##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
   o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
  PC MALL, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
(State or other jurisdiction of 
incorporation or organization)
    

95-4518700
(I.R.S. Employer
Identification Number)
 2555 West 190th Street, Suite 201
Torrance, CA 90504(Address of principal executive
offices)
 (310) 354-5600(Registrants telephone number,
including area code)
  x o
  o o x
  o x




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##### 



PC MALL, INC.
 TABLE OF CONTENTS
 PagePART
I - FINANCIAL INFORMATION (unaudited)Item 1. Financial StatementsConsolidated Balance Sheets as of June 30, 2007 and December 31, 2006
    
    
    2Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2007 and
June 30, 2006
    
    
    3Consolidated Statement of Stockholders Equity for the Six Months Ended June 30, 2007
    
    
    4Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2007 and June 30, 2006
    
    
    5Notes to the Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4T. Controls and Procedures
    
    
    25PART
II - OTHER INFORMATION (unaudited)Item 1. Legal Proceedings
    
    
    26Item 1A. Risk Factors
    
    
    27Item 6. Exhibits
    
    
    40Signature
    
    
    41
  1




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##### Table of Contents



PC MALL, INC.
 
 PART
I - FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 CONSOLIDATED BALANCE SHEETS
 (unaudited, in thousands, except per share amounts and share data)
 June 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    4,812
    
    
    $
    5,836Accounts receivable, net of allowances of $4,225 and $4,630
    
    
    119,613
    
    
    
    114,184Inventories, net
    
    
    50,601
    
    
    
    51,268Prepaid expenses and other current assets
    
    
    11,238
    
    
    
    8,497Deferred income taxes
    
    
    4,577
    
    
    
    4,594Total current assets
    
    
    190,841
    
    
    
    184,379Property and equipment, net
    
    
    7,193
    
    
    
    8,055Deferred income taxes
    
    
    3,013
    
    
    
    6,248Goodwill
    
    
    3,914
    
    
    
    3,525Intangible assets, net
    
    
    669
    
    
    
    931Other assets
    
    
    729
    
    
    
    429Total assets
    
    $
    206,359
    
    
    $
    203,567LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    93,516
    
    
    $
    75,837Accrued expenses and other current liabilities
    
    
    22,351
    
    
    
    20,215Deferred revenue
    
    
    10,565
    
    
    
    11,964Line of credit
    
    
    8,329
    
    
    
    32,477Note payable
- current
    
    
    600
    
    
    
    500Total current liabilities
    
    
    135,361
    
    
    
    140,993Note payable
    
    
    3,600
    
    
    
    1,750Total liabilities
    
    
    138,961
    
    
    
    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; 12,757,110 and 12,648,720 shares issued; and
12,462,910 and 12,354,520 shares outstanding, respectively
    
    
    13
    
    
    
    13Additional paid-in capital
    
    
    88,429
    
    
    
    87,465Treasury stock, at cost: 294,200 shares
    
    
    (1,015
    )
    
    
    (1,015
    )Accumulated other comprehensive income
    
    
    984
    
    
    
    241Accumulated deficit
    
    
    (21,013
    )
    
    
    (25,880
    )Total stockholders equity
    
    
    67,398
    
    
    
    60,824Total liabilities and stockholders equity
    
    $
    206,359
    
    
    $
    203,567
  2




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PC MALL, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited, in thousands, except per share amounts)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
2006
    
    
2007
    
    
2006Net sales
    
    $
    262,958
    
    
    $
    234,119
    
    
    $
    519,738
    
    
    $
    468,341Cost of goods sold
    
    
    229,026
    
    
    
    205,127
    
    
    
    453,994
    
    
    
    409,918Gross profit
    
    
    33,932
    
    
    
    28,992
    
    
    
    65,744
    
    
    
    58,423Selling, general and administrative expenses
    
    
    28,130
    
    
    
    27,366
    
    
    
    55,902
    
    
    
    55,859Operating profit
    
    
    5,802
    
    
    
    1,626
    
    
    
    9,842
    
    
    
    2,564Interest expense, net
    
    
    803
    
    
    
    971
    
    
    
    1,730
    
    
    
    2,000Income before income taxes
    
    
    4,999
    
    
    
    655
    
    
    
    8,112
    
    
    
    564Income tax expense
    
    
    2,000
    
    
    
    260
    
    
    
    3,245
    
    
    
    224Net income
    
    $
    2,999
    
    
    $
    395
    
    
    $
    4,867
    
    
    $
    340Basic and Diluted Earnings Per Common ShareBasic
    
    $
    0.24
    
    
    $
    0.03
    
    
    $
    0.39
    
    
    $
    0.03Diluted
    
    
    0.22
    
    
    
    0.03
    
    
    
    0.36
    
    
    
    0.03Weighted average number of common shares outstanding:Basic
    
    
    12,431
    
    
    
    11,990
    
    
    
    12,407
    
    
    
    11,861Diluted
    
    
    13,532
    
    
    
    12,832
    
    
    
    13,543
    
    
    
    12,807
  3




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PC MALL, INC.
 
 CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
 (unaudited, in thousands)
 Common Stock
    
    
    
    
    
    
    
    
    
    
    AccumulatedAdditional
    
    
    
    
    
    
    OtherPaid-in-
    
    
    Treasury
    
    
    Comprehensive
    
    AccumulatedOutstanding
    
    
    Amount
    
    
    Capital
    
    
    Stock
    
    
    Income
    
    Deficit
    
    
    TotalBalance at December 31, 2006
    
    
    12,354
    
    
    $
    13
    
    
    $
    87,465
    
    
    $
    (1,015
    )
    
    
    $         241
    
    
    $
    (25,880
    )
    
    $
    60,824Stock option exercises
    
    
    109
    
    
    
    
    
    
    
    292
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    292Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    672
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    672Subtotal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,788Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,867
    
    
    
    4,867Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    743
    
    
    
    
    
    
    
    743Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,610Balance at June 30, 2007
    
    
    12,463
    
    
    $
    13
    
    
    $
    88,429
    
    
    $
    (1,015
    )
    
    
    $         984
    
    
    $
    (21,013
    )
    
    $
    67,398
  4




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PC MALL, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited, in thousands)
 Six Months EndedJune 30,2007
    
    
    2006Cash Flows From Operating ActivitiesNet income
    
    $
    4,867
    
    
    $
    340Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    1,970
    
    
    
    1,938Provision for deferred income taxes
    
    
    3,245
    
    
    
    224Stock-based compensation
    
    
    672
    
    
    
    805Loss on disposal of fixed assets
    
    
    49
    
    
    
    Change in operating assets and liabilities:Accounts receivable
    
    
    (5,179
    )
    
    
    (9,154
    )Inventories
    
    
    667
    
    
    
    24,153Prepaid expenses and other current assets
    
    
    (2,741
    )
    
    
    (1,232
    )Other assets
    
    
    (293
    )
    
    
    (1
    )Accounts payable
    
    
    (832
    )
    
    
    875Accrued expenses and other current liabilities
    
    
    1,511
    
    
    
    (4,453
    )Deferred revenue
    
    
    (1,399
    )
    
    
    (703
    )Total adjustments
    
    
    (2,330
    )
    
    
    12,452Net cash provided by operating activities
    
    
    2,537
    
    
    
    12,792Cash Flows From Investing ActivitiesPurchases of property and equipment
    
    
    (909
    )
    
    
    (1,968
    )Net cash used in investing activities
    
    
    (909
    )
    
    
    (1,968
    )Cash Flows From Financing ActivitiesBorrowings (repayments) under note payable
    
    
    1,950
    
    
    
    (250
    )Net payments under line of credit
    
    
    (24,148
    )
    
    
    (12,214
    )Change in book overdraft
    
    
    18,511
    
    
    
    (674
    )Proceeds from stock issued under stock option plans
    
    
    292
    
    
    
    499Net cash used in financing activities
    
    
    (3,395
    )
    
    
    (12,639
    )Effect of foreign currency on cash flow
    
    
    743
    
    
    
    237Net decrease in cash and cash equivalents
    
    
    (1,024
    )
    
    
    (1,578
    )Cash and cash equivalents at beginning of the period
    
    
    5,836
    
    
    
    6,289Cash and cash equivalents at end of the period
    
    $
    4,812
    
    
    $
    4,711Supplemental Cash Flow InformationInterest paid
    
    $
    1,827
    
    
    $
    1,931Income taxes paid
    
    
    781
    
    
    
    67Supplemental Non-Cash Investing ActivityGoodwill related to acquisition of GMRIs products business (Note 3)
    
    $
    389
    
    
    $
    
  5




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PC MALL, INC.
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 1. Basis of Presentation
   2. Summary of Significant Accounting Policies
 Income Taxes
  Stock-Based Compensation
   6




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Recent Accounting Pronouncements
    3. GMRI Acquisition
   7




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##### Table of Contents



Other receivable
    
    $
    250Goodwill
    
    $
    2,509Intangible assets:Product backlog
    
    $
    567Maintenance contracts
    
    
    143Tradenames
    
    
    240Software licenses
    
    
    218Non-compete agreements
    
    
    20Total intangible assets
    
    $
    1,188Furniture and equipment
    
    $
    49Total assets acquired
    
    $
    3,996Liabilities:Accrued liabilities
    
    $
    633Net assets acquired
    
    $
    3,363
   4. Goodwill and Intangible Assets
 Goodwill
  GoodwillBalance at December 31, 2006
    
    $
    3,525Adjustment relating to purchase accounting
    
    
    389Balance at June 30, 2007
    
    $
    3,914
 8




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Intangible Assets
  Weighted
    
    
    At June 30, 2007
    
    
    At December 31, 2006AverageEstimatedUseful Lives
    
    
    Gross
    
    
    Accumulated
    
    
    Net
    
    
    Gross
    
    
    Accumulated
    
    
    Net(years)
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountPatent,
trademark & URLs
    
    
    7
    
    
    $
    918
    
    
    $
    539
    
    
    $
    379
    
    
    $
    922
    
    
    $
    504
    
    
    $
    418Customer
relationship
    
    
    5
    
    
    
    555
    
    
    
    555
    
    
    
    
    
    
    
    555
    
    
    
    499
    
    
    
    55Product backlog
    
    Various (1)
    
    
    567
    
    
    
    489
    
    
    
    78
    
    
    
    581
    
    
    
    422
    
    
    
    160Software licenses
    
    
    3
    
    
    
    218
    
    
    
    61
    
    
    
    157
    
    
    
    218
    
    
    
    24
    
    
    
    194Maintenance
contracts
    
    Various (1)
    
    
    143
    
    
    
    119
    
    
    
    24
    
    
    
    143
    
    
    
    84
    
    
    
    59Non-compete
agreements
    
    
    5
    
    
    
    118
    
    
    
    91
    
    
    
    27
    
    
    
    118
    
    
    
    80
    
    
    
    38Other
    
    
    5
    
    
    
    32
    
    
    
    28
    
    
    
    4
    
    
    
    32
    
    
    
    25
    
    
    
    7Total intangible
assets
    
    
    
    
    
    $
    2,551
    
    
    $
    1,882
    
    
    $
    669
    
    
    $
    2,569
    
    
    $
    1,638
    
    
    $
    931
 
 (1)
    
    Amortization of these intangible assets which relate to customer orders is based on actual
shipments of goods or performance of service.   5. Debt
    9




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6. Income Taxes
   7. Earnings (Loss) Per Share
   Per ShareIncome
    
    
    Shares
    
    
    AmountsThree Months Ended June 30, 2007:Basic EPSNet income
    
    $
    2,999
    
    
    
    12,431
    
    
    $
    0.24Effect of dilutive securitiesDilutive effect of stock options and warrants
    
    
    
    
    
    
    1,101Diluted EPSAdjusted net income
    
    $
    2,999
    
    
    
    13,532
    
    
    $
    0.22Three Months Ended June 30, 2006:Basic EPSNet income
    
    $
    395
    
    
    
    11,990
    
    
    $
    0.03Effect of dilutive securitiesDilutive effect of stock options and warrants
    
    
    
    
    
    
    842Diluted EPSAdjusted net income
    
    $
    395
    
    
    
    12,832
    
    
    $
    0.03Six Months Ended June 30, 2007:Basic EPSNet income
    
    $
    4,867
    
    
    
    12,407
    
    
    $
    0.39Effect of dilutive securitiesDilutive effect of stock options and warrants
    
    
    
    
    
    
    1,136Diluted EPSAdjusted net income
    
    $
    4,867
    
    
    
    13,543
    
    
    $
    0.36
 10




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Per ShareIncome
    
    
    Shares
    
    
    AmountsSix Months Ended June 30, 2006:Basic EPSNet income
    
    $
    340
    
    
    
    11,861
    
    
    $
    0.03Effect of dilutive securitiesDilutive effect of stock options and warrants
    
    
    
    
    
    
    Diluted EPSAdjusted net income
    
    $
    340
    
    
    
    12,807
    
    
    $
    0.03
 8. Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    2,999
    
    
    $
    395
    
    
    $
    4,867
    
    
    $
    340Other comprehensive income:Foreign currency translation adjustments
    
    
    686
    
    
    
    270
    
    
    
    743
    
    
    
    234Total comprehensive income
    
    $
    3,685
    
    
    $
    665
    
    
    $
    5,610
    
    
    $
    574
 9. Segment Information
   Three Months Ended June 30, 2007
    
    Core business
    
    
    OnSale.com
    
    
    ConsolidatedNet sales
    
    $
    259,967
    
    
    $
    2,991
    
    
    $
    262,958Gross profit
    
    
    33,541
    
    
    
    391
    
    
    
    33,932Operating profit (loss)
    
    
    6,003
    
    
    
    (201
    )
    
    
    5,802Three Months Ended June 30, 2006Net sales
    
    $
    231,123
    
    
    $
    2,996
    
    
    $
    234,119Gross profit
    
    
    28,434
    
    
    
    558
    
    
    
    28,992Operating profit (loss)
    
    
    1,793
    
    
    
    (167
    )
    
    
    1,626Six Months Ended June 30, 2007Net sales
    
    $
    514,045
    
    
    $
    5,693
    
    
    $
    519,738Gross profit
    
    
    65,076
    
    
    
    668
    
    
    
    65,744Operating profit (loss)
    
    
    10,408
    
    
    
    (566
    )
    
    
    9,842Six Months Ended June 30, 2006Net sales
    
    $
    460,507
    
    
    $
    7,834
    
    
    $
    468,341Gross profit
    
    
    57,487
    
    
    
    936
    
    
    
    58,423Operating loss
    
    
    3,404
    
    
    
    (840
    )
    
    
    2,564
 11




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10. Commitments and Contingencies
   Legal Proceedings
  Nicole Atkins, et al. v. PC
Mall, Inc., et al.
    12




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13




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ITEM 2. 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
included elsewhere in this report, our Annual Report on Form 10-K for the year ended December 31,
2006 filed with the SEC on March 12, 2007, as amended on April 30, 2007, our Quarterly Report on
Form 10-Q for the quarter ended March 31, 2007 filed with the SEC on May 15, 2007, and all of our
other periodic filings, including Current Reports on Form 8-K , filed with the SEC after such date
and through the date of 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
Forward-Looking Statements below and under Risk Factors in Item 1A of Part II, and elsewhere in
this report.
 BUSINESS OVERVIEW
      CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  14




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
    
    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.
    Allowance for Doubtful Accounts Receivable.
 Reserve for Inventory Obsolescence.
 Mail-In Rebate Redemption Rate Estimates.
 15




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Advertising Costs and Vendor Consideration.
  Stock-Based Compensation.
  16




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RESULTS OF OPERATIONS
 Consolidated Statements of Operations Data
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    262,958
    
    
    $
    234,119
    
    
    $
    519,738
    
    
    $
    468,341Cost of goods sold
    
    
    229,026
    
    
    
    205,127
    
    
    
    453,994
    
    
    
    409,918Gross profit
    
    
    33,932
    
    
    
    28,992
    
    
    
    65,744
    
    
    
    58,423Selling, general and administrative expenses
    
    
    28,130
    
    
    
    27,366
    
    
    
    55,902
    
    
    
    55,859Operating profit
    
    
    5,802
    
    
    
    1,626
    
    
    
    9,842
    
    
    
    2,564Interest expense, net
    
    
    803
    
    
    
    971
    
    
    
    1,730
    
    
    
    2,000Income before income taxes
    
    
    4,999
    
    
    
    655
    
    
    
    8,112
    
    
    
    564Income tax expense
    
    
    2,000
    
    
    
    260
    
    
    
    3,245
    
    
    
    224Net income
    
    $
    2,999
    
    
    $
    395
    
    
    $
    4,867
    
    
    $
    340
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    87.1
    
    
    
    87.6
    
    
    
    87.4
    
    
    
    87.5Gross profit
    
    
    12.9
    
    
    
    12.4
    
    
    
    12.6
    
    
    
    12.5Selling, general and administrative expenses
    
    
    10.7
    
    
    
    11.7
    
    
    
    10.8
    
    
    
    11.9Operating profit
    
    
    2.2
    
    
    
    0.7
    
    
    
    1.8
    
    
    
    0.6Interest expense, net
    
    
    0.3
    
    
    
    0.4
    
    
    
    0.3
    
    
    
    0.4Income before income taxes
    
    
    1.9
    
    
    
    0.3
    
    
    
    1.5
    
    
    
    0.2Income tax expense
    
    
    0.8
    
    
    
    0.1
    
    
    
    0.6
    
    
    
    0.1Net income (loss)
    
    
    1.1
    %
    
    
    0.2
    %
    
    
    0.9
    %
    
    
    0.1
    %
 Selected Other Operating Data
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Commercial and public sector sales percentage
    
    
    81.0
    %
    
    
    80.2
    %
    
    
    80.4
    %
    
    
    78.1
    %Consumer sales percentage (includes OnSale.com)
    
    
    19.0
    %
    
    
    19.8
    %
    
    
    19.6
    %
    
    
    21.9
    %Commercial and public sector account executives (at end of period)
    
    
    574
    
    
    
    566
    
    
    
    574
    
    
    
    566
 17




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Three Months Ended June 30, 2007 Compared to the Three Months Ended June 30, 2006
 Net Sales.
 Three Months EndedJune 30,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %Core business
    
    $
    259,967
    
    
    $
    231,123
    
    
    $
    28,844
    
    
    
    12.5%OnSale.com
    
    
    2,991
    
    
    
    2,996
    
    
    
    (5
    )
    
    NMF
    (1)Total net sales
    
    $
    262,958
    
    
    $
    234,119
    
    
    $
    28,839
    
    
    
    12.3%
 (1)
    
    Not meaningful.     Gross Profit and Gross Profit Margin.
 Three Months EndedJune 30,2007
    
    
    2006
    
    
    ChangeGross Profit
    
    
    
    
    
    
    Gross ProfitGross Profit
    
    
    Margin
    
    
    Gross Profit
    
    
    Margin
    
    
    $
    
    
    MarginCore business
    
    $
    33,541
    
    
    
    12.9%
    
    
    $
    28,434
    
    
    
    12.3%
    
    
    $
    5,107
    
    
    
    0.6
    %OnSale.com
    
    
    391
    
    
    
    13.1%
    
    
    
    558
    
    
    
    18.6%
    
    
    
    (167
    )
    
    
    (5.6
    )%Total gross profit and gross profit margin
    
    $
    33,932
    
    
    
    12.9%
    
    
    $
    28,992
    
    
    
    12.4%
    
    
    $
    4,940
    
    
    
    0.5
    %
    18




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##### Table of Contents



Selling, General and Administrative Expenses.
 Three Months EndedJune 30,2007
    
    
    2006
    
    
    ChangeSG&A as a
    
    
    
    
    
    
    SG&A as a
    
    
    
    
    
    
    
    
    
    
    SG&A as aSG&A
    
    
    % of Sales
    
    
    SG&A
    
    
    % of Sales
    
    
    $
    
    
    %
    
    
    % of SalesCore business
    
    $
    27,538
    
    
    
    10.6%
    
    
    $
    26,642
    
    
    
    11.5%
    
    
    $
    896
    
    
    
    3.4
    %
    
    
    (0.9)%OnSale.com
    
    
    592
    
    
    
    19.8%
    
    
    
    724
    
    
    
    24.2%
    
    
    
    (132
    )
    
    
    (18.2
    )%
    
    
    (4.4)%Total SG&A expenses
    
    $
    28,130
    
    
    
    10.7%
    
    
    $
    27,366
    
    
    
    11.7%
    
    
    $
    764
    
    
    
    2.8
    %
    
    
    (1.0)%
     Net Interest Expense.
 Income Tax Expense.
 19




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Six Months Ended June 30, 2007 Compared to the Six Months Ended June 30, 2006
 Net Sales.
 Six Months EndedJune 30,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %Core business
    
    $
    514,045
    
    
    $
    460,507
    
    
    $
    53,538
    
    
    
    11.6%OnSale.com
    
    
    5,693
    
    
    
    7,834
    
    
    
    (2,141
    )
    
    NMF
    (1)Total net sales
    
    $
    519,738
    
    
    $
    468,341
    
    
    $
    51,397
    
    
    
    11.0%
 (1)
    
    Not meaningful.     Gross Profit and Gross Profit Margin.
 Six Months EndedJune 30,2007
    
    
    2006
    
    
    ChangeGross Profit
    
    
    
    
    
    
    Gross ProfitGross Profit
    
    
    Margin
    
    
    Gross Profit
    
    
    Margin
    
    
    $
    
    
    MarginCore business
    
    $
    65,076
    
    
    
    12.7
    %
    
    $
    57,487
    
    
    
    12.5
    %
    
    $
    7,589
    
    
    
    0.2
    %OnSale.com
    
    
    668
    
    
    
    11.7
    %
    
    
    936
    
    
    
    11.9
    %
    
    
    (268
    )
    
    
    (0.2
    )%Total gross profit and gross profit margin
    
    $
    65,744
    
    
    
    12.6
    %
    
    $
    58,423
    
    
    
    12.5
    %
    
    $
    7,321
    
    
    
    0.1
    %
   20




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Selling, General and Administrative Expenses.
 Six Months EndedJune 30,2007
    
    
    2006

    
    ChangeSG&A as a
    
    
    
    
    
    
    SG&A as a
    
    
    
    
    
    
    
    
    
    
    SG&A as aSG&A
    
    
    % of Sales
    
    
    SG&A
    
    
    % of Sales
    
    
    $
    
    
    %
    
    
    % of SalesCore business
    
    $
    54,668
    
    
    
    10.6
    %
    
    $
    54,083
    
    
    
    11.7
    %
    
    $
    585
    
    
    
    1.1
    %
    
    
    (1.1)
    %OnSale.com
    
    
    1,234
    
    
    
    21.7
    %
    
    
    1,776
    
    
    
    22.7
    %
    
    
    (542
    )
    
    
    (30.5
    )%
    
    
    (1.0)
    %Total SG&A expenses
    
    $
    55,902
    
    
    
    10.8
    %
    
    $
    55,859
    
    
    
    11.9
    %
    
    $
    43
    
    
    
    0.1
    %
    
    
    (1.1)
    %
     21




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Net Interest Expense.
 Income Tax Expense.
 LIQUIDITY AND CAPITAL RESOURCES
 Working Capital.
   Cash Flows from Operating Activities.
  Cash Flows from Investing Activities.
 22




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Cash Flows from Financing Activities.
 Line of Credit and Note Payable.
    Inflation
  Dividend Policy
  23




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CONTRACTUAL OBLIGATIONS, OFF-BALANCE SHEET ARRANGEMENTS AND CONTINGENCIES
 Contractual Obligations
  Off-Balance Sheet Arrangements
  Contingencies
  IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
  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 beliefs regarding changes in our total amount of unrecognized tax benefits;
    
    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 capitalize on our inbound and outbound telemarketing activities and our
expectations regarding related expense levels and their effect on profitability;
    
    our ability to generate vendor supported marketing;
    
    the expected impact on our gross margin of changes in vendor consideration programs and
contractual licensing sales;
    
    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;
    
    our compliance with laws and regulations;
 24




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
    
    our acquisition strategy and the impact of any future acquisitions;
    
    our expectations regarding our working capital, liquidity and cash flows from operations;
    
    the impact on accounts receivable from our efforts to focus on commercial and public sector sales;
    
    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 expectations regarding the impact of accounting pronouncements;
    
    our plans and expectations relating to our growth strategy, capital needs and future financing.
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
 ITEM 4T. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
   25




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PART
II - OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  Nicole Atkins, et al. v. PC
Mall, Inc., et al.
      26




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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.
  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.
  27




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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.
 ,
 28




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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 telemarketing 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.
   29




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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.
     We may not be able to maintain profitability on a quarterly or annual basis.
  30




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The effect of the change in 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 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;
    
    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.
  31




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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.
  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.
  32




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##### Table of Contents



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;
    
    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.
  33




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##### Table of Contents



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.
  Our advertising and marketing efforts may be costly and may not achieve desired results.
  34




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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.
   Laws or regulations relating to privacy and data protection may adversely affect the growth of our
Internet business or our marketing efforts.
  35




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##### Table of Contents



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.
  We rely on independent shipping companies to deliver the products we sell.
  36




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##### Table of Contents




    
    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.
  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.
  37




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##### Table of Contents



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.
    
    
    political uncertainties;
    
    wage inflation;
    
    exposure to foreign currency fluctuations;
    
    tariffs and other trade barriers; and
    
    foreign regulatory restrictions and unexpected changes in regulatory environments.
  38




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##### Table of Contents



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.
  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;
 39




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##### Table of Contents




    
    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 6. EXHIBITS
 ExhibitNumber
    
    Description10.1
    
    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 Registrants Current Report on Form 8-K
filed with the Commission on June 21, 2007)10.2
    
    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 Registrants Current Report on Form 8-K filed with the Commission on June 15,
2007)10.3
    
    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 Registrants Quarterly Report on Form 10-Q for the quarter
ended March 31, 2007 filed with the Commission on May 15, 2007)31.1
    
    Certification of the Chief Executive Officer of the Registrant pursuant to Exchange Act Rule 13a-14(a)31.2
    
    Certification of the Chief Financial Officer of the Registrant pursuant to Exchange Act Rule 13a-14(a)32.1
    
    Certification of the Chief Executive Officer of Registrant furnished 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 Registrant furnished pursuant to 18 U.S.C. 1350, as
adopted by Section 906 of the Sarbanes-Oxley Act of 2002
  40




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PC MALL, INC.
 
 SIGNATURE
  PC MALL, INC. 
(Registrant)Date: August 13, 2007
    By:
    /s/ Brandon H. LaVerneBrandon H. LaVerneInterim Chief Financial Officer  41




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PC MALL, INC.
 EXHIBIT INDEX
 ExhibitNumber
    
    Description10.1
    
    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 Registrants Current Report on Form 8-K
filed with the Commission on June 21, 2007)10.2
    
    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 Registrants Current Report on Form 8-K filed with the Commission on June 15,
2007)10.3
    
    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 Registrants Quarterly Report on Form 10-Q for the quarter
ended March 31, 2007 filed with the Commission on May 15, 2007)31.1
    
    Certification of the Chief Executive Officer of the Registrant pursuant to Exchange Act Rule 13a-14(a)31.2
    
    Certification of the Chief Financial Officer of the Registrant pursuant to Exchange Act Rule 13a-14(a)32.1
    
    Certification of the Chief Executive Officer of Registrant furnished 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 Registrant furnished pursuant to 18 U.S.C. 1350, as
adopted by Section 906 of the Sarbanes-Oxley Act of 2002