Edgar Filing: PACIFIC MAGTRON INTERNATIONAL CORP

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

(MARK ONE)

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

For the fiscal year ended December 31, 2005
OR

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

For the transition period from ________________ to _________________

Commission file number 000-25277

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

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

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

Registrant's telephone number, including area code
(408) 956-8888 SECURITIES REGISTERED PURSUANT TO
SECTION 12(B) OF THE ACT:

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes |_| No |X|

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

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

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

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

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

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

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

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

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

APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.

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

DOCUMENTS INCORPORATED BY REFERENCE
None.

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

PART I
ITEM 1. BUSINESS

GENERAL

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

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

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

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

STATUS OF BANKRUPTCY PROCEEDINGS

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

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

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

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

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

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

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

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

SUMMARY OF THE PMI & PMIGA PLAN

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Classification and Treatment of Claims and Interests

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

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

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

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

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

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

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

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

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

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

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

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

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

SUMMARY OF PROPOSED SETTLEMENT WITH FORMER EXECUTIVES

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

Background

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

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

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

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

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

Terms and Conditions of Proposed Settlement

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

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

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

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

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

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

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

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

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

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

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

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

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

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

DESCRIPTION OF FORMER BUSINESS

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

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

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

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

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

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

LIVEWAREHOUSE - BUSINESS TO CONSUMER E-COMMERCE STORE

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

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

DESCRIPTION OF BUSINESS INTENDED TO BE CONDUCTED

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

GENERAL DEVELOPMENT OF BUSINESS OF HERBORIUM, INC.

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

PRODUCTS

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

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

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

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

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

MARKETS AND MARKETING

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

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

OPERATIONS

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

ITEM 1A. RISK FACTORS

RISKS RELATED TO THE BANKRUPTCY PROCEEDINGS

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

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

o the recovery of "preferences";

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

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

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

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

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

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

o the completion of due diligence satisfactory to each party;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

RISKS RELATED TO OUR COMMON STOCK

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

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

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

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

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

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

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

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

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

ITEM 3. LEGAL PROCEEDINGS

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

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

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

PART II

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

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

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

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

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

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

ITEM 6. SELECTED FINANCIAL DATA

The following table contains certain selected financial data and we refer you to
the more detailed consolidated financial statements and the notes thereto
provided in Part II, Item 8 - Financial Statements and Supplementary Data of
this Annual Report on Form 10-K. The financial data for the six months ended
June 30, 2005 and for the years ended December 31, 2004, 2003, 2002 and 2001
presented below, have been derived from our consolidated financial statements.
Our consolidated financial statements for the six months ended June 30, 2005
were audited by Berenson LLP. Our consolidated financial statements for the year
ended December 31, 2004 were previously audited by Weinberg & Company, P.A. Our
consolidated financial statements for the years ended December 31, 2003 and 2002
were previously audited by KPMG LLP, and our consolidated financial statements
for the year ended December 31, 2001 were previously audited by BDO Seidman,
LLP. At the time of filing this report on Form 10-K, the Company has filed a
"Preference Claim" in the U.S. Bankruptcy Court against Weinberg. As part of the
bankruptcy proceedings, debtors have claims against vendors who received
payments within 90 days of the bankruptcy petition date. These payments are
called preferences. The Company also has certain unresolved fees disputes with
Weinberg regarding their services performed. As a result, Weinberg is presently
not independent as defined by the Securities and Exchange rules and regulations.
Accordingly, the consents for the use of the audit opinions from Weinberg and
KPMG for

our financial statements included in this Form 10-K have not been obtained.

(Going Concern Basis)
-------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
June 30, ---------------------------------------------------------
Statement of Operations Data 2005 2004 2003 2002 2001
---------------------------- ------------ ------------ ------------ ------------ ------------

(Unaudited) (Unaudited) (Unaudited) (Unaudited)

Net sales from continuing operations $ 9,983,500 $ 66,514,900 $ 67,661,700 $58,498,500 $60,805,700
Loss from continuing operations before
other income (expenses), income
taxes and minority interest (1,298,200) (1,733,700) (1,331,000) (1,452,000) (1,980,100)

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

Fiscal Year Ended December 31,
Balance Sheet Data 2004 2003 2002 2001
------------------ ------------ ------------ ------------ ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)

Current Assets $ 7,531,500 $ 10,278,300 $ 12,577,600 $ 12,501,600
Current Liabilities 8,073,700 10,094,900(1) 9,464,900 6,766,700
Total Assets 11,740,700 14,772,400 17,267,000 17,323,300
Long-Term Debt 3,031,500 3,103,400 3,169,500 3,230,300
Redeemable Convertible Preferred Stock -- -- 190,400 --
Convertible Preferred Stock 234,100 -- -- --
Shareholders' Equity 635,500 1,574,100 4,442,200 7,289,900

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

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

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

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

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

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

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

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

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

Adjustment of Assets and Liabilities to Fair Value

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

Abandonment of PMI Accounts Receivable and Inventories

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

Costs Incurred During Liquidation Period

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

Other Items

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

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

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

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

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

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

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

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

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

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

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

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

EXPENSES
The Company had been reducing its operating expenses in all areas. Consolidated
selling, general and administrative expenses decreased from $5,189,300 in 2003
to $4,477,300 in 2004 (excluding a write-off of other receivables of $487,200).
Consolidated payroll expense decreased by $417,700 from 2003 to 2004. Employee
count for the Company was reduced from 63 as of December 31, 2003 to 47 as of
December 31, 2004. Consolidated bad debt expense, except for the write-off of
other receivables, decreased by $46,600 in 2004 compared to 2003, excluding the
impact of bad debt expense in discontinued operations of $26,900 in 2003. Our
bad debt expense arose out of the fact that we offered various credit terms to
qualifying customers, closely monitored their credit worthiness and utilized
various levels of credit insurance to control credit risks. We provided
allowances for bad debts based on reviews of loss, adjustment history, current
economic conditions, level of credit insurance and other factors which deserved
recognition in estimating potential losses.

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

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

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

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

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

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

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

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

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

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

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

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

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

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

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

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

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

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

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

On February 28, 2006, we dismissed Weinberg & Co., P.A. ("Weinberg") as our
auditor. Effective February 28, 2006, we engaged Berenson LLP ("Berenson") to
serve as the independent public accountants to audit our consolidated financial
statements for the calendar year ending December 31, 2005. Weinberg audited our
consolidated financial statements for the year ended December 31, 2004. KPMG LLP
("KPMG") audited our consolidated financial statements for year ended December
31, 2003. Weinberg's report on our consolidated financial statements for the
calendar year ended December 31, 2004 did not contain an adverse opinion or a
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope or accounting principles, except that Weinberg's report on our
consolidated financial statements for the calendar year ended December 31, 2004
did contain a modification paragraph that expressed substantial doubt about the
Company's ability to continue as a going concern.

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

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

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

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

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

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

ITEM 9A. CONTROLS AND PROCEDURES

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

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Our directors and executive officers are as follows:

NAME AGE POSITION
---------------------- --- ----------------------------------
Martin Nielson 54 President, Chief Executive Officer
and Director

Anthony Lee 57 Chief Financial Officer, Secretary
and Treasurer

John E. Donahue 56 Director

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

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

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

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

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

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

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

AUDIT COMMITTEE

Our entire Board of Directors is acting as our Audit Committee. Our Directors
are seeking an audit committee financial expert to join the Audit Committee.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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

CODE OF ETHICS

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

ITEM 11. EXECUTIVE COMPENSATION

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

Annual Compensation(1)

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

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

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

OPTION GRANTS IN LAST FISCAL YEAR

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

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

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

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

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

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

COMPENSATION COMMITTEE DETERMINATION OF EXECUTIVE COMPENSATION

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

Martin Nielson
John E. Donahue

EMPLOYMENT AGREEMENT

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

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

Number of Shares Number of Shares
Owned Beneficially Owned
------------------- ---------------------
Percent Percent
Number Of Number Of
of Common of Common
Shares Stock Shares Stock
---------- ------- ----------- -------

Name of Beneficial Owners:
Betty Lin(1) 2,149,400 20% 2,149,400 18%

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

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

All officers and Directors as a group
(0 persons) -- -- 0 0

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

CHANGE OF CONTROL

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

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

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

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

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

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

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

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

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

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

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

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

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

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

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

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

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

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

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

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

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

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

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Financial Statements

(a) (1) Report of independent registered public accounting firm of
Berenson LLP.

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

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

(b) Exhibits:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

21.1 Subsidiaries (filed herewith).

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

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

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

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

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

SIGNATURES

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

PACIFIC MAGTRON INTERNATIONAL CORP.,
a Nevada corporation

By: /s/ Martin Nielson
--------------------------------
Martin Nielson
Chief Executive Officer
Date: May 1, 2006

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

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

/s/ Martin Nielson Chief Executive Officer May 1, 2006
------------------------- and Director
Martin Nielson

/s/ Anthony Lee Chief Financial Officer, May 1, 2006
------------------------- Secretary and Treasurer
Anthony Lee

/s/ John E. Donahue Director May 1, 2006
-------------------------
John E. Donahue

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

CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-2
COMBINED FINANCIAL STATEMENTS (LIQUIDATION BASIS)
Combined Statement of Net Assets (liabilities) in Liquidation
(Liquidation Basis) as of December 31, 2005 F-3
Combined Statement of Changes of Net Assets (liabilities)
in Liquidation (Liquidation Basis) for the six months
ended December 31, 2005 F-4
Notes to Combined Financial Statements (Liquidation Basis)
CONSOLIDATED FINANCIAL STATEMENTS (GOING CONCERN BASIS)
Consolidated Balance Sheet as of December 31, 2004 (Unaudited) F-6
Consolidated Statements of operations for the six months ended
June 30, 2005 and for the years ended December 31, 2004
and 2003 (Unaudited) F-7
Consolidated Statements of Shareholders' Equity for the six months
ended June 30, 2005 and for the years ended December 31, 2004
and 2003 (Unaudited) F-9
Consolidated Statements of Cash Flows for the six months ended
June 30, 2005 and for the years ended December 31, 2004
and 2003 (Unaudited) F-10
Notes to Consolidated Financial Statements (Unaudited) F-12

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Pacific Magtron International Corp.

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

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

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

/s/ Berenson LLP

New York, New York
April 10, 2006

F-2

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

COMBINED
PMI PMIGA LW PMIC TOTAL
---------- --------- ---------- ---------- ----------

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

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

See accompanying notes to combined financial statements.

F-3

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

COMBINED
PMI PMIGA LW PMIC TOTAL
----------- ---------- ---------- ---------- -----------

Shareholders'
deficiency, June 30,
2005 (Going concern
basis) ($1,211,500) $ 130,700 $ 72,200 ($35,000) ($1,043,600)

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

F-4

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

See accompanying notes to combined financial statements.

F-5

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

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

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

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

See accompanying notes to consolidated financial statements

F-6

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

Six Months Years Ended
Ended December 31,
June 30, -----------------------------
2005 2004 2003
(Unaudited) (Unaudited)
----------- ----------- -----------

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

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

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

F-7

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

See accompanying notes to consolidated financial statements.

F-8

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

Retained
Preferred Stock Common Stock Additional Earnings
-------------------- --------------------- Paid-in (Accumulated
Shares Amount Shares Amount Capital Deficit) Total
------- --------- ---------- ------- ---------- ----------- -----------

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

See accompanying notes to consolidated financial statements.

F-9

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

SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
JUNE 30, --------------------------------
2005 2004 2003
(Unaudited) (Unaudited)
------------ ------------ -------------

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

F-10

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

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

See accompanying notes to consolidated financial statements.

F-11

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

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

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

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

1. BANKRUPTCY PROCEEDINGS

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

F-12

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

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

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

Financial Statement Presentation

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

F-13

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

Our consolidated financial statements for the six months ended June 30, 2005
were audited by Berenson LLP. Our consolidated financial statements for the year
ended December 31, 2004 were previously audited by Weinberg & Company, P.A.
("Weinberg"). Our consolidated financial statements for the years ended December
31, 2003 and 2002 were previously audited by KPMG LLP ("KPMG"), and our
consolidated financial statements for the year ended December 31, 2001 were
previously audited by BDO Seidman, LLP. At the time of filing this report on
Form 10-K, the Company has filed a "Preference Claim" in the U.S. Bankruptcy
Court against Weinberg. As part of the bankruptcy proceedings, debtors have
claims against vendors who received payments within 90 days of the bankruptcy
petition date. These payments are called preferences. The Company also has
certain unresolved fees disputes with Weinberg regarding their services
performed. As a result, Weinberg is presently not independent as defined by the
Securities and Exchange rules and regulations. Accordingly, the consents for the
use of the audit opinions from Weinberg and KPMG for our financial statements
included in this Form 10-K have not been obtained. The financial statements
previously audited by Weinberg and KPMG were marked as unaudited in the
accompanying financial statements.

The financial information presented for the prior periods is identical to the
audited information presented for those periods in our Annual Report on Form
10-K for the year ended December 31, 2004.

F-14

2. SUMMARY OF THE PMI & PMIGA PLAN

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

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

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

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

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

F-15

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

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

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

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

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

F-16

3. SUMMARY OF THE PMIC & LW PLAN

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

Classification and Treatment of Claims and Interests

PMIC

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

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

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

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

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

F-17

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

F. Class 5

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

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

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

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

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

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

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

4. ABANDONMENT OF ACCOUNTS RECEIVABLE AND INVENTORIES

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

F-18

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

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

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

5. INCOME TAX REFUND RECEIVABLE

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

6. REFUNDABLE INSURANCE PREMIUMS

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

7. SALE OF REAL PROPERTY

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

8. SECURED CREDITORS OF PRE-PETITION DEBTS

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

F-19

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

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

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

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

F-20

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

9. ESTIMATED COSTS TO BE INCURRED DURING LIQUIDATION PERIOD

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

COMBINED
PMI PMIGA LW PMIC TOTAL
-------- -------- -------- -------- --------

Accrued estimated costs of
liquidation $629,000 $45,800 $47,400 $127,000 $849,200

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

F-21

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

10. FACILITY LEASE AND ASSIGNMENT OF CONTRACT

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

11. TRANSACTIONS WITH FORMER STOCKHOLDERS/EXECUTIVES

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

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

F-22

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

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

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

12. EMPLOYMENT OF COUNSELS

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

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

F-23

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

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

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

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

13. ALLOWED ADMINISTRATIVE EXPENSE CLAIMS

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

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

14. SUBSEQUENT EVENTS

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

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

F-24

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

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

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

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

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

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

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

F-25

F-26

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

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

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

1. BANKRUPTCY PROCEEDINGS

F-27

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

Financial Statement Presentation

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

F-28

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

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

F-29

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

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

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

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

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

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

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

F-30

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

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

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

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

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

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

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

F-31

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

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

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

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

F-32

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

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

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

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

Six Months
Ended Year Ended December 31,
June 30, -------------------------------
2005 2004 2003
----------- ----------- -----------

Net loss applicable to common shareholders:
As reported $(1,687,200) $(1,172,700) $(2,896,600)
Add: total stock based
employee compensation
expense determined
using the fair value
method for all awards,
net of tax -- (11,200) (17,600)
----------- ----------- -----------
Pro forma $(1,687,200) $(1,183,900) $(2,914,200)
----------- ----------- -----------
Basic and diluted loss per share:
As reported $(0.16) $(0.11) $(0.28)
Pro forma $(0.16) $(0.11) $(0.28)

F-33

2. DISCONTINUED OPERATIONSPMIGA ceased its operation as of April 30, 2005.

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

Six Months
Ended Year Ended December 31,
June 30, -------------------------------
2005 2004 2003
----------- ----------- -----------

PMIC:
Net sales $1,023,200 $4,958,600 $7,323,600
Loss before income taxes
(benefit) (140,000) (100,700) (180,000)
Income tax benefit -- -- --
----------- ----------- -----------
Net income (loss) $ (140,000) $ (100,700) $ (180,000)
----------- ----------- -----------
FNC:
Net sales $ -- $323,200 $1,313,500
Income (loss) before income taxes
(benefit) -- 93,300 (311,600)
Income tax benefit -- -- --
----------- ----------- -----------
Net income (loss) $ -- $93,300 $(311,600)
----------- ----------- -----------
Lea:
Net sales $ -- $ -- $179,700
Loss before income tax benefit -- -- (122,300)
Income tax benefit -- -- --
----------- ----------- -----------
Net loss $ -- $ -- $(122,300)
----------- ----------- -----------

F-34

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

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

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

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

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

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

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

F-35

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

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

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

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

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

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

F-36

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

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

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

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

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

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

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

F-37

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

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

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

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

10. EMPLOYEE BENEFIT PROGRAM-401(k) PLAN
The Company had a 401(k) plan (the Plan) for its employees. The Plan was
available to all employees who have reached the age of twenty-one and who have
completed three months of service with the Company. Under the Plan, eligible
employees may defer a portion of their salaries as their contributions to the
Plan. Company contributions were discretionary, subject to statutory maximum
levels. There were no contributions by the Company in 2005, 2004 and 2003. The
Plan was terminated in January 2006.

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

F-38

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

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

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

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

F-39

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

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

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

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

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

F-40

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

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

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

DECEMBER 31, 2002 292,000 652,000 1.11 0.76 3.1 Years
Options forfeited 58,000 (58,000) 2.63 2.33 --
--------- ----------- -------- --------
DECEMBER 31, 2003 350,000 594,000 0.96 0.82 2.3 Years
Options forfeited 2,000 (2,000) 1.50 1.30 --
Options expired 42,000 (42,000) 1.50 1.33 --
--------- ----------- -------- --------
DECEMBER 31, 2004 394,000 550,000 $0.91 $0.78 1.4 Years
Options expired -- -- -- -- --
--------- ----------- -------- --------
JUNE 30, 2005 394,000 550,000 $0.91 $0.00 0.9 Years
========= =========== ======== ========

F-41

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

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

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

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

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

Equity compensation
plans approved by
stockholders 550,000 $0.91 394,000

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

F-42

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

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

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

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

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

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

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

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

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

F-43

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

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

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

Year Ended December 31, 2004:
PMI LW Totals
----------- ---------- -----------
Revenues from external customers
$61,101,100 $5,413,800 $66,514,900
Interest income 2,000 -- 2,000
Interest expense 166,200 -- 166,200
Depreciation and
amortization (1) 206,500 300 206,800
Segment loss before taxes
and minority interest (1,650,400) (248,800) (1,899,200)
Segment assets (2) 20,615,400 724,800 21,340,200
Expenditures for segment
assets -- -- --
Year Ended December 31, 2003:
PMI LW Totals
----------- ---------- -----------
Revenues from external customers $60,410,600 $7,251,100 $67,661,700
Interest income 3,200 -- 3,200
Interest expense 170,000 -- 170,000
Depreciation and
amortization (1) 231,100 7,600 238,700
Segment loss before taxes
and minority interest (1,330,200) (258,100) (1,588,300)
Segment assets (2) 22,707,300 1,687,600 24,394,900
Expenditures for segment
assets -- -- --

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

(2) Segment assets before Intercompany eliminations.

F-44

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

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

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

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

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

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

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

Quarter
First Second Third Fourth
-------- -------- -------- ---------

2005:
Sales $9,369,700 $613,800 -- --
Gross profit 378,400 9,000 -- --
Loss from Operations (851,500) (687,600) -- --
Net loss applicable to
common shareholders (319,200) (676,700) -- --
Basic and diluted loss
per share (1):
Loss from Operations (0.08) (0.06) -- --
Net loss applicable
To common shareholders (0.10) (0.06) -- --

F-45

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

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

F-46

EXHIBIT INDEX

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

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

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

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

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

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

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

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

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

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

21.1 Subsidiaries (filed herewith).

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

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

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

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

SUPPLEMENTAL SCHEDULE

PACIFIC MAGTRON INTERNATIONAL CORP. and Subsidiaries

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

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

Year ended December 31,
2004 $278,400 $ 538,700 $(506,400) $310,700