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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K

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

                                   (MARK ONE)
       [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2001

                                       OR

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

             For the transition period from __________ to __________


                         COMMISSION FILE NUMBER 0-17521


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


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


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


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


           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:


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


           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                          COMMON STOCK, $.001 PAR VALUE
                                (Title of Class)

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

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

At  March  19,  2002  the  aggregate  market  value  of  common  stock  held  by
non-affiliates of the registrant was approximately $12,058,000.

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

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

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

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

At March  19,  2002 the  number  of  shares  of  common  stock  outstanding  was
10,485,062.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement relating to the 2002 Annual Meeting
of  Stockholders  are  incorporated by reference into Part III, Items 10, 11, 12
and 13.
<PAGE>
     The following  statement is made pursuant to the safe harbor provisions for
forward-looking statements described in the Private Securities Litigation Reform
Act  of  1995.  Pacific  Magtron   International  Corp.  and  subsidiaries  (the
"Company")  may make  certain  statements  in this  Annual  Report on Form 10-K,
including,  without  limitation,  statements that contain the words  "believes,"
"anticipates,"  "estimates," "expects," and words of similar import,  constitute
"forward-looking  statements."  Forward-looking  statements may relate to, among
other items, our future growth and profitability;  the anticipated trends in our
industry;  our  competitive  strengths  and  business  strategies;  and  our new
business  initiatives.  Further,  forward-looking  statements  are  based on our
current  expectations  and are subject to a number of risks,  uncertainties  and
assumptions  relating  to our  operations,  financial  condition  and results of
operations. For a discussion of factors that may affect the outcome projected in
such  statements,  see "Cautionary  Factors that May Affect Future  Results," in
this Report.  If any of these risks or uncertainties  materialize,  or if any of
the  underlying  assumptions  prove  incorrect,   actual  results  could  differ
materially  from  results  expressed  or implied  in any of our  forward-looking
statements.  We do not undertake any obligation to revise these  forward-looking
statements  to reflect  events or  circumstances  arising after the date of this
Annual Report on Form 10-K.

                                     PART I

ITEM 1. BUSINESS

SUMMARY OF OUR BUSINESS

As  used in  this  document  and  unless  otherwise  indicated,  the  terms  the
"Company,"  "PMIC," "we," "our" or "us" refer to Pacific  Magtron  International
Corp., a Nevada corporation, and its subsidiaries.

Our primary business is to provide computer and information technology solutions
through our wholly-owned subsidiaries,  Pacific Magtron, Inc. (PMI), PMI Capital
Corporation  (PMICC),  Lea  Publishing,  LLC  (Lea),  LiveWarehouse,   Inc.  and
majority-owned  subsidiaries,  Pacific Magtron (GA), Inc.  (PMIGA) and FrontLine
Network Consulting, Inc. (FNC).

Our  business  is  organized  into  four   divisions:   PMI,   PMIGA,   FNC  and
Lea/LiveMarket.  Founded in 1989, PMI fulfills the multimedia  hardware needs of
system  integrators,  value  added  resellers,   retailers,  original  equipment
manufacturers,  software vendors,  and Internet  resellers through the wholesale
distribution of computer related multimedia hardware components and software. In
August  2000,  we formed  PMIGA for the  distribution  of PMI's  products in the
eastern  United  States.  FNC serves as a corporate  information  services group
catering to the networking and Internet infrastructure requirements of corporate
clients.  Lea/LiveMarket  is  engaged in the  development  and  distribution  of
software  and  e-business  products and  services,  as well as  integration  and
hosting services.

In January  1999,  we formed Lea, a California  limited  liability  company,  to
develop, sell and license software designed to provide Internet users, resellers
and  providers  advanced  solutions  and  applications.  Prior to the  ownership
exchange discussed below, we owned a 62.5% combined direct and indirect (through
our 25% ownership  interest in Rising Edge Technology (Rising Edge)) interest in
Lea,  which is a  development  stage  company.  Michael  Lee, the brother of Hui
Cynthia Lee, one of our officers and  directors,  is the  president and director
and a majority  shareholder of Rising Edge. In December 2001, we entered into an
agreement  with Rising Edge and its principal  owners to exchange  Rising Edge's
50%  ownership  interest  in Lea for our  25%  interest  in  Rising  Edge.  As a
consequence,  we own 100% of Lea and no longer  have an  ownership  interest  in
Rising Edge.

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

In the fourth  quarter of 2001,  certain  assets of  LiveMarket  were  purchased
through  PMICC and  subsequently  transferred  to Lea.  These assets  consisting
primarily of computer  equipment,  furniture and fixtures,  certain  Web-hosting
contracts,  rights to certain  intellectual  properties,  including LiveSell and
LiveExchange,  and non-tangible assets such as domain names and trademarks, were
acquired for $85,000,  plus $59,100 in acquisition  costs, and the assumption of
$20,000 in accrued  vacation  obligations  (investment of $164,100 in total) and
recorded  under  the  purchase  method  of  accounting  as  prescribed  by  FASB
Statements No. 141,  Business  Combinations.  LiveMarket is an internet software
development company which designs and develops online stores (LiveSell) to allow
consumers to purchase products directly via a secured  transaction  network.  It
also designs and develops enterprise document exchange solutions  (LiveExchange)
for its client's integration of disparate systems.

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

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

                                      -1-
<PAGE>
INDUSTRY OVERVIEW

WHOLESALE MICRO COMPUTER PRODUCTS DISTRIBUTION

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

INCREASED RELIANCE ON WHOLESALE MICRO COMPUTER PRODUCTS DISTRIBUTION

We believe that the growth of the microcomputer  products wholesale distribution
industry  exceeds that of the  microcomputer  industry as a whole.  In our view,
suppliers,  vendors,  and resellers are relying to a greater extent on wholesale
distributors for their distribution needs. Traditionally,  manufacturers rely on
two  major  channels  for the  sale  of  their  products  -  original  equipment
manufacturers (OEMS) and wholesale distributors. Today, many suppliers outsource
a growing portion of certain functions, such as distribution, service, technical
support and final assembly,  to the wholesale  distribution  channel in order to
minimize costs and focus on their core  capabilities in  manufacturing,  product
development and marketing.  On the reseller side,  growing  product  complexity,
shorter  product life cycles,  lower inventory stock level and tighter cash flow
have led resellers to depend upon  wholesale for a majority of their  purchases.
Resellers often cannot,  or choose not to, establish a direct  relationship with
manufacturers  due  to  minimum  quantity   requirements,   insufficient  credit
facilities and other issues.  Instead, they rely on wholesale  distributors that
can leverage purchasing costs across multiple resellers to satisfy a significant
portion of their  product  procurement  and delivery,  financing,  marketing and
technical support needs.

OPEN SOURCING

Historically,  resellers  were  restricted,  or  limited,  to a small  number of
manufacturer  authorized  distribution  sources such as master  distributors for
their  product  needs.  In recent years,  competitive  pressures led some of the
major  manufacturers to authorize  multiple  sourcing,  in which resellers could
purchase  products  from a source  other than  their  primary  master  reseller,
subject to certain  restrictive terms and conditions.  More recently,  all major
manufacturers have authorized open sourcing,  under which resellers can purchase
the  supplier's  product  from any source on equal  terms and  conditions.  Open
sourcing has thus blurred the distinction  between  wholesale  distributors  and
master  resellers,  which are increasingly able to serve the same reseller base.
We believe  that open  sourcing  enables  those  distributors  of  microcomputer
products which provide the highest value through superior service and pricing to
be in the best position to compete for reseller customers.

INTERNET SERVICES

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

CORPORATE INFORMATION SYSTEMS CONSULTING

Because of factors similar to those encouraging the increased reliance by target
clients on wholesale distributors, we believe that corporations are increasingly
looking  to  specialist  service  organizations,  such as FNC,  to  support  the
development and maintenance of their information technology systems or networks.
Accelerating  technological  advancement,   migration  of  organizations  toward
multi-vendor  distributed  networks,  and increased  globalization  of corporate
activity have  contributed to an increase in the  sophistication  of information
delivery systems and interdependency of corporate computing systems.  The desire
by corporations to focus upon their core activities  while enjoying the benefits
of such  multi-vendor  distributed  networks,  together  with  increasing  skill

                                      -2-
<PAGE>
shortages  within the information  technology  industry,  have led businesses to
increasingly  outsource  the  development  and  maintenance  of their  computing
systems to network consulting professionals.

SOFTWARE SOLUTIONS AND PUBLISHING

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

OUR HISTORY

We were  incorporated as Wildfire  Capital  Corporation  (Wildfire) in Nevada on
January  8, 1996 in order to engage in the  business  of  providing  a  national
retail  market for premium  wines on the  Internet.  Due primarily to regulatory
issues,  the business of Wildfire did not develop as expected,  and as a result,
Wildfire  closed its  marketing  operations  in the fall of 1997.  At that time,
Wildfire began searching for new business  opportunities,  and on July 16, 1998,
the  Board of  Directors  of  Wildfire  recommended  the  acquisition  of PMI to
Wildfire's  shareholders.  The  shareholders  of Wildfire  and PMI  approved the
transaction,  and  Wildfire  issued  9,000,000  shares  of its  common  stock in
consideration for all of the outstanding  shares of PMI. As a result, the former
shareholders of PMI became the controlling shareholders of Wildfire. PMI was the
accounting  acquiror  in  the  reverse  acquisition.  Immediately  prior  to the
transaction,  Wildfire  effected  a  two-for-three  reverse  stock  split of its
1,500,000   outstanding  shares  of  common  stock.  Upon  consummation  of  the
acquisition,  Wildfire changed its name to Pacific Magtron  International Corp.,
and PMI continued its business operations as our wholly-owned subsidiary.

PRODUCTS AND SERVICES

We operate in four main business divisions. Our computer products group operates
through a wholly-owned  subsidiary  under the name Pacific  Magtron,  Inc. and a
majority-owned  subsidiary,  PMIGA.  Our  corporate  information  systems  group
operates through FNC, a majority-owned  subsidiary. Our software development and
publishing   group,   Lea/LiveMarket,   operates  through  Lea,  a  wholly-owned
subsidiary.

In addition to the four primary divisions,  PMICC and  LiveWarehouse,  Inc. were
formed in the last quarter of 2001 as wholly owned  subsidiaries of PMIC.  PMICC
was formed for the purpose of acquiring  companies or assets deemed suitable for
PMIC's organization.  LiveWarehouse, Inc. was formed to develop a consumer-based
computer  products  distribution  business,  designed  to  provide  consumers  a
convenient way to purchase computer products via the internet.

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

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

INVENTORY  LEVELS AND ASSET  MANAGEMENT:  We maintain  sufficient  quantities of
product  inventories  to achieve  high order fill rates,  and believe that price
protection  and stock  return  privileges  provided by  suppliers  substantially
mitigate the risks associated with slow moving and obsolete  inventory.  We also
operate a computerized inventory system that allows us to identify and deal with
slow moving inventory.  If a supplier reduces its prices on certain products, we
generally receive a credit for such products in our inventory.  In addition,  we
have the right to return a certain  percentage of purchases,  subject to certain

                                      -3-
<PAGE>
limitations.  Historically,  price  protection,  stock  return  privileges,  and
inventory management  procedures have helped to reduce the risk of a significant
decline in the value of inventory.

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

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

FRONTLINE NETWORK CONSULTING - CORPORATE INFORMATION SYSTEMS

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

IT DESIGN,  PLANNING,  AND PROJECT  MANAGEMENT  SERVICES:  As part of  providing
specific solution sets, we provide the design,  planning, and project management
services within the  specializations of Enterprise  high-availability  services,
enterprise and network management,  advanced  internetworking,  LAN engineering,
telephony/video/data   convergence,   systems   engineering,   storage   &  data
management, and Internetwork/Network/Systems Security.

IT IMPLEMENTATION AND CONFIGURATION  SERVICES: For specific project engagements,
we provide configuration, testing, troubleshooting, education and training.

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

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

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

LEA/LIVEMARKET - SOFTWARE DEVELOPMENT AND PUBLISHING

In January 1999 we formed Lea to develop,  sell and license software designed to
provide advanced  solutions and  applications for internet users,  resellers and
providers.  We and Rising Edge, a Taiwanese software  development company formed
in 1996, each owned 50% of Lea. Michael Lee, the brother of Hui Cynthia Lee, one
of our  officers  and  directors,  is the  president,  a director and a majority
shareholder  of Rising  Edge.  On June 13, 2000,  we  purchased a 25%  ownership

                                      -4-
<PAGE>
interest  in Rising  Edge from Mr. Lee for  $500,000.  Our  combined  direct and
indirect holdings in Lea therefore increased to 62.5%.  Theodore Li and Hui Lee,
both of whom are our  directors,  officers and principal  shareholders,  are the
managers of Lea.

During fiscal 1999 we invested  approximately $470,000 in Lea, which was paid to
Rising Edge  pursuant to a software  development  agreement  for its services in
developing Lea's first software product.  We terminated this software developing
agreement and Rising Edge refunded  $200,000 of our fee payment in January 2001.
Subsequently,  Lea continued its software development efforts by use of in-house
programming  resources and outsourced the work when  appropriate.  Lea completed
final testing of WEBChat, its first product, and a second product,  InfoBar, but
determined  in the  fall  of  2001  to  delay  introduction  of  these  products
indefinitely  due to market  conditions.  In December  2001,  we entered into an
agreement with Rising Edge Technology  (Rising Edge) and its principal owners to
exchange  Rising  Edge's 50%  ownership  interest in Lea for our 25% interest in
Rising  Edge.  As a  consequence,  we now own 100% of Lea and no longer  have an
ownership interest in Rising Edge.

In the fourth  quarter of 2001,  certain  assets of  LiveMarket  were  purchased
through PMICC and  subsequently  transferred  to Lea.  These assets,  consisting
primarily of computer  equipment,  furniture and fixtures,  certain  Web-hosting
contracts,  rights to certain intellectual  properties  including,  LiveSell and
Live Exchange, and non-tangible assets such as domain names and trademarks, were
acquired for $85,000,  plus $59,100 in acquisition  costs, and the assumption of
$20,000 in accrued  vacation  obligations  (investment of $164,100 in total) and
recorded  under  the  purchase  method  of  accounting  as  prescribed  by  FASB
Statements No. 141,  Business  Combinations.  LiveMarket is an internet software
development company which designs and develops online stores (LiveSell) to allow
consumers to purchase products directly via a secured  transaction  network.  It
also designs and develops enterprise document exchange solutions  (LiveExchange)
for its client's integration of disparate systems.

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

SYSTEM INTEGRATION & SUPPLY CHAIN CONSULTING  SERVICE:  Lea/LiveMarket  provides
business  case and  recommendations  on  business-to-business  (B2B)  build-out,
return on investment  analysis,  direct and indirect material spending analysis,
inventory reduction analysis and product cycle time reduction analysis.

INTERNET SOFTWARE  DEVELOPMENT AND DEPLOYMENT:  Using LiveSell and LiveExchange,
Lea/LiveMarket can design and implement B2B and business-to-customer (B2C) sites
expeditiously and bring EAI capabilities to its client's current environment.

APPLICATIONS  SERVICE  PROVIDER AND MANAGED  SERVICES:  Lea/LiveMarket  provides
managed hosting services,  application monitoring,  application support and help
desk support.

CUSTOM  PROGRAMMING:  Lea/LiveMarket also provides Microsoft Biztalk programming
through the use of LiveExchange, enabling legacy systems to interface with other
systems effectively, automation of communication between disparate systems.

All offerings are based on  Microsoft.NET  architecture  and are marketed  under
four  specific  point  solutions,  as well as general  consulting.  Prior to the
transfer  of  LiveMarket's  assets  to  Lea,  Lea's  only  significant  activity
consisted of the software development noted above.

PLANS FOR EXPANSION

Our plans to expand our wholesale distribution business include:

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

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

                                      -5-
<PAGE>
*    actively  focusing on building our eastern United States and  international
     sales through advertising in international markets; and

*    implementation of an e-commerce strategy.

The  execution  of these  plans is highly  dependent  upon the  strength  of the
overall computer products industry.

Our strategy for developing FNC's business includes:

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

*    increasing  our  partnering   relationships  with  independent   technology
     consultants  in order to provide us with access to a new customer  base and
     provide us with additional consulting talent; and

*    continuing to add expertise in newly identified  market segments to broaden
     our menu of services.

Our strategy for developing Lea/LiveMarket business includes:

*    Leverage LiveMarket's intellectual property and knowledge to enter into the
     various software  development,  solution consulting and custom programming,
     as well as hosting, markets;

*    Continue  to develop our current  suite of software to  integrate  enhanced
     features based on the future market needs; and

*    Identify additional vertical markets where  Lea/LiveMarket's  skill set can
     promote a captured market segment.

In addition to expanding our computer products,  corporate  information  systems
and software  development and publishing  groups,  we also intend to utilize our
management's  network  of  industry  contacts  to explore  possible  acquisition
candidates  and  opportunities.  There can be no assurance that we will identify
any acquisition opportunities, or if such opportunities are presented, that they
can be  acquired on  acceptable  terms and  conditions  or that we will have the
capital required to complete such acquisitions.

SALES AND MARKETING

Our sales for our computer  products  divisions are generated by a telemarketing
sales force,  which consisted of approximately 14 people as of February 15, 2002
in our offices  located in  Milpitas,  California  and six people in our Georgia
branch.

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

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

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

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

                                      -6-
<PAGE>
We pride  ourselves  on being  service-oriented  and have a number  of  on-going
value-added  services  intended to benefit both our vendors and their resellers.
We train members of our sales staff through  intensive  in-house  sales training
programs,  along with vendor-sponsored product seminars. This training helps our
sales  people  provide  our  customers  with  product  information,  answer  our
customers'  questions  about  important  new  product  considerations,  such  as
compatibility  and  capability,  and to  advise  which  products  meet  specific
performance  and price  criteria.  The core  competency our sales people develop
about the  products  that  they sell  supplements  the  sophisticated  technical
support and configuration services we provide. Salespeople who are knowledgeable
about the  products  that they sell  often can  assist in the  configuration  of
microcomputer  systems  according to specifications  given by the resellers.  We
believe  that our  salespeople's  ability  to listen to a  reseller's  needs and
recommend a cost-efficient  solution  strengthens the  relationship  between the
salesperson and his or her reseller and promotes  customer loyalty to a vendor's
products. In addition, we provide such other value-added services as new product
descriptions and technical education programs for resellers.

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

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

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

SUPPLIERS

SOURCES OF SUPPLY:  Our strong financial and industry  positions have enabled us
to obtain contracts with many leading  manufacturers,  including  Creative Labs,
Logitech,  Matrox,  Toshiba,  Sony,  Yamaha and TEAC.  We purchase  our products
directly from such manufacturers, generally on a non-exclusive basis. We believe
that our agreements with the manufacturers are in forms customarily used by each
manufacturer.  The agreements  typically contain provisions allowing termination
by either party without prior notice,  and generally do not require us to sell a
specific quantity of products or restrict us from selling products  manufactured
by competitors.  As a result,  we generally have the flexibility to terminate or
curtail  sales  of one  product  line in  favor of  another  product  line if we
consider  it  appropriate  to do so because  of  technological  change,  pricing
considerations,  product  availability,  customer demand or vendor  distribution
policies.

DISTRIBUTION:  From our central warehouse facilities in Milpitas, California and
Atlanta,  Georgia, we distribute  microcomputer  products principally throughout
the United  States as well as some  foreign  countries,  including  Canada,  the
United Kingdom,  France,  Russia and Israel. No individual customer or customers
in any foreign country account for more than 10% of our sales. A minority of our
distribution agreements are limited by territory. In those cases, however, North
America is usually  the  territory  granted to us. We will  continue  to seek to
expand the geographical scope of our distributor arrangements.

COMPETITION

All  aspects of our  business  are highly  competitive.  Competition  within the
computer products distribution industry is based on product availability, credit
availability,  price, speed and accuracy of delivery, effectiveness of sales and
marketing  programs,  ability to tailor  specific  solutions to customer  needs,
quality and  breadth of product  lines and  services,  and the  availability  of
product  and  technical   support   information.   We  also  compete  with  some
manufacturers that sell directly to resellers and end-users.  Principal regional
competitors  in the  wholesale  distribution  industry  include  Asia Source and
Synnex Information Technology,  Inc., all of which are privately held companies.
Ingram Micro Inc. and Tech Data Corporation are among our principal regional and
multi-regional  publicly held  competitors.  We also compete with  manufacturers
that sell directly to resellers and end-users. Nearly all of our competitors are
larger and have greater financial and other resources.

Competition  within  the  corporate  information  systems  industry  is based on
technical  know-how,  breadth of engineering  services  available to the client,
flexibility and resources in providing customized network solutions, the ability
to  provide  the  right  hardware   products  for  integration.   Our  principal
competitors in the corporate  information systems industry varies,  depending on
the project size, from KPMG and other major consulting  groups to local VARs and

                                      -7-
<PAGE>
Network  Integrators.  In some  cases we compete  with  those that have  greater
financial and other resources.

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

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

EMPLOYEES

As of February 15, 2002, we had  approximately  111 full time employees,  all of
whom are non-union,  and three executive officers.  We believe that our employee
relations are good.

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

OPERATING LOSSES

We incurred a net loss for the most recent fiscal year of $2,850,700, and we may
continue to incur losses. In addition,  our revenues have decreased 15.6% during
the year ended December 31, 2001 compared to the  corresponding  period in 2000.
Our future  ability to execute our  business  plan will depend on our efforts to
increase  revenues and return to  profitability.  We have  implemented  plans to
reduce  overhead and operating  costs,  to build upon our existing  business and
capture new business and  reposition our business into higher margin product and
service  offerings  through  LiveMarket and  LiveWarehouse.  No assurance can be
given, however, that our new business initiatives will be successful or that our
other actions will result in increased revenues and profitable operations, which
may have an adverse impact on our ability to execute our business plan.

PURSUIT OF NEW BUSINESS THROUGH LEA/LIVEMARKET

We plan to enter the proprietary software and related internet  applications and
service  business  through  Lea/LiveMarket.  We have limited  experience in this
area. We have  conducted no  independent,  formal market  studies  regarding the
demand for these products and services. We have not, however, conducted informal
surveys of our  customers  and have relied on business  experience in evaluating
this market.  Further,  while we have experience in marketing  computer  related
products,  we  have  not  marketed  proprietary  software  products  or  related
services. This market is very competitive and nearly all of our competitors with
whom we will compete have greater  financial and other  resources than us. There
can be no assurance  that we will be successful in marketing  these products and
services. Finally, there can be no assurance that Lea/LiveMarket will generate a
profit.

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

We have established a new B2C website,  LiveWarehouse.com.  We cannot assure you
that we will achieve  market  acceptance  for this project and achieve a profit,
that we will be able to hire and  retain  personnel  with  experience  in online
retail  marketing and  management,  that we will be able to execute our business
plan with  respect  to this  market  segment or that we will be able to adapt to
technological changes once operational. Further, while we have experience in the
wholesale  marketing of  computer-related  products,  we have no  experience  in
retail  marketing.  This market is very  competitive and some of our competitors
have substantially greater resources than we have.

ABILITY TO RESPOND TO TECHNOLOGICAL CHANGES

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

INVENTORY VALUE

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


RISKS OF OUR ACQUISITION STRATEGY

A key element of our strategy for the future is to expand through acquisition of
companies that have  complimentary  businesses,  that can utilize or enhance our
existing capabilities and resources, that expand our geographic presence or that
expand our range of services or products. In September of 2001, FNC successfully
acquired  certain  assets of Technical  Insights  which has expertise to provide

                                      -8-
<PAGE>
computer  technical  training  to  corporate  clients.  Lea,  through  our newly
incorporated  subsidiary PMICC, acquired certain assets of LiveMarket in October
of 2001.  LiveMarket is an internet software  development  company which designs
and develops online stores to allow consumers to purchase  products directly via
secured  transaction   network.  It  also  designs  and  develops  e-store  site
management tools to administer  customer inquiry and support payment  processing
service. Moreover, we are always evaluating potential acquisition prospects.

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

*    the time associated with identifying and evaluating acquisition candidates;

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

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

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

*    the realization of acquired intangible assets; and

*    the loss of key employees of the acquired companies.

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

NEED FOR ADDITIONAL CAPITAL

We presently  have  insufficient  working  capital to pursue our  business  plan
involving acquisitions and expansion of our service and product offerings either
internally  or through  acquisitions.  We must obtain  additional  financing  to
complete the  marketing of  Lea/LiveMarket's  software  products and expand that
business,  to continue to expand our distribution  business,  and to develop our
FNC  business.  We also  intend  to pursue  new  markets  and the  growth of our
business through acquisitions.  We can give no assurance that we will be able to
obtain additional capital or, if available,  that such capital will be available
at terms acceptable to us.

WARRANTIES

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

COMPETITION

All  aspects of our  business  are highly  competitive.  Competition  within the
computer products distribution industry is based on product availability, credit
availability,  price, speed and accuracy of delivery, effectiveness of sales and
marketing  programs,  ability to tailor  specific  solutions to customer  needs,
quality and  breadth of product  lines and  services,  and the  availability  of
product and technical support  information.  We also compete with  manufacturers
that sell directly to resellers and end-users.

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

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

                                      -9-
<PAGE>
RECRUITMENT AND RETENTION OF TECHNICAL PERSONNEL

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

DEPENDENCE UPON CONTINUED MANUFACTURER CERTIFICATION

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

DEPENDENCE UPON SUPPLIERS

One supplier accounted for approximately 10%, 16% and 20% of our total purchases
for the years ended December 31, 2001, 2000 and 1999,  respectively.  During the
year  ended  December  31,  1999,  one  additional  supplier  located  in Taiwan
accounted for  approximately  11% of our total  purchases.  Although we have not
experienced significant problems with suppliers,  there can be no assurance that
such  relationships  will  continue  or,  in the event of a  termination  of our
relationship  with  any  given  supplier,  that  we  would  be  able  to  obtain
alternative  sources of supply on comparable terms without a material disruption
in our ability to provide products and services to our clients. This may cause a
possible  loss of sales that could  adversely  affect  our  business,  financial
condition and operating results.

INSURANCE AND POTENTIAL EXCESS LIABILITY

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

DEPENDENCE ON KEY PERSONNEL

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

                                      -10-
<PAGE>
ECONOMIC AND GENERAL RISKS OF OUR BUSINESS

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

ITEM 2. PROPERTIES

We own property located at 1600 California Circle,  Milpitas,  California 95035,
which was subject to mortgages in the amount of $3,286,200 at December 31, 2001.
Of this amount,  $2,411,700 is subject to bank financing which bears interest at
the bank's  90-day  LIBOR rate (1.883% as of December 31, 2001) plus 2.5% and is
secured by a deed of trust on the property. The remaining $874,500 is subject to
a Small Business  Administration  loan which bears interest at a 7.569% rate and
is secured by the  underlying  property.  This property of 3.31 acres includes a
44,820 square foot  building.  The building  contains our  executive  office and
warehouse  and we believe it is suitable  for the current size and the nature of
our  operations.  We lease a building  in  Georgia  to house our  branch  office
pursuant to a three year operating lease which expires October 31, 2003. We have
an option to renew this lease for an additional  three-year term. Future minimum
lease payments under this non-cancelable  operating lease agreement for 2002 and
2003 are estimated to be $103,600 and $88,500, respectively.

LiveMarket,  a division of Lea Publishing leases an office in Orange County. The
term of the lease is for three months  starting  from  November  2001 to January
2002 with total rent of $20,000.00.  LiveMarket is currently extending the lease
on a month to month  basis at a cost to the  company of $12,250 per month and is
actively seeking an alternative office location.

ITEM 3. LEGAL PROCEEDINGS

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

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

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

                                      -11-
<PAGE>
                                     PART II

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

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

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

     Fiscal Year Ended December 31, 2000
       First Quarter                                  $ 8.25       $ 4.88
       Second Quarter                                   6.56         3.31
       Third Quarter                                    4.50         1.50
       Fourth Quarter                                   4.25         0.88

We had 99 stockholders of record of our common stock as of December 31, 2001.

DIVIDEND POLICY

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

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 IV of this Form  10-K.  The  financial  data as of and for the
years ended  December 31, 2001,  2000,  1999 and 1998, has been derived from our
consolidated  financial  statements,  which were audited by BDO Seidman LLP. The
financial data as of and for the years ended December 31, 1997, has been derived
from our  consolidated  financial  statements,  which were  audited by Meredith,
Cardozo, Lanz and Chiu LLP.

<TABLE>
<CAPTION>
                                                               Fiscal Year Ended December 31
                                        -------------------------------------------------------------------------
Statement of Operations Data                2001            2000           1999           1998           1997
----------------------------            ------------    ------------   ------------   ------------   ------------
<S>                                     <C>             <C>            <C>            <C>            <C>
Net Sales                               $ 75,011,700    $ 88,872,700   $104,938,700   $105,431,200   $ 96,388,500
(Loss) Income from Operations             (3,829,500)         10,200      1,682,100      3,080,000      2,172,200
Net (Loss) Income                         (2,850,700)        121,800        827,300      1,775,700      1,246,900
Net (Loss) Income per share to Common
  Shareholders - Basic and Diluted             (0.28)           0.01           0.08           0.19           0.14
</TABLE>

                                      -12-
<PAGE>
<TABLE>
<CAPTION>
                                                               Fiscal Year Ended December 31
                                        -------------------------------------------------------------------------
Balance Sheet Data                          2001            2000           1999           1998           1997
------------------                      ------------    ------------   ------------   ------------   ------------
<S>                                     <C>             <C>            <C>            <C>            <C>
Current Assets                          $ 12,501,600    $ 15,335,200   $ 15,221,100   $ 16,886,600   $ 10,847,800
Current Liabilities                        6,766,700       7,710,800      7,614,400      8,955,100      5,116,900
Total Assets                              17,323,300      20,861,100     20,689,000     21,108,400     15,019,500
Long-Term Debt                             3,230,300       3,286,200      3,337,600      3,377,100      3,428,400
Total Liabilities                         10,031,200      11,003,300     10,953,000     12,363,700      8,576,300
Shareholders' Equity                       7,289,900       9,857,800      9,736,000      8,744,700      6,443,200
</TABLE>

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

FORWARD-LOOKING STATEMENTS

The accompanying  discussion and analysis of financial  condition and results of
operations is based on our consolidated financial statements, which are included
elsewhere in this Form 10-K.  The following  discussion  and analysis  should be
read in conjunction with the accompanying financial statements and related notes
thereto. This discussion contains forward-looking  statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities  Exchange Act of 1934,  as amended.  Our actual  results could differ
materially   from   those   set   forth  in  the   forward-looking   statements.
Forward-looking   statements,   by  their  very   nature,   include   risks  and
uncertainties.  Accordingly,  our actual  results could differ  materially  from
those discussed in this Report. A wide variety of factors could adversely impact
revenues,  profitability,  cash flows and capital needs.  Such factors,  many of
which are beyond our control  include,  but are not  limited  to,  technological
changes, our acquisition  strategy,  our need for additional capital,  insurance
and potential excess liability, diminished marketability of inventory, increased
warranty costs,  competition,  recruitment and retention of technical personnel,
dependence  on  continued  manufacturer  certification,  dependence  on  certain
suppliers,  risks  associated  with the  projects  in which  we are  engaged  to
complete, the risks associated with Lea, and dependence on key personnel.

GENERAL

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

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

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

                                      -13-
<PAGE>
CRITICAL ACCOUNTING POLICIES

In December  2001, the SEC requested  that all  registrants  list their three to
five most  "critical  accounting  policies" in their MD&A.  The SEC  indicated a
"critical  accounting policy" is one which is both important to the portrayal of
the company's  financial  condition and results and requires  management's  most
difficult,  subjective  or complex  judgments,  often as a result of the need to
make estimates  about the effect of matters that are inherently  uncertain.  Our
significant  accounting  policies are  described  in Note 1 to the  consolidated
financial  statements included as Part IV to this Form 10-K. We believe that the
following  accounting  policies  fit  the  definition  of  "critical  accounting
policies":

     REVENUE RECOGNITION

     We recognize  sales of computer and network  products  upon delivery of the
     goods to the customer  (generally  upon  shipment)  provided no significant
     obligations  remain  and  collectibility  is  probable.   A  provision  for
     estimated  product  returns is  established  at the time of sale based upon
     historical return rates, which have typically been insignificant,  adjusted
     for current  economic  conditions.  The Company  generally does not provide
     volume  discounts or rebates to its  customers,  and  customer  credits for
     price  protection  are generally not granted  unless  recoverable  from the
     vendor under the provisions of our vendor agreements.  Revenues relating to
     services  performed by FNC are  recognized  as earned  based upon  contract
     terms,  which is generally upon customer  acceptance.  Software and service
     revenues  relating to software design and  installation for Lea's customers
     are recognized upon completion of the installation and customer acceptance.

     LONG-LIVED ASSETS

     The Company  recognizes  impairment  losses when the  carrying  amount of a
     long-lived  asset,  including assets acquired through  investments,  is not
     recoverable  and  exceeds  its 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.  The
     impairment  loss of $718,000  recognized on the  investments in Rising Edge
     and  Target  First  in 2001 is due to the  current  period  operating  loss
     combined  with a  projection  of the  future  continuing  losses  on  those
     investments.

     ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

     The  Company   grants  credit  to  its  customers   after   undertaking  an
     investigation of credit risk for all significant  amounts. An allowance for
     doubtful accounts is provided for estimated credit losses at a level deemed
     appropriate  to adequately  provide for known and inherent risks related to
     such  amounts.  The  allowance  is based on  reviews  of loss,  adjustments
     history,  current economic conditions,  level of credit insurance and other
     factors that deserve  recognition  in estimating  potential  losses.  While
     management uses the best information available in making its determination,
     the ultimate  recovery of recorded  accounts  receivable is also  dependent
     upon future economic and other  conditions that may be beyond  management's
     control. During 2001, we increased our allowance for doubtful accounts from
     $175,000 to $400,000 to cover our exposure for  possible  losses  resulting
     principally from customer checks returned due to insufficient funds and the
     overall weakness of the computer  products industry and economy as a whole.
     While we believe that our reserves are adequate,  if our information  turns
     out to be incomplete  or  inaccurate,  our allowance for doubtful  accounts
     could be insufficient, and our operating results could suffer.

     INVENTORY

     Our inventories,  consisting primarily of finished goods, are stated at the
     lower of cost  (moving  weighted  average  method) or market.  We regularly
     review inventory  quantities on hand and record a provision,  if necessary,
     for excess and obsolete inventory based primarily on our estimated forecast
     of product demand. Due to a relatively high inventory turnover rate and the
     inclusion  of  provisions  in the  vendor  agreements  common  to  industry
     practice  that  provide  price  protections  or  credits  for  declines  in
     inventory value and the right to return unsold  inventory,  we believe that
     our risk for a decrease in inventory  value is minimized.  No assurance can
     be given,  however,  that we can  continue  to turn over our  inventory  as
     quickly in the future or that we can negotiate  such  provisions in each of
     our vendor contracts or that such industry practice will continue.

                                      -14-
<PAGE>
     USE OF ESTIMATES

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

RESULTS OF OPERATIONS

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

                                                      Year Ended December 31,
                                                     -------------------------
                                                      2001      2000      1999
                                                     -----     -----     -----
Sales                                                100.0%    100.0%    100.0%
Cost of sales                                         92.9      92.1      91.9
                                                     -----     -----     -----
Gross margin                                           7.1       7.9       8.1
Operating expenses                                    12.2       7.9       6.5
                                                     -----     -----     -----
(Loss) income from operations                         (5.1)      0.0       1.6
Other income (expense)                                (0.2)      0.2      (0.3)
Income tax benefit (expense)                           1.5      (0.1)     (0.5)
Minority interest in FNC and PMIGA                     0.0       0.0       0.0
                                                     -----     -----     -----
Net (loss) income                                     (3.8)%     0.1%      0.8%
                                                     =====     =====     =====

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

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

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

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

                                      -15-
<PAGE>
     In the fourth quarter of 2001, PMICC acquired certain assets of an internet
     software development company, LiveMarket.  Subsequently,  these assets were
     transferred  to Lea  Publishing  (Lea).  During  the last  quarter of 2001,
     Lea/LiveMarket  generated $250,700 in revenue which related entirely to the
     newly-acquired LiveMarket operations.

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

     Gross  margin  relating  to FNC for the year ended  December  31,  2001 was
     $391,800,  or 13% of FNC's  sales  during the same  period as  compared  to
     $962,700,  or 12% of FNC's sales  during the year ended  December 31, 2000.
     The slightly higher gross margin percentage  experienced by FNC in 2001 was
     attributed to more service  revenues  earned as a percent of total sales in
     2001 compared to 2000.  FNC's service  revenues were  $115,000,  or 3.8% of
     FNC's total  revenues in 2001 as  compared  to  $275,400,  or 3.4% of FNC's
     total  revenues  in 2000.  In  general,  FNC has a higher  gross  margin on
     service  revenues  than  products  sales  as  part  of the  consulting  and
     implementation services. Since FNC's sales levels accounted for only 4% and
     9% of our  consolidated  sales in 2001 and  2000,  respectively,  the gross
     margin  percentage  earned by FNC had only a minor  effect  on our  overall
     consolidated gross margin in both years.

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

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

Consolidated operating expenses, including selling, general, administrative, and
research  and  development  expense,  for the year ended  December 31, 2001 were
$9,063,100,  an increase of $2,021,300, or 28.7%, compared to $7,041,800 for the
year ended December 31, 2000.  Although we implemented  cost cutting measures in
anticipation of the economic slowdown,  such as reducing our employee count from
114 as of December 31, 2000 to 104 as of December 31, 2001,  expenses  increased
primarily due to the continued  establishment  of our FNC and PMIGA  operations,
including  among  other  things,  additional  expenses  associated  with our new
distribution  facility in Georgia.  During 2001, we also increased  spending for
consulting and accounting  services to assist in the formation of an acquisition
strategy.  Consolidated  consulting  and  accounting  expenses were $217,000 and
$115,400, in 2001 and 2000, respectively.  During 2001, we had a higher level of
bad debt write-offs and increased the allowance for doubtful accounts.  As such,
the consolidated bad debt expense increased from $182,200 in 2000 to $450,500 in
2001.  During the year  ended  December  31,  2001,  as a result of our  ongoing
evaluation of the net realized value of our investments in TargetFirst  Inc. and
Rising Edge  Technologies,  Ltd, we wrote off these investments  resulting in an
impairment  loss of $250,000 and $468,000,  respectively.  We also increased our
advertising   spending  for  promoting  our  Company,   products  and  services.
Consolidated  advertising  expense was  $178,000  in 2001  compared to $3,600 in
2000.  Additionally,  $171,400 in officer  bonuses  were paid in 2001.  Proceeds
received by the officers for these  bonuses were used to repay the officer notes
receivable  during 2001.  There were no officer bonuses in 2000. As a percentage
of consolidated  sales,  consolidated  operating expenses increased to 12.2% for
the year ended December 31, 2001 as compared to 7.9% for the year ended December
31, 2000 resulting from an increase in our consolidated fixed operating expenses
during a period of decreased sales.

     PMI's  operating  expenses were  $5,448,800 for the year ended December 31,
     2001,  compared to  $5,608,700  for the year ended  December  31,  2000,  a
     decrease of $159,900, or 2.9%. The decrease in PMI's operating expenses was

                                      -16-
<PAGE>
     primarily  due to the  reduction  in payroll  expense of  $368,900,  a cost
     reduction of $129,900 in professional services, and was partially offset by
     an increase in bad debt expense of $206,800 and repair and  maintenance and
     internet  service  expense of $132,100.  PMIGA's  operating  expenses  were
     $1,285,300  for the year ended  December 31, 2001.  PMIGA began business in
     October 2000 and its  operating  expenses for the three months in 2000 were
     $197,000.

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

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

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

Consolidated  loss from  operations  for the year ended  December  31,  2001 was
$3,829,500 as compared to consolidated income from operations of $10,200 for the
year ended December 31, 2000. As a percentage of sales,  loss from  consolidated
operations increased to 5.1% for the year ended December 31, 2001 as compared to
0.0% of  consolidated  income from  operations  for the year ended  December 31,
2000. This  consolidated  operating loss was mainly due to the 28.7% increase in
consolidated  operating  expenses and the 15.6% decrease in  consolidated  sales
experienced  during the year ended December 31, 2001.  Loss from  operations for
the year ended  December  31,  2001,  including  allocations  of PMIC  corporate
expenses, for PMI, PMIGA, FNC, and Lea was $1,563,500,  $619,800,  $868,800, and
$191,700, respectively. For the year ended December 31, 2000, PMI and FNC had an
income from operations of $390,400 and $56,300,  respectively, and PMIGA and Lea
had an operating loss of $137,800 and $100,800, respectively.

Consolidated  interest  income was $125,100 for the year ended December 31, 2001
compared to $227,300 for the year ended December 31, 2000.  Interest  income for
the year ended December 31, 2001 for PMI, PMIGA,  and FNC was $100,000,  $5,500,
and $34,100,  respectively. For the year ended December 31, 2000, PMI, PMIGA and
FNC had interest income of $226,800, $500 and $0, respectively.  The decrease in
PMI's interest  income was  principally  due to a decline in funds  available to
earn interest and lower interest rates  available for short-term  investments in
cash and cash equivalents.

Consolidated interest expense for the year ended December 31, 2001 was $255,800,
a decrease of $40,200 or 13.6%, compared to $296,000 for the year ended December
31, 2000.  Interest expense for the year ended December 31, 2001 for PMI, PMIGA,
and FNC was  $230,700,  $600,  and  $24,500,  respectively.  For the year  ended
December 31, 2000,  interest  expense for PMI, PMIGA and FNC was $295,000,  $200
and $0,  respectively.  This  decrease  in PMI's  interest  expense was due to a
decrease in the floating  interest  rate charged on our  mortgages on our office
building facility located in Milpitas,  California and the allocation of $24,500
of interest expense to FNC for the year ended December 31, 2001.

In March  2002,  legislation  was  enacted to extend  the  general  Federal  net
operating loss carryback period from 2 years to 5 years for net operating losses
incurred  in 2001 and  2002.  As a  result,  we have not  recorded  a  valuation
allowance  on the  portion of the  deferred  tax assets  relating to Federal net
operating loss  carryforward  of $1,906,800 as we believe that it is more likely
than not that this  deferred tax asset will be realized as of December 31, 2001.
During  the  first  quarter  of  2002,   this   deferred  tax  asset,   totaling
approximately $648,300, will be reclassified to income taxes receivable.

                                      -17-
<PAGE>
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

Sales for the year ended  December  31,  2000 were  $88,872,700,  a decrease  of
$16,066,000,  or approximately  15%, compared to $104,938,700 for the year ended
December 31, 1999.

     Approximately  $8,105,500 of the sales  recognized by us for the year ended
     December 31, 2000 were  attributable to the FrontLine  division/subsidiary,
     an increase of $3,404,800, or approximately 72%, compared to $4,700,700 for
     the  year  ended  December  31,  1999  as we  continued  to  focus  on  the
     development of FrontLine's business during the year. The FrontLine division
     was spun off as a separate entity effective October 1, 2000 to better serve
     the networking and personal computer requirements of corporate customers.

     There  was a  decrease  in  sales  attributable  to our  computer  products
     subsidiaries, including PMI and PMIGA, for the year ended December 31, 2000
     of $19,470,800,  or approximately 19%, compared to the previous year. Sales
     recognized by PMIGA were approximately $1,156,900 since its commencement of
     operations in October 2000 through  December 31, 2000. The decrease was due
     to the overall decline in the computer component market and the lack of any
     new and innovative  high-demand  products in the multimedia  arena during a
     period of economic slowdown.  In addition,  we believe that the uncertainty
     regarding the economy in 2001 depressed  sales during the fourth quarter of
     2000 as customers were delaying their buying decisions.

Gross margin for the year ended December 31, 2000 was $7,052,000,  a decrease of
$1,431,900 or 17%,  compared to $8,483,800 for the year ended December 31, 1999.
The gross margin as a percentage of sales decreased from 8.1% for the year ended
December  31, 1999 to 7.9% for the year ended  December  31,  2000.  Because our
major  manufacturers  focused on lower margin  products,  our computer  products
division  sold  more  lower  margin  products  during  the  last  half of  2000.
Additionally,  our computer products division  experienced  pricing pressures in
selling its products.  We believe that because of the economic  slowdown,  there
was an excess  supply of  computer  products  during the last half of 2000 which
reduced demand and increased pressure on gross margins.

     Gross margin relating to FrontLine for the year ended December 31, 2000 was
     $962,700, or 12% of FrontLine's sales during the same period as compared to
     $665,800,  or 14% of  FrontLine's  sales during the year ended December 31,
     1999.  This  decrease  in gross  margin was  primarily  a result of pricing
     pressures.  Since  FrontLine's sales levels accounted for only 9% and 4% of
     our  consolidated  sales in 2000 and 1999,  respectively,  the gross margin
     percentage earned by FrontLine had only a minor effect on our overall gross
     margin in both years.

     Gross  margin  relating  to PMIGA in 2000 was  $58,900,  or 5.1% of PMIGA's
     sales.

Operating expenses, including selling, general,  administrative and research and
development  expense,  for the year ended December 31, 2000 were $7,041,800,  an
increase of $240,000,  or 4%, compared to $6,801,800 for the year ended December
31, 1999.  Although we implemented  cost cutting measures in anticipation of the
economic slowdown,  expenses increased  primarily due to the continued growth of
our FrontLine operations and the commencement of the new PMIGA operations during
the fourth  quarter of 2000 which  resulted in the  recognition of an additional
$197,000 in startup  expenses.  For the year ended  December 31,  2000,  we also
increased  spending for  professional  services to assist in the formation of an
acquisition  strategy for the upcoming year and to successfully settle a dispute
with a competitor in September 2000. In addition,  there was a $100,000 increase
in research and development expenses incurred relating to our majority-owned Lea
subsidiary  during 2000.  These  increases were  partially  offset by a $557,900
decrease  resulting  from a non-cash  charge in 1999 for the  amortization  of a
prepaid  consulting  fee which did not occur in 2000.  As a percentage of sales,
operating  expenses  increased  to 7.9% for the year ended  December 31, 2000 as
compared to 6.5% for the year ended December 31, 1999 resulting from an increase
in our fixed operating expenses during a period of decreased sales.

Income from  operations  for the year ended  December  31, 2000 was  $10,200,  a
decrease of  $1,671,900  or 99%, as  compared to  $1,682,100  for the year ended
December 31, 1999. As a percentage of sales, income from operations decreased to
0.00% for the year ended  December  31,  2000 as  compared  to 1.6% for the year
ended  December  31,  1999.  This  decrease was mainly due to the 4% increase in
operating  expenses  and the 15% decrease in sales  experienced  during the year
ended December 31, 2000.

                                      -18-
<PAGE>
During  the year  ended  December  31,  2000,  we  settled a  lawsuit  against a
competitor  and  recognized  a gain of $300,000.  Interest  expense for the year
ended December 31, 2000 was $296,000, an increase of $26,200 or 10%, compared to
$269,800  for the year ended  December  31,  1999.  This  increase was due to an
increase in the floating  interest  rate charges on one of our  mortgages on our
office building  facility.  Interest income increased from $194,900 for the year
ended  December  31, 1999 to $227,300 for the year ended  December 31, 2000,  an
increase of $32,400 or 17%, which was  principally due to better cash management
and higher market  interest rates  available for short-term  investments in cash
and cash  equivalents.  During the year ended  December 31, 2000,  our equity in
loss in our newly  acquired  investment  in Rising Edge was $32,000.  During the
year ended  December 31, 1999,  our equity in loss in our  investment in Lea was
$222,400.

UNAUDITED QUARTERLY FINANCIAL DATA

Summarized quarterly financial data for 2001 and 2000 is as follows:

<TABLE>
<CAPTION>
                                                                                 Quarter
                                                         ---------------------------------------------------------
2001                                                        First          Second         Third         Fourth
----                                                     ------------   ------------   ------------   ------------
<S>                                                      <C>            <C>            <C>            <C>
Sales                                                    $ 19,956,500   $ 14,961,400   $ 20,840,200   $ 19,253,600
Gross profit                                                1,259,600        979,700      1,465,200      1,597,600
Net loss                                                     (473,600)    (1,211,800)      (370,000)      (795,300)
Basic and diluted (loss) per common share (1)            $      (0.05)  $      (0.12)  $      (0.04)  $      (0.08)

                                                                                 Quarter
                                                         ---------------------------------------------------------
2000                                                        First          Second         Third         Fourth
----                                                     ------------   ------------   ------------   ------------
Sales                                                    $ 22,815,200   $ 21,984,300   $ 24,125,300   $ 19,947,900
Gross profit                                                1,781,800      1,771,000      1,755,600      1,743,600
Net income (loss)                                              60,800        122,000        254,700       (315,700)
Basic and diluted earnings (loss) per common share (1)   $       0.01   $       0.01   $       0.03   $      (0.03)
</TABLE>

----------
(1)  Earnings  (loss)  per  share  are  computed  independently  for each of the
     quarters presented. The sum of the quarterly earnings per share in 2001 and
     2000 does not equal the total computed for the year due to rounding.

LIQUIDITY AND CAPITAL RESOURCES

Since  inception,  we  have  financed  our  operations  primarily  through  cash
generated by operations and borrowings under our floor plan inventory loans.

At December 31, 2001, we had  consolidated  cash and cash  equivalents  totaling
$3,110,000  (excluding  $250,000  in  restricted  cash) and  working  capital of
$5,734,900.  At December 31, 2000, we had consolidated cash and cash equivalents
totaling $4,874,200 and working capital of $7,624,400.

Net cash used in operating  activities  for the year ended December 31, 2001 was
$1,634,100, which principally reflected the net loss incurred during the year, a
decrease in accounts payable and an increase in deferred income taxes, which was
partially  offset by a decrease in  inventories  and accounts  receivable  and a
non-cash impairment loss on investments.

Net cash used in investing  activities  was $100,000 for the year ended December
31, 2001,  primarily  resulting from the payment for business  acquisitions  and
related costs, and acquisition of computer equipment, which was partially offset
by the collection of notes  receivable from  shareholders of $171,400.  Net cash
used in investing  activities for the year ended December 31, 2000 was $502,900,
primarily  resulting from  investments in Rising Edge and TargetFirst Inc, which
were ultimately written off entirely in 2001 due to impairment.

Net cash used in financing  activities  was $30,200 for the year ended  December
31, 2001,  primarily from the increase in restricted cash and principal payments
on notes  payable,  which was mostly  offset by the  increase  in the floor plan
inventory  loan and issuance of common  stock under the stock  option plan.  Net
cash used in financing  activities  was $200,700 for the year ended December 31,
2000,  primarily  from the decrease in the floor plan  inventory loan as well as
payment of the mortgage loans for our facility.

                                      -19-
<PAGE>
On July 13,  2001,  PMI and PMIGA  (the  Companies)  obtained  a new $4  million
(subject to credit and  borrowing  base  limitations)  accounts  receivable  and
inventory  financing facility from Transamerica  Commercial Finance  Corporation
(the  Bank).  This new  credit  facility  has a term of two  years,  subject  to
automatic  renewal  from year to year  thereafter.  The credit  facility  can be
terminated  under certain  conditions and the termination is subject to a fee of
1% of the credit limit. The facility includes an up to $3 million inventory line
(subject to a borrowing base of up to 85% of eligible  accounts  receivable plus
up to $1,500,000 of eligible inventories), that includes a sub-limit of $600,000
working  capital  line,  and a $1  million  letter  of credit  facility  used as
security for  inventory  purchased  on terms from  vendors in Taiwan.  Borrowing
under the inventory loans are subject to 30 to 45 days repayment,  at which time
interest  begins to accrue at the prime rate,  which was 4.75% at  December  31,
2001.  Draws on the working capital line also accrue interest at the prime rate.
The credit facility is guaranteed by both PMIC and FNC. As of December 31, 2001,
the  Companies  had an  outstanding  balance of  $1,422,100  due on this  credit
facility.

Under the agreement,  PMI and PMIGA granted the Bank a security  interest in all
of their accounts, chattel paper, cash, documents,  equipment, fixtures, general
intangibles, instruments, inventories, leases, supplier benefits and proceeds of
the  foregoing.  The Companies are also required to maintain  certain  financial
covenants.  As of September 30 and December  31,  2001,  the  Companies  were in
violation of the minimum tangible net worth covenant. On March 6, 2002, the Bank
issued a waiver for the  default  and  revised  the  covenants  under the credit
agreement  retroactively  to September  30, 2001.  As of December 31, 2001,  the
Companies were in compliance with these new covenants.

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

FNC is required  to  maintain  certain  financial  covenants  to qualify for the
Deutsche  credit line, and was not in compliance with certain of these covenants
as of December 31, 2001, which  constitutes a technical default under the credit
line.  This gives the financial  institution,  among other things,  the right to
call the loan and terminate the credit line.  The credit  facility is guaranteed
by PMIC and can be terminated by Deutsche  immediately given the default.  As of
December  31, 2001 and  February 28,  2002,  FNC had an  outstanding  balance of
$122,900 and $37,700,  respectively, due under this credit facility. As of March
14,  2002,  this line of credit  had not been  terminated  by  Deutsche,  and we
continued to borrow and repay funds in  accordance  with the terms of the credit
facility.

Pursuant  to one of our  bank  mortgage  loans  with  a  $2,411,700  balance  at
December,  31, 2001, we are required to maintain  certain  financial  covenants.
During 2001, we were in violation of a consecutive  quarterly  loss covenant and
an EBITDA coverage ratio  covenant,  which is an event of default under the loan
agreement  that  gives the bank the  right to call the  loan.  While a waiver of
these  loan  covenant  violations  was  obtained  from the  bank in March  2002,
retroactive  to December  31,  2001,  and through  December  31,  2002,  we were
required to  transfer  $250,000  to a  restricted  account as a reserve for debt
servicing. This amount has been reflected as restricted cash in the consolidated
financial statements.

On May 7, 2001,  our Board of Directors  authorized a share  repurchase  program
whereby up to $100,000 worth of our common stock may be repurchased  and held as
treasury stock.  During 2001, we purchased and retired 20,400 shares of treasury
at a cost of $14,600.

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

Presently we do not have sufficient  funds to pursue our business plan involving
acquisitions  to pursue new markets and the growth of our business.  Although we
are actively seeking and evaluating potential acquisition prospects, there is no
assurance that we will be able to obtain additional  capital for these potential
acquisitions.

                                      -20-
<PAGE>
Our stock is  currently  traded  on The  Nasdaq  SmallCap  Market.  However,  we
received  notice in July 2001 from  Nasdaq  that we failed to maintain a minimum
market value of public float of $1 million and a minimum bid price of $1.00 over
30  consecutive  trading  days as required by Nasdaq's  rules.  We were given 90
calendar  days, or until October 1, 2001 to regain  compliance by  maintaining a
minimum  market  value of public  float of $1 million  and bid price of at least
$1.00 for a minimum of 10 consecutive  trading days. As of September 5, 2001, we
believe we have complied  with this notice and maintain the necessary  minimums,
including   trading  at  or  above  $1.00  for  the  minimum  10  trading  days.
Subsequently,  on September  27, 2001,  Nasdaq  implemented  a moratorium on the
minimum  bid price and market  value of public  floatation  requirements  to all
companies that were  previously  subject to these  requirements.  The moratorium
suspended such requirements until January 2, 2002. Despite the suspension of the
listing  requirements,  our  share  price  had been  maintained  above the $1.00
minimum bid price since August 22, 2001.

RELATED PARTY TRANSACTIONS

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

We sell  computer  products  to a  company  owned  by a member  of our  Board of
Directors. Management believes that the terms of these sales transactions are no
more favorable than given to unrelated  customers.  During 2001,  2000 and 1999,
the Company recognized $476,200,  $1,476,100 and $724,000 in sales revenues from
this company.  Included in accounts  receivable as of December 31, 2001 and 2000
is $200 and $209,400, respectively, due from this related customer.

In 2001,  FNC  acquired  certain  assets of  Technical  Insights in exchange for
16,100 shares of PMIC common stock.  Under the purchase  agreement,  among other
terms,  FNC was required to pay $126,000 to the sellers upon completion and full
settlement of a sale transaction as specified in the agreement.  On October 2001
the  sellers  became  employees  of FNC.  As a  result  of this  profit  sharing
arrangement,  the $126,000  payment to the seller was  recorded as  compensation
expense by the  Company.  As of December  31,  2001,  $126,000 was owed to these
employees and is included in accounts payable.  In January 2002, this amount was
paid to the sellers/employees under the terms of the purchase agreement.

In May 1999, the Company and Rising Edge Technologies, Ltd., a corporation based
in  Taiwan  (Rising  Edge),   entered  into  an  Operating  Agreement  with  Lea
Publishing,  LLC, a California limited liability company (Lea) formed in January
1999. The objective of Lea is to provide internet users, resellers and providers
advanced  solutions  and  applications.   Lea  is  developing  various  software
products.  Prior to June 13, 2000,  the Company and Rising Edge each owned a 50%
interest in Lea. The brother of a director, officer and principal shareholder of
the Company is a director,  officer and the majority  shareholder of Rising Edge
(Rising Edge Majority  Holder).  On June 13, 2000,  the Company  purchased a 25%
ownership interest in Rising Edge common stock for $500,000 from the Rising Edge
Majority  Holder.  As such, the Company had a 62.5% combined direct and indirect
ownership  interest in Lea,  which  required the  consolidation  of Lea with the
Company.  We accounted  for our  investment  in Rising Edge by the equity method
whereby  25% of the equity  interest  in the net  income or loss of Rising  Edge
(excluding  Rising  Edge's  portion of the results of Lea and all  inter-company
transactions)  flows through to the Company.  During the year ended December 31,
2001,  Lea  incurred  a  $191,700  net loss and the  equity  in the loss for the
investment in Rising Edge was $14,500.  During the year ended December 31, 2000,
Lea incurred a $100,800 net loss and the equity in the loss in the investment in
Rising Edge was $32,000.  During the year ended  December 31, 2001,  Rising Edge
had $9,800 in revenues  and  incurred a net loss of  $58,100.  During the period
from June 13, 2000 to December  31,  2000,  Rising Edge had $101,100 in revenues
and incurred a net loss of $78,200.  At December 31, 2000, Rising Edge had total
assets of $1,092,200.  During 2001, we recognized a $468,000  impairment loss on
our  investment  in Rising  Edge,  which  includes the equity in the loss in the
investment of $14,500 during 2001.

In November 1999, Lea entered into a software  development  contract with Rising
Edge  which  called  for the  development  of certain  internet  software  for a
$940,000 fee. Of this amount,  the contract  specifies  that  $440,000  shall be
applied  to  services  performed  in 1999 (of  which  $220,000  represented  the
Company's portion) and $500,000 was to be applied to services to be performed in
2000. The Company and Rising Edge were each responsible for $470,000 of the fee.

                                      -21-
<PAGE>
During 1999, we paid $470,000 for our portion of the total fee payable under the
contract.  During  the year ended  December  31,  2000,  Rising  Edge  performed
$100,000 worth of services as specified under the contract. In January 2001, the
contract was  terminated  by mutual  agreement of the parties and our  remaining
portion of the software  development  fees prepaid under the contract,  totaling
$200,000, was refunded. For the year ended December 31, 1999, our equity loss in
its investment in Lea was $222,400.

In December  2001,  we entered  into an  agreement  with Rising Edge  Technology
(Rising Edge) and its principal owners to exchange the 50% Rising Edge ownership
interest in Lea for our 25% ownership interest in Rising Edge. As a consequence,
PMIC owns 100% of Lea and no longer has an  ownership  interest in Rising  Edge.
Because of the  write-down  of the Rising Edge  Investment to zero in the fourth
quarter of 2001,  no amounts  were  recorded  for the 50% Rising Edge  ownership
interest in Lea received in this exchange.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2000,  the EITF  reached a  consensus  on Issue  00-14,  "Accounting  for
Certain Sales Incentives." This issue addresses the recognition, measurement and
income statement  classification for sales incentives  offered  voluntarily by a
vendor without charge to customers that can be used in, or are  exercisable by a
customer as a result of, a single exchange transaction.  In April 2001, the EITF
reached a consensus on Issue 00-25, "Vendor Income Statement Characterization of
Consideration  to a Purchaser of the Vendor's  Products or Services." This issue
addresses the recognition,  measurement and income statement  classification  of
consideration,  other than that directly addressed by Issue 00-14, from a vendor
to a retailer or  wholesaler.  Issue 00-25 will be effective  for the  Company's
2002  fiscal  year.  Both Issue 00-14 and 00-25 have been  codified  under Issue
01-09,  "Accounting  for  Consideration  Given by a Vendor  to a  Customer  or a
Reseller of the Vendor's  Products."  We are  currently  analyzing  Issue 01-09.
Issue 01-09 is not expected to have a material impact on the Company's financial
position or results of  operations,  except that certain  reclassifications  may
occur.  The consensus  reached in Issue 00-25 and Issue 00-14 (codified by Issue
01-09) are effective for fiscal quarters beginning after December 15, 2001.

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

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

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

                                      -22-
<PAGE>
In October  2001,  the FASB  issued SFAS No. 144 (SFAS 144)  Accounting  for the
Impairment or Disposal of Long-Lived  Assets.  SFAS 144  supersedes the SFAS No.
121 by requiring that one accounting  model to be used for long-lived  assets to
be disposed of by sale, whether previously held and used or newly acquired,  and
by  broadening  the  presentation  of  discontinued  operation  to include  more
disposal transactions. SFAS No. 144 will be effective for fiscal years beginning
after  December 15,  2001.  The Company does not expect the adoption of SFAS No.
144 to have a material effect on its financial position,  results of operations,
or cash flows.

INFLATION

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk for changes in interest  rates relates  primarily to
one of our bank loans with a $2,411,700 balance at December 31, 2001 which bears
fluctuating  interest  based on the bank's  90-day  LIBOR rate.  We believe that
fluctuations in interest rates in the near term would not materially  affect our
consolidated  operating  results,  financial  position or cash flow.  We are not
exposed to material risk based on exchange rate  fluctuation or commodity  price
fluctuation.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

None.

                                      -23-
<PAGE>
                                    PART III

The  information  required to be  presented in Part III is, in  accordance  with
General  Instruction G(3) to Form 10-K,  incorporated herein by reference to the
information  contained in our  definitive  Proxy  Statement  for our 2002 Annual
Meeting  which will be filed with the  Securities  and Exchange  Commission  not
later than 120 days after December 31, 2001.

                                      -24-
<PAGE>
                                     PART IV

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

     Financial Statements

     (a)  (1)  Report of BDO Seidman, LLP

          (2)  Consolidated  Financial  Statements  and  Notes  thereto  of  the
               Company including  Consolidated Balance Sheets as of December 31,
               2001 and 2000 and related Consolidated  Statements of Operations,
               Shareholders' Equity, and Cash Flows for each of the years in the
               three year period ended December 31, 2001.

     (b)  Reports on Form 8-K

          Form 8-K  filed on June 24,  2001 to  report  that a  footnote  in our
          Consolidated  Financial  Statements,  included  in our Annual  Report,
          inadvertently  included a discussion  regarding an  acquisition by the
          Company's FrontLine subsidiary.  The acquisition was never consummated
          and an asset purchase agreement was not signed.

     (c)  Exhibits:

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

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

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

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

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

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

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

 10.5     Limited  Liability  Company  Operating  Agreement  for Lea  Publishing
          L.L.C.  dated February 1, 1999 between Pacific  Magtron  International
          Corp. and Rising Edge Technology (filed as an exhibit to our Report on
          Form 10-K for fiscal year ended December 31, 2000).

 10.6     Accounts   Receivable  and  Inventory   Financing   Agreement  between
          Transamerica Commercial Finance Corporation, Pacific Magtron, Inc. and
          Pacific Magtron (GA), Inc. dated July 13, 2001 (filed as an exhibit to
          our Report on Form 10-Q for quarter ended June 30, 2001).

 10.7     Amendment  No.  2  to  Accounts  Receivable  and  Inventory  Financing
          Agreement by and between Transamerica Commercial  Finance  Corporation
          and  Pacific  Magtron,  Inc.  and  Pacific  Magtron  (GA), Inc. (filed
          herewith).

 10.8     Amendment  No.  1  to  Accounts  Receivable  and  Inventory  Financing
          Agreement by and between Transamerica Commercial  Finance  Corporation
          and  Pacific  Magtron,  Inc.  and  Pacific  Magtron  (GA), Inc. (filed
          herewith).

 21.1     Subsidiaries (filed herewith).

 23.1     Consent of BDO Seidman, LLP (filed herewith).

                                      -25-
<PAGE>
                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this  report on Form 10-K to be
signed on its behalf by the undersigned,  thereunto duly  authorized,  this 29th
day of March, 2002.

                                        PACIFIC MAGTRON INTERNATIONAL CORP.,
                                        a Nevada corporation

                                        BY /s/ THEODORE S. LI
                                           -------------------------------------
                                           THEODORE S. LI
                                           PRESIDENT AND
                                           CHIEF FINANCIAL OFFICER

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

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

/s/ THEODORE S. LI            PRESIDENT, CHIEF EXECUTIVE          MARCH 29, 2002
-------------------------     OFFICER, TREASURER AND DIRECTOR
THEODORE S. LI


/s/ HUI CYNTHIA LEE           DIRECTOR AND SECRETARY              MARCH 29, 2002
-------------------------
HUI CYNTHIA LEE


/s/ JEY HSIN YAO              DIRECTOR                            MARCH 29, 2002
-------------------------
JEY HSIN YAO


/s/ BETTY LIN                 DIRECTOR                            MARCH 29, 2002
-------------------------
BETTY LIN


/s/ HANK C. TA                DIRECTOR                            MARCH 29, 2002
-------------------------
HANK C. TA


/s/ LIMIN HU, PHD             DIRECTOR                            MARCH 29, 2002
-------------------------
LIMIN HU, PHD


/s/ JOHN REED                 DIRECTOR                            MARCH 29, 2002
-------------------------
JOHN REED

                                      -27-
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.
                        CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

                                    CONTENTS

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                           F-2

CONSOLIDATED FINANCIAL STATEMENTS
  Consolidated balance sheets                                                F-3
  Consolidated statements of operations                                      F-4
  Consolidated statements of shareholders' equity                            F-5
  Consolidated statements of cash flows                                      F-6
  Notes to consolidated financial statements                                 F-7

SUPPLEMENTAL SCHEDULE
  Schedule II - Valuation and Qualifying Accounts                           F-22

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

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

We have audited the accompanying  consolidated balance sheets of Pacific Magtron
International  Corp. and subsidiaries  (the Company) as of December 31, 2001 and
2000,  and the related  consolidated  statements  of  operations,  shareholders'
equity,  and cash  flows for each of the years in the  three-year  period  ended
December 31, 2001. We have also audited  Schedule II - Valuation and  Qualifying
Accounts as of and for the years ended December 31, 2001,  2000 and 1999.  These
consolidated  financial  statements and schedule are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements and schedule based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Pacific
Magtron  International  Corp. and subsidiaries as of December 31, 2001 and 2000,
and the results of their  operations  and their cash flows for each of the years
in the three-year  period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.

Also, in our opinion,  the schedule  referred to above presents  fairly,  in all
material  respects,  the  information  set forth therein as of and for the years
ended December 31, 2001, 2000 and 1999.


/s/ BDO SEIDMAN, LLP

San Francisco, California
March 6, 2002, Except for Note 17
which is as of March 14, 2002

                                       F-2
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                           --------------------------
                                                              2001           2000
                                                           -----------    -----------
<S>                                                        <C>            <C>
ASSETS (Note 5)

CURRENT ASSETS:
  Cash and cash equivalents (Note 10)                      $ 3,110,000    $ 4,874,200
  Restricted cash (Note 4)                                     250,000             --
  Accounts receivable, net of allowance for doubtful
    accounts of $400,000 and $175,000 (Notes 2 and 10)       4,590,100      5,629,200
  Inventories (Note 5)                                       2,952,000      3,917,900
  Prepaid expenses and other current assets (Note 11)          387,300        446,500
  Income taxes receivable (Notes 6 and 17)                     399,200        215,700
  Notes receivable from shareholders (Note 2)                       --        171,400
  Deferred tax assets (Note 6)                                 813,000         80,300
                                                           -----------    -----------
TOTAL CURRENT ASSETS                                        12,501,600     15,335,200

PROPERTY, PLANT AND EQUIPMENT, net (Notes 3 and 4)           4,761,500      4,752,300

INVESTMENT IN RISING EDGE (Note 13)                                 --        468,000

INVESTMENT IN TARGETFIRST (Note 13)                                 --        250,000

DEPOSITS AND OTHER ASSETS                                       60,200         55,600
                                                           -----------    -----------
                                                           $17,323,300    $20,861,100
                                                           ===========    ===========
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current portion of notes payable (Note 4)                $    55,900    $    51,400
  Floor plan inventory loans (Note 5)                        1,545,000      1,329,500
  Accounts payable (Note 2)                                  4,786,600      5,788,600
  Accrued expenses                                             379,200        541,300
                                                           -----------    -----------
TOTAL CURRENT LIABILITIES                                    6,766,700      7,710,800

NOTES PAYABLE, less current portion (Note 4)                 3,230,300      3,286,200

DEFERRED TAX LIABILITIES (Note 6)                               34,200          6,300
                                                           -----------    -----------
TOTAL LIABILITIES                                           10,031,200     11,003,300
                                                           -----------    -----------
COMMITMENTS AND CONTINGENCIES (Notes 5, 7, 8, 9 and 10)

MINORITY INTEREST - PMIGA                                        2,200             --
                                                           -----------    -----------
SHAREHOLDERS' EQUITY (Notes 1 and 11):
  Preferred stock, $0.001 par value; 5,000,000 shares
    authorized; no shares issued and outstanding                    --             --
  Common stock, $0.001 par value; 25,000,000 shares
    authorized; 10,485,100 and 10,100,000 shares issued
    and outstanding                                             10,500         10,100
  Additional paid-in capital                                 1,745,500      1,463,100
  Retained earnings                                          5,533,900      8,384,600
                                                           -----------    -----------
TOTAL SHAREHOLDERS' EQUITY                                   7,289,900      9,857,800
                                                           -----------    -----------
                                                           $17,323,300    $20,861,100
                                                           ===========    ===========
</TABLE>

          See Accompanying Notes to Consolidated Financial Statements.

                                       F-3
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                           YEARS ENDED DECEMBER 31,
                                                               -----------------------------------------------
                                                                   2001             2000             1999
                                                               -------------    -------------    -------------
<S>                                                            <C>              <C>              <C>
SALES (Notes 2 and 10):
  Products                                                     $  74,853,100    $  88,597,300    $ 104,696,900
  Services                                                           158,600          275,400          241,800
                                                               -------------    -------------    -------------
TOTAL SALES                                                       75,011,700       88,872,700      104,938,700
                                                               -------------    -------------    -------------
COST OF SALES (Note 8):
  Products                                                        69,660,600       81,691,100       96,407,300
  Services                                                            49,000          129,600           47,500
                                                               -------------    -------------    -------------
TOTAL COST OF SALES                                               69,709,600       81,820,700       96,454,800
                                                               -------------    -------------    -------------
GROSS MARGIN                                                       5,302,100        7,052,000        8,483,900
                                                               -------------    -------------    -------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
  Non-cash amortization of pre-paid consulting fee (Note 11)              --               --          557,900
  Other selling, general and administrative expenses               8,345,100        6,941,800        6,243,900
  Impairment loss on investments (Note 13)                           718,000               --               --
                                                               -------------    -------------    -------------
TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                 9,063,100        6,941,800        6,801,800
RESEARCH AND DEVELOPMENT                                              68,500          100,000               --
                                                               -------------    -------------    -------------
TOTAL OPERATING EXPENSES                                           9,131,600        7,041,800        6,801,800
                                                               -------------    -------------    -------------
(LOSS) INCOME FROM OPERATIONS                                     (3,829,500)          10,200        1,682,100
                                                               -------------    -------------    -------------
OTHER (EXPENSE) INCOME:
  Interest income                                                    125,100          227,300          183,700
  Litigation settlement (Note 16)                                         --          300,000               --
  Interest expense                                                  (255,800)        (296,000)        (269,800)
  Equity in loss on investment (Note 13)                                  --          (32,000)        (222,400)
  Interest income on shareholder notes (Note 2)                           --               --           11,200
  Other expense                                                       (1,600)         (33,400)              --
                                                               -------------    -------------    -------------
TOTAL OTHER (EXPENSE) INCOME                                        (132,300)         165,900         (297,300)
                                                               -------------    -------------    -------------
(LOSS) INCOME BEFORE INCOME TAXES
  AND MINORITY INTEREST                                           (3,961,800)         176,100        1,384,800
INCOME TAX BENEFIT (EXPENSE) (Notes 6 and 17)                      1,078,200         (104,600)        (557,500)
                                                               -------------    -------------    -------------
(LOSS) INCOME BEFORE MINORITY INTEREST                            (2,883,600)          71,500          827,300
MINORITY INTEREST IN FNC AND PMI-GA LOSS (Note 13)                    32,900           50,300               --
                                                               -------------    -------------    -------------
NET (LOSS) INCOME                                              $  (2,850,700)   $     121,800    $     827,300
                                                               =============    =============    =============
Basic and diluted (loss) earnings per share                    $       (0.28)   $        0.01    $        0.08
                                                               =============    =============    =============
Basic weighted average common shares outstanding                  10,280,100       10,100,000       10,100,000
Stock options                                                             --           54,700          108,700
                                                               -------------    -------------    -------------
Diluted weighted average common shares outstanding                10,280,100       10,154,700       10,208,700
                                                               =============    =============    =============
</TABLE>

          See Accompanying Notes to Consolidated Financial Statements.

                                       F-4
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                        Common Stock           Additional
                                 --------------------------     Paid-in       Retained
(Notes 1 and 11)                   Shares         Amount        Capital       Earnings        Total
                                 -----------    -----------   -----------    -----------    -----------
<S>                              <C>            <C>           <C>            <C>            <C>
Balances, December 31, 1998       10,100,000    $    10,100   $ 1,299,100    $ 7,435,500    $ 8,744,700

Final valuation of common
  stock issued for consulting
  services                                --             --       164,000             --        164,000

Net income                                --             --            --        827,300        827,300
                                 -----------    -----------   -----------    -----------    -----------
Balances, December 31, 1999       10,100,000         10,100     1,463,100      8,262,800      9,736,000

Net Income                                --             --            --        121,800        121,800
                                 -----------    -----------   -----------    -----------    -----------
Balances, December 31, 2000       10,100,000         10,100     1,463,100      8,384,600      9,857,800


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

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


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

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

Repurchase and retirement of
  Treasury Stock                     (20,400)            --       (14,600)            --        (14,600)


Net Loss                                  --             --            --     (2,850,700)    (2,850,700)
                                 -----------    -----------   -----------    -----------    -----------
Balances, December 31, 2001       10,485,100    $    10,500   $ 1,745,500    $ 5,533,900    $ 7,289,900
                                 ===========    ===========   ===========    ===========    ===========
</TABLE>

          See Accompanying Notes to Consolidated Financial Statements.

                                       F-5
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                    YEARS ENDED DECEMBER 31,
                                                           -----------------------------------------
                                                              2001           2000           1999
                                                           -----------    -----------    -----------
<S>                                                        <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net (loss)income                                         $(2,850,700)   $   121,800    $   827,300
  Adjustments to reconcile net (loss) income to net cash
   (used in) provided by operating activities:
    Impairment loss on investments                             718,000             --             --
    Depreciation and amortization                              279,000        215,100        187,400
    Loss on disposal of property and equipment                  (1,400)            --         (2,200)
    Provision for doubtful accounts                            450,500        182,200        457,500
    Equity in loss on investments                                   --         32,000        222,400
    Deferred income taxes                                     (682,700)        21,600         34,200
    Amortization of prepaid consulting fee                          --             --        557,900
    Minority interest losses                                   (32,900)            --             --
    Changes in operating assets and liabilities,
     net of assets acquired and liabilities assumed:
      Accounts receivable                                      588,600        797,200       (744,300)
      Inventories                                              965,900       (106,700)     2,579,100
      Prepaid expenses and other current assets                259,200       (347,400)       (21,800)
      Income taxes receivable                                 (183,500)            --             --
      Accounts payable                                      (1,002,000)       (23,000)      (648,700)
      Accrued expenses                                        (142,000)       268,700        134,000
                                                           -----------    -----------    -----------

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES         (1,634,000)     1,161,500      3,582,800
                                                           -----------    -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Cash received on disposal of property and equipment               --             --          2,800
  Notes receivable from shareholders                           171,400         52,200         44,500
  Investment in Lea Publishing                                      --             --       (222,400)
  Investments in Rising Edge and TargetFirst                        --       (750,000)            --
  Deposits and other assets                                     (4,600)       536,400       (547,100)
  Payment for business acquisitions and related costs         (170,700)            --             --
  Acquisition of property and equipment                        (96,100)      (341,500)      (775,900)
                                                           -----------    -----------    -----------

NET CASH USED IN INVESTING ACTIVITIES                         (100,000)      (502,900)    (1,498,100)
                                                           -----------    -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net increase (decrease) in floor plan inventory loans        215,500       (153,400)      (822,100)
  Principal payments on notes payable                          (51,400)       (47,300)       (43,400)
  Restricted cash                                             (250,000)            --             --
  Issuance of Common Stock under stock option plan              55,300             --             --
  Repurchase of common stock                                   (14,600)            --             --
  Proceeds from sale of PMIGA stock
    to minority shareholder                                     15,000             --             --
                                                           -----------    -----------    -----------
NET CASH USED IN FINANCING ACTIVITIES                          (30,200)      (200,700)      (865,500)
                                                           -----------    -----------    -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS        (1,764,200)       457,900      1,219,200

CASH AND CASH EQUIVALENTS, beginning of year                 4,874,200      4,416,300      3,197,100
                                                           -----------    -----------    -----------

CASH AND CASH EQUIVALENTS, end of year                     $ 3,110,000    $ 4,874,200    $ 4,416,300
                                                           ===========    ===========    ===========
</TABLE>

          See Accompanying Notes to Consolidated Financial Statements.

                                       F-6
<PAGE>
                       PACIFIC MAGTRON INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

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

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

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

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

Concurrently,  FNC  issued  20,000,000  shares  to  the  Company  and  became  a
wholly-owned subsidiary.  On January 1, 2001, FNC issued 3,000,000 shares of its
common stock to three key FNC employees for past services  rendered  pursuant to
certain Employee Stock Purchase Agreements. As a result of this transaction, the
Company's  ownership  interest in FNC was reduced to 87%.  In August  2001,  FNC
repurchased  and retired  one  million of its shares  from a former  employee at
$0.01 per share, resulting in an increase in the Company's ownership of FNC from
87% to 91%.

In May 1999, the Company  entered into a Management  Operating  Agreement  which
provided  for a 50%  ownership  interest in Lea  Publishing,  LLC, a  California
limited  liability  company  (Lea) formed in January  1999 to develop,  sell and
license  software  designed to provide  internet users,  resellers and providers
with  advanced  solutions  and  applications.  On June  13,  2000,  the  Company
increased  its direct and indirect  interest in Lea to 62.5% by  completing  its
investment in 25% of the outstanding  common stock of Rising Edge  Technologies,
Ltd.,  the other 50% owner of Lea,  which is a  development  stage  company.  In
December 2001, the Company entered into an agreement with Rising Edge Technology
(Rising Edge) and its principal owners to exchange the 50% Rising Edge ownership
interest in Lea for our 25% ownership interest in Rising Edge. As a consequence,
PMIC owns 100% of Lea and no longer has an ownership interest in Rising Edge.

In August 2000, PMI formed  Pacific  Magtron (GA),  Inc., a Georgia  corporation
whose principal activity is the wholesale  distribution of PMI's products in the
eastern  United  States  market.  During 2001,  PMIGA sold 15,000  shares of its
common stock to an employee for $15,000. As a result of this transaction,  PMI's
ownership interest in PMIGA was reduced to 98%.

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

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

                                       F-7
<PAGE>
USE OF ESTIMATES

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

CONSOLIDATION AND UNCONSOLIDATED INVESTEES

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

RECLASSIFICATIONS

Certain of the 2000 and 1999 financial  statement amounts have been reclassified
to conform to the 2001 presentation.

CASH AND CASH EQUIVALENTS

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

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

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

INVENTORIES

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

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Depreciation is provided using
the straight-line method over the related estimated useful lives, as follows:

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

                                       F-8
<PAGE>
REVENUE RECOGNITION

The Company  recognizes  sales of computer and network products upon delivery of
the goods to the customer  (generally  upon  shipment)  provided no  significant
obligations  remain and  collectibility  is probable.  A provision for estimated
product returns is established at the time of sale based upon historical  return
rates,  which have typically been  insignificant,  adjusted for current economic
conditions.  The Company  generally does not provide volume discounts or rebates
to its customers,  and customer  credits for price  protection are generally not
granted unless recoverable from the vendor under the provisions of the Company's
vendor agreements. Revenues relating to services performed by FNC are recognized
as earned  based upon  contract  terms,  which is  generally  upon  delivery and
customer  acceptance.  Software and service revenues relating to software design
and  installation  for Lea's  customers are  recognized  upon  completion of the
installation and customer acceptance.

ADVERTISING COSTS

Advertising  costs,  except for  certain  radio  advertising  credits  which are
capitalized and expensed as these credits are utilized, are expensed as incurred
and are included in other selling,  general and  administrative  expenses in the
accompanying consolidated statements of operations. Included in prepaid expenses
and other current assets as of December 31, 2001 is $200,000,  representing  the
outstanding  balance of the radio advertising  credits.  Advertising expense was
$178,000, $3,600, and $5,500 in 2001, 2000, and 1999, respectively.

WARRANTY REPAIRS

The Company is principally a distributor of numerous electronics  products,  for
which the original equipment  manufacturer is responsible and liable for product
repairs and service. However, the Company does warrant its services with regards
to  products  configured  for its  customers  and  products  built to order from
purchased  components,  and provides for the estimated costs of fulfilling these
warranty obligations at the time the related revenue is recorded.  Historically,
warranty costs have been insignificant.

INCOME TAXES

The Company  reports  income  taxes in  accordance  with  Statement of Financial
Accounting Standards (SFAS) No. 109, ACCOUNTING FOR INCOME TAXES, which requires
an asset and liability  approach.  This approach  results in the  recognition of
deferred  tax assets  (future tax  benefits)  and  liabilities  for the expected
future tax  consequences  of  temporary  differences  between the book  carrying
amounts and the tax basis of assets and liabilities. The deferred tax assets and
liabilities  represent the future tax return  consequences of those differences,
which will either be deductible or taxable when the assets and  liabilities  are
recovered or settled.  Future tax benefits are subject to a valuation  allowance
when management believes it is more likely than not that the deferred tax assets
will not be realized.

LONG-LIVED ASSETS

The Company  periodically  reviews its long-lived  assets for  impairment.  When
events or changes in circumstances indicate that the carrying amount of an asset
may not be  recoverable,  the Company  adjusts the asset to its  estimated  fair
value.  The fair value of an asset is determined by the Company as the amount at
which  that  asset  could be  bought or sold in a  current  transaction  between
willing parties or the present value of the estimated future cash flows from the
asset.  The asset value  recoverability  test is  performed by the Company on an
on-going  basis.  As further  discussed  in Note 13,  the  Company  recorded  an
impairment  loss in 2001 due to the write-down of the investments in Rising Edge
and  TargetFirst  to zero. The  impairment  loss  recognized for the Rising Edge
investment was based on operations history, projections and a change in focus of
the investee's  business.  The impairment  loss  recognized for the Target First
investment  resulted  from an analysis  of the  investee's  recurring  operating
losses and cash used in operations.

FAIR VALUES OF FINANCIAL INSTRUMENTS

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

                                       F-9
<PAGE>
LONG-TERM DEBT AND FLOOR PLAN INVENTORY LOANS

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. The fair value of long-term debt at
December  31, 2001 was  approximately  $3,487,700.  The fair value of floor plan
inventory loans  approximates their carrying value because of the short maturity
of this instrument.

EARNINGS PER SHARE

The Company  applies the provisions of SFAS No. 128,  EARNINGS PER SHARE,  which
provides for the  calculation  of basic and diluted  earnings  per share.  Basic
earnings  per share  includes  no dilution  and is  computed by dividing  income
available to common stockholders by the weighted average number of common shares
outstanding  for the period.  Diluted  earnings per share reflects the potential
dilution of securities that could share in the earnings of an entity. During the
year  ended  December  31,  2001,  options  to  purchase  794,600  shares of the
Company's  common stock were excluded from the  calculation of diluted  earnings
per share as their effect would be anti-dilutive.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2000,  the EITF  reached a  consensus  on Issue  00-14,  "Accounting  for
Certain Sales Incentives." This issue addresses the recognition, measurement and
income statement  classification for sales incentives  offered  voluntarily by a
vendor without charge to customers that can be used in, or are  exercisable by a
customer as a result of, a single exchange transaction.  In April 2001, the EITF
reached a consensus on Issue 00-25, "Vendor Income Statement Characterization of
Consideration  to a Purchaser of the Vendor's  Products or Services." This issue
addresses the recognition,  measurement and income statement  classification  of
consideration,  other than that directly addressed by Issue 00-14, from a vendor
to a retailer or  wholesaler.  Issue 00-25 will be effective  for the  Company's
2002  fiscal  year.  Both Issue 00-14 and 00-25 have been  codified  under Issue
01-09,  "Accounting  for  Consideration  Given by a Vendor  to a  Customer  or a
Reseller of the Vendor's  Products."  We are  currently  analyzing  Issue 01-09.
Issue 01-09 is not expected to have a material impact on the Company's financial
position or results of  operations,  except that certain  reclassifications  may
occur.  The consensus  reached in Issue 00-25 and Issue 00-14 (codified by Issue
01-09) are effective for fiscal quarters beginning after December 15, 2001.

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

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

                                      F-10
<PAGE>
In  August  2001,  the FASB  issued  SFAS No.  143  Accounting  for  Obligations
Associated  with the  Retirement  of Long-Lived  Assets.  SFAS No. 143 addresses
financial  accounting and reporting for the  retirement  obligation of an asset.
SFAS No. 143 states that companies  should  recognize the asset retirement cost,
at its fair value,  as part of the cost asset and classify the accrued amount as
a  liability  in the  balance  sheet.  The asset  retirement  liability  is then
accreted to the ultimate payout as interest expense.  The initial measurement of
the  ability  would  be  subsequently  updated  for  revised  estimates  of  the
discounted  cash  outflows.  SFAS No. 143 will be  effective  for  fiscal  years
beginning  after June 15, 2002. The Company does not expect the adoption of SFAS
No.  143 to  have a  material  effect  on its  financial  position,  results  of
operations, or cash flows.

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

2. RELATED PARTY TRANSACTIONS

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

The Company sold  computer  products to a company owned by a member of the Board
of Directors of the Company.  Management  believes that the terms of these sales
transactions  are no more  favorable than given to unrelated  customers.  During
2001, 2000 and 1999, the Company recognized $476,200, $1,476,100 and $724,000 in
sales revenues from this company. Included in accounts receivable as of December
31,  2001 and 2000 is $200 and  $209,400  respectively,  due from  this  related
customer.

In 2001 FNC acquired certain assets of Technical Insights in exchange for 16,100
shares of PMIC common stock.  Under the purchase  agreement,  among other terms,
FNC was  required  to pay  $126,000  to the  sellers  upon  completion  and full
settlement of a sale transaction as specified in the agreement.  On October 2001
the  sellers  became  employees  of FNC.  As a  result  of this  profit  sharing
arrangement,  the $126,000  payment to the sellers was recorded as  compensation
expense by the  Company.  As of December  31,  2001,  $126,000 was owed to these
employees and is included in accounts payable.  In January 2002, this amount was
paid to the sellers/employees under the terms of the purchase agreement.

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

3. PROPERTY, PLANT AND EQUIPMENT

A summary of  property,  plant and  equipment  as of December  31, 2001 and 2000
follows:

     DECEMBER 31,                                    2001           2000
     ------------                                 ----------     ----------
     Building and improvements (Note 4)           $3,266,900     $3,263,000
     Land (Note 4)                                 1,158,600      1,158,600
     Furniture and fixtures                          394,500        360,900
     Computers and equipment                         703,900        513,500
     Automobiles                                     190,400        190,400
     Software                                         59,400             --
                                                  ----------     ----------
                                                   5,773,700      5,486,400
     Less accumulated depreciation                 1,012,200        734,100
                                                  ----------     ----------
                                                  $4,761,500     $4,752,300
                                                  ==========     ==========

                                      F-11
<PAGE>
4. NOTES PAYABLE

In 1997,  the Company  obtained  financing of $3,498,000 for the purchase of its
office and warehouse  facility.  Of the amount  financed,  $2,500,000 was in the
form of a 10-year bank loan utilizing a 30-year  amortization  period. This loan
bears  interest at the bank's 90-day LIBOR rate (1.883% as of December 31, 2001)
plus 2.5%, and is secured by a deed of trust on the property. The balance of the
financing was obtained  through a $998,000 Small Business  Administration  (SBA)
loan due in monthly installments through April 2017. The SBA loan bears interest
at 7.569%, and is secured by the underlying property.

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

The balances of the notes as of December 31, 2001 and 2000 are as follows:

                                                  2001              2000
                                               ----------        ----------
     Bank loan                                 $2,411,700        $2,433,700
     SBA loan                                     874,500           903,900
                                               ----------        ----------
                                                3,286,200         3,337,600
     Less current portion                          55,900            51,400
                                               ----------        ----------
                                               $3,230,300        $3,286,200
                                               ==========        ==========

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

     YEARS ENDING DECEMBER 31,                                     Amount
     -------------------------                                   ----------
     2002                                                        $   55,900
     2003                                                            60,800
     2004                                                            66,100
     2005                                                            71,900
     2006                                                            78,200
     Thereafter                                                   2,953,300
                                                                 ----------
                                                                 $3,286,200
                                                                 ==========

                                      F-12
<PAGE>
5. FLOOR PLAN INVENTORY LOANS AND LETTER OF CREDIT

The Company had a $7 million (including a $1 million letter of credit sub-limit)
auto-renewing  floor plan inventory loan available from a financial  institution
which was  collateralized  by the purchased  inventory and any proceeds from its
sale or disposition.  The $1 million letter of credit was maintained as security
for  inventory  purchased on terms from vendors in Taiwan and required an annual
commitment  fee of  $15,000.  Borrowings  under  the  floor  plan  line  totaled
$1,329,500 as of December 31, 2000 and were subject to 45 day  repayment  terms,
at which time  interest  began to accrue at the prime rate (9.5% as of  December
31, 2000).  In March 2001,  the financial  institution  that provided this floor
plan  inventory  loan filed  bankruptcy  and the Company paid off its  remaining
obligation.

On July 13,  2001,  PMI and PMIGA  (the  Companies)  obtained  a new $4  million
(subject to credit and  borrowing  base  limitations)  accounts  receivable  and
inventory  financing facility from Transamerica  Commercial Finance  Corporation
(the  Bank).  This new  credit  facility  has a term of two  years,  subject  to
automatic  renewal  from year to year  thereafter.  The credit  facility  can be
terminated  under certain  conditions and the termination is subject to a fee of
1% of the credit  limit.  The facility  includes up to a $3.0 million  inventory
line (subject to a borrowing base of up to 85% of eligible  accounts  receivable
plus up to  $1,500,000  of eligible  inventories),  that includes a sub-limit of
$600,000 working capital line and a $1 million letter of credit facility used as
security for  inventory  purchased  on terms from  vendors in Taiwan.  Borrowing
under the inventory loans are subject to 30 to 45 days repayment,  at which time
interest  begins to accrue at the prime rate,  which was 4.75% at  December  31,
2001.  Draws on the working capital line also accrue interest at the prime rate.
The credit facility is guaranteed by both PMIC and FNC. As of December 31, 2001,
the  Company  had an  outstanding  balance of  $1,422,100  due under this credit
facility.

Under the agreement,  PMI and PMIGA granted the Bank a security  interest in all
of their accounts, chattel paper, cash, documents,  equipment, fixtures, general
intangibles, instruments, inventories, leases, supplier benefits and proceeds of
the  foregoing.  The Companies are also required to maintain  certain  financial
covenants. As of September 30, 2001 and December 31, 2001, the Companies were in
violation of the minimum tangible net worth covenant. On March 6, 2002, the Bank
issued a waiver of the  default  and  revised  the  covenants  under the  credit
agreement  retroactively  to September  30, 2001.  As of December 31, 2001,  the
Company was in compliance with these new covenants.

In March,  2001, FNC obtained a $2 million  discretionary  credit  facility from
Deutsche Financial Services  Corporation  (Deutsche) to purchase  inventory.  To
secure payment, Deutsche obtained a security interest in all of FNC's inventory,
equipment,  fixtures, accounts,  reserves,  documents, general intangible assets
and all judgments, claims, insurance policies, and payments owed or made to FNC.
Under the loan  agreement,  all draws  mature in 30 days.  Thereafter,  interest
accrues at the lesser of 16% per annum or at the maximum lawful contract rate of
interest  permitted  under  applicable law. As of December 31, 2001 and February
28, 2002, FNC had an outstanding balance of $122,900 and $37,700,  respectively,
under this credit facility.

FNC is required  to  maintain  certain  financial  covenants  to qualify for the
Deutsche  credit line, and was not in compliance with certain of these covenants
as of December 31, 2001, which  constitutes a technical default under the credit
line.  This gives the financial  institution,  among other things,  the right to
call the loan and terminate the credit line.  The credit  facility is guaranteed
by PMIC and can be terminated by Deutsche immediately given the default.

6. INCOME TAXES

For the years  ended  December  31,  2001,  2000 and 1999,  income  tax  benefit
(expense) comprises:

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

                                      F-13
<PAGE>
     2000                    Current          Deferred            TOTAL
     ----                  -----------       -----------       -----------
     Federal               $   (56,000)      $   (22,500)      $   (78,500)
     State                     (27,000)              900           (26,100)
                           -----------       -----------       -----------
                           $   (83,000)      $   (21,600)      $  (104,600)
                           ===========       ===========       ===========

     1999                    Current          Deferred            TOTAL
     ----                  -----------       -----------       -----------
     Federal               $  (409,800)      $   (32,600)      $  (442,400)
     State                    (113,500)           (1,600)         (115,100)
                           -----------       -----------       -----------
                           $  (523,300)      $   (34,200)      $  (557,500)
                           ===========       ===========       ===========

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 2001, 2000 and 1999 to income before income taxes:


YEAR ENDING DECEMBER 31,                    2001          2000          1999
------------------------                 ----------     ---------     ---------
Federal income tax benefit (expense)
  at statutory rate                      $1,347,000     $ (59,900)    $(470,800)
State income taxes benefit (expense),
  net of federal benefit                    230,100       (10,600)      (86,700)
Other non-deductible expenses               (96,000)      (34,100)           --
Change in valuation allowance              (402,900)           --            --
                                         ----------     ---------     ---------
Income tax benefit (expense)             $1,078,200     $(104,600)    $(557,500)
                                         ==========     =========     =========

As of December 31, 2001,  the Company had Federal and State net  operating  loss
(NOL) carry forwards of approximately  $1,906,800 and $1,684,000,  respectively,
to offset future taxable income. The net operating loss carry forwards expire in
2021, and are limited for future use should significant changes in the Company's
ownership occur.

Deferred  tax assets  and  liabilities  as of  December  31,  2001 and 2000 were
comprised of the following:

                                                    2001           2000
                                                 -----------    -----------
     Deferred tax assets:
     Reserves (primarily the allowance for
       doubtful accounts) not currently
       deductible                                $   272,800    $    68,900
     State income taxes                                1,800          9,200
     Accrued compensation and benefits                 8,400          2,200
     Capital loss carryover                          186,400             --
     NOL carryover                                   746,500             --
                                                 -----------    -----------
                                                   1,215,900         80,300
     Valuation allowance                            (402,900)            --
                                                 -----------    -----------
     Net deferred tax assets                     $   813,000    $    80,300
                                                 ===========    ===========
     Deferred tax liabilities - accumulated
       depreciation                              $    34,200    $     6,300
                                                 ===========    ===========

                                      F-14
<PAGE>
At December 31, 2001, the Company has recorded a valuation  allowance,  relating
principally  to the capital loss  carryover and State NOL carryover  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, 2001 was $402,900.

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

7. LEASE COMMITMENTS

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

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

YEAR ENDING DECEMBER 31,                                   Amount
------------------------                                  --------
2002                                                      $292,400
2003                                                       281,900
2004                                                        31,800
2005                                                        26,100
2006                                                         2,000
                                                          --------
                                                          $634,200
                                                          ========

Total rent  expense  associated  with all  operating  leases for the years ended
December 31, 2001, 2000 and 1999 was $136,000, $16,700 and $5,500, respectively.

8. MAJOR VENDORS

One vendor accounted for  approximately  10%, 16% and 20% of the total purchases
for the years ended December 31, 2001, 2000 and 1999,  respectively.  During the
year ended December 31, 1999, one additional  vendor located in Taiwan accounted
for approximately 11% of total purchases. No other vendors account for more than
10% of purchases for any period  presented.  Management  believes  other vendors
could  supply  similar  products on  comparable  terms.  A change in  suppliers,
however,  could cause a delay in availability of products and a possible loss of
sales, which could affect operating results adversely.

9. EMPLOYEE BENEFIT PROGRAM-401(k) PLAN

The  Company  has a  401(k)  plan  (the  Plan)  for its  employees.  The Plan is
available to all employees  who have reached the age of twenty-one  and who have
completed  three months of service with the  Company.  Under the Plan,  eligible
employees may defer a portion of their  salaries as their  contributions  to the
Plan.  Company  contributions  are  discretionary,  subject to statutory maximum
levels.  Company contributions to the Plan totaled $3,400,  $24,100 and $27,300,
for the years ended December 31, 2001, 2000 and 1999, respectively.

10. CONCENTRATION OF CREDIT RISK

Financial  instruments which potentially subject the Company to concentration of
credit  risk  consist  principally  of  cash  and  cash  equivalents  and  trade
receivables.  The  Company  places  its cash and cash  equivalents  with what it
believes are reputable financial institutions. As of December 31, 2001 and 2000,
the  Company  had  deposits  at  one  financial   institution  which  aggregated
$3,083,900 (including restricted cash of $250,000) and $4,067,900, respectively.
As of December 31, 2001 and 2000, the Company had deposits amounting to $274,200
and $740,600,  respectively,  at an additional financial institution. Such funds
are insured by the Federal Deposit Insurance Company up to $100,000.

                                      F-15
<PAGE>
A significant  portion of the  Company's  revenues and accounts  receivable  are
derived  from  sales made  primarily  to  unrelated  companies  in the  computer
industry and related fields principally throughout the United States and as well
as some foreign countries,  including Canada, the United Kingdom, France, Russia
and Israel.  For the years ended December 31, 2001, 2000 and 1999, no individual
customer or customers in any one foreign country  accounted for more than 10% of
sales. The Company believes any risk of accounting loss is significantly reduced
due to the use of various  levels of credit  insurance,  diversity in customers,
geographic  sales areas and  extending  credit  based on  established  limits or
terms.  The Company  performs  credit  evaluations of its  customers'  financial
condition whenever necessary, and generally does not require cash collateral.

11. CAPITAL STOCK

TREASURY STOCK

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

CONSULTING AGREEMENT

On July 17,  1998 the Company  issued  100,000  restricted  shares of its common
stock to an unrelated  party under terms of a consulting  agreement.  The shares
were to vest 50% on July 17, 1999 and 50% on July 17, 2000. If the services were
not provided as required by the  agreement,  the  consultant  was to forfeit all
unvested shares.  The Company  accounted for this transaction in accordance with
EITF No. 96-18,  ACCOUNTING FOR EQUITY INSTRUMENTS THAT ARE ISSUED TO OTHER THAN
EMPLOYEES FOR ACQUIRING, OR IN CONJUNCTION WITH SELLING, GOODS OR SERVICES.

During 1999, the Company and the consultant periodically discussed the level and
type of services  required in order for the shares to vest under the  consulting
agreement.  This discussion led to a postponement of the scheduled July 17, 1999
vesting date. After further  discussions,  the Board of Directors of the Company
determined that no further  performance was required by the consultant under the
agreement  and deemed the entire  100,000  shares  vested on September 17, 1999,
resulting in a measurement  date and final valuation of these shares of $675,000
of which  $557,900,  and  $117,100  was  amortized  to  expense in 1999 and 1998
respectively.

STOCK ISSUED FOR SERVICES

On June 14, 2001,  the Company  issued  333,400 shares of its common stock to an
unrelated party in exchange for radio advertising services to be received over a
three-year  period.  All  of  the  shares  vested  upon  issuance  and  are  non
forfeitable, resulting in a measurement date and final valuation of these shares
in the amount of $200,000  based upon the market price of the  Company's  common
stock on the date of issuance. This $200,000 is included in prepaid expenses and
other  current  assets  as of  December  31,  2001 and will be  expensed  in the
statement of operations as the services are received. Through December 31, 2001,
no radio  advertising  services  have been  received by the  Company  under this
arrangement.

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:

                                      F-16
<PAGE>
<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>
BALANCES, DECEMBER 31, 1998      823,200      176,800      $   3.33     $   2.85     4.7 Years
Options granted                  (40,000)      40,000          5.00         2.27            --
Options forfeited                 19,500      (19,500)         3.33         2.85            --
                               ---------     --------      --------     --------     ---------
BALANCES, DECEMBER 31, 1999      802,700      197,300          3.67         2.73     3.9 Years
Options granted                 (136,000)     136,000          1.50         1.15            --
Options forfeited                 40,000      (40,000)         2.78         2.34            --
                               ---------     --------      --------     --------     ---------
BALANCES, DECEMBER 31, 2000      706,700      293,300          2.78         2.05     3.6 Years
Options granted                 (660,000)     660,000          0.94         0.80            --
Options forfeited                102,700     (102,700)         2.65         2.22            --
Options exercised                     --      (56,000)         0.99         0.87            --
                               ---------     --------      --------     --------     ---------
BALANCES, DECEMBER 31, 2001      149,400      794,600      $   1.40     $   1.08     3.8 Years
                               =========     ========      ========     ========     =========
</TABLE>

The following table summarizes information about stock options outstanding as of
December 31, 2001:

                       Options Outstanding                 Options Exercisable
              --------------------------------------      ----------------------
                              Weighted
                Number         Average      Weighted        Number     Weighted
              Outstanding     Remaining      Average      Exercisable   Average
Exercise        as of        Contractual    Exercise        as of      Exercise
Price         12/31/2001        Life          Price       12/31/2001     Price
-----         ----------     ----------       -----       ----------     -----
$0.88           333,800       4.3 Years       $0.88         333,800      $0.88
$0.97           206,200       4.3 Years       $0.97         206,200      $0.97
$1.11            64,000       4.8 Years       $1.11          64,000      $1.11
$1.50            86,000       2.7 Years       $1.50          17,200      $1.50
$2.42            27,600       0.2 Years       $2.42          20,900      $2.42
$4.00            37,000       0.9 Years       $4.00          28,000      $4.00
$5.00            40,000       1.9 Years       $5.00          16,000      $5.00
               --------      ----------       -----         -------      -----
                794,600       3.8 Years       $1.40         686,100      $1.21
               ========      ==========       =====         =======      =====

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

FASB Statement No. 123,  ACCOUNTING FOR STOCK-BASED  COMPENSATION,  requires the
Company to provide pro forma  information  regarding net income and earnings per
share as if  compensation  cost for the  Company's  stock  option  plan had been
determined in accordance with the fair value based method prescribed in SFAS No.
123. The Company  estimates the fair value of stock options at the grant date by
using the Black-Scholes option pricing-model with the following weighted-average
assumptions use for grants in 2001, 2000 and 1999: no yield; expected volatility
of 152%,  112%  and 61%,  risk-free  interest  rates of 5.0%,  6.2% and 5.9% and
expected lives of four years for all plan options.

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

YEAR ENDING DECEMBER 31,                        2001        2000        1999
------------------------                     -----------   ---------   ---------
Net (loss) income:
  As reported                                $(2,850,700)  $ 121,800   $ 827,300
  Pro forma                                  $(3,478,100)  $   3,200   $ 719,000
                                             -----------   ---------   ---------
Basic and diluted (loss) earnings per share:
  As reported                                $     (0.28)  $    0.01   $    0.08
  Pro forma                                  $     (0.34)  $    0.00   $    0.07
                                             ===========   =========   =========

                                      F-17
<PAGE>
12. STATEMENTS OF CASH FLOWS

Cash was paid during the years ended December 31, 2001, 2000 and 1999 for:

YEARS ENDING DECEMBER 31,               2001             2000             1999
-------------------------             --------         --------         --------
Income taxes                          $  1,500         $203,700         $447,000
Interest                              $255,800         $296,000         $269,800
                                      ========         ========         ========

Supplemental disclosures of non-cash investing and financing activities:

During  2001,  the  Company  issued  333,400  shares of its  common  stock to an
unrelated party in exchange for radio  advertising  services to be received over
three-year  period.  All  of  the  shares  vested  upon  issuance  and  are  non
forfeitable,  resulting  in a non cash  transaction  of $200,000  based upon the
market price of the Company's common stock on the date of issuance.

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

As discussed in Note 11, non cash financing activities in 1999 resulted from the
final valuation of the issuance of 100,000 shares of the Company's  common stock
to an unrelated party under the terms of a consulting agreement.

13. INVESTMENTS

Investment in Rising Edge and Lea

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

In November 1999, Lea entered into a software  development  contract with Rising
Edge which calls for the development of certain internet software for a $940,000
fee. Of this amount,  the contract  specified  that $440,000 shall be applied to
services performed in 1999 (of which $220,000 represented the Company's portion)
and  $500,000  shall be applied to services  to be  performed  in 2000,  and the
Company and Rising Edge are each  responsible  for  $470,000 of the fee.  During
1999,  the Company paid  $470,000 for its portion of the total fee payable under
the contract,  (of which $50,000 represented the Company's portion).  During the
year ended December 31, 2000,  Rising Edge performed  $100,000 worth of services
as specified  under the contract (of which  $50,000  represented  the  Company's
portion).  In January 2001, the contract was  terminated by mutual  agreement of

                                      F-18
<PAGE>
the parties,  and the Company's  remaining  portion of the software  development
fees prepaid under the contract,  totaling $200,000,  was refunded. For the year
ended December 31, 1999, the Company's  equity loss in its investment in Lea was
$222,400.

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

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

Investment in TargetFirst

On January 20,  2000,  the Company  acquired,  in a private  placement,  485,900
shares of convertible preferred stock of a nonpublic company,  TargetFirst, Inc.
(formerly  ClickRebates.com),  for  approximately  $250,000 under the terms of a
Series A  Preferred  Stock  Purchase  Agreement.  The  Company's  investment  in
TargetFirst,  Inc.,  which  represents  approximately  8% of the  three  million
preferred  stock  offering,  is being  accounted  for using the cost method.  In
connection with the Company's ongoing  evaluation of the net realizable value of
this  investment  based on  operations  history  and  projections,  the  Company
believed the value of the  investment  was impaired and wrote off the investment
during the second quarter of 2001 resulting in an impairment loss of $250,000.

14. ACQUISITIONS

On September 30, 2001, FNC acquired  certain assets,  consisting  principally of
furniture and fixtures,  computers and certain vendor reseller agreements,  of a
computer  technical  support company,  Technical  Insights (TI), in exchange for
$20,000 worth of PMIC common stock (16,100 shares). TI has expertise in computer
technical training which enables FNC to better serve its corporate  customers in
the field of technical  training.  This  acquisition was accounted for under the
purchase method of accounting.  The total purchase cost of the TI acquisition of
$46,600,  including acquisition costs of $26,600, has been allocated pro rata to
the  assets  acquired  based upon  estimates  of their  fair  values.  Under the
purchase  agreement,  among other terms, FNC was required to pay $126,000 to the
sellers upon completion and full  settlement of a sale  transaction as specified
in the  agreement.  On October  2001 the sellers  became  employees of FNC. As a
result of this profit sharing  arrangement,  the $126,000 payment to the sellers
was recorded as  compensation  expense by the Company.  As of December 31, 2001,
$126,000 was owed to these  employees  and is included in accounts  payable.  In
January 2002, this amount was paid to the  sellers/employees  under the terms of
the purchase agreement.

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

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

15. SEGMENT INFORMATION

The Company has four reportable  segments:  PMI, PMIGA, FNC and LEA. PMI imports
and  distributes   electronic  products,   computer  components,   and  computer
peripheral  equipment to various  customers  throughout the United States,  with
PMIGA  focusing  on the east coast area.  Frontline  serves the  networking  and
personal  computer  requirements  of  corporate  customers.  Lea  is  developing
advanced solutions and applications for internet users, resellers and providers.
The accounting  policies of the segments are the same as those  described in the
summary of significant  accounting policies.  The Company evaluates  performance
based on income or loss before income taxes and minority interest, not including

                                      F-19
<PAGE>
nonrecurring gains or losses. Inter-segment transfers between segments have been
insignificant.  The Company's  reportable  segments are strategic business units
that offer different products and services.  They are managed separately because
each business requires different  technology and marketing  strategies.  PMI and
PMIGA are  comparable  businesses  with  different  locations of operations  and
customers.

The following table presents  information  about reported segment profit or loss
and segment assets for the years ended December 31, 2001, 2000, and 1999:

<TABLE>
<CAPTION>
Year Ended December 31, 2001:
                                         PMI            PMIGA            FNC             LEA           Totals
                                     -----------     -----------     -----------     -----------     -----------
<S>                                  <C>             <C>             <C>             <C>             <C>
Revenues from external customers     $60,293,500     $11,445,300     $ 3,022,200(1)  $   250,700(2)  $75,011,700
Interest income                           85,500           5,500          34,100              --         125,100
Interest expense                         230,700             600          24,500              --         255,800
Depreciation and amortization            222,600          27,500          25,400           3,500         279,000
Segment loss before income
  taxes and minority interest         (1,563,500)       (619,800)       (868,800)       (191,700)     (3,243,800)
Segment assets                        19,102,200       1,549,800       1,500,600         256,400      22,409,000
Expenditures for segment assets          126,200          32,600          23,000          85,000         266,800
                                     ===========     ===========     ===========     ===========     ===========

Year Ended December 31, 2000:
                                         PMI            PMIGA            FNC             LEA           Totals
                                     -----------     -----------     -----------     -----------     -----------
Revenues from external customers     $79,610,300     $ 1,156,900     $ 8,105,500(1)  $        --     $88,872,700
Interest income                          226,800             500              --              --         227,300
Interest expense                         295,800             200              --              --         296,000
Depreciation and amortization            192,800           4,200          18,100              --         215,100
Segment income or (loss) before
  income taxes and minority
  interest                               390,400        (137,800)         56,300        (100,800)        208,100
Segment assets                        18,528,700       1,573,600       2,575,000              --      22,677,300
Expenditures for segment assets          205,500         102,800          33,200              --         341,500
                                     ===========     ===========     ===========     ===========     ===========

Year ended December 31, 1999:
                                              PMI              FNC               Lea              Totals
                                         -------------     -------------     -------------     -------------
Revenues from external customers         $ 100,238,000     $   4,700,700(1)  $                 $ 104,938,700
Interest income                                194,900                --                --           194,900
Interest expense                               269,800                --                --           269,800
Depreciation and amortization                  180,100             7,300                --           187,400
Segment income or (loss) before income
  taxes and minority interest                1,572,400            49,800          (444,800)        1,177,400
Equity in loss in investment in Lea                 --                --          (222,400)         (222,400)
Segment assets                              18,865,000         2,046,400                --        20,911,400
Expenditures for segment assets                706,600            69,300                --           775,900
                                         =============     =============     =============     =============
</TABLE>

----------
(1)  Includes service revenues of $115,000,  $275,400 and $241,800 in 2001, 2000
     and 1999, respectively.
(2)  Includes service revenues of $43,600 in 2001.

                                      F-20
<PAGE>
The following is a  reconciliation  of reportable  segment  income before income
taxes and total assets to the Company's consolidated totals:

<TABLE>
<CAPTION>
                                                      2001              2000              1999
                                                  ------------      ------------      ------------
<S>                                               <C>               <C>               <C>
(LOSS) INCOME BEFORE INCOME TAXES
Total (loss) income before income taxes and
  minority interest for reportable segments       $ (3,243,800)     $    208,100      $  1,177,400
Equity in loss in investment in Rising Edge                 --           (32,000)               --
Rising Edge equity in loss in investment in Lea             --                --           222,400
Impairment loss on investments                        (718,000)(1)            --           (15,000)
                                                  ------------      ------------      ------------
Consolidated (loss) income before income taxes
  and minority interest                           $ (3,961,800)     $    176,100      $  1,384,800
                                                  ============      ============      ============
Assets:
  Total assets for reportable segments            $ 22,409,000      $ 22,677,300      $ 20,911,400
  Other assets                                         714,100           720,400           502,400
Elimination of inter-company receivables            (5,799,800)       (2,536,600)         (724,800)
                                                  ------------      ------------      ------------

Consolidated total assets                         $ 17,323,300      $ 20,861,100      $ 20,689,000
                                                  ============      ============      ============
</TABLE>
----------
(1)  Amount  includes the equity in the loss in the investment in Rising Edge of
     $14,500 during 2001.

The total of  reportable  segment  revenues  equals the  Company's  consolidated
revenues in 2001, 2000 and 1999.

16. LITIGATION SETTLEMENT

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

17. SUBSEQUENT EVENTS

On March 9, 2002,  legislation  was  enacted to extend the  general  Federal net
operating loss  carryback  period from two years to five years for net operating
losses  incurred in 2001 and 2002.  As a result,  the Company has not recorded a
valuation  allowance  on the  portion of the  deferred  tax assets  relating  to
Federal net operating loss  carryforward  of $1,906,800 as the Company  believes
that it is more likely than not that this deferred tax asset will be realized as
of December 31, 2001. During the first quarter of 2002, this deferred tax asset,
totaling   approximately   $648,300,   will  be  reclassified  to  income  taxes
receivable.

On March 14, 2002, FNC  repurchased  and retired an additional  1,000,000 of its
outstanding  shares from a former  employee at $0.10 per share,  resulting in an
increase in the Company's ownership of FNC from 91% to 96%.

                                      F-21
<PAGE>
                              SUPPLEMENTAL SCHEDULE

                       PACIFIC MAGTRON INTERNATIONAL CORP.

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                     Beginning       Charged to        Write-offs       ENDING
Allowance for Doubtful Accounts       Balance     Costs and Expense    of Accounts      BALANCE
-------------------------------      ---------    -----------------    -----------     ---------
<S>                                  <C>              <C>               <C>            <C>
Year ended December 31, 1999         $ 150,000        $ 457,500         $(457,500)     $ 150,000

Year ended December 31, 2000           150,000          182,200          (157,200)       175,000

Year ended December 31, 2001           175,000          450,500          (225,500)       400,000
</TABLE>

                                      F-22