##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
  PC MALL, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    95-4518700(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)
 2555 West 190th Street, Suite 201
Torrance, CA 90504
 (Address of principal executive offices)
 (310) 354-5600
 (Registrants telephone number, including area code)
  x o
  o o x
  o x




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##### 



PC MALL, INC.
 TABLE OF CONTENTS
  
 PagePART I - FINANCIAL INFORMATION (unaudited)Item 1. Financial StatementsConsolidated Balance Sheets as of March 31, 2007 and December 31, 2006
    
    
    2Consolidated Statements of Operations for the Three Months Ended March 31, 2007 and March 31, 2006
    
    
    3Consolidated Statement of Stockholders Equity for the Three Months Ended March 31, 2007
    
    
    4Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2007 and March 31, 2006
    
    
    5Notes to the Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4T. Controls and Procedures
    
    
    22PART II - OTHER INFORMATION (unaudited)Item 1. Legal Proceedings
    
    
    23Item 1A. Risk Factors
    
    
    24Item 6. Exhibits
    
    
    37Signature
    
    
    38
 1




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##### 



PC MALL, INC.
 
 PART
I - FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except per share amounts and share data)
 March 31,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    4,576
    
    
    $
    5,836Accounts receivable, net of allowances of $4,387 and $4,630
    
    
    115,417
    
    
    
    114,184Inventories, net
    
    
    41,122
    
    
    
    51,268Prepaid expenses and other current assets
    
    
    8,328
    
    
    
    8,497Deferred income taxes
    
    
    4,592
    
    
    
    4,594Total current assets
    
    
    174,035
    
    
    
    184,379Property and equipment, net
    
    
    7,675
    
    
    
    8,055Deferred income taxes
    
    
    5,004
    
    
    
    6,248Goodwill
    
    
    3,900
    
    
    
    3,525Intangible assets, net
    
    
    803
    
    
    
    931Other assets
    
    
    415
    
    
    
    429Total assets
    
    $
    191,832
    
    
    $
    203,567LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    67,889
    
    
    $
    75,837Accrued expenses and other current liabilities
    
    
    20,493
    
    
    
    20,215Deferred revenue
    
    
    11,251
    
    
    
    11,964Line of credit
    
    
    26,826
    
    
    
    32,477Note payable  current
    
    
    500
    
    
    
    500Total current liabilities
    
    
    126,959
    
    
    
    140,993Note payable
    
    
    1,625
    
    
    
    1,750Total liabilities
    
    
    128,584
    
    
    
    142,743Commitments and contingencies (Note 10)Stockholders equity:Preferred stock, $0.001 par value; 5,000,000 shares
authorized; none issued and outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value; 30,000,000 shares
authorized; 12,706,626 and 12,648,720 shares issued; and
12,412,426 and 12,354,520 shares outstanding, respectively
    
    
    13
    
    
    
    13Additional paid-in capital
    
    
    87,964
    
    
    
    87,465Treasury stock, at cost: 294,200 shares
    
    
    (1,015
    )
    
    
    (1,015
    )Accumulated other comprehensive income
    
    
    298
    
    
    
    241Accumulated deficit
    
    
    (24,012
    )
    
    
    (25,880
    )Total stockholders equity
    
    
    63,248
    
    
    
    60,824Total liabilities and stockholders equity
    
    $
    191,832
    
    
    $
    203,567
  2




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##### 



PC MALL, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
 Three Months EndedMarch 31,2007
    
    
    2006Net sales
    
    $
    256,780
    
    
    $
    234,222Cost of goods sold
    
    
    224,968
    
    
    
    204,791Gross profit
    
    
    31,812
    
    
    
    29,431Selling, general and administrative expenses
    
    
    27,772
    
    
    
    28,493Operating profit
    
    
    4,040
    
    
    
    938Interest expense, net
    
    
    927
    
    
    
    1,029Income (loss) before income taxes
    
    
    3,113
    
    
    
    (91
    )Income tax expense (benefit)
    
    
    1,245
    
    
    
    (36
    )Net income (loss)
    
    $
    1,868
    
    
    $
    (55
    )Basic and Diluted Income (Loss) Per Common ShareBasic
    
    $
    0.15
    
    
    $
    (0.00
    )Diluted
    
    
    0.14
    
    
    
    (0.00
    )Weighted average number of common shares outstanding:Basic
    
    
    12,382
    
    
    
    11,731Diluted
    
    
    13,555
    
    
    
    11,731
  3




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##### 



PC MALL, INC.
 
 CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(unaudited, in thousands)
 Common Stock
    
    
    
    
    
    
    
    
    
    
    AccumulatedAdditional
    
    
    
    
    
    
    OtherPaid-in-
    
    
    Treasury
    
    
    Comprehensive
    
    
    AccumulatedOutstanding
    
    
    Amount
    
    
    Capital
    
    
    Stock
    
    
    Income
    
    
    Deficit
    
    
    TotalBalance at December 31, 2006
    
    
    12,354
    
    
    $
    13
    
    
    $
    87,465
    
    
    $
    (1,015
    )
    
    $
    241
    
    
    $
    (25,880
    )
    
    $
    60,824Stock option exercises
    
    
    58
    
    
    
    
    
    
    
    183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    183Stock-based compensation
expense
    
    
    
    
    
    
    
    
    
    
    316
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    316Subtotal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,323Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,868
    
    
    
    1,868Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57
    
    
    
    
    
    
    
    57Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,925Balance at March 31, 2007
    
    
    12,412
    
    
    $
    13
    
    
    $
    87,964
    
    
    $
    (1,015
    )
    
    $
    298
    
    
    $
    (24,012
    )
    
    $
    63,248
  4




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##### 



PC MALL, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 Three Months EndedMarch 31,2007
    
    
    2006Cash Flows From Operating ActivitiesNet income (loss)
    
    $
    1,868
    
    
    $
    (55
    )Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization
    
    
    986
    
    
    
    950Provision (benefit) for deferred income taxes
    
    
    1,245
    
    
    
    (36
    )Stock-based compensation
    
    
    316
    
    
    
    452Loss on disposal of fixed assets
    
    
    35
    
    
    
    Change in operating assets and liabilities:Accounts receivable
    
    
    (983
    )
    
    
    (4,060
    )Inventories
    
    
    10,146
    
    
    
    11,364Prepaid expenses and other current assets
    
    
    169
    
    
    
    (916
    )Other assets
    
    
    16
    
    
    
    (10
    )Accounts payable
    
    
    (8,618
    )
    
    
    11,967Accrued expenses and other current liabilities
    
    
    (347
    )
    
    
    (2,463
    )Deferred revenue
    
    
    (713
    )
    
    
    (854
    )Total adjustments
    
    
    2,252
    
    
    
    16,394Net cash provided by operating activities
    
    
    4,120
    
    
    
    16,339Cash Flows From Investing ActivitiesPurchases of property and equipment
    
    
    (514
    )
    
    
    (1,006
    )Net cash used in investing activities
    
    
    (514
    )
    
    
    (1,006
    )Cash Flows From Financing ActivitiesRepayments under note payable
    
    
    (125
    )
    
    
    (125
    )Net payments under line of credit
    
    
    (5,651
    )
    
    
    (10,998
    )Change in book overdraft
    
    
    670
    
    
    
    (5,563
    )Proceeds from stock issued under stock option plans
    
    
    183
    
    
    
    63Net cash used in financing activities
    
    
    (4,923
    )
    
    
    (16,623
    )Effect of foreign currency on cash flow
    
    
    57
    
    
    
    (36
    )Net decrease in cash and cash equivalents
    
    
    (1,260
    )
    
    
    (1,326
    )Cash and cash equivalents at beginning of the period
    
    
    5,836
    
    
    
    6,289Cash and cash equivalents at end of the period
    
    $
    4,576
    
    
    $
    4,963Supplemental Cash Flow InformationInterest paid
    
    $
    978
    
    
    $
    907Income taxes paid
    
    
    242
    
    
    
    35Supplemental Non-Cash Investing ActivityGoodwill related to acquisition of GMRIs products business (Note 3)
    
    $
    383
    
    
    $
    
  5




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##### 



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




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##### 



Recent Accounting Pronouncements
    3. Acquisition
   7




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##### 



Other receivable
    
    $
    250Goodwill
    
    $
    2,503Intangible assets:Product backlog
    
    $
    581Maintenance contracts
    
    
    143Tradenames
    
    
    240Software licenses
    
    
    218Non-compete agreements
    
    
    20Total intangible assets
    
    
    1,202Furniture and equipment
    
    
    64Total assets acquired
    
    $
    4,019Liabilities:Accrued liabilities
    
    $
    633Net assets acquired
    
    $
    3,386
   4. Goodwill and Intangible Assets
 Goodwill
  GoodwillBalance at December 31, 2006
    
    $
    3,525Adjustment relating to purchase accounting
    
    
    383Other
    
    
    (8
    )Balance at March 31, 2007
    
    $
    3,900
 8




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##### 



Intangible Assets
  Weighted
    
    

At
March 31, 2007
    
    

At
December 31, 2006AverageEstimatedUseful Lives
    
    
    Gross
    
    
    Accumulated
    
    
    Net
    
    
    Gross
    
    
    Accumulated
    
    
    Net(years)
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountPatent, trademark & URLs
    
    
    7
    
    
    $
    918
    
    
    $
    520
    
    
    $
    398
    
    
    $
    922
    
    
    $
    504
    
    
    $
    418Customer relationship
    
    
    5
    
    
    
    555
    
    
    
    527
    
    
    
    28
    
    
    
    555
    
    
    
    499
    
    
    
    55Product backlog
    
    Various (1
    )
    
    581
    
    
    
    450
    
    
    
    131
    
    
    
    581
    
    
    
    422
    
    
    
    160Software licenses
    
    
    3
    
    
    
    218
    
    
    
    42
    
    
    
    176
    
    
    
    218
    
    
    
    24
    
    
    
    194Maintenance contracts
    
    Various (1
    )
    
    143
    
    
    
    110
    
    
    
    33
    
    
    
    143
    
    
    
    84
    
    
    
    59Non-compete agreements
    
    
    5
    
    
    
    118
    
    
    
    86
    
    
    
    32
    
    
    
    118
    
    
    
    80
    
    
    
    38Other
    
    
    5
    
    
    
    32
    
    
    
    27
    
    
    
    5
    
    
    
    32
    
    
    
    25
    
    
    
    7Total intangible assets
    
    
    
    
    
    $
    2,565
    
    
    $
    1,762
    
    
    $
    803
    
    
    $
    2,569
    
    
    $
    1,638
    
    
    $
    931
 
 (1)
    
    Amortization of these intangible assets, which relate to customer orders, are based on
actual shipments of goods or performance of service.   5. Debt
     6. Income Taxes
  9




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##### 



7. Earnings (Loss) Per Share
   Income
    
    
    
    
    
    
    Per Share(Loss)
    
    
    Shares
    
    
    AmountsThree Months Ended March 31, 2007:Basic EPSNet income
    
    $
    1,868
    
    
    
    12,382
    
    
    $
    0.15Effect of dilutive securitiesDilutive effect of stock options and warrants
    
    
    
    
    
    
    1,173Diluted EPSAdjusted net income
    
    $
    1,868
    
    
    
    13,555
    
    
    $
    0.14Three Months Ended March 31, 2006:Basic EPSNet loss
    
    $
    (55
    )
    
    
    11,731
    
    
    $
    (0.00
    )Effect of dilutive securitiesDilutive effect of stock options and warrants
    
    
    
    
    
    
    Diluted EPSAdjusted net loss
    
    $
    (55
    )
    
    
    11,731
    
    
    $
    (0.00
    )
 8. Comprehensive Income (Loss)
  Three Months EndedMarch 31,2007
    
    
    2006Net income (loss)
    
    $
    1,868
    
    
    $
    (55
    )Other comprehensive income (loss):Foreign currency translation adjustments
    
    
    57
    
    
    
    (36
    )Total comprehensive income (loss)
    
    $
    1,925
    
    
    $
    (91
    )
 10




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##### 



9. Segment Information
   Three Months Ended March 31, 2007
    
    Core business
    
    
    OnSale.com
    
    
    ConsolidatedNet sales
    
    $
    254,078
    
    
    $
    2,702
    
    
    $
    256,780Gross profit
    
    
    31,535
    
    
    
    277
    
    
    
    31,812Operating profit (loss)
    
    
    4,405
    
    
    
    (365
    )
    
    
    4,040
 Three Months Ended March 31, 2006
    
    Core business
    
    
    OnSale.com
    
    
    ConsolidatedNet sales
    
    $
    229,384
    
    
    $
    4,838
    
    
    $
    234,222Gross profit
    
    
    29,053
    
    
    
    378
    
    
    
    29,431Operating profit (loss)
    
    
    1,611
    
    
    
    (673
    )
    
    
    938
  10. Commitments and Contingencies
  Legal Proceedings
  Nicole Atkins, et al. v. PC
Mall, Inc., et al.
  11




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12




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##### 



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 You should read the following Managements Discussion and Analysis of Financial Condition and
Results of Operations together with the consolidated financial statements and related notes
included elsewhere in this report, our Annual Report on Form 10-K for the year ended December 31,
2006 filed with the SEC on March 12, 2007, as amended on April 30, 2007, and all of our other
periodic filings, including Current Reports on Form 8-K , filed with the SEC after such date and
through the date of this report. This discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those described under
Forward-Looking Statements below and under Risk Factors in Item 1A of Part II, and elsewhere in
this report.
 BUSINESS OVERVIEW
      CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  13




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##### 




    
    it requires assumptions to be made that were uncertain at the time the estimate was made; and
    
    changes in the estimate or different estimates that could have been selected could
have a material impact on our consolidated results of operations or financial position.
  Revenue Recognition.
    Allowance for Doubtful Accounts Receivable.
 Reserve for Inventory Obsolescence.
 Mail-In Rebate Redemption Rate Estimates.
 14




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##### 



Advertising Costs and Vendor Consideration.
  Stock-Based Compensation.
  15




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##### 



RESULTS OF OPERATIONS
 Consolidated Statements of Operations Data
  Three Months EndedMarch 31,2007
    
    
    2006Net sales
    
    $
    256,780
    
    
    $
    234,222Cost of goods sold
    
    
    224,968
    
    
    
    204,791Gross profit
    
    
    31,812
    
    
    
    29,431Selling, general and administrative expenses
    
    
    27,772
    
    
    
    28,493Operating profit
    
    
    4,040
    
    
    
    938Interest expense, net
    
    
    927
    
    
    
    1,029Income (loss) before income taxes
    
    
    3,113
    
    
    
    (91
    )Income tax expense (benefit)
    
    
    1,245
    
    
    
    (36
    )Net income (loss)
    
    $
    1,868
    
    
    $
    (55
    )
 Three Months EndedMarch 31,2007
    
    
    2006Net sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    87.6
    %
    
    
    87.4
    %Gross profit
    
    
    12.4
    %
    
    
    12.6
    %Selling, general and administrative expenses
    
    
    10.8
    %
    
    
    12.2
    %Operating profit
    
    
    1.6
    %
    
    
    0.4
    %Interest expense, net
    
    
    0.4
    %
    
    
    0.4
    %Income (loss) before income taxes
    
    
    1.2
    %
    
    
    (0.0)
    %Income tax expense (benefit)
    
    
    0.5
    %
    
    
    (0.0)
    %Net income (loss)
    
    
    0.7
    %
    
    
    (0.0)
    %
 Selected Other Operating Data
 Three Months EndedMarch 31,2007
    
    
    2006Commercial and public sector sales percentage
    
    
    79.7
    %
    
    
    75.9
    %Consumer sales percentage (includes OnSale.com)
    
    
    20.3
    %
    
    
    24.1
    %Commercial and public sector account executives (at end of period)
    
    
    537
    
    
    
    570
 16




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##### 



Three Months Ended March 31, 2007 Compared to the Three Months Ended March 31, 2006
 Net Sales.
 Three Months EndedMarch 31,
    
    
    Change2007
    
    
    2006
    
    
    $
    
    
    %Core business
    
    $
    254,078
    
    
    $
    229,384
    
    
    $
    24,694
    
    
    
    10.8%OnSale.com
    
    
    2,702
    
    
    
    4,838
    
    
    
    (2,136
    )
    
    NMF
    (1)Total net sales
    
    $
    256,780
    
    
    $
    234,222
    
    
    $
    22,558
    
    
    
    9.6%
 
 (1)
    
    Not meaningful.      Gross Profit and Gross Profit Margin.
 Three Months EndedMarch 31,2007
    
    
    2006
    
    
    ChangeGross Profit
    
    
    
    
    
    
    Gross ProfitGross Profit
    
    
    Margin
    
    
    Gross Profit
    
    
    Margin
    
    
    $
    
    
    MarginCore business
    
    $
    31,535
    
    
    
    12.4
    %
    
    $
    29,053
    
    
    
    12.7
    %
    
    $
    2,482
    
    
    
    (0.3)
    %OnSale.com
    
    
    277
    
    
    
    10.3
    %
    
    
    378
    
    
    
    7.8
    %
    
    
    (101
    )
    
    
    2.5
    %Total gross profit and gross profit margin
    
    $
    31,812
    
    
    
    12.4
    %
    
    $
    29,431
    
    
    
    12.6
    %
    
    $
    2,381
    
    
    
    (0.2)
    %
   17




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##### 



Selling, General and Administrative Expenses.
 Three Months EndedMarch 31,2007
    
    
    2006
    
    
    ChangeSG&A as a
    
    
    
    
    
    
    SG&A as a
    
    
    
    
    
    
    
    
    
    
    SG&A as aSG&A
    
    
    % of Sales
    
    
    SG&A
    
    
    % of Sales
    
    
    $
    
    
    %
    
    
    % of SalesCore business
    
    $
    27,130
    
    
    
    10.7
    %
    
    $
    27,441
    
    
    
    12.0
    %
    
    $
    (311
    )
    
    
    (1.1)
    %
    
    
    (1.3)
    %OnSale.com
    
    
    642
    
    
    
    23.8
    %
    
    
    1,052
    
    
    
    21.7
    %
    
    
    (410
    )
    
    NMF
    
    
    2.0
    %Total SG&A expenses
    
    $
    27,772
    
    
    
    10.8
    %
    
    $
    28,493
    
    
    
    12.2
    %
    
    $
    (721
    )
    
    
    (2.5)
    %
    
    
    (0.8)
    %
      18




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##### 



Net Interest Expense.
 Income Tax Expense (Benefit).
 LIQUIDITY AND CAPITAL RESOURCES
 Working Capital.
   Cash Flows from Operating Activities.
  Cash Flows from Investing Activities.
 19




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##### 



Cash Flows from Financing Activities.
 Line of Credit and Note Payable.
    Inflation
  Dividend Policy
  Off-Balance Sheet Arrangements
  Contingencies
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IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
  FORWARD-LOOKING STATEMENTS
  
    
    our beliefs relating to the benefits to be received from our Philippines office and
Canadian call center, including tax credits and reduction in labor costs over time;
    
    our beliefs regarding changes in our total amount of unrecognized tax benefits;
    
    our competitive advantages and growth opportunities;
    
    our ability to increase profitability and revenues;
    
    our ability to leverage our market position and purchasing power and offer a wide
selection of products at competitive prices;
    
    our ability to penetrate the public sector market;
    
    our ability to attract new customers and stimulate additional purchases from
existing customers, including our expectations regarding future advertising levels and
the effect on consumer sales;
    
    our belief that our consumer net sales may benefit in the
near term from the recent release of Adobes
Creative Suite 3 and that our consumer net sales may benefit in
the fourth quarter from the anticipated release of Apples OS X Leopard;
    
    our ability to capitalize on our inbound and outbound telemarketing activities and
our expectations regarding related expense levels and their effect on profitability;
    
    our ability to generate vendor supported marketing;
    
    our ability to limit risk related to price reductions;
    
    our use of management information systems and their need for future support or upgrade;
    
    our expectations regarding competition;
    
    our compliance with laws and regulations;
    
    our acquisition strategy and the impact of any future acquisitions;
    
    our expectations regarding our working capital, liquidity and cash flows from operations;
    
    the impact on accounts receivable from our efforts to focus on commercial and
public sector sales;
    
    the likelihood that new laws and regulations will be adopted with respect to the
Internet that may impose additional restrictions or burdens on our business;
    
    our beliefs regarding the applicability of tax regulations;
    
    our expectations regarding the impact of accounting pronouncements;
    
    our plans and expectations relating to our growth strategy, capital needs and future financing.
  21




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
 ITEM 4T. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
   22




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PART
II - OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   Nicole Atkins, et al. v. PC
Mall, Inc., et al.
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ITEM 1A. RISK FACTORS
 This report and other documents we file with the Securities and Exchange Commission contain
forward looking statements that are based on current expectations, estimates, forecasts and
projections about us, our future performance, our business, our beliefs and our managements
assumptions. These statements are not guarantees of future performance and involve certain risks,
uncertainties, and assumptions that are difficult to predict. You should carefully consider the
risks and uncertainties facing our business which are set forth below. The risks described below
are not the only ones facing us. Our business is also subject to risks that affect many other
companies, such as employment relations, general economic conditions, geopolitical events and
international operations. Further, additional risks not currently known to us or that we currently
believe are immaterial also may impair our business, operations, liquidity and stock price
materially and adversely.
 Our revenue is dependent on sales of products from a small number of key manufacturers, and a
decline in sales of products from these manufacturers could materially harm our business.
  Certain of our key vendors provide us with incentives and other assistance that reduce our
operating costs, and any decline in these incentives and other assistance could materially harm our
operating results.
  We do not have long-term supply agreements or guaranteed price or delivery arrangements with our
vendors.
  Substantially all of our agreements with vendors are terminable within 30 days.
  Our success is dependent in part upon the ability of our vendors to develop and market products
that meet changes in marketplace demand, as well as our ability to sell popular products from new
vendors.
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We may not be able to maintain existing or build new vendor relationships, which may affect our
ability to offer a broad selection of products at competitive prices and negatively impact our
results of operations.
  Our narrow gross margins magnify the impact of variations in our operating costs and of adverse or
unforeseen events on our operating results.
  We experience variability in our net sales and net income on a quarterly basis as a result of many
factors.
 ,
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The transition of our business strategy to increasingly focus on commercial and public sector sales
presents numerous risks and challenges, and may not improve our profitability or result in expanded
market share.
  Our investments in our outbound telemarketing sales force model may not improve our profitability
or result in expanded market share.
  Our financial performance could be adversely affected if we are not able to retain and increase the
experience of our sales force or if we are not able to maintain or increase their productivity.
  Existing or future government and tax regulations could expose us to liabilities or costly changes
in our business operations, and could reduce demand for our products and services.
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Part of our business strategy includes the acquisition of other companies, and we may have
difficulties integrating acquired companies into our operations in a cost-effective manner, if at
all.
     We may not be able to maintain profitability on a quarterly or annual basis.
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The effect of the change in accounting rules for stock-based compensation may materially adversely
affect our consolidated operating results, our stock price and our ability to hire, retain and
motivate employees.
  Our operating results are difficult to predict and may adversely affect our stock price.
  
    
    the amount and timing of operating costs and capital expenditures relating to any
expansion of our business operations and infrastructure;
    
    price competition that results in lower sales volumes, lower profit margins, or net losses;
    
    fluctuations in mail-in rebate redemption rates;
    
    the amount and timing of advertising and marketing costs;
    
    our ability to successfully integrate operations and technologies from any future
acquisitions or other business combinations;
    
    changes in the number of visitors to our websites or our inability to convert those visitors into customers;
    
    technical difficulties, including system or Internet failures;
    
    fluctuations in the demand for our products or overstocking or understocking of our products;
    
    introduction of new or enhanced services or products by us or our competitors;
    
    fluctuations in shipping costs, particularly during the holiday season;
    
    economic conditions generally or economic conditions specific to the Internet,
e-commerce, the retail industry or the mail order industry;
    
    changes in the mix of products that we sell; and
    
    fluctuations in levels of inventory theft, damage or obsolescence that we incur.
 If we fail to accurately predict our inventory risk, our gross margins may decline as a result of
required inventory write downs due to lower prices obtained from older or obsolete products.
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We may need additional financing and may not be able to raise additional financing on favorable
terms or at all, which could increase our costs, limit our ability to grow and dilute the ownership
interests of existing stockholders.
  Rising interest rates could negatively impact our results of operations and financial condition.
  We may be subject to claims regarding our intellectual property, including our business processes,
or the products we sell, any of which could result in expensive litigation, distract our management
or force us to enter into costly royalty or licensing agreements.
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Costs and other factors associated with pending or future litigation could materially harm our
business, results of operations and financial condition.
  We may fail to expand our merchandise categories, product offerings, websites and processing
systems in a cost-effective and timely manner as may be required to efficiently operate our
business.
   
    
    establish or increase awareness of our new brands and product categories;
    
    acquire, attract and retain customers at a reasonable cost;
    
    achieve and maintain a critical mass of customers and orders across all of our product categories;
    
    attract a sufficient number of new customers to whom our new product categories are targeted;
    
    successfully market our new product offerings to existing customers;
    
    maintain or improve our gross margins and fulfillment costs;
    
    attract and retain vendors to provide our expanded line of products to our
customers on terms that are acceptable to us; and
    
    manage our inventory in new product categories.
  We may not be able to attract and retain key personnel such as senior management and information
technology specialists.
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If we fail to achieve and maintain adequate internal controls, we may not be able to produce
reliable financial reports in a timely manner or prevent financial fraud.
  Any inability to effectively manage our growth may prevent us from successfully expanding our
business.
  Our advertising and marketing efforts may be costly and may not achieve desired results.
  Changes and uncertainties in the economic climate could negatively affect the rate of information
technology spending by our customers, which would likely have an impact on our business.
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Increased product returns or a failure to accurately predict product returns could decrease our
revenue and impact profitability.
  Our business may be harmed by fraudulent activities on our websites, including fraudulent credit
card transactions.
  We may be liable for misappropriation of our customers personal information.
   Laws or regulations relating to privacy and data protection may adversely affect the growth of our
Internet business or our marketing efforts.
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The security risks of e-commerce may discourage customers from purchasing goods from us.
  Credit card fraud could decrease our revenue and profitability.
  Our facilities and systems are vulnerable to natural disasters or other catastrophic events.
  We rely on independent shipping companies to deliver the products we sell.
  
    
    reduced visibility of order status and package tracking;
    
    delays in order processing and product delivery;
    
    increased cost of delivery, resulting in reduced margins; and
    
    reduced shipment quality, which may result in damaged products and customer dissatisfaction.
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We may not be able to compete successfully against existing or future competitors, which include
some of our largest vendors.
   Our success is tied to the continued use of the Internet and the adequacy of the Internet
infrastructure.
  Our earnings and growth rate could be adversely affected by changes in economic and geopolitical
conditions.
  The success of our Canadian call center is dependent, in part, on our receipt of government labor
credits.
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We are exposed to the risks of business and other conditions in the Asia Pacific region.
   The increasing significance of our foreign operations exposes us to risks that are beyond our
control and could affect our ability to operate successfully.
    
    
    political uncertainties;
    
    wage inflation;
    
    exposure to foreign currency fluctuations;
    
    tariffs and other trade barriers; and
    
    foreign regulatory restrictions and unexpected changes in regulatory environments.
  We are subject to risks associated with the evolution of, and consolidation within, our industry.
  35




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Our success is in part dependent on the accuracy and proper utilization of our management
information systems.
  If we are unable to provide satisfactory customer service, we could lose customers or fail to
attract new customers.
  Our stock price may be volatile.
 ,
 
    
    failure to meet investors expectations regarding our operating performance;
    
    changes in securities analysts recommendations or estimates of our financial performance;
    
    publication of research reports by analysts;
    
    changes in market valuations of similar companies;
    
    announcements by us or our competitors of significant contracts, acquisitions,
commercial relationships, joint ventures or capital commitments;
    
    actual or anticipated fluctuations in our operating results;
    
    litigation developments; and
    
    general market conditions or other economic factors unrelated to our performance.
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,
 
 ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description10.1
    
    
    Joint Stipulation of Settlement and Release made and entered into by and between Plaintiff Nicole
Atkins, Class Representative and Defendants PC Mall, Inc. and PC Mall Sales, Inc.31.1
    
    
    Certification of the Chief Executive Officer of the Registrant pursuant to Exchange Act Rule 13a-14(a)31.2
    
    
    Certification of the Chief Financial Officer of the Registrant pursuant to Exchange Act Rule 13a-14(a)32.1
    
    
    Certification of the Chief Executive Officer of Registrant furnished pursuant to 18 U.S.C. 1350, as
adopted by Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    
    Certification of the Chief Financial Officer of Registrant furnished pursuant to 18 U.S.C. 1350, as
adopted by Section 906 of the Sarbanes-Oxley Act of 2002
  37




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PC MALL, INC.
 
 SIGNATURE
  PC MALL, INC. 
(Registrant)Date: May 15, 2007
    By:
    /s/ Theodore R. SandersTheodore R. SandersChief Financial Officer


(Duly Authorized Officer of the Registrant and
Principal Financial Officer) 38




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PC MALL, INC.
 
 EXHIBIT INDEX
 ExhibitNumber
    
    Description10.1
    
    
    Joint Stipulation of Settlement and Release made and entered into by and between Plaintiff Nicole
Atkins, Class Representative and Defendants PC Mall, Inc. and PC Mall Sales, Inc.31.1
    
    
    Certification of the Chief Executive Officer of the Registrant pursuant to Exchange Act Rule 13a-14(a)31.2
    
    
    Certification of the Chief Financial Officer of the Registrant pursuant to Exchange Act Rule 13a-14(a)32.1
    
    
    Certification of the Chief Executive Officer of Registrant furnished pursuant to 18 U.S.C. 1350, as
adopted by Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    
    Certification of the Chief Financial Officer of Registrant furnished pursuant to 18 U.S.C. 1350, as
adopted by Section 906 of the Sarbanes-Oxley Act of 2002