UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K/A
                                (AMENDMENT NO. 1)

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

        (Mark one)

     [X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934

                   For the fiscal year ended December 31, 2002

                                       OR

   [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934

                          Commission File No.: 0-27878

                           NORTHGATE INNOVATIONS, INC.
             (exact name of registrant as specified in its charter)

                    Delaware                             13-3779546
          (State or other jurisdiction                 (IRS Employer
        of incorporation or organization)            Identification No.)

             801 Sentous Street, City of Industry, California 91748
               (Address of principal executive offices) (Zip code)

       Registrant's telephone number, including area code: (626) 923-6000

       SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT: NONE

         SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:

                                 TITLE OF CLASS

                          COMMON STOCK, $.03 PAR VALUE

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 No X

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained in 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 an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). Yes No X

The aggregate market value of shares of Common Stock held by non-affiliates of
the registrant on the last business day of the registrant's most recently
completed second fiscal quarter (June 30, 2002) was approximately $1,287,000
(computed on the basis of $0.30 per share, the last reported sale price for
shares of the Company's Common Stock on the OTC Bulletin Board on such date).

As of April 14, 2003, the registrant had outstanding 14,694,084 shares of Common
Stock.

EXPLANATORY STATEMENT This Amendment No. 1 to the Annual Report on Form 10-K ("Amendment No. 1") for Northgate Innovations, Inc. ("Northgate" or the "Company") for the fiscal year ended December 31, 2002, is being filed to amend and restate the items described below contained in the Company's Annual Report on Form 10-K originally filed with the Securities and Exchange Commission ("SEC") on April 16, 2003. This Amendment No. 1 makes changes to Item 6, Selected Financial Data, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, Item 8, Financial Statements and Supplementary Data, and Item 15, Exhibits, Financial Statement Schedules and Reports on Form 8-K, for the following purposes: o To restate the Company's Consolidated Financial Statements as of December 31, 2002 and for the year ended December 31, 2002 to correct an error in the amount of accounts payable recorded for consigned inventory during 2002, and to adjust the amount of recorded deferred tax assets at December 31, 2002. o To amend Item 6, Selected Financial Data, to take into account the effect of the restatement. o To amend Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, to take into account the restatement. In order to preserve the nature and character of the disclosures set forth in such Items as originally filed, this Amendment No. 1 continues to speak as of the date of the original filing of the Annual Report on Form 10-K on April 16, 2003, and the Company has not updated the disclosures in this report to speak as of a later date. In connection with the preparation of the Company's quarterly report for the six months ended June 30, 2003, management became aware of certain differences in its detailed records and the liabilities included in the Company's financial statements for the year ended December 31, 2002. The Board of Directors instructed management to conduct an investigation into those differences. As a result of that investigation, the Company concluded that the amount of accounts payable was understated as a result of incorrect adjustments for consigned inventory. This understatement of accounts payable in the period resulted in lower costs of goods sold and higher net income for the period. The restatement caused the net loss of the Company to be increased for the year ended December 31, 2002. In addition, management reviewed certain deferred tax assets reflected in the financial statements at December 31, 2002 and determined that certain of those assets may expire before the Company can utilize those assets and as a result the Company recorded a valuation allowance for such deferred tax assets as of December 31, 2002. PART II ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data has been derived from the restated financial statements of the Company, which have been prepared in accordance with United States generally accepted accounting principles. The consolidated financial statements of the Company for the year ended December 31, 2002, and as of December 31, 2002 (as restated), and the related report of Corbin & Company LLP are included elsewhere in this report. The financial statements for the years ended December 31, 2001 and 2000, and as of December 31, 2001, and the related report of Singer Lewak Greenbaum & Goldstein LLP are included elsewhere in this report. The financial statements as of December 31, 2000, 1999 and 1998, and for the years ended December 31, 1999 and 1998 , have been derived from financial statements audited by Singer Lewak Greenbaum & Goldstein LLP. The following data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements included elsewhere in this report. For additional information regarding the restatement, please see Note 14 to the Consolidated Financial Statements included in Item 8. 1

<TABLE> <CAPTION> YEAR ENDED DECEMBER 31, 1998 1999 2000 2001 2002 (As Restated) -------- -------- -------- -------- ------------- (in thousands, except per share data) <S> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Net sales ............................. $ 78,919 $ 87,158 $ 69,101 $ 73,883 $ 65,176 Cost of sales ......................... 69,718 76,845 60,326 64,872 58,650 -------- -------- -------- -------- -------- Gross profit .......................... 9,201 10,313 8,775 9,011 6,526 Operating expenses..................... 6,186 10,176 7,700 7,273 8,032 -------- -------- -------- -------- -------- Income (loss) from operations ......... 3,015 137 1,075 1,738 (1,506) Other (income) expense ............... (46) (282) 202 (217) 268 -------- -------- -------- -------- -------- Income (loss) before income taxes ..... 3,061 419 873 1,955 (1,774) Provision for income taxes ............ 1,060 173 358 467 489 -------- -------- -------- -------- -------- Net income (loss) ..................... $ 2,001 $ 246 $ 515 $ 1,488 $ (2,263) ======== ======== ======== ======== ======== Basic income (loss) per share ......... $ 0.20 $ 0.02 $ 0.05 $ 0.15 $ (0.17) ======== ======== ======== ======== ======== Diluted (loss) income per share ....... $ 0.20 $ 0.02 $ 0.05 $ 0.13 $ (0.17) ======== ======== ======== ======== ======== Weighted average shares of common stock outstanding: Basic .............................. 9,854 9,854 9,854 9,854 13,694 ======== ======== ======== ======== ======== Diluted ............................ 10,129 10,129 10,714 11,305 13,694 ======== ======== ======== ======== ======== </TABLE> <TABLE> <CAPTION> DECEMBER 31, 1998 1999 2000 2001 2002 ----- ------ ------ ------ ------ (As Restated) <S> <C> <C> <C> <C> <C> Balance Sheet Data: Cash and cash equivalents .......... $ 51 $ 1,307 $ 2,884 $ 8,555 $ 2,327 Working capital .................... 2,629 5,483 3,836 5,245 2,026 Total assets ....................... 19,688 20,775 13,913 24,091 14,841 Long-term debt ..................... -- 11,303 9,880 9,263 8,050 Total stockholders' equity (deficit) 2,946 (5,412) (5,609) (3,238) (1,162) </TABLE> ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the Company's consolidated financial statements and notes thereto included elsewhere herein and reflects certain restatements to the Company's previously reported results of operations for the year ended December 31, 2002. See Note 14 to the consolidated financial statements for a discussion of these restatements. OVERVIEW Northgate is a marketer of personal computers, or PCs, and related products and services and manufactures, markets, and supports a broad line of desktop PCs, servers and workstations used by individuals, families, businesses, government agencies and educational institutions. The Company also offers diversified products and services such as software, peripherals, Internet access services, support programs and general merchandise. Net sales of the Company are primarily derived from the sale of personal computer hardware, software, peripherals and accessories. Gross profit consists of net sales less product and shipping costs. On March 20, 2002, the Company closed its merger with Lan Plus. At the closing of the merger, Lan Plus shareholders received a number of shares such that they now own approximately 75% of the Company. In addition, at the close of the merger, the Company also completed a 10:1 reverse stock split and changed its name to Northgate Innovations, Inc. Pursuant to the merger agreement, upon close of merger, the Company's accounts payable to, and advances from Lan Plus, in the amount of approximately $2.3 million was converted to common stock eliminating the debt; the stock was then retired to Treasury and cancelled. The Company has reported combined operations with Lan Plus beginning with its 10-Q for the period ended March 31, 2002. 2

The Company purchases a substantial percentage of its products from a single manufacturer. Purchases from this manufacturer accounted for more than 15% of our aggregate merchandise purchases for 2002. The Company has no long-term contracts or arrangements with this manufacturer, or other vendors, that guarantee the availability of merchandise. RESTATEMENT In connection with the preparation of the Company's quarterly report for the six months ended June 30, 2003, management became aware of certain differences in its detailed records and the liabilities included in the Company's financial statements for the year ended December 31, 2002. The Board of Directors instructed management to conduct an investigation into those differences. As a result of that investigation, the Company concluded that the amount of accounts payable in 2002 was understated as a result of incorrect adjustments for consigned inventory. This understatement of accounts payable in the period resulted in lower costs of goods sold and higher net income for the period. The restatement caused the net loss of the Company to be increased for the year ended December 31, 2002. In addition, management reviewed certain deferred tax assets reflected in the financial statements at December 31, 2002 and determined that certain of those assets may expire before the Company can utilize those assets and as a result the Company recorded a valuation allowance for such deferred tax assets as of December 31, 2002. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Management's Discussion and Analysis of Financial Condition and Results of Operations discusses Northgate's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to customer incentives, product returns, bad debts, inventories, intangible assets, financing operations, warranty obligations, contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. ALLOWANCE FOR DOUBTFUL ACCOUNTS: Northgate maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of Northgate's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Northgate provides for the estimated cost of product warranties at the time revenue is recognized. WARRANTIES: While certain of the products Northgate sells are covered by third party manufacturer warranties, Northgate may have products returned by customers that Northgate may not be able to recover from the manufacturer. Returns of this nature have been immaterial in the past; however, should actual product failure rates increase or the manufacturers go out of business, Northgate may be forced to cover these warranty costs and the costs may differ from Northgate's estimates. INVENTORY: Northgate writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required. The Company from time to time also maintains at its facilities consigned inventory that remains the property of the vendors supplying the inventory ("consigned inventory") until such time as the Company elects to use the inventory. At the time that the Company elects to use the consigned inventory, the cost of such inventory is reflected in the Company's inventory accounts and a corresponding account payable to the vendor is generated. PURCHASE AND ADVERTISING REBATES: We earn rebates from our vendors which are based on various quantitative contract terms. Amounts expected to be received from vendors relating to the purchase of merchandise inventories are recognized as a reduction of cost of goods sold as the merchandise is sold. Amounts that represent a reimbursement of incremental costs, such as advertising, are recorded as a reduction to the related expense in the period that the related expense is incurred. Several controls are in place that we believe allow us to ensure that these amounts are recorded in accordance with the terms of the contracts. Should vendors reach different judgments regarding the terms of these contracts, they may seek to recover amounts from us. 3

IMPAIRMENT OF LONG-LIVED ASSETS: We review our long-lived assets for impairment when indicators of impairment are present and the undiscounted cash flow estimated to be generated by those assets are less than the assets' carrying amount. If actual market conditions are less favorable than management's projections, future write-offs may be necessary. IMPAIRMENT OF GOODWILL AND INDEFINITE LIVED INTANGIBLE ASSETS: As a result of our adoption of Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS No. 142"), we now annually review goodwill and other intangible assets that have indefinite lives for impairment and when events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values. These reviews require the Company to estimate the fair value of its identified reporting units and compare those estimates against the related carrying values. For each of the reporting units, the estimated fair value is determined as compared to the Company's stock price. DEFERRED TAXES: We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We have considered estimated future taxable income and ongoing tax planning strategies in assessing the amount needed for the valuation allowance. If actual results differ unfavorably from those estimates used, we may not be able to realize all or part of our net deferred tax assets and additional valuation allowances may be required. RESULTS OF OPERATIONS The following table sets forth for the years indicated the percentage of net sales represented by certain items reflected in the Company's consolidated statements of operations. There can be no assurance that the trends in sales growth or operating results will continue in the future. The discussion of the "Results of Operations" includes both Northgate and Mcglen since the date of merger, March 15, 2002. PERCENTAGE OF NET SALES YEAR ENDED DECEMBER 31, 2002 2001 2000 ------ ------ ------ (As Restated) Net sales 100.0% 100.0% 100.0% Cost of sales 90.0% 87.8 87.3 ------ ------ ------ Gross profit 10.0 12.2 12.7 Operating expenses 12.3 9.8 11.1 ------ ------ ------ Operating (loss) income (2.3) 2.4 1.6 Other (income)expense, net 0.4 (0.3) 0.3 ------ ------ ------ (Loss) income before income taxes (2.7) 2.6 1.3 Provision for income taxes 0.8 0.6 0.5 ------ ------ ------ Net (loss) income (3.5)% 2.0% 0.8% ====== ====== ====== YEAR ENDED DECEMBER 31, 2002 COMPARED TO THE YEAR ENDED DECEMBER 31, 2001 Net sales decreased by $8.7 million, or 11.8%, to $65.2 million for the year ended December 31, 2002, compared to $73.9 million for the year ended December 31, 2001. The decrease in net sales was a result of a decrease in the number of computer systems shipped during the period as well as a decrease in the average selling price per system due to lower component costs and also competition in the marketplace. The fourth quarter of 2002 was significantly impacted by price reductions in the marketplace by competitors such as Dell and Gateway as well as reduction in consumer demand. In addition, in the fourth quarter of 2002 the Company's airtime on one of the home shopping networks decreased significantly as compared to the prior year. Gross profit decreased by $2.5 million or 27.6% to $6.5 million for the year ended December 31, 2002, compared to $9.0 million for the year ended December 31, 2001. The decrease in gross profit was due to the decrease in sales. Gross profit, as a percentage of net sales decreased to 10.0% for the year ended December 31, 2002 from 12.2% for the year ended December 31, 2001. The decrease in gross profit margin as a percentage of sales was due to: an increase in labor and applied overhead costs associated with the integration of the two companies following the merger; an increase in costs due to integration of the Company's new enterprise software in 2002; and less units being produced in 2002 as compared to 2001. 4

On a forward-looking basis, future gross profit margins may fluctuate from recent levels. The statement concerning future gross profit is a forward looking statement that involves certain risks and uncertainties which could result in a fluctuation of gross margins below those achieved for the year ended December 31, 2002. Although the Company believes it provides a high level of value and added services, pricing and gross profit could be negatively impacted by the activities of larger computer manufacturers. Operating expenses increased by $0.7 million or 9.6%, to $8.0 million for the year ended December 31, 2002, from $7.3 million for 2001. The increase in operating expenses was attributable to an increase in payroll and related costs and an increase in advertising costs in 2002. ESOP compensation expense decreased by $0.2 million for the year ended December 31, 2002 as the Company did not make any discretionary ESOP contributions in 2002. Payroll and related costs (e.g., employer taxes, health and workers compensation insurance) increased by approximately $0.9 million, or 19.1% for the year ended December 31, 2002 compared to 2001. The increase in payroll and payroll related costs was due to a 15% increase in insurance costs in 2002 and a 20% increase in average head count for the year ended December 31, 2002 as the Company exceeded sales forecasts through September 2002. Advertising expense increased by approximately $250,000 in 2002 as Northgate received less market development funds from OEM suppliers such as Intel. Northgate also increased its print advertising expenditures as the Company began to advertise the Northgate brand. Other (income) expense decreased by approximately $485,000 or 223.5%, to $268,000 for the year ended December 31, 2002, from ($217,000) for the prior year. The increase was partially due to decreased gains on the Company's marketable securities portfolio in 2002 and lower interest income in 2002. In addition, during the fourth quarter of 2002 the Company reviewed its MSN royalty accrual and determined that the accrual was overstated by approximately $1.0 million; the result was an increase in other income by $1.0 million. Additionally, also in the fourth quarter of 2002, the Company reviewed its marketable securities portfolio for permanent impairment. Due to the overall decline in the stock and bond markets from when the Company purchased the investments, as well as specific factors affecting individual investments within the portfolio, the Company recorded a $827,000 loss on its marketable securities portfolio. Income tax provision for the year ended December 31, 2002 was $489,000 versus $467,000 for the year ended December 31, 2001. The income tax provision for 2002 increased primarily as a result of a valuation allowance applied to the Company's tax asset acquired during 2002, offset by certain changes in the estimates for the Company's past income tax liabilities, and amounts refundable from prior years' tax payments. YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000 Net sales increased by $4.8 million, or 6.9%, to $73.9 million for the year ended December 31, 2001, compared to $69.1 million for the year ended December 31, 2000. The increase in net sales was a result of an increase in the number of computer systems shipped during the year ended December 31, 2000, mainly in the fourth quarter of 2001. Northgate recorded record revenues for the fourth quarter of 2001 as compared to prior years. Gross profit increased by $0.2 million or 2.3% to $9.0 million for the year ended December 31, 2001, compared to $8.8 million for the year ended December 31, 2000. The increase in gross profit was due to the increase in sales. Gross profit, as a percentage of net sales decreased to 12.2% for the year ended December 31, 2001 from 12.7% for the year ended December 31, 2000. The decrease in gross profit margin was due to lower royalties paid during 2000, Lan Plus developing more relationships with original equipment manufacturers (OEM) that provide component products at lower costs than distributors, and the acquisition of new customers in 2001with sales at a higher margin. Operating expenses decreased by $0.4 million or 5.2%, to $7.3 million for the year ended December 31, 2001, from $7.7 million for 2000. The decrease in operating expenses was attributable to a $640,000 decrease in bad debt expense in 2001. In 2000, one of the Company's largest accounts filed for bankruptcy resulting in Northgate writing off more than $1.0 million for this account. In 2001, a customer closed resulting in approximately $300,000 of write-offs. The decrease in bad debt expense was offset with a $180,000 increase in payroll and payroll related costs due to a higher average headcount in 2001 as compared to 2000; a $200,000 increase in the Company's ESOP expense in 2001 as the discretionary contribution increased in 2001 as compared to 2000; and a $100,000 increase in professional fees, primarily related to the merger of the Company and Mcglen. 5

Other (income) expense increased by $419,000 or 207.4%, to ($217,000) for the year ended December 31, 2001, from $202,000 for the prior year. The increase was a result of lower interest costs associated with Lan Plus' ESOP due to a reduction in the average amount outstanding during the year as well as a decrease in the ESOP loan interest rate from 8% to 6%. Additionally, the Company recorded larger capital gains on its investments in 2001 as compared to 2000. Income tax provision for the year ended December 31, 2001 was $467,000 versus a provision of $358,000 for the year ended December 31, 2000. The effective tax rate for 2001 decreased to 23.9% from 41.0% in 2000. The decrease in income taxes was a result of increased ESOP contributions in 2001 as compared to 2000. INCOME TAXES For the three years ended December 31, 2002, the difference between the amount of income tax recorded and the amount of income tax expense calculated using the federal statutory rate of 34% is due to state income taxes, other permanent differences and (for 2002) the recording of a valuation allowance against deferred tax assets. As a result of the Company's reverse merger in March 2002, the Company has federal and state net operating loss carryforwards of approximately $16 million and $10 million. The net operating loss carryforwards will expire at various dates beginning in 2012 through 2022 for federal purposes and 2003 through 2009 for state purposes, if not utilized. Utilization of the net operating loss carryforwards is subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation will result in the Company being able to only utilize $3.8 million and $0.5 million, to offset federal and state income, respectively as of December 31, 2002. The remaining net operating loss carryforwards will go unused. As of December 31, 2002, the Company has recorded a 100% valuation allowance against these tax assets as a result of operating losses sustained since the merger. LIQUIDITY AND CAPITAL RESOURCES Northgate's primary capital need has been the funding of working capital requirements created by its growth. Historically, Northgate's primary sources of financing have been cash provided by operations and borrowings from private investors and financial institutions. Cash (used in) provided by operations was approximately ($2.8 million), $3.5 million, and $5.0 million for the three years ended December 31, 2002. Cash was used to pay down Northgate's working capital obligations during the year ended December 31, 2002. During the year ended December 31, 2002, Northgate's capital expenditures were approximately $337,000 compared to $511,000 for the same period in 2001, primarily for computer hardware and leasehold improvements related to Northgate's new facility that it occupied in September 2002. Northgate believes that it will not require substantial capital expenditures through 2003. The Company has a $2,500,000 line of credit with a bank. The line of credit provides for borrowings secured by substantially all of the Company's assets and is guaranteed by the Company's majority shareholder. Borrowings under the line are advanced based upon 70% of eligible accounts receivable, as defined, less any letters of credit issued on the Company's behalf. The line of credit was extended to September 30, 2003. Advances under the line bear interest at the bank's prime rate plus 0.5% (4.75% at December 31, 2002). The line contains certain covenants that required Northgate to maintain profitability in the third and fourth quarters of 2002, a minimum of ($4.25 million) tangible net worth (as defined), a Current Ratio of at least 1.2:1, Working Capital of at least $2.5 million, and limits the capital expenditures the Company can make in any one year to $750,000. As of December 31, 2002, the Company is not in compliance with these covenants, but is working with the lender to obtain forbearance agreements and extend the term of the facility. At December 31, 2002, approximately $1.0 million of the Company's short term investments were held as collateral for letters of credit taken out to secure open account terms with one of the Company's primary vendors. The Company believes that current working capital, together with cash flows from operations will be adequate to support the Company's current operating plans through 2003. In August 2002, the Company renegotiated its $1.3 million note payable, extending the due date to January 1, 2005. In September 2002, the Company reached a settlement with the Mcglen line of credit holder whereby Northgate repaid $40,000 of the $90,000 due under the line. The resulting gain of $50,000 is included in other income for the year ended December 31, 2002. In September 2002, the Company paid the $186,000 dividends payable to holders of the Company's preferred stock, and funded $1,067,000 to the Company's ESOP to reduce the ESOP note. 6

At December 31, 2002 and 2001, the Company had cash and short-term investments of $2.3 million and $8.6 million, respectively, and working capital of $2.0 million and $5.2 million, respectively. However, if the Company needs extra funds, such as for acquisitions or expansion or to fund a significant downturn in sales that causes losses, there are no assurances that adequate financing will be available at acceptable terms, if at all. The Company operates in a very competitive market against many companies that are substantially larger than Northgate. Pricing and gross profit could be negatively impacted by the activities of larger computer manufacturers and product supply and demand in the market. Northgate's management has routinely invested excess operating funds in the stock market. From time to time, management invests these funds in short sales of stock that they typically cover within 60 days of the date of the short purchase. Short sales typically have a higher degree of risk than traditional stock purchases and management attempts to limit their concentration in Northgate's overall invested and cash portfolio. At December 31, 2001, approximately $426,000 was invested in short sales of common stock and an unrealized loss of $102,000 was recorded on these investments. Management covered the short sales in January and April 2002 recording a loss of $60,000. The Company had no such investments at December 31, 2002. Since computer retailers typically have low product gross margins, Northgate's ability to remain profitable is dependent upon its ability to continue to drive down the cost of its computer systems through its product sourcing, inventory management and labor management systems. To the extent that Northgate does not continue to effectively manage its business, Northgate may be materially adversely affected. Northgate may also experience significant fluctuations in its future operating results due to a variety of factors, many of which are outside its control. Factors that may affect its operating results include: lack of working capital to carry out Northgate's business plans, the frequency and success of new product introductions, mix of product sales and seasonality of sales typically experienced by retailers, political unrest, and the pricing of component parts in the world-wide marketplace. Many of Northgate's competitors offer broader product lines, have substantially greater financial, technical, marketing and other resources than Northgate and may benefit from component volume purchasing arrangements that are more favorable in terms of pricing and component availability than the arrangements enjoyed by the Company. Sales in the computer retail industry are significantly affected by the release of new products. Infrequent or delayed new product releases can negatively impact the overall growth in retail sales. As part of its growth strategy, Northgate may, in the future, acquire other companies, in the same or complementary lines of business. Any such acquisition and the ensuing integration of the operations of the acquired company with those of Northgate would place additional demands on Northgate's management, and operating and financial resources. INFLATION AND SEASONALITY While neither inflation nor deflation has had, nor do we expect it to have, a material impact upon operating results, there can be no assurance that our business will not be affected by inflation or deflation in the future. We believe that our business is somewhat seasonal, with sales and profitability slightly lower during the first and second quarters of our fiscal year. NEW ACCOUNTING PRONOUNCEMENTS In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities", an interpretation of Accounting Research Bulletin 51, " Consolidated Financial Statements," to improve financial reporting of special purpose and other entities. In accordance with the interpretation, business enterprises that represent the primary beneficiary of another entity by retaining a controlling financial interest in that entity's assets, liabilities, and results of operations must consolidate the entity in their financial statements. Prior to the issuance of FIN 46, consolidation generally occurred when an enterprise controlled another entity through voting interests. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company does not expect FIN 46 to have a material impact on its financial statements as it has no variable interest entities. 7

In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148 ("SFAS 148"), "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123." SFAS 148 amends SFAS 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of SFAS 148 are effective for financial statements issued for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The Company has applied the disclosure provisions in SFAS 148 in its consolidated financial statements and the accompanying notes. In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements in FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company does not expect FIN 45 to have a material impact on its financial position or results of operations as it does not act as a guarantor. In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146 ("SFAS 146"), "Accounting for Costs Associated with Exit or Disposal Activities." SFAS 146 requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management's commitment to an exit plan, which is generally before an actual liability has been incurred. Adoption of SFAS 146 is required with the beginning of fiscal year 2003. The Company does not anticipate a significant impact on its results of operations from adopting this Statement. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's financial statements listed below are included on pages F-1 through F-22 following the signature page to this report: Page ---- Independent Auditors' Reports F-1 Consolidated Financial Statements: Balance Sheets as of December 31, 2002 and 2001 F-3 Statements of Income for the Years Ended December 31, 2002, 2001 and 2000 F-4 Statements of Stockholders' Equity (Deficit) and Comprehensive Income (Loss) for the Years Ended December 31, 2002, 2001 and 2000 F-5 Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000 F-6 Notes to Consolidated Financial Statements F-7 8

PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K Exhibit No. Description ----------- ---------------------------------------------------------------- 2.1 Amended and Restated Agreement and Plan of Merger, dated as of March 21, 2001, by and among Mcglen Internet Group, Inc., Mcglen Acquisition Company, Lan Plus Corporation and Andy Teng incorporated by reference to Appendix A to the Proxy Statement/Prospectus dated February 12, 2002. 2.2 Amendment No. 4 dated March 14, 2002 to the Amended and Restated Agreement and Plan of Merger, incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K, filed April 9, 2002. 3.1 Amended Certificate of Incorporation of Mcglen Internet Group, Inc., incorporated by reference from Exhibit 3.2 to our Form 10-K, dated April 16, 2002. 3.2 Certificate of Amendment of Certificate of Incorporation of Mcglen Internet Group, Inc., filed with the Delaware Secretary of State on March 15, 2002, incorporated by reference from Exhibit 3.2 to our Form 10-K, dated April 16, 2002. 3.3 Bylaws of Mcglen Internet Group, Inc., incorporated by reference from Exhibit 3.2 to Amendment No. 1 filed April 17, 2000 to our Form 10-KSB for the year ended December 31, 1999 ("April 2000 Form 10-KSB/A"). 10.1 1999 Stock Option Plan of Mcglen Micro, Inc., as amended, as adopted by the Company after the merger with Adrenalin Interactive, Inc., incorporated by reference from Exhibit 10.1 to our April 2000 Form 10-KSB/A. 10.2 2000 Stock Option Plan, incorporated by reference from Exhibit 10.21 to Amendment No. 1 filed September 27, 2000 to our Registration Statement on Form SB-2, No. 333-41070 ("Form SB-2"). 10.3 Convertible Promissory Note, dated March 20, 2000, by and between Mcglen Internet Group, Inc. and various Lenders introduced by Institutional Equity Holdings Corporation, incorporated by reference from Exhibit 10.14 to our April 2000 Form 10-KSB/A. 10.4 Employment Agreement, dated January 1, 2000, between Mcglen Internet Group, Inc. and Grant Trexler, incorporated by reference from Exhibit 10.15 to our April 2000 Form 10-KSB/A. 10.5 Employment Agreement, dated December 2, 1999, between Adrenalin Interactive, Inc. and George Lee, incorporated by reference from Exhibit 10.16 to our April 2000 Form 10-KSB/A. 10.6 Employment Agreement, dated December 2, 1999, between Adrenalin Interactive, Inc. and Mike Chen, incorporated by reference from Exhibit 10.17 to our April 2000 Form 10-KSB/A. 10.7 Employment Agreement, dated December 2, 1999, between Adrenalin Interactive, Inc. and Alex Chen, incorporated by reference from Exhibit 10.18 to our April 2000 Form 10-KSB/A. 10.8 Founders Agreement, dated August 15, 2000, between Mcglen Internet Group, Inc. and George Lee, Mike Chen and Alex Chen, incorporated by reference from Exhibit 10.22 to Amendment No. 1 filed September 27, 2000 to our Form SB-2. 10.9 Financing Agreement, dated December 22, 2000, between Mcglen Internet Group, Inc. and Dillow and Dillow, Inc., incorporated by reference from Exhibit 10.23 to Amendment No. 2 filed January 10, 2001 to our Form SB-2. 10.10 Consulting Agreement, dated August 17, 2000, between Mcglen Internet Group, Inc. and Peter Janssen Associates incorporated by reference to Exhibit 10.10 to our 2000 Form 10-KSB. 9

21 Subsidiaries of Northgate Innovations, Inc., incorporated by reference from Exhibit 21 to our April 2003 Form 10-K. 23.1 Consent of Singer Lewak Greenbaum & Goldstein LLP 23.2 Consent of Corbin & Company, LLP 31 Section 302 CEO/CFO Certification 32 Section 906 CEO/CFO Certification The following consolidated financial statements of Registrant are filed as part of this report. (a)(1) Consolidated Financial Statements. See Index to Consolidated Financial Statements. (2) Financial Statement Schedules. See Index to Consolidated Financial Statements. (3) Exhibits. The exhibits listed in the Exhibit Index following the Consolidated Financial Statements are incorporated herein by reference or are filed with this Form 10-K/A as indicated. (b) Reports on Form 8-K. None. 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 to be signed on its behalf by the undersigned, thereunto duly authorized. NORTHGATE INNOVATIONS, INC. By: /s/ Andy Teng ------------------------------------ Andy Teng, CEO and Acting CFO Date: September 17, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signatures Title Date ---------- ----- ---- /s/Andy Teng Chairman, Chief Executive Officer, September 17, 2003 -------------------- Secretary, and Director (Principal Andy Teng Executive Officer) and acting CFO /s/ Richard Shyu President and Director September 17, 2003 -------------------- Richard Shyu /s/ Mike Chen Director September 17, 2003 -------------------- Mike Chen 10

FINANCIAL STATEMENTS TABLE OF CONTENTS Page ---- Independent Auditors' Reports F-1 Consolidated Financial Statements: Balance Sheets as of December 31, 2002 (restated) and 2001 F-3 Statements of Income for the Years Ended December 31, 2002 (restated), 2001, and 2000 F-4 Statements of Stockholders' Equity (Deficit) and Comprehensive Income (Loss) for the Years Ended December 31, 2002 (restated), 2001 and 2000 F-5 Statements of Cash Flows for the Years Ended December 31, 2002 (restated), 2001 and 2000 F-6 Notes to Consolidated Financial Statements F-7 11

INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Northgate Innovations, Inc. (formerly known as Mcglen Internet Group, Inc.) We have audited the accompanying consolidated balance sheet of Northgate Innovations, Inc., as of December 31, 2002 and the related consolidated statements of income, stockholders' equity (deficit) and comprehensive income (loss) and cash flows for the year then ended. In connection with our audit, we have also audited the related consolidated financial statement schedule for the year ended December 31, 2002. These consolidated financial statements, and the consolidated financial statement schedule, are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the related consolidated financial statement schedule based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Northgate Innovations, Inc., at December 31, 2002, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the consolidated financial statements, taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in Note 14 to the consolidated financial statements, the accompanying consolidated financial statements have been restated. /s/Corbin & Company, LLP Irvine, CA March 31, 2003 (September 5, 2003 as to the effects of the restatement discussed in Note 14) F-1

INDEPENDENT AUDITOR'S REPORT The Board of Directors and Stockholders of Northgate Innovations, Inc. (formerly known as Mcglen Internet Group, Inc.) City of Industry, California We have audited the accompanying balance sheet of Northgate Innovations, Inc. (formerly LAN Plus Corporation) as of December 31, 2001, and the related statements of operations, changes in stockholders' equity (deficit) and cash flows for each of the two years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform 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 financial statements referred to above present fairly, in all material respects, the financial position of Northgate Innovations, Inc., (formerly LAN Plus Corporation) as of December 31, 2001, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. /s/ Singer Lewak Greenbaum & Goldstein LLP Los Angeles, California April 12, 2002 F-2

NORTHGATE INNOVATIONS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) <TABLE> <CAPTION> DECEMBER 31, DECEMBER 31, ASSETS (Note 4) 2002 2001 (As Restated, see Note 14) ------------ ------- <S> <C> <C> Current Assets: Cash and cash equivalents (Note 1) $ 1,837 $ 7,178 Certificates of deposit -- 187 Certificates of deposit - restricted (Note 1) 1,016 -- Marketable securities (Note 1) 490 1,377 Accounts receivable, net of allowance for doubtful accounts of $280 and $254 in 2002 and 2001, respectively (Note 1) 2,898 9,475 Inventories, net (Note 1) 3,178 3,944 Prepaid expenses and other current assets (Note 6) 560 182 Advances to Mcglen Internet Group, Inc. (Note 2) -- 845 Deferred tax asset (Note 6) -- 123 ------- ------- Total current assets 9,979 23,311 Equipment, net (Notes 1 and 3) 900 750 Goodwill (Notes 1 and 2) 3,886 -- Other assets 76 30 ------- ------- $14,841 $24,091 ======= ======= LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities: Accounts payable $ 5,240 $10,048 Securities sold, not yet purchased (Note 1) -- 426 Accrued expenses (Note 1) 440 1,076 Income taxes payable (Note 6) -- 1,053 Accrued royalties (Note 1) 1,427 4,999 Convertible notes payable (Note 5) 100 -- Dividends payable -- 186 ESOP interest payable (Note 8) 746 278 --------- --------- Total current liabilities 7,953 18,066 Note payable (Notes 5) 1,300 1,300 Guarantee of ESOP loan payable (Note 8) 6,750 7,963 --------- --------- Total liabilities 16,003 27,329 --------- --------- Commitments and contingencies (Note 12) Stockholders' Equity (deficit) (Notes 1, 7, 8 and 9): Preferred stock, $0.01 par value; 5,000 shares authorized, 1,350 shares issued and outstanding, liquidation preference of $1,350 (Note 8) 14 14 Common stock, $0.03 par value; 50,000 shares authorized, 14,694 and 9,854 shares issued and outstanding in 2002 and 2001, respectively 441 296 Additional paid in capital 3,764 271 Accumulated other comprehensive loss (Note 1) (7) (496) Retained earnings 1,189 3,452 -------- -------- 5,401 3,537 Less: Unearned ESOP shares (Note 8) (6,563) (6,775) -------- -------- Total stockholders' equity (deficit) (1,162) (3,238) -------- -------- $14,841 $24,091 ======== ======== </TABLE> See accompanying notes to the consolidated financial statements F-3

NORTHGATE INNOVATIONS, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) <TABLE> <CAPTION> DECEMBER 31, --------------------------------- 2002 2001 2000 (As Restated, see Note 14) ----------- -------- -------- <S> <C> <C> <C> NET SALES $ 65,176 $ 73,883 $ 69,101 COST OF SALES 58,650 64,872 60,326 -------- -------- -------- GROSS PROFIT 6,526 9,011 8,775 OPERATING EXPENSES (INCLUDING ESOP CONTRIBUTIONS OF $ 0, $525 AND $322 IN 2002, 2001 AND 2000) 8,032 7,273 7,700 -------- -------- -------- OPERATING (LOSS) PROFIT (1,506) 1,738 1,075 -------- -------- -------- OTHER INCOME (EXPENSE): INTEREST EXPENSE (INCLUDING $468, $502 AND $762 RELATED TO ESOP DEBT IN 2002, 2001 AND 2000) (636) (647) (914) INTEREST INCOME 118 205 177 OTHER INCOME, NET 250 659 535 -------- -------- -------- TOTAL OTHER (EXPENSE) INCOME (268) 217 (202) -------- -------- -------- (LOSS) INCOME BEFORE INCOME TAXES (1,774) 1,955 873 PROVISION FOR INCOME TAXES 489 467 358 -------- -------- -------- NET INCOME (LOSS) $ (2,263) $ 1,488 $ 515 ======== ======== ======== BASIC NET INCOME PER SHARE $ (0.17) $ 0.15 $ 0.05 ======== ======== ======== DILUTED NET INCOME PER SHARE $ (0.17) $ 0.13 $ 0.05 ======== ======== ======== WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: BASIC 13,694 9,854 9,854 ======== ======== ======== DILUTED 13,694 11,305 10,714 ======== ======== ======== </TABLE> See accompanying notes to the consolidated financial statements F-4

NORTHGATE INNOVATIONS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE INCOME (LOSS) (in thousands) <TABLE> <CAPTION> TOTAL ACCUMULATED STOCK- COMPRE- ADDITIONAL OTHER UNEARNED HOLDERS' HENSIVE PREFERRED STOCK COMMON STOCK PAID-IN COMPREHENSIVE ESOP RETAINED EQUITY INCOME SHARES AMOUNT SHARES AMOUNT CAPITAL LOSS SHARES EARNINGS (DEFICIT) (LOSS) -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Balance at January 1, 2000 1,350 $ 14 9,854 $ 296 $ 640 $ (4) $(8,580) $ 2,222 $(5,412) Unrealized loss on marketable Securities (1,016) (1,016) $(1,016) Dividends declared on allocated ESOP shares (192) (192) Release of ESOP shares 616 616 Decrease in fair value of released ESOP shares (120) (120) Net income 515 515 515 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Total comprehensive loss $ (501) ======= Balance at December 31, 2000 1,350 14 9,854 296 520 (1,020) (7,964) 2,545 (5,609) Unrealized gain on marketable Securities 524 524 $ 524 Dividends declared on allocated ESOP shares (285) (285) Release of ESOP shares 1,189 1,189 Decrease in fair value of released ESOP shares (249) (296) (545) Net income 1,488 1,488 1,488 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Total comprehensive income $ 2,012 ======= Balance at December 31, 2001 1,350 14 9,854 296 271 (496) (6,775) 3,452 (3,238) Unrealized gain on marketable securities 489 489 $ 489 Shares issued in recapitalization 4,830 145 3,695 3,840 Shares issued to consultant 10 10 10 Adjustment to prior year decrease in fair value of released ESOP shares (212) 212 -- Net loss (as restated, see Note 14) (2,263) (2,263) (2,263) -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Total comprehensive loss $(1,774) ======== Balance at December 31, 2002 1,350 $ 14 14,694 $ 441 $ 3,764 $ (7) $(6,563) $ 1,189 $(1,162) (as restated, see Note 14) ======== ======== ======== ======== ======== ======== ======== ======== ======== </TABLE> See accompanying notes to the consolidated financial statements F-5

NORTHGATE INNOVATIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) <TABLE> <CAPTION> DECEMBER 31, --------------------------------- 2002 2001 2000 (As Restated, See Note 14) Cash flows from operating activities: -------- -------- -------- <S> <C> <C> <C> Net income (loss) $ (2,263) $ 1,488 $ 515 -------- -------- -------- Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation and amortization 282 158 88 Gain on debt settlement (50) -- -- Stock issued for services 10 -- -- Provision for losses on accounts receivable 30 661 1,300 Release of shares to ESOP -- 903 616 Deferred taxes 858 15 192 Realized and permanent losses on marketable securities 928 -- -- Decrease in fair value of released ESOP shares -- (545) (120) Changes in operating assets and liabilities, net of acquisition: Accounts receivable 6,782 (5,758) 8,929 Inventories 1,114 (1,320) (396) Prepaid expenses and other current assets (350) 216 (277) Other assets (46) 8 (2) Accounts payable (5,380) 5,675 (5,261) Accrued expenses (910) 709 (92) Income taxes payable (388) 1,053 (324) Dividends payable -- 186 (96) ESOP interest payable 468 (536) 757 Advances to Mcglen (307) (845) -- Accrued royalties (3,572) 1,467 (878) -------- -------- -------- Total adjustments (531) 2,047 4,436 -------- -------- -------- Net cash (used in) provided by operating activities (2,794) 3,535 4,951 -------- -------- -------- Cash flows from investing activities: Purchase of investment (200) -- -- Sale of investment 200 -- -- Purchases of equipment (337) (511) (113) Proceeds from sale of securities and certificates of deposit 3,231 21,188 -- Purchases of marketable securities (3,088) (19,205) (1,544) Purchases of certificates of deposit (1,022) -- (294) Acquisition of Mcglen, net of cash 108 -- -- -------- -------- -------- Net cash (used in) provided by investing activities (1,108) 1,472 (1,951) -------- -------- -------- Cash flows from financing activities: Payments on line of credit (6,433) -- -- Borrowings on line of credit 6,393 -- -- Dividends paid on preferred stock (186) (96) -- Payment on ESOP debt (1,213) (617) (1,423) -------- -------- -------- Net cash used in financing activities (1,439) (713) (1,423) -------- -------- -------- Net (decrease) increase in cash and cash equivalents (5,341) 4,294 1,577 Cash and cash equivalents, beginning of year 7,178 2,884 1,307 -------- -------- -------- Cash and cash equivalents, end of year $ 1,837 $ 7,178 $ 2,884 ======== ======== ======== </TABLE> See accompanying notes to the consolidated financial statements. F-6

NORTHGATE INNOVATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF COMPANY The consolidated financial statements include the accounts of Northgate Innovations, Inc. (a Delaware corporation) (formerly Mcglen Internet Group, Inc. "Mcglen") and its wholly owned subsidiaries ("Northgate" or the "Company"). The Company is a developer, manufacturer and distributor of innovative PCs, peripherals, software, and over 100,000 computer products. The Company specializes in selling its computers through television shopping networks, mail order catalog companies and large electronic chain stores as well as targeting specific business-to-business and business-to-consumer markets through the Internet to customers principally in the United States. The operations division, which includes a call center, sourcing, warehousing, fulfillment, accounting, business development and information technology, supports order processing, logistics, customer service, financial transactions and core technology for the business divisions located in the City of Industry, California. The business divisions include sales, marketing, content management, product management and service management teams focused on building unique customer experiences for each business division. CASH EQUIVALENTS All highly liquid debt instruments purchased with an original maturity of three months or less are considered cash equivalents. RESTRICTED CERTIFICATES OF DEPOSIT Certain of Northgate's certificates of deposit with a bank are held as collateral against letters of credit issued by the bank to one of Northgate's primary suppliers (see Note 12). The supplier allows Northgate to purchase up to double the aggregate amount of the restricted certificates of deposit under open account terms. REVENUE RECOGNITION For sales of merchandise owned and warehoused by Northgate, Northgate recognizes revenue when title to products sold has transferred to the customer in accordance with shipping terms. Northgate also sells merchandise from suppliers on a "drop-ship" basis. Northgate takes title to this merchandise from the time it is shipped by the supplier until the time it is received by the customer. ACCOUNTING FOR SHIPPING AND HANDLING REVENUE, FEES AND COSTS The Company classifies amounts billed for shipping and handling as revenue in accordance with EITF 00-10 "Accounting for Shipping and Handling Fees and Costs." Shipping and handling fees and costs are included in cost of sales. F-7

INVENTORIES Northgate accounts for inventory under the average cost method. Inventory costs include raw materials, labor and overhead. Inventory is carried at lower of cost or market realization. The following are the major classes of inventory as of December 31: 2002 2001 (As Restated, see Note 14) -------- -------- Raw materials $ 2,757 $ 1,800 WIP and finished goods 614 2,449 -------- -------- 3,371 4,249 Obsolescence and lower of cost or market reserves (193) (305) -------- -------- $ 3,178 $ 3,944 ======== ======== The Company from time to time also maintains at its facilities consigned inventory that remains the property of the vendors supplying the inventory ("consigned inventory") until such time as the Company elects to use the inventory. At the time that the Company elects to use the consigned inventory, the cost of such inventory is reflected in the Company's inventory accounts and a corresponding account payable to the vendor is recorded. MERCHANDISE RETURN AND WARRANTY POLICY Computers manufactured by Northgate carry a one-year return policy. The majority of products used by Northgate in the production of computers are covered by the original manufacturers warranties, which are generally one to three years. Other products sold by Northgate are covered by the third-party manufacturer's warranty. Northgate provides for allowances for estimated future returns and product warranty (included in accrued liabilities) at the time of shipment to the customer based on historical experience. SOFTWARE DEVELOPMENT COSTS In accordance with SOP 98-1 and EITF 00-2, internal and external costs incurred to develop internal-use computer software are expensed during the preliminary project stage. During the three years ended December 31, 2002, $162,000, $52,000, and $62,000, respectively was expensed for software development costs. The Company capitalized $32,000 and $331,000 for the years ended December 31, 2002 and 2001, respectively. EQUIPMENT Equipment is stated at cost. Depreciation is computed using the straight-line method based on the estimated useful lives of the assets, which range from three to five years. Leasehold improvements are stated at cost and amortization is computed using the straight-line method over the shorter of the useful life of the asset or the term of the lease. GOODWILL The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets." Under SFAS No. 142, goodwill associated with acquisitions consummated after June 30, 2001 is not to be amortized, and effective January 1, 2002, goodwill and other intangible assets with indefinite lives are no longer subject to periodic amortization but are instead reviewed annually, or more frequently if impairment indicators arise. These reviews require the Company to estimate the fair value of its identified reporting units and compare those estimates against the related carrying values. For each of the reporting units, the estimated fair value is determined as compared to the Company's stock price. Identifiable assets and liabilities acquired in connection with business combinations accounted for under the purchase method are recorded at their respective fair values. Deferred income taxes have been recorded to the extent of differences between the fair value and the tax basis of the assets acquired and liabilities assumed. Company management has allocated the intangible assets between identifiable intangibles and goodwill. F-8

LONG-LIVED ASSETS Northgate's management assesses the recoverability of its long-lived assets by determining whether the depreciation and amortization of long-lived assets over their remaining lives can be recovered through projected undiscounted future cash flows. The amount of long-lived asset impairment, if any, is measured based on fair value and is charged to operations in the period in which long-lived asset impairment is determined by management. At December 31, 2002 and 2001, the Company's management believes there is no impairment of its long-lived assets. There can be no assurance however, that market conditions will not change or demand for the Company's services will continue, which could result in impairment of long-lived assets in the future. ADVERTISING REVENUE AND COSTS Advertising revenue is recognized upon receipt of income. Advertising costs are charged to expense as incurred. Net advertising (expense) income was ($76,000), $178,000 and $235,000 for the years ended December 31, 2002, 2001 and 2000, respectively, and is included in operating expenses. INCOME TAXES Northgate follows the provisions of SFAS No. 109, "Accounting for Income Taxes," which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements and tax returns. Deferred tax assets and liabilities are determined based upon the difference between the financial statement and tax bases of assets and liabilities, using the enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that deferred tax assets will not be realized. MARKETABLE SECURITIES Northgate accounts for marketable securities in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This standard requires Northgate to classify and account for investments in equity securities that have readily determinable fair values and all debt securities as follows: (1) debt securities that Northgate has the intent and the ability to hold to maturity are classified as held-to-maturity securities and are reported at amortized cost; (2) debt and equity securities that are bought and held principally for the purpose of selling them in the near-term are classified as trading securities and are reported at fair value, with unrealized gains and losses included in earnings; and (3) debt and equity securities not classified as held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders' equity. In the fourth quarter of 2002, the Company reviewed its marketable securities portfolio for permanent impairment. Due to the overall decline in the stock and bond markets from when the Company purchased the investments, as well as specific factors affecting individual investments within the portfolio, the Company recorded a $827,000 "other than temporary" loss on its marketable securities portfolio, which is included in other income for the year ended December 31, 2002. At December 31, 2002 and 2001, all of Northgate's trading securities were classified as available for sale. Cost and fair market value for available for-sale securities were as follows at December 31 (in thousands): 2002 2001 -------- -------- Adjusted cost $ 497 $ 1,873 Unrealized losses (7) (496) -------- -------- Fair value $ 490 $ 1,377 ======== ======== FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of Northgate's financial instruments, consisting primarily of certificates of deposit and marketable securities, receivables, accounts payable and notes payable, approximates fair value due to the maturity of these financial instruments and the borrowing costs to Northgate. F-9

STOCK-BASED COMPENSATION Northgate has adopted SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 requires disclosure of the compensation cost for stock-based incentives granted after January 1, 1995 based on the fair value at grant date for awards. At December 31, 2002, the Company has one stock-based employee compensation plan, which is described more fully in Note 7. The Company accounts for those plans under the recognition and measurement principles of APB 25, and related interpretations. No stock-based employee compensation cost is reflected in the statement of operations, as all options granted under those plans had exercise prices equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the minimum value recognition provisions SFAS 123, to stock-based employee compensation. <TABLE> <CAPTION> FOR THE YEARS ENDED DECEMBER 31, -------------------------------------- IN THOUSANDS, EXCEPT PER SHARE DATA -------------------------------------- 2002 2001 2000 (As Restated, See Note 14) ----------- ----------- ----------- <S> <C> <C> <C> Net income (loss) as reported $ (2,263) $ 1,488 $ 515 Deduct: Total stock-based employee compensation expense under fair value based method for all awards, net of related tax effects (56) -- -- ----------- ----------- ----------- Pro forma net income (loss) $ (2,319) $ 1,488 $ 515 =========== =========== =========== Basic EPS As reported $(0.17) $0.15 $0.05 Diluted EPS As reported $(0.17) $0.13 $0.05 Basic EPS Pro forma $(0.17) $0.15 $0.05 Diluted EPS Pro forma $(0.17) $0.13 $0.05 </TABLE> 401K PLAN Northgate has a 401K plan that covers all full time employees who are not covered by a collective bargaining agreement. Employees are eligible for the plan following one year of service. Northgate made matching contributions to participants equal to 50% of the first 6% of the employee's contribution through June 2001. Expenses relating to Northgate's 401K plan were approximately $3,000, $19,000 and $39,000 for the years ended December 31, 2002, 2001, and 2000, respectively. OFF- BALANCE SHEET RISK In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which Northgate adopted effective in 2000. SFAS No. 133 requires Northgate to record all derivatives on the balance sheet at fair value. The Company had no derivatives at December 31, 2002 and 2001. SECURITIES SOLD, NOT YET PURCHASED Securities sold not yet purchased represent obligations of Northgate to make a future delivery of a specific security and, correspondingly create an obligation to purchase the security at prevailing market prices. As a result, short sales create the risk that Northgate's ultimate obligation to satisfy the delivery requirements may exceed the amount of liability recorded in the financial statements. At December 31, 2001, approximately $426,000 was invested in short sales of common stock and an unrealized loss of $102,000 was recorded on these investments. Management covered the short sales in January and April 2002 recording a loss of $60,000. The Company had no such investments at December 31, 2002. F-10

NET INCOME PER SHARE Basic net income per share excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding during the reported periods. Diluted net income per share reflects the potential dilution that could occur if other commitments to issue common stock were exercised. Each share of ESOP preferred stock is convertible into 3.12828 shares of common stock. Allocated ESOP shares (including shares released for allocation) are considered dilutive for all periods presented. The computation of basic and diluted shares outstanding is as follows for the years ended December 31(in thousands): 2002 2001 2000 (As Restated, See Note 14) ------------ ------- ------- Weighted average shares - Basic 13,694 9,854 9,854 Effect of dilutive preferred shares -- 1,451 860 Weighted average shares - Diluted 13,694 11,305 10,714 Since 2002 is a loss, the Company's basic and diluted weighted average shares are the same for 2002, as the effect of stock options and warrants per share are anti-dilutive and thus not included in the diluted loss per share calculation. As of December 31, 2002, the additional potential dilutive shares are 1,451,000. CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject Northgate to a concentration of credit risk consist of accounts receivable from individuals and merchants, located in the United States. Northgate maintains an allowance for doubtful accounts receivable based upon the expected collectibility of accounts receivable and potential credit losses. CONCENTRATION OF SUPPLIERS Northgate is dependent upon key suppliers for merchandise. For the years ended December 31, 2002, one supplier accounted for approximately 15.6 % of total purchases while in 2001 another supplier accounted for approximately 10.2% of total purchases. For the year ended December 31, 2000, two suppliers accounted for approximately 27.4% of total purchases. Management believes other suppliers could provide similar merchandise on comparable terms. A change in suppliers, however, could cause a delay in fulfillment of customer orders and a possible loss of sales, which would adversely affect operating results. Northgate has entered into nonexclusive licensing agreements with Microsoft Corporation for various operating system and application software, for which, Northgate pays Microsoft a royalty. Royalty expense was $2,962,000, $3,448,000, and $3,728,000, respectively, for the years ended December 31, 2002, 2001 and 2000. During the fourth quarter of 2002, the Company revised its estimate for accruals related to its liability for certain subscriber fees to the Microsoft Network ("MSN") resulting in recognition of other income of approximately $1,000,000. PRODUCT LICENSES From time to time, Northgate receives notices from companies and individuals asserting exclusive patent, copyright, trademark or other intellectual property rights to technologies or marks that are important to the technology industry and/or Northgate's business. Northgate evaluates each claim relating to its products and, if appropriate, seeks a license to use the protected technology. The licensing agreements generally do not require the licensor to assist Northgate in duplicating its patented technology nor do these agreements protect Northgate from trade secret, copyright or other violations by Northgate or its suppliers in developing or selling these products. Liabilities are recorded when claims asserted are probable and such costs to Northgate can be estimated. No such costs have been recorded at December 31, 2002 or 2001. SIGNIFICANT CUSTOMERS Northgate has historically been dependent upon key customers for its sales. For the years ended December 31, 2002, 2001 and 2000, three customers accounted for approximately 54.4%, 66.5% and 58.4%, respectively, of total sales. At December 31, 2002 and 2001, $1.5 million and $8.6 million, respectively, of accounts receivable related to these customers. Management believes other customers could be located which would purchase merchandise on comparable terms; however, the establishment of new customer relationships could take several months. One of these companies announced plans for its closure in the first quarter of 2002 and was sold to new owners who began operations in the fourth quarter of 2002. The loss of any one of these customers could cause a loss of sales that would adversely affect operating results. F-11

In addition to the customers mentioned above, sales to Mcglen Internet Group, Inc., with whom the Company merged in March 2002 (see Note 2) were $8.9 million and $300,000 for the years ended December 31, 2001 and 2000, respectively. The Company also had an accounts receivable balance from Mcglen of $184,000 at December 31, 2001. COMPREHENSIVE INCOME Northgate has adopted SFAS No. 130, Reporting Comprehensive Income. This statement established standards for the reporting of comprehensive income and its components. Comprehensive income, as defined, includes all changes in equity (net assets) during a period from non-owner sources. For the years ended December 31, 2002, 2001 and 2000, the difference between net income and comprehensive net income was unrealized (losses) gains on available-for-sale securities of $489,000, $524,000, and ($1,016,000), respectively. NEW ACCOUNTING PRONOUNCEMENTS In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities", an interpretation of Accounting Research Bulletin 51, " Consolidated Financial Statements," to improve financial reporting of special purpose and other entities. In accordance with the interpretation, business enterprises that represent the primary beneficiary of another entity by retaining a controlling financial interest in that entity's assets, liabilities, and results of operations must consolidate the entity in their financial statements. Prior to the issuance of FIN 46, consolidation generally occurred when an enterprise controlled another entity through voting interests. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company does not expect FIN 46 to have a material impact on its financial statements as it has no variable interest entities. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123." SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for financial statements issued for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The Company has applied the disclosure provisions in SFAS No. 148 in its consolidated financial statements and the accompanying notes. In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements in FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company does not expect FIN 45 to have a material impact on its financial position or results of operations as it does not act as a guarantor. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS 146 requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management's commitment to an exit plan, which is generally before an actual liability has been incurred. Adoption of SFAS No. 146 is required with the beginning of fiscal year 2003. The Company does not anticipate a significant impact on its results of operations from adopting this Statement. F-12

In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS 4, 44, and 64, Amendment of SFAS 13, and Technical Corrections." SFAS No. 145 eliminates the requirement (in both SFAS No. 4 and SFAS No. 64) that gains and losses from the extinguishment of debt be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. However, an entity is not be prohibited from classifying such gains and losses as extraordinary items, so long as certain criteria are met. SFAS No. 145 also amends paragraph 14(a) of SFAS No. 13, "Accounting for Leases," to eliminate an inconsistency between the accounting for sale-leaseback transactions and certain lease modifications that have economic effects that are similar to sale-leaseback transaction. The Company has adopted this Statement in its 2002 financial statements (see Note 4). In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived ASSETS." SFAS No. 144 requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, is to be applied prospectively. The Company's adoption of this Statement in 2002 had no material impact on its financial statements. In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires the fair value of a liability for an asset retirement obligation to be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The Company's adoption of this Statement had no material impact on its financial statements. In June 2001, the FASB finalized SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS No. 141 also requires that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS No. 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001 (see Note 2). It also requires, upon adoption of SFAS No. 142, that the Company reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS No. 141. SFAS No. 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS No. 142 requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS No. 142. SFAS No. 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS No. 142 requires the Company to complete a transitional goodwill impairment test six months from the date of adoption, see above. The Company is also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS No. 142. F-13

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS Our Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates including but not limited to, those related to (i) the allowance for doubtful accounts receivable, (ii) allowance for inventories, (iii) sales allowances, (iv) useful life or impairment of intangible assets, (v) deferred tax asset valuation allowances and (vi) litigation settlements accrual. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. RECLASSIFICATIONS Certain reclassifications have been made to the December 31, 2001 and 2000 financial statements to conform to the December 31, 2002 presentation. These reclassifications had no effect on previously reported net income for 2001 and 2000. 2. MERGER WITH MCGLEN INTERNET GROUP, INC. On October 11, 2000, Northgate entered into a definitive merger agreement and plan of merger with Lan Plus Corporation ("Lan Plus"). Lan Plus manufactures both private-label and branded turnkey computer products and services, with over ten years of operating history. On March 21, 2001, the companies entered into an amended and restated merger agreement that, among other things, eliminated certain conditions to closing contained in the original merger agreement. The amended and restated merger agreement was subsequently amended several times, ending on March 14, 2002. Upon the close of the merger on March 20, 2002, Lan Plus shareholders received approximately 3.128 shares of Northgate common stock for each Lan Plus share they owned, totaling 9,854,000 shares, and owned approximately seventy-five percent (75%), on a fully diluted basis, of the outstanding stock of Northgate (after taking into account a 10:1 reverse split that took place immediately prior to the close of the merger). Pursuant to the merger agreement, upon close of the merger, the Company's accounts payable to, and advances from Lan Plus, in the amount of approximately $2.3 million was converted to common stock eliminating the debt; the stock was then retired to Treasury and cancelled. Although Lan Plus was merged into a subsidiary of Northgate, the merger was accounted for as a reverse acquisition since Lan Plus shareholders controlled the combined entity after the merger. As a result, for financial accounting purposes, the merger is treated as a purchase of Northgate by Lan Plus. Therefore, the historical financial statements of Lan Plus are presented for comparison purposes for all periods presented. After the 10:1 reverse stock split, Mcglen shareholders held 4,830,000 shares of Northgate's $0.03 par value common stock. For accounting purposes, the shares retained by Mcglen in the merger were valued on Lan Plus' books as an issuance of new shares at $0.788 per share (after the 10:1 reverse stock split and based on the weighted average closing price of the shares just prior to and after the merger date), totaling $3,806,000. In addition, Lan Plus assumed previously issued options and warrants resulting in additional fair value of $34,000 (see Notes 7 and 9). Upon closing of the merger, Andy Teng, founder, Chairman and Chief Executive Officer of Lan Plus, became the Chief Executive Officer and Chairman of the Board of the combined company. Richard Shyu, previously President and Chief Operating Officer of Lan Plus, became President of the combined company. Both were added to the Board of Directors in March 2002. Grant Trexler, Mcglen's Chief Financial Officer, became Chief Financial Officer of the combined company. The following represents the estimated fair value of net assets acquired by Lan Plus in the reverse acquisition at March 14, 2002 (in thousands): Cash $ 108 Other current assets 539 Fixed assets 95 Deferred income taxes 1,400 Intangibles 3,886 Accounts payable and accrued expenses (846) Inter-company payables (1,152) Notes payable (190) ------- $ 3,840 ======= F-14

Deferred income taxes represent the Company's estimate at the time of the merger of Mcglen's net operating loss carryforwards ("NOLs") that were expected to be used to offset Northgate's future taxable income, after considering limitations imposed on NOLs upon a change in control. As a result of losses generated subsequent to the merger, the Company has recorded a valuation allowance equal to the entire NOL balance (see Note 6). Intangibles represent the excess of the purchase price of Mcglen over the estimated fair value of the tangible assets acquired. The Company has not yet determined if any specifically identifiable intangibles should be recorded related to this purchase in accordance with SFAS No. 141. Any unidentified intangibles will be reflected as non-amortizable goodwill and will be evaluated periodically for recoverability in accordance with SFAS No. 142. For the year ended December 31, 2002, the Company has recorded no intangible amortization. On a pro forma basis, the statements of operations would have been as follows for the years ended December 31, if the acquisition had occurred on January 1, 2002 and 2001, respectively: (in thousands, except per share data) 2002 2001 (As Restated, see Note 14) ------------ -------- Net sales $ 69,615 $ 86,214 Gross profit 7,030 11,306 Loss (income) before taxes and extraordinary item (1,832) 108 Extraordinary item, gain on debt settlements -- 639 Net income (loss) (2,321) 746 Net income (loss) per share $ (0.16) $ 0.01 3. EQUIPMENT, LEASE COMMITMENTS AND RELATED PARTY TRANSACTIONS Equipment consists of the following at December 31: (In thousands) 2002 2001 ------- ------- Machinery and equipment $ 708 $ 479 Software 353 331 Leasehold improvements 349 171 Vehicles 71 71 Furniture and fixtures 80 77 ------- ------- 1,561 1,129 Less accumulated depreciation (661) (379) ------- ------- $ 900 $ 750 ======= ======= The company leased its office/manufacturing facility under a non-cancelable operating lease with its Chairman and Chief Executive Officer (CEO) that was terminated in September 2002. The lease provided for minimum annual rentals and escalations based on increases in real estate taxes and other operating expenses. Minimum annual operating lease commitments at December 31, 2002 are $445,000 through December 31, 2006. Rent expense was approximately $421,000, $345,000 and $344,000 for the years ended December 31, 2002, 2001, and 2000 respectively; of these amounts $258,000, $345,000 and $344,000 was paid to the Company's Chairman and CEO. 4. LINE OF CREDIT At December 31, 2002, Northgate had a $2,500,000 line of credit with a bank. The line of credit provides for borrowings secured by substantially all of Northgate's assets and is guaranteed by Northgate's majority shareholder. Borrowings under the line are advanced based upon 70% of eligible accounts receivable, as defined, less any letters of credit issued on Northgate's behalf, and a $500,000 holdback for potential chargebacks on credit cards processed. The line of credit expires on April 30, 2003. Advances under the line bear interest at the bank's prime rate (4.25%) plus 0.5% (a total of 4.75% at December 31, 2002). The line contains certain covenants (as defined) that required Northgate to maintain profitability in the third and fourth quarter of 2002, a minimum of ($4.25 million) tangible net worth (as defined), a Current Ratio of at least 1.2:1, Working Capital of at least $2.5 million, and limits the capital expenditures the Company can make in any one year to $750,000. As of December 31, 2002 (as a result of the restatement) the Company is not in compliance with the terms of these covenants, and is currently working with the lender to resolve this instance of non-compliance. In September 2002, the Company reached a settlement with the holder of the Mcglen line of credit whereby Northgate repaid $40,000 of the $90,000 due under the line. The resulting gain of $50,000 is included in other income for the year ended December 31, 2002. F-15

5. NOTES PAYABLE At December 31, 2002, Northgate had a $1,300,000 note payable to an individual. Interest on the note is payable monthly at 9% and the note is due January 1, 2005. Accrued but unpaid interest of approximately $58,000 and $78,000 is included in accrued expenses at December 31, 2002 and 2001, respectively. At December 31, 2002, the Company also had $100,000 of convertible notes payable to an individual, dated June 18, 1999. Interest was payable at 10% per annum through December 18, 2000 and is payable at 12% thereafter. The note and accrued interest were due December 18, 2000. The note is convertible at $20.00 per share and is currently in default. Management has held settlement discussions with the note holder but has been unable to reach a settlement for payment. 6. INCOME TAXES The components of the income tax provision (benefit) were as follows for the years ended December 31(in thousands): 2002 2001 2000 (As Restated, See Note 14) ------ ------ ------ Current $ (369) $ 452 $ 167 Deferred 858 15 191 ------ ------ ------ $ 489 $ 467 $ 358 ====== ====== ====== At December 31, 2002, 2001 and 2000, income tax expense differed from the amounts computed applying the federal statutory rate of 34% to pre-tax income as follows (in thousands): 2002 2001 2000 (As Restated, See Note 14) ------ ------ ------ Computed "expected" tax expense (benefit) $(603) $ 665 $ 297 (Decrease) increase in income taxes resulting from expenses not deductible for tax purposes 47 (267) 8 Release of accrual for change in estimate (637) -- -- State and local income taxes, net of federal effect (104) 69 53 Increase in valuation allowance 1,786 -- -- ------ ------ ------ $ 489 $ 467 $ 358 ====== ====== ====== Under SFAS No. 109, "Accounting for Income Taxes," deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred taxes consist of the following at December 31 (in thousands): Deferred tax assets: 2002 2001 (As Restated, See Note 14) ------- ------- Net operating loss carryforward $ 1,443 $ -- Reserves and allowances 120 386 Marketable securities 197 -- State taxes - current -- 53 Other 58 25 Less valuation allowance (1,786) -- ------- ------- Total deferred tax assets 32 464 ------- ------- Deferred tax liabilities: ESOP deduction -- (288) Fixed assets (12) (25) State tax (20) (28) ------- ------- Total deferred tax liabilities (32) (341) ------- ------- $ -- $ 123 ======= ======= F-16

As a result of the Company's reverse merger in March 2002, the Company has federal and state net operating loss carryforwards of approximately $16 million and $10 million. Utilization of the net operating loss carryforwards is subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation will result in the Company being able to only utilize $3.8 million and $0.5 million, to offset federal and state income, respectively as of December 31, 2002. The remaining net operating loss carryforwards will go unused. The net operating loss carryforwards will expire at various dates beginning in 2012 through 2022 for federal purposes and 2003 through 2009 for state purposes, if not utilized. As of December 31, 2002 all such loss carryforwards have been reserved, due to the likelihood that such amounts will not be utilized before expiration. During the fourth quarter of 2002, the Company revised its estimate for tax accruals related to its 1997 and 1998 tax years resulting in a tax benefit of $637,000. 7. STOCKHOLDERS' EQUITY STOCK SPLIT In connection with the merger with Mcglen in March 2002, Northgate effected a 3.12828 split of its Common Stock and changed its par value to $0.03 per share. All common shares and per share data have been retroactively adjusted to reflect the stock split. DIVIDENDS In December 2001 and 2000, the Board of Directors of Northgate approved a dividend of $1.00 per share for all preferred shareholders. The dividends were paid in September 2002 and 2001, respectively, and were used to service the ESOP debt. No dividends were declared in 2002. NON-PLAN OPTIONS At December 31, 2002, there were 4,500 non-plan options outstanding. At December 31, 2002, outstanding non-plan options are exercisable at $7.50 per share. In 2002, 51,700 options expired per their terms. EMPLOYEE STOCK OPTION PLANS Terms and conditions of the Company's option plans, including exercise price and the period in which options are exercisable, generally are at the discretion of the Board of Directors; however, no options are exercisable for more than 10 years after date of grant. In February 2000, the Board of Directors of Northgate approved the 1999 Stock Option Plan (the 1999 Plan) for issuance of common stock to eligible participants. The Plan provides for the granting of incentive stock options and non-qualified stock options. Options generally expire after 10 years. F-17

The following table summarizes employee stock option plan activity: <TABLE> <CAPTION> OPTIONS OUTSTANDING -------------------------------------------- WEIGHTED NUMBER PRICE AVERAGE PRICE OF SHARES PER SHARE PER SHARE ---------- ---------------- ------------- <S> <C> <C> <C> Options assumed in reverse acquisition 124,000 $1.00 to $15.90 $6.70 Options granted 518,000 $0.35 to $.050 $0.43 Options forfeited (39,000) $0.35 $0.35 ---------- ---------------- ------------- Outstanding December 31, 2002 603,000 $0.35 to $15.90 $1.53 ========== ================ ============= </TABLE> The following table summarizes information about Northgate's stock options outstanding at December 31, 2002: <TABLE> <CAPTION> Options Outstanding Options Exercisable ------------------- ------------------- Number Weighted Weighted Number Weighted Outstanding at Average Average Exercisable at Average Range of December 31, Remaining Exercise December 31, Exercise Exercise Price 2002 Contractual Life (Yrs) Price 2002 Price ----------------- -------------- ---------------------- -------- -------------- -------- <S> <C> <C> <C> <C> <C> $0.35 259,000 3.0 $0.35 0 $0.35 0.50 259,000 4.5 0.50 0 0.50 1.00 28,000 0.3 1.00 28,000 1.00 9.40 to 15.90 57,000 2.5 11.86 57,000 11.86 ----------------- -------------- ---------------------- -------- -------------- -------- $0.35 to $15.90 603,000 3.2 $1.53 85,000 $8.28 ================= ============== ====================== ======== ============== ======== </TABLE> Pro forma information (see Note 1) regarding net (loss) income and net (loss) income per share is required by SFAS 123, and has been determined as if the Company had accounted for its employee stock purchase plan and employee stock options granted under the fair value method of SFAS 123. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model for the single option approach with the following assumptions: risk-free interest rate of 4.0%, volatility factor of the expected market price of the Company's common stock of 150%, an expected life of the options of 2 years from the grant date, a 33% forfeiture rate, and a dividend yield of zero. The average fair value of options at the date of grant was $0.20 per share during 2002. 8. EMPLOYEE STOCK OWNERSHIP PLAN On December 1, 1999, Northgate established a leveraged employee stock ownership plan (ESOP) that covers all employees who complete 1,000 or more hours of service in a Plan year. To establish the plan, the ESOP borrowed $10,000,000 from Northgate's majority shareholder which it then used to purchase all of Northgate's outstanding Preferred stock (a total of 1,350,000 shares) from Northgate's majority shareholder at the then market price, $7.05 per share. The Preferred Stock is convertible into common stock at an exchange rate of 1 share of Preferred to 3.12828 shares of Common, has a liquidation preference of $1.00 per share, and has certain protective provisions which allow the preferred shareholders to vote on matters that would alter the preferred shareholders rights, privileges, powers or restrictions from those currently granted to the preferred shareholders. Northgate received no funds from this transaction; however, it is required to record the liability on its books as it has guaranteed the ESOP debt, in accordance with the American Institute of Certified Public Accountants Statement of Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans" (SOP 93-6). Under SOP 93-6, the loan obligation is considered unearned employee benefit expense and, as such, Northgate records it as a reduction to stockholders' equity, "Unearned ESOP shares." F-18

Northgate makes annual contributions to the ESOP equal to a minimum of the ESOP's required debt service less dividends received by the ESOP. All dividends received by the ESOP are used to pay debt service. The ESOP shares initially were pledged as collateral for its debt. As the debt is repaid, shares are released from collateral and allocated to active employees, based on the proportion of debt service paid in the year. As shares are released from collateral, Northgate reports compensation expense equal to the current market price of the shares and the released shares become outstanding for earnings-per-share computations. Northgate recognized compensation expense of $0, $550,000, and $322,000 for the years ended December 31, 2002, 2001, and 2000, respectively. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings; dividends on unallocated ESOP shares are recorded as a reduction of debt and accrued interest when paid. ESOP interest expense related to the ESOP note was $468,000, $502,000, and $762,000 for the years ended December 31, 2002, 2001, and 2000, respectively. The ESOP note payable required monthly principal payments of $119,000 commencing January 1, 2000 plus interest at 8% for the first two years. In January 2001, the ESOP renegotiated its note with the Company's majority stockholder reducing the interest rate from 8% to 6% and lowering the required monthly principal payments from $119,000 to $25,000. The note's maturity date was also extended to December 2009 from January 2006. The Company has prepaid required principal payments through January 2007. Future principal payments are due as follows: During the year ending December 31: (In thousands) 2007 $ 275 Due thereafter 6,475 ------- Total amounts due $6,750 ======= Preferred Shares of Northgate held by the ESOP are as follows at December 31(in thousands): 2002 2001 ------- -------- Allocated shares 464 275 Shares released for allocation -- 189 Unreleased (unearned) shares 886 886 ------- -------- Total ESOP shares 1,350 1,350 ======= ======== Fair value of unreleased (unearned shares) $ 760 $ 3,702 ======= ======== In the event a terminated ESOP participant desires to sell his or her shares of Northgate's Preferred stock, or for certain employees who elect to diversify their account balances, Northgate may be required to purchase the shares from the participant at their fair market value. During the years ended December 31, 2002, 2001 and 2000, Northgate did not purchase any stock from ESOP participants. In addition, at December 31, 2002, approximately 8,000 shares of Northgate's Preferred stock, with an aggregate fair market value of approximately $3,000 are held by ESOP participants who are eligible to elect their diversification privileges under the ESOP. 9. WARRANTS Warrant activity for the year ended December 31, 2002 is as follows: <TABLE> <CAPTION> WARRANTS OUTSTANDING -------------------- WEIGHTED NUMBER PRICE AVERAGE PRICE OF SHARES PER SHARE PER SHARE ---------- --------------- ------------- <S> <C> <C> <C> Warrants assumed in reverse acquisition 237,000 $2.00 to $61.70 $12.50 Issued in connection with consulting agreement 100,000 $1.50 $1.50 Expired (106,000) $3.00 to $61.70 $12.50 ---------- --------------- ------------- Outstanding and exercisable at December 31, 2002 231,000 $1.50 to $10.00 $5.61 ========== =============== ============= </TABLE> F-19

The following table summarizes information about Northgate's warrants outstanding at December 31, 2002: <TABLE> <CAPTION> Warrants Outstanding Warrants Exercisable -------------------- -------------------- Number Weighted Weighted Number Weighted Outstanding at Average Average Exercisable at Average Range of December 31, Remaining Exercise December 31, Exercise Exercise Price 2002 Contractual Life (Yrs) Price 2002 Price ---------------- -------------- ---------------------- -------- -------------- -------- <S> <C> <C> <C> <C> <C> $1.50 100,000 2.3 $1.50 100,000 $1.50 2.50 12,000 2.5 2.50 12,000 2.50 5.00 15,000 1.2 5.00 15,000 5.00 10.00 104,000 1.2 10.00 104,000 10.00 ---------------- -------------- ---------------------- -------- -------------- -------- $1.50 to $10.00 231,000 1.7 $5.61 231,000 $5.61 ================ ============== ====================== ======== ============== ======== </TABLE> 10. SEGMENT INFORMATION Statement of Financial Accounting Standards No. 131 "Disclosure about Segments of an Enterprise and Related Information" (SFAS No. 131) requires companies to report financial and descriptive information about its reportable operating segments, including segment profit or loss, certain specific revenue and expense items, and segment assets, as well as information about the revenues derived from Northgate's products or services, the countries in which Northgate earns revenues and holds assets, and major customers. SFAS No. 131 also requires companies that have a single reportable segment to disclose information about products and services, information about geographic areas, and information about major customers. SFAS No. 131 requires the use of the management approach to determine the information to be reported. The management approach is based on the way management organizes the enterprise to assess performance and make operating decisions regarding the allocation of resources. It is management's opinion that Northgate has only one reportable segment, and has no concentration of customers in one specific geographic area within the United States. Major customers, as defined, have been discussed in Note 1 above. 11. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION DECEMBER 31, (In thousands) 2002 2001 2000 ------- ------- ------- Cash paid during the period ended: Interest $ 126 $1,076 $ 835 Income Taxes $ 417 $ 178 $ 679 Non-cash investing and financing activities: Purchase of Mcglen with the Company's common stock $3,840 -- -- 12. COMMITMENTS AND CONTINGENCIES The Company has a $1 million standby letter of credit issued by its bank in favor of one of its major suppliers. The letter of credit was renewed in February 2003 and expires in August 2003. The letter of credit is secured by a $1 million certificate of deposit. From time to time, other companies and individuals assert exclusive patent, copyright, trademark or other intellectual property rights to technologies or marks that are important to the technology industry or our business. Certain companies have asserted such rights related to products that we manufacture. We evaluate each claim relating to our products and, if appropriate, seek a license to use the protected technology. The licensing agreements generally do not require the licensor to assist us in duplicating its patented technology nor do these agreements protect us from trade secret, copyright or other violations by us or our suppliers in developing or selling these products. The Company also may be responsible for any product liability issues that may arise from the sale of its products. F-20

During the normal course of business, the Company has made certain indemnities and guarantees under which it may be required to make payments in relation to certain transactions. These indemnities include certain agreements with the Company's officers, under which the Company may be required to indemnify such persons for liabilities arising out of their employment relationship. The duration of these indemnities and guarantees varies and, in certain cases, is indefinite. The majority of these indemnities and guarantees do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. Historically, the Company has not been obligated to make significant payments for these obligations and no liabilities have been recorded for these indemnities and guarantees in the accompanying consolidated balance sheets. 13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following tables contain selected unaudited consolidated quarterly financial data for the Company (in thousands, except per share data): <TABLE> <CAPTION> QUARTER ENDED MARCH JUNE SEPT. DEC. MARCH JUNE SEPT. DEC. 31, 2001 30, 2001 30, 2001 31, 2001 31, 2002 30, 2002 30, 2002 31, 2002 (As restated, see Note 14) --------- --------- --------- --------- --------- --------- --------- --------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: <S> <C> <C> <C> <C> <C> <C> <C> <C> Net sales ................................ $ 14,454 $ 7,839 $ 18,733 $ 32,857 $ 19,432 $ 15,645 $ 18,562 $ 11,537 Cost of sales ............................ 13,551 5,996 16,163 29,162 17,692 13,005 16,473 11,480 --------- --------- --------- --------- --------- --------- --------- --------- Gross Profit ............................. 903 1,843 2,570 3,695 1,740 2,640 2,089 57 Operating expenses.................... 1,468 1,464 2,123 2,218 2,145 1,941 2,002 1,944 --------- --------- --------- --------- --------- --------- --------- --------- Operating (loss) profit .............. (565) 379 447 1,477 (405) 699 87 (1,887) Other income (expense) ............... 574 307 (61) (603) 5 (372) 36 63 --------- --------- --------- --------- --------- --------- --------- --------- Income (loss) before income taxes ........ 9 686 386 874 (400) 327 123 (1,824) Provision for income taxes ............... 4 203 128 132 (160) 127 45 477 --------- --------- --------- --------- --------- --------- --------- --------- Net income (loss) ........................ $ 5 $ 483 $ 258 $ 742 $ (240) $ 200 $ 78 $ (2,301) ========= ========= ========= ========= ========= ========= ========= ========= Basic and diluted income (loss) per share ................................ $ 0.00 $ 0.05 $ 0.03 $ 0.07 $ (0.02) $ 0.01 $ 0.00 $ (0.15) ========= ========= ========= ========= ========= ========= ========= ========= Weighted average shares of common stock outstanding: Basic ................................ 9,854 9,854 9,854 9,854 10,666 14,737 14,737 14,737 ========= ========= ========= ========= ========= ========= ========= ========= Diluted ............................ 10,129 10,129 10,129 11,012 10,666 16,927 16,927 14,737 ========= ========= ========= ========= ========= ========= ========= ========= </TABLE> Overhead expenses for the year ended December 31, 2002 totaling $1,061,000 were reclassified from operating expenses to cost of sales in the fourth quarter of 2002. The effect of this reclassification has been presented in each of the quarters of fiscal 2002 above based on relative sales amounts. As a result, cost of sales has been increased by (and operating expenses have been decreased by) $316,000, $255,000 and $302,000 for the quarters ended March 31, 2002, June 30, 2002 and September 30, 2002, respectively, from the amounts previously reflected on the Company's respective quarterly reports. 14. RESTATEMENT OF HISTORICAL FINANCIAL STATEMENTS In July 2003, management of the Company became aware of certain differences that existed between the Company's detailed records, and the amount of liabilities reported in the Company's financial statements for the year ended December 31, 2002. The Board of Directors authorized the Company's management to conduct an investigation of these differences. Based on the results of management's investigation, the Company concluded that the balance of accounts payable as of December 31, 2002 was understated as a result of an incorrect adjustment for consigned inventory. The result of the removal of these accounts payable decreased the cost of goods sold and thereby mistakenly increased the Company's net income for the year ended December 31, 2002 and for the fourth quarter of 2002. The correction of this error increased accounts payable and cost of sales for the fourth quarter of 2002, and generated a corresponding increase in the Company's net loss. Due to the increased loss as a result of the findings of this investigation, the Company concluded that certain deferred tax assets resulting from its merger with Lan Plus, Inc. during the fiscal year ended December 31, 2002 (see Note 2) will likely expire before they can be utilized, and therefore have recorded a valuation allowance for all such deferred tax assets as of December 31, 2002. F-21

As a result of the restatement, during the fourth quarter of 2002 and for the year ended December 31, 2002, (i) cost of sales increased by $1,061,000 and (ii) provision for income taxes increased by $1,359,000, as follows: CONSOLIDATED BALANCE SHEET As of December 31, 2002 --------------------------------------- As Previously Reported As Restated ------------------ ---------------- ASSETS Inventories $ 2,984 $ 3,178 Prepaid expense and other current assets $ 262 $ 560 Deferred tax asset - current $ 418 $ -- Deferred tax asset $ 1,247 $ -- Total assets $16,014 $14,841 LIABILITIES Accounts payable $ 3,983 $ 5,240 Accrued expenses $ 450 $ 440 STOCKHOLDERS EQUITY Retained earnings $ 3,609 $ 1,189 CONSOLIDATED STATEMENT OF OPERATIONS <TABLE> <CAPTION> For The Quarter Ended For The Year Ended December 31, 2002 December 31, 2002 ------------------------------------ ----------------------------------------- As Previously As Previously Reported As Restated Reported As Restated ---------------- ---------------- ------------------- ------------------ <S> <C> <C> <C> <C> Net sales $ 11,537 $ 11,537 $ 65,176 $ 65,176 Cost of sales (1) 10,419 11,480 57,589 58,650 ---------- ----------- ------------- ------------- Gross profit 1,118 57 7,587 6,526 Operating expenses (1) 1,944 1,944 8,032 8,032 ---------- ----------- ------------- ------------- Loss from operations (826) (1,887) (445) (1,506) Other income (expenses), net 63 63 (268) (268) ---------- ----------- ------------- ------------- Loss before income taxes (763) (1,824) (713) (1,774) Provision(benefit)for income taxes (882) 477 (870) 489 ---------- ----------- ------------- ------------- Net income (loss) $ 119 $ (2,301) $ 157 $ (2,263) ========== =========== ============= ============= Basic and diluted net income (loss) $ 0.01 $ (0.15) $ 0.01 $ (0.17) ========== ============ ============= ============= per share </TABLE> (1) After effects of reclassification - see Note 13. F-22

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN THOUSANDS) Column A Column B Column C Column D Column E ----------- ------- -------- -------- -------- Balance at Balance Beginning at End Description of year Additions Deductions of Year ----------- ------- --------- ---------- ------- 2002 ---- Allowance for doubtful accounts deducted from accounts receivable in the balance sheet $ 254 $ 30 $ 4 $ 280 Reserve for obsolescence deducted from inventories on the balance sheet 305 1,322 1,434 193 ======= ======== ========= ======= $ 559 $ 1,352 $ 1,438 $ 473 ======= ======== ========= ======= 2001 ---- Allowance for doubtful accounts deducted from accounts receivable in the balance sheet $ 559 $ 661 $ 966 $ 254 Reserve for obsolescence deducted from inventories on the balance sheet 292 3,689 3,676 305 ------- -------- --------- ------- $ 851 $ 4,350 $ 4,642 $ 559 ======= ======== ========= ======= 2000 ---- Allowance for doubtful accounts deducted from accounts receivable in the balance sheet $ 254 $ 1,300 $ 995 $ 559 Reserve for obsolescence deducted from inventories on the balance sheet 248 1,215 1,171 292 ------- -------- --------- ------- $ 502 $ 2,515 $ 2,166 $ 851 ======= ======== ========= =======

EXHIBIT 23.1

                          INDEPENDENT AUDITOR'S CONSENT


We consent to the incorporation by reference in Registration Statement No.
333-38622 of Northgate Innovations, Inc. (formerly LAN Plus Corporation) on Form
S-8 of our report, dated April 12, 2002, appearing in this Annual Report on Form
10-K of Northgate Innovations, Inc. (formerly LAN Plus Corporation) for the year
ended December 31, 2001.



                        /s/  SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

                        Los Angeles, California
                        September 17, 2003


EXHIBIT 23.2

                          INDEPENDENT AUDITORS' CONSENT

To the Board of Directors
Northgate Innovations, Inc.

We hereby consent to the incorporation by reference in the previously filed
Registration Statement of Northgate Innovations, Inc. on Form S-8 (No.
333-38622) of our report, dated March 31, 2003 (September 5, 2003 as to the
effects of the restatement discussed in Note 14), appearing in the Annual Report
on Form 10-K/A of Northgate Innovations, Inc. for the year ended December 31,
2002.

                        /s/  Corbin & Company LLP

                        Irvine, California
                        September 17, 2003


                                   EXHIBIT 31

                                  CERTIFICATION

I, Andy Teng, Chief Executive Officer of Northgate Innovations, Inc., certify
that:

1. I have reviewed this annual report on Form 10-K/A of Northgate Innovations,
Inc.;

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

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

4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and

5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls over
financial reporting.

Date: September 17, 2003

                        /s/ Andy Teng
                        -------------------------------------
                        Andy Teng
                        Chief Executive Officer and Acting CFO



                                   EXHIBIT 32

                                WRITTEN STATEMENT
                                   PURSUANT TO
                             18 U.S.C. SECTION 1350

The undersigned, Andy Teng, the Chief Executive Officer, of Northgate
Innovations, Inc. (the "Company"), pursuant to 18 U.S.C.ss.1350, hereby
certifies that:

(i) the annual report on Form 10-K/A of the Company (the "Report) fully complies
with the requirements of section 13(a) and 15(d) of the Securities Exchange Act
of 1934; and

(ii) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.

Dated: September 17, 2003

                /s/ Andy Teng
                -------------------------
                Andy Teng
                Chief Executive Officer and Acting Chief Financial Officer

The foregoing certification accompanied the Form 10-K/A filing pursuant to 18
U.S.C. ss. 1350. It is being reproduced herein for information only. It is not
being filed for purposes of Section 18 of the Securities Exchange Act of 1934,
as amended, and it is not to be incorporated by reference into any filing of the
Company, whether made before or after the date hereof, regardless of any general
incorporation language in such filing. A signed original of this written
statement required by Section 906 has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.

                                  END OF FILING