UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-K/A
                          Amendment No. 1 To FORM 10-K


(MARK ONE)

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

                   For the fiscal year ended December 31, 2005
                                       OR

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

      For the transition period from ________________ to _________________

                        Commission file number 000-25277

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

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

1600 California Circle, Milpitas, California                       95035
  (Address of Principal Executive Offices)                       (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 if the  registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act. Yes |_| No |X|

Indicate  by  check  mark if the  registrant  is not  required  to file  reports
pursuant to Section 13 or Section 15(d) of the Act. Yes |_| No |X|

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 |_|


<PAGE>

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

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

Large accelerated filer |_|   Accelerated filer |_|   Non-accelerated filer |X|

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|

As of June 30, 2005, the aggregate market value of the registrant's common stock
held by  non-affiliates  of the registrant was $419,400 based on the average bid
and asked price as reported on the Overt-the-Counter Bulletin Board.

              APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
heck mark  whether  the  registrant  has filed all  documents

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  January  25,  2006 the  number of shares of  common  stock  outstanding  was
10,485,062

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None.


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                                EXPLANATORY NOTE

Pacific Magtron International Corp. ("the Company") hereby files Amendment No. 1
to the Form 10-K (the "Form 10-K/A") to include the consents for the use of the
audit opinions from Weinberg & Company, P.A. ("Weinberg") and KPMG LLP ("KPMG")
for our financial statements included in our Form 10-K. The Company filed its
Annual Report on Form 10-K for the year ended December 31, 2005 (the "Form
10-K") on May 1, 2006 with the Securities and Exchange Commission. The Company
disclosed in the notes to combined/consolidated financial statements in Item 15
- Exhibits, Financial Statement Schedules and in Item 6 - Selected Financial
Data that the consents for the use of the audit opinions from Weinberg and KPMG
for our financial statements included in our Form 10-K had not been obtained at
the time we filed our Form 10-K. Our consolidated financial statements for the
year ended December 31, 2004 were previously audited by Weinberg. Our
consolidated financial statements for the year ended December 31, 2003 were
previously audited by KPMG. At the time of filing our report on Form 10-K, we
had filed a "Preference Claim" in the U.S. Bankruptcy Court (the "Court")
against Weinberg. As part of the bankruptcy proceedings, debtors have claims
against vendors who received payments within 90 days of the bankruptcy petition
date. These payments are called preferences. The Company also had certain
unresolved fees disputes with Weinberg regarding their services performed. On
May 22, 2006, the Court approved the stipulation whereby Weinberg withdrew its
claims against the Company and the Company dismissed the adversary against
Weinberg.



The  following  statement  is made  pursuant to the safe harbor  provisions  for
forward-looking statements described in the Private Securities Litigation Reform
Act  of  1995.  Pacific  Magtron   International  Corp.  and  subsidiaries  (the
"Company")  may make  certain  statements  in this  Annual  Report on Form 10-K,
including,  without  limitation,  statements that contain the words  "believes,"
"anticipates,"  "estimates," "expects," and words of similar import,  constitute
"forward-looking statements." Any statements that refer to expectations or other
characterizations   of  future  events  or  circumstances  are   forward-looking
statements.  Readers are cautioned that any such forward-looking  statements are
not   guarantees  of   performance   and  that  matters   referred  to  in  such
forward-looking  statements  involve known and unknown risks,  uncertainties and
other factors which may cause the actual results,  performance or accomplishment
of  Pacific  Magtron  International  Corp.  and each of its  subsidiaries  to be
materially  different from any future  results,  performance  or  accomplishment
expressed  or  implied  by  such  forward-looking  statements.   Forward-looking
statements are based on our current  expectations and are subject to a number of
risks,  uncertainties and assumptions relating to our financial condition. We do
not  undertake  any  obligation  to revise these  forward-looking  statements to
reflect events or circumstances  arising after the date of this Annual Report on
Form 10-K.

PART I
ITEM 1. BUSINESS

GENERAL

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

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

The Company had  historically  relied on credit terms from its suppliers to fund
inventory purchases.  Our vendors  progressively imposed more restrictive credit
terms,  such that,  during the first  quarter  of 2005,  we were  unable to fund
purchases  and were  limited to selling  existing  inventory  with no ability to
replenish or purchase  inventory.  In  addition,  we did not have the ability to
draw on lines of credit to fund the shortfall caused by the elimination of terms
by our vendors.  We drastically reduced our staff during the first quarter 2005.
Because of the reduced  sales caused by the lack of new  inventory,  we were not
able to pay our obligations on a timely basis.

As set forth in more detail below,  the Company filed a petition in  bankruptcy.
Although  the  petition  was filed for  reorganization  under  Chapter 11 of the
Bankruptcy  Code,  the Company did not conduct any  operations  after the second
quarter 2005 other than those necessary to liquidate its assets.


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<PAGE>

STATUS OF BANKRUPTCY PROCEEDINGS

On May 11, 2005 (the "Petition  Date"),  PMIC, PMI, PMIGA and LW filed voluntary
petitions to reorganize  their  businesses under Chapter 11 of the United States
Bankruptcy Code in the United States  Bankruptcy Court for the Southern District
of  Nevada  (the   "Bankruptcy   Court").   The  Bankruptcy   Court  is  jointly
administering these cases as "In re: Pacific Magtron International  Corporation,
Inc., et al., Case No.BK-S-05-14325 LBR" (the "Bankruptcy  Proceedings").  As of
December 31, 2005, PMIC had 2 part-time  employees,  all of whom were non-union,
and 2 executive officers.

Upon the  filing of the  petition  in May  2005,  PMI  intended  to form a joint
venture  with  General  Procurement,  Inc.  ("GPI")  to  continue  the  business
operations. On May 16, 2005, the Court approved the Interim Management Agreement
with GPI. Subsequent to the hearings on May 16, 2005, Micro Technology Concepts,
Inc.  ("MTC"),  a major  secured  creditor of PMI,  negotiated  a similar  joint
venture  agreement  with PMI to replace the one entered into with GPI. The joint
venture agreement included an interim  management  agreement ("IMA") whereby the
joint  venture  partner,  MTC,  would take over  management  of PMI's  sales and
provide PMI with  inventory on a secured basis while PMI sought  approval of the
joint venture as part of a plan of reorganization.

On June 23, 2005,  MTC informed PMI that it would not continue to perform  under
the IMA and would not agree to allow PMI to use MTC's  cash  collateral  for any
business  purpose except for  liquidating  the remaining  assets of PMI. PMI was
forced to cease  business  activities  except those  necessary to liquidate  its
remaining assets. On August 31, 2005, PMI filed a complaint against MTC alleging
that MTC  breached  its  obligation  under  the IMA,  and MTC  filed a motion to
convert the PMI case to a case under Chapter 7 of the United  States  Bankruptcy
Code. On September 9, 2005, MTC filed a counterclaim against PMI.

On August 2, 2005, the Court  authorized  PMI to abandon its remaining  accounts
receivable and inventories to MTC. The abandonment resulted in a net decrease in
our liabilities of approximately $67,300.

On  September  19, 2005,  PMI and MTC reached a settlement  by which the various
issues  between  MTC and PMI were  settled  and the  litigation  dismissed.  The
settlement  agreement  between PMI and MTC was approved by the Court on November
7, 2005.

On September  15, 2005,  PMI entered into an agreement to sell the real property
at 1600 California Circle,  Milpitas,  California  ("Facility") to a third party
for  $4,389,000.  The sale  agreement  was subject to the Court's  approval.  On
October 14, 2005, PMI rejected the prior sale agreement and sold its Facility to
another  party for  $4,990,000  pursuant to a Court order entered on October 28,
2005. The escrow was closed on November 23, 2005. A portion of the proceeds from
the sale of the  building was used to repay the first  mortgage  loan with Wells
Fargo  Bank  and  the  second   mortgage  loan  with  the  U.S.  Small  Business
Administration.  The cash,  amounting to $119,701,  in a restricted  account was
released by Wells Fargo Bank upon the repayment of the mortgage loan. The amount
in the restricted account was immediately  transferred to MTC in compliance with
the Court's order.


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<PAGE>

On July 18,  2005,  the Company  filed the  "Disclosure  Statement  to Accompany
Debtors' Joint  Liquidating  Plan of  Reorganization"  detailing the liquidation
plan, however, the Company did not receive the Court's approval for the plan. On
December  23,  2005,  PMI and PMIGA  filed an Amended  Disclosure  Statement  to
Accompany  PMI's Second Amended Plan of  Liquidation  and PMIGA's Second Amended
Plan of  Liquidation  ("the PMI & PMIGA Plan").  On January 30, 2006,  the Court
entered  an  order  (Docket  No.  507)  ("Confirmation   Order")  approving  and
confirming  the PMI & PMIGA Plan. The effective date of the PMI & PMIGA Plan was
February 10, 2006 ("the Effective Date").

On January  30,  2006,  PMIC and LW filed a  separate  Disclosure  Statement  to
Accompany Third Amended Plans of Reorganization  for PMIC and LW ("the PMIC & LW
Plan").  The Court authorized PMIC and LW to send the PMIC & LW Plan and ballots
to creditors and PMIC's shareholders to vote on the PMIC & LW Plan. The deadline
for voting on the PMIC & LW Plan was  February  24,  2006 and the hearing on the
confirmation  of the  PMIC & LW Plan was  scheduled  for  April  10,  2006.  The
confirmation  hearing  was  continued  pending  consideration  of a  motion  for
approval of a settlement of litigation with PMIC's former executive officers and
a Fourth Amended Plan of Reorganization taking that settlement into account. The
motion for  approval of the  Settlement  and the Fourth  Amended  Plan are being
filed  with the  bankruptcy  court on or about  the date of filing  this  Annual
Report.


SUMMARY OF THE PMI & PMIGA PLAN

The  following  is a summary of the  material  features of the PMI & PMIGA Plan.
This summary  highlights only certain  provisions of the PMI & PMIGA Plan and is
not a  complete  description  of  that  document.  Therefore,  this  summary  is
qualified in its entirety by reference to the full text of the PMI & PMIGA Plan,
a copy of which is part of  Exhibit  2.1 to  PMIC's  Current  Report on Form 8-K
filed on February 3, 2006.

The PMI & PMIGA Plan  treats the assets and debts of each of the  entities  as a
separate  case.  Under the PMI & PMIGA Plan,  PMI was  required to disburse  the
funds in the formerly  blocked  account at Wells Fargo Bank to Micro  Technology
Concepts,  Inc.  ("MTC"),  a secured Creditor,  on the Effective Date.  However,
pursuant to a separate court order, PMI previously  distributed  theses funds to
MTC. On the  Effective  Date,  PMI was  required to (a) make full payment to its
administrative,  priority and  administrative  convenience class creditors,  (b)
disburse not less than 75% of its remaining  available  funds to its  unsecured,
non-priority  creditors,  and (c) pay the balance of its funds to the trustee of
the PMI Creditor Trust.  On the Effective  Date,  PMIGA was required to (a) make
full payment to its administrative  creditors, (b) disburse not less than 75% of
its available funds to its unsecured,  non-priority  creditors,  and (c) pay the
balance of its funds to the trustee of the PMIGA Creditor Trust.


                                       5
<PAGE>

Classification and Treatment of Claims and Interests
1.  Class 1  (Priority  Claims of PMI) was to be paid in full from the assets of
PMI on the Effective Date. These claims consisted of pre-petition  employee wage
and commission claims, payroll taxes and employee benefits (health insurance and
401(k)  contributions).  Cash  distributions  of $932 were paid on the Effective
Date.

2. Class 2 (Administrative Convenience Class of PMI) was to be paid in full from
the assets of PMI on the Effective Date. These claims were those of pre-petition
unsecured  creditors  of PMI whose  claims  were  $100 or less or who  agreed to
reduce their claim to $100.  Most of these  claims were for rebates  promised by
PMI to retail customers of PMI's wholesale customers.  The total amount of these
claims was $43,937 and was paid on the Effective Date.

3. Class 3A (unsecured  creditors of PMI including the unsecured  portion of the
claim of MTC) was to be paid from the  liquidation  of the assets of PMI. On the
Effective Date, PMI (a) made a partial  distribution of not less than 75% of the
cash assets of PMI to holders of  undisputed,  allowed  claims in this class and
(b) reserved funds for disputed claims and administrative expenses. A total cash
amount of  $314,836  was  distributed  on the  Effective  Date to the holders of
undisputed,  allowed  claims in this class,  excluding  MTC and LW. PMI has also
reserved $84,095 for disputed claims. In addition, PMI has withheld distribution
of $478,152 from those claims filed by those creditors that were alleged to have
received preferences or other avoidable transfers or payments from PMI within 90
days of the Petition Date ("Preference Claims").

4. Class 3B consisted of the unsecured  claim of LW. On the Effective  Date, PMI
transferred its physical assets  consisting of miscellaneous  computers,  desks,
chairs,  office  equipment,  warehouse  racks and  equipment to LW for a $15,000
credit which was deducted  from the payment to LW. LW shared pro rata with Class
3A after taking into account the credit for the transfer of the physical assets.
LW received a cash payment  $142,085  from PMI's  distribution  on the Effective
Date.

5.  Class  4  (secured  creditor)  consisted  solely  of  MTC.  Pursuant  to the
settlement  agreement with MTC, MTC's  pre-petition  claim against PMI is set at
$679,847.  MTC has no lien and has no claim against PMIC,  PMIGA and LW. MTC was
partially secured by (a) a lien on PMI's cash, inventory, equipment and accounts
receivable and their proceeds,  and (b) a lien on PMI's bank accounts.  Pursuant
to Court order, the inventory and accounts receivable of PMI have been abandoned
to MTC. Pursuant to the settlement  agreement with MTC, the liquidation value of
the inventory and the accounts receivable is set at $200,000.  In addition,  MTC
is secured by a lien on PMI's bank accounts  (including  the blocked  account at
Wells Fargo Bank) and the "pre-building  sale" account at Union Bank, neither of
which  accounts hold proceeds from the sale of PMI's building or the proceeds of
avoidance actions.  After the sale of PMI's building in November 2005, MTC had a
first lien on the bank  accounts.  A total of $125,688  from these  accounts was
paid to MTC.  Pursuant to the settlement  agreement with MTC, it was agreed that


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<PAGE>

PMI has a  $524,317  claim  against  PMIGA and such  claim was  subject to MTC's
security  interest.  MTC  received a partial cash  distribution  of $89,217 from
PMIGA on the Effective  Date. MTC is also to receive a refund from PMI's workers
compensation  insurer  in the  approximate  amount  of  $25,500.  Thus,  MTC has
received  $440,405 on its  collateral  and have an unsecured  claim of $239,442.
Pursuant to the settlement  agreement with MTC, MTC reduced its unsecured  claim
by $150,000.  MTC has an unsecured  claim of $89,442 and is treated as a Class 3
claim. On the Effective Date, MTC received $35,880 cash distribution from PMI as
a Class 3 unsecured creditor.

6. Class 5  (unsecured  creditors  of PMIGA) was to be paid from  PMIGA's  funds
after reducing for  administrative  expenses.  On the Effective Date,  PMIGA was
required  to first pay in full for  claims of any  government  creditors.  Then,
PMIGA was required to make partial distribution of not less than 75% of the cash
assets of PMIGA to holders of undisputed, allowed claims in this class. Pursuant
to the  settlement  agreement  with MTC,  it was agreed  that PMI has a $524,317
claim against PMIGA and such claim was subject to MTC's security interest. Funds
amounting  to $5,896  were  reserved  for  disputed  claims  and  administrative
expenses.  On the Effective  Date,  $89,217 was  distributed to MTC as a Class 5
creditor and $28,470 was distributed to other Class 5 creditors.

7. Class 6 (PMIC, the sole shareholder of PMI) retained nothing.

8. Class 7 (PMI, the sole shareholder of PMIGA) retained nothing.


On the Effective Date, the remaining balances of the assets of PMI and PMIGA and
the reserve for the disputed  claims and Preference  Claims were to be delivered
to the PMI Creditor Trust and PMIGA Creditor Trust, respectively.  The remaining
assets of PMI and PMIGA on the Effective  Date were  approximately  $228,000 and
$21,800, respectively.

PMI has filed claims against various vendors who received payment within 90 days
of the Petition  Date.  These  payments are called  "Preferences."  A Preference
occurs when a debtor treats one creditor more favorably than another. A creditor
receiving a Preference may be forced to restore it to the debtor's  estate.  Any
preferences  recovered will be paid to the PMI Creditors Trust to be distributed
to Class 3 creditors.

SUMMARY OF PMIC & LW PLAN
The following is a summary of the material  features of the PMIC & LW Plan. This
summary  highlights  only certain  provisions of the PMIC & LW Plan and is not a
complete description of that document.  Therefore,  this summary is qualified in
its  entirety  by  reference  to the full text of the PMIC & LW Plan,  a copy of
which is attached as part of Exhibit 99.1 to PMIC's  Current  Report on Form 8-K
filed on February 3, 2006.


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<PAGE>

The  PMIC & LW Plan  treats  the  assets  and  debts  of  each  of  PMIC  and LW
separately.  Under the PMIC & LW Plan,  non-insider  Creditors  holding  Allowed
Unsecured  Claims  against  PMIC will  receive  a fifty  percent  (50%)  initial
distribution on account of such claims,  provided that the total distribution to
be made to  holders  of  Allowed  Claims  other  than  Class 1 shall not  exceed
$120,000,  which shall be distributed  pro rata to the creditors of PMIC. On the
effective date of the PMIC & LW Plan,  PMIC will merge with  Herborium,  Inc., a
provider of proprietary,  natural and  complimentary  healthcare  products,  and
shall be the surviving operating entity post-merger (the "Herborium Merger"). LW
will be  reorganized  and remain a  wholly-owned  subsidiary of PMIC.  ACT shall
contribute up to $50,000 on behalf of PMIC's shareholders to effectuate the PMIC
& LW Plan. The existing stock of PMIC shall be cancelled, and new stock shall be
issued.  With  respect to the Class 6 equity  interest of ACT,  new stock issued
directly to the  shareholders  of ACT subject to the dilution of such  interests
upon plan  consummation and the  corresponding  Herborium  Merger.  The existing
Series A  Convertible  Preferred  Stock of PMIC  shall be  converted  to 800,000
shares  of  PMIC  common  stock  or  0.74%  of  Herborium   post-merger.   ACT's
shareholders  shall own 10.55% of Herborium  post-merger;  PMIC's current common
stockholders shall own 3.71% of Herborium  post-merger;  and Herborium's current
stockholders shall own 85% of Herborium post-merger.

Classification and Treatment of Claims and Interests

PMIC
1.    Unclassified Claims
      Administrative  claims and priority tax claims  (except as to the claim of
the  Internal  Revenue  Service  (the  "IRS")  treated  under  Class  3) are not
classified for purposes of voting or receiving distributions under the PMIC & LW
Plan. Unclassified claims will be paid in full.

2.    Class 1 claims
      Class 1 claims  consist of  priority  claims  other than the  unclassified
claims as described above and will be paid in full in cash.

3.    Class 2 claims
      Class 2 claims  are  unsecured  claims of PMIC and will be paid in cash an
initial distribution equal to 50% of the claim amounts.

4.    Class 3 claims
      Class 3 claim  consist of the claim of the IRS.  Such claim was amended by
the IRS to $0.00 in November 2005.

5.    Class 4 claims
      Class 4 claims consist of the subordinated  claims of 2 former  executives
("Former  Executives")  of PMIC.  No  distributions  will be made to the Class 4
claims unless such claims are determined to be allowed claims.  PMIC has filed a
motion with the Court requesting (i) that the Subordinated  Claims of the Former
Executives  be  estimated  at no more than  $25,000 for voting and  distribution
purposes,  and (ii)  with  respect  to the  Subordinated  Claims,  that  PMIC be
permitted to take discovery in connection with any estimation hearing before the
Court.  For purposes of confirmation of the PMIC & LW Plan, PMIC shall establish


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a reserve for Disputed Claims (including the Subordinated  Claims) not to exceed
$25,000,  and  entry  by  the  Court  of a  final  order  estimating  the  total
Subordinated Claims at no more than $25,000 for voting and distribution purposes
shall be a condition precedent to confirmation of the PMIC & LW Plan.

6.    Class 5 claims
      Class 5 claim  consists  of the claim of  Hartford  Insurance  Company for
pre-petition workers  compensation  premiums for employees of PMI. This claim is
disallowed under the PMIC & LW Plan.

7.    Class 6 claims
      Class 6 claims consist of the equity interests of PMIC shareholders  other
than the holder of PMIC's  Series A Convertible  Preferred  Stock (the "Series A
Preferred Stock").  The existing common shares of PMIC will be cancelled and new
stock will be issued.

8.    Class 7 claims
      Class 7 claim  consists  of the equity  interests  of the holder of PMIC's
Series A  Preferred  Stock.  The  existing  Series  A  Preferred  Stock  will be
converted into 800,000 shares of PMIC common stock.  These shares will represent
0.74% of Herborium post-merger.

LW
1.    Unclassified Claims
      Administrative  claims and  priority  tax claims  are not  classified  for
purposes  of  voting  or  receiving  distributions  under  the  PMIC & LW  Plan.
Unclassified claims will be paid in full.

2.    Class 1 claims
      Class 1 claims  consist of  priority  claims  other than the  unclassified
claims as described  above and will be paid in full in cash.  LW estimated  that
the allowed claims in this Class are zero.

3.    Class 2 claims
      Class 2  claims  are  unsecured  claims  of LW and will be paid a Pro Rata
distribution from available cash of LW.

4.    Class 3 claims
      Class 3 shall consist of PMIC's  equity  interest in LW. PMIC shall retain
such interest.

SUMMARY OF PROPOSED SETTLEMENT WITH FORMER EXECUTIVES

On April 12,  2006,  ACT and  Theodore S. Li and  Cynthia Lee (also  referred to
herein  collectively as the "Former  Executives")  entered into a binding letter
agreement with respect to the settlement of certain  litigation  proceedings and
potential claims involving ACT, PMIC, Encompass,  the Former Executives,  Martin
Nielson  and  Wayne  Danson.   The  provisions  of  this  settlement  are  being
incorporated into a Settlement Agreement to which PMIC and its subsidiaries will
be a party to upon bankruptcy court approval.

Background

On December 10, 2004,  Mr. Li and Ms. Lee, the holders of a collective  majority
interest in PMIC entered into a Stock Purchase Agreement (the


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<PAGE>

"Stock Purchase  Agreement") with ACT,  pursuant to which ACT agreed to purchase
from Mr. Li and Ms. Lee an aggregate of 6,454,300  shares of the common stock of
PMIC for the  aggregate  purchase  price of $500,000,  which shares  represented
61.56% of the then currently  issued and  outstanding  common stock of PMIC. ACT
satisfied the purchase price by delivering two convertible promissory notes (the
"Convertible Notes") in the principal amounts of $166,889 and $333,111 to Mr. Li
and Ms. Lee, respectively.  The transactions  contemplated by the Stock Purchase
Agreement  closed on December 30, 2004.  The  transactions  contemplated  by the
Stock Purchase  Agreement and the Convertible Notes are described in more detail
below under Part III, Item 13. Certain Relationships and Related Transactions in
this Annual Report on Form 10-K.

In connection with the above-mentioned  transaction,  Mr. Li and Ms. Lee entered
into  employments  agreements (the "Employment  Agreements")  with PMIC, ACT and
ACT's wholly-owned subsidiary,  Encompass Group Affiliates,  Inc. ("Encompass"),
to  serve  as  PMIC's  Chief  Financial   Officer  and  Senior  Vice  President,
respectively.  In  addition  to  base  salaries  and  other  compensation,   the
Employment  Agreements  provided  for payment of a signing  bonus of $225,000 to
each of Mr.  Li and Ms.  Lee on or before  January  29,  2005.  No part of these
bonuses was previously  paid by PMIC. The terms and conditions of the Employment
Agreements  are  described  in more  detail  under  Part III,  Item 13.  Certain
Relationships and Related Transactions in this Annual Report on Form 10-K.

On May 10, 2005, PMIC terminated the Employment Agreements of Mr. Li and Ms. Lee
alleging "cause" pursuant to the terms of such agreements.  On May 11, 2005, ACT
filed a complaint in the United States District Court for the Southern  District
of New York against Mr. Li and Ms. Lee for the recovery of damages and costs for
securities  fraud,  breach of  contract,  misrepresentation  and other counts in
connection with the Stock Purchase Agreement (the "New York Action").

In January  2006,  Mr. Li and Ms. Lee brought  suit in the  California  Superior
Court,  Santa  Clara  County  against  ACT and  Encompass  and  certain of their
officers and directors (the "California  Action") alleging,  among other things,
fraud,  intentional  misrepresentation,  breach of  contract,  breach of implied
covenant of good faith and fair dealing, violation of the California Labor Code,
violation of the Business of Professions Code of California,  and defamation. In
addition,  the Former  Executives  filed proofs of claim in the bankruptcy court
relating to their employment agreements.

Terms and Conditions of Proposed Settlement

Following  is a summary  of the  material  terms and  conditions  of the  letter
agreement  entered  into  among  ACT and Mr.  Li and  Ms.  Lee and the  proposed
Settlement  Agreement  to which  PMIC  would be a party  upon  bankruptcy  court
approval:

o     Upon  the  closing  of the  Herborium  Merger  and the  occurrence  of the
      effective  date of the PMIC & LW Plan,  ACT  will pay Mr.  Li and Ms.  Lee
      $325,000.  PMIC will  reimburse  ACT for a portion of this  payment  using
      available  cash or other assets  remaining in the PMIC  bankruptcy  estate
      after final distribution under PMIC and LW's Fourth Amended Plan.


                                       10
<PAGE>

o     PMIC  will  issue  Mr.  Li  and  Ms.  Lee  an   aggregate   of   1,750,000
      freely-tradable  shares of Herborium common stock ("Herborium Stock") with
      a minimum value of $.10 per share subject to the following conditions:

      (a)   such  shares  will be subject to a lock-up  period of 150 days after
            issuance  during  which Mr. Li and Ms.  Lee may only sell the shares
            for $.10 per share or  greater;  if the price per share is less than
            $.10 per share at the end of the lock-up period,  then ACT will "top
            up" the value provided to Mr. Li and Ms. Lee by delivering either

                  cash  equal to $.10  minus  the  price  per share on said date
                  times the number of shares still held, or

                  additional Herborium shares which would otherwise be issued to
                  ACT or its stockholders under the Fourth Amended Plan having a
                  value equal to said the same amount;

      (b)   ACT's  obligation  to "top up" Mr.  Li's  and Ms.  Lee's  shares  of
            Herborium  Stock  shall be  collateralized  by  1,750,000  shares of
            Herborium  Stock held by ACT which will be placed in escrow upon the
            earliest date that such shares can be issued following the Herborium
            Merger;

      (c)   in the event that the  Herborium  Merger does not occur,  Mr. Li and
            Ms. Lee will receive the  $325,000  and $175,000  worth of shares of
            ACT's  common  stock  on the  76th day  following  execution  of the
            Settlement  Agreement.  On the date upon which the Bankruptcy  Court
            approves this  settlement,  87,500,000  shares of ACT's common stock
            will be placed in escrow at an  estimated  value of $.002 per share,
            which shares will be deemed to be issued pursuant to the Convertible
            Notes. The shares will be released from escrow to Mr. Li and Ms. Lee
            based  upon  the  closing  price  as of the  75th  day  or the  next
            preceding  business  day and shall be "topped up" to $.002 per share
            if the arms length third party closing price is below $.002.  If the
            Herborium  Merger occurs these shares shall  immediately be released
            to ACT.

o     Mr. Li and Ms. Lee will each  receive a  reference  letter  from PMIC that
      relates to the circumstances of their employment with PMIC.

o     Mr. Li and Ms. Lee will execute  broad  general  releases in favor of ACT,
      PMIC,  Encompass  and  each of their  subsidiaries  and  their  directors,
      employees, heirs, insurers,  attorneys and agents from any and all claims,
      including but not limited to those that have or could have been brought in
      connection  with the New York Action,  the California  Action or in any of
      the Bankruptcy  Proceedings  or under the Stock Purchase  Agreement or the
      Employment  Agreements.   ACT,  PMIC  and  Encompass  and  each  of  their
      subsidiaries will execute similar releases in favor of Mr. Li and Ms. Lee.
      This  settlement will not be construed as an admission of liability by any
      party.  The parties  further agree not to instigate or  participate in any
      future litigation or proceeding


                                       11
<PAGE>

against any released party based upon events occurring prior to the settlement.

o     The parties agree to cause any and all pending  litigation between them to
      be dismissed with prejudice as soon as practical  following the payment of
      consideration contemplated by this settlement.

o     This settlement will be subject to approval by the Bankruptcy Court in the
      Bankruptcy Proceedings and will be incorporated in the PMIC & LW Plan, and
      the Bankruptcy  Court will retain  jurisdiction to enforce the settlement.
      Mr.  Li and Ms.  Lee will  withdraw  their  proofs  of  claims in the PMIC
      Bankruptcy  Proceedings  and their  objections to the  confirmation of the
      PMIC & LW Plan.

o     Each  party  will bear its own  costs  and  attorneys'  fees  incurred  in
      connection  with this  settlement and the pending  litigation  between the
      parties except as follows:  ACT will pay (and has paid) the mediation fees
      incurred in connection with the parties'  mediation on April 12, 2006, and
      in the event of a breach of the letter agreement,  the prevailing party in
      any ensuing litigation will be entitled to reasonable  attorneys' fees and
      costs.

DESCRIPTION OF FORMER BUSINESS

The text below  describes  the business we previously  operated.  At the time of
this filing,  we were not engaging and we do not anticipate future engagement in
business as described below.

Founded  in  1989,  PMI  fulfilled  the  multimedia  hardware  needs  of  system
integrators, value added resellers, retailers, original equipment manufacturers,
software vendors,  and internet resellers through the wholesale  distribution of
computer related multimedia hardware components and software. In August 2000, we
formed  PMIGA for the  distribution  of PMI's  products  in the  eastern  United
States.  PMIGA  ceased  its  business  as of April  30,  2005.  The  results  of
operations  of  PMIGA  were   reclassified   in  our  financial   statements  as
discontinued operations. In December 2001, LW was incorporated as a wholly-owned
subsidiary of PMIC to provide  consumers a convenient  way to purchase  computer
products via the internet. As part of the overall strategy on re-focusing on our
core business in wholesale  distribution,  we reduced our resources allocated to
our LW business segment beginning the third quarter 2004.

During the second  quarter  2003,  the  Company  disposed of  Frontline  Network
Consulting,  Inc.  (FNC)  and Lea  Publishing,  Inc.  (Lea).  The  Company  sold
substantially  all the  assets of FNC in  exchange  for a note in the  amount of
$15,000  and Lea for  $5,000 in cash and  certain  electronic  commerce  support
services to LW valued at $48,000.  The results of operations of FNC and Lea were
reclassified in our financial statements as discontinued  operations.  FNC was a
95%-owned  subsidiary  of PMIC and served as a  corporate  information  services
group  catering to the networking and internet  infrastructure  requirements  of
corporate clients. Lea was a wholly-owned  subsidiary of PMIC and was engaged in
the  development  and  distribution  of software  and  e-business  products  and
services, as well as integration and hosting services.


                                       12
<PAGE>

On December 30,  2004,  ACT  purchased  an aggregate of 6,454,300  shares of the
common  stock of PMIC from  Theodore  S. Li and Hui  "Cynthia"  Lee,  who held a
collective  majority interest in PMIC, pursuant to the Stock Purchase Agreement.
The Stock  Purchase  Agreement is described in more detail below under Part III,
Item 13. Certain Relationships and Related Transactions in this Annual Report on
Form 10-K. ACT is a public holding company based in New York City with operating
subsidiaries in the technology services  industries.  ACT files periodic reports
with the  Securities  and Exchange  Commission  (the "SEC") under the Securities
Exchange Act of 1934,  as amended (the  "Exchange  Act").  ACT is currently  the
majority shareholder of PMIC.

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

Through  PMI and  PMIGA,  we  distributed  a wide  range of  computer  products,
including  components and multimedia and systems  networking  products.  We also
provided vertical  solutions for systems  integrators and internet  resellers by
combining  or bundling the  products we offered to our  customers.  Our computer
products group offered a broad  inventory of more than 1,800 products  purchased
from approximately 30 manufacturers. Among the products that we distributed were
systems and networking peripherals, and components such as high capacity storage
devices, a full range of optical storage devices such as CD-ROMS,  DVDs and CDR,
CDRW, sound cards,  video cards,  small computer systems  interface  components,
video phone  solutions,  floppy and hard disk  drives,  and other  miscellaneous
items such as audio cabling  devices,  keyboards,  computer mice, and zip drives
for desktop and notebook computers.

LIVEWAREHOUSE - BUSINESS TO CONSUMER E-COMMERCE STORE

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

LW  generated  sales  primarily  through  its  e-store  (Livewarehouse.com)  and
operated a Yahoo  store.  Supplemental  sales were  generated  through  internet
auction sites for liquidation electronic products.

DESCRIPTION OF BUSINESS INTENDED TO BE CONDUCTED

The PMIC & LW Plan  contemplates that Herborium will be merged with and into the
Company.  Following the  Herborium  Merger,  the Company  intends to conduct the
business described below.


                                       13
<PAGE>

GENERAL DEVELOPMENT OF BUSINESS OF HERBORIUM, INC.

Herborium,  Inc.,  incorporated  in the  State of  Delaware  in  2000,  provides
proprietary,  natural and  complementary  healthcare  solutions to consumers and
healthcare  professionals  seeking  alternative  answers to  disease  treatment,
management,  and prevention. The Company's business model is based on owning and
marketing  clinically  validated  proprietary  products,  the  innovative use of
information  technology  and a  proactive  approach  to meeting  the changes and
challenges of the new healthcare marketplace.

PRODUCTS

Herborium's products are  bio-herbaceutical  medicines (botanical  therapeutics)
that have a record of clinical  efficacy  and safety but are not  recognized  as
pharmaceuticals by the Federal Drug Administration (the "FDA"). With its product
portfolio and proactive regulatory strategy, Herborium distinguishes itself from
the marketers of traditional herbal  supplements and vitamins,  as well as those
focused on traditional pharmaceuticals and "over-the-counter" drugs. Herborium's
products are  presently  classified  by the FDA as dietary  supplements  and are
regulated by the Dietary  Supplement  Health and  Education  Act Of 1994 ("DSHEA
94"). With the Federal Trade Commission  regulating only package and advertising
of dietary supplements, Herborium's core products are ready for immediate market
entry.

Herborium  launched its first product  (AcnEase(R)) in 2001 for the treatment of
acne and rosacea.  Sales of AcnEase(R)  have  approached an annual sales revenue
run rate of $1 million, and high brand recognition with AcnEase(R)  consistently
ranked in top three Acne products on Google and Yahoo.

Herborium  currently is the exclusive  distributor of AcnEase(R).  Herborium has
the right to  purchase  the  formulation,  trade  secrets,  and other  rights to
AcnEase(R), and the PMIC & LW Plan contemplates that Herborium will enter into a
purchase agreement to acquire such intellectual  property relating to AcnEase(R)
prior to the merger of Herborium with and into PMIC.

With respect to other products,  Herborium's Sexual Health Products line for men
and women was  introduced  in test  marketing in March of 2004 in the US, UK and
German markets and is expected to represent the second product line contributing
to revenue and profitability.  PROSTALIS(R) is a proprietary all natural product
for the treatment of Benign Prostate  Hyperplasia  (BPH) a malady which afflicts
more than half of the men in the United  States  between  the ages of 60 and 70,
and as many as 90% between the ages of 70 and 90. Other products owned by or for
which Herborium has the right to acquire ownership,  include:  Carb-Blocker,  an
all natural starch metabolism inhibitor, and Lasting Energy(R), which alleviates
the symptoms of "jet lag",  fatigue and "hang over";  a series of products  that
target liver diseases and liver damage  resulting from Hepatitis C, Hepatitis B,
and  Cirrhosis,  as well as liver  dysfunction  arising from alcohol,  drugs and
environmental factors; and a product targeting cardiopulmonary insufficiencies.

AcnEase(R) is currently the only product providing revenue to Herborium.


                                       14
<PAGE>

MARKETS AND MARKETING

With strong sale trends and top positioning of AcnEase(R) for acne treatments on
Internet  search  engines,  AcnEase(R)  is expected  to be the  leading  product
driving  post-merger  sales growth.  Consumer demand has motivated  Herborium to
develop  a  complementary  line  of  skin  care  products  the  ACNEASE(R)  SKIN
MANAGEMENT  System that can enhance and  compliment  the results  obtained  with
AcnEase. With adequate resources,  it is expected that the first product in this
line  (AcnEase(R)  BioMask) will be ready for market launch in the first half of
2006.  Two major  benefits  of the  Herborium  Merger are  expected  to be (i) a
substantial  decrease in product cost (~ 70%), which will lead to opening of new
distribution  channels,  and  (ii) a  significant  overall  increase  in  profit
margins.

An office was opened in London in April 2002 and registered in 2003 as Herborium
UK LLC. The office handles  fulfillment and coordinates  market  development for
products in the UK and Continental Europe. Herborium is also preparing for entry
into the Japanese and Australian markets.

OPERATIONS

Herborium  presently  has one  full-time  employee  with  full  benefits,  whose
principal  responsibility  is product order  fulfillment.  In the UK,  Herborium
subcontracts  with a firm to provide full fulfillment and customer  services for
UK and EU customers.  It is anticipated that following the Herborium Merger, one
or  both   co-founders   will  assume   full-time   employment  with  Herborium.
Post-merger,  Herborium is expected to obtain approximately 2,500 square feet of
general office space in northern New Jersey.


ITEM 1A. RISK FACTORS

RISKS RELATED TO THE BANKRUPTCY PROCEEDINGS

THERE IS NO ASSURANCE OF ADDITIONAL  RECOVERY FOR PAYMENT TO UNSECURED CREDITORS
UNDER THE PMI & PMIGA PLAN.

The PMI & PMIGA Plan involves some risk of reduced  payment.  The total recovery
by unsecured creditors (Class 3 and 5) will depend upon:

      o     the recovery of "preferences";

      o     recovery  from  the  former  executives,  Theodore  S.  Li  and  Hui
            "Cynthia" Lee; and

      o     the recovery in PMIGA's  accounts  receivable by the PMIGA  Creditor
            Trust.

As part of our  bankruptcy  proceedings,  we have  claims  against  vendors  who
received payments within 90 days of the bankruptcy petition date. These payments
are called  "preferences."  No assurance can be made there will be a substantial
recovery from any of these sources.  In addition,  as discussed above under Part
I, Item 1. Business - Status of  Bankruptcy  Proceedings - Summary of Settlement
with  Former  Executives,  there  was no  recovery  of  funds  from  our  former
executives.


                                       15
<PAGE>

IF THE  SETTLEMENT  WITH OUR  FORMER  EXECUTIVES  HAS NOT BEEN  APPROVED  BY THE
BANKRUPTCY COURT
If the Bankruptcy Court does not approve the proposed settlement with our former
executives,  and estimates their  Subordinated  Claims in an amount greater than
$25,000,  then  the PMIC & LW Plan as  proposed  will be  rendered  ineffective.
Moreover, if the settlement is not approved, the Subordinated Claims are allowed
in any amount,  such allowance will result in a corresponding  diminution of the
Pro Rata recovery of Creditors on account of Class 2 Unsecured  Claims under the
PMIC & LW Plan.]

THE MATERIAL  CONDITIONS FOR COMPLETION OF THE MERGER OF HERBORIUM WITH AND INTO
PMIC MAY NOT BE MET, IN WHICH CASE THE  STOCKHOLDERS  OF PMIC AND THE HOLDERS OF
CLASS 6 AND CLASS 7 EQUITY INTERESTS IN PMIC WILL HAVE NO RECOVERY.

The PMIC & LW Plan  contemplates that PMIC will enter into a reverse merger with
Herborium,  a provider  of  proprietary,  natural and  complimentary  healthcare
products, and shall be the surviving operating entity post-merger. Following are
the material  conditions for completion of the merger of Herborium with and into
PMIC:

      o     the completion of due diligence satisfactory to each party;

      o     negotiation and execution of a definitive merger agreement and other
            documentation reasonably satisfactory to each party;

      o     closing  of a purchase  agreement  between  Herborium  and AH USA, a
            Massachusetts  corporation,  with  respect  to  the  acquisition  by
            Herborium of all rights,  intellectual  property and other interests
            in the formulation of AcnEase;

      o     absence of any adverse change in the business or financial condition
            of Herborium through the date of closing;

      o     entry into employment and consulting agreements with the co-founders
            of  Herborium,  Dr.  Agnes  P.  Olszewski  who  will  serve as Chief
            Executive  Officer  and Chief  Financial  Officer  and Dr.  James P.
            Gilligan who will serve as President and Chief Operating Officer;

      o     all necessary approvals of the board and shareholders of each of the
            parties;

      o     completion of audits of Herborium's  financial  statements as of and
            for the years ended November 30, 2005 and 2004 by a PCAOB  certified
            independent  accounting  firm  and the  issuance  of an  unqualified
            opinion thereon;

      o     the holder of PMIC's Series A Preferred  Stock having  converted its
            Series A Preferred Stock into 800,000 shares of common stock of PMIC
            prior to the merger;


                                       16
<PAGE>

      o     the confirmation of the PMIC & LW Plan by the Bankruptcy Court; and

      o     prior to the merger, Herborium's obtaining and conditionally closing
            on a  financing  of  $2,500,000  in  secured  convertible  debt with
            Cornell Capital Partners,  L.P. or another institutional investor as
            determined by Herborium.

The PMIC & LW Plan contemplates that in connection with the merger:

      o     the existing stock of PMIC will be cancelled, and new stock shall be
            issued;

      o     with  respect to the Class 6 equity  interest of ACT, new stock will
            be  issued  directly  to  the  shareholders  of ACT  subject  to the
            dilution of such  interests upon the  consummation  of the PMIC & LA
            Plan and the merger; and

      o     new  stock  will be issued  to the  Class 7 equity  interest  of the
            holder of the Series A Preferred  Stock in exchange  for its 800,000
            shares of common stock of PMIC, or 0.74% of Herborium post-merger.

If the conditions to the merger are not satisfied,  the stockholders of PMIC and
ACT and the holder of PMIC's  Series A Preferred  Stock will have no recovery in
connection with PMIC's bankruptcy.

RISKS RELATED TO OUR COMMON STOCK

OUR STOCK PRICE HAS BEEN AND IS LIKELY TO REMAIN VOLATILE.

A public  market for our common stock  developed  following  our initial  public
offering,  and our common stock has been quoted on the OTC Bulletin  Board since
May 1, 2003.  Trading of our common  stock has been  sporadic,  and the  trading
volume has generally  been low. Even a small trading  volume on a particular day
or over a few days may affect the market price of our common stock.

MARKET  FLUCTUATIONS  OR VOLATILITY  COULD CAUSE THE TRADING PRICE OF OUR COMMON
STOCK TO DECLINE.

The market  price of our common stock could also be subject to  fluctuations  in
response to variations in results of operations,  announcements  by competitors,
general  economic  and  market  conditions  and  other  factors.   These  market
fluctuations may adversely affect the market price of our common stock.

OUR COMMON STOCK MAY BE REMOVED FROM THE OVER-THE-COUNTER  BULLETIN BOARD, WHICH
WOULD LIKELY  CAUSE THE TRADING  PRICE OF OUR COMMON STOCK TO DECLINE AND AFFECT
OUR ABILITY TO RAISE CAPITAL IN THE FUTURE.

On April 5, 2006, we received  notice from the OTC Bulletin Board that unless we
cured our  delinquency  in filing  the  Annual  Report on Form 10-K for the year
ended  December  31, 2005 prior to the  expiration  of the grace  period (May 5,
2006), our common stock would be removed from the


                                       17
<PAGE>

OTC Bulletin Board  effective May 9, 2006. We have cured this  delinquency  with
the filing of this Annual Report on Form 10-K.  However,  under  applicable NASD
Rules,  if we are  delinquent  in our  reporting  obligations  three  times in a
24-month  period  and/or are actually  removed  from the OTC Bulletin  Board for
failure  to file two  times in a  24-month  period,  in each  case,  we would be
ineligible  for quotation on the OTC Bulletin Board for a period of one year. To
date,  we have been  delinquent  one time in the past  24-month  period.  Should
quotation of our common stock on the OTC  Bulletin  Board or a similar  facility
cease for any reason, the liquidity of our common stock and our ability to raise
equity capital would likely decrease.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.


                                       18
<PAGE>

ITEM 2. PROPERTIES

We are currently  negotiating a  month-to-month  lease for  approximately  3,000
square  feet  for our  offices  and  storage  space at 1600  California  Circle,
Milpitas, California. As described above under Part I, Item 1. Business - Status
of Bankruptcy  Proceedings,  in October/November 2005, we sold the real property
at  1600  California  Circle,  Milpitas,   California  in  connection  with  the
Bankruptcy Proceedings.

ITEM 3. LEGAL PROCEEDINGS

We are not involved as a party to any legal proceeding other than various claims
and lawsuits arising in the course of the Bankruptcy Proceedings. The discussion
set forth under Part I, Item 1. Business - Status of Bankruptcy  Proceedings  is
incorporated by reference  herein. In the California Action described under that
heading, neither PMIC nor any of its subsidiaries are named as a party; however,
the text of the complaint does allege causes of action against PMIC.

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

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


                                       19
<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S  COMMON EQUITY,  RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES

Our common  stock is presently  traded on the  Over-the-Counter  Bulletin  Board
under the  symbol  PMICQ.OB.  The  following  table  shows the high and low sale
prices in dollars per share as reported by the OTC Bulletin Board.  These prices
may not be the prices  that you would  sell or would pay to  purchase a share of
our common stock during the periods shown.

                                                       High         Low
     Fiscal Year Ended December 31, 2005              ------       ------
       First Quarter                                  $ 0.15       $ 0.05
       Second Quarter                                   0.07         0.02
       Third Quarter                                    0.06         0.03
       Fourth Quarter                                   0.03         0.02

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

We had approximately 85 stockholders of record of our common stock as of January
25, 2006.

DIVIDEND POLICY
We have not paid and have no plan to pay dividends on our common stock.

ITEM 6. SELECTED FINANCIAL DATA


The following table contains certain selected financial data and we refer you to
the more detailed consolidated financial statements and the notes thereto
provided in Part II, Item 8 - Financial Statements and Supplementary Data of
this Annual Report on Form 10-K. The financial data for the six months ended
June 30, 2005 and for the years ended December 31, 2004, 2003, 2002 and 2001
presented below, have been derived from our consolidated financial statements.
Our consolidated financial statements for the six months ended June 30, 2005
were audited by Berenson LLP. Our consolidated financial statements for the year
ended December 31, 2004 were previously audited by Weinberg & Company, P.A. Our
consolidated financial statements for the years ended December 31, 2003 and 2002
were previously audited by KPMG LLP, and our consolidated financial statements
for the year ended December 31, 2001 were previously audited by BDO Seidman,
LLP. The statement of operation data for the six months ended December 31, 2005
are not presented below as the Company reports its financial condition using the
liquidation method of accounting effective July 1, 2005.



                                       20
<PAGE>


<TABLE>
<CAPTION>

                                                                  (Going Concern Basis)
                                      -------------------------------------------------------------------------
                                       Six Months
                                         Ended                         Year Ended December 31,
                                        June 30,      ---------------------------------------------------------
Statement of Operations Data             2005            2004           2003           2002           2001
----------------------------          ------------    ------------   ------------   ------------   ------------
<S>                                   <C>             <C>            <C>            <C>            <C>
Net sales from continuing operations   $ 9,983,500    $ 66,514,900   $ 67,661,700    $58,498,500   $60,805,700
Loss from continuing operations before
  other income (expenses), income
  taxes and minority interest           (1,298,200)     (1,733,700)    (1,331,000)    (1,452,000)   (1,980,100)

Net loss from continuing operations     (1,547,200)     (1,165,300)    (2,282,700)      (944,600)    1,613,900
Loss applicable to common shareholders  (1,687,200)     (1,172,700)    (2,896,600)    (3,110,100)   (2,850,700)
Basic and diluted loss per share
  applicable to common shareholders:
Loss from continuing operations             (0.15)          (0.11)         (0.22)         (0.14)         (0.19)
Net loss                                    (0.16)          (0.11)         (0.28)         (0.30)         (0.28)


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


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


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

FORWARD-LOOKING STATEMENTS
The accompanying  discussion and analysis of financial  condition and results of
operations is based on our financial statements, which are included elsewhere in
this Annual Report on Form 10-K. The following discussion and analysis should be
read in conjunction with the accompanying financial statements and related notes
thereto. This discussion contains forward-looking  statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Exchange Act. Readers are cautioned that any such forward-looking statements are
not   guarantees  of   performance   and  that  matters   referred  to  in  such
forward-looking  statements  involve known and unknown risks,  uncertainties and
other factors which may cause the actual results, performance or achievements of
Pacific  Magtron  International  Corp.  and  each  of  its  subsidiaries  to  be
materially  different  from any  future  results,  performance  or  achievements
expressed or implied by such forward-looking  statements.  Such factors include,
among other things, risks and uncertainties discussed in Part I - Item 1A - Risk
Factors.  Pacific Magtron International Corp. undertakes no obligation to update
publicly any forward-looking


                                       21
<PAGE>

statements, whether as a result of new information,  future events or otherwise.
As used herein and unless  otherwise  indicated,  the terms "Company," "we," and
"our" refer to Pacific Magtron International Corp. and each of its subsidiaries.

As set forth in more detail in Part I, Item 1.  Business - Status of  Bankruptcy
Proceedings  in this Form 10-K,  the Company has filed a petition in bankruptcy.
The Company had  historically  relied on credit terms from its suppliers to fund
inventory purchases.  Our vendors  progressively imposed more restrictive credit
terms,  such that,  during the first  quarter  of 2005,  we were  unable to fund
purchases  and were  limited to selling  existing  inventory  with no ability to
replenish or purchase  inventory.  In  addition,  we did not have the ability to
draw on lines of credit to fund the shortfall caused by the elimination of terms
by our  vendors.  Because  of the  reduced  sales  caused  by  the  lack  of new
inventory, we were not able to pay our obligations on a timely basis.

On May 11, 2005, the Company and its subsidiaries  filed voluntary  petitions to
reorganize  their  businesses  under Chapter 11 of the United States  Bankruptcy
Code.  On June 23, 2005,  MTC informed the Company that it would not continue to
perform under the Interim Management  Agreement and would not agree to allow the
Company  to use MTC's  cash  collateral  for any  business  purpose  except  for
liquidating the remaining assets of the Company.  The Company has been forced to
cease  business  activities  except those  necessary to liquidate  its remaining
assets. Although the petitions were filed for reorganization under Chapter 11 of
the Bankruptcy Code, the Company did not conduct any operations after the second
quarter 2005 other than those necessary to liquidate its assets.


Effective July 1, 2005, the Company adopted the liquidation basis of accounting,
whereby  assets  are  valued  at  their  estimated  net  realizable  values  and
liabilities are valued at their  estimated  settlement  amounts.  On January 30,
2006, the Court entered an order  approving and confirming the PMI & PMIGA Plan.
On January  30,  2006,  PMIC and LW filed a separate  PMIC & LW Plan.  The Court
authorized  PMIC and LW to send the PMIC & LW Plan and ballots to creditors  and
PMIC's  shareholders  to vote on the PMIC & LW Plan.  The deadline for voting on
the PMIC & LW Plan was February 24, 2006 and the hearing on the  confirmation of
the PMIC & LW Plan was scheduled  for April 10, 2006.  Both the PMI & PMIGA Plan
and the PMIC & LW plans treat the assets and debts of each of the  entities as a
separate case.

Prior to July 1, 2005,  the  Company had  prepared  its  consolidated  financial
statements on a  going-concern  basis,  which assumes  continuity of operations,
realization of assets and  satisfaction of liabilities in the ordinary course of
business.  PMIGA  ceased its  operation as of April 30,  2005.  The  activities,
assets and  liabilities  of PMIGA were  reclassified  for reporting  purposes as
discontinued operations for all periods prior to June 30, 2005.

CHANGES IN NET ASSETS (LIABILITIES) IN LIQUIDATION (LIQUIDATION BASIS) - FOR SIX
MONTHS ENDED DECEMBER 31, 2005


                                       22
<PAGE>

Adjustment of Assets and Liabilities to Fair Value

Upon the adoption of liquidation  basis of accounting,  the Company adjusted its
assets and liabilities to their fair value. The combined net increase amount was
$599,400  for the six months  ended  December  31,  2005.  The net  increase  is
primarily  attributed to the $1,044,100 increase in value of the real estate and
partially  offset by the write down of PMIGA's  accounts  receivable of $107,400
and by re-instating  $240,200 of the payables to certain  vendors/customers  who
remitted their payments to MTC for our receivables  (our  receivables  that were
abandoned  to MTC by Court order) that could have been used as credits to offset
our payables.

Abandonment of PMI Accounts Receivable and Inventories

On August 2, 2005, the Court  authorized  PMI to abandon its remaining  accounts
receivable and  inventories to MTC. Under the settlement  agreement  between PMI
and MTC on September 19, 2005,  MTC agreed to reduce its  pre-petition  claim by
$200,000 and to reduce its post  petition  claim to $205,000  for the  abandoned
receivables and inventories received. The abandonment resulted in a net decrease
in our liabilities by $67,300.

Costs Incurred During Liquidation Period

The combined amount of costs incurred during the liquidation period from July 1,
2005 to December 31, 2005 was $471,800.  The combined costs  incurred  primarily
consist of $142,600 in salaries and related  costs,  $216,300 in legal and other
professional fees, $88,400 in mortgage interest,  $30,300 in real property taxes
and $20,300 in utilities costs. As of December 31, 2005, the Company has accrued
an estimated combined cost of $377,400 for the liquidation period.

Other Items

During the six months ended  December 31, 2005,  PMI  liquidated  certain of its
inventories for $23,600 and received $21,600 of rebates earned prior to June 30,
2005.

RESULTS OF OPERATIONS (GOING CONCERN BASIS) - FOR SIX MONTHS ENDED JUNE 30, 2005
AND FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003


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

                                                   Six
                                                  Months        Years Ended
                                                  Ended         December 31,
                                                 June 30,    -----------------
                                                   2005       2004       2003
                                                 -------     ------     ------
Sales                                             100.0%     100.0%     100.0%
Cost of sales                                      96.1       95.1       94.3
                                                 ------     ------     ------
Gross profit                                        3.9        4.9        5.7
Operating expenses                                 16.9        7.5        7.7
                                                 ------     ------     ------
Loss from operations                              (13.0)      (2.6)      (2.0)
Other expense                                      (2.4)      (0.2)      (0.3)


                                       23
<PAGE>

                                                 ------     ------     ------
Loss from continuing operations                   (15.4)      (2.8)      (2.3)
Loss from discontinued operations                  (1.4)      (0.0)      (0.9)
Gain on restructuring of Series A
  Preferred Stock                                   0.0        1.1        0.0
Accretion and deemed dividend relating to
  beneficial conversion of 4% Series A
  Convertible and Redeemable Preferred Stock       (0.1)      (0.1)      (1.1)
                                                 ------     ------     ------
Net loss applicable to Common shareholders        (16.9)%     (1.8)%     (4.3)%
                                                 ======     ======     ======

RESULTS OF OPERATIONS (GOING CONCERN BASIS) - FOR SIX MONTHS ENDED JUNE 30, 2005

Our vendors  progressively  imposed more  restrictive  credit terms,  such that,
during the first  quarter of 2005,  we were  unable to fund  purchases  and were
limited to selling  existing  inventory with no ability to replenish or purchase
inventory.  Sales for the six months ended June 30, 2005 were $9,983,500 and the
gross  profit  was  $387,400,  or 3.9% of sales.  The total  amount of  selling,
general and  administrative  expenses for the six months ended June 30, 2005 was
$1,685,600  and primarily  consisted of $1,004,000  for labor costs and $196,500
for  professional  service  expense.  The  Company  wrote down  $113,000  of the
carrying  value of its  property  and  equipment  resulted  from the asset value
recoverability  tests  performed.  PMIGA ceased its  operations  as of April 30,
2005. For financial statement reporting purposes, the operating results of PMIGA
were reclassified as discontinued  operations.  PMIGA's sales,  gross profit and
loss from  operations  for the six months  ended June 30, 2005 were  $1,023,200,
$62,600 and $140,000, respectively.

RESULTS OF OPERATIONS  (GOING  CONCERN BASIS) - FOR THE YEARS ENDED DECEMBER 31,
2004 AND 2003

SALES
Consolidated  sales  decreased from  $67,661,700 for the year ended December 31,
2003 to $66,514,900  for 2004. The decrease was mainly due to a decrease of LW's
sales from  $7,251,100  for the year ended  December 31, 2003 to $5,413,800  for
2004.

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

LW
LW competed with a vast number of e-store websites on the internet. Most of them
were relatively  small, but a number of larger e-stores,  such as Amazon.com and
Buy.com,  dominate in the e-commerce space.  Competition was based on having the
products available and shipping


                                       24
<PAGE>

expediently and correctly at competitive prices. As part of the overall strategy
on  re-focusing  on our core business in wholesale  distribution,  the resources
allocated to LW business segment were reduced  beginning the third quarter 2004.
For the year ended December 31, 2004, LW generated  $5,413,800 in sales compared
to  $7,251,100  in 2003.  LW sold its products to  end-users  and certain of its
products to  resellers.  Gross  profit for the year ended  December 31, 2004 was
7.7% compared to 8.0% in 2003.


EXPENSES
The Company had been reducing its operating expenses in all areas.  Consolidated
selling,  general and administrative  expenses decreased from $5,189,300 in 2003
to $4,477,300 in 2004 (excluding a write-off of other  receivables of $487,200).
Consolidated  payroll expense decreased by $491,500 from 2003 to 2004.  Employee
count for the Company was  reduced  from 63 as of December  31, 2003 to 47 as of
December 31, 2004.  Consolidated  bad debt expense,  except for the write-off of
other receivables,  decreased by $46,600 in 2004 compared to 2003, excluding the
impact of bad debt expense in  discontinued  operations of $26,900 in 2003.  Our
bad debt expense arose out of the fact that we offered  various  credit terms to
qualifying  customers,  closely  monitored their credit  worthiness and utilized
various  levels of  credit  insurance  to  control  credit  risks.  We  provided
allowances for bad debts based on reviews of loss,  adjustment history,  current
economic conditions,  level of credit insurance and other factors which deserved
recognition in estimating potential losses.


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

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

DISCONTINUED OPERATIONS
PMIGA ceased its  operation as of April 30, 2005.  The  operations  of PMIGA are
reclassified as discontinued operations.


                                       25
<PAGE>

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

The  operating  results of PMIGA,  FNC and Lea for the years ended  December 31,
2004 and 2003 were as follows:


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

FNC:
Net sales                                    $323,200          $1,313,500
Net income (loss)                            $ 93,300          $ (311,600)

Lea:
Net sales                                    $     --          $  179,700
Net loss                                     $     --          $ (122,300)

PMIGA:
Net sales                                  $4,958,600          $7,323,600
Net loss                                   $ (224,900)         $ (366,900)

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

In December 2004, the Company entered into an agreement (the Series A Agreement)
with the  Investor  for  restructuring  certain  terms of the Series A Preferred
Stock.  In connection  with the closing of the  transactions  under the Series A
Agreement,  the Company  amended and restated its  Certificate of Designation of
Preferences,  Rights and Limitations of the Series A Preferred Stock on December
31, 2004.


                                       26
<PAGE>

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


LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2005, PMI,  PMIGA, LW and PMIC had cash and cash  equivalents
in the amounts of $1,351,100, $158,500, $30,900 and $200, respectively.

Our vendors  progressively  imposed more  restrictive  credit terms,  such that,
during the first  quarter of 2005,  we were  unable to fund  purchases  and were
limited to selling  existing  inventory with no ability to replenish or purchase
inventory.  Since July 1, 2005, our activities  have been limited to liquidating
assets.  Our consolidated  cash and cash  equivalents  decreased by $70,600 from
December 31, 2004 to June 30, 2005.  The decrease was  primarily due to the loss
from  operations of  $1,539,100,  a decrease in accounts  payable and floor plan
inventory  loans of $2,488,000 and  $1,993,000,  respectively.  The decrease was
partially  offset by a  decrease  in  inventories  and  accounts  receivable  of
$2,458,900 and $2,947,900, respectively.

In June 2005, the Company  agreed and the Court approved that Textron  Financial
Corporation  ("Textron"),  a  secured  creditor  that  was our  lender  under an
inventory  financing  facility,  be paid $100,000 per month  beginning June 2005
until the outstanding  balance is fully paid. The Company  remitted  $100,000 on
June 27, 2005 and $100,000 on July 18, 2005 to Textron.  On August 2, 2005,  the
Company settled with Textron, with the Court's approval,  for a total payment of
$202,900 of which $139,600 was for the balance owed and $63,300 for interest and
legal costs incurred.


                                       27

<PAGE>

On October 14, 2005, PMI sold its land and building in Milpitas, California to a
third party for  $4,990,000  pursuant to a Court order on October 28, 2005.  The
escrow was closed on November  23,  2005.  After  deducting  the normal  selling
expenses, PMI received net proceeds of approximately $4,764,500 from the sale of
the real  property.  A  portion  of the  proceeds  was used to repay  the  first
mortgage loan with Wells Fargo Bank ("Wells Fargo") and the second mortgage loan
with the U.S.  Small Business  Administration  ("SBA").  The cash,  amounting to
$119,701, in a restricted account was released by Wells Fargo upon the repayment
of the  mortgage  loan.  The amount in the  restricted  account was  immediately
transferred to MTC in compliance  with the Court's  order.  Upon the sale of the
building,  the loan outstanding  balance of $2,318,800 plus accrued interest and
other costs of $27,200  were repaid to Wells  Fargo.  The entire  mortgage  loan
balance of $752,200 plus accrued interest of $32,400 were also repaid to SBA.

On October 27,  2005,  PMI  obtained a loan of $26,100 from ACT and the proceeds
were used to pay for the special litigation counsel's fees. The Company issued a
promissory  note  which  bears  interest  at 6.25% per annum and  principal  and
interest are due in 9 months or upon the receipts of the proceeds  from the sale
of the Company's real estate. The loan was repaid on December 13, 2005 with $300
accrued interest.

Pursuant to the settlement  agreement with MTC, MTC's pre-petition claim against
PMI is set at $679,847. MTC has no lien and has no claim against PMIC, PMIGA and
LW. MTC was partially secured by (a) a lien on PMI's cash, inventory,  equipment
and  accounts  receivable  and  their  proceeds,  and (b) a lien on  PMI's  bank
accounts.  Pursuant to Court order, the inventory and accounts receivable of PMI
had been abandoned to MTC.  Pursuant to the  settlement  agreement with MTC, the
liquidation  value  of the  inventory  and the  accounts  receivable  was set at
$200,000.  In  addition,  MTC was  secured  by a lien  on  PMI's  bank  accounts
(including  the  blocked  account at Wells  Fargo) and the  "pre-building  sale"
account at Union Bank,  neither of which accounts hold proceeds from the sale of
PMI's  building or the  proceeds of avoidance  actions.  After the sale of PMI's
building in November 2005, MTC had a first lien on the bank accounts. A total of
$125,688  from  these  accounts  was  paid to MTC.  Pursuant  to the  settlement
agreement  with MTC, it was agreed that PMI has a $524,317  claim  against PMIGA
and such claim was subject to MTC's  security  interest.  MTC received a partial
cash distribution of $89,217 from PMIGA on February 10, 2006, the Effective Date
of the PMI & PMIGA  Liquidation Plan. MTC is also to receive a refund from PMI's
workers compensation insurer in the approximate amount of $25,500. Thus, MTC has
received  $440,405 on its  collateral  and has an  unsecured  claim of $239,442.
Pursuant to the settlement  agreement with MTC, MTC reduced its unsecured  claim
by  $150,000.  On  November  11,  2005,  PMI also paid  $204,200  to MTC for the
inventories purchased after the Petition Date.

The following are the transactions relating to the pre-petition claim of MTC:

        Original pre-petition claim                                  $680,000
        Reduction pursuant to the
        abandonment of accounts receivable
        and inventories                                              (200,000)


                                       28
<PAGE>

        Transfer to MTC from funds released
        by Wells Fargo Bank                                          (119,700)
        Payment to MTC from remaining funds
        from collateral cash                                           (1,800)
        Payment to MTC related to the previous
        use of collateral cash                                         (4,300)
        Reduction pursuant with the
        settlement agreement                                         (150,000)
                                                                     --------
        Balance pre-petition payable
          to MTC as of December 31, 2005                              204,400
                                                                     --------

As of December 31, 2005, PMIC  anticipated a federal income tax refund resulting
from  carrying  back the tax  losses  in 2002 to 1998.  On March 3,  2006,  PMIC
received a federal income tax refund of $73,485 plus $6,001 accrued interest for
a total of $79,486.

On January 30, 2006, the Court entered an order approving and confirming the PMI
& PMIGA Plan.  The effective  date of the PMI & PMIGA Plan was February 10, 2006
("the Effective Date"). The following is a summary of cash distributions made by
PMI and PMIGA on the Effective Date:

                                                       Distribution Made By
                                                       --------------------
                                                         PMI        PMIGA
                                                       ----------  --------
                  Other creditors                        $359,700   $29,900
                  MTC                                      35,900    89,200
                  LW                                      142,100        --
                                                       ----------  --------
                     Total                               $537,700  $119,100
                                                       ==========  ========

The  remaining  assets  and  cash of  $791,400  and  $27,700  of PMI and  PMIGA,
respectively,  were  transferred to the PMI Creditors  Trust and PMIGA Creditors
Trust on the Effective Date.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At the  present  time,  we are not  exposed  to  material  market  risk based on
fluctuations in interest rates, exchange rates or commodity prices.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

This  information  appears in a separate  section of this Annual  Report on Form
10-K following Part IV.

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


                                       29
<PAGE>


On February 28, 2006,  we dismissed  Weinberg & Co.,  P.A.  ("Weinberg")  as our
auditor.  Effective  February 28, 2006, we engaged  Berenson LLP ("Berenson") to
serve as the independent public accountants to audit our consolidated  financial
statements for the calendar year ending December 31, 2005.  Weinberg audited our
consolidated financial statements for the year ended December 31, 2004. KPMG LLP
("KPMG") audited our consolidated  financial  statements for year ended December
31, 2003.


Weinberg's report on our consolidated financial statements for the calendar year
ended  December 31, 2004 did not contain an adverse  opinion or a disclaimer  of
opinion,  and was not  qualified or modified as to  uncertainty,  audit scope or
accounting  principles,  except  that  Weinberg's  report  on  our  consolidated
financial statements for the calendar year ended December 31, 2004 did contain a
modification  paragraph  that  expressed  substantial  doubt about the Company's
ability to continue as a going concern.

During our past two calendar years and the interim  period through  February 28,
2006,  we  had no  disagreements  with  Weinberg  on any  matter  of  accounting
principles or practices,  financial statement  disclosure,  or auditing scope or
procedure,  which  disagreements,  if not resolved to  Weinberg's  satisfaction,
would have  caused  Weinberg  to make  reference  to the  subject  matter of the
disagreement in connection  with its report.  During our past two calendar years
and the interim period through February 28, 2006,  Weinberg did not advise us of
any of the matters specified in Item 304(a)(1)(v) of Regulation S-K.

During our  calendar  years ended  December  31, 2004 and 2005,  and the interim
period  through  February  28,  2006,  we had  no  consultations  with  Berenson
concerning:   (a)  the  application  of  accounting  principles  to  a  specific
transaction  or the type of opinion  that  might be  rendered  on our  financial
statements as to which we received  oral advice that was an important  factor in
reaching a decision on any accounting, auditing or financial reporting issue; or
(b) any disagreements, as defined in Item 304(a)(1) of Regulation S-K.

The  appointment of Berenson as independent  public  accountants was recommended
and  unanimously  approved by our Board of Directors.  Our full Board  currently
acts in place of an audit committee.

On June 18, 2004 KPMG tendered its  resignation as our independent  auditor.  On
July 21, 2004,  our Board of  Directors  appointed  and engaged  Weinberg as our
independent auditor for the fiscal year ended December 31, 2004.

The report of KPMG for the fiscal year ended December 31, 2003 contained no
adverse opinions, disclaimer of opinion or qualification or modification as to
uncertainty, audit scope or accounting principles, except for a modification as
to uncertainty about the Registrant's ability to continue as a going concern.
During our fiscal year ended December 31, and during the subsequent interim
period preceding June 18, 2004, there were no disagreements with KPMG on any
matter of accounting principles or practices, financial statement disclosures,
or auditing scope or procedure, which, if not resolved to the satisfaction of
KPMG, would have caused KPMG to make reference thereto in its reports on our
financial statements for such periods or "reportable events" (as such term
defined in Item 304(a)(1)(v) of Regulation S-K.


                                       30
<PAGE>

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

ITEM 9A. CONTROLS AND PROCEDURES

Our management,  including our Chief  Financial  Officer and our Chief Executive
Officer, has reviewed and evaluated the effectiveness of our disclosure controls
and  procedures  as of the end of the fiscal  period  covered by this Form 10-K,
which  included  inquiries  made  to  certain  other  employees.  Based  on this
evaluation,  our Chief  Executive  Officer  and  Chief  Financial  Officer  have
concluded  that,  as of the end of such  period,  our  disclosure  controls  and
procedures  are  effective  and  sufficient  to ensure that we record,  process,
summarize,  and report  information  required to be  disclosed in the reports we
file under the Securities Exchange Act of 1934 within the time periods specified
by the Securities and Exchange  Commission's rules and forms.  During the fiscal
quarter  ended  December  31,  2005,  there have been no changes in our internal
control over financial reporting,  or to our knowledge,  in other factors,  that
have  materially  affected or are  reasonable  likely to  materially  affect the
Company's internal control over financial reporting.

ITEM 9B.  OTHER INFORMATION

None.


                                       31
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Our directors and executive officers are as follows:

NAME                     AGE        POSITION
----------------------   ---       ----------------------------------
Martin Nielson           54        President, Chief Executive Officer
                                   and Director (resigned as a director
                                   effective July 19, 2006)

Anthony Lee              57        Chief Financial Officer, Secretary
                                   and Treasurer

John E. Donahue          56        Director

MARTIN NIELSON - Mr. Nielson was appointed President and Chief Executive Officer
of  the  Company  on   December   31,   2004.   He  was  also  the  Senior  Vice
President-Acquisitions  of ACT.  Mr.  Nielson  also  served  as Chief  Executive
Officer of Encompass, ACT's wholly-owned subsidiary and principal operating unit
until he resigned  on June 24,  2006.  He also  resigned as a director of ACT on
July 19,  2006.  From 2003 to 2004,  he was  Chairman of Innova  Holdings,  Inc.
(formerly known as Hy-Tech  Technology Group,  Inc.). He also served as Chairman
of Inclusion  Technologies,  Inc. from 2000 to 2002. Since 1994, he has been the
Chairman and Chief Executive  Officer of Altos Bancorp,  Inc., a  privately-held
mergers and  acquisition  company.  In 1991,  Mr.  Nielson was founder and Chief
Executive  Officer of The  Business  Superstore,  an office  supply and computer
superstore/telesales company in London that merged with Office World in 1993. In
1982,  Mr.  Nielson was part of the founding  team and served until 1991 as Vice
President of Businessland,  Inc., a New York Stock Exchanged listed computer and
networking  reseller.  From 1972 until  1981,  Mr.  Nielson  was  employed as an
executive  of The  Gap  Stores.  Mr.  Nielson  graduated  from  San  Jose  State
University with a BS in business  management with a concentration in mathematics
and engineering,  and attended San Francisco State University's  Graduate School
of Business with a concentration in operations research.

ANTHONY LEE - Anthony Lee was appointed  Secretary and Treasurer on December 31,
2004 and Chief  Financial  Officer  on May 16,  2005.  He has been  serving  the
Company in the capacity of a financial  controller since 2002. Mr. Lee practiced
as a certified public accountant in California and was a partner in Alger & Lee,
Certified  Public  Accountants,  for more than eight  years  before  joining the
Company. From 1987 to 1988, he was a senior accounting research staff in Bank of
America in San Francisco, California. Before he joined Bank of America, he was a
senior audit  manager in Arthur  Young & Company,  an  international  accounting
firm,  for more than 10 years.  Mr.  Lee is a  certified  public  accountant  in
California.   He  graduated  from  Golden  Gate  University  in  San  Francisco,
California  with a BS degree in accounting and from the University of California
at Berkeley with an MBA in finance.

JOHN E. DONAHUE - John E. Donahue is Vice President and Chief Financial  Officer
of Online  Benefits,  Inc. a privately  held HR solutions  company that provides
internet based applications for  administering,  communicating and presenting HR
related information and


                                       32
<PAGE>

data. Mr.  Donahue has served in this position since August 1999.  Prior to that
he served as  Executive  Vice  President  and Chief  Financial  Officer  of Lead
America,   a  marketer  of   insurance   products  to   customers  of  financial
institutions,  Managing Director of Oxbridge Incorporated, a boutique investment
banking firm,  Chief Financial  Officer at Mast Resources Inc., a merchant bank,
and Chief Financial  Officer at Catalyst Energy Corp, a NYSE-listed  independent
power producer.  Mr. Donahue was with Price Waterhouse from September 1972 until
March 1985,  including  serving as a Senior Audit  Manager.  Mr. Donahue holds a
B.A. in Economics from Holy Cross College and an MBA from Rutgers University.

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

On May 10, 2005,  we terminated  the  employment of Theodore S. Li who served as
our Chief Financial Officer,  Chief Operating Officer and as a Director.  On the
same date, we terminated  the  employment of Hui "Cynthia" Lee who served as our
Senior Vice  President.  On June 15, 2005, Eric Martin resigned as our Executive
Vice President.

There are no family  relationships  between any of our  Directors  or  executive
officers. Our former executive officer, Ms. Lee, is married to Dr. Jey Hsin Yao,
who is a former director of our company.

AUDIT COMMITTEE

Our entire Board of Directors is acting as our Audit Committee and includes only
one independent  director.  Our Board of Directors is seeking an audit committee
financial expert to join the Audit Committee.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Based solely on its review of copies of reports  filed by  reporting  persons of
the Company  pursuant to Section 16(a) of the Exchange  Act, or  representations
from reporting persons that, except as provided in the next sentence,  no Form 5
filing was  required  for such  person,  the Company  believes  that all filings
required  to be made by  reporting  persons of the  Company  were timely made in
accordance  with  requirements  of the Exchange Act. Mr. Donahue has not filed a
Form 3 with respect to our stock. However, Mr. Donahue does not beneficially own
any of our stock.

CODE OF ETHICS

The  Company  adopted a Code of  Business  Conduct  that  applies  to all of our
employees and has  particular  sections  that apply to our  principal  executive
officer and senior  financial  officers.  We will provide to any person  without
charge, upon request, a copy of our Code of Business Conduct. A copy of our Code
of Business Conduct may be obtained by sending a written request to Anthony Lee,
Secretary,   Pacific  Magtron   International  Corp.,  1600  California  Circle,
Milpitas, California 95035.


                                       33
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

The  following  table sets forth all cash  compensation  paid by us to our Chief
Executive  Officer during each of our last three fiscal years. At the end of our
last  completed  fiscal year, we did not have any executive  officer whose total
annual salary and bonus exceeded $100,000.

Annual Compensation(1)

Name and                    Year   Salary      Bonus   Long-Term      All Other
Principal Position                                    Compensation  Compensation
                                                       Securities
                                                       Underlying
                                                       Options(#)

Martin Nielson              2005 $ 41,250    $     --          --        $  --
President and Chief         2004     -0-     $     --          --        $  --
Executive Officer           2003     -0-     $     --          --        $  --


(1) None of our executive  officers received personal benefits or perquisites in
excess of the lesser of $50,000 or 10% of his aggregate salary and bonus.


OPTION GRANTS IN LAST FISCAL YEAR

There were no options to purchase shares of our common stock granted during 2005
to the Chief Executive Officer.


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

There were no option exercises by any of our executive  officers in fiscal 2005.
Our Chief  Executive  Officer holds no options to purchase  shares of our common
stock.

DIRECTOR COMPENSATION
Our Directors  received no cash or other compensation for their services in that
capacity.  Reasonable  out-of-pocket  expenses may be reimbursed to Directors in
connection with attendance at meetings.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

We do not have a Compensation  Committee.  Instead the entire Board of Directors
makes executive officer compensation decisions.  Our Chief Executive Officer who
was a  Director  participated  in  deliberations  concerning  executive  officer
compensation  during the last  fiscal  year.  Both Mr.  Theodore  Li and Ms. Hui
"Cynthia" Lee, former executive  officers whose employment was terminated on May
10,  2005,  also  participated  in the  deliberations  of our Board of Directors
concerning executive officer  compensation.  See Item 13. Certain  Relationships
and Related  Transactions for more information about related party  transactions
with Mr. Nielson, Mr. Li and Ms. Lee.


                                       34
<PAGE>

COMPENSATION COMMITTEE DETERMINATION OF EXECUTIVE COMPENSATION

The  Board  of  Directors  has  no  formal  compensation  criteria  it  uses  in
determining  the  executive  officers  compensation.  For  2005,  the  Board  of
Directors considered the Company's fiscal status in setting compensation.

EMPLOYMENT AGREEMENT

Mr. Nielson, who serves as our President and Chief Executive Officer was a party
to an employment  agreement with ACT and Encompass,  pursuant to which he agreed
to serve as an officer or director of any  subsidiary  of ACT in addition to the
positions  held by him with ACT. Mr.  Nielson also served as the chairman of our
Board of Directors until he resigned on July 19, 2006. The employment  agreement
with ACT and  Encompass,  as amended,  provided that the base salary  payable by
Encompass  to  Mr.  Nielson  for  any  period  would  be  reduced  by  any  cash
compensation  for such period paid to Mr.  Nielson by PMIC. See Item 13. Certain
Relationships and Related  Transactions  below for a description of the material
terms of Mr. Nielson's employment agreement with ACT and Encompass.

ITEM 12.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED  STOCKHOLDER  MATTERS The following table sets forth information,  as of
January  25,  2006,  with  respect to the  number of shares of our common  stock
beneficially  owned by persons or entities  that we know own more than 5% of our
common stock. None of our current executive officers or Directors owns shares of
our common  stock.  We have no other class of voting  stock  outstanding.  Betty
Lin's  address  is  P.O.  Box  5267,   Berkeley,   California  94705.   Advanced
Communications  Technologies,  Inc.'s address is 420 Lexington Avenue, New York,
NY 10170 and  Stonestreet,  L.P.'s address is 260 Town Centre Blvd.,  Suite 201,
Markham, ON L3R 8H8, Canada.

<TABLE>
<CAPTION>

                                            Number of Shares       Number of Shares
                                            Owned                  Beneficially Owned
                                            -------------------    ---------------------
                                                        Percent                      Percent
                                            Number      Of         Number            Of
                                            of          Common     of                Common
                                            Shares      Stock      Shares            Stock
                                            ----------  -------    -----------       -------
<S>                                         <C>         <C>        <C>               <C>
Name of Beneficial Owners:
Betty Lin(1)                                 2,149,400      20%     2,149,400           18%

Advanced Communications
 Technologies, Inc.(2)                       6,454,300      62%      6,454,300          54%

Stonestreet, L.P.(3)                                --       --        800,000           7%

All officers and Directors as a group
(0 persons)                                         --       --              0           0
</TABLE>


                                       35
<PAGE>

----------
(1)   Ms. Lin is neither a director nor an officer of the Company.
(2)   Advanced  Communications  Technologies,  Inc. has beneficial  ownership of
such shares of common stock, which shares are held by its wholly-owned Encompass
Group Affiliates, Inc.
(3)   Includes  800,000  shares  of  common  stock  would  be  obtained  if  the
conversion rights of the 4% Series A Convertible Preferred Stock were exercised.

CHANGE OF CONTROL

The  PMIC & LW Plan  contemplates  that on the  effective  date of the PMIC & LW
Plan,  PMIC will merge with Herborium,  a provider of  proprietary,  natural and
complimentary  healthcare products,  and shall be the surviving operating entity
post-merger  (the  "Herborium  Merger").  LW will be  reorganized  and  remain a
wholly-owned subsidiary of PMIC. ACT shall contribute up to $50,000 on behalf of
PMIC's shareholders to effectuate the PMIC & LW Plan. The existing stock of PMIC
shall be cancelled,  and new stock shall be issued.  With respect to the Class 6
equity  interest of ACT, new stock issued  directly to the  shareholders  of ACT
subject  to the  dilution  of such  interests  upon  plan  consummation  and the
corresponding  Herborium  Merger.  The existing Series A Preferred Stock of PMIC
shall be converted to 800,000  shares of PMIC common stock or 0.74% of Herborium
post-merger.  ACT's  shareholders and two former  executives shall own 10.55% of
Herborium  post-merger;  PMIC's current common  stockholders  shall own 3.71% of
Herborium  post-merger;  and Herborium's  current  stockholders shall own 85% of
Herborium  post-merger.  The PMIC & LW Plan is  subject to  confirmation  by the
Bankruptcy Court.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The  following  provides  tabular  disclosure  of the number of securities to be
issued as of December 31, 2005 upon the  exercise of  outstanding  options,  the
weighted  average  exercise  price of  outstanding  options,  and the  number of
securities  remaining  available for future  issuance under equity  compensation
plans,   aggregated  into  two  categories-plans  that  have  been  approved  by
stockholders and plans that have not.


Plan Category       Number of           Weighted-average    Number of
                    Securities to be    Exercise Price of   Securities
                    Issued Upon         Outstanding Options Remaining Available
                    Exercise of         and Warrants        for Future Issuance
                    Outstanding Options                     Under Equity
                    and Warrants                            Compensation Plans
                                                            (Excluding
                                                            Securities
                                                            Reflected in 1st
                                                            Column)
-------------------------------------------------------------------------------
Equity compensation
plans approved by
stockholders               520,000                $0.91             394,000


                                       36
<PAGE>

Equity compensation
plans not approved
by stockholders            100,000                $1.20                  --
                    -----------------------------------------------------------
Total                      620,000                $0.96             394,000

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

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

In  addition,  pursuant  to the terms of the Stock  Purchase  Agreement,  Mr. Li
resigned his positions as President,  Chief  Executive  Officer and Treasurer of
the Company and all positions  held by him as a director  and/or  officer of the
Company's  subsidiaries at the Closing.  He remained Chief Financial Officer and
was appointed  Chief Operating  Officer the Company  pursuant to the terms of an
Employment Agreement.  Mr. Li remained a member of the Board of Directors of the
Company.

Ms. Lee retained her current  position of Senior Vice President  pursuant to the
terms of an  Employment  Agreement  dated  December 30, 2004,  but resigned as a
director of the Company and each position held by her with any subsidiary of the
Company at the Closing.


                                       37
<PAGE>

On  December  30,  2004,  Mr. Li and Ms.  Lee each  entered  into an  employment
agreement with the Company,  ACT and ACT's  wholly-owned  subsidiary,  Encompass
Group Affiliates, Inc. (the "Employment Agreements").

The Employment Agreements,  dated December 30, 2004, with each of Mr. Li and Ms.
Lee, respectively, provided for a cash signing bonus of $225,000 each to be paid
within thirty days of the Closing and other bonus and earn-out  provisions  that
could  be paid in cash or in  shares  of  common  stock of ACT.  The  Employment
Agreements  also provided for an annual  salary of not less than $120,000  each.
While any bonus paid in ACT's  common  stock would be in the  discretion  of the
Compensation Committee of ACT's Board of Directors, the earn-out provisions were
set forth in the Employment  Agreements and were based on achievement of certain
financial milestones by certain operating subsidiaries of the Company. Under the
earn-out provisions in the Employment Agreements,  Mr. Li and Ms. Lee could earn
the right to receive up to  66,666,666  shares  and  33,333,333  shares of ACT's
common stock,  respectively,  which share amounts are subject to adjustments for
any stock splits or other recapitalizations  effected by ACT; provided that, the
percentage of the outstanding common stock that Mr. Li or Ms. Lee would have had
the right to receive  prior to the  adjustment  shall not be changed by any such
adjustment.  Upon  earning the earn-out  shares,  such shares would be placed in
escrow, pursuant to the terms of an escrow agreement entered into at the Closing
among  ACT,  Mr.  Li and Ms.  Lee.  If Mr.  Li's  or Ms.  Lee's  employment  was
terminated for "cause" (as defined in the applicable Employment Agreement) prior
to the  expiration of the initial term of the applicable  Employment  Agreement,
all of the  earn-out  shares,  whether  earned or not,  of Mr. Li or Ms. Lee, as
applicable,  would be forfeited.  If, however,  Mr. Li's or Ms. Lee's employment
was  terminated  for reasons other than "cause"  prior to the  expiration of the
initial term of the applicable Employment Agreement,  Mr. Li and Ms. Lee, as the
case may be, would be entitled to receive any of the earn-out  shares earned and
placed  in escrow  prior to such  termination.  Unless  terminated  sooner,  the
initial  term of Mr.  Li's  Employment  Agreement  was to  expire  on the  third
anniversary  of the  Closing,  and  the  initial  term of Ms.  Lee's  Employment
Agreement  was to  expire  on the  second  anniversary  of the  Closing.  Either
Employment  Agreement  could be  terminated  without cause by the Company at any
time upon thirty days' prior written  notice.  The Company also had the right to
terminate  either Mr. Li or Ms. Lee for "cause." In addition,  Mr. Li or Ms. Lee
had the right to terminate his or her employment agreement for "Good Reason" (as
defined in each Employment Agreement). In the event of termination without cause
or for Good  Reason,  Mr. Li or Ms.  Lee,  as the case may be,  had the right to
receive, in addition to accrued, but unpaid compensation and other benefits, six
months  severance.   The  Employment   Agreements  also  contained   non-compete
provisions  for a period of two years post  termination.  On May 10,  2005,  the
Company  terminated the Employment  Agreements for "cause." On May 11, 2005, ACT
filed a complaint in the United States District Court for the Southern  District
of New York against the Mr. Li and Ms. Lee for the recovery of damages and costs
for securities fraud, breach of contract and other counts in connection with the
Stock Purchase Agreement.  A settlement of this litigation was reached among the
parties  on April  12,  2006 as  described  above  under the  caption  Status of
Bankruptcy Proceedings - Summary of Settlement with Former Executives under Part
I, Item 1. Business.


                                       38
<PAGE>

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

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


At the Closing,  Martin  Nielson was appointed  Chief  Executive  Officer of the
Company and Chairman of the Board.  In June 2004,  Mr.  Nielson  entered into an
employment  agreement  with  Encompass  and ACT. The  employment  agreement  was
amended in June 2005. Under the amended employment agreement, Mr. Nielson served
as the Chief  Executive  Officer of Encompass and Senior Vice  President of ACT.
Mr. Nielson also agreed to serve, at the request of the CEO of ACT or its Board,
as an officer or director of subsidiary of ACT, without additional  compensation
and subject to any policy of the  Compensation  Committee of the Board.  On June
24, 2006, Mr. Nielson  resigned as the Chief Executive  Officer of Encompass and
Senior  Vice  President  of ACT. On July,  19,2006,  Mr.  Nielson  resigned as a
director of PMIC and ACT.  Currently,  Mr. Nielson serves as the President,  and
Chief Executive Officer of PMIC. The amended employment  agreement terminated in
June 2006.  ACT/Encompass had the option to extend Mr. Nielson's  employment for
one-year beyond the expiration  date. Mr. Nielson's base salary was $225,000 for
the year ending on June 23, 2005 and was  $175,000  for the year ending June 23,
2006.  The base salary  payable by Encompass  to Mr.  Nielson for any period was
reduced by any cash  compensation  for such period paid to Mr.  Nielson by PMIC.
Mr. Nielson was eligible to receive an annual  performance bonus, in cash and/or
restricted stock of ACT, in an amount determined at the sole discretion of ACT's
Compensation  Committee.  During the initial two-year period of employment under
the employment agreement, Mr. Nielson was provided with term life insurance with
a death benefit equal to $1,000,000,  provided he was  insurable.  ACT/Encompass
could  terminate  Mr.  Nielson's  employment  for  "cause"  (as  defined  in the
employment  agreement)  upon seven days' prior written  notice and would have no
further  obligations or liabilities to Mr. Nielson.  In such event,  Mr. Nielson
would be  entitled  to receive his base  salary  accrued  and  reimbursement  of
allowable business expenses incurred prior to the effective date of termination.
ACT/Encompass could terminate the employment agreement without cause and for any
reason or no reason prior to the expiration of the initial  two-year  employment
period upon thirty days' prior written notice to Mr. Nielson. In such event, Mr.
Nielson  would  be  entitled  to  receive  (i)  his  base  salary  accrued,  and
reimbursement of allowable business expenses incurred,  prior to the termination
date,  (ii) any unpaid bonus owed to him for a prior  fiscal year,  and (iii) an
additional amount of base salary which would have been payable to him during the
six-month  period  immediately  following the  termination  date. Mr. Nielson is
subject to certain  non-competition  and  non-solicitation  covenants during the
initial  two-year  period  of his  employment  and  for a  period  of two  years
thereafter.  In June 2004,  ACT granted Mr. Nielson  50,000,000  shares of ACT's
restricted  common  stock,  priced at $.01 per  share,  of which (i)  12,500,000
shares fully vested on July 1,



                                       39
<PAGE>

2005, and (ii) 37,500,000 shares fully vested on July 1, 2006,  provided,  as to
each vesting tranche,  that Mr. Nielson was then employed by  ACT/Encompass.  In
the event Mr. Nielson's  employment with  ACT/Encompass  was terminated  without
"cause" prior to the expiration of the initial term of the employment agreement,
a pro-rata amount of otherwise unvested shares of restricted stock, based on the
number of days elapsed  during the  applicable  fiscal  year,  will become fully
vested.  Mr.  Nielson  also  received  cash  payments of $15,000  following  the
consummation of certain  transactions between Encompass and HYTT in May 2004 and
Encompass'  acquisition  of a  majority  of the  outstanding  stock  of  PMIC in
December 2005.

In addition,  at the Closing,  Anthony Lee was appointed Treasurer and Secretary
of the Company,  and John E. Donahue was appointed as a member of the Board.  On
May 16, 2005, Mr. Lee was appointed Chief Financial Officer of the Company.

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

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES
There were no audit fees billed by our independent auditor, Berenson LLP
("Berenson"), for audit fees in fiscal 2005. Our prior auditor, Weinberg &
Company, P.A. ("Weinberg") billed $59,160 for the audit of our consolidated
financial statements for the year ended December 31, 2004. The fees billed by
Weinberg for the review of our consolidated financial statements included in the
Company's Form 10-Q for the quarters ended June 30, 2004, September 30, 2004,
March 31, 2005, June 30, 2005 and September 30, 2005 were $6,500, $6,500,
$9,200, $8,500 and $8,500, respectively. Our prior auditor, KPMG LLP ("KPMG")
billed $15,000 and $36,000 for review of our Form 10-Q for the first quarter of
2004 and for all the quarters of 2003, respectively, and $112,500 for the audit
of our consolidated financial statements for the year ended December 31, 2003.


                                       40
<PAGE>

AUDIT-RELATED FEES
There were no fees billed by Berenson in fiscal 2005 for  assurance  and related
services. There were no fees billed by Weinberg in fiscal 2004 for assurance and
related services except for the fees of $23,132 relating to certain transactions
related to the 2004 audit and the fees for services described under "AUDIT FEES"
in above. KPMG billed $15,000 and $3,500 for assurance and audit related fees in
2005 and 2004, respectively.

TAX FEES
There were no tax fees billed in fiscal 2005 and 2004 by  Berenson,  Weinberg or
KPMG, for tax compliance, tax advice and tax planning services.


ALL OTHER FEES
There  were no other  fees  billed  in  fiscal  2005 and 2004 by  Berenson  LLP,
Weinberg & Company, P.A. or KPMG LLP for all other services.

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

SERVICES OF INDEPENDENT AUDITORS
The Board of  Directors/Audit  Committee  pre-approves  all audit and  non-audit
services  provided by the  independent  auditors  prior to the engagement of the
independent auditors with respect to such services.


                                       41
<PAGE>

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Financial Statements


      (a)   (1)   Reports of  independent  registered  public  accounting  firms
                  of Berenson LLP, Weinberg & Company, P.A. and KPMG LLP.


            (2)   Combined Financial Statements and Notes thereto of the Company
                  including  Combined  Statement of Net Assets  (Liabilities) in
                  Liquidation  (Liquidation  Basis) as of December  31, 2005 and
                  related   Combined   Statement   of   Changes  of  Net  Assets
                  (Liabilities)  in  Liquidation  (Liquidation  Basis)  for  the
                  period from July 1, 2005 to December 31, 2005.

            (3)   Consolidated  Financial  Statements  and Notes  thereto of the
                  Company  including  Consolidated  Balance Sheet as of December
                  31, 2004 and related  Consolidated  Statements of  Operations,
                  Shareholders'  Equity, and Cash Flows for the six months ended
                  June 30, 2005 and for each of the years in the two year period
                  ended December 31, 2004.

      (b)   Exhibits:


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

2.1       Settlement Agreement Affecting Adversary Proceeding, Payment of Claims
          and Plans of  Reorganization  (filed as Exhibit 10.2 to our  Quarterly
          Report on Form 10-Q on November 14, 2005).

2.2       Amended  Disclosure  Statement to Accompany  Pacific  Magtron,  Inc.'s
          Second Amended Plan of Liquidation  and Pacific  Magtron (GA),  Inc.'s
          Second  Amended  Plan of  Liquidation  (filed  as  Exhibit  2.1 to our
          Current Report on Form 8-K on February 3, 2006).

2.3       Disclosure   Statement   to   Accompany   Third   Amended   Plans   of
          Reorganization   for   Pacific   Magtron   International   Corp.   and
          Livewarehouse,  Inc.  (filed as Exhibit 99.1 to our Current  Report on
          Form 8-K on February 3, 2006).

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

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

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

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

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


                                       42
<PAGE>

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

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

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

10.6      Agreement of Purchase and Sale and Joint Escrow Instructions, dated as
          of October 14, 2005,  between  Pacific  Magtron,  Inc. and Everlasting
          Private  Foundation  (filed as Exhibit  10.1 to our Current  Report on
          Form 8-k on November 1, 2005).

16.1      Letter from Weinberg & Company,  P.A., addressed to the Securities and
          Exchange Commission  regarding its agreement to the statements made in
          our Current Reports on Form 8-K and Form 8-K/A filed on March 6 and 7,
          2006,  respectively (filed as Exhibit 16 to our Current Report on Form
          8-K/A on March 7, 2006).

21.1      Subsidiaries (filed herewith).

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

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

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

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

      *     In the case of  incorporation by reference to documents filed by the
Registrant  under  the  Securities  Exchange  Act  of  1934,  as  amended,   the
Registrant's file number under the Exchange Act is 000-25277.


                                   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/A to be
signed on its behalf by the undersigned, thereunto duly authorized.


                                            PACIFIC MAGTRON INTERNATIONAL CORP.,
                                            a Nevada corporation



                                            By: /s/ Martin Nielson
                                                --------------------------------
                                                Martin Nielson
                                                Chief Executive Officer
                                          Date: July 25, 2006



                                       43
<PAGE>


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



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

/s/ Martin Nielson            Chief Executive Officer      July 25, 2006
-------------------------
Martin Nielson


/s/ Anthony Lee               Chief Financial Officer,     July 25, 2006
-------------------------     Secretary and Treasurer
Anthony Lee

/s/ John E. Donahue           Director                     July 25, 2006
-------------------------
John E. Donahue



                                       44
<PAGE>

              PACIFIC MAGTRON INTERNATIONAL CORP. and Subsidiaries
                              FINANCIAL STATEMENTS
                        DECEMBER 31, 2005, 2004 AND 2003



CONTENTS
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS              F-2 - F-4
COMBINED FINANCIAL STATEMENTS (LIQUIDATION BASIS)
  Combined Statement of Net Assets (liabilities) in Liquidation
    (Liquidation Basis) as of December 31, 2005                              F-5
  Combined Statement of Changes of Net Assets (liabilities)
    in Liquidation (Liquidation Basis) for the six months
    ended December 31, 2005                                            F-6 - F-7
  Notes to Combined Financial Statements (Liquidation Basis)
CONSOLIDATED FINANCIAL STATEMENTS (GOING CONCERN BASIS)
  Consolidated Balance Sheet as of December 31, 2004                         F-8
  Consolidated Statements of operations for the six months ended
    June 30, 2005 and for the years ended December 31, 2004
    and 2003                                                          F-9 - F-10
  Consolidated Statements of Shareholders' Equity for the six months
    ended June 30, 2005 and for the years ended December 31, 2004
    and 2003                                                                F-11
  Consolidated Statements of Cash Flows for the six months ended
    June 30, 2005 and for the years ended December 31, 2004
    and 2003                                                         F-12 - F-13
  Notes to Combined Financial Statements for the six months
    ended December 31, 2005                                          F-14 - F-28
  Notes to Consolidated Financial Statements for the six
    months ended June 30, 2005 and for the years ended
    December 31, 2004 and 2003                                       F-29 - F-48



                                      F-1
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors and Shareholders
Pacific Magtron International Corp.


We have audited the accompanying combined statement of net assets (liabilities)
in liquidation (liquidation basis) of Pacific Magtron International Corp. and
subsidiaries as of December 31, 2005, and the related combined statement of
changes in net assets (liabilities) in liquidation (liquidation basis) for the
period July 1, 2005 to December 31, 2005 and the consolidated statement of
operations, statement of shareholders' equity and cash flows for the six months
ended June 30, 2005. These combined/consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined/consolidated financial statements based on our audits.

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

In our opinion, the combined/consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pacific
Magtron International Corp. and Subsidiaries as of December 31, 2005, and the
results of its changes in net assets (liabilities) in liquidation for the period
July 1, 2005 to December 31, 2005 and its operations and its cash flows for the
six months ended June 30, 2005, in conformity with accounting principles
generally accepted in the United States of America.

We also have audited the adjustments to retrospectively present the 2005
discontinued operations activity in 2003 as described in Note 2. In our opinion,
such adjustments are appropriate and have been properly applied. We were not
engaged to audit, review, or apply any procedures to the 2003 financial
statements of the Company other than with respect to the adjustments and,
accordingly, we do not express an opinion or any other form of assurance on the
2003 financial statements taken as a whole.


/s/ Berenson LLP
New York, New York
April 10, 2006


                                       F-2
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

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

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

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

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

Weinberg & Company, P.A.

Boca Raton, Florida
February 3, 2005


                                       F-3
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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


We have audited, before the effects of the adjustments to retrospectively
present 2005 discontinued operations activity in 2003 as described in Note 2,
the accompanying consolidated statements of operations, shareholders' equity and
cash flows of Pacific Magtron International Corp. and subsidiaries for the year
ended December 31, 2003 (the 2003 consolidated financial statements before the
effects of the adjustments described in Note 2 are not presented herein). In
connection with our audit of the consolidated financial statements, we have also
audited the related financial statement schedule. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audit.

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


In our opinion, the consolidated financial statements referred to above, before
the effects of the adjustments to retrospectively present the 2005 discontinued
operations activity in 2003 as described in Note 2, present fairly, in all
material respects, the results of operations and cash flows of Pacific Magtron
International Corp. and subsidiaries for the year ended December 31, 2003 in
conformity with U.S. generally accepted accounting principles. Also, in our
opinion the related financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein. We were not engaged
to audit, review, or apply any procedures on the adjustments to retrospectively
present the 2005 discontinued operations activity in 2003 as described in Note 2
and, accordingly, we do not express an opinion or any other form of assurance
about whether such adjustments are appropriate and have been properly applied.
Those adjustments were audited by another auditor.

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

KPMG LLP

Mountain View, California
March 12, 2004

                                       F-4
<PAGE>

<TABLE>
<CAPTION>

                          PACIFIC MAGTRON INTERNATIONAL CORP. ("PMIC") and Subsidiaries -
                        PACIFIC MAGTRON, INC. ("PMI"), PACIFIC MAGTRON (GA), INC. ("PMIGA"),
                                           And LIVEWAREHOUSE, INC. ("LW")
                           COMBINED STATEMENT OF NET ASSETS (LIABILITIES) IN LIQUIDATION
                                                (LIQUIDATION BASIS)
                                              AS OF DECEMBER 31, 2005


                                                                                                           COMBINED
                                         PMI             PMIGA                LW             PMIC             TOTAL
                                  ----------         ---------        ----------       ----------        ----------
<S>                               <C>                <C>              <C>              <C>               <C>
ASSETS
Cash and cash equivalents         $1,351,100          $158,500          $ 30,900          $   200        $1,540,700
Pre Petition  receivable
 from PMIGA, less allowance
 for uncollectible  amount of
 $431,600 (secured by Micro
 Technology Concepts,
 Inc. "MTC")                          92,700                --                --               --            92,700
Pre Petition receivable
 from PMI, less allowance
 for uncollectible amount
 of $230,400                              --                --           159,200               --           159,200
Refundable previously
 overpaid insurance premiums
 (secured by MTC)                     25,500                --                --               --            25,500
Refundable real property
 transfer taxes                        5,500                --                --               --             5,500
Post Petition receivable
 from PMIGA                            9,200                --                --               --             9,200
Post Petition receivable
 from LW                               7,300                --                --               --             7,300
Post Petition receivable
 from PMIC                            13,500             2,700             1,200               --            17,400
Income tax refund receivable              --                --                --           73,500            73,500
Office and warehouse equipment        15,000                --                --               --            15,000
                                  ----------         ---------        ----------       ----------        ----------
    Total assets                  $1,519,800          $161,200          $191,300          $73,700        $1,946,000
                                  ==========         =========        ==========       ==========        ==========

LIABILITIES
Post Petition accounts
 payable and other
 accrued expenses                 $   40,500          $    500          $    300       $   18,800        $   60,100
Post Petition payable to PMI              --             9,200             7,300           13,500            30,000
Post Petition payable to PMIGA            --                --                --            2,700             2,700
Post Petition payable to LW               --                --                --            1,200             1,200
Estimated costs to be incurred
 during liquidation period           233,000            17,900            35,600           90,900           377,400
Pre Petition secured payable
 to MTC                              204,200                --                --               --           204,200
Pre Petition payable to LW           389,600                --                --               --           389,600
Pre Petition payable to PMI               --           524,300                --               --           524,300
Pre Petition unsecured
 accounts payable                  1,871,000           168,500            16,300          185,900         2,241,700
                                  ----------         ---------        ----------       ----------        ----------
    Total liabilities              2,738,300           720,400            59,500          313,000         3,831,200
                                  ----------         ---------        ----------       ----------        ----------
NET ASETS (LIABILITIES)
 IN LIQUIDATION                  ($1,218,500)        ($559,200)         $131,800        ($239,300)      ($1,885,200)
                                  ==========         =========        ==========       ==========        ==========


                             See accompanying notes to combined financial statements.
</TABLE>


                                       F-5
<PAGE>


<TABLE>
<CAPTION>

                   PACIFIC MAGTRON INTERNATIONAL CORP. ("PMIC") and Subsidiaries -
                PACIFIC MAGTRON, INC. ("PMI"), PACIFIC MAGTRON (GA), INC. ("PMIGA"),
                                   And LIVEWAREHOUSE, INC. ("LW")
              COMBINED STATEMENT OF CHANGES OF NET ASSETS (LIABILITIES) IN LIQUIDATION
                                         (LIQUIDATION BASIS)
                          FOR THE PERIOD JULY 1, 2005 TO DECEMBER 31, 2005


                                                                                          COMBINED
                                PMI           PMIGA           LW             PMIC          TOTAL
                            -----------     ----------     ----------     ----------     -----------
<S>                         <C>             <C>            <C>            <C>            <C>
Shareholders'
deficiency, June 30,
2005 (Going concern
basis)                      ($1,211,500)    $  130,700     $   72,200       ($35,000)    ($1,043,600)

Liquidation basis adjustments:
     Adjust assets
     and liabilities
     to fair value              806,700       (114,900)       (15,400)       (77,000)        599,400
     Abandonment of
     PMI accounts
     receivable and
     inventories (as
     ordered by the
     Court)                      67,300                                                       67,300
     Payments in
     settlement with
     Textron
     Financial
     Corporation
     (Textron)                  302,900                                                      302,900
     Accrued interest
     and other costs
     paid to Textron            (63,300)                                                     (63,300)
     Repayment of
     mortgage loan to
     U.S. Small
     Business
     Administration
     (SBA)                      752,200                                                      752,200
     Repayment of
     mortgage loan to
     Wells Fargo Bank         2,318,800                                                    2,318,800
     Decrease in
     restricted cash           (207,200)                                                    (207,200)
     Payment to Micro
     Technology,
     Concepts, Inc.
     (MTC) for Post
     Petition
     inventories
     purchased                  205,000                                                      205,000
     Payment to MTC
     for Pre Petition
     claim                      125,600                                                      125,600
     Reduction on
     payable to MTC             150,000                                                      150,000
     Proceeds from
     sale of real
     property, net of
     selling expenses        (4,764,500)                                                  (4,764,500)
</TABLE>


                                       F-6
<PAGE>

<TABLE>
<CAPTION>
     <S>                       <C>          <C>            <C>            <C>            <C>
     Loan proceeds received
     from Advanced
     Communications
     Technologies, Inc. (ACT)   (26,100)                                                     (26,100)
     Repayment of loan to ACT    26,100                                                       26,100
     Settlement and collection
     from preference claims     (28,800)                                                     (28,800)
     Increase in Pre Petition
     receivable (payable) to PMI              (524,300)       159,200                       (365,100)
     Increase in Pre Petition
     payable to LW             (389,600)                                                    (389,600)
     Increase in Pre Petition
     receivable from PMIGA       92,700                                                       92,700
     Increase in Post Petition
     payable to PMI                             (9,200)        (7,300)       (13,500)        (30,000)
     Increase in Post Petition
     receivable from PMIC        13,500          2,700          1,200                         17,400
     Increase in Post Petition
     receivable (payable)  to
     PMIGA                        9,200                                       (2,700)          6,500
     Increase in Post Petition
     receivable (payable) to LW   7,300                                       (1,200)          6,100
     Accrued estimated
     costs of liquidation      (629,000)       (45,800)       (47,400)      (127,000)       (849,200)
     Increase (decrease)
     in cash                    951,300        (26,300)       (42,200)          (200)        882,600
     Allocated administrative
     expenses from other debtors 25,400         13,000         10,500         16,200          65,100
     Allocation of
     administrative expenses to
     others Debtors             (35,600)       (29,400)                                      (65,000)
     Interest income             (2,700)                                                      (2,700)
     Rebate income
     from supplier              (21,600)                                                     (21,600)
     Sale of inventories        (23,600)                                                     (23,600)
     Cost of inventories sold    12,800                                                       12,800
     Selling expenses               600                                                          600
     Costs incurred
     during liquidation
     period                     440,700         44,300          1,000         19,900         505,900
     Net change in Post
     Petition refundable
     insurance premiums,
     accounts payable and
     other accrued expenses    (123,100)                                     (18,800)       (141,900)
                            -----------     ----------     ----------     ----------     -----------
NET LIABILITIES IN
LIQUIDATION, December 31,
2005                        ($1,218,500)     ($559,200)    $  131,800      ($239,300)    ($1,885,200)
                            ===========     ==========     ==========     ==========     ===========


                      See accompanying notes to combined financial statements.
</TABLE>


                                       F-7
<PAGE>




              PACIFIC MAGTRON INTERNATIONAL CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                              (GOING CONCERN BASIS)

                                                                   December 31,
                                                                      2004
                                                                   ------------
ASSETS
Current Assets:
  Cash and cash equivalents                                           $ 543,800
  Restricted cash                                                       255,000
  Accounts receivable, net of allowance for
       doubtful accounts of $310,700                                  3,661,100
  Inventories                                                         2,488,900
  Prepaid expenses and other current assets                             146,800
  Assets from discontinued operations                                   435,900
                                                                   ------------
Total Current Assets                                                  7,531,500

Property and equipment, net                                           3,906,700
Restricted cash                                                         250,000
Other assets                                                             16,200
Assets from discontinued operations                                      36,300
                                                                   ------------
                                                                    $11,740,700
                                                                   ============


LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
  Accounts payable                                                  $ 5,569,700
  Floor plan inventory loans                                          2,243,100
  Accrued expenses and other liabilities                                133,800
  Notes payable                                                          71,900
  Contingent settlement of Common Stock Warrants                          2,300
  Liabilities from discontinued operations                               52,900
                                                                   ------------
Total Current Liabilities                                             8,073,700
                                                                   ------------
Notes Payable, less current portion                                   3,031,500
                                                                   ------------
Shareholders' Equity:
    4% Series A Convertible Preferred Stock;
      600 shares designated, issued and outstanding
      (liquidation value of $400,000)                                   234,100
    Common stock, $0.001 par value; 25,000,000
      shares authorized; 10,485,062 shares issued
      and outstanding                                                    10,500
    Additional paid-in capital                                        2,036,400
    Accumulated deficit                                              (1,645,500)
                                                                   ------------
Total Shareholders' Equity                                              635,500
                                                                   ------------
                                                                    $11,740,700
                                                                   ============



           See accompanying notes to consolidated financial statements


                                       F-8
<PAGE>

<TABLE>
<CAPTION>


                          PACIFIC MAGTRON INTERNATIONAL CORP. AND SUBSIDIARIES
                                  CONSOLIDATED STATEMENTS OF OPERATIONS
                                          (GOING CONCERN BASIS)

                                                       Six Months                  Years Ended
                                                          Ended                    December 31,
                                                        June 30,          -----------------------------
                                                          2005                 2004                2003
                                                      -----------         -----------        -----------
<S>                                                   <C>                 <C>                <C>
Sales                                                  $9,983,500         $66,514,900        $67,661,700
Cost of sales                                           9,596,100          63,284,100         63,803,400
                                                      -----------         -----------        -----------
Gross profit                                              387,400           3,230,800          3,858,300
Selling, general and
  administrative expenses                               1,685,600           4,477,300          5,189,300
Write-off of other receivable                                  --             487,200                 --
                                                      -----------         -----------        -----------
Loss from continuing operations
  before other income (expense)                        (1,298,200)         (1,733,700)        (1,331,000)
                                                      -----------         -----------        -----------
Other income (expense):
  Interest expense                                       (124,200)           (166,200)          (170,000)
  Litigation settlement                                        --                  --            (95,000)
  Change in fair value of
   warrants issued                                          2,300              46,400            105,800
  Loss on asset impairment                               (113,000)                 --                 --
  Other expense, net                                       (6,000)            (31,300)           (24,300)
                                                      -----------         -----------        -----------
Total other expense                                      (240,900)           (151,100)          (183,500)
                                                      -----------         -----------        -----------
Loss from continuing operations                        (1,539,100)         (1,884,800)        (1,514,500)
                                                      -----------         -----------        -----------
Discontinued operations:
  Loss from discontinued operations of:
    Pacific Magtron (GA),Inc.                            (140,000)           (100,700)          (180,000)
    Frontline Network Consulting, Inc.                         --              93,300           (297,900)
    Lea Publishing, Inc.                                       --                  --           (106,300)
  Loss from disposal of:
    Frontline Network Consulting, Inc.                         --                  --            (13,700)
    Lea Publishing, Inc.                                       --                  --            (16,000)
                                                      -----------         -----------        -----------
Loss from discontinued operations                        (140,000)             (7,400)          (613,900)

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

Accretion of discount and deemed
  dividend related to beneficial
  conversion of Series A
  Convertible Preferred Stock                              (8,100)            (26,100)           (24,900)
Accretion of redemption value of
  Series A Convertible Preferred
  Stock                                                        --             (13,000)          (743,300)
                                                      -----------         -----------        -----------
Net Loss applicable to
  common shareholders                                 $(1,687,200)        $(1,172,700)       $(2,896,600)
                                                      ===========         ===========        ===========
</TABLE>



                                       F-9
<PAGE>

<TABLE>
<CAPTION>
<S>                                                   <C>                 <C>                <C>

Basic and diluted loss per share:
  Loss from continuing operations                         $(0.15)            $(0.11)             $(0.22)
  Loss from discontinued operations                        (0.01)             (0.00)              (0.06)
                                                      -----------         -----------        -----------
  Net loss applicable to common
    shareholders                                          $(0.16)            $(0.11)             $(0.28)
                                                      ===========         ===========        ===========
Shares used in basic and diluted
   per share calculation                               10,485,100          10,485,100         10,485,100
                                                      ===========         ===========        ===========


                      See accompanying notes to consolidated financial statements.
</TABLE>


                                      F-10
<PAGE>



<TABLE>
<CAPTION>

                                   PACIFIC MAGTRON INTERNATIONAL CORP. AND Subsidiaries
                               CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
                                                  (GOING CONCERN BASIS)


                                                                                                  Retained
                                      Preferred Stock            Common Stock      Additional     Earnings
                                   --------------------    ---------------------    Paid-in     (Accumulated
                                    Shares       Amount      Shares       Amount    Capital       Deficit)       Total
                                   -------    ---------    ----------    -------   ----------    -----------  -----------
<S>                                <C>        <C>          <C>           <C>       <C>           <C>          <C>
Balance at December 31,
  2002                                  --     $     --    10,485,062    $10,500   $2,007,900     $2,423,800   $4,442,200

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

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

Loss from operations                    --           --            --         --           --     (1,514,500)  (1,514,500)

Loss from discontinued
  Operations                            --           --            --         --           --       (613,900)    (613,900)

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

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

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

Loss from operations                    --           --            --         --           --     (1,884,800)  (1,884,800)

Loss from discontinued
  Operations                            --           --            --         --           --         (7,400)      (7,400)

                                   -------    ---------    ----------    -------   ----------    -----------  -----------
Balance at December 31,
  2004                                 600      234,100    10,485,062     10,500    2,036,400     (1,645,500)     635,500

Preferred stock accretion               --        8,100            --         --           --         (8,100)          --

Loss from operations                    --           --            --         --           --     (1,539,100)  (1,539,100)

Loss from discontinued
  Operations                            --           --            --         --           --       (140,000)    (140,000)

                                   -------    ---------    ----------    -------   ----------    -----------  -----------
Balance at June 30,
  2005                                 600     $242,200    10,485,062    $10,500   $2,036,400    $(3,332,700) ($1,043,600)
                                   =======     ========    ==========    =======   ==========    ===========  ===========


                               See accompanying notes to consolidated financial statements.
</TABLE>



                                      F-11
<PAGE>


<TABLE>
<CAPTION>

                                  PACIFIC MAGTRON INTERNATIONAL CORP. and Subsidiaries
                                          CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                  (GOING CONCERN BASIS)

                                                                      SIX MONTHS
                                                                         ENDED              YEARS ENDED DECEMBER 31,
                                                                        JUNE 30,        --------------------------------
                                                                          2005              2004               2003
                                                                      ------------      ------------       -------------
<S>                                                                   <C>               <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                               $(1,687,200)      $(1,172,700)        $(2,896,600)
Less: Loss from discontinued operations                                    140,000             7,400             613,900
      Gain on restructuring of Series A
        Redeemable Convertible
        Preferred Stock                                                         --          (758,600)                 --
      Accretion of discount and deferred
        dividend related to Series A
        Redeemable Convertible
        Preferred Stock                                                      8,100            26,100              24,900
      Accretion of redemption value of Series A
        Redeemable Convertible
        Preferred Stock                                                         --            13,000             743,300
                                                                      ------------      ------------       -------------
Loss from operations                                                    (1,539,100)       (1,884,800)         (1,514,500)
Adjustments to reconcile loss from operations to
 net cash used in operating activities:
       Depreciation and amortization                                        85,000           335,900             288,800
       Gain on disposal of property and equipment                           (1,900)             (100)                 --
       Loss on asset impairment                                            112,400                --                  --
       Provision (benefit) for doubtful accounts                           (79,000)           51,500             (45,400)
       Write-off of other receivable                                            --           487,200                  --
       Changes in fair value of warrants                                    (2,300)          (46,400)           (105,800)
       Changes in operating assets and liabilities:
           Accounts receivable                                           2,947,900           482,500             269,800
           Other receivables                                                    --           186,100            (673,300)
           Inventories                                                   2,458,900            42,700             463,200
           Prepaid expenses and other current assets                        59,500            39,200              (3,200)
           Income tax refunds receivable                                        --                --           1,472,800
           Accounts payable                                             (2,488,000)       (1,403,500)           (284,800)
           Accrued expenses and other liabilities                          (47,000)          (74,300)             12,800
                                                                      ------------      ------------       -------------
NET CASH (USED IN) PROVIDED BY OPERATIONS                                1,506,400        (1,784,000)           (119,600)
NET CASH (USED IN) PROVIDED BY DISCONTINUED
  OPERATIONS                                                               148,600          (112,900)           (350,800)
                                                                      ------------      ------------       -------------
NET CASH (USED IN) PROVIDED BY
  OPERATING ACTIVITIES                                                   1,655,000        (1,896,900)           (470,400)
                                                                      ------------      ------------       -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
       Proceeds from sale of property and equipment                          2,000             1,300               5,100
                                                                      ------------      ------------       -------------
NET CASH PROVIDED BY INVESTING ACTIVITIES
  OF OPERATIONS                                                              2,000             1,300               5,100
NET CASH PROVIDED BY INVESTING
  ACTIVITIES OF DISCONTINUED OPERATIONS                                         --                --              44,100
                                                                      ------------      ------------       -------------
NET CASH PROVIDED BY INVESTING ACTIVITIES                                    2,000             1,300              49,200
                                                                      ------------      ------------       -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
       Net increase (decrease) in floor plan
        inventory loans                                                 (1,993,000)          873,900             467,600
</TABLE>



                                      F-12
<PAGE>

<TABLE>
<CAPTION>
<S>                                                                   <C>               <C>                <C>
       Principal payments on notes payable                                 (32,400)          (66,100)            (60,800)
       Restricted cash                                                     297,800           139,900            (395,000)
                                                                      ------------      ------------       -------------
NET CASH PROVIDED BY (USED IN) FINANCING
  ACTIVITIES OF OPERATIONS                                              (1,727,600)          947,700              11,800
NET CASH USED IN FINANCING ACTIVITIES OF
  DISCONTINUED OPERATIONS                                                       --                --                  --
                                                                      ------------      ------------       -------------
NET CASH PROVIDED BY (USED IN) FINANCING
  ACTIVITIES                                                            (1,727,600)          947,700              11,800
                                                                      ------------      ------------       -------------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                  (70,600)         (947,900)           (409,400)
CASH AND CASH EQUIVALENTS:
       Beginning of period                                                 543,800         1,491,700           1,901,100
                                                                      ------------      ------------       -------------
       End of period                                                    $  473,200        $  543,800          $1,491,700
                                                                      ============      ============        ============


                              See accompanying notes to consolidated financial statements.
</TABLE>


                                      F-13
<PAGE>

         PACIFIC MAGTRON INTERNATIONAL CORP. (PMIC") and Subsidiaries -
      PACIFIC MAGTRON, INC. ("PMI"), PACIFIC MAGTRON (GA), INC. ("PMIGA"),
                         and LIVEWAREHOUSE, INC. ("LW")
                     NOTES TO COMBINED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED DECEMBER 31, 2005


THE COMPANY
The combined financial  statements include Pacific Magtron  International  Corp.
(the "Company" or "PMIC") and its subsidiaries,  Pacific Magtron,  Inc. ("PMI"),
Pacific Magtron (GA) Inc. ("PMIGA") and LiveWarehouse,  Inc.  ("LW").Our primary
business had been to distribute  computer peripheral products through our wholly
owned  subsidiaries,  Pacific  Magtron,  Inc. (PMI),  Pacific Magtron (GA), Inc.
(PMIGA),  and  LiveWarehouse,  Inc.  (LW). Our business was organized into three
divisions: PMI, PMIGA and LW. PMIGA ceased its operations on April 30, 2005.

The Company had  historically  relied on credit terms from its suppliers to fund
inventory purchases.  Our vendors  progressively imposed more restrictive credit
terms,  such that,  during the first  quarter  of 2005,  we were  unable to fund
purchases  and were  limited to selling  existing  inventory  with no ability to
replenish or purchase  inventory.  In  addition,  we did not have the ability to
draw on lines of credit to fund the shortfall caused by the elimination of terms
by our  vendors.  Because  of the  reduced  sales  caused  by  the  lack  of new
inventory, we were not able to pay our obligations on a timely basis.

On May 11, 2005 (the "Petition  Date"),  PMIC, PMI, PMIGA and LW filed voluntary
petitions to reorganize  their  businesses under Chapter 11 of the United States
Bankruptcy Code in the United States  Bankruptcy Court for the Southern District
of Nevada (the "Court").  The Court is jointly  administering these cases as "In
re:   Pacific   Magtron   International   Corporation,   Inc.,   et  al.,   Case
No.BK-S-05-14325  LBR." Although the petition was filed for reorganization under
Chapter 11 of the  Bankruptcy  Code,  the Company did not conduct any operations
after the  second  quarter  2005 other than those  necessary  to  liquidate  its
assets.


1.    BANKRUPTCY PROCEEDINGS

Upon the filing of the  petition  in May 2005,  the  Company  intended to form a
joint venture with General  Procurement,  Inc.  ("GPI") to continue the business
operations. On May 16, 2005, the Court approved the Interim Management Agreement
with GPI. Subsequent to the hearings on May 16, 2005, Micro Technology Concepts,
Inc.  ("MTC"),  a major  secured  creditor of the Company,  negotiated a similar
joint  venture  agreement  with the Company to replace the one entered into with
GPI.  The joint  venture  agreement  included  an interim  management  agreement
("IMA")  whereby the joint venture  partner,  MTC, would take over management of
the  Company's  sales and provide the Company with  inventory on a secured basis
while the  Company  sought  approval  of the joint  venture as part of a plan of
reorganization.


                                      F-14
<PAGE>

On June 23, 2005, MTC informed the Company that it would not continue to perform
under the Interim Management  Agreement and would not agree to allow the Company
to use MTC's cash collateral for any business purpose except for liquidating the
remaining  assets of the Company.  The Company has been forced to cease business
activities  except those necessary to liquidate its remaining  assets. On August
31,  2005,  PMI filed a complaint  against MTC  alleging  that MTC  breached its
obligation  under the IMA and MTC filed a motion  to  convert  the PMI case to a
case under Chapter 7 of the United States Bankruptcy Code. On September 9, 2005,
MTC filed a counterclaim against PMI.

On  September  19, 2005,  PMI and MTC reached a settlement  by which the various
issues between MTC and PMI have been settled and the litigation  dismissed.  The
settlement agreement was approved by the Court on November 7, 2005.

On September  15, 2005,  PMI entered into an agreement to sell the real property
at 1600 California Circle,  Milpitas,  California  ("Facility") to a third party
for  $4,389,000.  The sale  agreement  was subject to the Court's  approval.  On
October 14, 2005, PMI rejected the prior sale agreement and sold its Facility to
another  party for  $4,990,000  pursuant to a Court order entered on October 28,
2005. The escrow was closed on November 23, 2005.

On July 18,  2005,  the Company  filed the  "Disclosure  Statement  to Accompany
Debtors' Joint  Liquidating  Plan of  Reorganization"  detailing the liquidation
plan, however, the Company did not receive the Court's approval for the plan. On
December  23,  2005,  PMI and PMIGA  filed an Amended  Disclosure  Statement  to
Accompany  PMI's Second Amended Plan of  Liquidation  and PMIGA's Second Amended
Plan of  Liquidation  ("the PMI & PMIGA Plan").  On January 30, 2006,  the Court
entered  an  order  (Docket  No.  507)  ("Confirmation   Order")  approving  and
confirming  the PMI & PMIGA Plan. The effective date of the PMI & PMIGA Plan was
February 10, 2006 ("the Effective Date").

On January  30,  2006,  PMIC and LW filed a  separate  Disclosure  Statement  to
Accompany Third Amended Plans of Reorganization  for PMIC and LW ("the PMIC & LW
Plan").  The Court authorized PMIC and LW to send the PMIC & LW Plan and ballots
to creditors and PMIC's shareholders to vote on the PMIC & LW Plan. The deadline
for voting on the PMIC & LW Plan was  February  24,  2006 and the hearing on the
confirmation  of the  PMIC & LW  Plan is  scheduled  for  April  10,  2006.  The
confirmation  hearing  was  continued  pending  consideration  of a  motion  for
approval of a settlement of litigation with PMIC's former executive officers and
a Fourth Amended Plan of Reorganization taking that settlement into account. The
motion for  approval of the  Settlement  and the Fourth  Amended  Plan are being
filed  with the  bankruptcy  court on or about  the date of filing  this  Annual
Report.

Financial Statement Presentation

Effective July 1, 2005, the Company adopted the liquidation basis of accounting,
whereby assets are valued at their estimated net realizable


                                      F-15
<PAGE>

values and  liabilities are valued at their estimated  settlement  amounts.  The
Company has provided a liquidation  basis statement of net assets  (liabilities)
as of December 31, 2005 and the statement of changes in net assets (liabilities)
for the six  months  ended  December  31,  2005.  The  valuation  of assets  and
liabilities  requires  estimates and  assumptions  by  management  and there are
uncertainties  in carrying out the liquidation  and  reorganization  plans.  The
amount  and  timing  of  future  liquidating   distributions  to  creditors  and
shareholders,  if any, will depend upon a variety of factors including,  but not
limited to, the actual  proceeds from the  liquidation of the Company's  assets,
and the actual costs  incurred in connection  with carrying out the  liquidation
and reorganization plans, including  administrative costs during the liquidation
period,   and  the  timing  of  the   liquidation.   These  estimates  may  vary
significantly from the final amounts.  On January 30, 2006, the Court entered an
order  approving and confirming the PMI & PMIGA Plan. On January 30, 2006,  PMIC
and LW filed a separate PMIC & LW Plan. Both the PMI & PMIGA Plan and the PMIC &
LW plans treat the assets and debts of each of the entities as a separate  case.
The combined statement of net assets (liabilities) in liquidation as of December
31, 2005 and the combined  statement of changes of net assets  (liabilities)  in
liquidation  for the period from July 1, 2005 to December  31, 2005  present the
assets and  liabilities  and the  changes of net  assets  (liabilities)  of PMI,
PMIGA, LW and PMIC separately.

Prior to July 1, 2005,  the  Company had  prepared  its  consolidated  financial
statements on a  going-concern  basis,  which assumes  continuity of operations,
realization of assets and  satisfaction of liabilities in the ordinary course of
business.  PMIGA  ceased its  operation as of April 30,  2005.  The  activities,
assets and  liabilities  of PMIGA were  reclassified  for reporting  purposes as
discontinued  operations  for all  periods  prior to June 30,  2005 shown in the
accompanying consolidated financial statements.




                                      F-16
<PAGE>

2.    SUMMARY OF THE PMI & PMIGA PLAN

The PMI & PMIGA Plan  treats the assets and debts of each of the  entities  as a
separate  case.  Under the PMI & PMIGA Plan,  PMI was  required to disburse  the
funds in the formerly  blocked  account at Wells Fargo Bank to Micro  Technology
Concepts,  Inc.  ("MTC"),  a secured Creditor,  on the Effective Date.  However,
pursuant to a separate court order, PMI previously  distributed  theses funds to
MTC. On the  Effective  Date,  PMI was  required to (a) make full payment to its
administrative,  priority and  administrative  convenience class creditors,  (b)
disburse not less than 75% of its remaining  available  funds to its  unsecured,
non-priority  creditors,  and (c) pay the balance of its funds to the trustee of
the PMI Creditor Trust.  On the Effective  Date,  PMIGA was required to (a) make
full payment to its administrative  creditors, (b) disburse not less than 75% of
its available funds to its unsecured,  non-priority  creditors,  and (c) pay the
balance of its funds to the trustee of the PMIGA Creditor Trust.

Classification and Treatment of Claims and Interests
A.  Class 1  (Priority  Claims of PMI) was to be paid in full from the assets of
PMI on Effective Date. These claims consisted of pre-petition  employee wage and
commission  claims  payroll taxes and employee  benefits  (health  insurance and
401(k)  contributions).  Cash  distributions  of $932 were paid on the Effective
Date.

B. Class 2 (Administrative Convenience Class of PMI) was to be paid in full from
the assets of PMI on the Effective Date. These claims were those of pre-petition
unsecured  creditors  of PMI whose  claims  were  $100 or less or who  agreed to
reduce their claim to $100.  Most of these  claims were for rebates  promised by
PMI to retail customers of PMI's wholesale customers.  The total amount of these
claims was $43,937 and was paid on the Effective Date.

C. Class 3A (unsecured  creditors of PMI including the unsecured  portion of the
claim of MTC) was to be paid from the  liquidation  of the assets of PMI. On the
Effective Date, PMI (a) made a partial  distribution of not less than 75% of the
cash assets of PMI to holders of  undisputed,  allowed  claims in this class and
(b) reserved funds for disputed claims and administrative expenses. A total cash
amount of  $314,836  was  distributed  on the  Effective  Date to the holders of
undisputed,  allowed  claims in this class,  excluding  MTC and LW. PMI has also
reserved  $84,095  for  disputed  claims.  In  addition,  PMI has also  withheld
distribution  of $478,152 from those claims filed by those  creditors  whom were
alleged to have received  preferences or other  avoidable  transfers or payments
from PMI within 90 days of the Petition Date ("Preference Claims").

D. Class 3B consisted of the unsecured  claim of LW. On the Effective  Date, PMI
transferred its physical assets  consisting of miscellaneous  computers,  desks,
chairs,  office  equipment,  warehouse  racks and  equipment to LW for a $15,000
credit which was deducted  from the payment to LW. LW shared pro rata with Class
3A after taking into account the credit for the transfer of the physical assets.
LW received a cash payment  $142,085  from PMI's  distribution  on the Effective
Date.

E.  Class  4  (secured  creditor)  consisted  solely  of  MTC.  Pursuant  to the
settlement agreement with MTC, MTC's pre-petition claim against PMI


                                      F-17
<PAGE>

is set at $679,847 MTC has no lien and has no claim against PMIC,  PMIGA and LW.
MTC was partially secured by (a) a lien on PMI's cash, inventory,  equipment and
accounts  receivable and their proceeds,  and (b) a lien on PMI's bank accounts.
Pursuant to Court order, the inventory and accounts  receivable of PMI have been
abandoned to MTC. Pursuant to the settlement agreement with MTC, the liquidation
value of the  inventory  and the  accounts  receivable  is set at  $200,000.  In
addition, MTC is secured by a lien on PMI's bank accounts (including the blocked
account at Wells Fargo Bank) and the "pre-building  sale" account at Union Bank,
neither of which  accounts hold proceeds from the sale of PMI's  building or the
proceeds  of  avoidance  actions.  After the sale of PMI's  building in November
2005, MTC had a first lien on the bank accounts.  A total of $125,688 from these
accounts was paid to MTC. Pursuant to the settlement  agreement with MTC, it was
agreed that PMI has a $524,317 claim against PMIGA and such claim was subject to
MTC's security  interest.  MTC received a partial cash  distribution  of $89,217
from PMIGA on the  Effective  Date.  MTC is also to receive a refund  from PMI's
workers compensation insurer in the approximate amount of $25,500. Thus, MTC has
received  $440,405 on its  collateral  and have an unsecured  claim of $239,442.
Pursuant to the settlement  agreement with MTC, MTC reduced its unsecured  claim
by $150,000.  MTC has an unsecured  claim of $89,442 and is treated as a Class 3
claim. On the Effective Date, MTC received $35,880 cash distribution from PMI as
a Class 3 unsecured creditor.

F. Class 5  (unsecured  creditors  of PMIGA) was to be paid from  PMIGA's  funds
after reducing for  administrative  expenses.  On the Effective Date, PMIGA will
first, pay in full for claims of any government creditors. Then, PMIGA will make
partial distribution of not less than 75% of the cash assets of PMIGA to holders
of  undisputed,  allowed  claims  in  this  class.  Pursuant  to the  settlement
agreement  with MTC, it was agreed that PMI has a $524,317  claim  against PMIGA
and such claim was subject to MTC's security interest. Funds amounting to $5,896
were reserved for disputed claims and administrative  expenses. On the Effective
Date,  $89,217  was  distributed  to MTC as a Class 5 creditor  and  $28,470 was
distributed to other Class 5 creditors.

G. Class 6 (PMIC, the sole shareholder of PMI) retained nothing.

H. Class 7 (PMI, the sole shareholder of PMIGA) retained nothing.

On the Effective Date, the remaining balances of the assets of PMI and PMIGA and
the reserve for the disputed claims and Preference  Claims would be delivered to
the PMI Creditor Trust and PMIGA Creditor Trust. The remaining assets of PMI and
PMIGA  on  the  Effective   Date  were   approximately   $229,100  and  $21,800,
respectively.

PMI has filed claims against various vendors who received payment within 90 days
of the Petition  Date.  These  payments are called  "Preferences."  A Preference
occurs when a debtor treats one creditor more favorably than another. A creditor
receiving a Preference may be forced to restore it to the debtor's  estate.  Any
preferences  recovered will be paid to the PMI Creditors Trust to be distributed
to Class 3.


                                      F-18
<PAGE>

3.    SUMMARY OF THE PMIC & LW PLAN

The  PMIC & LW Plan  treats  the  assets  and  debts  of  each  of  PMIC  and LW
separately.  Under the PMIC & LW Plan,  non-insider  Creditors  holding  Allowed
Unsecured  Claims  against  PMIC will  receive  a fifty  percent  (50%)  initial
distribution on account of such claims,  provided that the total distribution to
be made to  holders  of  Allowed  Claims  other  than  Class 1 shall not  exceed
$120,000,  which shall be distributed  pro rata to the creditors of PMIC. On the
effective date of the PMIC & LW Plan, PMIC will merge with Herborium, a provider
of proprietary,  natural and complimentary healthcare products, and shall be the
surviving  operating  entity  post-merger.  LW will be reorganized  and remain a
wholly owned  subsidiary of PMIC.  Advanced  Communications  Technologies,  Inc.
("ACT"),  a 61.56% shareholder of PMIC, shall contribute up to $50,000 on behalf
of PMIC's  shareholders  to effectuate the PMIC & LW Plan. The existing stock of
PMIC shall be cancelled and new stock shall be issued. With respect to the Class
6 equity interest of ACT, new stock issued  directly to the  shareholders of ACT
subject  to the  dilution  of such  interests  upon  plan  consummation  and the
corresponding  merger of Herborium  with PMIC as provided in the PMIC & LW Plan.
The existing Series A Convertible  Preferred Stock of PMIC shall be converted to
800,000  shares of PMIC  common  stock or 0.74% of  post-merger  PMIC/Herborium.
ACT's  shareholders  shall own  10.55%  of  post-merger  PMIC/Herborium;  PMIC's
current common stockholders shall own 3.71% of post-merger  PMIC/Herborium;  and
Herborium's current stockholders shall own 85% of post-merger PMIC/Herborium.

Classification and Treatment of Claims and Interests

PMIC

A.    Unclassified Claims
      Administrative   claims  and  priority tax claims  (except as to the claim
of the Internal  Revenue  Service  treated under Class 3) are not classified for
purposes  of  voting or  receiving  distributions  under the Plan.  Unclassified
claims will be paid in full.

B.    Class 1
      Class 1  claims  consist  of priority  claims other than the  unclassified
claims as described above and will be paid in full in cash.

C.    Class 2
      Class 2  claims  are  unsecured claims of PMIC and will be paid in cash an
initial distribution equal to 50% of the claim amounts.

D.    Class 3
      Class 3  claim   consist   of the claim of the  Internal  Revenue  Service
("IRS"). Such claim was amended by the IRS to $0.00 in November 2005.

E.    Class 4
      Class   4   claims   consist  of  the  subordinated  claims  of  2  former
executives  ("Terminated  Executives") of PMIC. No distributions will be made to
the Class 4 claims unless such claims are determined to be allowed claims.  PMIC
has filed a motion with the Court requesting (i) that the Subordinated Claims of
the  Terminated  Executives  be estimated at no more than $25,000 for voting and
distribution purposes, and (ii)


                                      F-19
<PAGE>

with  respect  to the  Subordinated  Claims,  that  PMIC  be  permitted  to take
discovery  in  connection  with any  estimation  hearing  before the Court.  For
purposes of  confirmation  of the PMIC & LW Plan, PMIC shall establish a reserve
for Disputed Claims  (including the Subordinated  Claims) not to exceed $25,000,
and entry by the Court of a final order estimating the total Subordinated Claims
at no more  than  $25,000  for  voting  and  distribution  purposes  shall  be a
condition precedent to confirmation of the PMIC & LW Plan.

F.    Class 5

      Class 5 claim  consists  of the claim of  Hartford  Insurance  Company for
pre-petition workers  compensation  premiums for employees of PMI. This claim is
disallowed under the Plan.

G.    Class 6
      Class 6 claims consist of the equity interests of PMIC shareholders  other
than the holder of PMIC's Series A  Convertible  Preferred  Stock.  The existing
common shares of PMIC will be cancelled and new stock will be issued.

H.    Class 7
      Class 7 claim  consists  of the  equity  interests  of the  holder of PMIC
preferred  stock.  The existing  preferred  stock will be converted into 800,000
shares  of  PMIC  common  stock.  These  shares  will  represent  0.74%  of  the
post-merger PMIC/Herborium.

LW

A.    Unclassified Claims
      Administrative  claims and  priority  tax claims  are not  classified  for
purposes  of  voting or  receiving  distributions  under the Plan.  Unclassified
claims will be paid in full.

B.    Class 1
      Class 1 claims  consist of  priority  claims  other than the  unclassified
claims as described  above and will be paid in full in cash.  LW estimated  that
the amount of the allowed claims in this Class is zero.

C.    Class 2
      Class 2  claims  are  unsecured  claims  of LW and will be paid a Pro Rata
distribution from available cash of LW.

D.    Class 3
      Class 3 shall consist of PMIC's  equity  interest in LW. PMIC shall retain
such interest.

4.    ABANDONMENT OF ACCOUNTS RECEIVABLE AND INVENTORIES

On August 2, 2005, the Court  authorized  PMI to abandon its remaining  accounts
receivable and  inventories to MTC. Under the settlement  agreement  between PMI
and MTC on September 19, 2005,  MTC agreed to reduce its  pre-petition  claim by
$200,000 and to reduce its post-  petition  claim to $205,000  which was paid by
PMI on November 11, 2005.


                                      F-20
<PAGE>

The  changes in assets and  liabilities  resulted  from the  abandonment  are as
follows:

Accounts receivable, net of allowance
  for doubtful accounts of $231,700                             $ 714,500
Less payable to customers/vendors that could be
  used to offset accounts receivable                             (577,300)
Inventories                                                            --
Reduction of MTC's pre petition claim                            (200,000)
Reduction of MTC's post petition claim                             (4,500)
                                                                ---------
Net decrease in liabilities                                     ($ 67,300)
                                                                =========

PMI  purchased  products  from  certain  vendors who were also  customers of the
Company.  Due to the  Company's  non-payment  of the  vendors'  invoices,  these
customers/vendors  were holding  their  payments on our  invoices.  The accounts
receivable  abandoned to MTC included  the amount of $577,300  receivables  that
were unpaid by these customers/vendors.

5.    INCOME TAX REFUND RECEIVABLE

As of  December  31,  2005,  the PMIC  anticipated  a federal  income tax refund
resulted in carrying back the tax losses in 2002 to 1998. On March 3, 2006, PMIC
received a federal income tax refund of $73,485.

6.    REFUNDABLE INSURANCE PREMIUMS

PMI was required to make  installment  payments  for the  workers'  compensation
insurance  premiums  based  on  the  annual  payroll  amounts  estimated  at the
beginning of 2005.  The  insurance  policy  expired on December 31, 2005 and the
amounts over paid by PMI are  refundable.  Under the PMI & PMIGA Plan, MTC is to
receive the refund from PMI's workers  compensation  insurer in the  approximate
amount of $25,500.

7.    SALE OF REAL PROPERTY

On October 14, 2005, PMI sold its land and building in Milpitas, California to a
third party for  $4,990,000  pursuant to a Court order on October 28, 2005.  The
escrow was closed on November  23,  2005.  After  deducting  the normal  selling
expenses, PMI received net proceeds of approximately $4,764,500 from the sale of
the real  property.  A  portion  of the  proceeds  was used to repay  the  first
mortgage  loan with Wells Fargo Bank and the second  mortgage loan with the U.S.
Small Business Administration. The net remaining cash, amounting to $119,701, in
a restricted  account was released by Wells Fargo Bank upon the repayment of the
mortgage loan. The amount in the restricted account was immediately  transferred
to MTC in compliance with the Court's order.

8.    SECURED CREDITORS OF PRE-PETITION DEBTS

The secured creditors of the Company' Pre-Petition debts were as follows:


                                      F-21
<PAGE>

Textron Financial  Corporation  ("Textron") - Textron was fully secured by PMI's
accounts  receivable,  inventories,  cash and other  assets.  As of December 31,
2005, the outstanding  balance due to Textron was fully paid. PMI agreed and the
Court approved that Textron be paid $100,000 per month beginning June 2005 until
the outstanding balance is fully paid. The Company remitted $100,000 on June 27,
2005 and  $100,000 on July 18, 2005 to Textron.  On August 2, 2005,  the Company
settled with Textron, with the Court's approval,  for $202,900 for the principal
and interest owed to Textron and legal costs incurred.

Wells  Fargo Bank  ("Wells  Fargo") - Wells  Fargo held a first  mortgage on the
Company's land and building and funds in the Restricted Cash Account. PMI agreed
and the Court  approved  that funds in the  Restricted  Account would be used to
make the normal monthly  mortgage  payments.  On November 23, 2005, PMI sold the
land and building and paid off the entire outstanding  principal  balance,  plus
accrued interest and other  settlement costs amounting to $27,200.  The funds in
the  Restricted  Cash Account were  released  upon the entire loan balance being
repaid.  For the six months ended  December 31, 2005,  PMI had paid  interest of
$56,000 to Wells Fargo.

U.S. Small Business Administration ("SBA") - SBA held a second mortgage interest
on the Company's land and building.  The entire  principal  balance plus accrued
interest was repaid upon the sale of the real property. For the six months ended
December 31, 2005, interest of $32,400 was paid to SBA.

Micro Technology  Concept,  Inc. ("MTC") - Pursuant to the settlement  agreement
with MTC, MTC's  pre-petition  claim against PMI is set at $679,847.  MTC has no
lien and has no claim against PMIC,  PMIGA and LW. MTC was partially  secured by
(a) a lien on PMI's cash, inventory, equipment and accounts receivable and their
proceeds,  and (b) a lien on PMI's bank accounts.  Pursuant to Court order,  the
inventory and accounts  receivable of PMI had been abandoned to MTC. Pursuant to
the settlement  agreement with MTC, the  liquidation  value of the inventory and
the accounts  receivable  is set at $200,000.  In addition,  MTC is secured by a
lien on PMI's bank accounts  (including the blocked account at Wells Fargo Bank)
and the  "pre-building  sale" account at Union Bank,  neither of which  accounts
hold  proceeds  from the sale of PMI's  building or the  proceeds  of  avoidance
actions. After the sale of PMI's building in November 2005, MTC had a first lien
on the bank  accounts.  A total of $125,688 from these accounts was paid to MTC.
Pursuant  to the  settlement  agreement  with MTC,  it was agreed that PMI has a
$524,317  claim  against  PMIGA and such  claim was  subject  to MTC's  security
interest.  MTC received a partial cash distribution of $89,217 from PMIGA on the
Effective Date. MTC is also to receive a refund from PMI's workers  compensation
insurer in the approximate amount of $25,500. Thus, MTC has received $440,405 on
its  collateral  and  has  an  unsecured  claim  of  $239,442.  Pursuant  to the
settlement agreement with MTC, MTC reduced its unsecured claim by $150,000.  MTC
has an unsecured claim of $89,442 and is treated as a Class 3 claim. On November
11,  2005,  PMI paid  $205,000 to MTC for the  inventories  purchased  after the
Petition  Date. On the Effective  Date, MTC received  $35,880 cash  distribution
from PMI as a Class 3 unsecured  creditor.  The following  are the  transactions
relating to the Pre Petition claim of MTC:


                                      F-22
<PAGE>


                  Original Pre-Petition claim                     $680,000
                  Reduction in pursuant to the
                  abandonment of accounts receivable
                  and inventories                                 (200,000)
                  Transfer to MTC from funds released
                  by Wells Fargo Bank                             (119,700)
                  Payment to MTC from remaining funds
                  from collateral cash                              (1,800)
                  Payment to MTC related to the previous
                  use of collateral cash                            (4,300)
                  Reduction in pursuant with the
                  settlement agreement                            (150,000)
                                                                  --------
                  Balance as of December 31, 2005                  204,200
                  Transactions subsequent to December
                  31, 2005:
                  Reduction from refund to be received
                  from PMI's insurance carrier for
                  over payment of premiums                         (25,500)
                  Distribution paid to MTC by PMIGA                (89,200)
                  Distribution paid to MTC by PMI                  (35,900)
                                                                  --------
                  Remaining balance                                $53,600
                                                                  ========

9.    ESTIMATED COSTS TO BE INCURRED DURING LIQUIDATION PERIOD

The Company estimated the cost to be incurred to complete the liquidation of its
assets.  The actual costs  incurred are also  dependent of the length of time to
liquidate  the  assets  and might be  materially  different  from the  estimated
amount. The amounts of accrued estimated costs of liquidation and costs incurred
and other  income and  expenses  from July 1, 2005 to  December  31, 2005 are as
follow:

<TABLE>
<CAPTION>

                                                                                                   COMBINED
                                       PMI            PMIGA            LW             PMIC           TOTAL
                                     --------       --------        --------        --------       --------
<S>                                  <C>            <C>             <C>             <C>            <C>
Accrued estimated costs of
liquidation                          $629,000       $45,800          $47,400        $127,000       $849,200

Other income, expenses and costs
incurred during liquidation period
from July 1, 2005 to
December 31, 2005:
      Interest and other income         2,700                                                         2,700
      Rebate income from supplier      21,600                                                        21,600
      Sale of inventories              23,600                                                        23,600
      Cost of inventories sold        (12,800)                                                      (12,800)
      Selling expenses                   (600)                                                         (600)

</TABLE>


                                      F-23
<PAGE>

<TABLE>
<CAPTION>
<S>                                  <C>            <C>             <C>             <C>            <C>
      Legal expense                  (216,300)                                                     (216,300)
      Administrative costs
      allocated from other debtors    (25,400)       (13,000)        (10,500)        (16,200)       (65,100)
      Administrative costs
      allocated to other debtors       35,700         29,400                                         65,100
      Other costs incurred during
      liquidation period             (224,500)       (44,300)         (1,300)        (19,900)      (290,000)
                                     --------       --------        --------        --------       --------
                                     (396,000)       (27,900)        (11,800)        (36,100)      (471,800)
                                     --------       --------        --------        --------       --------
Estimated costs to be incurred
during liquidation as of December
31, 2005                             $233,000       $ 17,900        $ 35,600        $ 90,900       $377,400
                                     ========       ========        ========        ========       ========
</TABLE>


10.   FACILITY LEASE AND ASSIGNMENT OF CONTRACT

The Company had a contract with MarketPoint  ("MP") whereby the Company provides
warehouse and distribution  services to MP. In July 2005, the Court approved the
assignment  of the MP contract from the Company to Encompass  Group  Affiliates,
Inc.  ("Encompass"),   a  wholly-owned  subsidiary  of  Advanced  Communications
Technologies, Inc. which is a majority shareholder of the Company.

11.   TRANSACTIONS WITH FORMER STOCKHOLDERS/EXECUTIVES

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

On May 10, 2005, the Company  terminated  the Employment  Agreements for "cause"
pursuant to the terms of the Employment Agreements. No part of


                                      F-24
<PAGE>

the bonuses have been paid or accrued. On May 11, 2005, ACT filed a complaint in
the United States  District Court for the Southern  District of New York against
the former  officers and  principal  shareholders  of PMIC,  for the recovery of
damages and costs for securities  fraud,  breach of contract and other counts in
connection with the Stock Purchase Agreement (the "New York Action").

In January  2006,  Mr. Li and Ms. Lee brought  suit in the  California  Superior
Court,  Santa  Clara  County  against  ACT and  Encompass  and  certain of their
officers and directors (the  "California  Action")alleging,  among other things,
fraud,  intentional  misrepresentation,  breach of  contract,  breach of implied
covenant of good faith and fair dealing, violation of the California Labor Code,
violation of the Business of Professions Code of California, and defamation. The
Company was not named as a defendant in the California  Action,  but the text of
the complaint did allege some causes of action against the Company. In addition,
Mr. Li and Ms. Lee filed  proofs of claim in the  bankruptcy  court  relating to
their employment agreements.

In April 2006, Mr. Li., Ms. Lee, ACT and Encompass entered into a binding letter
agreement for the settlement of these claims and actions.  The Company will be a
party  to the  settlement  upon  bankruptcy  court  approval.  The  terms of the
Settlement are descried below in Note 14- Subsequent Events.

12.   EMPLOYMENT OF COUNSELS

On July 26,  2005,  PMI  filed a motion  with the  Court (a) to employ a special
litigation  counsel for handling the legal  dispute  arising under or related to
the interim  management  agreement between PMI and MTC, and (b) to authorize PMI
to obtain a $30,000 loan from ACT, a majority  shareholder of PMIC. The proceeds
of the loan from ACT would be used as payment to retain the special  counsel for
the MTC litigation.  The loan would bear interest at 6.25%.  The principal would
be repaid in 9 months or upon the sale of the Company's real property. The legal
dispute arising under the interim  management  agreement between PMI and MTC was
settled on  September  19,  2005.  The fees for the  employment  of the  special
litigation  counsel  incurred  through  December  31,  2005  were  approximately
$56,000.  On October 27,  2005,  PMI obtained a loan of $26,100 from ACT and the
proceeds were used to pay for the special  litigation  counsel's  fees. The loan
was repaid on December 13, 2005 with $300 accrued interest.

The Company also incurs  professional  services  from a  bankruptcy  counsel and
independent  accountants.  As of December 31, 2005, PMI has accrued  $30,000 for
the fees owed to the special litigation counsel and PMIC has accrued $17,000 for
the  fees  owed to the  independent  accountants.  These  accrued  amounts  were
included in  Post-Petition  accounts  payable and other accrued  expenses in the
accompanying combined statement of net assets (liabilities) in liquidation.  The
Company also  incurred  legal fees  amounted to $137,000 for the services of the
bankruptcy  counsel for the period from  September  1, 2005 to January 25, 2006.
The legal fees for the bankruptcy counsel have been included in the


                                      F-25
<PAGE>

estimated  costs to be incurred  during  liquidation  period as of December  31,
2005.  The fees  and  costs  for the  bankruptcy  counsel  for the  period  from
September 1, 2005 to January 25, 2006 were allocated as follows:

                  PMI                                          $113,800
                  PMIGA                                           5,500
                  LW                                              8,500
                  PMIC                                            9,200

On  November  10,  2005,  the Court  awarded  fees and costs of  $160,200 to the
bankruptcy  counsel for the services  through  August 31, 2005. The awarded fees
and costs were allocated among the Debtors as follows:

                  PMI                                          $144,500
                  PMIGA                                           4,500
                  LW                                              4,600
                  PMIC                                            6,600

13.   ALLOWED ADMINISTRATIVE EXPENSE CLAIMS

Pursuant  to the PMI & PMIGA Plan,  allowed  administrative  expense  claims for
services  provided  other  than  in the  ordinary  course  of  business,  unless
otherwise  designated  as  the  expense  of one  particular  debtor,  have  been
allocated among the Debtors as follows:
(a) 80% of such  expenses  related to payroll  shall be allocated to PMI and the
remaining  20%  shall be  allocated  amongst  PMIGA,  LW and  PMIC  based on the
estimated time spent. (b) Non-payroll related expenses shall be divided and paid
equally amongst PMI, PMIGA, PMIC and LW.

For the six months ended December 31, 2005, expenses of $35,600 and $29,400 were
allocated to other Debtors by PMI and PMIGA, respectively.

14.   SUBSEQUENT EVENTS

On April 12,  2006,  ACT and  Theodore S. Li and  Cynthia Lee (also  referred to
herein  collectively  as the "Former  Executives")  entered into binding  letter
agreements with respect to the settlement of certain litigation  proceedings and
potential claims involving ACT, PMIC, Encompass,  the Former Executives,  Martin
Nielson and Wayne Danson,  which are described  above in Note 11 -  Transactions
With Former Stockholders/Executives. The provisions of this settlement are being
incorporated into a Settlement Agreement to which PMIC and its subsidiaries will
be a party upon bankruptcy court approval.


o     Upon  the  closing  of the  Herborium  Merger  and the  occurrence  of the
      effective  date of the PMIC & LW Plan,  ACT  will pay Mr.  Li and Ms.  Lee
      $325,000.  PMIC will  reimburse  ACT for a portion of this  payment  using
      available  cash or other assets  remaining in the PMIC  bankruptcy  estate
      after final distribution under PMIC and LW's Fourth Amended Plan.

o     PMIC  will  issue  Mr.  Li  and  Ms.  Lee  an   aggregate   of   1,750,000
      freely-tradable shares of Herborium common stock ("Herborium Stock")


                                      F-26
<PAGE>

      with  a  minimum  value  of  $.10  per  share  subject  to  the  following
      conditions:

      (a)   such  shares  will be subject to a lock-up  period of 150 days after
            issuance  during  which Mr. Li and Ms.  Lee may only sell the shares
            for $.10 per share or  greater;  if the price per share is less than
            $.10 per share at the end of the lock-up period,  then ACT will "top
            up" the value provided to Mr. Li and Ms. Lee by delivering either;

            o     cash  equal to $.10  minus  the  price  per share on said date
                  times the number of shares still held, or

            o     additional Herborium shares which would otherwise be issued to
                  ACT or its stockholders under the Fourth Amended Plan having a
                  value equal to said the same amount

      (b)   ACT's  obligation  to "top up" Mr.  Li's  and Ms.  Lee's  shares  of
            Herborium  Stock  shall be  collateralized  by  1,750,000  shares of
            Herborium  Stock held by ACT which will be placed in escrow upon the
            earliest date that such shares can be issued following the Herborium
            Merger;

      (c)   in the event that the  Herborium  Merger does not occur,  Mr. Li and
            Ms. Lee will receive the  $325,000  and $175,000  worth of shares of
            ACT's  common  stock,  respectively,   on  the  76th  day  following
            execution  of the  Settlement  Agreement  On the date upon which the
            Bankruptcy  Court  approves this  settlement,  87,500,000  shares of
            ACT's common stock will be placed in escrow at an estimated value of
            $.002 per share,  which shares will be deemed to be issued  pursuant
            to the Convertible  Notes issued to Mr. Li and Ms. Lee in connection
            with the Stock Purchase Agreement.  The shares will be released from
            escrow to Mr. Li and Ms. Lee based upon the closing  price as of the
            75th day or the next preceding business day and shall be "topped up"
            to $.002 per share if the arms length third party  closing  price is
            below  $.002.  If the  Herborium  Merger  occurs  these shares shall
            immediately be released to ACT.

o     Mr. Li and Ms. Lee will each receive a reference letter from PMIC relating
      to the circumstances of their employment with PMIC.

o     Mr. Li and Ms. Lee will execute  broad  general  releases in favor of ACT,
      PMIC,  Encompass  and  each of their  subsidiaries  and  their  directors,
      employees, heirs, insurers,  attorneys and agents from any and all claims,
      including but not limited to those that have or could have been brought in
      connection  with the New York Action (see Note 11), the California  Action
      (see Note 11) or in any of the  Bankruptcy  Proceedings or under the Stock
      Purchase Agreement or the Employment  Agreements.  ACT, PMIC and Encompass
      and each of their  subsidiaries  will execute similar releases in favor of
      Mr. Li and Ms. Lee. This  settlement will not be construed as an admission
      of liability by any party.  The parties  further agree not to instigate or
      participate  in any future  litigation or proceeding  against any released
      party based upon events occurring prior to settlement.

o     The parties agree to cause any and all pending  litigation between them to
      be dismissed with prejudice as soon as practical  following the payment of
      consideration contemplated by this settlement.


                                      F-27
<PAGE>

o     This settlement will be subject to approval by the Bankruptcy Court in the
      Bankruptcy Proceedings and will be incorporated in the PMIC & LW Plan, and
      the Bankruptcy  Court will retain  jurisdiction to enforce the settlement.
      Mr.  Li and Ms.  Lee will  withdraw  their  proofs  of  claims in the PMIC
      Bankruptcy  Proceedings  and their  objections to the  confirmation of the
      PMIC & LW Plan.

o     Each  party  will bear its own  costs  and  attorneys'  fees  incurred  in
      connection  with this  settlement and the pending  litigation  between the
      parties except as follows:  ACT will pay (and has paid) the mediation fees
      incurred in connection with the parties'  mediation on April 12, 2006, and
      in the event of a breach of the letter agreement,  the prevailing party in
      any ensuing litigation will be entitled to reasonable  attorneys' fees and
      costs.


                                      F-28
<PAGE>

              PACIFIC MAGTRON INTERNATIONAL CORP. and Subsidiaries
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003


Our primary business had been to distribute computer peripheral products through
our wholly owned  subsidiaries,  Pacific  Magtron,  Inc. (PMI),  Pacific Magtron
(GA), Inc.  (PMIGA),  and  LiveWarehouse,  Inc. (LW). Our business was organized
into three  divisions:  PMI,  PMIGA and LW. PMIGA ceased its operations on April
30, 2005.

The Company had  historically  relied on credit terms from its suppliers to fund
inventory purchases.  Our vendors  progressively imposed more restrictive credit
terms,  such that,  during the first  quarter  of 2005,  we were  unable to fund
purchases  and were  limited to selling  existing  inventory  with no ability to
replenish or purchase  inventory.  In  addition,  we did not have the ability to
draw on lines of credit to fund the shortfall caused by the elimination of terms
by our  vendors.  Because  of the  reduced  sales  caused  by  the  lack  of new
inventory, we were not able to pay our obligations on a timely basis.

On May 11, 2005 (the "Petition  Date"),  PMIC, PMI, PMIGA and LW filed voluntary
petitions to reorganize  their  businesses under Chapter 11 of the United States
Bankruptcy Code in the United States  Bankruptcy Court for the Southern District
of Nevada (the "Court").  The Court is jointly  administering these cases as "In
re:   Pacific   Magtron   International   Corporation,   Inc.,   et  al.,   Case
No.BK-S-05-14325  LBR." Although the petition was filed for reorganization under
Chapter 11 of the  Bankruptcy  Code,  the Company did not conduct any operations
after the  second  quarter  2005 other than those  necessary  to  liquidate  its
assets.

1.    BANKRUPTCY PROCEEDINGS

Upon the filing of the  petition  in May 2005,  the  Company  intended to form a
joint venture with General  Procurement,  Inc.  ("GPI") to continue the business
operations. On May 16, 2005, the Court approved the Interim Management Agreement
with GPI. Subsequent to the hearings on May 16, 2005, Micro Technology Concepts,
Inc.  ("MTC"),  a major  secured  creditor of the Company,  negotiated a similar
joint  venture  agreement  with the Company to replace the one entered into with
GPI.  The joint  venture  agreement  included  an interim  management  agreement
("IMA")  whereby the joint venture  partner,  MTC, would take over management of
the  Company's  sales and provide the Company with  inventory on a secured basis
while the  Company  sought  approval  of the joint  venture as part of a plan of
reorganization.

On June 23, 2005, MTC informed the Company that it would not continue to perform
under the Interim Management  Agreement and would not agree to allow the Company
to use MTC's cash collateral for any business purpose except for liquidating the
remaining assets of the Company.


                                      F-29
<PAGE>

The Company has been forced to cease business  activities except those necessary
to liquidate its  remaining  assets.  On August 31, 2005,  PMI filed a complaint
against MTC  alleging  that MTC breached  its  obligation  under the IMA and MTC
filed a motion to convert  the PMI case to a case under  Chapter 7 of the United
States  Bankruptcy Code. On September 9, 2005, MTC filed a counterclaim  against
PMI.

On  September  19, 2005,  PMI and MTC reached a settlement  by which the various
issues between MTC and PMI have been settled and the litigation  dismissed.  The
settlement agreement was approved by the Court on November 7, 2005.

On September  15, 2005,  PMI entered into an agreement to sell the real property
at 1600 California Circle,  Milpitas,  California  ("Facility") to a third party
for  $4,389,000.  The sale  agreement  was subject to the Court's  approval.  On
October 14, 2005, PMI rejected the prior sale agreement and sold its Facility to
another  party for  $4,990,000  pursuant to a Court order entered on October 28,
2005. The escrow was closed on November 23, 2005.

On July 18,  2005,  the Company  filed the  "Disclosure  Statement  to Accompany
Debtors' Joint  Liquidating  Plan of  Reorganization"  detailing the liquidation
plan, however, the Company did not receive the Court's approval for the plan. On
December  23,  2005,  PMI and PMIGA  filed an Amended  Disclosure  Statement  to
Accompany  PMI's Second Amended Plan of  Liquidation  and PMIGA's Second Amended
Plan of  Liquidation  ("the PMI & PMIGA Plan").  On January 30, 2006,  the Court
entered  an  order  (Docket  No.  507)  ("Confirmation   Order")  approving  and
confirming  the PMI & PMIGA Plan. The effective date of the PMI & PMIGA Plan was
February 10, 2006 ("the Effective Date").

On January  30,  2006,  PMIC and LW filed a  separate  Disclosure  Statement  to
Accompany Third Amended Plans of Reorganization  for PMIC and LW ("the PMIC & LW
Plan").  The Court authorized PMIC and LW to send the PMIC & LW Plan and ballots
to creditors and PMIC's shareholders to vote on the PMIC & LW Plan. The deadline
for voting on the PMIC & LW Plan is  February  24,  2006 and the  hearing on the
confirmation of the PMIC & LW Plan was scheduled for April 10, 2006.

Financial Statement Presentation

Effective July 1, 2005, the Company adopted the liquidation basis of accounting,
whereby  assets  are  valued  at  their  estimated  net  realizable  values  and
liabilities are valued at their estimated  settlement  amounts.  The Company has
provided  a  liquidation  basis  statement  of net  assets  (liabilities)  as of
December 31, 2005 and the statement of changes in net assets  (liabilities)  for
the six months ended December 31, 2005. The valuation of assets and  liabilities
requires  estimates and assumptions by management and there are uncertainties in
carrying out the liquidation and reorganization  plans. The amount and timing of
future  liquidating  distribution  to creditors and  shareholders,  if any, will
depend  upon a variety  of factors  including,  but not  limited  to, the actual
proceeds  from the  liquidation  of the Company's  assets,  and the actual costs
incurred in connection with carrying out the


                                      F-30
<PAGE>

liquidation and reorganization plans, including  administrative costs during the
liquidation period, and the timing of the liquidation.  These estimates may vary
significantly from the final amounts.  On January 30, 2006, the Court entered an
order  approving and confirming the PMI & PMIGA Plan. On January 30, 2006,  PMIC
and LW filed a separate PMIC & LW Plan. Both the PMI & PMIGA Plan and the PMIC &
LW Plan treat the assets and debts of each of the  entities as a separate  case.
The combined statement of net assets (liabilities) in liquidation as of December
31, 2005 and the combined  statement of changes of net assets  (liabilities)  in
liquidation  for the period from July 1, 2005 to December  31, 2005  present the
assets and  liabilities  and the  changes of net  assets  (liabilities)  of PMI,
PMIGA, LW and PMIC separately.

Prior to July 1, 2005,  the  Company had  prepared  its  consolidated  financial
statements on a  going-concern  basis,  which assumes  continuity of operations,
realization of assets and  satisfaction of liabilities in the ordinary course of
business.  PMIGA  ceased its  operation as of April 30,  2005.  The  activities,
assets and  liabilities  of PMIGA were  reclassified  for reporting  purposes as
discontinued  operations  for all  periods  prior to June 30,  2005 shown in the
accompanying consolidated financial statements.



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


                                      F-31
<PAGE>

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

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

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

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

PRINCIPLES OF CONSOLIDATION
The accompanying  consolidated financial statements include the accounts of PMIC
and its wholly-owned subsidiaries, PMI, PMIGA and LW. Inter-company accounts and
transactions  have been eliminated in  consolidation.  During the second quarter
2003, the Company sold substantially all the intangible assets of FNC and all of
the intangible  assets and certain  tangible assets of Lea. In addition,  during
the third  quarter 2003,  PMICC was  dissolved.  The  activities of FNC, Lea and
PMICC have been reclassified for reporting  purposes as discontinued  operations
for all periods presented in the accompanying  statements of operations and cash
flows.
RECLASSIFICATIONS
Certain 2003 financial  statement  amounts have been  reclassified to conform to
the 2004 financial statement presentation.

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

ACCOUNTS  RECEIVABLE  AND  ALLOWANCE FOR DOUBTFUL  ACCOUNTS The Company  granted
credit to its customers after undertaking an


                                      F-32
<PAGE>

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

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

PROPERTY AND EQUIPMENT AND OTHER LONG-LIVED ASSETS
Property and equipment are stated at cost.  Depreciation  is provided  using the
straight-line method over the estimated useful lives of the assets, as follows:

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

The Company  periodically  reviews its long-lived  assets for  impairment.  When
events or changes in circumstances indicate that the carrying amount of an asset
may not be  recoverable,  the Company  adjusts the asset to its  estimated  fair
value.  The fair value of an asset is determined by the Company as the amount at
which  that  asset  could be  bought or sold in a  current  transaction  between
willing parties or the present value of the estimated future cash flows from the
asset.  The asset value  recoverability  test is  performed by the Company on an
on-going  basis.  During the six months ended June 30, 2005,  the Company  wrote
down its  property  and  equipment  by $113,000  resulting  from the asset value
recoverability test performed.

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

WARRANTY REPAIRS
The Company was principally a distributor of numerous electronics products,  for
which the original equipment manufacturer was responsible and liable for product
repairs and service. Amounts claimed in excess of manufacturers' warranties were
estimated and charged to expense


                                      F-33
<PAGE>

based on historical  amounts and the mix of products  recently sold. The Company
had   experienced   an   insignificant   amount  of  claims  in  excess  of  the
manufacturers' warranties.

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

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

LOSS PER SHARE
Basic  loss  per  share  is  computed  by  dividing  loss  available  to  common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflect the potential dilution of securities,
using the  treasury  stock method that could share in the earnings of an entity.
During six months ended June 30, 2005,  options and warrants to purchase 620,000
shares of the Company's common stock and 800,000 shares of common stock issuable
upon  conversion of Series A Preferred  Stock were excluded from the calculation
of diluted  loss per share as their effect  would be  anti-dilutive.  During the
year ended December 31, 2004, options and warrants to purchase 750,000 shares of
the  Company's  common stock and 800,000  shares of common stock  issuable  upon
conversion of Series A Preferred  Stock were excluded  from the  calculation  of
diluted loss per share as their effect would be  anti-dilutive.  During the year
ended December 31, 2003,  options and warrants to purchase  1,094,000  shares of
the  Company's  common stock and 852,200  shares of common stock  issuable  upon
conversion of Series A Preferred Stock were excluded from the


                                      F-34
<PAGE>

calculation of diluted loss per share as their effect would be anti-dilutive.

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

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

Had the Company  adopted the  provisions  of SFAS No. 123, as amended,  prior to
June 15,  2005,  the  Company's  net loss and loss per  share  would  have  been
increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                     Six Months
                                                        Ended                 Year Ended December 31,
                                                       June 30,          -------------------------------
                                                        2005                2004               2003
                                                     -----------         -----------         -----------
<S>                                                  <C>                 <C>                 <C>
Net loss applicable to common shareholders:
  As reported                                        $(1,687,200)        $(1,172,700)        $(2,896,600)
    Add: total stock based
      employee compensation
      expense determined
      using the fair value
      method for all awards,
      net of tax                                              --             (11,200)            (17,600)
                                                     -----------         -----------         -----------
  Pro forma                                          $(1,687,200)        $(1,183,900)        $(2,914,200)
                                                     -----------         -----------         -----------
Basic and diluted loss per share:
  As reported                                             $(0.16)             $(0.11)             $(0.28)
  Pro forma                                               $(0.16)             $(0.11)             $(0.28)
</TABLE>


                                      F-35
<PAGE>


2.    DISCONTINUED OPERATIONS

Prior to July 1, 2005, the Company had prepared its consolidated financial
statements on a going-concern basis, which assumes continuity of operations,
realization of assets and satisfaction of liabilities in the ordinary course of
business. PMIGA ceased its operation as of April 30, 2005. The activities,
assets and liabilities of PMIGA were reclassified for reporting purposes as
discontinued operations for all periods prior to June 30, 2005 shown in the
accompanying consolidated financial statements.


In May 1998, PMI formed its Frontline Network Consulting (Frontline) division, a
corporate  information  systems  group that served the  networking  and personal
computer  requirements of corporate customers.  In July 2000, the Company formed
Frontline Network Consulting,  Inc. (FNC), a California corporation.  On June 2,
2003, the Company entered into an agreement to sell  substantially  all of FNC's
intangible assets to an unrelated party for a note in the amount of $15,000. The
Company  recorded a loss of $13,700 on the sale of the FNC  assets.  On June 30,
2003,  the  Company  sold  substantially  all of Lea  Publishing,  Inc.'s  (Lea)
intangible assets and certain  equipment to certain of the Lea's employees.  The
Company also entered into a Proprietary  Software License and Support  Agreement
requiring the purchaser to provide certain electronic  commerce support services
to LW for a term of two years  beginning  July 1,  2003.  The  Company  received
$5,000 on the  transaction  closing  date and the  electronic  commerce  support
services  contract  valued at  $48,000  which is based on the  number of service
hours to be provided.  The Company recorded a loss of $16,000 on the sale of the
Lea assets.  Lea was dissolved in the fourth quarter 2004.The operating results,
including the loss from disposal of assets, of FNC and Lea and PMIGA for the six
months  ended June 30, 2005 and for the years ended  December  31, 2004 and 2003
were as follows:


<TABLE>
<CAPTION>
                                                     Six Months
                                                        Ended                 Year Ended December 31,
                                                       June 30,          -------------------------------
                                                        2005                2004               2003
                                                     -----------         -----------         -----------
<S>                                                  <C>                 <C>                 <C>
PMIGA:
Net sales                                             $1,023,200          $4,958,600          $7,323,600
Loss before income taxes
 (benefit)                                              (140,000)           (100,700)           (180,000)
Income tax benefit                                            --                  --                  --
                                                     -----------         -----------         -----------
Net income (loss)                                     $ (140,000)         $ (100,700)         $ (180,000)
                                                     -----------         -----------         -----------
FNC:
Net sales                                             $       --            $323,200          $1,313,500
Income (loss) before income taxes
 (benefit)                                                    --              93,300            (311,600)
Income tax benefit                                            --                  --                  --
                                                     -----------         -----------         -----------
Net income (loss)                                     $       --             $93,300           $(311,600)
                                                     -----------         -----------         -----------
Lea:
Net sales                                             $       --            $     --            $179,700
Loss before income tax benefit                                --                  --            (122,300)
Income tax benefit                                            --                  --                  --
                                                     -----------         -----------         -----------
Net loss                                              $       --            $     --           $(122,300)
                                                     -----------         -----------         -----------
</TABLE>



                                      F-36
<PAGE>

3.    RELATED PARTY TRANSACTIONS
The Company sold  computer  products to a company owned by a member of the Board
of Directors of the Company.  During 2003,  the Company  recognized  $102,400 in
sales  revenues from this company.  There were no sales to this customer for the
six months  ended June 30,  2005 and for the year ended  December  31,  2004 and
there were no amounts due from this  customer  as of June 30, 2005 and  December
31, 2004.

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


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

5.    PROPERTY AND EQUIPMENT
The following is a summary of property and equipment as of December 31, 2004:

     Building and improvements                    $3,252,900
     Land                                          1,158,600
     Furniture and fixtures                          337,000
     Computers and equipment                         636,700
     Automobiles                                      91,000
                                                  ----------
                                                   5,476,200
     Less accumulated depreciation                 1,569,500
                                                  ----------
                                                  $3,906,700
                                                  ==========

Depreciation  expense  was  $6,290 for the six  months  ended June 30,  2005 and
$227,700  and  $233,000,  for the  years  ended  December  31,  2004  and  2003,
respectively.

On October 14, 2005, PMI sold its land and building in Milpitas, California to a
third party for  $4,990,000  pursuant to a Court order on October 28, 2005.  The
escrow was closed on November  23,  2005.  After  deducting  the normal  selling
expenses, PMI received a net proceeds of approximately  $4,764,500 from the sale
of the real  property.  A portion  of the  proceeds  was used to repay the first
mortgage  loan with Wells Fargo Bank and the second  mortgage loan with the U.S.
Small Business  Administration.  The cash, amounted to $119,701, in a restricted
account  was  released by Wells Fargo Bank upon the  repayment  of the  mortgage
loan. The amount in the restricted account was immediately transferred to MTC in
compliance with the Court's order.


                                      F-37
<PAGE>

6.    NOTES PAYABLE
The Company's wholly-owned subsidiary, PMI, had 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 bore  interest at the bank's  90-day LIBOR rate
plus 2.5%,  and was 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 bore
interest at 7.569%, and was secured by the underlying property.

Under the bank loan, PMI was required, among other things, to maintain a minimum
debt service  coverage,  a maximum debt to tangible net worth ratio, and to have
no consecutive  quarterly losses.  In addition,  PMI was required to achieve net
income on an annual basis.  PMI was in violation of the annual  income  covenant
and the minimum EBIDTA  coverage  ratio as of December 31, 2004.  These covenant
violations constituted an event of default under the loan agreement and gave the
bank the right to call the loan.  Waivers of the loan covenant  violations  were
obtained from the bank that extended  through  December 31, 2005. As a condition
for these waivers,  the Company maintained $250,000 in a restricted account as a
reserve for debt service as of December  31,  2004.  This amount was recorded as
long-term restricted cash in the accompanying consolidated balance sheet.

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


                  Bank loan                                  $2,331,700
                  SBA loan                                      771,700
                                                             ----------
                                                              3,103,400
                  Less current portion                           71,900
                                                             ----------
                                                             $3,031,500
                                                             ==========

The notes  payable to Wells  Fargo Bank and the SBA were repaid upon the sale of
the real property in November 2005. See note 5 above.

7.    FLOOR PLAN INVENTORY LOANS AND LETTER OF CREDIT
In May 2003,  PMI  obtained a $3,500,000  inventory  financing  facility,  which
includes a $1 million letter of credit facility,  used as security for inventory
purchased on terms from vendors in Taiwan,  from Textron  Financial  Corporation
("Textron"). The credit facility was guaranteed by PMIC, PMIGA, FNC, Lea, LW and
two officers of the Company and might be  discontinued by Textron at any time at
its sole  discretion.  Under the agreement,  the Company granted Textron a first
priority lien on all of its  corporate  assets.  Borrowings  under the inventory
line were subject to 30 days  repayment,  at which time interest  accrues at the
prime rate plus 6%. The Company was  required  to maintain  collateral  coverage
equal to 120% of the  outstanding  balance.  A prepayment  was required when the
outstanding balance exceeds the sum of 70% of the eligible accounts  receivables
and 90% of the  Textron-financed  inventory  and  100% of any cash  assigned  or
pledged to Textron.  PMI and PMIC were required to meet certain  financial ratio
covenants, including a minimum


                                      F-38
<PAGE>

current ratio, a maximum  leverage ratio, a minimum  tangible  capital funds and
required  levels of  profitability.  Beginning  on  September  30, 2003  through
December 31, 2004, the Company was out of compliance  with the maximum  leverage
ratio covenant and the minimum tangible capital funds for which waivers had been
obtained  through  December 31, 2004.  The Company was also required to maintain
$250,000 in a  restricted  account as a pledge to Textron.  This amount had been
reflected  as  restricted  cash  in  the  accompanying   consolidated  financial
statements.  As of December 31, 2004, the  outstanding  balance of this loan was
$2,243,100  which is  classified  as a  current  liability  on the  accompanying
consolidated balance sheet.

The loan from Textron was fully repaid on August 2, 2005.

8.    INCOME TAXES
There was no income tax benefit (expense) recorded for the six months ended June
30, 2005 and for the years ended December 31, 2004 and 2003.

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


YEAR ENDING DECEMBER 31,                   2004          2003
------------------------               ----------     ---------
Federal income tax benefit
  at statutory rate                    $  643,300     $ 723,700
Other non-taxable income and
  non-deductible expenses                 (17,400)      (33,000)
Change in deferred tax assets             194,200        94,800
Change in valuation allowance            (797,800)     (784,100)
Other                                     (22,300)       (1,400)
                                       ----------     ---------
Income tax benefit                     $       --     $      --
                                       ==========     =========

On March  20,  2003,  the  Company  received  a  federal  income  tax  refund of
$1,427,400  attributable  to 2002 net operating  loss carried back.  The Company
recorded a valuation  allowance  for its net deferred tax assets,  including its
federal and state net  operating  loss for the year ended  December 31, 2004 and
2003. There was no tax benefit recorded relating to the increase in deferred tax
assets.  As of December 31,  2004,  the Company had a total net  operating  loss
carry forwards of  approximately  $3,802,600 of which  $1,775,600 and $2,027,000
will expire in 2024 and 2023,  respectively,  available to offset future federal
taxable income.

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


                                      F-39
<PAGE>

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

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

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

9.    MAJOR VENDORS
One vendor  accounted for  approximately  15% and 18% of total  purchases by the
Company for the years ended December 31, 2004 and 2003, respectively.  One other
vendor accounted for 17% of purchases for the year ended December 31, 2003.

10.   EMPLOYEE BENEFIT PROGRAM-401(k) PLAN
The  Company  had a 401(k)  plan  (the  Plan)  for its  employees.  The Plan was
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 were  discretionary,  subject to statutory maximum
levels.  There were no  contributions by the Company in 2005, 2004 and 2003. The
Plan was terminated in January 2006.

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


                                      F-40
<PAGE>

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

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

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

The holder of the Series A Preferred Stock was entitled to cumulative  dividends
at the rate of 4% per annum,  payable on each  Conversion  Date, as defined,  in
cash or by accretion of the stated  value.  The amount  recorded as accretion of
the stated value for the years ended  December 31, 2004 and 2003 was $26,100 and
$24,900,  respectively.  Dividends  were  required to be paid in cash,  if among
other  circumstances,  the number of the Company's  authorized common shares was
insufficient  for the conversion in full of the Series A Preferred Stock, or the
Company's  common stock was not listed or quoted on Nasdaq,  NYSE or AMEX.  Each
share of Series A Preferred  Stock was  non-voting and entitled to a liquidation
preference  of the stated  value plus  accrued and unpaid  dividends.  A sale or
disposition  of 50% or more of the assets of the  Company,  or  completion  of a
transaction  in which  more  than 33% of the  voting  power  of the  Company  is
disposed of, would constitute liquidation.  At any time and at the option of the
holder,  each share of Series A Preferred Stock was  convertible  into shares of
common stock at the Conversion Price, as defined, but not less than


                                      F-41
<PAGE>

$0.75.  The Conversion Price was subject to certain  adjustments,  such as stock
dividends.

Upon the  occurrence  of a  Triggering  Event,  such as failure to register  the
underlying common shares among other events as defined, the holder of the Series
A  Preferred  Stock had the right to require  the Company to redeem the Series A
Preferred Stock in cash at 150% of the Stated Value.

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

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

In December 2004, the Company entered into an agreement (the Series A Agreement)
with the  Investor  for  restructuring  certain  terms of the Series A Preferred
Stock.  In connection  with the closing of the  transactions  under the Series A
Agreement,  the Company  amended and restated its  Certificate of Designation of
Preferences,  Rights and Limitations of the Series A Preferred Stock on December
31, 2004.  Among the terms  amended are (1) the number of shares  designated  as
Series A Preferred Stock were decreased from 1,000 to 600 shares; (2) the Stated
Value of each  share of Series A  Preferred  Stock was  reduced  from  $1,000 to
$666.67;  (3) the  holders of the Series A  Preferred  Stock no longer  have the
right to required the Company to redeem each share


                                      F-42
<PAGE>

of Series A Preferred Stock,  which rights were triggered upon the occurrence of
certain events;  (4) the redemption  amount payable by the Company upon exercise
of its redemption  right was reduced from 150% of Stated Value to 100% of Stated
Value; (5) there is a 181-day waiting period from the date of filing the Amended
and  Restated   Certificate  of  Designation  before  the  holder  may  exercise
conversion  (unless the Company  initiates a redemption  prior to the end of the
181-day  period);  (6) the conversion  price of the Series A Preferred Stock was
changed  to a  fixed  price  of  $0.50  per  share,  subject  to  customary  and
anti-dilution adjustments; and (7) the Company has five trading days, instead of
three, to comply with conversion procedures.  As part of the Series A Agreement,
the Investor forfeited a stock purchase warrant,  exercisable for 300,000 shares
of the Company's  common stock,  that was issued in connection with the original
issuance of the Company's Series A Preferred  Stock.  The Company  accounted for
these  transactions  in  accordance  with SFAS 15,  Accounting  by  Debtors  and
Creditors for Troubled Debt  Restructurings.  The  restructuring of the Series A
Preferred Stock resulted in a gain of $758,600 (or $0.07 per share) for the year
ended December 31, 2004. The fair value of the  restructured  Series A Preferred
Stock was $234,100 as of December 31, 2004 and was  classified as  shareholders'
equity in the balance sheet.
13. CAPITAL STOCK INVESTMENT BANKING SERVICES
On December  16,  2002,  the Company  issued  warrants for the purchase of up to
300,000  shares of its common stock under terms of an agreement  for  investment
banking  services.  Warrants to purchase  100,000 shares of the Company's common
stock were to vest  immediately and warrants to purchase  200,000 shares were to
vest 50% on June 16, 2003 and 50% on December  16, 2003.  The Company  accounted
for this  transaction in accordance  with EITF No. 96-18,  Accounting for Equity
Instruments  that are issued to Employees for Acquiring,  or in Conjunction with
Selling  Goods or  Services.  On June 16,  2003,  the  Company  terminated  this
agreement and the warrants to purchase  200,000 shares were  cancelled.  For the
years ended December 31, 2003, the Company  recorded  $28,500 in expense related
to this transaction.

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

<TABLE>
<CAPTION>
                                                                                                Weighted
                                                               Weighted       Weighted           Average
                                Shares                          Average        Average         Remaining
                             Available          Options        Exercise           Fair       Contractual
                             for Grant      Outstanding           Price          Value              Life
                             ---------      -----------        --------       --------         ---------
<S>                          <C>            <C>               <C>             <C>              <C>
DECEMBER 31, 2002              292,000          652,000          1.11            0.76          3.1 Years
Options forfeited               58,000          (58,000)         2.63            2.33                 --
                             ---------      -----------        --------       --------
DECEMBER 31, 2003              350,000          594,000          0.96            0.82         2.3 Years
Options forfeited                2,000           (2,000)         1.50            1.30                --
Options expired                 42,000          (42,000)         1.50            1.33                 --
                             ---------      -----------        --------       --------
DECEMBER 31, 2004              394,000          550,000         $0.91           $0.78         1.4 Years
Options expired                     --               --              --             --                --
                             ---------      -----------        --------       --------
JUNE 30, 2005                  394,000          550,000         $0.91           $0.00         0.9 Years
                             =========      ===========        ========       ========
</TABLE>


                                      F-43
<PAGE>

The following table summarizes information about stock options outstanding as of
June 30, 2005:

                       Options Outstanding                 Options Exercisable
              --------------------------------------      ----------------------
                              Weighted
                Number         Average      Weighted        Number     Weighted
              Outstanding     Remaining      Average      Exercisable   Average
Exercise        as of        Contractual    Exercise        as of      Exercise
Price         06/30/2005        Life          Price       06/30/2005     Price
-----         ----------     ----------       -----       ----------     -----
$0.76            10,000       2.0 Years       $0.76          10,000      $0.76
$0.88           323,800       0.8 Year        $0.88         323,800      $0.88
$0.97           206,200       0.8 Year        $0.97         206,200      $0.97
$1.05            10,000       1.9 Years       $1.05          10,000      $1.05
               --------                                     -------
                550,000       0.9 Year        $0.91         550,000      $0.91
               ========                                     =======

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

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

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

Equity compensation
 plans not approved
 by stockholders                100,000                 $1.20                         --
                             ----------------------------------------------------------
Total                           650,000                 $0.99                    394,000
                             ==========                                         ========
</TABLE>


                                      F-44
<PAGE>

14.   SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Cash was paid  during the six months  ended  June 30,  2005 and the years  ended
December 31, 2004 and 2003 for:

                          SIX MONTHS
                             ENDED        YEAR ENDED DECEMBER 31,
                            JUNE 30,      --------------------
                             2005          2004          2003
                          ----------      --------     --------
Income taxes                  $3,000      $  3,600     $  3,600
                          ==========      ========     ========
Interest                    $124,200      $166,200     $170,500
                          ==========      ========     ========

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

On May 31, 2002, the Company issued  warrants to purchase  400,000 shares of the
Company's  common  stock to the  preferred  stock  investor  and the  broker  in
connection with the issuance of preferred stock. In connection with the issuance
of the  preferred  stock,  the Company  recorded a non-cash  deemed  dividend of
relating to the beneficial conversion feature of the preferred stock of $260,000
for the year ended  December  31,  2002.  Accretion  of the stated  value of the
preferred  stock,  including the recording of increases in redemption  value, of
$8,100, $39,100 and $768,200 was recorded for the six months ended June 30, 2005
and for the years ended December 31, 2004 and 2003, respectively.

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

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

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

15.   SEGMENT INFORMATION
The Company had two reportable segments:  PMI and LW.

PMI  imports and  distributes  electronic  products,  computer  components,  and
computer peripheral  equipment to various  distributors and retailers throughout
the  United  States.  LW  sells  similar  products  as PMI to  retailers  and to
end-users through a website.


                                      F-45
<PAGE>

The Company  evaluated  performance  based on income or loss before income taxes
and minority interest, not including nonrecurring gains or losses. Inter-segment
transfers  between  reportable  segments had been  insignificant.  The Company's
reportable  segments were strategic business units. They were managed separately
because each business required different technology and/or marketing strategies.
The Company did not have  offices or operation  in foreign  countries.  Sales to
customers  located in foreign countries for the year ended December 31, 2004 and
2003 are as follows:

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


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

Year Ended December 31, 2004:
                                          PMI            LW         Totals
                                       -----------   ----------   -----------
Revenues from external customers
                                       $61,101,100   $5,413,800   $66,514,900
Interest income                              2,000           --         2,000
Interest expense                           166,200           --       166,200
Depreciation and
 amortization (1)                          206,500          300       206,800
Segment loss before taxes
 and minority interest                  (1,650,400)    (248,800)   (1,899,200)
Segment assets (2)                      20,615,400      724,800    21,340,200
Expenditures for segment
 assets                                         --           --            --


Year Ended December 31, 2003:
                                           PMI           LW         Totals
                                       -----------   ----------   -----------
Revenues from external customers       $60,410,600   $7,251,100   $67,661,700
Interest income                              3,200           --         3,200
Interest expense                           144,000       13,700       157,700
Depreciation and
 amortization (1)                          202,500        7,600       210,100
Segment loss before taxes
 and minority interest                  (1,330,200)    (258,100)   (1,588,300)
Segment assets (2)                      22,707,300    1,687,600    24,394,900
Expenditures for segment
 assets                                         --           --            --


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

(2)   Segment assets before Intercompany eliminations.



                                      F-46
<PAGE>

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

                                             2004              2003
                                          ------------     ------------

LOSS BEFORE INCOME TAXES:
Loss for reportable segments               $(1,899,200)     $(1,588,300)
Change in fair value of warrants                46,400          105,800
Amortization of warrants issuance costs        (32,000)         (32,000)
                                          ------------     ------------
Consolidated loss from continuing
  operations before income taxes           $(1,884,800)     $(1,514,500)
                                          ============     ============
ASSETS:
Total assets for reportable segments       $11,142,500      $13,628,500
Assets of PMIGA, FNC and Lea                   572,800        1,012,100
Other assets                                    25,400          131,800
                                          ------------     ------------

Consolidated total assets                  $11,740,700      $14,772,400
                                          ============     ============

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

In April 2003, the Company settled a lawsuit relating to a counterfeit  products
claim for  $95,000  which was  included in other  expenses  in the  accompanying
consolidated statement of operations.

17.   UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL DATA
Summarized quarterly financial data for 2005 and 2004 is as follows:

<TABLE>
<CAPTION>
                                                              Quarter
                                     First            Second             Third           Fourth
                                    --------          --------          --------        ---------
<S>                               <C>                <C>                <C>             <C>
2005:
Sales                             $9,369,700          $613,800                --               --
Gross profit                         378,400             9,000                --               --
Loss from Operations                (851,500)         (687,600)               --               --
Net loss applicable to
 common shareholders                (319,200)         (676,700)               --               --
Basic and diluted loss
 per share (1):
   Loss from Operations                (0.08)            (0.06)               --               --
   Net loss applicable
     To common shareholders            (0.10)            (0.06)               --               --
</TABLE>


                                      F-47
<PAGE>

<TABLE>
<CAPTION>
<S>                              <C>               <C>               <C>              <C>
2004:
Sales                            $20,300,700       $15,895,900       $15,867,100      $14,451,200
Gross profit                       1,027,300           684,000           731,100          788,400
Loss from Operations                (267,600)         (479,500)         (216,100)        (921,600)
Net loss applicable to
 common shareholders                (319,200)         (558,900)         (176,400)        (118,200)
Basic and diluted loss
 per share (1):
   Loss from Operations                (0.03)            (0.05)            (0.02)           (0.18)
   Net loss applicable
     To common shareholders            (0.03)            (0.05)            (0.02)           (0.01)
</TABLE>


(1)   Loss  per  share  are  computed  independently  for  each of the  quarters
presented.  The sum of the  quarterly  loss per  share in 2005 and 2004 does not
equal the total  computed  for the year ended  December 31, 2004 and for the six
months ended June 30, 2005 due to rounding.


                                      F-48
<PAGE>

                                  EXHIBIT INDEX


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

2.1       Settlement Agreement Affecting Adversary Proceeding, Payment of Claims
          and Plans of  Reorganization  (filed as Exhibit 10.2 to our  Quarterly
          Report on Form 10-Q on November 14, 2005).

2.2       Amended  Disclosure  Statement to Accompany  Pacific  Magtron,  Inc.'s
          Second Amended Plan of Liquidation  and Pacific  Magtron (GA),  Inc.'s
          Second  Amended  Plan of  Liquidation  (filed  as  Exhibit  2.1 to our
          Current Report on Form 8-K on February 3, 2006).

2.3       Disclosure   Statement   to   Accompany   Third   Amended   Plans   of
          Reorganization   for   Pacific   Magtron   International   Corp.   and
          Livewarehouse,  Inc.  (filed as Exhibit 99.1 to our Current  Report on
          Form 8-K on February 3, 2006).

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

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

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

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

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

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

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

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

10.6      Agreement of Purchase and Sale and Joint Escrow Instructions, dated as
          of October 14, 2005,  between  Pacific  Magtron,  Inc. and Everlasting
          Private  Foundation  (filed as Exhibit  10.1 to our Current  Report on
          Form 8-k on November 1, 2005).

16.1      Letter from Weinberg & Company,  P.A., addressed to the Securities and
          Exchange Commission  regarding its agreement to the statements made in
          our Current Reports on Form 8-K and Form 8-K/A filed on March 6 and 7,
          2006,  respectively (filed as Exhibit 16 to our Current Report on Form
          8-K/A on March 7, 2006).

21.1      Subsidiaries (filed herewith).

<PAGE>

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

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

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

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

*     In the  case of  incorporation  by  reference  to  documents  filed by the
Registrant  under  the  Securities  Exchange  Act  of  1934,  as  amended,   the
Registrant's file number under the Exchange Act is 000-25277.

<PAGE>

SUPPLEMENTAL SCHEDULE

PACIFIC MAGTRON INTERNATIONAL CORP. and Subsidiaries

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                           Charged to
Allowance for Doubtful                    Beginning          Costs         Write-offs            Ending
Accounts                                   Balance        and Expense      of Accounts          Balance
-------------------------------           ---------       -----------      -----------         ---------
<S>                                       <C>             <C>              <C>                 <C>
Year ended December 31,
 2003                                      $301,600          $125,000        $(148,200)         $278,400

Year ended December 31,
 2004                                      $278,400         $ 538,700        $(506,400)         $310,700
</TABLE>