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PART I - FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

PC MALL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except share data)

See condensed notes to consolidated financial statements.

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PC MALL, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited, in thousands, except per share data)

See condensed notes to consolidated financial statements.

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PC MALL, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited, in thousands)

See condensed notes to consolidated financial statements.

PC MALL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited, in thousands)

See condensed notes to consolidated financial statements.

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PC MALL, INC.
CONDENSED NOTES TO 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 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, 2003. 

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, 2004 and December 31, 2003 and the results of operations for the three months ended March 31, 2004 and 2003, and cash flows for the three months ended March 31, 2004 and 2003.  The results of operations for the interim periods are not necessarily indicative of the results of operations for the full year.

Reclassifications

Certain reclassifications have been made to the 2003 financial statement amounts to conform to the 2004 presentation.

2.       Recent Accounting Pronouncements

In November 2002, the FASB issued EITF No. 02-16, "Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor" ("EITF 02-16"). EITF 02-16 requires that consideration received by a customer from a vendor is considered (a) an adjustment of the prices of the vendor's products or services and therefore, characterized as a reduction of cost of sales when recognized in the reseller's statement of operations, (b) an adjustment to a cost incurred by the reseller and, therefore, characterized as a reduction of that cost when recognized in the reseller's statement of operations, or (c) a payment for assets or services delivered to the vendor, and therefore, characterized as revenue when recognized in the reseller's statement of operations.  Adoption of EITF 02-16 was required for the Company for new agreements, including modifications of existing agreements, entered into after December 31, 2002.  As a result of the adoption of EITF 02-16, the Company recorded $6.2 million and $3.6 million of advertising funding as a reduction of cost of sales for the quarters ended March 31, 2004 and 2003, respectively, which would have previously been netted against advertising expense.

 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
		March31,
		2004			2003
Net income	$	136		$	292
Weighted average shares - Basic		10,891			10,598
Effect of dilutive stock options and warrants (a)		1,198			526
Weighted average shares - Diluted		12,089			11,124
Earnings per share - Basic	$	0.01		$	0.03
Earnings per share - Diluted	$	0.01		$	0.03

(a)  Potential common shares of 0 and 776,218 for the quarters ended March 31, 2004 and 2003, 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 marketplace/auction business under the OnSale.com brand.  The OnSale.com segment, which was previously reported as part of the Core Business, was established as a new segment beginning in the third quarter of 2003, and prior period amounts have been adjusted to reflect the new presentation.  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, 2004 and 2003 is as follows (in thousands):

Three months ended March 31, 2004				Core Business			eCOST.com			OnSale.com			Consolidated
	Net sales		$	239,790		$	38,325		$	8		$	278,123
	Gross profit			31,200			4,049			8			35,257
	Income from operations			1,207			(273)			(312)			622
Three months ended March 31, 2003				Core Business			eCOST.com			OnSale.com			Consolidated
	Net sales		$	210,880		$	23,917		$	-		$	234,797
	Gross profit			26,176			2,690			-			28,866
	Income from operations			715			118			(181)			652

5.         Stock-Based Compensation

The Company accounts for its stock option plans using the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB 25") and related interpretations.  Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying common stock exceeded the exercise price.  Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") established accounting and disclosure requirements using a fair value-based method for stock option plans.  As allowed by SFAS 123, the Company continues to apply the intrinsic value-based method of accounting, and has adopted the disclosure requirements of SFAS 123.  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.

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, and vests monthly over a one year period from the date of grant.  The Company valued the warrant at fair value (in accordance with FASB Statement No. 123, "Accounting for Stock Based Compensation") based on a Black-Scholes fair value calculation.  The warrant was valued at the date of grant and will be re-measured at fair value at each subsequent reporting period, and changes in value will be recorded over the twelve month performance period of the warrant.  The Company recorded an expense of approximately $0.1 million for the first quarter of 2004 in connection with the issuance of this warrant.

Had compensation cost on all grants been determined consistent with SFAS 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts shown below (in thousands, except per share amounts). 

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 with the following weighted average assumptions:

The weighted average grant date fair values of options granted under the Plans for the three months ended March 31, 2004 and 2003 were $13.59 and $2.92, respectively.

eCOST.com 1999 Stock Incentive Plan

In 1999, eCOST.com adopted its 1999 Stock Incentive Plan.   As of March 31, 2004, options to purchase an aggregate of 662,000 shares of eCOST.com common stock were outstanding at a weighted average exercise price of $5.67.  The options have terms that (i) restrict exerciseability based on the earlier of a corporate transaction involving eCOST.com (e.g. a merger or consolidation or disposition of all or substantially all of the assets of eCOST.com) as defined, an initial public offering by eCOST.com or the lapse of a five or seven year period from date of grant, and (ii) for certain awards, provide repurchase rights to eCOST.com at the original exercise price in the event of employee termination, which right terminates in the event of a corporate transaction or initial public offering.  No options were exercisable at March 31, 2004 or for any prior year, and the time-based vesting terms (generally two to five years from the date of grant) were not deemed substantive as the awards are effectively contingent upon a corporate transaction or initial public offering of eCOST.com.  Due to such contingency, the Company has deemed the awards to be variable awards under APB 25 and as a result, the Company will be required to recognize a compensation charge based on the intrinsic value of the options when and if such contingent events occur in the future.

6.         Supplemental Disclosure of Non-cash Transactions

7.           eCOST.com Initial Public Offering

On May 5, 2004, eCOST.com, Inc., a wholly-owned subsidiary of the Company, filed a registration statement with the Securities and Exchange Commission for a proposed public offering of its common stock.  Following the initial public offering, the Company will own no less than 80.1% of the common stock of eCOST.com (assuming full exercise of the underwriters' over-allotment option). The registration statement is being reviewed by the SEC and there can be no assurance as to when or if the initial public offering of eCOST.com will be completed. The Company has announced that it intends to distribute the remaining shares of eCOST.com to the Company's stockholders approximately six months following completion of the initial public offering. Completion of the distribution is contingent upon the satisfaction or waiver of a variety of conditions, including, among other things, the receipt of a favorable opinion of the Company's tax counsel as to the tax-free nature of the distribution for U.S. federal income tax purposes. As a result, the distribution may not occur at the contemplated time and may not occur at all.

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

Overview and Recent Developments

PC Mall, Inc. through its subsidiaries (the "Company"), is a leading rapid response direct marketer of computer hardware, software, peripheral, electronics, and other consumer products.  The Company's headquarters is in Torrance, California.  The Company offers products 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.  The Company offers a broad selection of products through its distinctive full-color catalogs under the PC Mall, MacMall, ClubMac, PC Mall Gov and eCOST.com brands; its worldwide web sites on the Internet: pcmall.com, macmall.com, clubmac.com, pcmallgov.com, and ecost.com; and other promotional materials.  The Company also operates OnSale.com, an online marketplace and auction, which was formally launched in October 2003.

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 marketplace/auction business under the OnSale.com brand.  Beginning in the first quarter of 2003, the Company integrated its eLinux segment into the Core Business segment.  The OnSale.com segment, which was previously reported as part of the Core Business, was established as a new segment beginning in the third quarter of 2003, and prior period amounts have been adjusted to reflect the new presentation.  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.

Company management regularly reviews its performance using a variety of financial and non-financial metrics including, but not limited to, sales, shipments, average order size, gross margin, co-op advertising revenues, advertising expense, personnel costs, sales account executive productivity, accounts receivables aging, inventory turnover, liquidity, and cash resources.  Company management compares the various metrics against goals and budgets, and takes appropriate action to enhance Company performance.

The Company plans to continue to focus efforts on increasing market share by investing in the growth, training, and retention of its 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, the Company established a Canadian call center serving the U.S. market.  The Canadian call center had a net cost to the Company of $0.6 million in the three months ended March 31, 2004.  The Company believes that the Canadian call center allows it to access an abundant, highly educated labor pool and provides cost advantages from the currency exchange rate differences as well as a government labor subsidy that extends through approximately the end of 2007.

 In June 2002, the Company formed Onsale, Inc. as a wholly-owned subsidiary.  The Company 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, the Company formally launched OnSale.com, an online marketplace including auctions.  The OnSale.com website has been rebuilt on a technology platform using the latest .NET solutions.  As of March 31, 2004, the Company has invested approximately $0.9 million in capital expenditures and software development costs in connection with its OnSale.com business.  As OnSale.com is a marketplace service, and is not itself a seller of the products sold on its website, the Company expects that in the foreseeable future, revenue through OnSale.com will be immaterial.

 Net sales of the Company 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 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, inbound and outbound shipping costs and certain marketing development funds. Such funds are received from manufacturers of products included in the Company's catalogs and web sites, as well as co-operative advertising funds ("co-op") on products purchased from manufacturers and vendors.

A substantial portion of the Company's business is dependent on sales of HP products, Apple and Apple-related products, and products of other vendors including IBM, Ingram Micro, Microsoft, Sony, and Tech Data. Products manufactured by HP represented 23% of the Company's net sales in the three months ended March 31, 2004.  Products manufactured by Apple represented 19% of the Company's net sales in the three months ended March 31, 2004.

Critical Accounting Policies and Estimates

The Company's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of the Company's consolidated financial statements requires the Company 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. The Company bases its estimates on historical experience and on various other assumptions that are believed 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 the Company's 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 the Company's 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 the Company's board of directors.  The Company believes the critical accounting policies described below affect the more significant judgments and estimates used in the preparation of the Company's financial statements:

Revenue Recognition.  The Company adheres 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, "Revenue R