FORM 10-Q



SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





(Mark One)



[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934.





For the quarterly period ended: March 31, 2005



OR



[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from __________ to __________





Commission File Number: 0-25790





PC Mall, Inc.

(Exact name of registrant as specified in its charter)





Delaware
        
        95-4518700(State or other jurisdiction ofincorporation or organization)
        
        (I.R.S. EmployerIdentification 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)









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





Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X ]  No
[  ]





There were 11,598,041 outstanding shares of common stock at May 9, 2005.







PC MALL, INC.

TABLE OF CONTENTS









PART I - FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance SheetsCondensed Consolidated Statement of OperationsCondensed Consolidated Statement of Stockholders' EquityCondensed Consolidated Statement of Cash FlowsNotes to
            Condensed Consolidated Financial StatementsItem 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPART II - OTHER INFORMATIONItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 6. ExhibitsSignature






PART I - FINANCIAL INFORMATION



ITEM 1.FINANCIAL STATEMENTS

PC MALL, INC.

CONDENSEDCONSOLIDATED BALANCE SHEETS

(in thousands, except share data)



March 31, 2005
(unaudited)
        
        
        December31, 2004AssetsCurrent assets:Cash and cash equivalents
        
        
        $
        11,805
        
        
        $
        15,090Short-term investments
        
        
        
        4,875
        
        
        
        7,000Accounts receivable, net of allowance for doubtful accounts
        
        
        
        90,357
        
        
        
        94,432Inventories, net
        
        
        
        71,276
        
        
        
        80,651Prepaid expenses and other current assets
        
        
        
        7,034
        
        
        
        6,489Deferred income taxes
        
        
        
        4,087
        
        
        
        4,087Total current assets
        
        
        
        189,434
        
        
        
        207,749Property and equipment, net
        
        
        
        10,876
        
        
        
        9,393Goodwill
        
        
        
        1,405
        
        
        
        1,405Deferred income taxes
        
        
        
        15,130
        
        
        
        12,162Other assets
        
        
        
        1,264
        
        
        
        1,210Total assets
        
        
        $
        218,109
        
        
        $
        231,919Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
        
        
        $
        65,589
        
        
        $
        69,526Accrued expenses and other current liabilities
        
        
        
        22,710
        
        
        
        22,632Deferred revenue
        
        
        
        12,410
        
        
        
        12,276Line of credit
        
        
        
        43,201
        
        
        
        49,027Notes payable - current
        
        
        
        500
        
        
        
        500Total current liabilities
        
        
        
        144,410
        
        
        
        153,961Notes payable
        
        
        
        2,625
        
        
        
        2,750Total liabilities
        
        
        
        147,035
        
        
        
        156,711Minority interest
        
        
        
        3,960
        
        
        
        4,297Stockholders 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; 11,892,241 and 11,851,115 shares issued and 11,598,041 and 11,556,915 shares outstanding, respectively
        
        
        
        12
        
        
        
        12Additional paid-in capital
        
        
        
        99,473
        
        
        
        99,172Deferred stock-based compensation
        
        
        
        (1,208
        )
        
        
        (1,333
        )Treasury stock at cost; 294,200 shares
        
        
        
        (1,015
        )
        
        
        (1,015
        )Accumulated other comprehensive income
        
        
        
        142
        
        
        
        198Accumulated deficit
        
        
        
        (30,290
        )
        
        
        (26,123
        )Total stockholders equity
        
        
        
        67,114
        
        
        
        70,911Total liabilities and stockholders equity
        
        
        $
        218,109
        
        
        $
        231,919




See notes to condensed consolidated financial statements



PC MALL, INC.



CONDENSEDCONSOLIDATED STATEMENT OF OPERATIONS

(unaudited, in thousands, except per share data)



Three Months Ended
March 31,2005
        
        
        2004Net sales
        
        
        $
        293,688
        
        
        $
        278,123Cost of goods sold
        
        
        
        262,143
        
        
        
        242,866Gross profit
        
        
        
        31,545
        
        
        
        35,257Sellling, general and administrative expenses:Selling, general and administrative expenses
        
        
        
        31,327
        
        
        
        26,972Non-cash stock-based compensation
            expenses
        
        
        
        169
        
        
        
        69Total selling, general and administrative expenses
        
        
        
        31,496
        
        
        
        27,041Advertising expenses
        
        
        
        6,780
        
        
        
        7,594Income (loss) from operations
        
        
        
        (6,731
        )
        
        
        622Interest expense, net
        
        
        
        606
        
        
        
        401Income (loss) before income taxes
        
        
        
        (7,337
        )
        
        
        221Income tax provision (benefit)
        
        
        
        (2,833
        )
        
        
        85Minority interest, net of tax
        
        
        
        337
        
        
        
        -Net income (loss)
        
        
        $
        (4,167
        )
        
        $
        136Earnings (loss) per share:Basic
        
        
        $
        (0.36
        )
        
        $
        0.01Diluted
        
        
        $
        (0.36
        )
        
        $
        0.01Weighted average shares outstanding:Basic
        
        
        
        11,569
        
        
        
        10,891Diluted
        
        
        
        11,569
        
        
        
        12,089




See notes to condensed consolidated financial statements.





PC MALL, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

(unaudited, in thousands)





|                                                             | Common Stock | Additional Paid-in-Capital | Deferred Stock-Based Compensation | Treasury Stock | Accumulated Other Comprehensive Income | Accumulated Deficit | Total       
|------------------------------------------------------------ | ------------ | -------------------------- | --------------------------------- | -------------- | -------------------------------------- | ------------------- | ------------
|Outstanding                                                  | Amount ($)  
|Balance at December 31, 2004                                 | 11,557       | $      12                  | $   99,172                        | $   (1,333)    | $   (1,015)                            | $   198             | $   (26,123)
|Stock option exercises, including related income tax benefit | 41           | -                          | 301                               | -              | -                                      | -                   |             
|Amortization of deferred stock-based compensation            | -            | -                          | -                                 | 125            | -                                      | -                   | -           
|Subtotal                                                     | -            | -                          | -                                 | -              | -                                      | -                   | -           
|Net income                                                   | -            | -                          | -                                 | -              | -                                      | -                   | (4,167)     
|Translation adjustment                                       | -            | -                          | -                                 | -              | -                                      | (56)                | -           
|Comprehensive income                                         | -            | -                          | -                                 | -              | -                                      | -                   | -           
|Balance at March 31, 2005                                    | 11,598       | $      12                  | $   99,473                        | $   (1,208)    | $   (1,015)                            | $   142             | $   (30,290)



See notes to condensed consolidated financial statements.



PC MALL, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited, in thousands)



For the three months ended
March 31,2005
        
        2004Cash flows from operating activities:Net income
        
        $
        (4,167)
        
        $
        136Adjustments to reconcile net income to net cash used in operating activities:Depreciation and amortization
        
        
        1,042
        
        
        770Provision (benefit) for deferred income taxes
        
        
        (2,833)
        
        
        85Non-cash stock-based compensation
        
        
        169
        
        
        69Gain on sale of fixed assets
        
        
        -
        
        
        2Minority interest
        
        
        (337)
        
        
        -Changes in operating assets and liabilities:Accounts receivable
        
        
        4,075
        
        
        (6,184)Inventories
        
        
        9,375
        
        
        11,598Prepaid expenses and other current assets
        
        
        (545)
        
        
        (366)Other assets
        
        
        (122)
        
        
        25Accounts payable
        
        
        (7,441)
        
        
        (5,783)Accrued expenses and other current liabilities
        
        
        (503)
        
        
        (1,111)Deferred revenue
        
        
        134
        
        
        (646)Total adjustments
        
        
        3,014
        
        
        (1,541)Net cash used in operating activities
        
        
        (1,153)
        
        
        (1,405)Cash flows from investing activities:Purchase of property and equipment
        
        
        (1,919)
        
        
        (833)Sale of short-term
            investments
        
        
        2,125
        
        
        -Net cash provided by/(used in) investing activities
        
        
        206
        
        
        (833)Cash flows from financing activities:Payments for deferred financing costs
        
        
        -
        
        
        (25)Increase/(decrease) in book overdraft
        
        
        3,504
        
        
        (1)Payments under notes payable
        
        
        (125)
        
        
        (250)Net (payments)/borrowings under line of credit
        
        
        (5,826)
        
        
        455Proceeds from stock issued under stock option plans
        
        
        165
        
        
        264Net cash (used in)/provided by financing activities
        
        
        (2,282)
        
        
        443Effect of foreign currency on cash flow
        
        
        (56)
        
        
        (1)Net decrease in cash and cash equivalents
        
        
        (3,285)
        
        
        (1,796)Cash and cash equivalents:Beginning of period
        
        
        15,090
        
        
        7,819End of period
        
        $
        11,805
        
        $
        6,023




See notes to condensed consolidated financial statements.





PC MALL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.   Basis of
Presentation



The consolidated interim financial statements include the accounts of PC Mall, Inc., a Delaware corporation (formerly IdeaMall, Inc. and Creative Computers, Inc.) and its wholly- and majority-owned subsidiaries (collectively, the Company) and have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such regulations.  These financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2004.



In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments consisting solely of normal recurring items necessary for a fair statement of the financial position of the Company at March 31, 2005 and December 31, 2004 and the results of operations for the three months ended March 31, 2005 and 2004, and cash flows for the three months ended March 31, 2005 and 2004.  The results of operations for the interim periods are not necessarily indicative of the results of operations for the full year.



Stock Based
Compensation



The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 148, "Accounting for Stock Based Compensation - Transition and Disclosure" ("SFAS
148"), which amends FASB Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").
As permitted by SFAS 148, the Company continues to measure compensation cost in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25")
and related interpretations, but provides pro forma disclosures of net income and earnings per share
as if the fair-value method had been applied. Accordingly, the Company does not record compensation
expense on issuance of stock options to employees as all options issued to employees to date were
granted at the then-current market value at the date of grant, except for the option grant in March
2004 by the Company's subsidiary eCost.com, Inc. ("eCost.com") as discussed in Note 5.



SFAS 123 Pro Forma Information



The Company accounts for its stock option plans under APB 25. Had compensation
expense for these plans been determined consistent with SFAS 123, the Company's net income (loss)
and net income (loss) per share would have been adjusted to the pro forma amounts in the following
table (in thousands, except per share data).



|                                                                                                     |  |   | Three months ended March
|---------------------------------------------------------------------------------------------------- |  | - | ------------------------
|                                                                                                     |  |   | 2005                    
|Net income (loss) (as reported)                                                                      |  | $ | (4,167)                 
|Less compensation expense as determined under SFAS 123, net of related taxes:                        |  |   |                         
|PC Mall                                                                                              |  |   | (477)                   
|eCOST.com                                                                                            |  |   | (305)                   
|                                                                                                     |  |   |                         
|Add stock-based employee compensation expense included in reported net income, net of related taxes: |  |   |                         
|PC Mall                                                                                              |  |   | -                       
|eCOST.com                                                                                            |  |   | 62                      
|Net loss (pro forma)                                                                                 |  | $ | (4,887)                 
|                                                                                                     |  |   |                         
|Basic net income (loss) per share (as reported)                                                      |  |   | (0.36)                  
|Basic net income (loss) per share (pro forma)                                                        |  |   | (0.42)                  
|                                                                                                     |  |   |                         
|Diluted net income (loss) per share (as reported)                                                    |  |   | (0.36)                  
|Diluted net income (loss) per share (pro forma)                                                      |  |   | (0.42)                  



The fair value of each stock option grant has been estimated pursuant to SFAS 123 on the date of grant using the Black-Scholes option pricing model. For PC Mall, the following weighted average assumptions were used:



|                         |  | Three months ended March 31,
|------------------------ |  | ----------------------------
|                         |  | 2005                        
|Risk free interest rates |  | 4.16%                       
|Expected dividend yield  |  | none                        
|Expected lives           |  | 5 yrs                       
|Expected volatility      |  | 105%                        





The weighted average grant date fair values of options granted under the Plans for the three months ended March 31, 2005 and 2004 were $9.45 and $13.59, respectively.



For eCOST.com, the following weighted average assumptions were used:



|                         |  | Three months ended March 31,
|------------------------ |  | ----------------------------
|                         |  | 2005                        
|Risk free interest rates |  | 3.99%                       
|Expected dividend yield  |  | none                        
|Expected lives           |  | 7 yrs                       
|Expected volatility      |  | 100%                        



In June 2003, the Company issued a warrant to purchase 30,000 shares of the Companys common stock to a consulting firm for investor and public relations services. The warrant was issued at an exercise price of $3.99 with a five-year term, which vested monthly over a one year period from the date of grant. The Company valued the warrant at fair value based on a Black-Scholes fair value calculation. The warrant was valued at the date of grant and was re-measured at fair value at each subsequent reporting period, with changes in value recorded over the twelve month performance period of the warrant. The Company recorded an expense of approximately $0.1 million in connection with the issuance of this warrant for the three months ended March 31, 2004. The warrant is still outstanding at March 31, 2005.



In October 2004, the
Company issued options to purchase 45,000 shares of the Company's common stock under its 1994 Plan
to a public relations consultant. The options were issued at an exercise price of $15.43 with a
five-year term. The option vested as to 7,500 shares on the date of the grant, and the remaining
shares vest quarterly over a one-year period from the date of grant. The accounting treatment for
this option is substantially the same as that for the warrant described above. The Company recorded
an expense of $0.3 million in connection with the issuance of this option in the fourth quarter of
2004 and additional expense of less than $0.1 million for the three months ended March 31, 2005



Reclassifications



Certain reclassifications have been made to the 2004 financial statement amounts to conform to the 2005 presentation.



2.   Recent
Accounting Pronouncements



In December 2004, the
FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based
Payment" ("FAS 123R"), that addresses the accounting for share-based payment transactions in which
an enterprise receives employee services in exchange for either equity instruments of the enterprise
or liabilities that are based on the fair value of the enterprise's equity instruments or that may
be settled by the issuance of such equity instruments. The statement eliminates the ability to
account for share-based compensation transactions using the intrinsic value method as prescribed by
APB 25, and generally requires that such transactions be accounted for using a fair-value-based
method and recognized as expenses in our consolidated statements of operations. The statement
requires companies to assess the most appropriate model to calculate the value of the options. The
Company currently uses the Black-Scholes option pricing model to value options and the Company is
currently assessing which model will be used in the future under the new statement and may deem an
alternative model to be the most appropriate. The use of a different model to value options may
result in a different fair value than the use of the Black-Scholes option pricing model. In
addition, there are a number of other requirements under the new standard that will result in
differing accounting treatment than currently required. These differences include, but are not
limited to, the accounting for the tax benefit on employee stock options. In addition to the
appropriate fair value model to be used for valuing share-based payments, the Company will also be
required to determine the transition method to be used at the date of adoption. The allowed
transition methods include prospective and retroactive adoption options. Under the retroactive
options, prior periods may be restated either as of the beginning of the year of adoption or for all
periods presented. The prospective method requires that compensation expense be recorded for all
unvested stock options and restricted stock at the beginning of the first quarter of adoption of FAS
123R, while the retroactive methods would record compensation expense for all unvested stock options
and restricted stock beginning with the first period restated. The SEC extended the implementation
date of FAS 123R such that the effective date of the new standard for the Company's financial
statements is the first fiscal quarter of 2006.



3.   Net Income Per
Share



Basic Earnings Per Share (EPS) excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding during the reported periods.  Diluted EPS reflects the potential dilution that could occur under the treasury stock method if stock options and other commitments to issue common stock were exercised. The computation of Basic and Diluted EPS is as follows (in thousands, except per share data):



|                                                  |   | Three months ended
March 31,
|------------------------------------------------- | - | ----------------------------
|                                                  |   | 2005                        
|Net income
(loss)                                 | $ | (4,167)                     
|                                                  |   |                             
|Weighted average shares - Basic                   |   | 11,569                      
|Effect of dilutive stock options and warrants (a) |   | -                           
|Weighted average shares - Diluted                 |   | 11,569                      
|                                                  |   |                             
|Earnings
            (loss) per share - Basic     | $ | (0.36)                      
|Earnings
            (loss) per share - Diluted   | $ | (0.36)                      



(a)  Potential common shares of 794,635 and 0 for the three months ended March 31, 2005 and 2004, respectively, have been excluded from the earnings per share computations because the effect of their inclusion would be anti-dilutive.



4.   Segment
Information



The Company operates
in three reportable segments: (1) a rapid response supplier of technology solutions for business,
government and educational institutions, as well as consumers, comprised of corporate, public
sector, inbound catalog and other sales, collectively referred to as the "Core Business"; (2) a
multi-category online discount retailer of new, refurbished and close-out products under the
eCOST.com brand; and (3) an online retailer of computer components and other consumer products, as
well as an online marketplace including auctions under the OnSale.com brand. The Company allocates
resources to and evaluates the performance of its segments based on operating income. Corporate
expenses are included in the Company's measure of segment operating income for management reporting
purposes.



Summarized segment information for continuing operations for the three months ended March 31, 2005 and 2004 is as follows (in thousands):



|Three months ended
March 31, 2005 |   | Core Business |  |   | eCOST.com |  |   | OnSale |  |   | Consolidated
|--------------------------------- | - | ------------- |  | - | --------- |  | - | ------ |  | - | ------------
|Net sales                         | $ | 236,932       |  | $ | 55,313    |  | $ | 1,443  |  | $ | 293,688     
|Gross profit                      |   | 26,719        |  |   | 4,777     |  |   | 49     |  |   | 31,545      
|Lossfrom operations               |   | (3,298)       |  |   | (2,869)   |  |   | (564)  |  |   | (6,731)     
|Total assets                      |   | 194,299       |  |   | 22,920    |  |   | 890    |  |   | 218,109     
|                                  |   |               |  |   |           |  |   |        |  |   |             
|Three months ended
March 31, 2004 |   | Core Business |  |   | eCOST.com |  |   | OnSale |  |   | Consolidated
|Net sales                         | $ | 239,790       |  | $ | 38,325    |  | $ | 8      |  | $ | 278,123     
|Gross profit                      |   | 31,200        |  |   | 4,049     |  |   | 8      |  |   | 35,257      
|Income (loss) from operations     |   | 1,207         |  |   | (273)     |  |   | (312)  |  |   | 622         
|Total assets                      |   | 174,766       |  |   | 7,426     |  |   | 884    |  |   | 183,076     





5.   eCOST.com, Inc. Initial Public Offering



On September 1, 2004, the Companys eCOST.com subsidiary completed the sale of 3,465,000 shares of its common stock for aggregate consideration of $20.1 million, less underwriting discounts and commissions of $1.4 million. eCOST.com incurred approximately $2.0
million of offering expenses in connection with the offering. No offering expenses were paid
directly or indirectly to any of its directors or officers (or their associates) or persons owning
ten percent or more of any class of the Company's equity securities or to any other affiliates. eCOST.coms net proceeds of the offering after deducting its offering expenses was $16.7 million. In connection with the IPO, eCOST.com paid a dividend of $2.5 million to PC Mall, Inc. through a non-cash settlement of the capital contribution due from PC Mall, Inc. outstanding at the completion of the IPO. Following the IPO, the Company owned 80.2% of the outstanding
common stock of eCOST.com.



The Company recorded a minority interest liability of $4.5 million representing the 19.8% interest in eCOST.com's stockholders' equity immediately following the IPO. The liability was offset by a corresponding reduction of additional paid-in-capital. Further, this liability was reduced by the 19.8% portion of eCOST.coms net loss between the completion of the IPO date and the end of the first quarter of 2005. As of March 31, 2005, the minority interest liability totaled $4.0 million.



See Footnote 7 for further discussion of the eCOST.com distribution.



6.   Other
Contingency



On July 12, 2004, the Companys eCOST.com subsidiary received correspondence from MercExchange LLC alleging infringement of MercExchanges U.S. patents relating to e-commerce and offering to license
its patent portfolio to the subsidiary. On July 15, 2004, eCOST.com received a follow-up letter from
MercExchange specifying which of eCOST.com's technologies MercExchange believes infringe certain of
its patents, alone or in combination with technologies provided by third parties. Some of those
patents are currently being litigated by third parties, and eCOST.com is not involved in those
proceedings. In addition, three of the four patents identified by MercExchange are under
reexamination at the U.S. Patent and Trademark Office, which makes the scope of the claims of those
patents uncertain.  In the July 15 letter, MercExchange also advised eCOST.com that it has a
number of applications pending for additional patents. Each of the patents identified by
MercExchange contains numerous claims, eCOST.com has not yet had the opportunity to fully assess the
merits of the identified patents or complete its evaluation of the possible impact on its business.
MercExchange has filed lawsuits alleging infringement of some or all of its patents against third
parties, resulting in settlements or verdicts in favor of MercExchange. At least one such verdict
has been appealed to the United States Court of Appeals for the Federal Circuit.  Based on
eCOST.com's investigation of this matter to date, eCOST.com believes that its current operations do
not infringe any valid claims of the patents identified by MercExchange in these letters. There can
be no assurance, however, that such claims will not be material or adversely affect the Company's or
eCOST.com's business, financial position, results of operations or cash flows.



7.   Subsequent Events



On April 11, 2005, the Company completed the spin-off of its subsidiary, eCOST.com, Inc., when it distributed approximately 1.2071 shares of eCOST.com common stock as a special dividend on each outstanding share of the Companys common stock to the Companys stockholders of record as of 5:00 p.m. Eastern time on March 28, 2005, resulting in an aggregate of 14,000,000 shares of eCOST.com common stock being distributed to the Companys stockholders.



Based on the last sale price for eCOST.com common stock on
the NASDAQ National Market on April 11, 2005 of $6.45 per share, the aggregate market value of the shares distributed in the distribution was approximately $90.3 million. The Company expects that the distribution will be tax-free to its stockholders for U.S. federal income tax purposes, except with respect to any cash received in lieu of fractional shares. Prior to the distribution, the Company owned approximately 80.2% of eCOST.coms outstanding common stock.



Until the completion
of the distribution, eCOST.com was one of the Company's majority-owned subsidiaries, and therefore
its financial results were consolidated into the Company's financial results. As a result of the
distribution, however, eCOST.com is no longer a part of the Company's business operations, and the
Company expects the eCOST.com historical operating results up through April 11, 2005 will be
presented in the Company's financial results as a discontinued operation beginning in the second
quarter of 2005.



ITEM 2.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Overview and Recent Developments



We are a leading rapid response direct marketer of computer hardware, software,
peripheral, electronics, and other consumer products and services. Our headquarters is in Torrance,
California. We offer products and services to business, government and educational institutions as
well as individual consumers through dedicated outbound and inbound telemarketing sales executives,
the Internet, direct marketing techniques, direct response catalogs, a direct sales force and three
retail showrooms. We offer a broad selection of products through our distinctive full-color catalogs
under the PC Mall, MacMall, ClubMac, PC Mall Gov and eCOST.com brands, our worldwide websites:
pcmall.com, macmall.com, clubmac.com, pcmallgov.com, ecost.com and onsale.com; and other promotional
materials.

We operate in three reportable segments: 1) a rapid response supplier of
technology solutions for business, government and educational institutions, as well as individual
consumers, collectively referred to as the "core business" 2) a multi-category online direct
retailer of new, refurbished and close-out products under the eCOST.com brand and 3) an online
retailer of computer components and other consumer products, as well as an online marketplace
including auctions under the OnSale.com brand. We allocate resources to and evaluate the performance
of our segments based on operating income. Corporate expenses are included in our measure of segment
operating income for management reporting purposes.



Management regularly reviews our performance using a variety of financial and
non-financial metrics including sales, shipments, average order size, gross margin, co-op
advertising revenues, advertising expense, personnel costs, account executive productivity, accounts
receivables aging, inventory turnover, liquidity and cash resources. Our management monitors the
various metrics against goals and budgets, and makes necessary adjustments intended to enhance our
performance.



We plan to continue to focus efforts investing in the training and retention of,
and tools provided to our outbound sales force. This strategy is expected to result in increased
expenses associated with the infrastructure and training necessary to achieve those goals, which
could have an impact on profitability in the near term.

In 2003, we established a Canadian call center in Montreal, serving the U.S.
market. We believe that the Canadian call center allows us to access an abundant, educated labor
pool and benefit from a government labor subsidy that extends through approximately the end of 2007.
During the period through 2007, we expect to annually claim labor credits of up to 35% of eligible
compensation for qualifying employees under the program. We have accrued a total of $3.3 million of
these credits as of March 31, 2005. In April 2005, we received $0.4 million from the Canadian
government, representing full payment of our 2003 claim. We are currently preparing our 2004 claim,
which totals $2.3 million, and expect to receive payment under this claim in the latter half of
2005.



In June 2002, we formed OnSale, Inc. as a wholly-owned subsidiary. We acquired the
URL and software that operated the original OnSale.com website for approximately $0.4 million
through bankruptcy proceedings of Egghead in December 2002. In October 2003, we formally launched
OnSale.com, which today is focused on selling computer components and other consumer products, and
also offers an online marketplace, including auctions. As of March 31, 2005, we have invested
approximately $1.2 million in capital expenditures and software development costs in connection with
our OnSale.com business.



Our sales are derived primarily from the sale of computer hardware, software,
peripherals, electronics, and other consumer products to business, government and educational
institutions, as well as individual consumers. We offer our products and services through dedicated
outbound and inbound telemarketing sales executives, the Internet, relationship-based telemarketing
techniques, direct response catalogs, a direct sales force and three retail showrooms located in
Southern California and Tennessee.



Gross profit consists of net sales, less product costs, and outbound and inbound
shipping costs, and offset by certain marketing development funds. Marketing development funds are
received from manufacturers of products included in our catalogs and websites, as well as
co-operative advertising funds ("co-op") on products purchased from manufacturers and vendors.

A substantial portion of our business is dependent on sales of HP products, Apple
and Apple-related products, and products of other vendors including Adobe, IBM, Ingram Micro,
Microsoft, Sony, and Tech Data. Products manufactured by HP represented 21% of our net sales in the
three months ended March 31, 2005. Products manufactured by Apple represented 17% of our net sales
in the three months ended March 31, 2005.



On September 1, 2004, our eCOST.com subsidiary completed the sale of 3,465,000
shares of its common stock for aggregate consideration of $20.1 million, less underwriting discounts
and commissions of $1.4 million. eCOST.com incurred approximately $2.0 million of offering expenses
in connection with the offering. No offering expenses were paid directly or indirectly to any of its
directors or officers (or their associates) or persons owning ten percent or more of any class of
our equity securities or to any other affiliates. eCOST.com's net proceeds of the offering after
deducting its offering expenses was $16.7 million. In connection with the IPO, eCOST.com paid a
dividend of $2.5 million to PC Mall, Inc. through a non-cash settlement of the capital contribution
due from PC Mall, Inc. outstanding at the completion of the IPO. Following the IPO, we owned 80.2%
of the outstanding common stock of eCOST.com.



We recorded the initial minority interest liability of $4.5 million representing
the 19.8% interest in eCOST.com's stockholders' equity immediately following the IPO. The liability
was offset by a corresponding reduction of additional paid-in-capital. Further, this liability was
reduced by the 19.8% portion of eCOST.com's net loss between the completion of the IPO date and the
end of the first quarter of 2005. At March 31, 2005, the minority interest liability totaled $4.0
million.



On April 11, 2005, we completed the spin-off of eCOST.com, Inc. when we
distributed approximately 1.2071 shares of eCOST.com common stock as a special dividend on each
outstanding share of our common stock to our stockholders of record as of 5:00 p.m. Eastern time on
March 28, 2005, resulting in an aggregate of 14,000,000 shares of eCOST.com common stock being
distributed to our stockholders.



Based on the last sale price for eCOST.com common stock on The NASDAQ National
Market on April 11, 2005 of $6.45 per share, the aggregate market value of the shares distributed in
the distribution was approximately $90.3 million. We expect that the distribution will be tax-free
to our stockholders for U.S. federal income tax purposes, except with respect to any cash received
in lieu of fractional shares.



Until the completion of the distribution, eCOST.com was one of our majority-owned
subsidiaries, and therefore its financial results were consolidated into our financial results. As a
result of the distribution, however, eCOST.com is no longer a part of our business operations, and
we expect that eCOST.com's historical operating results up through April 11, 2005 will be presented
in our financial results as a discontinued operation beginning in the second quarter of 2005.

In September 2004, we and eCOST.com entered into a Master Separation and
Distribution Agreement and certain other agreements providing for the separation and the
distribution, the provision by us of certain interim services to eCOST.com, and addressing employee
benefit arrangements, tax and other matters. In March 2005, we amended the Administrative Services
Agreement that our subsidiary AF Services, LLC (formerly AF Services, Inc.) entered into with
eCOST.com in September 2004, pursuant to which the scope of the services covered by the agreement
was reduced and monthly service charges were correspondingly reduced from $101,600 to $19,000,
effective as of the date of our spin-off of eCOST.com. For a more detailed discussion of the Master
Separation and Distribution Agreement, the Administrative Services Agreement, and the certain other
agreements providing for the separation and distribution, you can refer to the information under the
heading "Certain Relationships and Related Transactions" in Part III, Item 13 of our 2004 Annual
Report on Form 10-K filed with the SEC.

Critical Accounting Policies and Estimates



Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses, as well as the disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates, and revisions to estimates are included in our results for the period in which the actual amounts become known.



Management considers an accounting estimate to be critical if:



-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 results of operations or financial condition.



Management has
discussed the development and selection of these critical accounting policies and estimates with the
audit committee of our board of directors. We believe the critical accounting policies described
below affect the more significant judgments and estimates used in the preparation of our financial
statements.



Revenue Recognition.We adhere to the revised guidelines and principles of sales recognition described in Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104), issued by the staff of the Securities and Exchange Commission (the SEC) as a revision to Staff Accounting Bulletin No. 101 (SAB 101). While the wording of SAB 104 has revised the original SAB 101, Revenue Recognition, the revenue recognition principles of SAB 101 remain largely unchanged by the issuance of SAB 104. Under SAB 104, sales are recognized when the title and risk of loss are passed to the customer, there is persuasive evidence of an arrangement for sale, delivery has occurred and/or services have been rendered, the sales price is fixed and determinable and collectibility is reasonably assured. Under these
guidelines, the majority of our sales, including revenue from product sales and gross outbound shipping and handling charges, are recognized upon receipt of the product by the customer. For all product sales shipped directly from suppliers to customers, we take title to the products sold upon shipment, bear credit risk, and bear inventory risk for returned products that are not successfully returned to suppliers; therefore, these revenues are recognized at gross sales amounts.



Certain software products and extended warranties that we sell (for which we are not the primary obligor) are recognized on a net basis in accordance with SAB 101 and EITF 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent. Accordingly, such revenues are recognized in net sales either at the time of sale or over the contract period, based on the nature of the contract, at the net amount retained by us, with no cost of goods sold.



Sales are reported net of estimated returns and allowances, coupon redemptions and credit card chargebacks. If actual sales returns, allowances, discounts, coupon redemptions and credit card chargebacks are greater than estimated by management, additional expense may be incurred.



Allowance for Doubtful Accounts Receivable.We maintain an allowance for doubtful accounts receivable based upon estimates of future collection. We extend credit to our customers based upon an evaluation of each customers financial condition and credit history, and generally do not require collateral. We regularly evaluate our customers financial condition and credit history in determining the adequacy of our allowance for doubtful accounts. We also maintain an allowance for uncollectible vendor receivables which arise from vendor rebate programs, price protections and other promotions. We determine the sufficiency of the vendor receivable allowance based upon various factors, including payment history. Amounts received from vendors may vary from amounts recorded because of potential non-compliance with certain elements of vendor programs. If estimated allowances for
uncollectible accounts or vendor receivables subsequently prove insufficient, additional allowance may be required.





Reserve for Inventory Obsolescence.We maintain allowances for the valuation of our inventory by estimating the obsolete or unmarketable inventory based on the difference between inventory cost and market value determined by general market conditions, nature, age and type of each product. We regularly evaluate the adequacy of our inventory reserve. If the inventory reserve subsequently proves insufficient, additional inventory write-downs may be required.



Coupon Redemption Rate Estimates.We accrue monthly expense related to promotional coupon rebates based upon the quantity of eligible orders transacted during the period and the estimated redemption rate. The estimated expense is accrued and presented as a reduction of net sales. The estimated redemption rates used to calculate the accrued coupon expense and related coupon liability are based upon historical redemption experience rates for similar products or coupon amounts. Estimated redemption rates and the related coupon expense and liability are regularly adjusted as actual coupon redemptions for the program are processed. If estimated redemption rates are greater than anticipated, additional expense may be incurred.



Deferred Advertising Revenue and Costs.We produce and circulate catalogs at various dates throughout the year and receive market development funds and co-op advertising funds from vendors included in each catalog. These funds are recognized based on sales generated over the life of the catalog, which is approximately eight weeks, as an offset to cost of sales in accordance with EITF No. 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor".  The costs of developing, producing and circulating each catalog are deferred and charged to advertising expense at the same rate as the co-op revenue based on the life of the catalog. Deferred advertising revenue is included in accrued expenses and other current liabilities, offset by deferred advertising costs, which are included in prepaid expenses and other
current assets.



Results of Operations



Three Months Ended March 31, 2005 Compared to the Three Months Ended March 31, 2004



Consolidated net sales
for the quarter ended March 31, 2005 were $293.7 million, an increase of $15.6 million, or 6%, over
last year's first quarter sales of $278.1 million. Core Business sales for the first quarter of 2005
were $236.9 million, a decrease of $2.9 million, or 1%, over the prior year's first quarter.
Commercial sales for the quarter grew 8%, offset by a decline in public sector sales of 7% and a
decline in the Core Business consumer sales of 13% for the first quarter of 2005 compared to the
prior year's first quarter. The increase in commercial sales is primarily attributable to a 14%
increase in commercial account manager headcount. The decrease in public sector sales is primarily
the result of a large customer order in the prior year's first quarter that did not reoccur in this
year's first quarter. The decline in consumer sales is primarily due to a 16% decline in catalog
circulation, constraints in newly announced Apple products, and reduced demand for certain
high-value products in what we believe was anticipation of new product releases.

eCOST.com sales for the quarter were $55.3 million, an increase of $17.0 million,
or 44% over the prior year's first quarter. The sales increase for eCOST.com was primarily the
result of a 22% increase in advertising expenditures and other promotions. New customer additions
for eCOST.com during the quarter were 124,000, bringing its overall customer base to  1.2 million,
up 53% compared to the overall customer base as of last year's first quarter.  For eCOST.com, sales to
business customers assigned to relationship managers increased to 37% of sales.

For the quarter ended March 31, 2005, consolidated sales of HP and Apple products
represented 21% and 17% of consolidated net sales, compared to 23% and 19%, respectively, in the
prior year's comparable period. OnSale.com sales for the first quarter of 2005 were $1.4 million, up
from $0.7 million in the fourth quarter of 2004, its first quarter of telemarketing operations.



Consolidated gross profit was $31.5 million for the three months ended March 31,
2005, a decrease of $3.7 million, or 11%, over the prior year's comparable quarter. For the Core
Business, gross profit was $26.7 million, a decrease of $4.5 million, or 14% over the prior year's
first quarter gross profit. As a percentage of sales, consolidated gross profit for the three months
ended March 31, 2005 was 10.7% versus 12.7% in the prior year's first quarter. For the Core
Business, gross profit as a percentage of sales was 11.3% for first quarter of the current year and
13.0% in the prior year's first quarter. The decline in Core Business profit margin is primarily the
result of increased promotional activities directed towards consumers, such as freight promotions
and mail-in rebates that did not result in a corresponding increase in sales. Further, the Core
Business experienced a decline in consideration received from its vendors compared to the prior
year's first quarter as a percentage of sales.

For eCOST.com, gross profit for the first quarter of 2005 was $4.8 million, an
increase of $0.7 million, or 18% from the prior year's first quarter. eCOST.com gross profit as a
percentage of sales for the three months ended March 31, 2005 and 2004 was 8.6% and 10.6%,
respectively. The decline in eCOST.com gross profit margin is primarily the result of increased
freight expense as a percentage of sales, reflects a higher percentage of sales to business
customers that purchased lower margin products, and was impacted by lower consideration received
from vendors.

Gross profit for Onsale.com for the first quarter of 2005 was $49 thousand,
representing 3.4% of its net sales for the quarter. Gross margin for Onsale.com was impacted by
heavy promotional activity and is expected to increase in the future as its sales base grows. Our
gross profit percentage may vary from quarter to quarter, depending on the continuation of key
vendor support programs, including price protections, rebates and return policies, and based on
product mix, pricing strategies, acquisitions, competition and other factors.



Consolidated selling, general, and administrative ("SG&A") expenses were $31.5
million for the three months ended March 31, 2005 representing a total increase of $4.5 million, or
16% from the comparable period in the prior year. SG&A expenses for the quarter ended March 31, 2005
include $0.2 million charge for non-cash stock-based compensation and $0.6 million of costs
charges related to the implementation of the Sarbanes-Oxley Act of 2002. As a percent of sales,
consolidated SG&A expenses increased to 10.7% in the first quarter of 2005 from 9.7% in the
comparable quarter in the prior year. For the Core Business, SG&A expenses in the first quarter of
2005 were $25.3 million, an increase of $1.2 million, or 5%, compared to the first quarter of the
prior year. As a percent of sales, SG&A expenses for the Core Business increased to 10.7% compared
with 10.0% in the first quarter last year. SG&A for the Core Business increased primarily due to
higher personnel costs of $1.0 million, as well as the $0.6 million of Sarbanes-Oxley charges
discussed above. As a percentage of sales, increases in personnel costs represented 0.5% of the
increase, and the
Sarbanes-Oxley charges represented 0.2% of the increase.



For eCOST.com, SG&A expenses in the first quarter of 2005 were $5.6 million, an
increase of $3.0 million, or 111%, compared with the first quarter of the prior year. As a percent
of sales, SG&A expenses for eCOST.com increased to 10.2% in the first quarter of 2005 compared with
7.0% in the first quarter last year. SG&A expenses for eCOST.com in the first quarter of 2005
increased in dollars and as a percentage of sales primarily due to higher personnel costs of $1.3
million and other expenses related to its growing infrastructure, transition to a stand-alone
operation and requirements of a public company.

For OnSale.com, SG&A expenses in the first quarter of 2005 were $0.5 million, an
increase of $0.2 million from $0.3 million in the prior year, primarily due to increased staffing.
SG&A as a percentage of sales was not meaningful as Onsale is in the early growth stage of its
operation.



Consolidated advertising expenses for the first quarter of 2005 were $6.8 million,
a decrease of $0.8 million, or 11%, over the prior year's first quarter. For the Core Business,
advertising expenses were $4.7 million compared to $5.9 million in the prior year's first quarter,
primarily due to a $1.0 million decrease in advertising supporting our inbound catalog business. For
eCOST.com, advertising expenses for the first quarter of 2005 were $2.0 million compared to $1.7
million in the comparable period in the prior year, as it expanded its online advertising in an
effort to drive new business.



Consolidated net interest expense for the three months ended March 31, 2005
increased to $0.6 million, from $0.4 million in the prior year's comparable quarter. The increase in
interest expense resulted from increased daily average borrowings on our line of credit, as well as
increases in our borrowing rate.



We recorded an income tax benefit for the quarter ended March 31, 2005 of $2.8
million compared with a tax expense of $0.1 million in the comparable quarter in 2004. We utilized
an effective tax rate of 38.6% for the quarter ended March 31, 2005 and 38.5% for the quarter ended
March 31, 2004.



We recorded minority interest of $0.3 million, representing the 19.8% minority
interest in eCOST.com's loss for the first quarter of 2005.



Net loss was $4.2 million, or $(0.36) per share, for the three months ended March
31, 2005 compared to net income of $0.1 million, or $0.01 per diluted share, for the same period
last year.



Liquidity and Capital Resources



Working Capital. Our primary capital need has historically been funding the
working capital requirements created by our growth in sales and strategic acquisitions. Our primary
sources of financing have historically come from borrowings from financial institutions, public and
private issuances of our common stock and cash flow from operations. We believe that our current
working capital, together with cash flows from operations and available lines of credit, will be
adequate to support our current operating plans for at least the next twelve months. If we need
extra funds, such as for additional acquisitions or expansion or to fund a significant downturn in
sales or an increase in operating expenses, there are no assurances that adequate financing will be
available at acceptable terms, if at all.



We may in the future seek additional financing from public or private debt or
equity financings to fund additional expansion, or to take advantage of opportunities or favorable
market conditions. There can be no assurance such financings will be available on terms favorable to
us or at all. To the extent any such financings involve the issuance of equity securities, existing
stockholders could suffer dilution.



As of March 31, 2005, we had cash and short-term investments of $16.7 million and
working capital of $45.0 million. Inventory decreased $9.4 million to $71.3 million from December
31, 2004 as we sold through product accumulated at year-end resulting from strategic buying
opportunities. Accounts receivable decreased $4.1 million to $90.4 million from December 31, 2004 as
average days sales outstanding decreased from 42 to 41 days. For the three months ended March 31,
2005, capital expenditures were $1.9 million versus $0.8 million for the comparable period last
year, primarily due to eCOST.com's build-out of its distribution center. Accounts payable and book
overdraft decreased by a total of $3.9 million during the three month period, reflecting lower
purchases made during the first quarter of 2005 as compared with the end of 2004, as we aggressively
pursued vendor early-pay discounts and continued to sell through our strategic inventory purchases
made in the fourth quarter of 2004.



We maintain a $75 million, asset-based revolving credit facility from a lending
unit of a large commercial bank (the "line of credit") that commenced in March 2001 and expires in
March 2007. The line of credit functions as a working capital line of credit with a borrowing base
of inventory and accounts receivable and bears interest at the prime rate with a LIBOR option. At
March 31, 2005, the prime rate was 5.75%. The line of credit is secured by substantially all of our
assets. The line of credit has as its single financial covenant a minimum tangible net worth
requirement and also includes a commitment fee of 0.25% annually on the unused portion of the line
up to $60 million. In May 2004, the line of credit was amended to provide for a conditional release
of eCOST.com's assets in connection with its initial public offering. In September 2004, this
release became effective. In February 2005, we terminated a flooring credit facility, which
functioned in lieu of a vendor trade payable for inventory purchases and did not bear interest if
paid within terms specific to each vendor. We did not draw any substantial amounts on the flooring
facility during 2005, 2004 and 2003. At March 31, 2005 and December 31, 2004, we had $43.2 million
and $49.0 million of net working capital advances outstanding under the line of credit,
respectively, and had no borrowings under the flooring facility at the end of either period. The
decrease in borrowings under the line of credit reflects our sell-through of strategic inventory
purchases made at the end of 2004. We had $16.1 million available to borrow for working capital
advances under the line of credit at March 31, 2005. Loan availability under the line of credit
fluctuates daily and is affected by many factors, including eligible assets on-hand, opportunistic
purchases of inventory and early pay discounts. We were in compliance with our financial covenants
under the line of credit at March 31, 2005. In addition to the security interests required by the
line of credit, certain of our vendors have security interest in some of our assets related to
their products.



In connection with and as a part of the line of credit, we entered into a term
note, which matures in September 2011. As of March 31, 2005 we had borrowed $3.5 million under the
term note, payable in equal monthly principal payments plus interest at prime and have $3.1 million
outstanding under the note. As of March 31, 2005, we have reflected $0.5 million of the principal
amount of the term note in current liabilities included as notes payable-current, and $2.6 million
of the principal amount is included in non-current liabilities as notes payable, based on the timing
of scheduled payments.



eCOST.com maintains an asset-based line of credit of up to $15 million with a
financial institution, which is secured by substantially all of the assets of eCOST.com. The credit
facility functions as a working capital line of credit with borrowings under the facility limited to
a percentage of inventory and accounts receivable. Outstanding amounts under the facility bear
interest initially at the prime rate plus 0.25%. Beginning in 2006, outstanding amounts under the
facility will bear interest at rates ranging from the prime rate to the prime rate plus 0.5%,
depending on eCOST.com's financial results. The prime rate was 5.75% as of March 31, 2005. In
connection with the line of credit, eCOST.com entered into a cash management arrangement whereby its
operating accounts are swept and used to repay outstanding amounts under the line of credit. The
credit facility contains standard terms and conditions customarily found in similar facilities
offered to similarly situated borrowers. The credit facility limits eCOST.com's ability to make
acquisitions above pre-defined dollar thresholds, requires it to use the proceeds from any future
stock issuances to repay outstanding amounts under the facility, and has as its sole financial
covenant a minimum tangible net worth requirement. eCOST.com was in compliance with this covenant at
March 31, 2005. Borrowing availability is subject to satisfaction of certain standard conditions.
Fees under the credit facility include an upfront cash fee, an annual unused line fee of 0.375% of
the unused portion of the line and a termination fee ranging from 0.20% to 0.75% depending on the
timing of any termination of the facility. The eCOST.com credit facility matures in March 2007.
There were no outstanding amounts under the line of credit as of March 31, 2005.

As part of our growth strategy, we may, in the future, acquire other companies in
the same or complementary lines of business, and pursue other business ventures. Any launch of a new
business venture or any acquisition and the ensuing integration of the operations of the acquired
company with those of ours would place additional demands on our management, operating and financial
resources.



Inflation



Inflation has not had a material impact upon operating results, and we do not
expect it to have such an impact in the near future. There can be no assurances, however, that our
business will not be so affected by inflation.



Impact of Recently Issued Accounting Standards



In December 2004, the FASB issued Statement of Financial Accounting Standards No.
123 (revised 2004), "Share-Based Payment" ("FAS 123R"), that addresses the accounting for
share-based payment transactions in which an enterprise receives employee services in exchange for
either equity instruments of the enterprise or liabilities that are based on the fair value of the
enterprise's equity instruments or that may be settled by the issuance of such equity instruments.
The statement eliminates the ability to account for share-based compensation transactions using the
intrinsic value method as prescribed by Accounting Principles Board, or APB, Opinion No. 25,
"Accounting for Stock Issued to Employees," and generally requires that such transactions be
accounted for using a fair-value-based method and recognized as expenses in our consolidated
statements of operations. The statement requires companies to assess the most appropriate model to
calculate the value of the options. We currently use the Black-Scholes option pricing model to value
options and we are currently assessing which model will be used in the future under the new
statement and may deem an alternative model to be the most appropriate. The use of a different model
to value options may result in a different fair value than the use of the Black-Scholes option
pricing model. In addition, there are a number of other requirements under the new standard that
will result in differing accounting treatment than currently required. These differences include,
but are not limited to, the accounting for the tax benefit on employee stock options. In addition to
the appropriate fair value model to be used for valuing share-based payments, we will also be
required to determine the transition method to be used at date of adoption. The allowed transition
methods include prospective and retroactive adoption options. Under the retroactive options, prior
periods may be restated either as of the beginning of the year of adoption or for all periods
presented. The prospective method requires that compensation expense be recorded for all unvested
stock options and restricted stock at the beginning of the first quarter of adoption of FAS 123R,
while the retroactive methods would record compensation expense for all unvested stock options and
restricted stock beginning with the first period restated. The SEC extended the implementation date
of FAS 123R such that the effective date of the new standard for our financial statements is the
first fiscal quarter of 2006.



Forward Looking Statements



This Report, including the Management's Discussion and Analysis above, contains
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements are not historical facts but rather are based on current expectations, estimates and
projections about our industry, our beliefs and assumptions. We use words such as "anticipate,"
"expect," "intend," "plan," "believe," "seek," "estimate," and variations of these words and similar
expressions to identify forward-looking statements. Such statements include the statements regarding
our expectations, hopes or intentions regarding the future, including but not limited to statements
regarding management's ability to make adjustments to enhance our performance; cash position;
expense reductions; sales growth; corporate and public sector sales initiatives; the effect of our
reinvestment in our sales force; the impact of our Canadian call center on operating results and the
amount and timing of related subsidies; the tax free nature of our distribution of eCOST.com common
stock to our stockholders; any need for additional financing and the impact of inflation; and the
prospects for our OnSale.com and eCOST.com subsidiaries. Forward-looking statements are not
guarantees of future performance and are subject to certain risks, uncertainties and other factors,
some of which are beyond our control, are difficult to predict and could cause actual results to
differ materially from those expressed or forecasted in the forward-looking statements.



These risks and uncertainties include, but are not limited to, the following:



- our revenues are dependent on sales of
products from a small number of vendors, including Apple, HP, IBM, Ingram Micro, Microsoft and Tech
Data, and loss of any key vendor, a decline in sales of products from these vendors, pricing
pressures or a decrease in supply of or demand for these products could materially impact our
business;



- we do not have long-term supply
agreements or guaranteed price, delivery or payment arrangements with our vendors, and our
agreements with our vendors are generally terminable within 30 days;



- our success is dependent in part upon
the ability of our vendors to develop and market products that meet the changing requirements of the
marketplace and our ability to sell popular products;



- 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 on operating results of variations in operating costs and of adverse or unforeseen events;

- we experience variability in our net
sales and net income on a quarterly basis;



- the transition of our business
strategy to increasingly corporate and public sector sales and our increased infrastructure
investments in our outbound telemarketing sales models may not improve our profitability or result
in expanded market share;



- the success of our Canadian call
center is dependent on our receipt of government credits;



- existing or future government and tax
regulations could expose us to liabilities or costly changes in our business operations;



- we may not be able to achieve or
maintain profitability and our operating results may be difficult to predict;



- if we fail to accurately predict our
inventory risk, our margins may decline as a result of write downs of our inventory due to lower
prices obtained from older or obsolete products;



- we may need additional or continued
financing from third party investors or our vendors and may not be able to raise or maintain such
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;



- we may be subject to claims regarding
our intellectual property, 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;



- we may fail to expand our merchandise
categories, product offerings, website and processing systems in a cost-effective and timely manner
as may be required to efficiently operate our business;



- we may not be able to retain key
personnel or attract and retain additional personnel;



- our ability to effectively manage our
growth may prevent us from successfully expanding our business;



- our advertising, marketing and
promotional efforts may be costly and may not achieve desired results;



- changes and uncertainties in the
economic climate could affect the rate of information technology spending by our customers, which
would have an impact on our business;



- increased product returns or a failure
to accurately predict product returns could decrease our revenues and impact profitability;



- our business may be harmed by
fraudulent activities on our website, including fraudulent credit card transactions;



- our facilities and systems are
vulnerable to natural disasters or other catastrophic events;



- our success is in part dependent on
the quality and utilization of the information generated by our management information systems, and
it will be necessary for us to upgrade such systems on a regular basis in the future;

- 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 and security of the Internet infrastructure;



- we rely on independent shipping
companies to deliver the products we sell and may experience delays or increased costs; and

- if we fail to maintain the adequacy of
our internal controls, as such standards are established, modified, supplemented or amended from
time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have
effective internal controls over financial reporting.



The list of factors above is not intended to be exhaustive. Reference should also
be made to the factors set forth from time to time in our SEC reports, including but not limited to
those set forth in the section entitled "Certain Factors Affecting Future Results" in our Annual
Report on Form 10-K for the year ended December 31, 2004 and, with respect to our eCOST.com
subsidiary, in its Annual Report on Form 10-K for the year ended December 31, 2004. All
forward-looking statements in this report are made as of the date hereof, based on information
available to us as of the date hereof, and we assume no obligation to update or revise any of these
forward-looking statements even if experience or future changes show that the indicated results or
events will not be realized.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK



Our financial instruments include cash and long-term debt. At March 31, 2005, the
carrying values of our financial instruments approximated their fair values based on current market
prices and rates.



We have exposure to the risks of fluctuating interest rates on our line of credit.
The variable interest rate on the line of credit is tied to the prime rate or the London interbank
offered rate, at our discretion. If the variable rate on the line of credit changes, we may be
required to pay more interest. We believe that the effect of any change in interest rates will not
be material to our financial position.



It is our policy not to enter into derivative financial instruments, and we do not
have any significant foreign currency exposure. Therefore, we did not have significant overall
currency exposure as of March 31, 2005.





ITEM 4. CONTROLS AND PROCEDURES



As of the end of the period covered by this report, we carried out an evaluation,
under the supervision and with the participation of our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective in timely alerting them to material information
required to be included in this report.

We previously reported in Item 9A - "Controls and Procedures" in our 2004 Annual
Report on Form 10-K a material weakness in internal control over financial reporting due to
inadequate management review of a software service advisor agreement to ensure that all terms of the
agreement were recorded in the correct accounting period . In response to the material weakness, we
have instituted additional control procedures to require management review of any new or renewal
software service advisor agreements. Based on the forgoing, our management has concluded that the
material weakness has been remediated, and that our disclosure and internal controls and procedures
are now effective.



Except for the controls and procedures implemented to remediate the material
weakness that existed as of December 31, 2004, there have been no changes in our internal control
over financial reporting that occurred during our most recent fiscal quarter that have materially
affected or are reasonably likely to materially affect our internal control over financial
reporting.

PART II- OTHER INFORMATION



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND
USE OF PROCEEDS



In July 1996, we announced a plan to repurchase up to 1,000,000 shares of our
common stock. The shares will be repurchased from time to time at prevailing market prices through
open market or negotiated transactions, depending upon market conditions. No limit was placed on the
duration of the repurchase program. There is no guarantee as to the exact number of shares that we
will repurchase. Subject to applicable securities laws, repurchases may be made at such times and in
such amounts as our management deems appropriate. The program can also be discontinued at any time
we determine additional purchases are not warranted. We did not purchase any shares of our
common stock during the three month period ended March 31, 2005. As of March 31, 2005, we have
repurchased a total of 294,200 shares of our common stock, of which 254,200 shares were repurchased
under the program, and 40,000 shares were purchased in a private transaction.

ITEM 6.EXHIBITS



|Exhibit Number | Description                                                                                                                                                                                                                         
|-------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 2002                                                                        
|32.2           | 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                                                                        
|10.1*          | Employment Agreement between the Registrant and Ted Sanders, effective
            March 22, 2005 (incorporated by reference to the Registrant's Report on Form 8-K filed
            with the Commission on March 25, 2005)        
|10.2*          | Summary of Executive Bonus Plan (incorporated by reference to the
            Registrant's Annual Report on Form 10-K filed with the Commission on March 31, 2005)                                                                  
|10.3*          | Amendment to Employment Agreement between the Registrant and Rob Newton,
            dated March 22, 2005 (incorporated by reference to the Registrant's Report on Form 8-K
            filed with the Commission on March 25, 2005)



* The referenced exhibit is a compensatory contract, plan or
arrangement.



SIGNATURE



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



Date: May 10, 2005
        
        PC MALL, INC.By:
        /s/ Ted SandersTed SandersChief Financial Officer(Duly Authorized Officer of the Registrant and Principal Financial Officer)










PC MALL, INC.

EXHIBIT INDEX



|Exhibit Number | Description                                                                                                                                                                                                                         
|-------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 2002                                                                        
|32.2           | 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                                                                        
|10.1*          | Employment Agreement between the Registrant and Ted Sanders, effective
            March 22, 2005 (incorporated by reference to the Registrant's Report on Form 8-K filed
            with the Commission on March 25, 2005)        
|10.2*          | Summary of Executive Bonus Plan (incorporated by reference to the
            Registrant's Annual Report on Form 10-K filed with the Commission on March 31, 2005)                                                                  
|10.3*          | Amendment to Employment Agreement between the Registrant and Rob Newton,
            dated March 22, 2005 (incorporated by reference to the Registrant's Report on Form 8-K
            filed with the Commission on March 25, 2005)



* The
referenced exhibit is a compensatory contract, plan or arrangement.