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. The
complaint seeks unpaid overtime, statutory penalties, interest, attorneys fees, punitive damages,
restitution and injunctive relief. The matter has been submitted to arbitration.
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 those listed below.
Risks Related to All Our Business Segments
Our business and future growth depend on our continued access to bank and commercial financing.
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 $113 million in line of
credit facilities provided by various banks and commercial lenders. These lines of credit currently
mature in March and April, 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 six months ended June 30, 2008 and 2007, a U.S. government agency with whom we have a
contractual relationship, Xerox Corporation and a consumer products company represented
approximately 39%, 10% and 6%, respectively, and approximately 25%, 11% and 13%, respectively of
our total service fee revenue, net of pass-through revenue. The loss of, or non-payment of invoices
by, any or all of such clients would have a material adverse effect upon our business. In
particular, the agreement under which we provide services to such clients are terminable at will
upon notice by such clients.
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 demand generation activities. Discontinuance of such activities
would have a material adverse effect on Supplies Distributors business and the Companys financial
Sales by Supplies Distributors to two customers accounted for approximately 29% of Supplies
Distributors total product revenue for the six months ended June 30, 2008. Sales to the same two
customers accounted for approximately 27% of Supplies Distributors product revenue for the six
months ended June 30, 2007. The loss of any one or more of such customers, or non-payment of any
material amount by these or any other customer, would have a material adverse effect upon Supplies