<PAGE>
 
                                   FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549


              [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934.

               For the quarterly period ended September 30, 1998

                                       
              [_]  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

                            CREATIVE COMPUTERS, INC.
             (Exact name of registrant as specified in its charter)

                  Delaware                       95-4518700
          (State or other jurisdiction        (I.R.S. Employer
        of incorporation or organization)    Identification No.)


                             2555 West 190th Street
                           Torrance, California 90504
                    (address of principal executive offices)
                                 (310) 354-5600
              (Registrant's telephone number, including area code)



Indicated 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

There were 10,246,452 outstanding shares of COMMON STOCK at November 5, 1998.

                                       1
<PAGE>
 
                           Creative Computers, Inc.

                              Index to Form 10-Q



PART I - FINANCIAL INFORMATION                                Page
                                                              ----

Item 1 -- Financial Statements (unaudited)

Consolidated Balance Sheet..................................    3
 
Consolidated Statement of Operations........................    4
 
Consolidated Statement of Cash Flows........................    5
 
Condensed Notes to Consolidated Financial Statements........    6
 
Item 2 -- Management's Discussion and Analysis of Financial
          Condition and Results of Operations...............    8
 
 
PART II - OTHER INFORMATION.................................   12
 
Item 6 -- Exhibit and Reports on Form 8-K...................   12
 
SIGNATURE...................................................   12
 

                                       2
<PAGE>
 
ITEM 1   FINANCIAL STATEMENTS (UNAUDITED)

                            Creative Computers, Inc.
                                        
                           CONSOLIDATED BALANCE SHEET
                        (in thousands except share data)
<TABLE>
<CAPTION>
 
                                                               September 30, 1998      
                                                                  (unaudited)          December 31, 1997 
                                                               ------------------      ----------------- 
<S>                                                          <C>                   <C>
Assets
Current assets:
Cash and cash equivalents                                      $           15,528      $           8,018
Accounts receivable, net of allowance for                                                      
    doubtful accounts                                                      40,564                 42,455
Inventories                                                                44,958                 42,643
Prepaid expenses and other current assets                                   4,098                  2,894
Income tax refund receivable                                                  613                    469
Deferred income taxes                                                       7,717                  2,484
                                                               ------------------      ----------------- 
     Total current assets                                                 113,478                 98,963
Property, plant and equipment, net                                         15,040                 16,868
Goodwill, net                                                              11,973                 15,141
Deferred income taxes                                                       2,241                      -
Other assets                                                                   99                    182
                                                               ------------------      ----------------- 
                                                               $          142,831      $         131,154
                                                               ==================      ================= 
 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable                                               $           75,877      $          45,958
Accrued expenses and other current liabilities                             13,872                 13,275
Capital leases - current portion                                              143                    207
Notes payable - current portion                                             2,821                  9,979
                                                               ------------------      ----------------- 
     Total current liabilities                                             92,713                 69,419
Capital leases                                                                 29                    148
Notes payable                                                                 154                    348
Deferred income taxes                                                       1,469                  1,469
                                                               ------------------      -----------------
     Total liabilities                                                     94,365                 71,384
 
Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares
    authorized; none issued and outstanding                                     -                      -
Common stock, $.001 par value; 15,000,000 shares                                          
    authorized; 10,238,703 and 10,105,258 shares issued                        10                     10
Additional paid-in capital                                                 57,630                 56,772
Treasury stock, at cost: 15,000 shares                                        (91)                   (91)
Retained earnings (accumulated deficit)                                    (9,083)                 3,079
                                                               ------------------      -----------------
     Total stockholders' equity                                            48,466                 59,770
                                                               ------------------      -----------------
                                                               $          142,831      $         131,154
                                                               ==================      ================= 
 
</TABLE>

           See condensed notes to consolidated financial statements.

                                       3
<PAGE>
 
                            Creative Computers, Inc.
                                        
                      CONSOLIDATED STATEMENT OF OPERATIONS
                (unaudited, in thousands except per share data)
                                        
<TABLE>  
<CAPTION> 
                                                          For the three months ended    For the nine months ended
                                                                 September 30,                 September 30,
                                                          --------------------------    -------------------------
                                                            1998              1997        1998             1997
                                                          --------          --------    --------         --------  
<S>                                                       <C>               <C>         <C>              <C>
Net sales                                                 $185,741          $132,236    $499,809         $368,394
                                                                                                  
Cost of goods sold                                         164,447           115,334     443,761          321,208
                                                                                                  
Retail store closure inventory reserves                          -                 -       3,679                -
                                                          --------          --------    --------          --------
                                                                                                  
 Gross profit                                               21,294            16,902      52,369           47,186
                                                                                                  
Selling, general and administrative expenses                20,493            14,454      64,882           42,592
                                                                                                  
Non-recurring expenses related to retail store closures          -                 -       6,773                -
                                                          --------          --------    --------         --------
                                                                                                  
Income (loss) from operations                                  801             2,448     (19,286)           4,594
                                                                                                  
Interest income/(expense), net                                (100)              152        (319)             473
                                                          --------          --------    --------         --------
                                                                                                  
Income (loss) before income taxes                              701             2,600     (19,605)           5,067
                                                                                                  
Income tax provision (benefit)                                 266             1,006      (7,443)           1,943
                                                          --------          --------    --------         --------
                                                                                                  
Net income (loss)                                         $    435          $  1,594    $(12,162)        $  3,124
                                                          ========          ========    ========         ========
                                                                                                  
Basic earnings (loss) per share                           $   0.04          $   0.16      $(1.20)        $   0.32
                                                          ========          ========    ========         ========
                                                                                                  
Diluted earnings (loss) per share                         $   0.04          $   0.16      $(1.20)        $   0.31
                                                          ========          ========    ========         ========
                                                                                                  
Basic weighted average number of                                                                  
  shares outstanding                                        10,194             9,801      10,150            9,901
                                                          ========          ========    ========         ========
                                                                                                  
Diluted weighted average number of                                                                
  shares outstanding                                        10,353             9,981      10,150            9,998
                                                          ========          ========    ========         ========
 
</TABLE>



               See condensed notes to consolidated financial statements.

                                       4
<PAGE>
 
                             Creative Computers, Inc.
                                        
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                           (unaudited, in thousands)
<TABLE>
<CAPTION>
 
                                                               For the nine months ended
                                                                     September 30,
                                                              ---------------------------
                                                                  1998           1997
                                                              -------------   -----------
<S>                                                           <C>             <C>
Cash flows from operating activities:
  Net income (loss)                                                $(12,162)      $ 3,124
  Adjustments to reconcile net income (loss) to               
    net cash provided by (used in) operating activities:      
  Depreciation and amortization                                       2,957         1,622
  Deferred income taxes                                              (7,474)          281
  Loss on write-off of assets                                         2,052             -
  Loss on impairment of goodwill                                      3,095             -
  Loss on sale of equipment                                               -            10
  Changes in assets and liabilities, net of acquisition:      
   Accounts receivable                                                1,891        (3,544)
   Inventories                                                       (2,315)       12,102
   Prepaid expenses and other current assets                         (1,250)         (232)
   Other assets                                                        (237)          (83)
   Accounts payable                                                  29,919        (5,232)
   Accrued expenses and other current liabilities                       597            (1)
   Income taxes receivable                                             (144)        3,376
                                                                   --------       -------
                                                              
   Total adjustments                                                 29,091         8,299
                                                                   --------       -------
                                                              
Net cash provided by operating activities                            16,929        11,423
                                                              
Cash flows from investing activities:                         
  Purchases of securities available for sale                              -        (1,015)
  Redemption of securities available for sale                             -           998
  Acquisition of ComputAbility                                            -        (5,482)
  Proceeds from sale of equipment                                         -            13
  Acquisition of property, plant and equipment                       (2,742)       (1,585)
                                                                   --------       -------
                                                              
Net cash used in investing activities                                (2,742)       (7,071)
                                                              
Cash flows from financing activities:                         
  Payments under notes payable                                       (7,352)          (41)
  Principal payments of obligations under capital leases               (183)         (185)
  Proceeds from stock issued under stock option plans                   858            98
                                                                   --------       -------
                                                              
Net cash used in financing activities                                (6,677)         (128)
                                                              
Net increase in cash and cash equivalents                             7,510         4,224
Cash and cash equivalents:                                    
  Beginning of the period                                             8,018        17,329
                                                                   --------       -------
  End of the period                                                $ 15,528       $21,553
                                                                   ========       =======
</TABLE>
               See condensed notes to consolidated financial statements.
 

                                       5
<PAGE>
 
                            Creative Computers, Inc.

              CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  Basis of Presentation

     The consolidated interim financial statements include the accounts of
     Creative Computers, Inc. (a Delaware corporation) and its wholly owned
     subsidiaries (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 at December 31, 1997.

     In the opinion of management, the accompanying financial statements contain
     all adjustments necessary to present fairly the financial position of the
     Company at September 30, 1998 and the results of operations and cash flows
     for the three and nine months ended September 30, 1998 and 1997. The
     results of operations for the interim periods are not necessarily
     indicative of the results of operations for the full year.

     Certain reclassifications have been made to the 1997 financial statements
     to conform them to the 1998 presentation.

2.  Public Offering of uBid Common Stock

     On July 2, 1998, uBid, Inc. ("uBid") a wholly owned subsidiary of the
     Company, filed a registration statement for an initial public offering
     ("IPO") of 1,580,000 shares of common stock. uBid also granted to the
     underwriters an over-allotment option for up to 237,000 additional common
     shares. The net proceeds after IPO expenses are intended to be used for
     working capital needs of uBid and repayment of advances made by the Company
     to uBid. Upon completion of the IPO, the Company would own approximately 80
     percent of the capital stock of uBid. Subject to certain conditions, the
     Company intends to separate the companies by distributing its ownership in
     uBid common stock to its shareholders through a tax-free spin-off. Due to
     market conditions, the IPO has been delayed. The Company is currently
     working with the underwriters to determine an appropriate time to complete
     the IPO. There can be no assurances that the planned IPO or spin-off will
     be consummated.

3.  Net Income (Loss) Per Share

     During December 1997, the Company adopted Financial Accounting Standards
     Board Statement No. 128, "Earnings Per Share" (SFAS 128). SFAS 128 replaced
     the presentation of earnings per share reflected on the statement of income
     with a dual presentation of Basic Earnings Per Share (Basic EPS) and
     Diluted Earnings Per Share (Diluted EPS). Basic EPS excludes dilution and
     is computed by dividing net income (loss) 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.
     Earnings (loss) Per Share have been restated for all periods presented to
     reflect the adoption of SFAS 128. The computation of Basic and Diluted EPS
     is as follows:

                                       6
<PAGE>
 
<TABLE>
<CAPTION>
 
                                                Three Months Ended   Nine Months Ended
                                                  September 30,        September 30,
                                                ------------------   ------------------
                                                  1998      1997       1998       1997
                                                --------   -------   ---------   ------
<S>                                             <C>        <C>       <C>         <C>
     (in thousands except per share data)
 
     Net income (loss)                           $   435    $1,594   $(12,162)   $3,124
                                                 =======    ======   ========    ======
     Weighted average shares - Basic              10,194     9,801     10,150     9,901

     Effect of dilutive stock options
       and warrants                                  159       180          -        97
                                                 -------    ------   --------    ------
     Weighted average shares-Diluted              10,353     9,981     10,150     9,998
                                                 =======    ======   ========    ======
     Net earnings/(loss) per share-Basic         $  0.04    $ 0.16   $  (1.20)   $ 0.32
                                                 =======    ======   ========    ======
     Net earnings/(loss) per share-Diluted       $  0.04    $ 0.16   $  (1.20)   $ 0.31
                                                 =======    ======   ========    ======
</TABLE>

4.  Retail Store Closures

     In February 1998, the Company closed one retail store acquired from Elek-
     Tek and on March 23, 1998, the Company announced the closure of six of its
     seven remaining retail stores to allow the Company to focus on its core
     competencies going forward. The closed retail stores generated 9% of the
     Company's first-quarter sales, but had operating losses approaching $2.0
     million for the quarter.  The Company recorded a one-time pretax
     restructuring charge of $10.5 million relating to exit costs associated
     with the closing of retail operations.  Recorded in selling, general and
     administrative costs were $3.1 million write-off of goodwill, $1.9 million
     write-off for fixed assets, $1.5 million reserve for lease exit costs, and
     $0.3 million employee-related severance costs.  Recorded as cost of sales
     were $3.7 million of reserves for store inventory.  In addition, during the
     first quarter of 1998, $7.0 million of pretax write-offs were taken
     primarily relating to a more rapid decline in Mac sales during the quarter
     and the effects on inventory and receivables of rapid price erosion and
     other changes in the industry during the quarter.

     The closure of the seven stores was completed during the first quarter
     including the transfer of inventory to the Company's Memphis distribution
     center and reduction of the workforce by 160 employees. As of September 30,
     1998, $0.3 million was paid in severance costs and $0.5 million for lease
     termination costs. Lease termination costs for the quarter ended September
     30, 1998 were $0.1 million. In addition, inventory reserves of $2.8 million
     were used to offset losses from the liquidation of inventory of which $0.7
     million was incurred for the quarter ended September 30, 1998. The
     severance reserve has been fully utilized and the Company does not expect
     additional severance charges. The lease termination reserve and inventory
     reserve balances as of September 30, 1998 are $1.0 million and $0.9
     million, respectively. The Company is continuing to liquidate inventory
     related to the store closures and negotiate lease terminations, and will
     continually evaluate the retail store closure cost in total and related
     reserve balances.
 
5.  Reporting of Comprehensive Income (Loss)

     During the first quarter of 1998, the Company adopted Statement of
     Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
     (SFAS 130).  SFAS 130 establishes standards for reporting and displaying of
     comprehensive income and its components (revenues, expenses, gains and
     losses) in a full set of general purpose financial statements.
     Comprehensive income (loss) for the quarter ended September 30, 1998 and
     1997 was equivalent to net income (loss) reported in the consolidated
     statement of operations.  The Company does not expect SFAS 130 to have a
     material effect on future financial statements.

6.  New Pronouncements

     In June 1997, the Financial Accounting Standards Board (the "FASB") issued
     Statement of Financial Accounting Standards No. 131, "Disclosures About
     Segments of an Enterprise and Related Information"

                                       7
<PAGE>
 
     ("SFAS No. 131"). SFAS No. 131 requires that companies disclose "operating
     segments" based on the way management disaggregates the Company for making
     internal operating decisions. The new disclosures will be effective for the
     Company's year ending December 31, 1998. Abbreviated quarterly disclosure
     will be required beginning with the period ending March 31, 1999, with
     comparative information required for the corresponding period in the prior
     year. The Company is presently assessing the presentation and effect of
     SFAS No. 131 on the financial statements of the Company.

     In February 1998 and September 1998, the FASB issued Statement of Financial
     Accounting Standards No. 132, "Employer's Disclosure about Pensions and
     Other Postretirement Benefits" and Statement of Financial Accounting
     Standards No. 133, "Accounting for Derivative Instruments and Hedging
     Activities," respectively.  The Company presently does not have pension and
     postretirement benefit plans nor does it conduct derivative instrument and
     hedging activities.  Thus, the Company does not expect these new standards
     to have a material effect on its financial statements.

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

Overview

The Company began operations in May 1987 as a mail-order company and then opened
its first retail store in August 1987.  The Company opened an additional store
in 1991 and two additional stores in 1993. During the fourth quarter of 1993,
the Company shifted its principal distribution and marketing focus from retail
showrooms to direct mail distribution and marketing.  In March 1994, the Company
received authorization from Apple to offer a full retail line of Apple products
via direct mail.  The Company distributed the first edition of its MacMall
catalog in April 1994, followed by PC Mall catalog in May 1995.  The Company
also moved its distribution center during 1995 from Torrance, CA to a new
325,000 square foot facility in Memphis, TN, near Federal Express's major hub,
to enhance customer service.

During the third and fourth quarters of 1997, the Company acquired and
assimilated two marketers of personal computer hardware and software products,
ComputAbility, Inc. and Elek-Tek, Inc., in order to expand its presence in the
PC/WINTEL market and corporate sales channels.  The Company formed a wholly-
owned subsidiary, uBid, during September 1997, to sell computer-related products
and consumer electronics through an auction format on the Internet.  uBid
commenced its first auction during the last week of December 1997.  The Company
also consolidated its headquarters and telemarketing operations into a 160,000
square foot facility in a nearby location in Torrance, CA.  The Company occupies
approximately half of the facility and will occupy the remaining space in phases
over time.

During the first quarter of 1998, the Company closed seven out of eight retail
stores to focus its efforts on its catalog and corporate sales channels.  As
discussed in Note 2, on July 2, 1998, uBid filed a registration statement for an
IPO.  Subject to certain conditions, following the IPO, the Company intends to
separate the companies by distributing its remaining 80% ownership in uBid
common stock to its stockholders through a tax-free spin-off in 1999.  There can
be no assurances, however, as to when or if the proposed IPO and spin-off will
take place.

Net sales of the Company are primarily derived from the sale of personal
computer hardware, software, peripherals and accessories to individual
consumers, home offices, small businesses and large corporations through direct
response catalogs, dedicated inbound and outbound telemarketing sales
executives, a direct sales force, retail showrooms and advertising on the
Internet.  The Company is dependent on sales of Apple computers and software and
peripheral products used with Apple computers.  Products manufactured by Apple
represented approximately 22.0% of the Company's net sales for the quarter ended
September 30, 1998 as compared to 21.6% for the comparable quarter of 1997.
 
Year 2000

Computer systems, software packages, and microprocessor dependent equipment may
cease to function or generate erroneous data when the year 2000 arrives.  The
problem affects those systems or products that are programmed to

                                       8
<PAGE>
 
accept a two-digit code in date code fields. To correctly identify the year
2000, a four-digit date code field will be required to be what is commonly
termed "year 2000 compliant."

The Company may realize exposure and risk if the systems for which it is
dependent upon to conduct day-to-day operations are not year 2000 compliant. The
potential areas of exposure include electronic data exchange systems operated by
third parties with whom the Company transacts business, certain products
purchased from third parties for resale, and computers, software, telephone
systems, and other equipment used internally. To minimize the potential adverse
affects of the year 2000 problem, the Company has established an internal
project team comprised of all functional disciplines. This project team has
begun a three-phase process of identifying internal systems (both information
technology and non-information technology systems) not year 2000 compliant,
determining their significance in the effective operation of the Company, and
developing plans to resolve the issues where necessary. The Company has been
communicating with the suppliers and others it does business with to coordinate
year 2000 readiness. The responses received by the Company to date have
indicated that steps are currently being undertaken to address this concern.
However, if such third parties are not able to make all systems year 2000
compliant, there could be a material adverse impact on the Company.

Initial review of the Company's principal application software through which
nearly all of the Company's business is transacted, has determined it to be year
2000 compliant and, as such, the Company does not currently anticipate any
material adverse operational issues to arise. However, a more complete review
will be undertaken. The Company plans to complete the year 2000 compliance
assessment by the end of the first quarter and implement corrective solutions
before the end of the third quarter 1999. To date, the costs incurred by the
Company with respect to this project are not material. Future anticipated costs
will be difficult to estimate until after the completion of phase one, however,
the entire process to become year 2000 compliant is not expected to result in
material incremental costs to the Company as internal resources are expected to
be deployed. The Company has not yet determined a contingency plan in the event
that any non-compliant critical systems are not remedied by January 1, 2000, nor
has it formulated a timetable to create such contingency plan. Upon completion
of this project, if systems material to the Company's operations have not been
made year 2000 compliant, or if third parties fail to make their systems year
2000 compliant in a timely manner, the year 2000 issue could have a material
adverse effect on the Company's business, financial condition and results of
operations.

Results of Operations

Three Months Ended September 30, 1998 Compared to the Three Months Ended
September 30, 1997

Unless otherwise stated, all sales increase comparisons are results which
exclude the closed retail stores.

Net sales for the quarter ended September 30, 1998 were $185.7 million, a 51%
increase over last year's third quarter.  Including net sales from the closed
retail stores, net sales from all operations grew 40% from $132.2 million for
the third quarter last year.  Net sales for the quarter from Elek-Tek,
ComputAbility and uBid accounted for $53.2 million.  PC/WINTEL sales increased
92% (22% excluding acquisitions) from $49.7 million in last year's comparable
quarter to $95.5 million for the three months ended September 30, 1998.
Increased PC/WINTEL sales from acquisitions of Elek-Tek and ComputAbility
accounted for $32.5 million or 71% of the increase.  Apple/Macintosh- related
product sales increased 2% to $75.0 million for the three months ended September
30, 1998 as compared with $73.4 million for the comparable period in the prior
year.  PC/WINTEL sales comprised over 56% of total net sales for the third
quarter in 1998 versus 39% for the same quarter last year.

Gross profit from all operations increased $4.4 million primarily due to
increased sales. Gross profit as a percent of net sales was 11.5% and 11.8%,
excluding uBid.  This represents a decrease from the Company's second quarter
gross profit of 12.3% and 12.5%, respectively, and a decrease from last year's
third quarter gross profit of 12.8%. The sequential change in gross profit
percentage resulted from a shift in mix favoring CPUs and the effect of the
Company's aggressive iMac promotion.  The Company's 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 and other factors.

Selling, general and administrative expenses for the third quarter of 1998
increased $6.0 million compared with the same period last year, inclusive of
closed retail stores.  Excluding uBid, the increase was $3.8 million due to

                                       9
<PAGE>
 
volume-related support costs.  Selling, general and administrative expenses as a
percent of net sales declined from 10.9% in last year's third quarter to 10.7%
this year without the investment in uBid.

Net interest expense for the three months ended September 30, 1998 was $100,000
compared to net interest income of $152,000 for the comparable quarter in 1997.
The net interest expense for 1998 resulted from debt incurred and cash invested
to acquire Elek-Tek, Inc. and ComputAbility, Inc.   Net interest income for 1997
resulted from the investment of excess cash.

Net income decreased by $1,159,000 to $435,000 for the three months ended
September 30, 1998 from $1,594,000 for the same period last year.  Excluding the
Company's investment in uBid, net income would have been $1,113,000, or $0.11
per diluted share, in the third quarter of 1998.

If the Company completes the pending IPO, a measurement date would occur as of
the effective date of the IPO based on the current terms of outstanding options
to purchase "u"Bid Common Stock, and the Company would be required to compute
compensation expense based upon the difference between the exercise price of the
"u"Bid options and the IPO price. Based upon the difference between the assumed
IPO price of $13 per share contained in the prospectus for the pending IPO, and
the exercise prices of the 858,568 options outstanding at September 30, 1998,
the total compensation charge would be approximately $10.7 million, which would
be recognized over the vesting period.

Nine Months Ended September 30, 1998 Compared to the Nine Months Ended September
30, 1997

Net sales from all operations (including the closed retail stores) increased by
$131.4 million or 36% to $499.8 million in the nine months ended September 30,
1998 from $368.4 million in the nine months ended September 30, 1997.  Net sales
for the nine-month period from Elek-Tek, ComputAbility and uBid account for
$134.4 million.  Net sales for the period increased primarily due to growth in
PC/WINTEL sales, which increased 117% and generated sales of $280.0 million for
the nine months ended September 30, 1998 compared with $129.3 million for the
nine months ended September 30, 1997.  Increased PC/WINTEL sales from
acquisitions of Elek-Tek and ComputAbility accounted for $103.6 million or 69%
of the increase.  Apple/Macintosh and related sales were $197.7 million for the
nine months ended September 30, 1998 as compared with $239.1 million for the
comparable period in the prior year.  Approximately 53.0 million catalogs were
mailed during the nine months ended September 30, 1998, as compared with 46.7
million catalogs for the comparable period in the prior year.

Gross profit from all operations increased by $5,183,000 to $52.4 million for
the nine months ended September 30, 1998 from $47.2 million in the same period
of 1997.  Gross profit as a percentage of net sales decreased to 12.1% for the
nine months of 1998, excluding the write-offs in the first quarter and uBid,
compared to 12.8% for the nine months of 1997.

Selling, general  and administrative expenses, excluding the one-time
restructuring charge related to the retail store closures, increased by $22.3
million to $64.9 million for the nine months ended September 30, 1998 from $42.6
million for the comparable period in the prior year.  Approximately $6.8 million
of the increase was associated with the write-offs mentioned in Note 4, $15.2
million was the result of increased sales, and the remainder was due to support
costs for higher levels of expected Mac sales that were not realized during the
first quarter and support costs for uBid.

Net interest expense for the nine months ended September 30, 1998 was $319,000
compared to interest income of $473,000 for the comparable period in 1997.  The
net interest expense for 1998 resulted from debt incurred and cash invested to
acquire Elek-Tek, Inc. and ComputAbility, Inc.  Net interest income for 1997
resulted from the investment of excess cash.

As a result of the foregoing, the Company incurred a net loss of $12.2 million
or $1.20 per share, for the nine months ended September 30, 1998 compared to net
income of $3.1 million, or $0.31 per diluted share, for the same period last
year.

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<PAGE>
 
Liquidity and Capital Resources

The Company's primary capital need has been the funding of the working capital
requirements created by its rapid growth in sales.  Historically, the Company's
primary sources of financing have been from public offerings and borrowings from
its stockholders, private investors and financial institutions.

The Company has funded the startup and working capital requirements of uBid with
a net investment of $3.7 million through September 30, 1998.  As discussed in
Note 2, on July 2, 1998, uBid filed a registration statement for an IPO.  The
net proceeds after IPO expenses would be used to repay the advances made by the
Company to uBid as well as future uBid working capital needs.  It is anticipated
that the Company will not be advancing additional funds to uBid after the IPO.
There can be no assurance, however, as to when or if the proposed IPO will take
place.

As of September 30, 1998, the Company had cash, cash equivalents and short-term
investments of  $15.5 million and working capital of $20.8 million.  Inventories
increased to $45.0 million at September 30, 1998 from $42.6 million at December
31, 1997.   Accounts receivable decreased to $40.6 million at September 30, 1998
from $42.5 million at December 31, 1997 due in part to the collection of
receivables purchased from the Elek-Tek acquisition.  During the nine months
ended September 30, 1998, the Company's capital expenditures were $2.7 million,
versus $1.6 million for the comparable period last year.

As of September 30, 1998, the Company had an existing credit facility consisting
of separate credit lines totaling $60 million.  Part of the credit facility
functions in lieu of a vendor trade payable for inventory purchases, is included
in accounts payable, and does not bear interest if paid within terms specific to
each vendor.  Part of the credit facility functions as a working capital line of
credit secured by, and is limited to, a percentage of eligible inventory and
accounts receivable, and bears interest at the prime rate.  For 1998, the
Company repaid $7.4 million borrowed under this facility.  As of September 30,
1998, the Company had $2.8 million in borrowings under the credit facility.  The
overall credit facility is secured by substantially all of the Company's assets
and contains certain covenants that require the Company to maintain a minimum
level of tangible net worth and income and a maximum leverage ratio.  The
Company believes it is currently in compliance with all such covenants.

The Company believes that current working capital, together with cash flows from
operations and available lines of credit, will be adequate to support the
Company's current operating plans through 1999.  However, if the Company
requires additional funds, such as for acquisitions or expansion or to fund a
significant downturn in sales that causes continued losses, there are no
assurances that adequate financing will be available at acceptable terms.

In July 1996, the Company announced its plan to repurchase up to 1,000,000
shares of its 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
the Company will repurchase.  Subject to applicable securities laws, repurchases
may be made at such times and in such amounts as the Company's management deems
appropriate.  The program can also be discontinued at any time management feels
additional purchases are not warranted.  The Company will finance the repurchase
plan with existing working capital.  As of September 30, 1998, the Company has
repurchased 15,000 shares under the program.
 
As part of its growth strategy, the Company may, in the future, acquire other
companies in the same or complementary lines of business.  Any such acquisition
and the ensuing integration of the operations of the acquired company would
place additional demands on the Company's management and operating and financial
resources.

Inflation

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

                                       11
<PAGE>
 
Business Factors

Except for historical information, all of the statements, expectations and
assumptions contained in this report are forward-looking statements. The
realization of any or all of these expectations is subject to a number of risks
and uncertainties, and it is possible that the assumptions made by management
may not materialize.  There can be no assurances that:  the Company's closing of
seven retail stores, taking restructuring charges and reducing its workforce
will better position the Company going forward or favorably impact the Company's
balance sheet; the uBid IPO, or the distribution of the remaining uBid shares
held by the Company, will occur; the Company's uBid subsidiary will continue to
ramp up sales; the investment in the Company's uBid subsidiary will favorably
impact sales; the Company's promotions will favorably impact uBid sales; the
Company's uBid subsidiary will be profitable; the Company's year 2000 compliance
program will be successful; the Company's Internet websites will continue sales
increases; the Company will be able to receive the expected benefits from
acquisitions; and the Company will not experience difficulties integrating the
operations of acquired companies; or that developments at Apple will not have an
impact on the Company's sales and earnings in the future.  In addition to the
factors set forth above, other important factors that could cause actual results
to differ materially from expectations include competition from other catalog
and retail store resellers and price pressures related thereto; uncertainties
surrounding the supply of and demand for products manufactured by and compatible
with Apple Computer and clones thereof; reliance on Apple Computer, IBM, Hewlett
Packard, Compaq and other vendors; and risks due to shifts in market demand
and/or price erosion of owned inventory.  This list of risk factors is not
intended to be exhaustive.  Reference should also be made to the risk factors
set forth from time to time in the Company's SEC reports, including but not
limited to those set forth in the section entitled "Certain Factors Affecting
Future Results" in its Annual Report on Form 10-K for 1997.


                          Part II - OTHER INFORMATION


Item 6.  Exhibits and Reports on Form 8-K
         --------------------------------

         a.  Exhibits  Exhibit 27  Financial Data Schedule
         b.  Reports on Form 8-K

             The Company filed a Form 8-K dated July 6, 1998 with respect to the
             proposed uBid initial public offering and spin-off transaction.

                                   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.



                                      CREATIVE COMPUTERS, INC.
 



Date:  November 13, 1998              By  /s/ Ted Sanders
                                      Ted Sanders
                                      Chief Financial Officer

                                      (Duly Authorized Officer of the Registrant
                                      and Principal Financial Officer)

 


 

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