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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                 ---------------

                                    FORM 10-K

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

                   For the fiscal year ended December 31, 1999

                         Commission File Number 0-17521

                       PACIFIC MAGTRON INTERNATIONAL CORP.
             (Exact name of Registrant as specified in its Charter)

                  Nevada                                          88-0353141
      (State or other jurisdiction of                          (I.R.S. Employer
      incorporation or organization)                         Identification No.)

1600 California Circle, Milpitas, California                        95035
 (Address of principal executive offices)                          Zip Code)

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

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

  Title of each class                  Name of each exchange on which registered
  -------------------                  -----------------------------------------
         N/A                                              N/A

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

                          Common Stock, $.001 par value
                                (Title of Class)

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

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

     At March  24,  2000 the  aggregate  market  value of common  stock  held by
non-affiliates of the Registrant was approximately $5,500,000.

              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  24,  2000 the  number  of  shares  of  common  stock  outstanding
was 10,100,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the  Registrant's  Proxy Statement  relating to the 2000 Annual
Meeting of Stockholders  are  incorporated by reference into Part III, Items 10,
11, 12 and 13.
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                                TABLE OF CONTENTS

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PART I ......................................................................  1

    Item 1.  BUSINESS........................................................  1
    Item 2.  PROPERTIES...................................................... 12
    Item 3.  LEGAL PROCEEDINGS............................................... 13
    Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............. 13

PART II ..................................................................... 14

    Item 5.  MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
              STOCKHOLDER MATTERS............................................ 14
    Item 6.  SELECTED FINANCIAL DATA......................................... 14
    Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS............................ 15
    Item 7a  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...... 21
    Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................... 21
    Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
              ACCOUNTING AND FINANCIAL DISCLOSURES........................... 21

PART III .................................................................... 21

    Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY................. 22
    Item 11. EXECUTIVE COMPENSATION.......................................... 22
    Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
              MANAGEMENT..................................................... 22
    Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................. 22

PART IV ..................................................................... 23

    Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
              FORM 8K........................................................ 23

SIGNATURES................................................................... 24

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                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

SUMMARY OF OUR BUSINESS

         Pacific  Magtron  International  Corp.,  a  Nevada  corporation,  is an
integrated  solutions  provider of computer related equipment and services.  The
Company's primary business is the wholesale distribution of computer and related
hardware   components  and  software  for  personal  computers  to  value  added
resellers,  retailers,  systems integrators,  original equipment  manufacturers,
independent hardware and software vendors,  consultants, and contractors. In May
1998,   the  Company   formed  its   Frontline   Network   Consulting   division
("Frontline"),  a corporate  information systems group, with the goal of serving
the networking and personal  computer  requirements of corporate  customers.  In
January 1999 the Company  formed Lea  Publishing,  LLC.,  a  California  limited
liability  company ("Lea"),  to develop,  sell and license software  designed to
provide  Internet  users,   resellers  and  providers   advanced  solutions  and
applications.  The  Company  owns  a 50%  interest  in  Lea,  which  is  in  the
development stage.

         As used in this  document  and unless  otherwise  indicated,  the terms
"Company," "we," and "our" refer to Pacific Magtron  International Corp. and its
operating divisions and subsidiaries.

INDUSTRY OVERVIEW

WHOLESALE MICRO COMPUTER PRODUCTS DISTRIBUTION

         The microcomputer  products distribution industry generally 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.

INCREASED RELIANCE ON WHOLESALE MICRO COMPUTER PRODUCTS DISTRIBUTION

         We believe  that the  growth of the  microcomputer  products  wholesale
distribution industry exceeds that of the microcomputer  industry as a whole. In
our view,  suppliers,  vendors, 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

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distributors that can leverage  distribution costs across multiple vendors, each
of whom  outsources  a portion of their  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
systems  architectures,  and the recognition of certain industry  standards have
led resellers to depend upon wholesale  distributors  for more of their product,
marketing,  and technical  support needs. Due to the large number of vendors and
products,  resellers often cannot or choose not to establish  direct  purchasing
relationships with suppliers.  Instead, they rely on wholesale distributors that
can leverage purchasing costs across multiple resellers to satisfy a significant
portion of their product  procurement and delivery,  financing,  marketing,  and
technical support needs.  Rather than stocking large inventories  themselves and
maintaining  credit lines to finance working  capital needs,  resellers are also
increasingly  relying on wholesale  distributors  for product  availability  and
flexible financing alternatives.

OPEN SOURCING

         Another  apparent  reason for the growth of the wholesale  distribution
industry is the  evolution of open  sourcing  during the past several  years,  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.  The Company  believes that open sourcing  enables those  distributors  of
microcomputer  products which provide the highest value through superior service
and pricing in the best position to compete for reseller customers.

INTERNET SERVICES

         One final  industry  trend,  the  emergence of the  Internet,  provides
wholesale  distributors  with an  additional  means to serve 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 financial and technical
resources  to  develop,  implement  and  operate  state  of the  art  management
information  systems have been able to reduce both their customers and their own
transaction costs through more efficient purchasing and lower selling costs. The
growing presence and importance of such electronic  commerce  capabilities  also
provide  distributors  with new  business  opportunities  as new  categories  of
products, customers, and suppliers develop.

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CORPORATE INFORMATION SYSTEMS CONSULTING

         Because of factors similar to those encouraging the increased  reliance
by target  clients on  wholesale  distributors,  corporations  are  increasingly
looking to specialist service organizations,  such as Frontline,  to support the
development   and   maintenance  of  their   information   technology   systems.
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  and information
delivery systems.  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 increasingly
outsource the development and maintenance of their computing  systems to network
consulting professionals.

OUR HISTORY

         We were  incorporated as Wildfire Capital  Corporation  ("Wildfire") in
Nevada on  January 8, 1996 in order to engage in the  business  of  providing  a
national retail market for premium wines on the Internet.  The Internet site was
intended  to provide  advertising  for wine  retailers  and  boutique  wineries.
Wildfire was initially  capitalized with a $5,000 investment by its founder, for
which 500,000 shares of common stock were issued.  On August 27, 1996,  Wildfire
commenced an offering of 1,000,000 shares of its common stock at a price of $.05
per share under Rule 504 under the Securities  Act of 1933.  Gross proceeds from
the offering were $50,000 in cash.

         Due  primarily to regulatory  issues,  the business of Wildfire did not
develop as expected,  and as a result,  Wildfire closed its marketing operations
in the fall of 1997.  At that time,  Wildfire  began  searching for new business
opportunities,  and on July  16,  1998,  the  Board  of  Directors  of  Wildfire
recommended  the  acquisition  of Pacific  Magtron,  Inc.  ("PMI") to Wildfire's
shareholders. PMI, a California corporation incorporated on August 11, 1989, had
established itself in the computer products wholesale distribution industry as a
privately  held  company.  The  shareholders  of Wildfire  and PMI  approved the
transaction,  and  Wildfire  issued  9,000,000  shares  of its  common  stock in
consideration for all of the outstanding  shares of PMI. As a result, the former
shareholders  of  PMI  became  the  controlling  shareholders  of  Wildfire.  No
securities were registered in connection with the transaction. Immediately prior
to the transaction, Wildfire effected a two-for-three reverse stock split of its
1,500,000   outstanding  shares  of  common  stock.  Upon  consummation  of  the
acquisition,  Wildfire changed its name to Pacific Magtron  International  Corp.
and PMI continued its business  operations as a  wholly owned  subsidiary of the
Company.

PRODUCTS AND SERVICES

         We operate in two  business  divisions.  Our  computer  products  group
operates under the name Pacific Magtron, Inc., our wholly owned subsidiary,  and
our corporate  information  systems group operates as a corporate division known
as Frontline Network Consulting ("Frontline") within our PMI subsidiary.

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PACIFIC MAGTRON, INC. - COMPUTER PRODUCTS

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

         INVENTORY  LEVELS  AND  ASSET   MANAGEMENT:   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.

         We have  established  reserves  for  estimated  losses due to  obsolete
inventory  in the  normal  course of  business,  and  historically,  we have not
experienced losses materially in excess of our established  reserves.  Inventory
levels  may vary  from  period  to  period  due in part to the  addition  of new
suppliers  or large  purchases of inventory  due to favorable  terms  offered by
suppliers.

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

FRONTLINE NETWORK CONSULTING - CORPORATE INFORMATION SYSTEMS

         We  formed  Frontline  in May 1998 to serve  the  growing  needs of our
corporate customers with respect to their computer systems and networking needs.
We provide a wide range of products and services to our  customers  through this
division,  including advanced  enterprise  consulting,  local area and wide area
network design, hardware and software  troubleshooting and testing, and complete
Internet business  solutions.  Our corporate customers engage us to provide them
with network and computing solutions through the following types of services:

         INTEGRATION  SERVICES:  Our  integration  center provides a static free
environment where customized  hardware testing and peripheral  installations are
performed.  The expertise of our integration team, along with the flexibility of
the monorail system used in the integration  center,  gives us the capability to
create completely integrated networking schemes on any available topology.

         INTERNET/ENTHRONED SERVICES: Our Internet business consultants help our
customers  solve  business  problems with Internet  based  solutions.  Among the
services  provided  in this  area are web site  content  selection  and  design,
development of Internet usage polices, browser customization,  software support,
development  of risk  management  processes  with respect to security  concerns,
Internet training, and return on investment studies.

         IT  CONSULTING:  In order to assist  our  clients in making the most of
their technology investments, we help develop and implement strategic technology
plans that allow clients to maximize the use of their technology dollars.  Among
the areas these plans address are life cycle management,  network analysis,  and
business continuity planning in the event of an information flow interruption.

         PROCUREMENT:  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

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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.

         TECHNICAL  SERVICES:  Many of our customers  technical service needs go
beyond  merely fixing  hardware.  Our  technicians  provide a range of technical
support  from on-site  service to carry in depot  service.  Among the  technical
services we provide are:  asset  management  with  inventory  tracking and virus
check services; on site desktop support; warranty verification and tracking; and
desktop deployment and installation.

         FRONTLINE STRATEGIC PARTNERSHIPS: One of the factors that permits us to
provide our Frontline  corporate  customers  with a high level of service is the
development of strategic  partnerships with leading manufacturers such as Intel,
CISCO Systems,  Cabletron,  BayNetworks,  Microsoft,  Wyse  Technology,  Compaq,
Hewlett-Packard,  IBM, Novell, and 3Com.  Certification from these manufacturers
is based on their  recognition  of our  expertise at  implementing  their client
computing solutions, and allows us to offer our customers the products that they
are currently using, along with continuous  education regarding each product 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.  These  relationships  also  provide  us with  access to the
resources  and  support of these  suppliers  in  Frontline's  initial  sales and
marketing efforts, and in the post-sale and installation stages.

LEA PUBLISHING, LLC.

         In January  1999 we formed Lea to develop,  sell and  license  software
designed to provide  advanced  solutions and  applications  for Internet  users,
resellers  and  providers.  We  each  own a 50%  interest  in Lea  [Rising  Edge
Technology,  Inc.,  a  Taiwanese  software  development  company  formed in 1996
("Rising  Edge")].  Michael  Lee,  the  brother  of Hui  "Cynthia"  Lee,  is the
president,  a director and shareholder of Rising Edge.  Theodore Li and Hui Lee,
both of whom are our  directors,  officers and principal  shareholders,  are the
managers of Lea.

         During fiscal 1999 we invested approximately $220,000 in Lea, which was
paid to Rising Edge for its services in developing Lea's first software product.
We expect that  additional  funds will be  necessary to continue to finance this
development, which will continue this year. After development and testing of the
software  product,  we will  begin  test  marketing  and if we find the  results
acceptable,  we will move to larger scale  marketing  and  distribution.  We are
unable to predict when and if any software will be available for testing. We are
working  with  Rising  Edge to  determine  a budget  and  schedule  for  product
development. Depending on the budget we may elect or be required to raise funds,
through a credit facility from banks or other financial institutions, or through
sale of our equity or debt securities to fund Lea's activities this year.

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          In 1998  Rising  Edge was  selected  by  HiNet,  then  Asia's  largest
Internet service provider, to design and develop  Internet-related  software. In
1997 it was awarded a "Top  Selling  Gold Medal" in Asia for two of its software
products by the Chinese Economic and Trading Council.

PLANS FOR EXPANSION

         Our plans to expand our wholesale distribution business include:

          *    enhancing  existing  relationships  and  establishing  additional
               strategic    relationships    with   master    distributors   and
               manufacturers, both domestically and abroad;

          *    adding  additional  branded  product  lines and  offering a wider
               range of products,  such as networking  and high end 3-D graphics
               products;

          *    actively  focusing on building our  international  sales  through
               advertising in international markets; and

          *    implement an e-commerce strategy.

         Our strategy for developing Frontline's business includes:

          *    applying  monetary and human resources to increase the division's
               economic contribution over the next several years;

          *    continuing to seek certification from additional  suppliers,  and
               actively  contacting  potential  corporate customers that need to
               implement,  enhance,  or  replace  their  management  information
               systems; and

          *    increasing  our   partnering   relationships   with   independent
               technology  consultants,  which will expose us to a new  customer
               base and provide us with additional consulting talent.

         Our  strategy  for  Lea to  enter  in  the  software  publishing  field
includes:

          *    continuing  to work with Rising Edge within our Lea venture  this
               year to  develop,  test and test  market one or more  proprietary
               software  products  designed to provide  advanced  solutions  and
               applications  for Internet  users,  resellers and providers;  and
               market

          *    Given  acceptable test market  results,  we intend to release and
               distribute such product on a regional and then national basis.

         In addition to expanding our computer products and Frontline groups, we
also intend to utilize our management's  extensive  network of industry contacts
to explore possible  acquisition  candidates and opportunities.  There can be no
assurance  that we  will  identify  any  acquisition  opportunities,  or if such
opportunities  are presented,  that they can be acquired on acceptable terms and
conditions.  We are not  currently  engaged  in any  negotiations  to  make  any
material acquisitions.

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SALES AND MARKETING

         Our sales are generated by a telemarketing sales force, which consisted
of  approximately  30  persons  as of March 1, 2000 in our  offices  located  in
Milpitas, California.

         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,  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.  It has been our
experience  that the team  approach  results in  superior  customer  service and
better employee morale.

         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, vendor leads and telephone directories of various cities are also able to
analyze .

         The telemarketing  salespersons are supported by a variety of marketing
programs.  For example,  we regularly  sponsor shows for our resellers  where we
demonstrate new product offerings and discuss industry  developments.  Also, our
in-house  marketing  staff prepares  catalogs that list  available  products and
routinely produces marketing materials and advertisements.

         Because of our  sophisticated  salespeople  we are able to analyze  our
extensive  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 its
resellers.  We train members of the sales staff through intensive in-house sales
training programs,  along with vendor-sponsored  product seminars. This training
helps our sales personnel to provide our customers with product information,  to
answer our 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 personnal develops
about the products they sell supplements the sophisticated technical support and
configuration services we also provided. Salespeople who are knowledgeable about
the products they sell often can assist in the  configuration  of  microcomputer
systems according to specifications given by the resellers.  We believe that our
salespersons'   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.

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

SUPPLIERS

         SOURCES OF SUPPLY:  Our strong  financial and industry  positions  have
enabled  us to obtain  contracts  with  many  leading  manufacturers,  including
Creative  Labs,  Logitech,  Toshiba,  Sony,  TEAC,  and Labtec.  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   facility  in  Milpitas,
California,  we distribute  microcomputer  products throughout the United States
and foreign countries,  including Canada, the United Kingdom, France, Russia and
Israel. A minority of our distribution  agreements are limited by territory.  In
those cases,  however,  North America is usually the territory granted to us. We
will  continue  to seek to  expand  the  geographical  scope of our  distributor
arrangements.

COMPETITION

WHOLESALE DISTRIBUTION

         We operate in a market  characterized by intense  competition,  both in
the  United  States  and  internationally.   Competition  within  the  wholesale
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  believe  that we are  equipped  to compete
effectively  with  other   distributors  in  these  areas.   Principal  regional
competitors   in  the  wholesale   distribution   industry   include   Greenleaf
Distribution,  Asia Source and Synnex Information Technology, Inc., all of which
are privately held  companies.  Ingram Micro Inc. and Tech Data  Corporation are
among our principal  regional and multi-regional  publicly held competitors.  We
also compete with  manufacturers  that sell directly to resellers and end-users.
Nearly  all of our  competitors  have far larger  organizations  than we do with
greater financial and human resources.

                                       8
<PAGE>
FRONTLINE

         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.  Our
principal  competitors in the corporate  information  systems  industry  include
MicroAge  and SARCOM.  Most of our  competitors  have far greater  resources  of
capital, marketing and personnel than we have.

EMPLOYEES

         At March 1, 2000, we had approximately 100 full time employees,  all of
whom are non-union,  and three executive officers.  We believe that our employee
relations are good.

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

ABILITY TO RESPOND TO TECHNOLOGICAL CHANGES

         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.  We believe these
trends have resulted in a movement toward  outsourcing  and an increased  demand
for  product and support  service  providers  that have the ability to provide a
broad  range of  multi-vendor  product  and  support  services.  There can be no
assurance these trends will continue into the future.  Our failure to anticipate
or respond  adequately to technological  developments and customer  requirements
could have a material  adverse  effect on our  business,  operating  results and
financial condition.

INVENTORY VALUE

         As a  distributor,  we incur the risk  that the value of our  inventory
will be 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. Accordingly,
we seek provisions in our vendor  agreements  common to industry  practice which
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.

WARRANTIES

         Our suppliers generally warrant the products we distribute and allow us
to return defective  products,  including those that have been returned to us by
our customers.  We do not independently warrant the products that we distribute,
except that we do warrant our services in  connection  with to the products that
we  configure  for our  customers  and that we build  to order  from  components
purchased  from  other  sources.  Historically,  our  warranty  costs  have been
insignificant.

                                        9
<PAGE>
COMPETITION

         The computer services and corporate  information systems industries are
intensely  competitive  and  many of our  competitors  have  capital,  marketing
expertise and personnel  resources far superior to that of ours. There can be no
assurance  that we will be able to  compete  successfully  in the future or that
competitive  pressures will not result in price reductions or other developments
in our  market  that  could  have a  material  adverse  effect on our  business,
operating results and financial condition.

RECRUITMENT AND RETENTION OF TECHNICAL PERSONNEL

         We depend  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.

DEPENDENCE ON CONTINUED MANUFACTURER CERTIFICATION

         The  future  success  of  Frontline  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  Frontline  and thus to our  business  operating
results and or financial condition

DEPENDENCE ON SUPPLIERS

         One supplier  accounted for approximately 20%, 18% and 20% of our total
purchases for the years ended  December 31, 1999,  1998 and 1997,  respectively.
During the years ended  December  31,  1999 and 1998,  one  additional  supplier
located in Taiwan accounted for approximately  11% and 13% respectively,  of our
total  purchases.  Although we have not  experienced  significant  problems with
suppliers,  there can be no assurance that such  relationships will continue or,
in the event of a termination of our relationship with any given supplier,  that
we would be able to obtain  alternative  sources of supply on  comparable  terms
without a material disruption in our ability to provide products and services to
our clients. This may cause a possible loss of sales that could adversely affect
our business, and financial condition and operating results.

PROJECT RISKS

         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 our clients' businesses.  Our failure or inability
to  meet  a client's expectations in the performance of our services or to do so

                                       10
<PAGE>
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  in the  aggregate  amount  of
$4,000,000,  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.

DEPENDENCE ON KEY PERSONNEL

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

PURSUIT OF NEW BUSINESS THROUGH LEA

         We plan to enter the proprietary software development business with our
investment in Lea. We have no  experience  in developing  software and will rely
entirely on the  expertise of Rising Edge in this regard.  We have  conducted no
independent,  formal  market  studies  regarding  the  demand  for the  software
currently in development and planned to be developed.  We have relied on our own
business experience in judging 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.  We may  have  to  raise  substantial
additional  funds to complete the development,  testing,  and marketing of Lea's
software  products.  This  market  is very  competitive  and  nearly  all of the
software  publishers  or  distributors  with whom we will  compete  have greater
financial and human resources than we do. There can be no assurance that we will
be  successful in developing a software  program that  functions,  or even if we
develop such a program, that it will find market acceptance.  Finally, there can
be no assurance that Lea will generate a profit or even return our investment in
it.

ITEM 2. PROPERTIES

         The Company owns property located at 1600 California Circle,  Milpitas,
California 95035, which was subject to a mortgage in the amount of $3,384,900 at
December 31, 1999. This property consists of a building containing 44,820 square
feet and sits on 3.31 acres.  The  building  contains our  executive  office and
warehouse and is suitable for the current size and the nature of our operations.

                                       11
<PAGE>
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.

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

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

                                       12
<PAGE>
                                     PART II

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

         Our common  stock is listed on the  Nasdaq  SmallCap  Market.  It first
traded on the Nasdaq  Small Cap Market in January 31,  2000.  Prior to such date
through  July 20,  1998 our common  stock was traded on the Nasdaq OTC  Bulletin
Board.  Prior to July 20, 1998 our stock did not actively  trade.  The following
table  shows the high and low sale  prices in dollars per share for the last two
years as reported by the Nasdaq 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, 1999              ----             ---
             FIRST QUARTER                               $11 1/4          4 5/8
             SECOND QUARTER                               12 3/8          8 1/4
             THIRD QUARTER                                10.0            6 3/4
             FOURTH QUATER                                7 3/4           5.0

          FISCAL YEAR ENDED DECEMBER 31, 1998
             FIRST QUARTER                                   --            --
             SECOND QUARTER                                  --            --
             THIRD QUARTER                                7 5/8           3.0
             FOURTH QUARTER                               5 7/8           4.0


         We had 373  stockholders  of record of our common  stock as of December
31, 1999.

DIVIDEND POLICY

         We have not paid  dividends  on our  common  stock.  It is the  present
policy of the our Board of  Directors to retain  future  earnings to finance the
growth and development of the our business.  Any future dividends will be at the
discretion  of the 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.

ITEM 6. SELECTED FINANCIAL DATA

         The following  table contains  certain  selected  financial data of the
Company and we refer you to the more detailed consolidated  financial statements
and the notes thereto  provided in Part IV of this Form 10K. The financial  data
as of and for the years ended  December 31, 1999 and 1998, has been derived from
the  Company's  consolidated  financial  statements,  which were  audited by BDO
Seidman, LLP. The financial data as of and for the years ended December 31, 1997
and 1996, has been derived from the Company's consolidated financial statements,

                                       13
<PAGE>
which were audited by Meredith,  Cardozo,  Lanz and Chiu LLP. The financial data
as of and for the  year  ended  December  31,  1995 has  been  derived  from the
Company's unaudited consolidated financial statements.

<TABLE>
<CAPTION>
                                              Fiscal Year Ended December 31
                         ------------------------------------------------------------------------
 Statement of
Operations Data              1999           1998            1997            1996          1995
---------------          ------------   ------------     -----------    -----------   -----------
                                                                                      (unaudited)
<S>                      <C>            <C>              <C>            <C>           <C>
Net Sales                $104,938,700   $105,431,200     $96,388,500    $94,256,600   $58,714,600

Net Income                    827,300      1,775,700       1,246,900      2,363,400     1,497,800

Net Income per share to
Common Shareholders -
Basic and Diluted                 .08           0.19            0.14           0.26          0.17


                                              Fiscal Year Ended December 31
                         ------------------------------------------------------------------------
Balance Sheet Data           1999           1998             1997           1996          1995
------------------       ------------   ------------     -----------    -----------   -----------
                                                                                       (unaudited)

Current Assets            $15,471,100    $16,886,600     $10,847,800     $9,951,600    $8,692,500

Current Liabilities         7,614,400      8,955,100       5,116,900      5,652,900     8,063,300

Total Assets               20,689,000     21,108,400      15,019,500     10,929,100     8,820,800

Long-Term Debt              3,337,600      3,377,100       3,428,400             --            --

Total Liabilities          10,953,000     12,363,700       8,576,300      5,842,600     6,216,400

Shareholders' Equity        9,736,000      8,744,700       6,443,200      5,086,500     2,604,400
</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 Annual  Report.  The  following  discussion  and
analysis  should  be  read  in  conjunction  with  the  accompanying   financial
statements and related notes thereto.  This discussion contains forward- looking
statements  within the meaning of Section 27A of the  Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Our
actual   results   could  differ   materially   from  those  set  forth  in  the
forward-looking  statements.  Forward-looking  statements, by their very nature,
include risks and  uncertainties.  Accordingly,  our actual results could differ
materially from those discussed in this Report.  A wide variety of factors could
adversely impact  revenues,  profitability,  cash flows and capital needs.  Such
factors,  many of which are beyond our control of, include,  but are not limited
to,  technological  changes,  diminished  marketability of inventory,  increased
warranty costs,  competition,  recruitment and retention of technical personnel,
dependence  on  continued  manufacturer  certification,  dependence  on  certain
suppliers,  risks  associated  with the  projects  in which  we are  engaged  to
complete,  the risks  associated  with our Lea ventures,  and  dependence on key
personnel.

                                       14
<PAGE>
GENERAL

         Pacific  Magtron  International  Corp.,  a  Nevada  corporation  is  an
integrated  solutions provider of computer-related  equipment and services.  The
Company's primary business is the wholesale distribution of computer and related
hardware   components  and  software  for  personal  computers  to  value  added
resellers,  retailers,  systems integrators,  original equipment  manufacturers,
independent hardware and software vendors,  consultants, and contractors. In May
1998,  the  Company  formed  its  Frontline  Network  Consulting   ("Frontline")
division,  a corporate  information  systems group, with the goal of serving the
networking and personal computer requirements of corporate customers. In January
1999 the Company formed Lea  Publishing,  LLC., a California  limited  liability
company  ("Lea"),  to  develop,  sell and license  software  designed to provide
Internet users, resellers and providers advanced solutions and applications. The
Company owns a 50% interest in Lea, which is in the development stage.

OPERATING RESULTS

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

                                                Year Ended December 31,
                                        -------------------------------------
                                          1999            1998           1997
                                          ----            ----           ----

Sales                                    100.0%          100.0%         100.0%
Cost of sales                             91.9            93.3           93.8
                                        ------          ------         ------
Gross margin                               8.1             6.8            6.2
Operating expenses                         6.5             3.8            4.0
                                        ------          ------         ------
Income from operations                     1.6             2.9            2.2
Other expense, net, excluding
 equity loss in Lea                        0.1             0.1            0.0
Equity loss in investment in Lea           0.2             0.0            0.0
Income taxes                               0.5             1.1            0.9
                                        ------          ------         ------
Net income                                 0.8%            1.7%           1.3%
                                        ======          ======         ======

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

         Sales  for the year  ended  December  31,  1999  were  $104,938,700,  a
decrease of $492,500,  or approximately  0.5%,  compared to $105,431,200 for the
year ended December 31, 1998.  Approximately  $4,700,700 of the sales recognized
by the Company for the year ended  December  31, 1999 were  attributable  to the
Frontline  division  that was  formed  in May 1998 to serve the  networking  and
personal computer  requirements of corporate customers.  Sales recognized by the
Company's  Frontline  division were  $1,524,000  for the year ended December 31,
1998. Thus, there was a decrease in sales attributable to the Company's computer
products  division  for the year  ended  December  31,  1999 of  $3,669,200,  or
approximately 4%, compared to the  corresponding  period of the previous year as
the Company  focused its efforts on improving  gross  margin.  In addition,  the
uncertainty regarding the impact of the Year 2000 issue slightly depressed sales
during the fourth  quarter  of 1999 as  customers  were  delaying  their  buying
decisions.

                                       15
<PAGE>
         Gross margin for the year ended  December 31, 1999 was  $8,483,900,  an
increase  of  $1,355,700,  or 19%,  compared  to  $7,128,200  for the year ended
December 31, 1998. The gross margin as a percentage of sales increased from 6.8%
for the year ended  December  31, 1998 to 8.1% for the year ended  December  31,
1999.  This  increase  is  primarily  due to  better  cost  controls,  including
participation  in  more  vendor  rebate  programs,  and an  increased  focus  on
marketing  products  with a higher gross  margin.  Gross margin  relating to the
Frontline division for the year ended December 31, 1999 was $665,800, or 14%, of
Frontline's  sales  during the same period as compared to  $163,000,  or 11%, of
Frontline's  sales  during the year ended  December  31,  1998.  However,  since
Frontline's  sales levels were relatively  insignificant  in relation to that of
the Company's computer products group, the higher gross margin percentage earned
by Frontline  had only a minor effect on the overall  increase in the  Company's
gross margin for the year ended December 31, 1999.

         Operating  expenses,  including  selling,  general,  administrative and
amortization  of prepaid  consulting  fee, for the year ended  December 31, 1999
were $6,801,800,  an increase of $2,753,600,  or 68%, compared to $4,048,200 for
the year ended  December 31, 1998.  The noted  increase is primarily a result of
the hiring of  additional  personnel to support the  expansion of the  Company's
Frontline  business segment and establishment of the management  infrastructure.
In addition, the Company incurred additional expenses in 1999 in connection with
the transition to a publicly  traded  company and a non-cash  charge of $557,900
(as  compared  to  $117,100  during  the  corresponding  period in 1998) for the
amortization of a prepaid  consulting  fee. As a percentage of sales,  operating
expenses  increased to 6.5% for the year ended  December 31, 1999 as compared to
3.8% for the year ended  December  31,  1998  resulting  from an increase in the
Company's fixed cost component of operating expenses.

         Income  from  operations  for the  year  ended  December  31,  1999 was
$1,682,100, a decrease of $1,397,900,  or 45%, as compared to $3,080,000 for the
year ended December 31, 1998. As a percentage of sales,  income from  operations
decreased  to 1.6% for the year ended  December 31, 1999 as compared to 2.9% for
the year ended  December 31, 1998.  This  decrease was  primarily due to the 68%
increase in operating expenses which was marginally offset by the improved gross
margin experienced for the year ended December 31, 1999.

         Interest  expense for the year ended December 31, 1999 was $269,800,  a
decrease of $8,800,  or 3%, compared to $278,600 for the year ended December 31,
1998.  This  decrease  was due to a decrease  in the  balance  of the  Company's
mortgage  on its office  building  facility as a result of  scheduled  principal
payments.  Interest  income  increased from $177,400 for the year ended December
31,  1998 to  $194,900  for the year ended  December  31,  1999,  an increase of
$17,500  or 10%,  which was  principally  due to higher  market  interest  rates
available for short- term investments in cash and cash equivalents.

         During 1999, the Company's new equity investment, Lea Publishing,  LLC,
incurred a $444,800 net loss, of which 50%, or $222,400,  flowed  through to the
Company.

                                       16
<PAGE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

         Sales  for the year  ended  December  31,  1998 were  $105,431,200,  an
increase of $9,042,700,  or  approximately  9%,  compared to $96,388,500 for the
year ended December 31, 1997. Sales increased  primarily due to increased market
share achieved  through  expanded  marketing  efforts by the Company's  computer
products group. In addition, approximately $1,524,000 of the sales earned by the
Company in 1998 were attributable to the new Frontline  division that was formed
in May 1998 to serve  the  networking  and  personal  computer  requirements  of
corporate customers.

         Gross margin for the year ended  December 31, 1998 was  $7,128,200,  an
increase  of  $1,104,400,  or 18%,  compared  to  $6,023,800  for the year ended
December 31, 1997. The gross margin as a percentage of sales increased from 6.2%
for the year ended  December  31, 1997 to 6.8% for the year ended  December  31,
1998. This increase in the gross margin  percentage  arose primarily as a result
of better cost  controls and the focus on marketing  product lines with a higher
gross margin.  The results of the Frontline division had a minimal effect on the
gross  margin in 1998  because  Frontline  was formed in May 1998 and was in the
early stages of developing its customer base during the remainder of that year.

         Operating  expenses,  including  selling,  general  administrative  and
amortization  of prepaid  consulting  fee, for the year ended  December 31, 1998
were $4,048,200,  an increase of $196,600, or 5%, compared to $3,851,600 for the
year ended  December 31, 1997.  The noted  increase is primarily a result of the
expansion of the  Company's  business,  including  the ramp- up of the Company's
Frontline  division during 1998. In addition,  the Company  incurred  additional
expenses in 1998,  including a non-cash charge of $117,100 for the  amortization
of a prepaid  consulting  fee, in  connection  with the  transition to an active
publicly traded company.  The noted increase is somewhat offset by a decrease in
compensation  expense to officers as no bonuses were paid to the officers of the
Company  in 1998 while  $500,000  of bonuses  were paid to the  officers  of the
Company in 1997.  As a  percentage  of sales,  operating  expenses  decreased to
3.84%in the year ended  December 31, 1998 as compared to 4.00% in the year ended
December 31, 1997 reflecting a better  absorption of the fixed cost component of
operating expenses.

         Income  from  operations  for the  year  ended  December  31,  1998 was
$3,080,000 an increase of $907,800,  or 42%, as compared to  $2,172,200  for the
year ended December 31, 1997. As a percentage of sales,  income from  operations
increased to 2.92% for the year ended December 31, 1998 as compared to 2.25% for
the year ended  December 31, 1997.  This  increase was  primarily  due to normal
business  growth and the addition of higher margin  product lines which resulted
in higher gross margin (as a percentage of sales and in absolute  dollars) and a
better absorption of the fixed cost component of operating expenses.

         Interest expense for the year ended December 31, 1998 was $278,600,  an
increase of $40,000 or 17%, compared to $238,600 for the year ended December 31,
1997. This increase was due to an entire year of mortgage  interest paid in 1998
for the Company's new office building which was purchased during 1997.  Interest
income  increased from $158,800 for the year ended December 31, 1997 to $177,400
for the year ended December 31, 1998, an increase of $18,600,  or 12%, which was
principally due to better cash management.

                                       17
<PAGE>
UNAUDITED QUARTERLY FINANCIAL DATA

Summarized quarterly financial data for 1999 and 1998 is as follows:

                                                  Quarter
                            ----------------------------------------------------

1999                            First         Second         Third       Fourth
                                -----         ------         -----       ------
Sales                       $26,580,300   $24,042,400   $28,505,700  $25,810,300
Gross profit                  1,901,500     1,916,200     2,190,900    2,475,300
Net income                       92,900        72,200       266,600      395,600
Basic and diluted earnings
 per common share (1)             $0.01         $0.01         $0.03        $0.04

                                                   Quarter
                            ----------------------------------------------------

1998                           First         Second         Third       Fourth
                               -----         ------         -----       ------
Sales                       $25,111,400   $23,704,000   $29,106,600  $27,509,200
Gross profit                  1,382,300     1,742,700     2,099,700    1,903,500
Net income                      342,200       503,300       631,200      299,000
Basic and diluted earnings
 per common share (1)             $0.04         $0.06         $0.06        $0.03

----------
(1)  Earnings  per share are  computed  independently  for each of the  quarters
     presented.  The sum of the  quarterly  earnings  per share in 1999 does not
     equal the total computed for the year due to rounding.

LIQUIDITY AND CAPITAL RESOURCES

         Since  inception,  the Company has  financed its  operations  primarily
through  cash  generated  by  operations  and  borrowings  under its floor  plan
inventory loans.

         At  December  31,  1999,  the Company  had  consolidated  cash and cash
equivalents  totaling $4,416,300 and working capital of $7,856,700.  At December
31,  1998,  the  Company had  consolidated  cash and cash  equivalents  totaling
$3,197,100 and working capital of $7,931,500.

         Net cash provided by operating  activities  for the year ended December
31,  1999  was  $3,582,800,   which   principally   reflected  the  decrease  in
inventories,  the non-cash  consulting  fee expense,  and the net income for the
year,  which was partially  offset by an increase in accounts  receivable  and a
decrease in accounts  payable.  The decrease in inventories was due primarily to
the  Company's  focus on  improving  its  inventory  turnover by  balancing  the
inventory  product mix and levels in relation to customer  orders with favorable
vendor terms and programs.  Net cash used in operating  activities  for the year
ended  December  31,  1998 was  $2,191,300,  which  reflected  the net effect of
increases in accounts  receivable and inventories  that were partially offset by
an increase in accounts payable and the net income for the year.

         Net cash used in investing activities was $1,498,100 for the year ended
December 31, 1999,  primarily  reflecting cash of $775,900 used for improvements
to the  building  owned and  occupied by the  Company to support  the  Company's
expanding  workforce  as well as a  $500,000  deposit  made in  Rising  Edge,  a
co-owner with the Company of Lea. In addition,  the Company invested $222,400 in
1999 in its 50% equity investment in Lea. Net cash used in investing  activities
for the year ended December 31, 1998 was $91,000,  primarily  resulting from the
issuance of an additional note receivable to a principal shareholder.

                                       18
<PAGE>
         Net cash used in financing  activities  was $865,500 for the year ended
December 31, 1999, primarily from the decrease in floor plan inventory loans, as
well as payment of the mortgage loans for the Company's facility. As of December
31,  1999,  the Company had  available  financing  in the form of a $7.0 million
floor plan  inventory  loan  (including  a fully used  sub-limit of $1.0 million
standby letter of credit) which is collateralized by the inventory purchased and
any proceeds  from the sale of the  inventory.  The  outstanding  balance of the
floor plan  inventory  loan at December 31, 1999 was  $1,482,900 and the loan is
subject to 45-day  repayment  terms,  at which time interest begins to accrue at
the prime rate (8.5% at December  31,  1999).  Net cash  provided  by  financing
activities was  $2,216,500 for the year ended December 31, 1998,  primarily from
the increase in the floor plan inventory  loans,  which was partially  offset by
payment of the mortgage loans for the office facility.

         As of December 31, 1999, the Company's material commitments for capital
expenditures consisted of an estimated additional $250,000 investment in its 50%
equity  interest in Lea Publishing,  LLC. In addition,  as of December 31, 1999,
the Company has made a $500,000  deposit on an  investment  in 25% of the common
stock of Rising Edge Technologies,  the other 50% owner of Lea Publishing,  LLC.
The  investment  in Rising Edge is  contingent  upon the  execution of all legal
documents and consent by the government of Taiwan.

         The Company  believes that the cash flow from  operations and borrowing
available  under its $7.0  million  inventory  floor plan loan will  satisfy the
Company's anticipated requirements for working capital through at least the next
12 months.

RECENT ACCOUNTING PRONOUNCEMENT

         In June  1998,  the  FASB  issued  Statement  of  Financial  Accounting
Standards  (SFAS) No. 133,  ACCOUNTING  FOR DERIVATIVE  INSTRUMENTS  AND HEDGING
ACTIVITIES.  SFAS No.  133  requires  companies  to  recognize  all  derivatives
contracts as either  assets or  liabilities  in the balance sheet and to measure
them at  fair  value.  If  certain  conditions  are  met,  a  derivative  may be
specifically  designated  as a hedge,  the  objective  of which is to match  the
timing  of  gain  or  loss  recognition  on  the  hedging  derivative  with  the
recognition  of (i) the  changes  in the fair  value  of the  hedged  assets  or
liability that are  attributable  to the hedged risk or (ii) the earnings effect
of the hedged  forecasted  transaction.  For a derivative  not  designated  as a
hedging  instrument,  the gain and loss is recognized in income in the period of
change.  SFAS No. 133, as amended by SFAS No. 137, is  effective  for all fiscal
quarters of fiscal years beginning after June 15, 2000.

         Historically,  the Company has not entered into  derivatives  contracts
either to hedge existing risks or for  speculative  purposes.  Accordingly,  the
Company  does not expect  adoption of the new  standard to affect its  financial
statements.

INFLATION

         Inflation has not had a material  effect upon the Company's  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,  the  operations  of the Company may be adversely
affected.

                                       19
<PAGE>
YEAR 2000 DISCLOSURE

         We  experienced  no   significant   disruptions  in  mission   critical
information  technology and  non-information  technology systems with respect to
the Year 2000 date change.  We are not aware of any material  problem  resulting
from Year 2000  issues,  either  with our  products,  our  internal  systems  or
products and services of third parties.  We will continue to monitor our mission
critical computer applications and those of our suppliers and vendors throughout
the year 2000 to ensure any latent risks that may arise are addressed promptly.

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  $2,453,700  balance at December  31,
1999 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  the  Company's  consolidated  operating  results,  financial
position or cash flow.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Consolidated financial statements,  together with related notes and the
reports of BDO Seidman, LLP and Meredith,  Cardozo, Lanz & Chiu LLP, independent
certified public accountants,  are set forth hereafter. Other required financial
information and schedules are set forth herein,  as more fully described in Item
14 herein.

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

         None.

                                    PART III

         As indicated in the following  table,  the  information  required to be
presented in Part III of this report is hereby  incorporated  by reference  from
the  Company's  definitive  Proxy  Statement  for its 2000 Annual  Meeting to be
prepared in  accordance  with  Schedule  14A and filed with the  Securities  and
Exchange  Commission  within 120 days of the end of the fiscal  year  covered by
this report.

                                       20
<PAGE>
               MATERIAL IN PROXY STATEMENT FOR 2000 ANNUAL MEETING
                    THAT IS INCORPORATED HEREIN BY REFERENCE

    Item
     No.                                        Proxy Statement Caption
    ----                                        -----------------------

    10   Directors and Executive Officers      "Directors and Executive
         of the Registrant                      Officers"

    11   Executive Compensation                "Executive Compensation"

    12   Security Ownership and Certain        "Security Ownership of Principal
         Beneficial Owners and Management        Stockholders and Management"

    13   Certain Relationships and Related     "Certain Transactions"
         Transaction

                                       21
<PAGE>
                                                      PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

                                                                     Page or
                                                                Method of Filing
                                                                ----------------
(a)  FINANCIAL STATEMENTS

     (1)  Report of BDO Seidman, LLP                              Filed herewith
     (2)  Report of Meredith, Cardozo, Lanz & Chiu, LLP

     (3)  Consolidated  Financial  Statements  and Notes          Filed herewith
          thereto of the Company including  Consolidated
          Balance  Sheets as of  December  31,  1999 and
          1998 and related  Consolidated  Statements  of
          Income, Shareholders'  Equity,  and Cash Flows
          for each of the years in the three year period
          ended December 31, 1999.

(c)  EXHIBITS

        Exhibit                                                     Page or
         Number                Description                      Method of Filing
         ------                -----------                      ----------------
           3-A     Certificate of Incorporation, as amended
           3-B     Bylaws
           4-A     Specimen Stock Certificate
           24-A    Power of Attorney of Theodore S. Li                  *
           24-B    Power of Attorney of Hui Cynthia Lee                 *
           24-C    Power of Attorney of Betty Li                        *
           24-D    Power of Attorney of Jey Hsin Yao                    *
           24-E    Power of Attorney of Hank C. Ta                      *
           24-F    Power of Attorney of Lumin Hu, PhD                   *
           26      1998 Stock Option Plan                              **
           27      Financial Data Schedule                              *

----------
*   Filed herewith
**  Filed  with  the  Registration  Statement  on Form  10-12G  filed  with  the
    Commission on January 20, 1999.

                                       22
<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 30th
day of March, 2000.


                                        PACIFIC MAGTRON INTERNATIONAL,
                                        CORP., a Nevada corporation


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


         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 30, 2000
----------------------------      Officer, Treasurer and Director
Theodore S. Li


/s/ Hui "Cynthia" Lee             Director and Secretary          March 30, 2000
----------------------------
Hui "Cynthia" Lee



/s/ Betty Li                      Director                        March 30, 2000
----------------------------
Betty Li


/s/ Jey Hsin Yao                  Director                        March 30, 2000
----------------------------
Jey Hsin Yao



/s/ Hank C. Ta                    Director                        March 30, 2000
----------------------------
Hank C. Ta



/s/ Limin Hu, PhD                 Director                        March __, 2000
----------------------------
Limin Hu, PhD

                                       23
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                                    CONTENTS


    REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                     F-2

    CONSOLIDATED FINANCIAL STATEMENTS
      Consolidated balance sheets                                          F-4
      Consolidated statements of income                                    F-6
      Consolidated statements of shareholders' equity                      F-7
      Consolidated statements of cash flows                                F-8
      Notes to consolidated financial statements                           F-9
    SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS                        F-26

                                       F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


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

We have audited the accompanying  consolidated balance sheets of Pacific Magtron
International  Corp.  and  subsidiary  (the Company) as of December 31, 1999 and
1998, and the related consolidated  statements of income,  shareholders' equity,
and cash flows for the years then  ended.  We have also  audited  Schedule  II -
Valuation  and  Qualifying  Accounts as of and for the years ended  December 31,
1999 and 1998.  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.  The consolidated  financial  statements and schedule of the Company for
the year ended December 31, 1997 were audited by Meredith,  Cardozo, Lanz & Chiu
LLP,  whose  practice  has been  combined  with our Firm and whose  report dated
August  20,  1998  expressed  an  unqualified  opinion on those  statements  and
schedule.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. 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 1999 and 1998 consolidated  financial statements referred to
above present  fairly,  in all material  respects,  the  consolidated  financial
position of Pacific  Magtron  International  Corp. and subsidiary as of December
31, 1999 and 1998, and the results of their  operations and their cash flows for
the  years  then  ended,  in  conformity  with  generally  accepted   accounting
principles.

Also, in our opinion,  the schedule  referred to above presents  fairly,  in all
material  respects,  the  information  set forth therein as of and for the years
ending December 31, 1999 and 1998.


/s/ BDO Seidman, LLP

San Jose, California
February 11, 2000

                                       F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


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

We  have   audited  the   accompanying   consolidated   statements   of  income,
shareholders'  equity, and cash flows of Pacific Magtron International Corp. and
subsidiary  (the  Company) for the year ended  December  31, 1997.  We have also
audited  Schedule II - Valuation and Qualifying  Accounts as of and for the year
ended December 31, 1997. 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 audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform our audit 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  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 results of operations and cash flows of
Pacific Magtron  International  Corp. and subsidiary for the year ended December
31, 1997 in conformity with generally accepted accounting principles.

Also, in our opinion,  the schedule  referred to above presents  fairly,  in all
material  respects,  the  information  set forth  therein as of and for the year
ended December 31, 1997.


/s/ Meredith, Cardozo, Lanz & Chiu LLP

Milpitas, California
August 20, 1998

                                       F-3
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                           CONSOLIDATED BALANCE SHEETS


December 31,                                              1999          1998
------------                                           -----------   -----------
ASSETS

CURRENT ASSETS:
  Cash and cash equivalents (Note 10)                  $ 4,416,300   $ 3,197,100
  Accounts receivable, net of allowance for
    doubtful accounts of $150,000 in both
    1999 and 1998 (Note 2 and 10)                        6,608,600     6,321,800
  Inventories (Note 5)                                   3,811,200     6,390,300
  Prepaid expenses and other current assets                314,800       548,000
  Notes and interest receivable from
    shareholders (Note 2)                                  223,600       268,100
  Deferred income taxes (Note 6)                            96,600       161,300
                                                       -----------   -----------
TOTAL CURRENT ASSETS                                    15,471,100    16,886,600

PROPERTY, PLANT AND EQUIPMENT, net (Notes 3 and 4)       4,625,900     4,038,000

DEPOSITS AND OTHER ASSETS (Note 13)                        592,000       183,800

INVESTMENT IN LEA PUBLISHING (Note 13)                          --            --
                                                       -----------   -----------
                                                       $20,689,000   $21,108,400
                                                       ===========   ===========

                                       F-4
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                           CONSOLIDATED BALANCE SHEETS


December 31,                                              1999          1998
------------                                           -----------   -----------
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current portion of notes payable (Note 4)            $    47,300   $    51,200
  Floor plan inventory loans (Note 5)                    1,482,900     2,305,000
  Accounts payable                                       5,811,600     6,460,300
  Accrued expenses                                         272,600       138,600
                                                       -----------   -----------
TOTAL CURRENT LIABILITIES                                7,614,400     8,955,100

NOTES PAYABLE, less current portion (Note 4)             3,337,600     3,377,100

DEFERRED INCOME TAXES (Note 6)                               1,000        31,500
                                                       -----------   -----------
TOTAL LIABILITIES                                       10,953,000    12,363,700
                                                       -----------   -----------

COMMITMENTS AND CONTINGENCIES
(Notes 4, 5, 7, 8, 9, 10 and 13)

SHAREHOLDERS' EQUITY (Note 11):
  Preferred stock, $0.001 par value; 5,000,000 shares
    authorized; no shares issued and outstanding                --            --

  Common stock, $0.001 par value; 25,000,000 shares
    authorized; 10,100,000 shares issued and
    outstanding at December 31, 1999 and 1998               10,100        10,100
  Additional paid-in capital                             1,463,100     1,299,100
  Retained earnings                                      8,262,800     7,435,500
                                                       -----------   -----------
TOTAL SHAREHOLDERS' EQUITY                               9,736,000     8,744,700
                                                       -----------   -----------
                                                       $20,689,000   $21,108,400
                                                       ===========   ===========

          See accompanying notes to consolidated financial statements.

                                       F-5
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
Years ended December 31,                                           1999             1998             1997
------------------------                                       -------------    -------------    -------------
<S>                                                            <C>              <C>              <C>
SALES (Notes 2 and 10)                                         $ 104,938,700    $ 105,431,200    $  96,388,500

COST OF SALES (Note 8)                                            96,454,800       98,303,000       90,364,700
                                                               -------------    -------------    -------------
GROSS MARGIN                                                       8,483,900        7,128,200        6,023,800
                                                               -------------    -------------    -------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
  Non-cash amortization of pre-paid consulting fee (Note 11)         557,900          117,100               --
  Other selling, general and administrative expenses               6,243,900        3,931,100        3,851,600
                                                               -------------    -------------    -------------
TOTAL OPERATING EXPENSES                                           6,801,800        4,048,200        3,851,600
                                                               -------------    -------------    -------------
INCOME FROM OPERATIONS                                             1,682,100        3,080,000        2,172,200
                                                               -------------    -------------    -------------
OTHER EXPENSE (INCOME):
  Interest income on shareholder notes (Note 2)                      (11,200)          (8,100)         (10,800)
  Interest income                                                   (183,700)        (169,300)        (148,000)
  Interest expense                                                   269,800          278,600          238,600
  Equity in loss in investment in Lea Publishing
    (Note 13)                                                        222,400               --               --
  Other                                                                   --               --           (1,600)
                                                               -------------    -------------    -------------
TOTAL OTHER EXPENSE                                                  297,300          101,200           78,200
                                                               -------------    -------------    -------------
INCOME BEFORE INCOME TAXES                                         1,384,800        2,978,800        2,094,000

INCOME TAXES (Note 6)                                                557,500        1,203,100          847,100
                                                               -------------    -------------    -------------
NET INCOME                                                     $     827,300    $   1,775,700    $   1,246,900
                                                               =============    =============    =============
Basic and diluted earnings per share                           $        0.08    $        0.19    $        0.14
                                                               =============    =============    =============
Basic weighted average common shares outstanding                  10,100,000        9,503,300        8,988,500

Stock options                                                        108,700           33,200               --
                                                               -------------    -------------    -------------
Diluted weighted average common shares outstanding                10,208,700        9,536,500        8,988,500
                                                               =============    =============    =============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-6
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                       Common Stock         Additional
                                  -----------------------    Paid-in      Retained
                                    Shares       Amount      Capital      Earnings      Total
                                  ----------   ----------   ----------   ----------   ----------
<S>                               <C>          <C>          <C>          <C>          <C>
BALANCES, January 1, 1997          8,936,373   $    9,000   $  621,300   $4,412,900   $5,043,200

Issuance of common stock in
  debt conversion (Note 11)           63,627           --      153,100           --      153,100

NET INCOME                                --           --           --    1,246,900    1,246,900
                                  ----------   ----------   ----------   ----------   ----------
BALANCES, December 31, 1997        9,000,000        9,000      774,400    5,659,800    6,443,200

Issuance of common stock in
  connection with reverse
  merger (Note 1)                  1,000,000        1,000       13,800           --       14,800

Issuance of common stock for
  consulting services (Note 11)      100,000          100      510,900           --      511,000

NET INCOME                                --           --           --    1,775,700    1,775,700
                                  ----------   ----------   ----------   ----------   ----------
BALANCES, December 31, 1998       10,100,000       10,100    1,299,100    7,435,500    8,744,700

Final valuation of common stock
issued for consulting
services (Note 11)                        --           --      164,000           --      164,000

NET INCOME                                --           --           --      827,300      827,300
                                  ----------   ----------   ----------   ----------   ----------
BALANCES, December 31, 1999       10,100,000   $   10,100   $1,463,100   $8,262,800   $9,736,000
                                  ==========   ==========   ==========   ==========   ==========
</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,                                        1999           1998           1997
------------------------                                     -----------    -----------    -----------
<S>                                                          <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Income                                                 $   827,300    $ 1,775,700    $ 1,246,900
  Adjustments to reconcile net income to net cash provided
    by (used in) operating activities:
      Depreciation and amortization                              187,400        131,900        128,000
      Gain on sale of property and equipment                      (2,200)            --             --
      Provision for doubtful accounts                            457,500         46,300        299,000
      Equity in loss in investment in Lea Publishing             222,400             --             --
      Deferred income taxes                                       34,200        (33,100)        23,300
      Amortization of prepaid consulting fee                     557,900        117,100             --
      Changes in operating assets and liabilities, net of
        assets acquired and liabilities assumed:
          Accounts receivable                                   (744,300)    (1,265,200)    (1,283,600)
          Inventories                                          2,579,100     (4,323,500)       614,000
          Prepaid expenses and other current assets              (21,800)      (209,500)       (85,600)
          Accounts payable                                      (648,700)     1,522,200       (100,400)
          Accrued expenses                                       134,000         46,800       (429,500)
                                                             -----------    -----------    -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES            3,582,800     (2,191,300)       412,100
                                                             -----------    -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Cash acquired in purchase of business                               --         15,900             --
  Cash received on sale of property and equipment                  2,800             --             --
  Notes and interest receivable from shareholders                 44,500        (63,800)       (10,800)
  Investment in Lea Publishing                                  (222,400)            --             --
  Deposits and other assets                                     (547,100)        12,000        623,800
  Acquisition of property and equipment                         (775,900)       (55,100)      (599,400)
                                                             -----------    -----------    -----------
NET CASH USED IN (PROVIDED BY) INVESTING ACTIVITIES           (1,498,100)       (91,000)        13,600
                                                             -----------    -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net (decrease) increase in floor plan inventory loans         (822,100)     2,256,600        (46,100)
  Payment of loan fee                                                 --             --        (42,000)
  Principal payments on SBA loan                                 (25,300)       (23,500)       (18,100)
  Principal payments on bank loan                                (18,100)       (16,600)       (11,500)
                                                             -----------    -----------    -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES             (865,500)     2,216,500       (117,700)
                                                             -----------    -----------    -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS           1,219,200        (65,800)       308,000

CASH AND CASH EQUIVALENTS, beginning of year                   3,197,100      3,262,900      2,954,900
                                                             -----------    -----------    -----------
CASH AND CASH EQUIVALENTS, end of year                       $ 4,416,300    $ 3,197,100    $ 3,262,900
                                                             ===========    ===========    ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-8
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. SUMMARY OF SIGNIFICANT THE COMPANY ACCOUNTING POLICIES

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

On  July  17,  1998  the  Company  completed  the  acquisition  of  100%  of the
outstanding  common  stock of Pacific  Magtron,  Inc.  (PMI),  in  exchange  for
9,000,000  shares of the Company's common stock.  For accounting  purposes,  the
acquisition  has been treated as the  acquisition of the Company by PMI with PMI
as the acquiror (reverse acquisition). The historical financial statements prior
to July 17,  1998 are  those of PMI.  Since  the  Company  prior to the  reverse
acquisition  was a public  shell  corporation  with no  significant  operations,
pro-forma  information  giving effect to the  acquisition is not presented.  All
shares and per share data prior to the acquisition have been restated to reflect
the  stock  issuance  as a  recapitalization  of  PMI.  The  shares  held by the
shareholders  of the Company prior to the  acquisition  (1,000,000  shares after
reflecting  a  three  for  two  reverse  stock  split  effected  by the  Company
immediately  prior to the  acquisition)  have  been  recognized  as if they were
issued in connection with the acquisition of the Company by PMI.

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

In May 1998, the Company  formed its Frontline  Network  Consulting  (Frontline)
division,  a corporate  information systems group that serves the networking and
personal computer requirements of corporate customers.

NEW ACCOUNTING PRONOUNCEMENT

In June 1998, the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 133, Accounting for Derivative Instruments and Hedging Activities.  SFAS No.
133 requires  companies to recognize all derivatives  contracts as either assets
or  liabilities  in the  balance  sheet and to measure  them at fair  value.  If
certain  conditions  are met, a derivative may be  specifically  designated as a
hedge, the objective of which is to match the timing of gain or loss recognition

                                       F-9
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


on the hedging  derivative  with the  recognition of (i) the changes in the fair
value of the hedged assets or liability that are attributable to the hedged risk
or  (ii)  the  earnings  effect  of the  hedged  forecasted  transaction.  For a
derivative  not  designated  as a  hedging  instrument,  the  gain  and  loss is
recognized  in income in the period of change.  SFAS No. 133, as amended by SFAS
No. 137, is effective for all fiscal  quarters of fiscal years  beginning  after
June 15, 2000.

Historically,  the Company has not entered into derivatives  contracts either to
hedge existing risks or for speculative purposes.  Accordingly, the Company does
not  expect  adoption  of the new  standard  on  January  1, 2001 to affect  its
financial statements.

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 from those estimates.

CONSOLIDATION AND UNCONSOLIDATED INVESTEES

The  accompanying  consolidated  financial  statements  include the  accounts of
Pacific Magtron  International  Corp. and its wholly-owned  subsidiary,  Pacific
Magtron  Incorporated.  All  intercompany  accounts and  transactions  have been
eliminated in the consolidated financial statements. Investments in companies in
which  financial  ownership  is at least 20%,  but less than a  majority  of the
voting stock, are accounted for using the equity method.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments  having original  maturities
of 90 days or less to be cash equivalents.

                                      F-10
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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,  adjustments history,  current economic conditions 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 (moving weighted average 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 related estimated useful lives, as follows:

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

LOAN ORIGINATION FEES

Other assets include loan  origination fees that are being amortized on a method
which approximates the interest method.

                                      F-11
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


REVENUE RECOGNITION

The Company  recognizes sales 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 adjusted
for current economic conditions. Service revenues relating to services performed
by the Company's Frontline division are recognized as earned based upon contract
terms, which is generally as the service is performed.

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 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 return
consequences  of those  differences,  which will either be deductible or taxable
when the assets and  liabilities  are recovered or settled.  Future tax benefits
are subject to a valuation  allowance when management believes it is more likely
than not that the deferred tax assets will not be realized.

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 writes the asset down to its estimated fair
value.

                                      F-12
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FAIR VALUES OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:

*    CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE:

     The  carrying  amount  reported  in  the  balance  sheet  for  these  items
     approximates fair value because of the short maturity of these instruments.

*    LONG-TERM DEBT:

     The fair value of  long-term  debt is estimated  based on current  interest
     rates available to the Company for debt  instruments with similar terms and
     remaining maturities.

*    NOTES RECEIVABLES FROM SHAREHOLDERS:

     The fair value of the notes receivable from shareholders is estimated based
     on current  interest rates  available to the Company for  investments  with
     similar terms and remaining maturities.

     As of  December  31,  1999 and  1998,  the  fair  values  of the  Company's
     financial instruments approximate their historical carrying amounts.

EARNINGS PER SHARE

During 1998, the Company  adopted the  provisions of SFAS No. 128,  Earnings Per
Share.  SFAS No. 128 provides for the calculation of basic and diluted  earnings
per share.  Basic  earnings  per share  includes no dilution  and is computed by
dividing income available to common  stockholders by the weighted average number
of common shares outstanding for the period. Diluted earnings per share reflects
the  potential  dilution of  securities  that could share in the  earnings of an
entity.

                                      F-13
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


RECLASSIFICATION

Certain 1997 financial  statement  amounts have been  reclassified to conform to
the 1999 and 1998 presentation.

2. RELATED PARTY RECEIVABLES

As of December 31, 1999 and 1998, notes receivable from two officer shareholders
aggregated $180,000 and $235,700,  respectively. These notes bear interest at 5%
and are unsecured. Principal and interest are due on April 19, 2000. The accrued
interest  receivable  pertaining  to these  notes was  $43,600 and $32,400 as of
December 31, 1999, and 1998, respectively.

During 1999 and 1998,  the Company  recognized  $724,000  and  $470,500 in sales
revenues  from a  company  owned by a member of the  Board of  directors  of the
Company.  Included  in  accounts  receivable  as  December  31, 1999 and 1998 is
$494,200 and $179,000 due from this related customer.

3. PROPERTY, PLANT AND EQUIPMENT

A summary of property,  plant and  equipment  as of December 31, 1999,  and 1998
follows:

December 31,                                              1999          1998
------------                                           ----------    ----------
Building and improvements (Note 4)                     $3,240,300    $2,827,400
Land                                                    1,158,600     1,158,600
Furniture and fixtures                                    337,500       228,900
Computers and equipment                                   243,600        68,800
Automobiles                                               164,900        91,000
                                                       ----------    ----------
                                                        5,144,900     4,374,700

Less accumulated depreciation                             519,000       336,700
                                                       ----------    ----------
                                                        4,625,900    $4,038,000
                                                       ==========    ==========

                                      F-14
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4. NOTES PAYABLE

In 1997,  the Company  obtained  financing of $3,498,000 for the purchase of its
office and warehouse  facility.  Of the amount  financed,  $2,500,000 was in the
form of a 10-year bank loan utilizing a 30-year  amortization  period. This loan
bears  interest at the bank's  90-day LIBOR rate (6.25% as of December 31, 1999)
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
net income on an annual  basis.  As of  December  31,  1999,  the Company was in
compliance with all debt covenants.

The balances of the notes as of December 31, 1999 and 1998 are as follows:

                                                          1999          1998
                                                       ----------    ----------
Bank loan                                              $2,453,700    $2,471,800
SBA loan                                                  931,200       956,500
                                                       ----------    ----------
                                                        3,384,900     3,428,300
Less current portion                                       47,300        51,200
                                                       ----------    ----------
                                                       $3,337,600    $3,377,100
                                                       ==========    ==========

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

Years ending December 31,                                              Amount
-------------------------                                            ----------
2000                                                                 $   47,300
2001                                                                     51,400
2002                                                                     55,900
2003                                                                     60,700
2004                                                                     66,100
Thereafter                                                            3,103,500
                                                                     ----------
                                                                     $3,384,900
                                                                     ==========

                                      F-15
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


5. FLOOR PLAN INVENTORY LOANS AND LETTER OF CREDIT

The Company has a $7 million (including a $1 million letter of credit sub-limit)
auto-renewing  floor plan inventory loan available from a financial  institution
which is  collateralized  by the  purchased  inventory and any proceeds from its
sale or  disposition.  The $1 million  letter of credit is being  maintained  as
security for inventory purchased on terms from vendors in Taiwan and requires an
annual  commitment  fee of $15,000.  Borrowings  under the floor plan line total
$1,482,900 and $2,305,000 as of December 31, 1999 and 1998 and are subject to 45
day repayment  terms,  at which time interest begins to accrue at the prime rate
(8.50% as of December 31, 1999).

6. INCOME TAXES

For the years  ended  December  31,  1999,  1998 and 1997,  income  tax  expense
(benefit) comprises:

1999                                      Current       Deferred       Total
----                                    ----------     ---------     ----------
FEDERAL                                 $  409,800     $  32,600     $  442,400
STATE                                      113,500         1,600        115,100
                                        ----------     ---------     ----------
                                        $  523,300     $  34,200     $  557,500
                                        ==========     =========     ==========

1998                                      Current       Deferred       Total
----                                    ----------     ---------     ----------
Federal                                 $  964,900     $ (31,300)    $  933,600
State                                      271,300        (1,800)       269,500
                                        ----------     ---------     ----------
                                        $1,236,200     $ (33,100)    $1,203,100
                                        ==========     =========     ==========

1997                                      Current       Deferred       Total
----                                    ----------     ---------     ----------
Federal                                 $  627,900     $  30,800     $  658,700
State                                      195,900        (7,500)       188,400
                                        ----------     ---------     ----------
                                        $  823,800     $  23,300     $  847,100
                                        ==========     =========     ==========

                                      F-16
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The following  summarizes the differences between the income tax expense and the
amount computed by applying the Federal income tax rate of 34% in 1999, 1998 and
1997 to income before income taxes:

Year ending December 31,                        1999         1998        1997
------------------------                      ---------   ----------   ---------
Federal income tax at statutory rate          $ 470,800   $1,012,800   $ 712,000
State income taxes, net of federal benefit       86,700      190,300     135,100
                                              ---------   ----------   ---------
                                              $ 557,500   $1,203,100   $ 847,100
                                              =========   ==========   =========

Deferred  tax assets  and  liabilities  as of  December  31,  1999 and 1998 were
comprised of the following:

                                                          1999          1998
                                                        ---------     ---------
Deferred tax assets:
State income taxes                                      $  38,400     $  93,500
Reserves not currently deductible                          56,500        61,800
Accrued compensation and benefits                           1,700         6,000
                                                        ---------     ---------
                                                        $  96,600     $ 161,300
                                                        =========     =========
Deferred tax liabilities:
Accumulated depreciation                                $   1,000     $  31,500
                                                        ---------     ---------
                                                        $   1,000     $  31,500
                                                        =========     =========

7. LEASE COMMITMENTS

During 1999, 1998 and 1997, the Company leased two  automobiles  under operating
leases which terminated in March 1999.

Total rent  expense for the years ended  December  31,  1999,  1998 and 1997 was
$5,500, $29,700 and $47,900, respectively.

8. MAJOR VENDORS

One vendor accounted for  approximately  20%, 18% and 20% of the total purchases
for the years ended December 31, 1999, 1998 and 1997,  respectively.  During the
years ended December 31, 1999 and 1998, one additional  vendor located in Taiwan
accounted for  approximately  11% and 13% of total  purchases.  No other vendors
account  for more than 10% of  purchases  for any period  presented.  Management
believes  other vendors could supply  similar  products on comparable  terms.  A
change in suppliers,  however,  could cause a delay in  availability of products
and a possible loss of sales, which could affect operating results adversely.

                                      F-17
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9. 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.  Contributions to the Plan totaled $27,300, $12,800 and $14,300, for the
years ended December 31, 1999, 1998 and 1997, respectively.

10. 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 high quality
financial  institutions.  As of  December  31,  1999 and 1998,  the  Company had
deposits  at  one  financial   institution   which  aggregated   $4,094,600  and
$3,029,400,  respectively.  As of December  31,  1999 the  Company had  deposits
amounting to $257,400 at an  additional  financial  institution.  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 principally throughout the United States and as well
as some foreign countries,  including Canada, the United Kingdom, France, Russia
and Israel.  For the years ended December 31, 1999, 1998 and 1997, no individual
customer  or  foreign  country  comprised  more than 10% of sales.  The  Company
believes any risk of accounting loss is significantly  reduced due to the use of
various levels of credit  insurance,  diversity in customers,  geographic  sales
areas and the Company 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 cash collateral.

                                      F-18
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11. CAPITAL STOCK

DEBT CONVERSION

In 1997,  the two  shareholders/officers  of PMI  converted  their  loans in the
amount of $153,100  into 21,360  shares of PMI's  common  stock  (equivalent  to
63,627  shares  of  the  Company's  common  stock  after  giving  effect  to the
recapitalization  described  in Note  1),  based on the  fair  value of PMI,  as
determined by PMI's board of directors, at the time of conversion.

CONSULTING AGREEMENT

On July 17,  1998 the Company  issued  100,000  restricted  shares of its common
stock to an  unrelated  party under terms of a consulting  agreement.  Under the
agreement,  if the services were  provided,  the shares were to vest 50% on July
17,  1999  and 50% on July 17,  2000.  If the  services  were  not  provided  as
required,  the  consultant  was to forfeit those shares not vested.  The Company
accounted for this  transaction  in accordance  with Emerging  Issues Task Force
(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".  During 1999, the Company and the consultant  periodically  discussed
the level and type of  services  required  in order for the shares to vest under
the consulting agreement. This discussion led to a postponement of the scheduled
July 17, 1999 vesting date. After further discussions, the Board of Directors of
the  Company  determined  that  no  further  performance  was  required  by  the
consultant  under the agreement and deemed the entire  100,000  shares vested on
September 17, 1999, resulting in a measurement date and final valuation of these
shares of $675,000.

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.

                                      F-19
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Activity under the Plan is as follows:

<TABLE>
<CAPTION>
                                                                                   Weighted-
                                                         Weighted                   Average
                                Shares                    Average     Weighted-    Remaining
                               Available     Options     Exercise      Average    Contractual
                               for Grant   Outstanding     Price     Fair Value      Life
                              ----------    ---------    ---------    ---------    ---------
<S>                           <C>           <C>          <C>          <C>          <C>
July 16, 1998                  1,000,000           --    $      --    $      --           --

Conversion of PMI options
  (granted in March 1998)
  to Plan options                (75,400)      75,400         2.42         4.43

Options granted in
  November 1998                 (101,400)     101,400         4.00         1.67
                              ----------    ---------    ---------    ---------    ---------
Balances, December 31, 1998      823,200      176,800         3.33         2.85    4.7 Years

Options forfeited                 19,500      (19,500)        3.33         2.85           --

Options granted in
  December 1999                  (40,000)      40,000         5.00         2.27           --
                              ----------    ---------    ---------    ---------    ---------
Balances, December 31, 1999      802,700      197,300    $    3.67    $    2.73    3.9 Years
                              ==========    =========    =========    =========    =========
</TABLE>

The following table summarizes information about stock options outstanding as of
December 31, 1999:

<TABLE>
<CAPTION>
                       Options Outstanding                  Options Exercisable
            ----------------------------------------   ------------------------------
                          Weighted
              Number       Average
            Outstanding   Remaining      Weighted          Number         Weighted
Exercise      as of      Contractual     Average       Exercisable as     Average
 Price      12/31/1999      Life      Exercise Price   of 12/31/1999   Exercise Price
 -----      ----------      ----      --------------   -------------   --------------
<S>          <C>          <C>             <C>             <C>              <C>
 $ 2.42       67,100      3.5 Years       $ 2.42           16,000          $ 2.42
 $ 4.00       90,200      4.1 Years       $ 4.00           21,500          $ 4.00
 $ 5.00       40,000      3.9 Years       $ 5.00               --          $ 5.00
             -------                                      -------
             197,300                                       37,500
             =======                                      =======
</TABLE>

                                      F-20

<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Under the terms of the Plan,  options are exercisable as determined by the Board
of  Directors  on the date of grant and expire  from four to five years from the
date of grant.  The Company applies  Accounting  Principles  Board (APB) No. 25,
Accounting  for Stock  Issued  to  Employees,  and  related  Interpretations  in
accounting for the plan. Under APB Opinion No. 25, because the exercise price of
the Company  stock  options  equals or exceeds the  estimated  fair value of the
underlying stock on the date of grant, 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. 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  used for  grants  in 1999 and 1998:  no  dividend  yield;  expected
volatility  of 61% and 54%;  risk-free  interest  rates of 5.9%  and  5.7%;  and
expected lives of three years for all plan options.


Under the  accounting  provisions  of FASB  Statement No. 123, the Company's net
income and earnings  per share would have been reduced to the pro forma  amounts
indicated below:

Year ending December 31,                                   1999          1998
------------------------                                ----------    ----------
Net income:

      As reported                                       $  827,300    $1,775,700
                                                        ==========    ==========
      Pro forma                                         $  719,000    $1,694,800
                                                        ==========    ==========
Basic and diluted earnings per share:

      As reported                                       $     0.08    $     0.19
                                                        ==========    ==========
      Pro forma                                         $     0.07    $     0.18
                                                        ==========    ==========

                                      F-21
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12. STATEMENTS OF CASH FLOWS

Cash was paid during the years ended December 31, 1999, 1998 and 1997 for:

Years ending December 31,                      1999         1998         1997
-------------------------                   ----------   ----------   ----------
Income taxes                                $  447,000   $1,242,500   $1,345,400
                                            ==========   ==========   ==========
Interest                                    $  269,800   $  278,600   $  238,600
                                            ==========   ==========   ==========

As discussed in Note 11, non cash financing activities in 1999 and 1998 resulted
from the issuance of 100,000  shares of its common  stock to an unrelated  party
under the terms of a consulting agreement.


As discussed in Note 11, non-cash financing activities in 1997 resulted from the
conversion of shareholder notes in the amount of $153,100.

As discussed in Note 4,  non-cash  investing  and  financing  activities in 1997
resulted  from  obtaining  financing  of  $3,498,000  for  the  purchase  of the
Company's  office  facility  and applying a deposit made in 1996 to the purchase
price.

13. EQUITY INVESTMENT

In May 1999, the Company and Rising Edge Technologies, Ltd., a corporation based
in  Taiwan  ("Rising  Edge"),  entered  into an  Operating  Agreement  with  LEA
Publishing,  LLC, a  California  limited  liability  company  ("LEA")  formed in
January 1999. The objective of LEA is to provide  internet users,  resellers and
providers  advanced  solutions  and  applications.  LEA  is  developing  various
software  products.  The Company and Rising Edge each own a 50% interest in LEA.
The brother of a director,  officer and principal  shareholder of the company is
also a director, officer and the sole shareholder of Rising Edge. The Company is
accounting  for its  investment in LEA by the equity  method  whereby 50% of the
equity  interest in the net income or loss of LEA flows  through to the Company.

                                      F-22
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


In November 1999, LEA entered into a software  development  contract with Rising
Edge which calls for the development of certain internet software for a $940,000
fee. Of this amount,  the contract  specifies  that $440,000 shall be applied to
services  performed  in 1999 and  $500,000  shall be applied to  services  to be
performed  in 2000.  Included in prepaid  expenses and other  current  assets at
December 31, 1999 is $250,000  advanced  directly to Rising Edge by the Company,
representing  the Company's  portion of the software  development fees for 2000.
For  the  year  ended  December  31,  1999,  the  Company's  equity  loss in its
investment in LEA was $222,400.

In November 1999, the Company also advanced $500,000 to Rising Edge as a deposit
on a 25%  ownership  interest in Rising Edge common  stock.  The  investment  is
contingent  upon the execution of a Share Purchase  Agreement and consent by the
government of Taiwan.  Once this investment is finalized,  the Company will have
62.5% combined  direct and indirect  ownership  interest in LEA, which will then
require the  consolidation  of LEA with the Company.  At December 31, 1999,  the
$500,000  deposit on the  investment  in Rising Edge is included in deposits and
other assets.

14. SEGMENT INFORMATION - (UNAUDITED)

The Company has three reportable  segments:  PMI, Frontline and LEA. PMI imports
and  distributes   electronic  products,   computer  components,   and  computer
peripheral   equipment  to  various  customers  throughout  the  United  States.
Frontline serves the networking and personal computer  requirements of corporate
customers.  LEA is developing  advanced  solutions and applications for internet
users, resellers and providers.  The accounting policies of the segments are the
same as those described in the summary of significant  accounting policies.  The
Company  evaluates  performance based on income or loss before income taxes, not
including  nonrecurring gains or losses.  Intersegment transfers between PMI and
Frontline  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.

On March 17, 2000,  the  Company's  $500,000  deposit on an investment in Rising
Edge  (Note  13) was  refunded  due to the  uncertainty  as to when  and if this
investment will be finalized.

                                      F-23
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The following table presents  information  about reported segment profit or loss
and segment assets for the year ended December 31, 1999:

<TABLE>
<CAPTION>
                                         PMI        Frontline         LEA          Totals
                                     ------------  -------------   ----------   -------------
<S>                                  <C>           <C>             <C>          <C>
Revenues from external customers     $100,238,000  $ 4,700,700(1)  $            $ 104,938,700
Interest income                           194,900           --             --         194,900
Interest expense                          269,800           --             --         269,800
Depreciation and amortization             180,100        7,300             --         187,400
Segment income or (loss)
  before income taxes                   1,572,400       49,800       (444,800)      1,177,400
Equity in loss in investment in LEA            --           --       (222,400)      (222,400)
Segment assets                         18,865,000    2,046,400             --      20,911,400
Expenditures for segment assets           706,600       69,300             --         775,900
</TABLE>

The following table presents  information  about reported segment profit or loss
and segment assets for the year ended December 31, 1998:

                                          PMI        Frontline         Totals
                                      ------------   ----------     ------------
Revenues from external customers      $103,907,200   $1,524,000(1)  $105,431,200
Interest income                            177,400           --          177,400
Interest expense                           278,600           --          278,600
Depreciation and amortization              131,400          500          131,900
Segment income before income taxes       2,957,700       21,100        2,978,800
Segment assets                          20,200,200      908,200       21,108,400
Expenditures for segment assets             48,100        7,000           55,100

(1)  Includes  service  revenues  of  $241,800  and  $115,600  in 1999 and 1998,
respectively.

                                      F-24
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

                                                         1999           1998
                                                      -----------    -----------
Income before Income Taxes:
Total income before income taxes for
  reportable segments                                 $ 1,777,400    $ 2,978,800
Rising edge equity in loss in investment in LEA           222,400             --
Other losses                                              (15,000)            --
                                                      -----------    -----------
Consolidated income before income taxes               $ 1,384,800    $ 2,978,800
                                                      ===========    ===========
Assets:
Total assets for reportable segments                  $20,911,400    $21,108,400
Other assets                                              502,400             --
Elimination of receivables from
  corporate headquarters                                 (724,800)            --
                                                      -----------    -----------
Consolidated total assets                             $20,689,000    $21,108,400
                                                      ===========    ===========

The total of  reportable  segment  revenues  equals the  Company's  consolidated
revenues in 1999 and 1998.  There were no  reportable  segments  during the year
ended December 31, 1997.

15. SUBSEQUENT EVENT

On January 20, 2000, the Company acquired in a private  placement 485,900 shares
of convertible  preferred stock of a nonpublic  company,  ClickRebates.com,  for
approximately  $250,000  under the terms of a Series A Preferred  Stock Purchase
Agreement.  The  Company's  investment  in  ClickRebates.com,  which  represents
approximately  8% of the 3 million  preferred stock offering,  will be accounted
for using the cost method.

                                      F-25
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS


                                                Charged
                                               to Costs   Writeoffs
                                    Beginning     and        of         Ending
                                     Balance    Expense    Accounts     Balance
                                    ---------  ---------  ----------   ---------
Allowance for Doubtful Accounts:
Year ended December 31, 1997        $  56,900  $ 299,000  $ (242,800)  $ 113,100
Year ended December 31, 1998          113,100     46,300      (9,400)    150,000
Year ended December 31, 1999        $ 150,000  $ 457,500  $ (457,500)  $ 150,000

                                      F-26