PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
On July 25, 2007 a purported class action lawsuit entitled Darral Frank and Joseph F. Keeley,
Jr. v. PC Mall, Inc. dba eCOST.com and eCOST.com, Inc. was filed in the Superior Court of
California, Los Angeles County. The purported class consists of all of current and former sales
representatives who worked for the defendants in California from July 24, 2003 through July 24,
2007. The lawsuit alleges that the defendants failed to pay overtime compensation and interest
thereon, failed to timely pay compensation to terminated employees and failed to provide meal and
rest periods, all in violation of the California Labor Code and Business and Professions Code. An
order granting preliminary approval of a settlement of the matter for $0.1 million has been entered
and final approval is expected in December 2008.
ITEM 1A. Risk Factors
There have been no material changes with regard to the risk factors set forth in Part I, Item
1A of the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2007 filed
with the Securities and Exchange Commissions on March 31, 2008 other than as previously noted in
our prior Quarterly Reports on Form 10-Q and as set forth below.
Risks Related to All Our Business Segments
Our business and future growth depend on our continued access to bank and commercial financing.
Recent turmoil in the credit markets and the financial services industry may negatively impact our
business, results of operations, financial condition or liquidity.
Recently, the credit markets and the financial services industry have been experiencing a
period of unprecedented turmoil and upheaval characterized by the bankruptcy, failure, collapse or
sale of various financial institutions and an unprecedented level of intervention from the United
States and foreign governments. The recent economic crisis could also adversely impact our
customers operations or ability to maintain liquidity which may negatively impact our business and
results of operations.
Our business and future growth currently depend on our ability to access bank and commercial
lines of credit. We currently depend on an aggregate of approximately $110 million in line of
credit facilities provided by various banks and commercial lenders. These lines of credit currently
mature in March through May 2009 and are secured by substantially all our assets. Our ability to
renew our line of credit facilities depends upon various factors, including the availability of
bank loans and commercial credit in general, as well as our financial condition and prospects.
Therefore, we cannot guarantee that these credit facilities will continue to be available beyond
their current maturity on reasonable terms or at all. Our inability to renew or replace our credit
facilities or find alternative financing would materially adversely affect our business, financial
condition, operating results and cash flow.
Risks Related to Our PFS and Supplies Distributors Operating Segments
Our business is subject to the risk of customer and supplier concentration.
For the nine months ended September 30, 2008 and 2007, a U.S. government agency, Xerox
Corporation and a consumer products company represented the source of approximately 40%, 10% and
6%, respectively, and approximately 27%, 11% and 13%, respectively of our total service fee
revenue, net of pass-through revenue. In particular, the agreements under which we provide services to such clients are
terminable at will upon notice by such clients. We have been advised that our contract with the U.S.
government agency will not be renewed and such nonrenewal, as well as the loss of, or non-payment
of invoices by, any or all of such other clients are likely to have a material adverse effect upon
A substantial portion of our Supplies Distributors product revenue is generated by sales of
product purchased under master distributor agreements with IPS. These agreements are terminable at
will and no assurance can be given that IPS will continue the master distributor agreements with
Supplies Distributors. Supplies Distributors does not have its own sales force and relies upon
IPSs sales force and product