sales                              65,718,400      69,709,600      81,820,700
                                               ------------    ------------    ------------
Gross Margin                                      4,610,300       5,302,100       7,052,000
Research and Development                                 --          68,500         100,000
Selling, General and
  Administrative Expenses                         8,786,300       8,345,100       6,941,800
Impairment Loss on Investment                            --         718,000              --
                                               ------------    ------------    ------------
Income (Loss) from Operations                    (4,176,000)     (3,829,500)         10,200
                                               ------------    ------------    ------------
Other Income (Expense):
  Interest income                                    18,100         125,100         227,300
  Interest expense                                 (183,700)       (255,800)       (296,000)
  Equity loss on investment                              --              --         (32,000)
  Litigation settlement                                  --              --         300,000
  Change in fair value of warrants issued           235,700              --              --
  Other expense, net                                (54,500)         (1,600)        (33,400)
                                               ------------    ------------    ------------
Total Other Income (Expense)                         15,600        (132,300)        165,900
                                               ------------    ------------    ------------
Income (Loss) Before Income Tax Benefit
  and Minority Interest                          (4,160,400)     (3,961,800)        176,100
Income Tax Benefit (Expense)                      1,322,300       1,078,200        (104,600)
                                               ------------    ------------    ------------
Income (Loss) Before Minority Interest           (2,838,100)     (2,883,600)         71,500
Minority Interest in FNC and PMIGA Loss               2,200          32,900          50,300
                                               ------------    ------------    ------------
Net Income (Loss)                                (2,835,900)     (2,850,700)        121,800
Accretion and deemed dividend related to
  Series A Convertible Preferred Stock             (274,200)             --              --
                                               ------------    ------------    ------------
Net income (loss) applicable to common
  shareholders                                 $ (3,110,100)   $ (2,850,700)   $    121,800
                                               ============    ============    ============
Basic and diluted earnings (loss) per share    $      (0.30)   $      (0.28)   $       0.01
                                               ============    ============    ============
Shares used in computing per share amounts:
  Basic                                          10,485,100      10,280,100      10,100,000
       Potential common shares-stock options             --              --          54,700
                                               ------------    ------------    ------------
  Diluted                                        10,485,100      10,280,100      10,154,700
                                               ============    ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-6
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                            Shareholders' Equity
                                 ---------------------------------------------------------------------------
                                         Common Stock            Additional
                                 ----------------------------     Paid-in        Retained
                                    Shares          Amount        Capital        Earnings          Total
                                 ------------    ------------   ------------    ------------    ------------
<S>                              <C>             <C>            <C>             <C>             <C>
Balance at December 31, 1999       10,100,000    $     10,100   $  1,463,100    $  8,262,800    $  9,736,000

Net income                                 --              --             --         112,800         121,800
                                 ------------    ------------   ------------    ------------    ------------
Balance at December 31, 2000       10,100,000          10,100      1,463,100       8,384,600       9,857,800

Issuance of Common Stock in
  exchange for advertising
  services                            333,400             300        199,700              --         200,000

Purchase of assets in
  exchange for stock                   16,100              --         20,000              --          20,000

Exercise of stock options              56,000             100         55,200              --          55,300

Tax benefit of stock
  options exercised                        --              --         22,100              --          22,100

Repurchase and retirement
  of treasury stock                   (20,400)             --        (14,600)             --         (14,600)

Net Loss                                   --              --             --      (2,850,700)     (2,850,700)
                                 ------------    ------------   ------------    ------------    ------------
Balance at December 31, 2001       10,485,100          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)

Net Loss                                   --              --             --      (2,835,900)     (2,835,900)
                                 ------------    ------------   ------------    ------------    ------------
Balance at December 31, 2002       10,485,100    $     10,500   $  2,007,900    $  2,423,800    $  4,442,200
                                 ============    ============   ============    ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-7
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                   YEARS ENDED DECEMBER 31,
                                                         --------------------------------------------
                                                             2002            2001            2000
                                                         ------------    ------------    ------------
<S>                                                      <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income                                        $ (2,835,900)   $ (2,850,700)   $    121,800
Adjustments to reconcile net (loss) income to
  net cash (used in) provided by operating activities:
    Depreciation and amortization                             325,000         279,000         215,100
    Gain on disposal of property and equipment                 (5,200)         (1,400)             --
    Provision (benefit) for doubtful accounts                 (95,000)        450,500         182,200
    Deferred income taxes                                     778,800        (682,700)         21,600
    Equity in loss in investment                                   --              --          32,000
    Impairment loss on investments                                 --         718,000              --
    Change in value of warrants                              (235,700)             --              --
    Minority interest losses                                   (2,200)        (32,900)             --
    Changes in operating assets and liabilities:
      Accounts receivable                                    (439,000)        588,600         797,200
      Inventories                                            (418,500)        965,900        (106,700)
      Prepaid expenses and other current assets               (71,800)        259,200        (347,400)
      Income tax refunds receivable                        (1,073,600)       (183,500)             --
      Accounts payable                                      2,995,200      (1,002,000)        (23,000)
      Accrued expenses                                        179,900        (142,000)        268,700
                                                         ------------    ------------    ------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES          (898,000)     (1,634,000)      1,161,500
                                                         ------------    ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Acquisition of property and equipment                    (126,200)        (96,100)       (341,500)
    Proceeds from sale of property and equipment               61,100              --              --
    Notes receivable from shareholders                             --         171,400          52,200
    Investments in Rising Edge and TargetFirst                     --              --        (750,000)
    Deposits and other assets                                 (24,000)         (4,600)        536,400
    Payment for business acquisitions and
      related costs                                                --        (170,700)             --
                                                         ------------    ------------    ------------
NET CASH USED IN INVESTING ACTIVITIES                         (89,100)       (100,000)       (502,900)
                                                         ------------    ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Net increase (decrease) in floor plan
      inventory loans                                        (643,400)        215,500        (153,400)
    Principal payments on note payable                        (55,900)        (51,400)        (47,300)
    Restricted cash                                                --        (250,000)             --
    Issuance of Common Stock under stock option plan               --          55,300              --
    Net proceeds from issuance of redeemable
      convertible preferred stock and warrants                477,500              --              --
    Repurchase of common stock                                     --         (14,600)             --
    Proceeds from sale of PMIGA stock to
      minority shareholder                                         --          15,000              --
                                                         ------------    ------------    ------------
NET CASH USED IN FINANCING ACTIVITIES                        (221,800)        (30,200)       (200,700)
                                                         ------------    ------------    ------------

NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS            (1,208,900)     (1,764,200)        457,900
CASH AND CASH EQUIVALENTS:
    Beginning of year                                       3,110,000       4,874,200       4,416,300
                                                         ------------    ------------    ------------
    End of year                                          $  1,901,100    $  3,110,000    $  4,874,200
                                                         ============    ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-8
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

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

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

In May 1998, PMI formed its Frontline Network Consulting (Frontline) division, a
corporate  information  systems  group that serves the  networking  and personal
computer  requirements of corporate customers.  In July 2000, the Company formed
FNC, a California  corporation.  Effective  October 1, 2000, PMI transferred the
assets and liabilities of Frontline to FNC. Concurrently,  FNC issued 20,000,000
shares of common stock to the Company and became a wholly-owned  subsidiary.  On
January 1, 2001,  FNC issued  3,000,000  shares of its common stock to three key
FNC employees  for past services  rendered  pursuant to certain  Employee  Stock
Purchase  Agreements.  As a result of this transaction,  the Company's ownership
interest  in FNC was  reduced  to 87%.  In August  2001 and in March  2002,  FNC
repurchased and retired a total of 2,000,000 of its shares from former employees
at $0.01 per share,  resulting in an increase in the Company's  ownership of FNC
from 87% to 95%.

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

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. During 2001, PMIGA sold 15,000 shares of its common stock to an employee
for $15,000.  In June 2002, PMIGA  repurchased the 15,000 employee owned shares.
As a result, PMIGA is 100% owned by PMI.

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

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

BASIS OF ACCOUNTING

The Company has incurred a net loss of $2,835,900  and a net loss  applicable to
common  shareholders  of $3,110,100  for the year ended  December 31, 2002.  The
Company also incurred a net loss of $2,850,700  for the year ended  December 31,
2001. 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

                                       F-9
<PAGE>
upon its ability to achieve  profitability and generate sufficient cash flows to
meet its obligations as they come due, which management believes it will be able
to do. Management believes that the downsizing of its subsidiaries,  FNC and Lea
and  continued   cost-cutting   measures  to  reduce  overhead  at  all  of  its
subsidiaries  would  enable it to  achieve  profitability.  The  Company 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.

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 those estimates.

PRINCIPLES OF CONSOLIDATION

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

RECLASSIFICATIONS

Certain 2001 and 2000  financial  statement  amounts have been  reclassified  to
conform to the 2002 financial statement presentation.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with original  maturities of
90 days 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.  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, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Depreciation 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                                       5 years
     Automobiles                                                   5 years
     Software                                                      3 years

REVENUE RECOGNITION

The Company  recognizes  sales of computer and related products upon delivery of
goods  to the  customer  (generally  upon  shipment),  provided  no  significant
obligations  remain and  collectibility  is probable.  A provision for estimated
product returns is established at the time of sale based upon historical  return
rates,  which have typically been  insignificant,  adjusted for current economic
conditions.  Revenues relating to services  performed by FNC are recognized upon
completion of the contracts.  Software and service revenues relating to software
design and installation  performed by FNC and Lea are recognized upon completion
of the installation and customer acceptance.

                                      F-10
<PAGE>
ADVERTISING COSTS

Advertising costs,  except for certain radio advertising  credits,  are expensed
when  incurred.  Radio  advertising  credits are 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, 2002 and 2001 are  $150,000  and
$200,000,   respectively,   representing   the  outstanding   balance  of  radio
advertising credits.  Advertising expense was $71,400,  $178,000, and $3,600, in
2002, 2001, and 2000, respectively.

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. However, the Company does warrant its services with regards
to  products  configured  for its  customers  and  products  built to order from
purchased  components,  and provides for the estimated costs of fulfilling these
warranty obligations at the time the related revenue is recorded.  Historically,
warranty costs have been insignificant.

INCOME TAXES

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

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
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.  As further  discussed  in Note 15,  the  Company  recorded  an
impairment  loss in 2001 related to the write-down of its  investments in Rising
Edge and TargetFirst to zero. The impairment loss recognized for Rising Edge was
based on operations history, projections and a change in focus of the investee's
business.  The  impairment  loss  recognized  for Target First  resulted from an
analysis of the investee's recurring operating losses and cash available for use
in operations.

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, 2002 and 2001, 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
$3,346,300  and  $3,487,700,  respectively.  The bank  loan  had an  outstanding
balance  of  $2,387,500  and  $2,411,700  as of  December  31,  2002  and  2001,
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  $842,800  and  $874,500  at
December 31, 2002 and 2001,  respectively.  The estimated  fair value of the SBA
loan was $958,800 and $1,076,000 as of December 31, 2002 and 2001, 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,  2002 and  2001.  The fair  value of floor  plan  inventory  loans
approximates  their  carrying  value  because  of the  short  maturity  of  this
instrument.

                                      F-11
<PAGE>
EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is computed by dividing income (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,  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.  During the year ended  December  31,  2001,  options to purchase
794,600 shares of the Company's  common stock were excluded from the calculation
of diluted loss per share as their effect would be anti-dilutive.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001,  the  Financial  Accounting  Standards  Board issued SFAS No. 141,
BUSINESS  COMBINATIONS,  and No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. SFAS
No. 141 requires the use of the purchase  method of accounting and prohibits the
use of the  pooling-of-interests  method of accounting for business combinations
initiated  after June 30,  2001.  SFAS No. 141 also  requires  that the  Company
recognize  acquired  intangible  assets  apart  from  goodwill  if the  acquired
intangible  assets meet certain  criteria.  SFAS No. 141 applies to all business
combinations   initiated   after  June  30,  2001  and  for  purchase   business
combinations completed on or after July 1, 2001. It also requires, upon adoption
of SFAS No. 142 that the Company  reclassify the carrying  amounts of intangible
assets and goodwill based on the criteria in SFAS No. 141. The Company  recorded
its  acquisition  of Technical  Insights and LiveMarket in September and October
2001 in accordance with SFAS No. 141 and did not recognize any goodwill relating
to these transactions.  However, certain intangibles totaling $59,400, including
intellectual  property  and vendor  reseller  agreements,  were  identified  and
recorded in the consolidated  financial statements in deposits and other assets.
These  intangible  assets are being  amortized  over a 3-year  period  using the
straight-line  method.  As of  December  31,  2002,  a total of $24,300 has been
amortized.

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

In August  2001,  the FASB  issued  SFAS No.  143,  ACCOUNTING  FOR  OBLIGATIONS
ASSOCIATED  WITH THE  RETIREMENT  OF LONG-LIVED  ASSETS.  SFAS No. 143 addresses
financial  accounting and reporting for the  retirement  obligation of an asset.
SFAS No. 143 states that companies  should  recognize the asset retirement cost,
at its fair value,  as part of the asset cost and classify the accrued amount as
a  liability  in the  balance  sheet.  The asset  retirement  liability  is then
accreted to the ultimate payout as interest expense.  The initial measurement of
the  liability  would be  subsequently  updated  for  revised  estimates  of the
discounted cash outflows.  SFAS No. 143 was effective for fiscal years beginning
after June 15, 2002. The Company  believes the adoption of SFAS No. 143 will not
have  a  material  effect  on  the  Company's  financial  position,  results  of
operations, or cash flows.

In October 2001,  the FASB issued SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR
DISPOSAL  OF  LONG-LIVED  ASSETS.  SFAS No. 144  supersedes  the SFAS No. 121 by
requiring  that one  accounting  model to be used for  long-lived  assets  to be
disposed of by sale, whether previously held and used or newly acquired,  and by
broadening the  presentation of discontinued  operation to include more disposal
transactions.  SFAS No. 144 was  effective  for  fiscal  years  beginning  after
December 15, 2001.  The adoption of SFAS No. 144 did not have a material  effect
on the Company's financial position, results of operations, or cash flows.

                                      F-12
<PAGE>
SFAS No. 145,  "Rescission of SFAS  Statements  No. 4, 44, and 64,  Amendment of
SFAS  Statement  No. 13,  and  Technical  Corrections"  ("SFAS  145"),  updates,
clarifies and simplifies existing accounting  pronouncements.  SFAS 145 rescinds
SFAS No. 4, "Reporting Gains and Losses from  Extinguishment  of Debt." SFAS 145
amends SFAS No. 13,  "Accounting  for  Leases," to  eliminate  an  inconsistency
between the required accounting for sale-leaseback transactions and the required
accounting for certain lease  modifications  that have economic effects that are
similar to  sale-leaseback  transactions.  The provisions of SFAS 145 related to
SFAS  No. 4 and SFAS  No.  13 are  effective  for  fiscal  years  beginning  and
transactions  occurring after May 15, 2002,  respectively.  The adoption of SFAS
No.  145 did not have a material  effect on the  Company's  financial  position,
results of operations, or cash flows.

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

In November 2002, the FASB issued Interpretation No. 45, Guarantor's  Accounting
and Disclosure  Requirements for Guarantees,  Including  Indirect  Guarantees of
Indebtedness  of Others (FIN 45).  FIN 45  requires a  guarantor  to (i) include
disclosure of certain  obligations  and (ii) if applicable,  at the inception of
the  guarantee,  recognize  a  liability  for the fair  value  of other  certain
obligations undertaken in issuing a guarantee.  The disclosure provisions of the
Interpretation  are  effective  for  financial  statements  of interim or annual
reports that end after  December 15, 2002.  The adoption of FIN 45 had no impact
on the  Company's  disclosures  as of December 31,  2002.  The  recognition  and
measurement provisions of FIN 45 are effective for guarantees issued or modified
after  December 29, 2002. The Company does not expect  Interpretation  No. 45 to
have a  material  effect on the  Company's  financial  position  or  results  of
operations.

In December  2002,  the FASB issued SFAS No.  148,  Accounting  for  Stock-Based
Compensation--Transition and Disclosure--an Amendment of FASB Statement No. 123.
SFAS  No.  148  amends  FASB  Statement  No.  123,  Accounting  for  Stock-Based
Compensation,  to provide  alternative  methods of transition for an entity that
chooses to change to the  fair-value-based  method of accounting for stock-based
employee  compensation.  It  also  amends  the  disclosure  provisions  of  that
statement to require prominent  disclosure about the effects that accounting for
stock-based employee  compensation using the fair-value-based  method would have
on  reported  net  income  and  earnings  per  share  and to  require  prominent
disclosure  about the  entity's  accounting  policy  decisions  with  respect to
stock-based employee  compensation.  Certain of the disclosure  requirements are
required  for all  companies,  regardless  of whether  the fair value  method or
intrinsic value method is used to account for stock-based employee  compensation
arrangements.  The Company accounts for its stock option plan in accordance with
the recognition and measurement  principles of Accounting Principles Opinion No.
25, Accounting for Stock Issued to Employees. The amendments to SFAS No. 123 are
effective for  financial  statements  for fiscal years ended after  December 15,
2002 and for interim periods  beginning after December 15, 2002. The adoption of
the disclosure  requirements  of SFAS No. 148 did not have a material  effect on
the Company's financial position or results of operations.

FASB  Statement  No. 123 requires  the Company to provide pro forma  information
regarding  net income and  earnings  per share as if  compensation  cost for the
Company's  stock option plan had been  determined  in  accordance  with the fair
value based  method  prescribed  in SFAS No. 123 as amended by SFAS No. 148. The
Company estimates the fair value of stock options at the grant date by using the
Black-Scholes   option   pricing-model   with  the  following   weighted-average
assumptions  use for  grants  in  2002,  2001,  and  2000:  no  yield;  expected
volatility of 311%,  152%, and 112%,  risk-free  interest rates of 4%, 5.0%, and
6.2% and expected lives of four years for all plan options.

Had the Company  adopted the provisions of FASB Statement No. 123, the Company's
net  income  (loss)  and  earnings  (loss)  per share  would  have been  reduced
(increased) to the pro forma amounts indicated below:

                                      F-13
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,                           2002           2001           2000
------------------------                        -----------    -----------    -----------
<S>                                             <C>            <C>            <C>
Net (loss) income:
  As reported                                   $(3,110,100)   $(2,850,700)   $   121,800
    Deduct: Stock based compensation
      expense determined under fair value
      based method for all awards               $   (71,200)   $  (627,400)   $  (118,600)
  Pro forma                                     $(3,181,300)   $(3,478,100)   $     3,200
                                                -----------    -----------    -----------
Basic and diluted (loss) earnings per share:
  As reported                                   $     (0.30)   $     (0.28)   $      0.01
  Pro forma                                     $     (0.30)   $     (0.34)   $      0.00
</TABLE>

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

2. RELATED PARTY TRANSACTIONS

The  Company  had notes  receivable  from two  officer/shareholders  which  bore
interest at 6% and were unsecured.  In December 2000, the repayment terms of the
notes were renegotiated to require monthly principal payments, without interest,
to pay off the  notes by  December  31,  2001.  Additionally,  accrued  interest
receivable  of $43,600  pertaining  to the notes was forgiven by the Company and
charged to expense during 2000. As of December 31, 2000,  notes  receivable from
the two officer/shareholders  aggregated $171,400 and were repaid in full during
2001 using proceeds from officer bonuses declared and paid by the Company during
the period.

The Company sold  computer  products to a company owned by a member of the Board
of Directors and Audit  Committee of the Company.  Management  believes that the
terms of the  sales  transactions  are no more  favorable  than  those  given to
unrelated  customers.  During  2002,  2001  and  2000,  the  Company  recognized
$527,400, $476,200, and $1,476,100 in sales revenues from this company. Included
in accounts  receivable  as of  December  31, 2002 and 2001 is $27,000 and $200,
respectively, due from this related party.

In 2001 FNC acquired certain assets of Technical Insights in exchange for 16,100
shares of PMIC common stock.  Under the purchase  agreement,  among other terms,
FNC was  required  to pay  $126,000  to the  sellers  upon  completion  and full
settlement of a sale transaction as specified in the agreement.  On October 2001
the  sellers  became  employees  of  FNC.  As a  result  of the  profit  sharing
arrangement, the $126,000 payment due to the sellers was accrued as compensation
expense  by  the  Company.  In  January  2002,  this  balance  was  paid  to the
sellers/employees under the terms of the purchase agreement.

Prior to June 2000, the Company and Rising Edge each owned a 50% interest in Lea
Publishing,  LLC. The brother of a director,  officer, and principal shareholder
of the Company is a director,  officer and the  majority  shareholder  of Rising
Edge.  See Note 15 for the related  party  transactions  between the Company and
Rising Edge.

                                      F-14
<PAGE>
3. ACCOUNTS RECEIVABLE FACTORING AGREEMENT

Pursuant to a non-notification  accounts  receivable  factoring  agreement,  the
Company factors certain of its accounts receivable with a financial  institution
(the Factor) on a  pre-approved  non-recourse  basis.  The factoring  commission
charge  is  0.375%  and  2.375%  of  specific   approved  domestic  and  foreign
receivables (Approved Accounts),  respectively.  The agreement, which expired on
February 28, 2003, was  automatically  renewed for one year under the provisions
of the  agreement.  The  agreement  requires  the  Company  to pay a minimum  of
$200,000  in annual  commission  to the Factor and to  maintain  the  receivable
records and make reasonable  collection  efforts on the Approved  Accounts.  The
Company  recognizes  the commission  expense based on the  cumulative  amount of
approved  accounts or the prorated  cumulative  minimum annual fee, which is the
greater.  Approved  Accounts are transferred to the Factor as assigned  accounts
(Assigned  Accounts) when the receivables are not collected within 120 days from
the due date or the customers become  insolvent.  The title of the receivable is
transferred to the Factor when it becomes an Assigned Account. As a purchaser of
the Assigned  Accounts,  the Factor has title to the  Assigned  Accounts and has
unilateral rights,  such as to demand and collect payments from customers on the
Assigned  Accounts,  compromise,  sue for,  and  foreclose.  The  Company has no
further  obligations or control over the receivable  when it becomes an Assigned
Account.  The Factor is obligated  to pay the Company for the Assigned  Accounts
within 15 days  after the  receivable  becomes  an  Assigned  Account.  Security
interests in the  Assigned  Accounts are granted to the Factor when the accounts
become  assigned.  In  accordance  with SFAS 140  "Accounting  for Transfers and
Servicing of Financial Assets and  Extinguishments  of Liabilities," the Company
accounts for the  factored  receivables  as sales of financial  assets when they
become Assigned Accounts. The total amount of receivables approved by the Factor
as Approved  Accounts was  $23,382,700  during the year ended December 31, 2002.
The amount of receivables  assigned to the Factor during the year ended December
31, 2002 was $101,800. There were no receivables assigned to the Factor prior to
the  quarter  ended June 30,  2002 and as of December  31,  2002,  there were no
Assigned Accounts included in accounts receivable.  As of December 31, 2002, the
commission  amount due to the Factor was  $37,700  and was  included  in accrued
liabilities.

4. PROPERTY AND EQUIPMENT

A summary of property and equipment as of December 31, 2002 and 2001 follows:

     DECEMBER 31,                                   2002           2001
     ------------                                ----------     ----------
     Building and improvements                   $3,274,400     $3,266,900
     Land                                         1,158,600      1,158,600
     Furniture and fixtures                         393,300        394,500
     Computers and equipment                        795,100        703,900
     Automobiles                                    116,500        190,400
                                                 ----------     ----------
                                                  5,737,900      5,714,300
     Less accumulated depreciation                1,242,500      1,002,800
                                                 ----------     ----------
                                                 $4,495,400     $4,711,500
                                                 ==========     ==========

5. NOTES PAYABLE

The Company obtained  financing of $3,498,000 for the purchase of its office and
warehouse  facility.  Of the amount  financed,  $2,500,000  was in the form of a
10-year  bank loan  utilizing  a 30-year  amortization  period.  This loan bears
interest at the bank's  90-day  LIBOR rate (1.875% as of December 31, 2002) plus
2.5%,  and is secured  by a deed of trust on the  property.  The  balance of the
financing was obtained  through a $998,000 Small Business  Administration  (SBA)
loan due in monthly installments through April 2017. The SBA loan bears interest
at 7.569%, and is secured by the underlying property.

Under the bank loan, the Company is required,  among other things, to maintain a
minimum debt service  coverage,  a maximum debt to tangible net worth ratio, and
have no consecutive  quarterly losses.  In addition,  the Company is required to
achieve net income on an annual basis. During 2001, the Company was in violation
of two of these covenants  which  constituted an event of default under the loan
agreement  and gave the bank the  right to call the  loan.  A waiver of the loan
covenant violations was obtained from the bank that extends through December 31,
2003.  As a condition  for this waiver,  the Company  transferred  $250,000 to a
restricted  account  as a  reserve  for debt  servicing.  This  amount  has been
reflected as restricted cash in the accompanying consolidated balance sheet.

                                      F-15
<PAGE>
     Notes payable as of December 31, 2002 and 2001 are as follows:

                                                 2002            2001
                                              -----------     -----------
     Bank loan                                $ 2,387,500     $ 2,411,700
     SBA loan                                     842,800         874,500
                                              -----------     -----------
                                                3,230,300       3,286,200
     Less current portion                          60,800          55,900
                                              -----------     -----------
                                              $ 3,169,500     $ 3,230,300
                                              ===========     ===========

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

     YEARS ENDING DECEMBER 31,                                  Amount
     -------------------------                                -----------
            2003                                              $    60,800
            2004                                                   66,100
            2005                                                   71,900
            2006                                                   78,200
            2007                                                2,310,600
         Thereafter                                               642,700
                                                              -----------
                                                              $ 3,230,300
                                                              ===========

6. FLOOR PLAN INVENTORY LOANS AND LETTER OF CREDIT

On July 13, 2001, PMI and PMIGA (the Companies)  obtained a $4 million  (subject
to credit and borrowing  base  limitations)  accounts  receivable  and inventory
financing   facility   from   Transamerica    Commercial   Finance   Corporation
(Transamerica).  This credit  facility has a term of two years and is subject to
automatic  renewal  from year to year  thereafter.  The credit  facility  can be
terminated by  Transamerica  under certain  conditions  and the  termination  is
subject to a fee of 1% of the credit  limit.  The  facility  includes up to a $3
million  inventory  line  (subject to a borrowing  base of up to 85% of eligible
accounts receivable plus up to $1,500,000 of eligible inventories) that includes
a sub-limit of $600,000  working  capital line and a $1 million letter of credit
facility  used as security  for  inventory  purchased  on terms from  vendors in
Taiwan.  Borrowing  under  the  inventory  loans  are  subject  to 30 to 45 days
repayment,  at which time interest begins to accrue at the prime rate, which was
4.25% at  December  31,  2002.  Draws on the  working  capital  line also accrue
interest at the prime rate.  The credit  facility is guaranteed by both PMIC and
FNC.

Under  the  accounts   receivable   and   inventory   financing   facility  from
Transamerica,   the  Companies  are  required  to  maintain  certain   financial
covenants.  However,  at June 30, 2002,  the  Companies did not meet the minimum
tangible net worth and profitability covenants.

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

On January 7,  2003,  Transamerica  elected  to  terminate  the credit  facility
effective April 7, 2003.  However,  Transamerica  will continue its guarantee of
the Letter of Credit Facility through July 25, 2003. Unless the Companies do not
perform its obligations in accordance with the agreement and the indebtedness to
tangible net worth covenant is materially  worse than the condition at the level
on January 7, 2003,  Transamerica will continue to accept payments  according to
the terms of the agreement  prior to April 7, 2003.  The  remaining  outstanding
balance is due and payable in full on April 7, 2003.  As of December  31,  2002,
the  Companies  had an  outstanding  balance of  $901,600  due under this credit
facility.

                                      F-16
<PAGE>
In March 2001,  FNC obtained a $2 million  discretionary  credit  facility  from
Deutsche Financial Services  Corporation  (Deutsche) to purchase  inventory.  To
secure payment, Deutsche obtained a security interest in all of FNC's inventory,
equipment,  fixtures, accounts,  reserves,  documents, general intangible assets
and all judgments, claims, insurance policies, and payments owed or made to FNC.
Under the loan  agreement,  all draws matured in 30 days.  Thereafter,  interest
accrued  at the  lesser  of 16% per  annum or at the  maximum  contract  rate of
interest  permitted  under  applicable law FNC was required to maintain  certain
financial covenants to qualify for the Deutsche bank credit line, and was not in
compliance  with  certain of the  covenants as of June 30, 2002 and December 31,
2001.  On April 30,  2002,  Deutsche  elected to terminate  the credit  facility
effective  July 1, 2002. FNC repaid the  outstanding  balance in full in October
2002.

7. INCOME TAXES

For the years  ended  December  31,  2002,  2001 and 2000,  income  tax  benefit
(expense) comprises:

     2002                     Current          Deferred          TOTAL
     ----                   ------------     ------------     ------------
     Federal                $  1,459,000         (131,000)    $  1,328,000
     State                        (5,700)              --           (5,700)
                            ------------     ------------     ------------
                            $  1,453,300         (131,000)    $  1,322,300
                            ============     ============     ============

     2001                     Current         Deferred          TOTAL
     ----                   ------------     ------------     ------------
     Federal                $    378,700     $    698,500     $  1,077,200
       State                      (5,300)           6,300            1,000
                            ------------     ------------     ------------
                            $    373,400     $    704,800     $  1,078,200
                            ============     ============     ============

     2000                     Current          Deferred          TOTAL
     ----                   ------------     ------------     ------------
     Federal                $    (56,000)    $    (22,500)    $    (78,500)
       State                     (27,000)             900          (26,100)
                            ------------     ------------     ------------
                            $    (83,000)    $    (21,600)    $   (104,600)
                            ============     ============     ============

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 2002, 2001 and 2000 to income before income taxes:

YEAR ENDING DECEMBER 31,                    2002          2001          2000
------------------------                 ----------    ----------    ----------
Federal income tax benefit (expense)
  at statutory rate                      $1,414,300    $1,347,000    $  (59,900)

State income taxes benefit (expense),
  net of federal benefit                     (5,700)      230,100       (10,600)
Other non-taxable income and
  non-deductible expenses                    55,100       (96,000)      (34,100)
Change in deferred tax assets              (432,500)           --            --
Change in valuation allowance              (380,500)     (402,900)           --
Benefits recognized due to changes
  in tax laws                               648,000            --            --
Others                                       23,600            --            --
                                         ----------    ----------    ----------
Income tax benefit (expense)             $1,322,300    $1,078,200    $ (104,600)
                                         ==========    ==========    ==========

California  limits the amount that could be carried forward to 60% of the losses
incurred in 2001 and 2002. As of December 31, 2002,  the Company had  California
state net operating  loss (NOL) carry  forwards of  approximately  $4,011,000 to
offset future taxable  income.  The net operating loss carry forwards  expire in
2014.

                                      F-17
<PAGE>
Deferred  tax assets  and  liabilities  as of  December  31,  2002 and 2001 were
comprised of the following:

                                                   2002           2001
                                                -----------    -----------
     Deferred tax assets:
     Reserves (primarily the allowance for
       doubtful accounts) not currently
       deductible                               $   132,400    $   272,800
     Accrued compensation and benefits               23,900          8,400
     Capital loss carryover                         335,700        186,400
     NOL carryover                                  354,600        746,500
     Others                                          12,400          1,800
     Accumulated depreciation                       (75,600)            --
                                                -----------    -----------
                                                    783,400      1,215,900
     Valuation allowance                           (783,400)      (402,900)
                                                -----------    -----------
     Net deferred tax assets                    $        --    $   813,000
                                                ===========    ===========
     Deferred tax liabilities - accumulated
       depreciation                             $        --    $    34,200
                                                ===========    ===========

At December 31, 2002 and 2001,  the Company has recorded a valuation  allowance,
relating  principally to the capital loss carryover 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, 2002 and 2001 was $380,500 and $402,900, respectively.

During  2001,  the  Company  recorded a $22,100  tax  benefit  of stock  options
exercised as a credit to additional paid-in-capital.

The  Company  reported  income tax  benefits  of  $1,322,300  for the year ended
December 31, 2002 and  $1,078,200  for the year ended  December 31, 2001 arising
from the loss  incurred in those  years.  In March 2002,  the Job  Creation  and
Worker  Assistance  Act of 2002 ("the  Act") was  enacted.  The Act  extends the
general federal net operating loss carryback  period from 2 years to 5 years for
net operating losses incurred for any taxable year ending in 2001 and 2002. As a
result,  the Company did not record a valuation  allowance on the portion of the
deferred  tax assets  relating  to  unutilized  federal  net  operating  loss of
$1,906,800  for the year ended  December 31, 2001. On June 12, 2002, the Company
received  a federal  income tax refund of  $1,034,700  attributable  to 2001 net
operating  loss  carried  back.  The tax benefits  recorded  for 2002  primarily
reflect  potential  federal  income  tax  refund  attributable  to the  2002 net
operation loss carryback.

8. LEASE 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
     ------------------------                                     --------
              2003                                                $132,700
              2004                                                  31,800
              2005                                                  26,300
              2006                                                   2,000
                                                                  --------
                                                                  $192,800
                                                                  ========

Total rent  expense  associated  with all  operating  leases for the years ended
December  31,  2002,  2001  and  2000  was  $232,100,   $136,000,  and  $16,700,
respectively.

9. MAJOR VENDORS

One vendor accounted for approximately  11%, 10%, and 16% of the total purchases
for the years ended December 31, 2002,  2001, and 2000,  respectively.  No other
vendors  accounted  for more than 10% of  purchases  for any  period  presented.

                                      F-18
<PAGE>
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.

10. 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.  Company  contributions  to the Plan totaled  $3,400 and $24,100 for the
years  ended   December  31,  2001  and  2000,   respectively.   There  were  no
contributions by the Company in 2002.

11. 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, 2002 and 2001,
the  Company  had  deposits  at  one  financial   institution  which  aggregated
$1,665,900 (including restricted cash of $250,000) and $3,083,900, respectively.
As of December 31, 2002 and 2001, the Company had deposits amounting to $482,700
and $274,200,  respectively, at two other financial institutions. Such funds are
insured by the Federal Deposit Insurance Company up to $100,000.

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, 2002,  2001 and 2000,  no  individual  customer or customers
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.

12. SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK

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

On May 31, 2002 the Company  entered into a Preferred  Stock Purchase  Agreement
with an investor  (Investor).  Under the agreement,  the Company agreed to issue
1,000  shares of its Series A  Preferred  Stock at $1,000 per share.  On May 31,
2002,  the  Company  issued 600 shares of the  Series A  Preferred  Stock to the
Investor,  and the  remaining  400 shares 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 and includes a cashless exercise provision.  The Company also issued a
common  stock  purchase  warrant  with the same  terms  and  conditions  for the
purchase  of  100,000  shares  of the  Company's  common  stock to a broker  who
facilitated the transaction as a commission.

The holder of the Series A Preferred  Stock is entitled to cumulative  dividends
at the rate of 4% per annum,  payable on each  Conversion  Date, as defined,  in
cash or by accretion of the stated  value.  The amount  recorded as accretion of
the stated value for the year ended  December  31, 2002 was  $14,200.  Dividends
must be paid in cash, if among other circumstances,  the number of the Company's
authorized  common  shares is  insufficient  for the  conversion  in full of the
Series A Preferred  Stock, or the Company's common stock is not listed or quoted
on Nasdaq,  NYSE or AMEX.  Each share of Series A Preferred  Stock is non-voting
and entitled to a  liquidation  preference  of the stated value plus accrued and
unpaid  dividends.  A sale or  disposition  of 50% or more of the  assets of the
Company,  or 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 is
convertible  into  shares  of common  stock at the  Conversion  Ratio,  which is

                                      F-19
<PAGE>
defined as the stated value  divided by the  Conversion  Price.  The  Conversion
Price  is the  lesser  of  (a)  120%  of the  average  of the 5  Closing  Prices
immediately  prior to the Closing Date on which the  preferred  stock was issued
(the Set  Price),  and (b) 85% of the  average of the 5 lowest  VWAPs (the daily
volume weighted average price as reported by Bloomberg  Financial L.P. using the
VAP function)  during the 30 trading days  immediately  prior to the  Conversion
Date but not less than $0.75  (Floor  Price).  The Set Price and Floor Price are
subject to certain adjustments, such as stock dividends.

The Company  has the right to redeem the Series A Preferred  Stock for cash at a
price equal to 115% of the Stated Value plus accrued and unpaid dividends if (a)
the  Conversion  Price is less than $1 during  the 5 trading  days  prior to the
redemption,  or (b) the  Conversion  price is greater than 175% of the Set Price
during the 20 trading days prior to the  redemption.  Upon the  occurrence  of a
Triggering Event, such as failure to register the underlying common shares among
other  events as  defined,  the holder of the Series A  Preferred  Stock has the
right to require the Company to redeem the Series A Preferred Stock in cash at a
price equal to the sum of (a) the redemption  amount (the greater of (i) 150% of
the  Stated  Value or (ii) the  product  of the Per Share  Market  Value and the
Conversion  Ratio)  plus  other  costs,  and (b) the  product  of the  number of
converted common shares and Per Market Share Value. As of December 31, 2002, the
liquidation value of the Series A Preferred Stock was $614,200.  As the Series A
Preferred  Stock has conditions  for  redemption  that are not solely within the
control of the Company,  such Series A Preferred  Stock has been  excluded  from
shareholders'  equity.  As of December 31,  2002,  the  redemption  value of the
Series A Preferred  Stock,  if the holder had required the Company to redeem the
Series A Preferred Stock as of that date, was $921,300.

The Company has 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 as  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 are being amortized over
a 3-year period using a straight-line  method. As of December 31, 2002, issuance
costs of $16,000 have been  amortized to expense.  As of December 31, 2002,  the
carrying amount of the warrants was adjusted to the fair value of $161,600.  The
change in fair value of the warrants  from the  issuance  date (May 31, 2002) to
December 31, 2002 was $235,700 and is included as other  income.  As of December
31, 2002,  818,900 shares of common stock could have been issued if the Series A
Preferred Stock were converted into common stock.

13. CAPITAL STOCK

TREASURY STOCK

On May 7, 2001, the Company's Board of Directors  authorized a share  repurchase
program  whereby,  up to $100,000  worth of the  Company's  common  stock may be
repurchased  at a  maximum  price of $1.25 per  share  and held in  treasury  or
retired.  During 2001, the Company acquired 20,400 shares of its common stock at
a cost of $14,600. On November 8, 2001, this treasury stock was retired.

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

                                      F-20
<PAGE>
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 OTHER  THAN  EMPLOYEES  FOR  ACQUIRING,  OR IN
CONJUNCTION  WITH  SELLING,  GOODS OR SERVICES.  In 2002,  the Company  recorded
$2,400 in expense related to this transaction and increased  additional  paid-in
capital for the same amount.

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.   All  of  the  shares   vested  upon   issuance   and  are
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 expire in two years.  Radio  advertising
service  credits are 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, 2002 and 2001 are $150,000 and $200,000, respectively, representing
the outstanding balance of the radio advertising credits.

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:

                                                                      Weighted
                                              Weighted    Weighted     Average
                     Shares                   Average     Average     Remaining
                    Available     Options     Exercise      Fair     Contractual
                    for Grant   Outstanding    Price       Value        Life
                    ---------   -----------   --------    --------    ---------

DECEMBER 31, 1999     802,700       197,300   $   3.67    $   2.73    3.9 Years
Options granted      (136,000)      136,000       1.50        1.15           --
Options forfeited      40,000       (40,000)      2.78        2.34           --
                    ---------   -----------   --------    --------
DECEMBER 31, 2000     706,700       293,300       2.78        2.05    3.6 Years
Options granted      (660,000)      660,000       0.94        0.80           --
Options forfeited     102,700      (102,700)      2.65        2.22           --
Options exercised          --       (56,000)      0.99        0.87           --
                    ---------   -----------   --------    --------
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
                    =========   ===========   ========    ========

The following table summarizes information about stock options outstanding as of
December 31, 2002:

                       Options Outstanding                 Options Exercisable
              --------------------------------------      ----------------------
                              Weighted
                Number         Average      Weighted        Number     Weighted
              Outstanding     Remaining      Average      Exercisable   Average
Exercise        as of        Contractual    Exercise        as of      Exercise
Price         12/31/2002        Life          Price       12/31/2002     Price
-----         ----------     ----------       -----       ----------     -----
$0.76            10,000       4.5 Years       $0.76          10,000      $0.76
$0.88           323,800       3.3 Years       $0.88         323,800      $0.88
$0.97           206,200       3.3 Years       $0.97         206,200      $0.97
$1.05            20,000       4.6 Years       $1.05          20,000      $1.05
$1.50            72,000       1.7 Years       $1.50          28,800      $1.50
$5.00            20,000       0.9 Years       $5.00          14,000      $5.00
               --------                                     -------
                652,000       3.1 Years       $1.11         602,800      $1.04
               ========                                     =======

Under the terms of the Plan,  options are  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,

                                      F-21
<PAGE>
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.
FASB Statement No. 123,  ACCOUNTING FOR STOCK-BASED  COMPENSATION,  requires the
Company to provide pro forma  information  regarding net income and earnings per
share as if  compensation  cost for the  Company's  stock  option  plan had been
determined in accordance with the fair value based method prescribed in SFAS No.
123 as amended by SFAS No. 148.  The Company  estimates  the fair value of stock
options at the grant date by using the Black-Scholes  option  pricing-model with
the following  weighted-average  assumptions  use for grants in 2002,  2001, and
2000: no yield;  expected volatility of 311%, 152%, and 112%, risk-free interest
rates of 4%,  5.0%,  and  6.2% and  expected  lives of four  years  for all plan
options.

Had the Company  adopted the provisions of FASB Statement No. 123, the Company's
net  income  (loss)  and  earnings  (loss)  per share  would  have been  reduced
(increased) to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,                           2002           2001           2000
------------------------                        -----------    -----------    -----------
<S>                                             <C>            <C>            <C>
Net (loss) income:
  As reported                                   $(3,110,100)   $(2,850,700)   $   121,800
    Deduct: Stock based compensation
      expense determined under fair value
      based method for all awards               $   (71,200)   $  (627,400)   $  (118,600)
  Pro forma                                     $(3,181,300)   $(3,478,100)   $     3,200
                                                -----------    -----------    -----------
Basic and diluted (loss) earnings per share:
  As reported                                   $     (0.30)   $     (0.28)   $      0.01
  Pro forma                                     $     (0.30)   $     (0.34)   $      0.00
</TABLE>

On July 24, 2002, the Company entered into a service agreement with a consultant
for a term of 180 days. The consultant was paid by granting  options to purchase
an aggregate of 200,000 shares of the Company's common stock. On August 26, 2002
the Company  terminated  the  agreement  and  cancelled  the  outstanding  stock
options.

14. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS

Cash was paid during the years ended December 31, 2002, 2001 and 2000 for:

                                                   YEAR ENDED DECEMBER 31,
                                              ----------------------------------
                                                2002         2001         2000
                                              --------     --------     --------
Income taxes                                  $  5,700     $  1,500     $203,700
                                              ========     ========     ========
Interest                                      $183,700     $255,800     $296,000
                                              ========     ========     ========

During  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
three-year   period.   All  of  the  shares   vested  upon   issuance   and  are
non-forfeitable,  resulting in a non-cash transaction of $200,000 based upon the
market price of the Company's common stock on the date of issuance.

FNC acquired certain assets of a computer technical support company in September
2001 in  exchange  or 16,100  PMIC  shares,  resulting  in a non-cash  investing
transaction  of $20,000  based upon the average  market  price of the  Company's
common stock.

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
and an accretion of the stated value of the preferred stock of $14,200.

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.

                                      F-22
<PAGE>
15. INVESTMENTS

The Company and Rising Edge  Technologies,  Ltd., a corporation  based in Taiwan
(Rising Edge),  entered into an Operating Agreement to form Lea in January 1999.
The  objective of Lea is to provide  internet  users,  resellers  and  providers
advanced  software  solutions  and  applications.  Prior to June 13,  2000,  the
Company  and Rising  Edge each owned a 50%  interest  in Lea.  The  brother of a
director,  officer  and  principal  shareholder  of the  Company is a  director,
officer and the  majority  shareholder  of Rising  Edge  (Rising  Edge  Majority
Holder).  On June 13, 2000,  the Company  purchased a 25% ownership  interest in
Rising Edge common stock for $500,000 from the Rising Edge Majority  Holder.  As
such, the Company had a 62.5% combined direct and indirect ownership interest in
Lea,  which  required the  consolidation  of Lea with the  Company.  The Company
accounted for its  investment in Rising Edge by the equity method whereby 25% of
the equity interest in the net income or loss of Rising Edge  (excluding  Rising
Edge's portion of the results of Lea and all inter-company  transactions)  flows
through to the Company.  During the year ended December 31, 2001, Lea incurred a
$191,700  net loss and the equity in the loss in the  investment  in Rising Edge
was $14,500.  During the year ended  December 31, 2000,  Lea incurred a $100,800
net loss  and the  equity  in the  loss in the  investment  in  Rising  Edge was
$32,000.  During the year ended  December  31,  2001,  Rising Edge had $9,800 in
revenues  and  incurred a net loss of  $58,100.  During the period from June 13,
2000 to December 31,  2000,  Rising Edge had $101,100 in revenues and incurred a
net loss of  $78,200.  At December  31,  2000,  Rising Edge had total  assets of
$1,092,200.

In November 1999, Lea entered into a software  development  contract with Rising
Edge  which  called  for the  development  of certain  internet  software  for a
$940,000  fee. Of this amount the  contract  specified  that  $440,000  shall be
applied  to  services  performed  in 1999 (of  which  $220,000  represented  the
Company's  portion),  and the Company and Rising Edge were each  responsible for
$470,000 of the fee.  During 1999,  the Company paid $470,000 for its portion of
the total fee due under the contract.  During the year ended  December 31, 2000,
Rising Edge performed $100,000 worth of services,  of which $50,000  represented
the Company's  portion.  In January 2001,  the contract was terminated by mutual
agreement of the parties,  and the Company's  remaining  portion of the software
development fees prepaid under the contract, totaling $200,000, was refunded.

In  December  2001,  the  Company  entered  into an  agreement  with Rising Edge
Technology  (Rising  Edge) and its  principal  owners to exchange the 50% Rising
Edge  ownership  interest in Lea for the  Company's  25%  ownership  interest in
Rising Edge. As a result,  as of December 31, 2001 PMIC owned 100% of Lea and no
longer had an ownership interest in Rising Edge.

In connection with the Company's on-going evaluation of the net realizable value
of this  investment,  during the fourth quarter of 2001,  based on the operating
history,  projections  and a change  in focus of the  investee's  business,  the
Company  believed  the value of its  investment  was  impaired and wrote off its
investment  in Rising  Edge prior to the  exchange of the Rising Edge shares for
Lea ownership  resulting in an impairment loss of $468,000 (including the equity
in the loss in the investment of $14,500 during 2001). Because of the write-down
of the Rising Edge  investment to zero in the fourth quarter of 2001, no amounts
were recorded for the 50% Rising Edge ownership interest in Lea received in this
exchange.

INVESTMENT IN TARGETFIRST

On January 20,  2000,  the Company  acquired,  in a private  placement,  485,900
shares of convertible preferred stock of a nonpublic company,  TargetFirst, Inc.
(formerly   ClickRebates.com),   for  approximately   $250,000.   The  Company's
investment in  TargetFirst,  Inc.,  which  represented  approximately  8% of the
preferred  stock  offering,  was being  accounted for using the cost method.  In
connection with the Company's ongoing  evaluation of the net realizable value of
this  investment  based on its operating  history and  projections,  the Company
determined  that its investment was impaired and recorded an impairment  loss of
$250,000 in the second quarter 2001.

16. ACQUISITIONS

     On September 30, 2001, FNC acquired certain assets,  consisting principally
of furniture and fixtures,  computers and certain vendor reseller agreements, of
a computer  technical support company,  Technical Insights (TI), in exchange for
$20,000 worth of PMIC common stock (16,100 shares). TI has expertise in computer
technical training which enables FNC to better serve its corporate  customers in
the field of technical training.  The total purchase price of the TI acquisition

                                      F-23
<PAGE>
of $46,600,  including  acquisition costs of $26,600,  was allocated pro rata to
the  assets  acquired  based upon  estimates  of their  fair  values.  Under the
purchase  agreement,  among other terms, FNC was required to pay $126,000 to the
sellers upon completion and full  settlement of a sale  transaction as specified
in the  agreement.  On October  2001 the sellers  became  employees of FNC. As a
result of this profit sharing  arrangement,  the $126,000 payment to the sellers
was recorded as  compensation  expense by the Company.  As of December 31, 2001,
$126,000 was owed to these  employees and was included in accounts  payable.  In
January 2002,  the amount was paid to the  sellers/employees  under the terms of
the purchase agreement.

     In  October  2001,  PMICC paid  $85,000  cash to  acquire  certain  assets,
including fixed assets and intellectual  property, and assumed a $20,000 accrued
vacation  liability  of  LiveMarket,   Inc.  The  LiveMarket  assets  were  then
transferred  to Lea. The total  investment  of $164,100,  including  acquisition
costs of $59,100 relating to the LiveMarket acquisition,  has been allocated pro
rata to the assets acquired based upon estimated fair values.

     The  acquisitions of certain assets of TI and LiveMarket were accounted for
under the purchase  method of  accounting  as prescribed by SFAS No. 141 and not
material individually and in the aggregate to the Company's consolidated results
of  operations.  As such,  pro forma  consolidated  results of operations of the
Company  assuming the  acquisitions  took place on January 1, 2001 have not been
presented.   The  Company's   consolidated   financial  statements  include  the
operations of TI and LiveMarket since their respective dates of acquisition.

     Included in deposits and other  assets at December 31, 2002 are  intangible
assets relating to intellectual property and reseller agreements acquired in the
TI and  LiveMarket  acquisitions  with a cost basis of $59,400  and  accumulated
amortization of $24,300.  The Company is amortizing the intangible assets over a
three-year period. Amortization expense for the year ended December 31, 2002 and
2001 was approximately $19,800 and $4,500 respectively.

17. SEGMENT INFORMATION

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

The following table presents  information  about reported segment profit or loss
and segment assets for the years ended December 31, 2002, 2001 and 2000:

Year Ended December 31, 2002:

<TABLE>
<CAPTION>
                                   PMI            PMIGA            FNC              LEA               LW            Totals
                               ------------    ------------    ------------     ------------     ------------    ------------
<S>                            <C>             <C>             <C>              <C>              <C>             <C>
Revenues from
  external customers           $ 56,487,900    $  9,374,200    $  2,378,300(1)  $    496,600(2)  $  1,591,700    $ 70,328,700
Interest income                      13,500             700           3,900               --               --          18,100
Interest expense                    164,400             700          17,500               --            1,100         183,700
Depreciation and
  amortization                      190,800          28,000          46,300           43,100              800         309,000(3)
Segment loss
  before income
  taxes and
  minority interest              (1,701,800)       (796,200)       (964,500)        (751,000)        (166,600)     (4,380,100)
Segment assets                   21,442,300         842,200       1,123,400          239,700          412,300      24,059,900
Expenditures for
  segment assets                     58,900             800              --           65,000            1,500         126,200
</TABLE>

                                      F-24
<PAGE>
Year Ended December 31, 2001:

<TABLE>
<CAPTION>
                                   PMI            PMIGA            FNC              LEA               LW            Totals
                               ------------    ------------    ------------     ------------     ------------    ------------
<S>                            <C>             <C>             <C>              <C>              <C>             <C>
Revenues from
  external customers           $ 60,293,500    $ 11,445,300    $  3,022,200(1)  $    250,700(2)            --    $ 75,011,700
Interest income                      85,500           5,500          34,100               --               --         125,100
Interest expense                    230,700             600          24,500               --          255,800
Depreciation and
  amortization                      222,600          27,500          25,400            3,500               --         279,000
Segment loss
  before income
  taxes and
  minority interest              (1,563,500)       (619,800)       (868,800)        (191,700)      (3,243,800)
Segment assets                   19,102,200       1,549,800       1,500,600          256,400       22,409,000
Expenditures for
  segment assets                    126,200          32,600          23,000           85,000          266,800
</TABLE>

Year Ended December 31, 2000:

<TABLE>
<CAPTION>
                                   PMI            PMIGA            FNC              LEA               LW            Totals
                               ------------    ------------    ------------     ------------     ------------    ------------
<S>                            <C>             <C>             <C>              <C>              <C>             <C>
Revenues from
  external customers           $ 79,610,300    $  1,156,900    $  8,105,500(1)            --               --    $ 88,872,700
Interest income                     226,800             500              --               --               --         227,300
Interest expense                    295,800             200              --               --          296,000
Depreciation and
  amortization                      192,800           4,200          18,100               --               --         215,100
Segment income (loss)
  before income
  taxes and
  minority interest                 390,400        (137,800)         56,300         (100,800)              --         208,100
Segment assets                   18,528,700       1,573,600       2,575,000               --               --      22,677,300
Expenditures for
  segment assets                    205,500         102,800          33,200               --               --         341,500
</TABLE>

(1)  Includes  service  revenues of  $473,600,  $115,000,  and $275,400 in 2002,
     2001, and 2000, respectively.
(2)  Primarily generated from service and maintenance contracts.
(3)  The total of reportable  segment  depreciation  and  amortization  does not
     include  $16,000 of amortization  expense  related to the warrant  issuance
     costs.

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

<TABLE>
<CAPTION>
                                                     2002             2001              2000
                                                 ------------     ------------      ------------
<S>                                              <C>              <C>               <C>
INCOME (LOSS) BEFORE INCOME TAXES
Income (loss) before income taxes and
  minority interest for reportable segments      $ (4,380,100)    $ (3,243,800)     $    208,100
Equity in loss in investment in Rising Edge                --               --           (32,000)
Impairment loss on investments                             --         (718,000)(1)            --
Change in fair value of warrants                      235,700               --                --
Amortization of warrants issuance costs               (16,000)              --                --
                                                 ------------     ------------      ------------
Consolidated income (loss) before income taxes
  and minority interest                          $ (4,160,400)    $ (3,961,800)     $    176,100
                                                 ============     ============      ============
Assets:
  Total assets for reportable segments           $ 24,059,900     $ 22,409,000      $ 22,677,300
  Other assets                                        918,300          714,100           720,400
Elimination of inter-company receivables           (7,711,200)      (5,799,800)       (2,536,600)
                                                 ------------     ------------      ------------

Consolidated total assets                        $ 17,267,000     $ 17,323,300      $ 20,861,100
                                                 ============     ============      ============
</TABLE>

(1)  Amount  includes the equity in the loss in the investment in Rising Edge of
     $14,500 during 2001.

                                      F-25
<PAGE>
18. LITIGATION SETTLEMENT AND CONTINGENCIES

The Company was a plaintiff in a lawsuit  involving a number of claims against a
competitor.  On September 27, 2000, this dispute was settled for $300,000, which
is included in other income in 2000.

There are various claims, lawsuits, and pending actions against the Company such
as  counterfeit   products  and  other  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.

19. SUBSEQUENT EVENTS

The Company's common stock is currently traded on the Nasdaq SmallCap Market. On
August 19,  2002 the  Company  received a letter  from the Nasdaq  Stock  Market
informing  the Company that the Company did not meet the criteria for  continued
listing on the Nasdaq  SmallCap  Market.  The letter  stated  that  Nasdaq  will
monitor the Company's common stock and if it closes above $1.00 for a minimum of
ten consecutive  trading days, Nasdaq will notify Company of its compliance with
its  continued  listing  standards.  If the Company does not meet the  continued
listing  standards  by February  18, 2003,  Nasdaq  would  evaluate  whether the
Company meet the initial listing  criteria of the SmallCap  Market.  On February
28, 2003, Nasdaq notified the Company that its common stock had failed to comply
with the minimum  market  value of publicly  held shares  requirement  of Nasdaq
Marketplace Rule. The Company's common stock is, therefore, subject to delisting
from the  SmallCap  Market.  On March 6, 2003 the  Company  requested  a hearing
before a Listing  Qualifications Panel, at which it will seek continued listing.
The  hearing has been  scheduled  on April 24,  2003.  The Company has also been
notified  by Nasdaq that the Company has not  complied  with  Marketplace  Rule,
which  requires  a minimum  bid price of $1.00  per share of common  stock.  The
Company has until  August 18, 2003 to comply  with this Rule.  The Company  will
detail its plan to comply  with both  Rules at the  hearing  referred  to above.
There can be no assurance  that the Panel will grant the  Company's  request for
continued listing.

                                      F-26
<PAGE>
                              SUPPLEMENTAL SCHEDULE

                       PACIFIC MAGTRON INTERNATIONAL CORP.

                 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, 2000        $150,000     $182,200     $(157,200)    $175,000

Year ended December 31, 2001         175,000      450,500      (225,500)     400,000

Year ended December 31, 2002         400,000      348,200     $(443,200)    $305,000
</TABLE>

                                      F-27