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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 0-25790
 
 PC MALL, INC.
 (Exact name of Registrant as specified in its charter)
 
 Delaware
    
    95-4518700(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification Number)
 2555 West 190th Street, Suite 201, Torrance, CA 90504
(Address of principal executive offices, including zip code)
 (310) 354-5600
(Registrants telephone number, including area code)
 
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Exchange on Which RegisteredCommon Stock, $0.001 par value per share
    
    The NASDAQ Stock Market LLC
 Securities registered pursuant to Section 12(g) of the Act:
None
 
 o þ
 o þ
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ
   Documents Incorporated By Reference Into Part III:




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##### 



PC MALL, INC.
  PagePART IITEM 1  Business
    
    
    3ITEM 1A  Risk Factors
    
    
    12ITEM 1B  Unresolved Staff Comments
    
    
    26ITEM 2  Properties
    
    
    27ITEM 3  Legal Proceedings
    
    
    27ITEM 4  Submission of Matters to a Vote of Security Holders
    
    
    27ITEM 4A  Executive Officers of the Registrant
    
    
    27PART IIITEM 5  Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    29ITEM 6  Selected Financial Data
    
    
    31ITEM 7  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    33ITEM 7A  Quantitative and Qualitative Disclosures about Market Risk
    
    
    47ITEM 8  Financial Statements and Supplementary Data
    
    
    48ITEM 9  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    75ITEM 9A  Controls and Procedures
    
    
    75ITEM 9B  Other Information
    
    
    76PART IIIITEM 10  Directors, Executive Officers and Corporate Governance
    
    
    76ITEM 11  Executive Compensation
    
    
    76ITEM 12  Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    76ITEM 13  Certain Relationships and Related Transactions, and Director Independence
    
    
    77ITEM 14  Principal Accounting Fees and Services
    
    
    77PART IVITEM 15  Exhibits and Financial Statement Schedules
    
    
    77SIGNATURES
    
    
    82Exhibit 10.34Exhibit 10.35Exhibit 21.1Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   1




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PART I
 FORWARD-LOOKING STATEMENTS
  
    
    our beliefs relating to the benefits to be received from our Philippines office and
Canadian call center, including tax credits and reduction in labor costs over time;
    
    our competitive advantages and growth opportunities;
    
    our ability to increase profitability and revenues;
    
    our ability to leverage our market position and purchasing power and offer a wide
selection of products at competitive prices;
    
    our ability to penetrate the public sector market;
    
    our ability to attract new customers and stimulate additional purchases from
existing customers, including our expectations regarding future advertising levels and
the effect on consumer sales;
    
    our ability to generate vendor supported marketing;
    
    our ability to limit risk related to price reductions;
    
    our use of management information systems and their need for future support or
upgrade;
    
    our expectations regarding competition and the industry trend toward consolidation;
    
    our compliance with laws and regulations;
    
    our expectations regarding our working capital, liquidity, cash flows from
operations and our credit limit under our credit facility;
    
    our expectations to continue our efforts to increase the productivity of our sales
force and reduce costs;
    
    the impact on accounts receivable from our efforts to focus on commercial and
public sector sales;
    
    our belief that the use of extranets has the potential to yield additional sales
opportunities and the ability to reach new customer bases;
    
    our expectations regarding the ability of our marketing
programs or campaigns to stimulate additional purchases or to
maximize product sales;
    
    our belief that backlog is not useful for predicting our future sales;
    
    our belief that our existing distribution facilities are adequate for our current
and foreseeable future needs;
    
    the likelihood that new laws and regulations will be adopted with respect to the
Internet that may impose additional restrictions or burdens on our business;
    
    our beliefs regarding the applicability of tax regulations;
    
    our belief regarding our exposure to currency exchange risks;
    
    our expectations regarding the impact of accounting pronouncements;
    
    our expectations regarding the payment of dividends and our intention to retain any
earnings to finance the growth and development of our business; and
    
    our plans for our growth strategy, capital needs and future financing.
   2




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ITEM 1. BUSINESS
 General
          3




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Strategy
   Utilize Multiple Selling Models
     .
 Focus on Sales of Solutions.
  4




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Continue Demand Generation Programs
 Leverage Apple Market Position .
 Utilize E-Commerce Expertise .
  Focus on Public Sector Market .
  Selectively Pursue Strategic Acquisitions .
  5




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Sales and Marketing
 Sales Activities.
   Marketing Activities.
 Vendor Supported Marketing.
 Proprietary Websites.
 Direct Marketing.
  6




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Products and Merchandising
    Years Ended December 31,2007
    
    
    2006
    
    
    2005Notebooks
    
    
    16.1
    %
    
    
    15.8
    %
    
    
    15.6
    %Desktops and servers
    
    
    15.2
    
    
    
    14.8
    
    
    
    16.4Software
    
    
    14.3
    
    
    
    14.5
    
    
    
    15.1Home electronics
    
    
    11.8
    
    
    
    10.2
    
    
    
    7.9Printers and related supplies
    
    
    6.4
    
    
    
    8.0
    
    
    
    8.4Storage and related supplies
    
    
    7.3
    
    
    
    8.1
    
    
    
    7.8Displays
    
    
    5.5
    
    
    
    6.5
    
    
    
    7.8Network and telecommunications
    
    
    4.8
    
    
    
    5.0
    
    
    
    5.5Accessories
    
    
    5.0
    
    
    
    4.6
    
    
    
    4.2Memory
    
    
    2.4
    
    
    
    3.2
    
    
    
    3.5Input devices
    
    
    1.6
    
    
    
    1.9
    
    
    
    1.8Other (1)
    
    
    9.6
    
    
    
    7.4
    
    
    
    6.0Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 
 (1)
    
    Other consists primarily of other electronic products, income from configuration
charges, sales of extended service agreements and other consumer products. Service Offerings for Commercial and Public Sector Markets
    7




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Purchasing and Inventory
     Backlog
  Distribution
     8




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Management Information Systems
   Retail Stores
  Competition
  
    
    other direct marketers, including CDW, Insight Enterprises and PC Connection;
    
    computer retail stores and resellers, including superstores such as Best Buy and
CompUSA;
    
    hardware and software vendors such as Apple and Dell Computer that sell or are
increasing sales directly to end users;
    
    online resellers, such as Amazon.com, Newegg.com and TigerDirect.com;
    
    government resellers such as GTSI, CDWG and GovConnection;
    
    system integrators;
    
    software focused resellers such as Soft Choice and Software House International;
and
    
    other direct marketers and value added resellers of information technology
products, solutions and services.
     9




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Intellectual Property
     Segment Reporting Data
   10




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Employees
   Regulatory and Legal Matters
    Available Information
   11




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www.sec.gov
  
 ITEM 1A. RISK FACTORS
 This report and other documents we file with the Securities and Exchange Commission contain
forward looking statements that are based on current expectations, estimates, forecasts and
projections about us, our future performance, our business, our beliefs and our managements
assumptions. These statements are not guarantees of future performance and involve certain risks,
uncertainties, and assumptions that are difficult to predict. You should carefully consider the
risks and uncertainties facing our business which are set forth below. The risks described below
are not the only ones facing us. Our business is also subject to risks that affect many other
companies, such as employment relations, general economic conditions, geopolitical events and
international operations. Further, additional risks not currently known to us or that we currently
believe are immaterial also may impair our business, operations, liquidity and stock price
materially and adversely.
 Our revenue is dependent on sales of products from a small number of key manufacturers, and a
decline in sales of products from these manufacturers could materially harm our business.
  Certain of our key vendors provide us with incentives and other assistance that reduce our
operating costs, and any decline in these incentives and other assistance could materially harm our
operating results.
  We do not have long-term supply agreements or guaranteed price or delivery arrangements with our
vendors.
  Substantially all of our agreements with vendors are terminable within 30 days.
   12




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Our success is dependent in part upon the ability of our vendors to develop and market products
that meet changes in marketplace demand, as well as our ability to sell popular products from new
vendors.
  We may not be able to maintain existing or build new vendor relationships, which may affect our
ability to offer a broad selection of products at competitive prices and negatively impact our
results of operations.
  Our narrow gross margins magnify the impact of variations in our operating costs and of adverse or
unforeseen events on our operating results.
  We experience variability in our net sales and net income on a quarterly basis as a result of many
factors.
   13




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The transition of our business strategy to increasingly focus on commercial and public sector sales
presents numerous risks and challenges, and may not improve our profitability or result in expanded
market share.
  Our
investments in our outbound phone-based sales force model may not improve our profitability
or result in expanded market share.
  Our financial performance could be adversely affected if we are not able to retain and increase the
experience of our sales force or if we are not able to maintain or increase their productivity.
  Existing or future government and tax regulations could expose us to liabilities or costly changes
in our business operations, and could reduce demand for our products and services.
   14




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Part of our business strategy includes the acquisition of other companies, and we may have
difficulties integrating acquired companies into our operations in a cost-effective manner, if at
all
     If purchased goodwill or intangible assets become impaired, we may be required to record a
significant charge to earnings.
   16




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We may not be able to maintain profitability on a quarterly or annual basis.
  The effect of accounting rules for stock-based compensation may materially adversely affect our
consolidated operating results, our stock price and our ability to hire, retain and motivate
employees.
  Our operating results are difficult to predict and may adversely affect our stock price.
  
    
    the amount and timing of operating costs and capital expenditures relating to any
expansion of our business operations and infrastructure;
    
    price competition that results in lower sales volumes, lower profit margins, or net
losses;
    
    fluctuations in mail-in rebate redemption rates;
    
    the amount and timing of advertising and marketing costs;
    
    our ability to successfully integrate operations and technologies from any past or
future acquisitions or other business combinations;
    
    changes in the number of visitors to our websites or our inability to convert those
visitors into customers;
    
    technical difficulties, including system or Internet failures;
    
    fluctuations in the demand for our products or overstocking or understocking of our
products;
    
    introduction of new or enhanced services or products by us or our competitors;
    
    fluctuations in shipping costs, particularly during the holiday season;
  17




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
    
    changes in the amounts of information technology spending by commercial and public
sector entities;
    
    economic conditions generally or economic conditions specific to the Internet,
e-commerce, the retail industry or the mail order industry;
    
    changes in the mix of products that we sell; and
    
    fluctuations in levels of inventory theft, damage or obsolescence that we incur.
 If we fail to accurately predict our inventory risk, our gross margins may decline as a result of
required inventory write downs due to lower prices obtained from older or obsolete products.
  We may need additional financing and may not be able to raise additional financing on favorable
terms or at all, which could increase our costs, limit our ability to grow and dilute the ownership
interests of existing stockholders.
  Rising interest rates could negatively impact our results of operations and financial condition.
   18




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We may be subject to claims regarding our intellectual property, including our business processes,
or the products we sell, any of which could result in expensive litigation, distract our management
or force us to enter into costly royalty or licensing agreements.
   Costs and other factors associated with pending or future litigation could materially harm our
business, results of operations and financial condition.
  We may fail to expand our merchandise categories, product offerings, websites and processing
systems in a cost-effective and timely manner as may be required to efficiently operate our
business.
   
    
    establish or increase awareness of our new brands and product categories;
    
    acquire, attract and retain customers at a reasonable cost;
    
    achieve and maintain a critical mass of customers and orders across all of our product
categories;
    
    attract a sufficient number of new customers to whom our new product categories are
targeted;
    
    successfully market our new product offerings to existing customers;
  19




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
    
    maintain or improve our gross margins and fulfillment costs;
    
    attract and retain vendors to provide our expanded line of products to our customers on
terms that are acceptable to us; and
    
    manage our inventory in new product categories.
  We may not be able to attract and retain key personnel such as senior management and information
technology specialists.
  If we fail to achieve and maintain adequate internal controls, we may not be able to produce
reliable financial reports in a timely manner or prevent financial fraud.
  Any inability to effectively manage our growth may prevent us from successfully expanding our
business.
   20




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Our advertising and marketing efforts may be costly and may not achieve desired results.
  Changes and uncertainties in the economic climate could negatively affect the rate of information
technology spending by our customers, which would likely have an impact on our business.
  Increased product returns or a failure to accurately predict product returns could decrease our
revenue and impact profitability.
  Our business may be harmed by fraudulent activities on our websites, including fraudulent credit
card transactions.
  We may be liable for misappropriation of our customers personal information.
    21




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Laws or regulations relating to privacy and data protection may adversely affect the growth of our
Internet business or our marketing efforts.
  The security risks of e-commerce may discourage customers from purchasing goods from us.
  Credit card fraud could decrease our revenue and profitability.
  Our facilities and systems are vulnerable to natural disasters or other catastrophic events.
   22




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We rely on independent shipping companies to deliver the products we sell.
  
    
    reduced visibility of order status and package tracking;
    
    delays in order processing and product delivery;
    
    increased cost of delivery, resulting in reduced margins; and
    
    reduced shipment quality, which may result in damaged products and customer
dissatisfaction.
  We may not be able to compete successfully against existing or future competitors, which include
some of our largest vendors.
   Our success is tied to the continued use of the Internet and the adequacy of the Internet
infrastructure.
   23




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Our earnings and growth rate could be adversely affected by changes in economic and geopolitical
conditions
  The success of our Canadian call center is dependent, in part, on our receipt of government labor
credits.
  We are exposed to the risks of business and other conditions in the Asia Pacific region.
   The increasing significance of our foreign operations exposes us to risks that are beyond our
control and could affect our ability to operate successfully.
    24




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
    
    political uncertainties;
    
    wage inflation;
    
    exposure to foreign currency fluctuations;
    
    tariffs and other trade barriers; and
    
    foreign regulatory restrictions and unexpected changes in regulatory environments.
  International operations expose us to currency exchange risk and we cannot predict the effect of
future exchange rate fluctuations on our business and operating results.
   We are subject to risks associated with the evolution of, and consolidation within, our industry.
  Our success is in part dependent on the accuracy and proper utilization of our management
information systems.
   25




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If we are unable to provide satisfactory customer service, we could lose customers or fail to
attract new customers.
  Our stock price may be volatile.
  
    
    failure to meet investors expectations regarding our operating performance;
    
    changes in securities analysts recommendations or estimates of our financial
performance;
    
    publication of research reports by analysts;
    
    changes in market valuations of similar companies;
    
    announcements by us or our competitors of significant contracts, acquisitions,
commercial relationships, joint ventures or capital commitments;
    
    actual or anticipated fluctuations in our operating results;
    
    litigation developments; and
    
    general market conditions or other economic factors unrelated to our performance.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
   26




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ITEM 2. PROPERTIES
  Description
    
    Sq. Ft.
    
    LocationDistribution
Center and Retail Store
    
    
    212,000
    
    
    Memphis, TNSarcom Headquarters, Sales Office and Warehouse/Distribution Center
    
    
    115,846
    
    
    Lewis Center, OHPC Mall Corporate Headquarters, Sales Office and Retail Store
    
    
    67,660
    
    
    Torrance, CAIrvine Sales Office and Warehouse/Distribution Center
    
    
    60,072
    
    
    Irvine, CACanadian Office
    
    
    45,128
    
    
    Montreal, QuebecWisconsin Sales Office
    
    
    35,503
    
    
    Menomonee Falls, WIPhilippines Office
    
    
    19,740
    
    
    Mandaluyong City, PhilippinesRetail Store
    
    
    9,750
    
    
    Santa Monica, CA
  
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
  Name
    
    Age
    
    PositionFrank F. Khulusi
    
    
    41
    
    
    Chairman of the Board, President and Chief
Executive OfficerBrandon H. LaVerne
    
    
    36
    
    
    Interim Chief Financial Officer, Treasurer and
Chief Accounting OfficerKristin M. Rogers
    
    
    49
    
    
    Executive Vice President  Sales and MarketingDaniel J. DeVries
    
    
    46
    
    
    Executive Vice President  ConsumerRobert I. Newton
    
    
    42
    
    
    General Counsel and Secretary
  Frank F. Khulusi
 Brandon H. LaVerne
  27




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Kristin M. Rogers
 Daniel J. DeVries
 Robert I. Newton
   28




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PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
  Price Range ofCommon StockHigh
    
    
    LowYear Ended December 31, 2007First Quarter
    
    $
    15.15
    
    
    $
    9.50Second Quarter
    
    
    13.47
    
    
    
    9.84Third Quarter
    
    
    16.00
    
    
    
    9.59Fourth Quarter
    
    
    20.50
    
    
    
    9.09Year Ended December 31, 2006First Quarter
    
    $
    6.95
    
    
    $
    5.50Second Quarter
    
    
    7.36
    
    
    
    5.66Third Quarter
    
    
    7.65
    
    
    
    5.87Fourth Quarter
    
    
    11.29
    
    
    
    6.80
     Issuer Purchases of Equity Securities
 Total Number of
    
    
    Average PriceShares Purchased
    
    
    Per ShareOctober 1, 2007 to October 31, 2007
    
    
    
    
    
    
    November 1, 2007 to November 30, 2007
    
    
    122,478
    (1)
    
    $
    17.16
    (1)December 1, 2007 to December 31, 2007
    
    
    
    
    
    
    Total
    
    
    122,478
    
    
    
    17.16
 
 (1)
    
    Represents shares of PC Mall, Inc. common stock we received
from the sellers of SARCOM in connection with
the settlement of a net asset value adjustment on November 6, 2007. The net asset value
adjustment settlement is related to our acquisition of SARCOM, which closed on September 17, 2007.
The shares were tendered by the sellers in settlement of a $2.1 million post-closing net asset
value purchase price adjustment in our favor pursuant to the terms of the Agreement and Plan of
Merger for the acquisition. The per share price for the shares of common stock we received in the
settlement was determined by the average closing price of our common stock for the 20 consecutive
trading days ending on the date of the final determination of the net asset value adjustment, which
was November 6, 2007. The repurchase was not made pursuant to any publicly announced plan or
program. For additional information regarding the repurchase, see Notes 4 and 11 of the Notes to
the Consolidated Financial Statements in Part II, Item 8 of this report.  29




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Notwithstanding anything to the contrary set forth in any of the Companys filings under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might
incorporate future filings, including this Annual Report on Form 10-K , in whole or in part, the
Stock Performance Graph which follows shall not be deemed to be incorporated by reference into any
such filings except to the extent that we specifically incorporate any such information into any
such future filings.
 Stock Performance Graph
  
 Measurement Period (fiscal years covered)12/02
    
    
    
    
    12/03
    
    
    
    
    12/04
    
    
    
    
    12/05
    
    
    
    
    12/06
    
    
    
    
    12/07PC Mall, Inc.
    
    
    $
    100.00
    
    
    
    $
    470.43
    
    
    
    $
    648.70
    
    
    
    $
    890.40
    
    
    
    $
    1,658.10
    
    
    
    $
    1,464.61NASDAQ Composite
    
    
    
    100.00
    
    
    
    
    149.75
    
    
    
    
    164.64
    
    
    
    
    168.60
    
    
    
    
    187.83
    
    
    
    
    205.22NASDAQ Retail Trade
    
    
    
    100.00
    
    
    
    
    168.12
    
    
    
    
    232.55
    
    
    
    
    211.17
    
    
    
    
    200.82
    
    
    
    
    216.39
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ITEM 6. SELECTED FINANCIAL DATA
    Years Ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(in thousands, except per share data)Consolidated Statements of Operations Data:Net sales
    
    $
    1,215,433
    
    
    $
    1,005,820
    
    
    $
    997,232
    
    
    $
    978,320
    
    
    $
    865,545Cost of goods sold
    
    
    1,067,595
    
    
    
    881,902
    
    
    
    878,665
    
    
    
    852,073
    
    
    
    750,817Gross profit
    
    
    147,838
    
    
    
    123,918
    
    
    
    118,567
    
    
    
    126,247
    
    
    
    114,728Selling, general and administrative expenses
    
    
    123,520
    
    
    
    113,500
    
    
    
    118,555
    
    
    
    121,706
    
    
    
    109,452Operating profit
    
    
    24,318
    
    
    
    10,418
    
    
    
    12
    
    
    
    4,541
    
    
    
    5,276Interest expense, net
    
    
    4,031
    
    
    
    3,940
    
    
    
    3,058
    
    
    
    2,044
    
    
    
    1,325Income (loss) from continuing operations before income
taxes
    
    
    20,287
    
    
    
    6,478
    
    
    
    (3,046
    )
    
    
    2,497
    
    
    
    3,951Income tax expense (benefit)
    
    
    7,844
    
    
    
    2,522
    
    
    
    (1,114
    )
    
    
    1,019
    
    
    
    1,392Income (loss) from continuing operations
    
    
    12,443
    
    
    
    3,956
    
    
    
    (1,932
    )
    
    
    1,478
    
    
    
    2,559Income (loss) from discontinued operation, net of taxes
    
    
    
    
    
    
    
    
    
    
    (1,781
    )
    
    
    (465
    )
    
    
    484Net income (loss)
    
    $
    12,443
    
    
    $
    3,956
    
    
    $
    (3,713
    )
    
    $
    1,013
    
    
    $
    3,043Basic and Diluted Earnings (Loss) Per Common ShareBasic earnings (loss) per share:Income (loss) from continuing operations
    
    $
    0.98
    
    
    $
    0.33
    
    
    $
    (0.17
    )
    
    $
    0.13
    
    
    $
    0.24Income (loss) from discontinued operation, net
of taxes
    
    
    
    
    
    
    
    
    
    
    (0.15
    )
    
    
    (0.04
    )
    
    
    0.05Net income (loss)
    
    $
    0.98
    
    
    $
    0.33
    
    
    $
    (0.32
    )
    
    $
    0.09
    
    
    $
    0.29Diluted earnings (loss) per share:Income (loss) from continuing operations
    
    $
    0.90
    
    
    $
    0.31
    
    
    $
    (0.17
    )
    
    $
    0.12
    
    
    $
    0.22Income (loss) from discontinued operation, net
of taxes
    
    
    
    
    
    
    
    
    
    
    (0.15
    )
    
    
    (0.04
    )
    
    
    0.04Net income (loss)
    
    $
    0.90
    
    
    $
    0.31
    
    
    $
    (0.32
    )
    
    $
    0.08
    
    
    $
    0.26
  31




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##### Table of Contents



At
December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(in thousands)Consolidated Balance Sheet Data:Cash and cash equivalents
    
    $
    6,623
    
    
    $
    5,836
    
    
    $
    6,289
    
    
    $
    6,473
    
    
    $
    6,675Working capital (1)
    
    
    37,264
    
    
    
    43,386
    
    
    
    35,621
    
    
    
    53,849
    
    
    
    28,222Total assets
    
    
    296,235
    
    
    
    203,567
    
    
    
    205,242
    
    
    
    231,858
    
    
    
    191,470Short-term debt
    
    
    775
    
    
    
    500
    
    
    
    500
    
    
    
    500
    
    
    
    1,000Line of credit
    
    
    53,893
    
    
    
    32,477
    
    
    
    53,517
    
    
    
    49,027
    
    
    
    26,202Long-term debt, excluding current portion
    
    
    4,456
    
    
    
    1,750
    
    
    
    2,250
    
    
    
    2,750
    
    
    
    250Total stockholders equity
    
    
    84,424
    
    
    
    60,824
    
    
    
    52,968
    
    
    
    70,911
    
    
    
    49,893
 
 (1)
    
    Included in 2004 and 2003 are the accounts of the discontinued operations of
eCOST.com. The increase in 2004 working capital compared to prior years is primarily due to
the $16.7 million of net proceeds received by eCOST.com from the completion of its IPO in
September 2004. The decrease in 2005 from 2004 reflects the completion of the spin-off of
eCOST.com in April 2005.   32




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##### Table of Contents



ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 You should read the following Managements Discussion and Analysis of Financial Condition and
Results of Operations together with the consolidated financial statements and related notes thereto
included elsewhere in this report. This discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those described under Risk
Factors in Item 1A and elsewhere in this report.
 BUSINESS OVERVIEW
       STRATEGIC DEVELOPMENTS
 SARCOM
   33




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##### Table of Contents



GMRI
  OTHER ITEMS AFFECTING RESULTS OF OPERATIONS
      34




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES AND ESTIMATES
   
    
    it requires assumptions to be made that were uncertain at the time the estimate was
made; and
    
    changes in the estimate or different estimates that could have been selected could
have a material impact on our consolidated results of operations or financial position.
  Revenue Recognition.
    35




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##### Table of Contents



Allowance for Doubtful Accounts Receivable.
 Reserve for Inventory Obsolescence.
 Mail-In Rebate Redemption Rate Estimates.
 Advertising Costs and Vendor Consideration.
  Stock-Based Compensation.
  36




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##### Table of Contents



RESULTS OF OPERATIONS
 Consolidated Statements of Operations Data
  Years Ended December 31,2007
    
    
    2006
    
    
    2005Net sales
    
    $
    1,215,433
    
    
    $
    1,005,820
    
    
    $
    997,232Cost of goods sold
    
    
    1,067,595
    
    
    
    881,902
    
    
    
    878,665Gross profit
    
    
    147,838
    
    
    
    123,918
    
    
    
    118,567Selling, general and administrative expenses
    
    
    123,520
    
    
    
    113,500
    
    
    
    118,555Operating profit
    
    
    24,318
    
    
    
    10,418
    
    
    
    12Interest expense, net
    
    
    4,031
    
    
    
    3,940
    
    
    
    3,058Income (loss) from continuing operations before income taxes
    
    
    20,287
    
    
    
    6,478
    
    
    
    (3,046
    )Income tax expense (benefit)
    
    
    7,844
    
    
    
    2,522
    
    
    
    (1,114
    )Income (loss) from continuing operations
    
    
    12,443
    
    
    
    3,956
    
    
    
    (1,932
    )Loss from discontinued operation, net of taxes
    
    
    
    
    
    
    
    
    
    
    (1,781
    )Net income (loss)
    
    $
    12,443
    
    
    $
    3,956
    
    
    $
    (3,713
    )
 As a Percentage of Net SalesFor Years Ended December 31,2007
    
    
    2006
    
    
    2005Net sales
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Cost of goods sold
    
    
    87.8
    
    
    
    87.7
    
    
    
    88.1Gross profit
    
    
    12.2
    
    
    
    12.3
    
    
    
    11.9Selling, general and administrative expenses
    
    
    10.2
    
    
    
    11.3
    
    
    
    11.9Operating profit
    
    
    2.0
    
    
    
    1.0
    
    
    
    0.0Interest expense, net
    
    
    0.3
    
    
    
    0.4
    
    
    
    0.3Income (loss) from continuing operations before income taxes
    
    
    1.7
    
    
    
    0.6
    
    
    
    (0.3
    )Income tax expense (benefit)
    
    
    0.7
    
    
    
    0.2
    
    
    
    (0.1
    )Income (loss) from continuing operations
    
    
    1.0
    
    
    
    0.4
    
    
    
    (0.2
    )Loss from discontinued operation, net of taxes
    
    
    
    
    
    
    
    
    
    
    (0.2
    )Net income (loss)
    
    
    1.0
    %
    
    
    0.4
    %
    
    
    (0.4
    )%
 Selected Other Operating Data
 Years Ended December 31,2007
    
    
    2006
    
    
    2005Commercial and public sector sales percentage
    
    
    80.9
    %
    
    
    78.8
    %
    
    
    74.3
    %Consumer sales percentage (includes OnSale.com)
    
    
    19.1
    %
    
    
    21.2
    %
    
    
    25.7
    %Commercial and public sector account executives (at end of period)
    
    
    694
    
    
    
    574
    
    
    
    559
  37




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##### Table of Contents



Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006
 Net Sales.
 Years EndedDecember 31,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %Core business
    
    $
    1,199,999
    
    
    $
    993,860
    
    
    $
    206,139
    
    
    
    20.7
    %OnSale.com
    
    
    15,434
    
    
    
    11,960
    
    
    
    3,474
    
    
    
    29.0
    %Total net sales
    
    $
    1,215,433
    
    
    $
    1,005,820
    
    
    $
    209,613
    
    
    
    20.8
    %
     Gross Profit and Gross Profit Margin.
 Years Ended December 31,2007
    
    
    2006Gross Profit
    
    
    
    
    
    
    Gross Profit
    
    
    ChangeGross Profit
    
    
    Margin
    
    
    Gross Profit
    
    
    Margin
    
    
    $
    
    
    MarginCore business
    
    $
    146,175
    
    
    
    12.2
    %
    
    $
    122,402
    
    
    
    12.3
    %
    
    $
    23,773
    
    
    
    (0.1
    )%OnSale.com
    
    
    1,663
    
    
    
    10.8
    %
    
    
    1,516
    
    
    
    12.7
    %
    
    
    147
    
    
    
    (1.9
    )%Total gross profit and gross profit margin
    
    $
    147,838
    
    
    
    12.2
    %
    
    $
    123,918
    
    
    
    12.3
    %
    
    $
    23,920
    
    
    
    (0.1
    )%
    38




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##### Table of Contents



Selling, General and Administrative Expenses.
 Years Ended December 31,2007
    
    
    2006
    
    
    ChangeSG&A as a
    
    
    
    
    
    
    SG&A as a
    
    
    
    
    
    
    
    
    
    
    SG&A as aSG&A
    
    
    % of Sales
    
    
    SG&A
    
    
    % of Sales
    
    
    $
    
    
    %
    
    
    % of SalesCore business
    
    $
    120,694
    
    
    
    10.1
    %
    
    $
    110,467
    
    
    
    11.1
    %
    
    $
    10,227
    
    
    
    9.3
    %
    
    
    (1.0
    )%OnSale.com
    
    
    2,826
    
    
    
    18.3
    %
    
    
    3,033
    
    
    
    25.4
    %
    
    
    (207
    )
    
    
    (6.8
    )%
    
    
    (7.1
    )%Total SG&A expenses
    
    $
    123,520
    
    
    
    10.2
    %
    
    $
    113,500
    
    
    
    11.3
    %
    
    $
    10,020
    
    
    
    8.8
    %
    
    
    (1.1
    )%
     Net Interest Expense.
 Income Tax Expense.
  39




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##### Table of Contents



Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005
 Net Sales.
 Years EndedDecember 31,
    
    
    Change2006
    
    
    2005
    
    
    $
    
    
    %Core business
    
    $
    993,860
    
    
    $
    987,324
    
    
    $
    6,536
    
    
    
    0.7
    %OnSale.com
    
    
    11,960
    
    
    
    9,908
    
    
    
    2,052
    
    
    
    20.7
    %Total net sales
    
    $
    1,005,820
    
    
    $
    997,232
    
    
    $
    8,588
    
    
    
    0.9
    %
        Gross Profit and Gross Profit Margin.
 Years Ended December 31,2006
    
    
    2005Gross Profit
    
    
    
    
    
    
    Gross Profit
    
    
    ChangeGross Profit
    
    
    Margin
    
    
    Gross Profit
    
    
    Margin
    
    
    $
    
    
    MarginCore business
    
    $
    122,402
    
    
    
    12.3
    %
    
    $
    117,708
    
    
    
    11.9
    %
    
    $
    4,694
    
    
    
    0.4
    %OnSale.com
    
    
    1,516
    
    
    
    12.7
    %
    
    
    859
    
    
    
    8.7
    %
    
    
    657
    
    
    
    4.0
    %Total gross profit and gross profit margin
    
    $
    123,918
    
    
    
    12.3
    %
    
    $
    118,567
    
    
    
    11.9
    %
    
    $
    5,351
    
    
    
    0.4
    %
  40




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##### Table of Contents



Selling, General and Administrative Expenses.
 Years Ended December 31,2006
    
    
    2005
    
    
    ChangeSG&A as a
    
    
    
    
    
    
    SG&A as a
    
    
    
    
    
    
    
    
    
    
    SG&A as aSG&A
    
    
    % of Sales
    
    
    SG&A
    
    
    % of Sales
    
    
    $
    
    
    %
    
    
    % of SalesCore business
    
    $
    110,467
    
    
    
    11.1
    %
    
    $
    115,255
    
    
    
    11.7
    %
    
    $
    (4,788
    )
    
    
    (4.2
    )%
    
    
    (0.6
    )%OnSale.com
    
    
    3,033
    
    
    
    25.4
    %
    
    
    3,300
    
    
    
    33.3
    %
    
    
    (267
    )
    
    
    (8.1
    )%
    
    
    (7.9
    )%Total SG&A expenses
    
    $
    113,500
    
    
    
    11.3
    %
    
    $
    118,555
    
    
    
    11.9
    %
    
    $
    (5,055
    )
    
    
    (4.3
    )%
    
    
    (0.6
    )%
     41




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##### Table of Contents



Net Interest Expense.
 Income Tax Expense (Benefit).
 Loss from Discontinued Operation.
 LIQUIDITY AND CAPITAL RESOURCES
 Working Capital.
     42




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##### Table of Contents



Cash
Flows from Operating Activities.Net cash provided by operating activities in 2007 was $29.8 million, compared
to net cash provided by operating activities of $31.5 million in 2006 and net cash used in operating activities from
continuing operations of $5.6 million in 2005. The $29.8 million of net cash provided by operating activities in 2007
resulted primarily from the $31.7 million increase in accounts
payable which resulted from timing of our vendor
payables and the $12.4 million of income from our operations, partially offset by a $12.8 million increase in accounts
receivable as of December 31, 2007 compared to December 31, 2006 primarily due to increased receivables from our
government customers. The $31.5 million of net cash provided by operating activities in 2006 resulted primarily from the $15.8 million
increase in accounts payable related to an increase in our purchases to support our increased sales during 2006 and the
increase in sales resulting from the acquisition of the products business from GMRI in 2006, the $13.2 million decrease
in inventory reflecting our efforts to optimize our inventory levels and the $4.0 million of income from our
operations, partially offset by the $11.2 million increase in accounts receivable as of December 31, 2006 compared for
December 31, 2005 due to increased open account sales. The $5.6 million net cash used in operating activities from continuing operations in 2005 resulted primarily from
the $10.6 million increase in accounts receivable as of December 31, 2005 compared to December 31, 2004 principally due
to the increase in our commercial sales and the decrease in accounts payable of $8.7 million relating to declines in
strategic inventory purchases from the prior year, partially offset by a decrease in inventory of $14.4 million
primarily relating to the reduction of inventory formerly used to support the business of eCOST.com, which we spun-off
in April 2005. Cash Flows from Investing Activities.Net cash used in investing activities was $50.3 million in 2007, compared to
net cash used in investing activities of $6.6 million in 2006 and net cash used in investing activities from continuing
operations of $3.1 million in 2005. The $50.3 million of net cash used in investing activities in 2007 resulted from
the $47.7 million related to the acquisition of SARCOM in September 2007 and the $2.6 million of capital expenditures
relating to the creation of enhanced electronic tools for our account executives and sales support staff and the
continued expansion of our Philippines offices. The $6.6 million of net cash used in investing activities in 2006 was
primarily due to $3.4 million used to acquire the products business from GMRI in September 2006 and capital
expenditures of $3.3 million during the year which related to the continued expansion of our Philippines office, as
well as the creation of enhanced electronic tools for our account executives and sales support staff and purchases of
equipment to replace or improve our servers and personal computers. The $3.1 million of net cash used in investing
activities in 2005 resulted primarily from the $3.2 million of capital expenditures, which related to expenditures to
replace or improve our servers and personal computers, as well as the creation of enhanced electronic tools for our
account executives and sales support staff. Cash Flows from Financing Activities.Net cash provided by financing activities was $20.5 million in 2007,
compared to net cash used in financing activities of $25.3 million in 2006 and net cash provided by financing
activities from continuing operations of $8.4 million in 2005. The $20.5 million of net cash provided by financing
activities in 2007 was primarily due to financing required to fund the cash portion of the purchase price of SARCOM in
the amount of approximately $48.2 million, which net of payments made on the outstanding balance of our line of credit
resulted in a net increase of $21.4 million on our line of credit, an increase in our note payable of $3.0 million,
partially offset by a decrease in book overdraft of $7.2 million
which was due to timing of our outstanding
payments to vendors relative to the prior year. The $25.3 million of net cash used in financing activities in 2006 was
due to the $21.0 million repayment on our line of credit and a $4.7 million decrease in book overdraft, which decrease
was due to the timing of our outstanding payments to vendors relative to the prior year. The $8.4 million of net
cash provided by financing activities in 2005 resulted primarily from the $4.5 million net increase in our borrowings
under our line of credit in order to finance the increase in accounts receivable and a $4.3 million increase in our
book overdraft.  43




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##### Table of Contents



Line of Credit and Note Payable.
         44




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##### Table of Contents



Inflation
  Dividend Policy
  CONTRACTUAL OBLIGATIONS, OFF-BALANCE SHEET ARRANGEMENTS AND CONTINGENCIES
 Contractual Obligations
  Payments Due by PeriodLess thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    After 5 yearsContractual obligationsLong-term debt obligation (a) (Note 8)
    
    $
    5,231
    
    
    $
    775
    
    
    $
    1,550
    
    
    $
    1,550
    
    
    $
    1,356Purchase obligations (b) (Note 10)
    
    
    4,740
    
    
    
    4,518
    
    
    
    218
    
    
    
    4
    
    
    
    Operating lease obligations (Note 10)
    
    
    13,663
    
    
    
    5,309
    
    
    
    6,583
    
    
    
    1,758
    
    
    
    13Capital lease obligations (Note 10)
    
    
    185
    
    
    
    112
    
    
    
    73
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    23,819
    
    
    $
    10,714
    
    
    $
    8,424
    
    
    $
    3,312
    
    
    $
    1,369
 Less thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    After 5 yearsOther commercial commitmentLine of credit (a) (Note 8)
    
    $
    53,893
    
    
    $
    53,893
    
    
    $
    
    
    
    $
    
    
    
    $
    
 
 (a)
    
    Long-term debt obligation and line of credit exclude interest, which is based on a variable
rate tied to the prime rate or LIBOR plus a variable spread, at our option.(b)
    
    Purchase obligations consist of minimum commitments under non-cancelable contracts for
services relating to telecommunications, IT maintenance, financial services and employment
contracts with certain employees (which consist of severance arrangements that, if exercised,
would become payable in less than one year).  Off-Balance Sheet Arrangements
  Contingencies
   45




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##### Table of Contents



RELATED-PARTY TRANSACTIONS
  IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
      ***
  46




---



##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   Interest Rate Risk
  Foreign Currency Exchange Risk
    47




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Financial Statements and Supplementary DataReport of Independent Registered Public Accounting Firm
    
    
    49Consolidated Balance Sheets at December 31, 2007 and 2006
    
    
    50Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006 and 2005
    
    
    51Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2007, 2006 and 2005
    
    
    52Consolidated Statements of Cash Flows for the Years Ended December 31 2007, 2006 and 2005
    
    
    53Notes to the Consolidated Financial Statements
    
    
    54Quarterly Financial Information (unaudited)
    
    
    74Financial Statement ScheduleSchedule II  Valuation and Qualifying Accounts
    
    
    78
   48




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  Internal Control  Integrated Framework
     /s/ PricewaterhouseCoopers LLPLos Angeles, California
March 14, 2008
  49




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##### Table of Contents



PC MALL, INC.
 
 CONSOLIDATED BALANCE SHEETS
 (in thousands, except per share amounts and share data)
 At December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    6,623
    
    
    $
    5,836Accounts receivable, net of allowances of $4,653 and $4,630
    
    
    159,362
    
    
    
    114,184Inventories, net
    
    
    64,515
    
    
    
    51,268Prepaid expenses and other current assets
    
    
    9,233
    
    
    
    8,497Deferred income taxes
    
    
    4,698
    
    
    
    4,594Total current assets
    
    
    244,431
    
    
    
    184,379Property and equipment, net
    
    
    8,958
    
    
    
    8,055Deferred income taxes
    
    
    2,728
    
    
    
    6,248Goodwill
    
    
    26,912
    
    
    
    3,525Intangible assets, net
    
    
    12,024
    
    
    
    931Other assets
    
    
    1,182
    
    
    
    429Total assets
    
    $
    296,235
    
    
    $
    203,567LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    110,786
    
    
    $
    75,837Accrued expenses and other current liabilities
    
    
    29,150
    
    
    
    20,215Deferred revenue
    
    
    12,563
    
    
    
    11,964Line of credit
    
    
    53,893
    
    
    
    32,477Note payable  current
    
    
    775
    
    
    
    500Total current liabilities
    
    
    207,167
    
    
    
    140,993Note payable and other long-term liabilities
    
    
    4,644
    
    
    
    1,750Total liabilities
    
    
    211,811
    
    
    
    142,743Commitments and contingencies (Note 10)Stockholders equity:Preferred stock, $0.001 par value; 5,000,000 shares authorized; none issued and outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value; 30,000,000 shares authorized; 13,676,765 and 12,648,720
shares issued; and 13,260,087 and 12,354,520 shares outstanding, respectively
    
    
    14
    
    
    
    13Additional paid-in capital
    
    
    97,869
    
    
    
    87,465Treasury stock, at cost: 416,678 shares and 294,200 shares, respectively
    
    
    (1,015
    )
    
    
    (1,015
    )Accumulated other comprehensive income
    
    
    993
    
    
    
    241Accumulated deficit
    
    
    (13,437
    )
    
    
    (25,880
    )Total stockholders equity
    
    
    84,424
    
    
    
    60,824Total liabilities and stockholders equity
    
    $
    296,235
    
    
    $
    203,567
   50




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##### Table of Contents



PC MALL, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except per share amounts)
 Years Ended December 31,2007
    
    
    2006
    
    
    2005Net sales
    
    $
    1,215,433
    
    
    $
    1,005,820
    
    
    $
    997,232Cost of goods sold
    
    
    1,067,595
    
    
    
    881,902
    
    
    
    878,665Gross profit
    
    
    147,838
    
    
    
    123,918
    
    
    
    118,567Selling, general and administrative expenses
    
    
    123,520
    
    
    
    113,500
    
    
    
    118,555Operating profit
    
    
    24,318
    
    
    
    10,418
    
    
    
    12Interest expense, net
    
    
    4,031
    
    
    
    3,940
    
    
    
    3,058Income (loss) from continuing operations before income taxes
    
    
    20,287
    
    
    
    6,478
    
    
    
    (3,046
    )Income tax expense (benefit)
    
    
    7,844
    
    
    
    2,522
    
    
    
    (1,114
    )Income (loss) from continuing operations
    
    
    12,443
    
    
    
    3,956
    
    
    
    (1,932
    )Loss from discontinued operation, net of taxes
    
    
    
    
    
    
    
    
    
    
    (1,781
    )Net income (loss)
    
    $
    12,443
    
    
    $
    3,956
    
    
    $
    (3,713
    )Basic and Diluted Earnings (Loss) Per Common ShareBasic earnings (loss) per share:Income (loss) from continuing operations
    
    $
    0.98
    
    
    $
    0.33
    
    
    $
    (0.17
    )Loss from discontinued operation, net of taxes
    
    
    
    
    
    
    
    
    
    
    (0.15
    )Net income (loss)
    
    $
    0.98
    
    
    $
    0.33
    
    
    $
    (0.32
    )Diluted earnings (loss) per share:Income (loss) from continuing operations
    
    $
    0.90
    
    
    $
    0.31
    
    
    $
    (0.17
    )Loss from discontinued operation, net of taxes
    
    
    
    
    
    
    
    
    
    
    (0.15
    )Net income (loss)
    
    $
    0.90
    
    
    $
    0.31
    
    
    $
    (0.32
    )Weighted average number of common shares outstanding:Basic
    
    
    12,667
    
    
    
    12,052
    
    
    
    11,652Diluted
    
    
    13,767
    
    
    
    12,908
    
    
    
    11,652
   51




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##### Table of Contents



PC MALL, INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 (in thousands)
 AccumulatedAdditional
    
    
    Deferred
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Paid-in
    
    
    Stock-Based
    
    
    Treasury
    
    
    Comprehensive
    
    
    AccumulatedOutstanding
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Stock
    
    
    Income (Loss)
    
    
    Deficit
    
    
    TotalBalance at December 31,
2004
    
    
    11,557
    
    
    $
    12
    
    
    $
    99,172
    
    
    $
    (1,333
    )
    
    $
    (1,015
    )
    
    $
    198
    
    
    $
    (26,123
    )
    
    $
    70,911Stock option exercises,
including related income
tax benefit
    
    
    164
    
    
    
    
    
    
    
    611
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    611Amortization of deferred
stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125Spin-off of eCOST.com
    
    
    
    
    
    
    
    
    
    
    (16,250
    )
    
    
    1,208
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,042
    )Subtotal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,605Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,713
    )
    
    
    (3,713
    )Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76
    
    
    
    
    
    
    
    76Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,637
    )Balance at December 31,
2005
    
    
    11,721
    
    
    
    12
    
    
    
    83,533
    
    
    
    
    
    
    
    (1,015
    )
    
    
    274
    
    
    
    (29,836
    )
    
    
    52,968Stock option exercises
    
    
    633
    
    
    
    1
    
    
    
    913
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    914Stock-based compensation
expense
    
    
    
    
    
    
    
    
    
    
    1,532
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,532Vested stock option and
warrant issued to
non-employees
    
    
    
    
    
    
    
    
    
    
    814
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    814eCOST NOLs allocated to
PC Mall
    
    
    
    
    
    
    
    
    
    
    673
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    673Subtotal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,901Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,956
    
    
    
    3,956Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33
    )
    
    
    
    
    
    
    (33
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,923Balance at December 31,
2006
    
    
    12,354
    
    
    
    13
    
    
    
    87,465
    
    
    
    
    
    
    
    (1,015
    )
    
    
    241
    
    
    
    (25,880
    )
    
    
    60,824Stock option exercises,
including related income
tax benefit
    
    
    394
    
    
    
    1
    
    
    
    2,864
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,865Stock-based compensation
expense
    
    
    
    
    
    
    
    
    
    
    1,353
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,353SARCOM acquisition
    
    
    512
    
    
    
    
    
    
    
    6,187
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,187Subtotal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,229Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,443
    
    
    
    12,443Translation adjustments,
net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    752
    
    
    
    
    
    
    
    752Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,195Balance at December 31,
2007
    
    
    13,260
    
    
    $
    14
    
    
    $
    97,869
    
    
    $
    
    
    
    $
    (1,015
    )
    
    $
    993
    
    
    $
    (13,437
    )
    
    $
    84,424
   52




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##### Table of Contents



PC MALL, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Years Ended December 31,2007
    
    
    2006
    
    
    2005Cash Flows From Operating ActivitiesNet income (loss)
    
    $
    12,443
    
    
    $
    3,956
    
    
    $
    (3,713
    )Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    1,781Income (loss) from continuing operations
    
    
    12,443
    
    
    
    3,956
    
    
    
    (1,932
    )Adjustments to reconcile income (loss) from continuing
operations to net cash provided by (used in) operating
activities:Depreciation and amortization
    
    
    4,357
    
    
    
    4,417
    
    
    
    4,043Provision (benefit) for deferred income taxes
    
    
    1,960
    
    
    
    2,249
    
    
    
    (1,432
    )Tax benefit related to stock option exercises
    
    
    1,833
    
    
    
    
    
    
    
    281Excess tax benefit related to stock option exercises
    
    
    (2,663
    )
    
    
    
    
    
    
    Non-cash stock-based compensation
    
    
    1,353
    
    
    
    1,532
    
    
    
    105(Gain)/loss on sale of fixed assets
    
    
    57
    
    
    
    (13
    )
    
    
    (60
    )Change in operating assets and liabilities:Accounts receivable
    
    
    (12,783
    )
    
    
    (11,203
    )
    
    
    (10,588
    )Inventories
    
    
    (8,832
    )
    
    
    13,180
    
    
    
    14,409Prepaid expenses and other current assets
    
    
    132
    
    
    
    (167
    )
    
    
    (2,104
    )Other assets
    
    
    (189
    )
    
    
    78
    
    
    
    56Accounts payable
    
    
    31,656
    
    
    
    15,806
    
    
    
    (8,684
    )Accrued expenses and other current liabilities
    
    
    2,249
    
    
    
    190
    
    
    
    122Deferred revenue
    
    
    (1,739
    )
    
    
    1,524
    
    
    
    178Total adjustments
    
    
    17,391
    
    
    
    27,593
    
    
    
    (3,674
    )Net cash provided by (used in) operating activities
    
    29,834
    
    
    
    31,549
    
    
    
    (5,606
    )Cash Flows From Investing ActivitiesPurchases of property and equipment
    
    
    (2,619
    )
    
    
    (3,327
    )
    
    
    (3,177
    )Acquisition of SARCOM
    
    
    (47,650
    )
    
    
    
    
    
    
    Acquisition of GMRIs products business
    
    
    
    
    
    
    (3,386
    )
    
    
    Proceeds from sale of property and equipment
    
    
    
    
    
    
    67
    
    
    
    93Net cash used in investing activities
    
    
    (50,269
    )
    
    
    (6,646
    )
    
    
    (3,084
    )Cash Flows From Financing ActivitiesNet borrowings (payments) under line of credit
    
    
    21,416
    
    
    
    (21,040
    )
    
    
    4,490Change in book overdraft
    
    
    (7,194
    )
    
    
    (4,697
    )
    
    
    4,298Net borrowings (repayments) under note payable
    
    
    2,981
    
    
    
    (500
    )
    
    
    (500
    )Payments for deferred financing costs
    
    
    (275
    )
    
    
    
    
    
    
    (188
    )Payments of obligations under capital lease
    
    
    (153
    )
    
    
    
    
    
    
    Proceeds from stock issued under stock option plans
    
    
    1,032
    
    
    
    914
    
    
    
    330Excess tax benefit related to stock option exercises
    
    
    2,663
    
    
    
    
    
    
    
    Net cash (used in) provided by financing activities
    
    20,470
    
    
    
    (25,323
    )
    
    
    8,430Effect of foreign currency on cash flow
    
    
    752
    
    
    
    (33
    )
    
    
    76Net cash provided by (used in) continuing operations
    
    
    787
    
    
    
    (453
    )
    
    
    (184
    )Cash Flows From Discontinued OperationNet cash flow from operating activities
    
    
    
    
    
    
    
    
    
    
    (5,937
    )Net cash flow from investing activities
    
    
    
    
    
    
    
    
    
    
    5,937Net cash flow from financing activities
    
    
    
    
    
    
    
    
    
    
    Net cash flows from discontinued operation
    
    
    
    
    
    
    
    
    
    
    Net decrease in cash and cash equivalents
    
    
    787
    
    
    
    (453
    )
    
    
    (184
    )Cash and cash equivalents at beginning of the period
    
    
    5,836
    
    
    
    6,289
    
    
    
    6,473Cash and cash equivalents at end of the period
    
    $
    6,623
    
    
    $
    5,836
    
    
    $
    6,289Supplemental Cash Flow InformationInterest paid
    
    $
    3,897
    
    
    $
    3,479
    
    
    $
    2,943Income taxes paid
    
    
    3,146
    
    
    
    153
    
    
    
    121Supplemental Non-Cash Investing Activity (Note 4)Goodwill related to acquisition of GMRIs products business
    
    $
    389
    
    
    $
    
    
    
    $
    Sarcom and GMRI acquisitions related:
    
    
    
    
    
    
    
    
    
    
    Fair value of assets acquired
    
    $
    73,821
    
    
    $
    3,996
    
    
    
    Cash paid
    
    
    (48,220
    )
    
    
    (3,363
    )
    
    $
    Value of common stock issued (including redeemable common stock)
    
    
    (6,188
    )
    
    
    
    
    
    
    Liabilities assumed
    
    $
    19,413
    
    
    $
    633
    
    
    
    
   53




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##### Table of Contents



PC MALL, INC.
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 1. Description of Company
    2. Basis of Presentation and Summary of Significant Accounting Policies
 Principles of Consolidation
  Use of Estimates in the Preparation of the Consolidated Financial Statements
  Reclassifications
  Revenue Recognition
   54




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##### Table of Contents



Cost of Goods Sold
  Cash and Cash Equivalents
  Accounts Receivable
   December 31,2007
    
    
    2006Trade receivables
    
    $
    138,490
    
    
    $
    98,974Other receivables
    
    
    25,525
    
    
    
    19,840Total gross accounts receivable
    
    
    164,015
    
    
    
    118,814Less: Allowance for doubtful accounts receivable
    
    
    (4,653
    )
    
    
    (4,630
    )Accounts receivable, net
    
    $
    159,362
    
    
    $
    114,184
    55




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##### Table of Contents



Concentration of Credit Risk
  Inventories
  Advertising Costs and Vendor Consideration
   Property and Equipment
  Computers, software, machinery and equipment
    
    1  7 yearsLeasehold improvements
    
    1  10 yearsFurniture and fixtures
    
    3  15 yearsBuilding and improvements
    
    5  31 years
  Disclosures About Fair Value of Financial Instruments
   56




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##### Table of Contents



Goodwill and Intangible Assets
   Valuation of Long-Lived Assets
  Debt Issuance Costs
  Income Taxes
   Sales Taxes
  Stock-Based Compensation
   57




---



##### Table of Contents



December 31,2005Loss from continuing operations (as reported)
    
    $
    (1,932
    )Less stock compensation expense, net of taxes, determined under
the fair value based method
    
    
    (1,966
    )Add stock compensation expense, net of taxes, included in reported
loss from continuing operations
    
    
    Loss from continuing operations (pro forma)
    
    $
    (3,898
    )Basic and diluted loss from continuing operations per common share:Basic and diluted  as reported
    
    $
    (0.17
    )Basic and diluted  pro forma
    
    
    (0.33
    )
  December 31,2005Net loss (as reported)
    
    $
    (3,713
    )Less stock compensation expense, net of taxes, determined under the fair
value based method
    
    
    (1,966
    )Add stock compensation expense, net of taxes, included in reported net loss
    
    
    Net loss (pro forma)
    
    $
    (5,679
    )Basic and diluted loss per common share:Basic and diluted  as reported
    
    $
    (0.32
    )Basic and diluted  pro forma
    
    
    (0.49
    )
  58




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##### Table of Contents



2005Risk free interest rates
    
    
    3.88
    %Expected dividend yield
    
    NoneExpected lives (in years)
    
    
    5Expected volatility
    
    
    99
    %Weighted average grant date fair value
    
    $
    3.52
 Foreign Currency Translation
  Recent Accounting Pronouncements
      59




---



##### Table of Contents



3. Stock-Based Compensation
 Stock-Based Benefit Plans
 1994 Stock Incentive Plan
     1995 Director Stock Option Plan
  Impact of the Adoption of SFAS 123R
   60




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##### Table of Contents



Valuation Assumptions
   Years Ended December 31,2007
    
    
    2006Risk free interest rate
    
    
    4.25
    %
    
    
    4.75
    %Expected volatility
    
    
    66
    %
    
    
    95
    %Expected term (in years)
    
    
    6
    
    
    
    6Expected dividend yield
    
    None
    
    
    None
 Stock-Based Payment Award Activity
 Stock Options
  WeightedWeighted
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicExercise
    
    
    Contractual
    
    
    ValueNumber
    
    
    Price
    
    
    Term (in years)
    
    
    (in thousands)Outstanding at December 31, 2006
    
    
    1,939,030
    
    
    $
    3.84Granted
    
    
    343,750
    
    
    
    11.24Exercised
    
    
    (394,064
    )
    
    
    2.62Forfeited
    
    
    (43,366
    )
    
    
    6.00Expired/cancelled
    
    
    (9,941
    )
    
    
    2.64Outstanding at December 31, 2007
    
    
    1,835,409
    
    
    $
    5.44
    
    
    
    6.48
    
    
    $
    7,748Exercisable at December 31, 2007
    
    
    1,347,882
    
    
    $
    4.07
    
    
    
    5.61
    
    
    $
    7,096
  Years Ended December 31,2007
    
    
    2006
    
    
    2005Weighted average grant-date fair value of options granted during the period
    
    $
    7.07
    
    
    $
    4.70
    
    
    $
    3.52Total intrinsic value of options exercised during the period (in thousands)
    
    
    4,462
    
    
    
    3,472
    
    
    
    736Total fair value of shares vested during the period (in thousands)
    
    
    1,344
    
    
    
    1,565
    
    
    
    3,121
  61




---



##### Table of Contents



Restricted Stock
  Weighted AverageGrant Date FairNumber
    
    
    ValueNon-vested at December 31, 2006
    
    
    
    
    
    $
    Granted
    
    
    9,000
    
    
    
    12.27Vested
    
    
    (2,250
    )
    
    
    12.27Forfeited
    
    
    
    
    
    
    Non-vested at December 31, 2007
    
    
    6,750
    
    
    
    12.27
   4.
Acquisitions
 SARCOM
      62




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##### Table of Contents



Total purchase price, adjusted
    
    $
    54,408Cash
    
    
    571Accounts receivable
    
    
    27,728Inventory
    
    
    4,415Other accounts receivable
    
    
    3,172Property and equipment, net
    
    
    1,916Other assets
    
    
    1,131Intangible assets:Customer relationships
    
    
    6,200Tradenames
    
    
    5,200Non-compete agreements
    
    
    490Total intangible assets
    
    
    11,890Total assets acquired
    
    
    50,823Accounts payable
    
    
    (10,487
    )Accrued liabilities
    
    
    (6,588
    )Deferred revenue
    
    
    (2,338
    )Total liabilities assumed
    
    
    (19,413
    )Total allocated to goodwill
    
    $
    22,998
   Years EndedDecember 31,2007
    
    
    2006Net sales
    
    $
    1,398,002
    
    
    $
    1,242,696Operating profit
    
    
    26,164
    
    
    
    14,044Net income
    
    
    11,209
    
    
    
    3,814Basic and Diluted Earnings Per Common ShareBasic
    
    $
    0.86
    
    
    $
    0.30Diluted
    
    
    0.79
    
    
    
    0.28Weighted average number of common shares outstanding:Basic
    
    
    13,029
    
    
    
    12,564Diluted
    
    
    14,129
    
    
    
    13,420
 GMRI
   63




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##### Table of Contents



Other receivable
    
    $
    250Goodwill
    
    
    2,509Intangible assets:Product backlog
    
    
    567Maintenance contracts
    
    
    143Trade names
    
    
    240Software licenses
    
    
    218Non-compete agreements
    
    
    20Total intangible assets
    
    
    1,188Furniture and equipment
    
    
    49Total assets acquired
    
    $
    3,996Liabilities:Accrued liabilities
    
    $
    633Net assets acquired
    
    $
    3,363
  5. Discontinued Operation
    December 31,2005Net sales
    
    $
    59,781Loss before income taxes
    
    $
    (3,252
    )Income tax benefit
    
    
    (1,005
    )Minority interest
    
    
    466Loss from discontinued operation, net of taxes
    
    $
    (1,781
    )
  64




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##### Table of Contents



6. Property and Equipment
  At December 31,2007
    
    
    2006Computers, software, machinery and equipment
    
    $
    33,794
    
    
    $
    29,352Leasehold improvements
    
    
    4,545
    
    
    
    4,867Furniture and fixtures
    
    
    3,753
    
    
    
    3,529Building and improvements
    
    
    1,725
    
    
    
    1,725Land
    
    
    912
    
    
    
    912Software development in progress
    
    
    496
    
    
    
    848Subtotal
    
    
    45,225
    
    
    
    41,233Less: Accumulated depreciation and amortization
    
    
    (36,267
    )
    
    
    (33,178
    )Property and equipment, net
    
    $
    8,958
    
    
    $
    8,055
  7. Goodwill and Intangible Assets
 Goodwill
  GoodwillBalance at December 31, 2005
    
    $
    1,405Acquisition of GMRI
    
    
    2,120Balance at December 31, 2006
    
    
    3,525Acquisition of SARCOM
    
    
    22,998Adjustment relating to GMRI purchase accounting
    
    
    389Balance at December 31, 2007
    
    $
    26,912
   65




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##### Table of Contents



Intangible Assets
  WeightedAverageEstimated
    
    
    At December 31, 2007
    
    
    At December 31, 2006Useful Lives
    
    
    Gross
    
    
    Accumulated
    
    
    Net
    
    
    Gross
    
    
    Accumulated
    
    
    Net(years)
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountPatent, trademarks & URLs
    
    
    7
    
    
    $
    6,118
    (1)
    
    $
    576
    
    
    $
    5,542
    
    
    $
    922
    
    
    $
    504
    
    
    $
    418Customer relationship
    
    
    5
    
    
    
    6,755
    
    
    
    888
    
    
    
    5,867
    
    
    
    555
    
    
    
    499
    
    
    
    55Product backlog
    
    Various (2)
    
    
    567
    
    
    
    567
    
    
    
    
    
    
    
    581
    
    
    
    422
    
    
    
    160Software licenses
    
    
    3
    
    
    
    218
    
    
    
    97
    
    
    
    121
    
    
    
    218
    
    
    
    24
    
    
    
    194Maintenance contracts
    
    Various (2)
    
    
    143
    
    
    
    127
    
    
    
    16
    
    
    
    143
    
    
    
    84
    
    
    
    59Non-compete agreements
    
    
    5
    
    
    
    608
    
    
    
    131
    
    
    
    477
    
    
    
    118
    
    
    
    80
    
    
    
    38Other
    
    
    5
    
    
    
    32
    
    
    
    31
    
    
    
    1
    
    
    
    32
    
    
    
    25
    
    
    
    7Total intangible assets
    
    
    
    
    
    $
    14,441
    
    
    $
    2,417
    
    
    $
    12,024
    
    
    $
    2,569
    
    
    $
    1,638
    
    
    $
    931
 
 (1)
    
    Included in the total amount for Patent, trademarks, & URLs at December 31, 2007 are $5.2
million of trademarks with indefinite useful lives acquired in the SARCOM acquisition that are
not amortized.(2)
    
    Amortization of these intangible assets, which relate to customer orders, is based on actual
shipments of goods or performance of service.   8. Line of Credit and Note Payable
     66




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##### Table of Contents



9. Income Taxes
  2007
    
    
    2006
    
    
    2005CurrentFederal
    
    $
    4,622
    
    
    $
    130
    
    
    $
    State
    
    
    1,069
    
    
    
    143
    
    
    
    37Total  Current
    
    
    5,691
    
    
    
    273
    
    
    
    37DeferredFederal
    
    
    1,984
    
    
    
    2,027
    
    
    
    (1,019
    )State
    
    
    145
    
    
    
    210
    
    
    
    (171
    )Foreign
    
    
    24
    
    
    
    12
    
    
    
    39Total  Deferred
    
    
    2,153
    
    
    
    2,249
    
    
    
    (1,151
    )Total income tax expense (benefit)
    
    $
    7,844
    
    
    $
    2,522
    
    
    $
    (1,114
    )
  2007
    
    
    2006
    
    
    2005Expected taxes at federal statutory tax rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State income taxes, net of federal income tax benefit
    
    
    5.0
    
    
    
    4.6
    
    
    
    4.8Non-deductible business expenses
    
    
    0.8
    
    
    
    1.5
    
    
    
    (3.1
    )Other
    
    
    (1.1
    )
    
    
    (1.2
    )
    
    
    0.9Total
    
    
    38.7
    %
    
    
    38.9
    %
    
    
    36.6
    %
  67




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##### Table of Contents



2007
    
    
    2006Accounts receivable
    
    $
    1,787
    
    
    $
    1,715Inventories
    
    
    831
    
    
    
    682Property and equipment
    
    
    1,948
    
    
    
    1,281Amortization
    
    
    (637
    )
    
    
    2,242Accrued expenses and reserves
    
    
    1,822
    
    
    
    2,347Tax credits and loss carryforwards
    
    
    1,642
    
    
    
    2,825Other
    
    
    247
    
    
    
    (48
    )Subtotal
    
    
    7,640
    
    
    
    11,044Valuation allowance
    
    
    (214
    )
    
    
    (202
    )Total
    
    $
    7,426
    
    
    $
    10,842
     Accounting for Income Taxes
  Accounting for Uncertainty in Income Taxes
   68




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##### Table of Contents



10. Commitments and Contingencies
 Commitments
  2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    Thereafter
    
    
    TotalOperating lease obligations
    
    $
    5,309
    
    
    $
    4,369
    
    
    $
    2,214
    
    
    $
    1,708
    
    
    $
    50
    
    
    $
    13
    
    
    $
    13,663Capital lease obligations
    
    
    112
    
    
    
    58
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185Other commitments
    
    
    4,518
    
    
    
    173
    
    
    
    45
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4,740Total minimum payments
    
    $
    9,939
    
    
    $
    4,600
    
    
    $
    2,274
    
    
    $
    1,712
    
    
    $
    50
    
    
    $
    13
    
    
    $
    18,588
  Legal Proceedings
 Zekiya Whitmill and Lee Hanzy v. PC Mall Gov, Inc.
  Lee Hanzy v. PC Mall, Inc. dba MACMALL, et al.
   69




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##### Table of Contents



11. Stockholders Equity
    12. Earnings (Loss) Per Common Share
   Income
    
    
    
    
    
    
    Per Share(Loss)
    
    
    Shares
    
    
    AmountsYear Ended December 31, 2007:Basic EPSNet income
    
    $
    12,443
    
    
    
    12,667
    
    
    $
    0.98Effect of dilutive securitiesDilutive effect of stock options and warrants
    
    
    
    
    
    
    1,100Diluted EPSAdjusted net income
    
    $
    12,443
    
    
    
    13,767
    
    
    $
    0.90Year Ended December 31, 2006:Basic EPSIncome from continuing operations
    
    $
    3,956
    
    
    
    12,052
    
    
    $
    0.33Effect of dilutive securitiesDilutive effect of stock options and warrants
    
    
    
    
    
    
    856Diluted EPSAdjusted income from continuing operations
    
    $
    3,956
    
    
    
    12,908
    
    
    $
    0.31Year Ended December 31, 2005:Basic EPSLoss from continuing operations
    
    $
    (1,932
    )
    
    
    11,652
    
    
    $
    (0.17
    )Effect of dilutive securitiesDilutive effect of stock options and warrants
    
    
    
    
    
    
    Diluted EPSAdjusted loss from continuing operations
    
    $
    (1,932
    )
    
    
    11,652
    
    
    $
    (0.17
    )
  70




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##### Table of Contents



13. Employee & Non-Employee Benefits
 401(k) Savings Plan
  Restricted Stock, Stock Warrants and Options Issued to Non-employees
    14. Comprehensive Income (Loss)
  Year Ended December 31,2007
    
    
    2006
    
    
    2005Net income (loss)
    
    $
    12,443
    
    
    $
    3,956
    
    
    $
    (3,713
    )Other comprehensive income (loss), before tax:Foreign currency translation adjustments
    
    
    1,311
    
    
    
    (33
    )
    
    
    76Income tax expense related to other comprehensive income
    
    
    (559
    )
    
    
    
    
    
    
    Total comprehensive income (loss)
    
    $
    13,195
    
    
    $
    3,923
    
    
    $
    (3,637
    )
  71




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##### Table of Contents



15. Segment Information
   Core business
    
    
    OnSale.com
    
    
    ConsolidatedYear Ended December 31, 2007Net sales
    
    $
    1,199,999
    
    
    $
    15,434
    
    
    $
    1,215,433Gross profit
    
    
    146,175
    
    
    
    1,663
    
    
    
    147,838Operating profit (loss)
    
    
    25,482
    
    
    
    (1,164
    )
    
    
    24,318Year Ended December 31, 2006Net sales
    
    $
    993,860
    
    
    $
    11,960
    
    
    $
    1,005,820Gross profit
    
    
    122,402
    
    
    
    1,516
    
    
    
    123,918Operating profit (loss)
    
    
    11,935
    
    
    
    (1,517
    )
    
    
    10,418Year Ended December 31, 2005Net sales
    
    $
    987,324
    
    
    $
    9,908
    
    
    $
    997,232Gross profit
    
    
    117,708
    
    
    
    859
    
    
    
    118,567Operating profit (loss)
    
    
    2,453
    
    
    
    (2,441
    )
    
    
    12
    At December 31,Location:
    
    2007
    
    
    2006
    
    
    2005United States
    
    $
    7,439
    
    
    $
    6,247
    
    
    $
    7,189Philippines
    
    
    1,240
    
    
    
    1,319
    
    
    
    395Canada
    
    
    279
    
    
    
    489
    
    
    
    832Property and equipment, net
    
    $
    8,958
    
    
    $
    8,055
    
    
    $
    8,416
 16. Related-Party Transactions
    72




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##### Table of Contents



Master Separation and Distribution Agreement
  Tax Allocation and Indemnification Agreement
  Administrative Services Agreement
  
    
    payroll administration;
    
    tax return preparation;
    
    human resources administration;
    
    product information management;
    
    catalog advertising production services; and
    
    accounting and finance services necessary for the preparation of eCOST.com
financial statement for the periods through the date of the distribution.
  Information Technology Systems Usage and Services Agreement
 ,
 Sublease Agreement
  17. Subsequent Event
    73




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##### Table of Contents



PC MALL, INC.
SUPPLEMENTARY DATA
 
 QUARTERLY FINANCIAL INFORMATION
 (unaudited, in thousands, except per share data)
 20071stQuarter
    
    
    2ndQuarter
    
    
    3rdQuarter(1)
    
    
    4thQuarter(1)Net sales
    
    $
    256,780
    
    
    $
    262,958
    
    
    $
    287,688
    
    
    $
    408,007Gross profit
    
    
    31,812
    
    
    
    33,932
    
    
    
    34,179
    
    
    
    47,915Net income
    
    
    1,868
    
    
    
    2,999
    
    
    
    2,978
    
    
    
    4,598Basic and diluted earnings per common share:Basic
    
    $
    0.15
    
    
    $
    0.24
    
    
    $
    0.24
    
    
    $
    0.34Diluted
    
    
    0.14
    
    
    
    0.22
    
    
    
    0.22
    
    
    
    0.32
 20061stQuarter
    
    
    2ndQuarter
    
    
    3rdQuarter(2)
    
    
    4thQuarter(2)Net sales
    
    $
    234,222
    
    
    $
    234,119
    
    
    $
    242,171
    
    
    $
    295,308Gross profit
    
    
    29,431
    
    
    
    28,992
    
    
    
    31,556
    
    
    
    33,939Net income (loss)
    
    
    (55
    )
    
    
    395
    
    
    
    1,908
    
    
    
    1,708Basic and diluted earnings (loss) per common share:Basic
    
    $
    (0.00
    )
    
    $
    0.03
    
    
    $
    0.16
    
    
    $
    0.14Diluted
    
    
    (0.00
    )
    
    
    0.03
    
    
    
    0.15
    
    
    
    0.13
 
 (1)
    
    Includes the results of SARCOM, which we acquired on September 17, 2007, from and after the
date of the acquisition.(2)
    
    Includes the results of GMRI, which we acquired on September 7, 2006, from and after the date
of the acquisition.  74




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL                 DISCLOSURE  
 ITEM 9A. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
  Report on Internal Control Over Financial Reporting
 Managements Report on Internal Control Over Financial Reporting
  
    
    pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of our
assets;
    
    provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of our management and directors; and
    
    provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of our assets that
could have a material effect on the financial statements.
    75




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##### Table of Contents



ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
     
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
   76




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##### Table of Contents



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  
 PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  Page Number(1) Financial Statements
    
    See Part II, Item 8, beginning on
page 49(2) Financial Statement Schedule II -
Valuation and Qualifying       Accounts for
the Years Ended December 31, 2007,
2006 and 2005
    
    See Part IV, Item 15, beginning on
page 78(3) Exhibits
    
    See Part IV, Item 15, beginning on
page 79
  77




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##### Table of Contents



PC MALL, INC.
 
 SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
 For the Years Ended December 31, 2007, 2006 and 2005
 (in thousands)
 Balance
    
    
    
    
    
    
    
    
    
    
    Balanceat
    
    
    Additions
    
    
    Deduction
    
    
    at EndBeginning
    
    
    Charged to
    
    
    from
    
    
    ofof Year
    
    
    Operations
    
    
    Reserves
    
    
    YearAllowance for doubtful accounts for the years ended:December 31, 2007
    
    $
    4,630
    
    
    $
    2,215
    
    
    $
    (2,192
    )(a)
    
    $
    4,653December 31, 2006
    
    
    4,774
    
    
    
    4,651
    
    
    
    (4,795
    )(a)
    
    
    4,630December 31, 2005
    
    
    2,846
    
    
    
    3,851
    
    
    
    (1,923
    )(a)
    
    
    4,774Reserve for inventory for the years ended:December 31, 2007
    
    $
    1,616
    
    
    $
    1,519
    
    
    $
    (1,455
    )(b)
    
    $
    1,680December 31, 2006
    
    
    2,202
    
    
    
    1,245
    
    
    
    (1,831
    )(b)
    
    
    1,616December 31, 2005
    
    
    2,022
    
    
    
    1,675
    
    
    
    (1,495
    )(b)
    
    
    2,202Sales returns reserve for the years ended:December 31, 2007
    
    $
    2,882
    
    
    $
    21,003
    
    
    $
    (21,807
    )(c)
    
    $
    2,078December 31, 2006
    
    
    3,355
    
    
    
    24,469
    
    
    
    (24,942
    )(c)
    
    
    2,882December 31, 2005
    
    
    3,415
    
    
    
    28,684
    
    
    
    (28,744
    )(c)
    
    
    3,355Valuation allowance for deferred tax assets for the
years ended:December 31, 2007
    
    $
    202
    
    
    $
    12
    
    
    $
    
    
    
    $
    214December 31, 2006
    
    
    
    
    
    
    202
    
    
    
    
    
    
    
    202December 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (a)
    
    Relates primarily to accounts written-off.(b)
    
    Relates primarily to excess and/or obsolete inventory written-off.(c)
    
    Relates to sales returns received and applied to sales returns reserve.  78




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EXHIBIT LIST
 ExhibitNumber
    
    Description2.1
    
    Agreement and Plan of Merger, dated as of August 17, 2007, by and among PC Mall, Inc., Mall
Acquisition 2, Inc., SARCOM, Inc., Zohar CDO 2003-1, Limited, Zohar II 2005-1, Limited, Charles E.
Sweet, Robert F. Angart & Company, John R. Strauss, Daniel A. Schneider and Howard Schapiro
(incorporated herein by reference to Exhibit 2.1 to the Current Report on Form 8-K of PC Mall, Inc.
(File no. 0-25790) filed with the Securities and Exchange Commission (the Commission) on September
18, 2007)3.1
    
    Amended and Restated Certificate of Incorporation of PC Mall, Inc. (incorporated herein by reference
to Exhibit 3.1(C) to the Quarterly Report on Form 10-Q of PC Mall, Inc. for the quarter ended
September 30, 2003 (File No. 0-25790) filed with the Commission on November 14, 2002)3.2
    
    Amended and Restated Bylaws of PC Mall, Inc. (incorporated herein by reference to Exhibit 3.2 to the
Annual Report on Form 10-K of PC Mall, Inc. for the year ended December 31, 2000 (File No. 0-25790)
filed with the Commission on April 2, 2001 (the 2000 Form 10-K))10.1*
    
    Amended and Restated 1994 Stock Incentive Plan (amended as of June 19, 2002) (incorporated herein by
reference to Annex A to the Definitive Proxy Statement of PC Mall, Inc. (File No. 0-25790) filed
with the Commission on June 24, 2002)10.2*
    
    Employment Agreement, dated January 1, 1995, between Creative Computers, Inc. and Frank F. Khulusi
(incorporated herein by reference to the Registration Statement on Form S-1 of PC Mall, Inc. (File
No. 33-89572), declared effective on April 4, 1995 (the 1995 Form S-1))10.3*
    
    Amendment to Employment Agreement made and entered into as of December 28, 2005, by and between PC
Mall, Inc. and Frank F. Khulusi (incorporated herein by reference to Exhibit 10.32 to the Annual
Report on Form 10-K of PC Mall, Inc. for the year ended December 31, 2005 (File No. 0-25790) filed
with the Commission on March 31, 2006 (the December 31, 2005 Form 10-K))10.4*
    
    Second Amendment to Employment Agreement made and entered into as of December 28, 2005, by and
between PC Mall, Inc. and Frank F. Khulusi (incorporated herein by reference to Exhibit 10.33 to the
December 31, 2005 Form 10-K)10.5*
    
    Employment Agreement, dated January 20, 2000, between PC Mall, Inc. and Kristin M. Rogers
(incorporated herein by reference to Exhibit 10.45 to the Annual Report on Form 10-K of PC Mall,
Inc., for the year ended December 31, 2001 (File No. 0-25790) filed with the Commission on April 1,
2002)10.6*
    
    Employment Agreement, dated January 1, 1994, between Creative Computers, Inc. and Daniel J. DeVries
(incorporated herein by reference to the 1995 Form S-1)10.7*
    
    Severance Agreement, dated January 31, 2006, between PC Mall Inc. and Daniel J. DeVries
(incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of PC Mall, Inc.
(File No. 0-25790) filed with the Commission on February 3, 2006)10.8*
    
    Employment Agreement, dated June 8, 2004, between PC Mall, Inc. and Rob Newton (incorporated herein
by reference to Exhibit 10.54 to the Quarterly Report on Form 10-Q of PC Mall, Inc. for the quarter
ended June 30, 2004 (File No. 0-25790) filed with the Commission on August 11, 2004 (the June 30,
2004 Form 10-Q))10.9*
    
    Amendment to Employment Agreement, dated March 22, 2005, between PC Mall, Inc. and Rob Newton
(incorporated herein by reference to Exhibit 10.2 to the Current Report on form 8-K of PC Mall, Inc.
(File No. 0-25790) filed with the commission on March 25, 2005)10.10*
    
    Severance Agreement between AF Services, LLC and Brandon LaVerne (incorporated herein by reference
to Exhibit 10.4 to the Quarterly Report on Form 10-Q of PC Mall, Inc. for the quarter ended
September 30, 2007 (File No. 0-25790) filed with the Commission on November 14, 2007 (the September
30, 2007 Form 10-Q))10.11*
    
    Form of Executive Non-Qualified Stock Option Agreement (full acceleration upon change in control)
(incorporated herein by reference to Exhibit 10.61 to the Quarterly Report on Form 10-Q of PC Mall,
Inc. for the quarter ended September 30, 2004 (File No. 0-25790) filed with the Commission on
November 15, 2004 (the September 30, 2004 Form 10-Q))10.12*
    
    Form of Executive Non-Qualified Stock Option Agreement (partial acceleration upon change in control)
(incorporated herein by reference to Exhibit 10.62 to the September 30, 2004 Form 10-Q)
  79




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##### Table of Contents



ExhibitNumber
    
    Description10.13*
    
    Directors Non-Qualified Stock Option Plan, amended and restated as of May 18, 1999 (incorporated
herein by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of PC Mall, Inc. for the
quarter ended June 30, 1999 (File No. 0-25790) filed with the Commission on August 16, 1999)10.14*
    
    Form of Indemnification Agreement between PC Mall, Inc. and each of its directors and executive
officers (incorporated herein by reference to Exhibit 10.48 to the Annual Report on Form 10-K of PC
Mall, Inc. for the year ended December 31, 2002 (File No. 0-25790) filed with the Commission on
March 31, 2003)10.15*
    
    Form of Director Restricted Stock Bonus Award Agreement (incorporated herein by reference to Exhibit
10.3 to the September 30, 2007 Form 10-Q)10.16
    
    Master Separation and Distribution Agreement, dated September 1, 2004, between PC Mall, Inc. and
eCOST.com, Inc. (incorporated herein by reference to Exhibit 10.56 to the Current Report on Form 8-K
of PC Mall, Inc. (File No. 0-25790) filed with the Commission on September 8, 2004 (the September
8, 2004 Form 8-K))10.17
    
    Tax Allocation and Indemnification Agreement, dated September 1, 2004, between PC Mall, Inc. and
eCOST.com, Inc. (incorporated herein by reference to Exhibit 10.57 to the September 8, 2004 Form
8-K)10.18
    
    Employee Benefit Matters Agreement, dated September 1, 2004, between PC Mall, Inc. and eCOST.com,
Inc. (incorporated herein by reference to Exhibit 10.58 to the September 8, 2004 Form 8-K)10.19
    
    Office Lease by and between St. Paul Properties, Inc., as Landlord, and PC Mall, Inc., as Tenant
(incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of PC Mall, Inc.
(File No. 0-25790) filed with the Commission on June 21, 2007)10.20
    
    Lease Agreement, dated September 1, 2003, between PC Mall, Inc. and Anderson Tully Company for the
premises located at 4715 E. Shelby Drive, Memphis, TN (incorporated herein by reference to Exhibit
10.63 to the Annual Report on Form 10-K of PC Mall, Inc. for the year ended December 31, 2004 (File
No. 0-25790) filed with the Commission on March 31, 2005 (the December 31, 2004 Form 10-K))10.21
    
    Renewal Letter for lease of property in Memphis, Tennessee, entered into on October 2, 2006
(incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of PC Mall, Inc.
(File No. 0-25790) filed with the Commission on October 6, 2006)10.22
    
    Lease Agreement, dated June 11, 2003, among PC Mall, Inc., PC Mall Canada, Inc. and Canaprev, Inc.
for the premises located at 1100, University, 2nd Floor, Montreal (Quebec) Canada (incorporated
herein by reference to Exhibit 10.64 to the December 31, 2004 Form 10-K)10.23
    
    Addendum to Lease Agreement, dated January 26, 2004, between PC Mall, Inc., PC Mall Canada, Inc. and
Canaprev, Inc. for premises located at 1100 University, Montreal, Quebec, Canada, dated January 26,
2004 (incorporated herein by reference to Exhibit 10.70 to the December 31, 2004 Form 10-K)10.24
    
    Lease Agreement, dated as of July 1, 2001, by and between Sarcom Properties, Inc. and Sarcom Desktop
Solutions, Inc., as amended as of December 1, 2002 and as of March 22, 2004 (incorporated herein by
reference to Exhibit 10.8 to the September 30, 2007 Form 10-Q)10.25
    
    Addendum No. 2, by and between Complexe Rue Universite S.E.C., PC Mall Canada, Inc. and PC Mall,
Inc., dated January 10, 2008 (incorporated herein by reference to Exhibit 10.1 to the Current Report
on Form 8-K of PC Mall, Inc. (File No. 0-25790) filed with the Commission on January 15, 2008)10.26
    
    Amended and Restated Loan and Security Agreement, dated as of August 1, 2005, by and among PC Mall,
Inc., certain subsidiaries of PC Mall, Inc., Wachovia Capital Finance Corporation (Western) and
certain other financial institutions (incorporated herein by reference to Exhibit 10.1 to the
Current Report on Form 8-K of PC Mall, Inc. (File No. 0-25790) filed with the Commission on
September 8, 2005)10.27
    
    Second Amendment to Amended and Restated Loan and Security Agreement, dated as of June 11, 2007, by
and among the Registrant, certain subsidiaries of the Registrant, Wachovia Capital Finance
Corporation (Western) and certain other financial institutions (incorporated herein by reference to
Exhibit 10.1 to the Current Report on Form 8-K of PC Mall, Inc. (File No. 0-25790) filed with the
Commission on June 15, 2007)10.28
    
    Third Amendment to Amended and Restated Loan and Security Agreement, dated as of September 17, 2007,
by and among PC Mall, Inc., certain subsidiaries of PC Mall, Inc., Wachovia Capital Finance
Corporation (Western) and certain other financial institutions (incorporated by reference to Exhibit
10.1 to the Current Report on Form 8-K of PC Mall, Inc. (File No. 0-25790) filed with the Commission
on September 18, 2007)
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##### Table of Contents



ExhibitNumber
    
    Description10.29
    
    Fourth Amendment to Amended and Restated Loan and Security Agreement, dated as of November 5, 2007,
by and among PC Mall, Inc, certain of its subsidiaries, Wachovia Capital Finance Corporation
(Western) and certain other financial institutions (incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K of PC Mall, Inc. (File No. 0-25790) filed with the Commission on November
6, 2007)10.30
    
    Asset Purchase Agreement, dated as of September 7, 2006, by and among a wholly-owned subsidiary of
PC Mall Gov, Inc. GMRI and the shareholders of GMRI (incorporated herein by reference to Exhibit
10.1 to the Current Report on Form 8-K of PC Mall, Inc. (File No. 0-25790) filed with the Commission
on September 12, 2006)10.31
    
    Joint Stipulation of Settlement and Release made and entered into by and between Plaintiff Nicole
Atkins, Class Representative and Defendants PC Mall, Inc. and PC Mall Sales, Inc. (incorporated
herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of PC Mall, Inc. (File No.
0-25790) for the period ended March 31, 2007 filed with the Commission on May 15, 200710.32
    
    Registration Rights Agreement, dated as of September 17, 2007, by and among PC Mall, Inc., Zohar CDO
2003-1, Limited, Zohar II 2005-1, Limited, Charles E. Sweet, Robert F. Angart & Company, John R.
Strauss, Daniel A. Schneider and Howard Schapiro (incorporated by reference to Exhibit 10.2 to the
Current Report on Form 8-K of PC Mall, Inc. (File No. 0-25790) filed with the Commission on
September 18, 2007)10.33*
    
    Summary of Executive Bonus Plan (incorporated herein by reference to Exhibit 10.68 to the December
31, 2004 Form 10-K)10.34*
    
    Summary of Executive Salary and Bonus Arrangements10.35*
    
    Summary of Director Compensation Arrangements21.1
    
    Subsidiaries of PC Mall, Inc. as of December 31, 200723.1
    
    Consent of PricewaterhouseCoopers LLP31.1
    
    Certification of the Chief Executive Officer of PC Mall, Inc. pursuant to Exchange Act Rule 13a-14(a)31.2
    
    Certification of the Chief Financial Officer of PC Mall, Inc. pursuant to Exchange Act Rule 13a-14(a)32.1
    
    Certification of the Chief Executive Officer of PC Mall, Inc. pursuant to 18 U.S.C. 1350, as adopted
by Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of the Chief Financial Officer of PC Mall, Inc. pursuant to 18 U.S.C. 1350, as adopted
by Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Management contract, or compensatory plan or arrangement. ***
  81




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##### Table of Contents



SIGNATURES
  PC MALL, INC.
(Registrant)Date: March 17, 2008
    By:
    /s/ FRANK F. KHULUSIFrank F. KhulusiChief Executive Officer POWER OF ATTORNEY
   Signature
    
    
    
    Title
    
    
    
    Date/s/ FRANK F. KHULUSI

Frank F. Khulusi
    
    
    
    Chairman, Chief Executive
Officer and President
(Principal Executive Officer)
    
    
    
    March 17, 2008/s/ BRANDON H. LAVERNE

Brandon H. LaVerne
    
    
    
    Interim Chief Financial Officer, Chief Accounting Officer
and Treasurer (Principal
Financial and Accounting
Officer)
    
    
    
    March 17, 2008/s/ THOMAS A. MALOOF

Thomas A. Maloof
    
    
    
    Director
    
    
    
    March 17, 2008/s/ RONALD B. RECK

Ronald B. Reck
    
    
    
    Director
    
    
    
    March 17, 2008/s/ PAUL C. HEESCHEN

Paul C. Heeschen
    
    
    
    Director
    
    
    
    March 17, 2008
   82




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description10.34*
    
    Summary of Executive Salary and Bonus Arrangements10.35*
    
    Summary of Director Compensation Arrangements21.1
    
    Subsidiaries of PC Mall, Inc. as of December 31, 200723.1
    
    Consent of PricewaterhouseCoopers LLP31.1
    
    Certification of the Chief Executive Officer of PC Mall, Inc. pursuant to Exchange Act Rule 13a-14(a)31.2
    
    Certification of the Chief Financial Officer of PC Mall, Inc. pursuant to Exchange Act Rule 13a-14(a)32.1
    
    Certification of the Chief Executive Officer of PC Mall, Inc. pursuant to 18 U.S.C. 1350, as adopted
by Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of the Chief Financial Officer of PC Mall, Inc. pursuant to 18 U.S.C. 1350, as adopted
by Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Management contract, or compensatory plan or arrangement. ***