PFSweb, Inc.

PFSweb Reports Second Quarter 2010 Results

Wednesday 11 August 2010

FOR IMMEDIATE RELEASE

 

 

PFSweb Reports Second Quarter 2010 Results

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Second Quarter Service Fee Revenue Increases 34% Year-over-year

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PLANO, Texas, August 11, 2010 -- PFSweb, Inc. (Nasdaq: PFSW), an international business process outsourcing services provider of end-to-end web commerce solutions and an online discount retailer, today announced its financial results for the second quarter and six months ended June 30, 2010.

 

Summary of consolidated results for the quarter ended June 30, 2010:

 

·         Total revenue increased to $82.5 million for the second quarter of 2010 compared to $82.3 million for second quarter of 2009;

·         Total gross margin improved to 10.9% for the second quarter of 2010 compared to 10.0% for the same period last year;

·         Adjusted EBITDA (as defined) was $1.0 million versus a loss of $0.7 million for the second quarter of 2009;

·         Net loss was $1.5 million, or $0.14 per basic and diluted share, compared to net loss of $2.5 million or $0.25 per basic and diluted share, for the second quarter of 2009;

·         Non-GAAP net loss (as defined) was $0.9 million, or $0.08 per basic and diluted share, compared to non-GAAP net loss of $2.4 million or $0.24 per basic and diluted share, for the second  quarter of 2009;

·         Total cash, cash equivalents and restricted cash increased to $20.8 million as of June 30, 2010 compared to $16.9 million as of December 31, 2009.

 

Summary of consolidated results for the six months ended June 30, 2010:

 

·         Total reported revenue was $170.7 million compared to $171.3 million for the six months ended June 30, 2009;

·         Total gross margin was 10.9% compared to 11.3% for the same period last year;

·         Adjusted EBITDA was $1.9 million for both the six months ended June 30, 2010 and 2009;

·         Net loss was $2.7 million, or $0.26 per basic and diluted share, compared to net loss of $2.8 million, or $0.28 per basic and diluted share, for the six month period ended June 30, 2009;

·         Non-GAAP net loss was $2.0 million, or $0.19 per basic and diluted share, compared to non-GAAP net loss of $2.5 million, or $0.25 per basic and diluted share, for the same period last year.

 

Mark Layton, Chairman and Chief Executive Officer of PFSweb, stated, “Our financial results for the second quarter of 2010 benefited from strong momentum in our Service Fee segment as the result of the ramp up of several new client relationships that have been implemented over the past year, offsetting lower revenue from the Supplies Distributors and eCOST.com businesses.  While total consolidated revenue for the 2010 second quarter only increased slightly year-over-year, our Service Fee business, which provides significantly higher gross margins than our other business units, generated 34% more revenue than the prior year quarter.  This increase in higher margin Service Fee business activity, combined with a reduction in our SG&A costs, resulted in an approximately $1.7 million improvement in Adjusted EBITDA as compared to the second quarter of 2009.

 

“We are encouraged by the continuing growth in our End2End eCommerce solution. During the past several months, we successfully launched two new high profile eCommerce sites and we continue to experience a very active new business pipeline.  As a result, we now have more than 10 active End2End eCommerce programs with our clients and are queued up for several new sites expected to launch in the coming months.  The feedback we have received for our End2End solution continues to be overwhelmingly positive, and we believe this solution has truly elevated our position within the industry.

 

“During the quarter, we strengthened our balance sheet by raising net proceeds of approximately $7.3 million through a public offering of 2.3 million shares of common stock at a price of $3.50 per share.  This capital provides us with increased flexibility to manage our businesses and planned growth,” Mr. Layton continued.

 

Summary of results by business segment:

 

Service Fee Business:

 

For the second quarter of 2010, Service Fee revenue was $16.6 million, compared with $12.4 million for the same period in 2009. The Service Fee business reported Adjusted EBITDA of $0.5 million for the second quarter of 2010, compared to an Adjusted EBITDA loss of $1.3 million for the same period last year. 

 

For the six months ended June 30, 2010, Service Fee revenue was $32.5 million, compared with $29.5 million for the same period in 2009. Adjusted EBITDA for the Service Fee business was $0.7 million for the six month period of 2010, compared to $0.3 million for the six month period in 2009.

 

Mike Willoughby, President of PFSweb’s Services division, commented, “Our Service Fee business experienced significant growth in the second quarter compared to the same period last year, which marked our low point following the non-renewal of a large client agreement with a U.S. government agency.  The rate at which we have been able to recapture revenue over the past year speaks directly to the strength of our business and quality of services.  Most importantly, during this time we have signed multiple new client agreements that offer a much more diversified revenue base. 

 

“In just the past several months, we launched and ramped up two prominent client programs using our End2End eCommerce Solution.  The first was a co-branded solution for the Carter’s and OshKosh B’gosh brands, which launched in late-March; and the second was the highly anticipated P&G eStore through our alliance with Procter and Gamble, which launched in late-May.  In addition, we also announced a couple of new European client agreements, including an End2End eCommerce agreement with Havaianas, the iconic Brazilian brand of flip-flop; and a partnership with Baby Boum for a business-to-business distribution solution throughout Europe.

 

“We are very excited about the momentum in our services business as a result of our End2End eCommerce solution, which continues to impress clients and industry professionals alike. This momentum is particularly strong in several rapidly evolving market segments, including the fashion, apparel and accessories, beauty and fragrance, and consumer packaged goods segments.  As previously announced, in May 2010, we signed a new End2End eCommerce agreement with a leading fragrance and beauty company.  As we look forward to the rest of 2010 and beyond, we continue to maintain a robust pipeline of potential new contracts,” continued Mr. Willoughby.

 

Supplies Distributors Business:

 

For the second quarter of 2010, Supplies Distributors revenue was $43.5 million, compared to $45.3 million for the same period last year. Adjusted EBITDA was $0.9 million for the second quarter of 2010, compared to $1.0 million for the same period last year.

 

For the six months ended June 30, 2010, Supplies Distributors revenue was $89.1 million, compared to $90.6 million for the same period last year. Adjusted EBITDA was $1.9 million for the six month period in 2010, compared to $2.4 million for the six month period in 2009.

 

eCOST.com Business:

 

For the second quarter of 2010, eCOST.com revenue was $16.2 million, compared to $20.3 million for the same period in 2009.  Adjusted EBITDA for eCOST.com was a loss of $0.4 million in both the second quarter of 2010 and 2009.

 

For the six months ended June 30, 2010, eCOST.com revenue was $36.3 million, compared to $41.2 million for the same period in 2009. Adjusted EBITDA for eCOST.com in the six month period ended June 30, 2010 improved to a loss of $0.6 million, as compared to a loss of $0.8 million for the same period last year.

“During the second quarter of 2010, our sales and marketing program for the eCOST.com business was negatively impacted by ever evolving email filtering algorithms being deployed by several internet/email service providers (ISP’s). This action has resulted in limiting our ability to effectively advertise to a portion of our customers over the past quarter. Because we have relied primarily on email marketing, and the resulting viral impact of our emails, to generate visitor traffic, the lack of its effectiveness resulted in a decline in revenue this quarter.  We are working to adjust our marketing strategy to overcome this new challenge in the most efficient and cost effective manner possible.  eCOST.com’s results for the second quarter of 2010 were also negatively impacted by $0.3 million of costs applicable to a vendor settlement and other legal matters,” concluded Mr. Layton.

 

Conference Call Information

 

Management will host a conference call at 10:00 am Central Time (11:00 am Eastern Time) on Wednesday, August 11, 2010, to discuss the latest corporate developments and results. To listen to the call, please dial (888) 562-3356 and enter the pin number (92783977) at least five minutes before the scheduled start time. Investors can also access the call in a “listen only” mode via the Internet at the Company’s website, www.pfsweb.com. Please allow extra time prior to the call to visit the site and download any necessary audio software.

 

A digital replay of the conference call will be available through September 11, 2010 at (800) 642-1687, pin number (92783977). The replay also will be available at the Company’s website for a limited time.

 

Non-GAAP Financial Measures

 

This news release may contain certain non-GAAP measures, including non-GAAP net income (loss), Earnings Before Interest, Income Taxes, Depreciation and Amortization (“EBITDA”) and Adjusted EBITDA.

 

Non-GAAP net income (loss) represents net income (loss) calculated in accordance with U.S. GAAP as adjusted for the impact of non-cash stock-based compensation expense, amortization of identifiable intangible assets, the impairment of goodwill and identifiable intangible assets, if any, and vendor settlement and other legal matter costs.

 

EBITDA represents earnings (or losses) before interest, income taxes, depreciation, and amortization.  Adjusted EBITDA further eliminates the effect of stock-based compensation, impairment of goodwill and identifiable intangible assets, if any, and vendor settlement and other legal matter costs. 

Non-GAAP net income (loss), EBITDA and Adjusted EBITDA are used by management, analysts, investors and other interested parties in evaluating our operating performance compared to that of other companies in our industry.  The calculation of non-GAAP net income (loss) eliminates the effect of stock-based compensation, amortization of intangible assets, impairment of goodwill and intangible assets, if any, and vendor settlement and other legal matter costs and EBITDA and Adjusted EBITDA further eliminate the effect of financing, income taxes, and the accounting effects of capital spending, which items may vary from different companies for reasons unrelated to overall operating performance. 

 

PFSweb believes these non-GAAP measures provide useful information to both management and investors by excluding certain expenses that may not be indicative of its core operating results.  These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results.  The non-GAAP measures included in this press release have been reconciled to the GAAP results in the attached tables.

 

About PFSweb Inc.

PFSweb develops and deploys comprehensive end-to-end eCommerce solutions for Fortune 1000, Global 2000 and brand name companies, including interactive marketing services, global fulfillment and logistics and high-touch customer care. The company serves a multitude of industries and company types, including such clients as P&G, Carter’s, LEGO, AAFES, Riverbed, InfoPrint Solutions Company, Hawker Beechcraft Corp., Roots Canada Ltd. and Xerox.

 

Through its wholly owned eCOST.com subsidiary, PFSweb also serves as a leading multi-category online discount retailer of high-quality new, "close-out" and manufacturer recertified brand-name merchandise for consumers and small to medium size business buyers. The eCOST.com brand markets approximately 270,000 different products from leading manufacturers such as Sony, Hewlett-Packard, Denon, JVC, Canon, Nikon, Panasonic, Toshiba, Microsoft, Garmin, Braun, Sharp, Cuisinart, Bissell and Hoover primarily over the Internet and through direct marketing.

 

To find out more about PFSweb, Inc. (NASDAQ: PFSW), visit the company's websites at http://www.pfsweb.com and http://www.ecost.com. 

 

The matters discussed herein consist of forward-looking information under the Private Securities Litigation Reform Act of 1995 and is subject to and involves risks and uncertainties, which could cause actual results to differ materially from the forward-looking information. PFSweb's Annual Report on Form 10-K for the year ended December 31, 2009 and Quarterly Report on Form 10-Q for the three months ended March 31, 2010 identify certain factors that could cause actual results to differ materially from those projected in any forward looking statements made and investors are advised to review the Annual and Quarterly Reports and the Risk Factors described therein. PFSweb undertakes no obligation to update publicly any forward-looking statement for any reason, even if new information becomes available or other events occur in the future. There may be additional risks that we do not currently view as material or that are not presently known.

 

 

Contact:

Mark C. Layton                                                        Todd Fromer / Garth Russell

Chief Executive Officer                                              Investor Relations

or Thomas J. Madden                                               KCSA Strategic Communications

Chief Financial Officer                                               (212) 896-1215 / (212) 896-1250

(972) 881-2900                                                        tfromer@kcsa.com / grussell@kcsa.com
                                                                   
                                                             (Tables Follow)

PFSweb, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations (A)
(In Thousands, Except Per Share Data)
                     
        Three Months Ended   Six Months Ended
        June 30,   June 30,
        2010   2009   2010   2009
 REVENUES:                    
   Product revenue, net    $      59,711    $    65,546    $  125,358    $  131,809
   Service fee revenue              16,567          12,367          32,546          29,486
   Pass-thru revenue               6,186            4,417          12,820            9,972
     Total revenues           82,464          82,330        170,724        171,267
                     
 COSTS OF REVENUES:                  
   Cost of product revenue            55,282          60,303        115,904        121,134
   Cost of service fee revenue            11,987            9,414          23,441          20,733
   Cost of pass-thru revenue             6,186            4,417          12,820            9,972
   Total costs of revenues            73,455          74,134        152,165        151,839
     Gross profit             9,009            8,196          18,559          19,428
 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES            10,190          10,670          20,560          21,363
           Loss from operations            (1,181)          (2,474)           (2,001)           (1,935)
 INTEREST EXPENSE, NET                   237               321               499               678
            Income (loss) before income taxes            (1,418)          (2,795)          (2,500)          (2,613)
 INCOME TAX EXPENSE (BENEFIT)                  77              (266)               204               164
 NET LOSS       $     (1,495)    $    (2,529)    $    (2,704)    $    (2,777)
 NON-GAAP NET LOSS     $         (915)    $    (2,393)    $    (1,993)    $    (2,512)
                     
 NET LOSS PER SHARE:                 
  Basic and Diluted    $        (0.14)    $      (0.25)    $      (0.26)    $      (0.28)
                     
 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:               
  Basic and Diluted            10,796            9,927          10,369            9,925
                     
 EBITDA       $           479    $       (851)    $      1,294    $      1,716
 ADJUSTED EBITDA     $        1,024    $       (742)    $      1,935    $      1,928
                     
(A) The financial data above should be read in conjunction with the audited consolidated financial statements of     
PFSweb, Inc. included in its Form 10-K for the year ended December 31, 2009.             
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     

 

PFSweb, Inc. and Subsidiaries
Reconciliation of Certain Non-GAAP Items to GAAP
(In Thousands, Except Per Share Data)
                     
        Three Months Ended   Six Months Ended
        June 30,   June 30,
        2010   2009   2010   2009
 NET LOSS       $    (1,495)    $    (2,529)    $    (2,704)    $    (2,777)
        Income tax expense (benefit)                77              (266)               204               164
        Interest expense                237               321               499               678
        Depreciation and amortization            1,660            1,623            3,295            3,651
 EBITDA       $         479    $        (851)    $      1,294    $      1,716
        Stock-based compensation               262               109               358               212
        Vendor settlement and other legal matters              283                    -               283                    -
 ADJUSTED EBITDA     $      1,024    $        (742)    $      1,935    $      1,928
                     
                     
        Three Months Ended   Six Months Ended
        June 30,   June 30,
        2010   2009   2010   2009
                     
 NET LOSS       $    (1,495)    $    (2,529)    $    (2,704)    $    (2,777)
        Stock-based compensation               262               109               358               212
        Amortization of identifiable intangible assets                35                 27                 70                 53
        Vendor settlement and other legal matters              283                    -               283                    -
 NON-GAAP NET LOSS     $       (915)    $    (2,393)    $    (1,993)    $    (2,512)
                     
 NET LOSS PER SHARE:                 
  Basic and Diluted    $      (0.14)    $       (0.25)    $      (0.26)    $       (0.28)
                     
 NON-GAAP NET LOSS Per Share:               
  Basic and Diluted    $      (0.08)    $       (0.24)    $      (0.19)    $       (0.25)
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     

PFSweb, Inc. and Subsidiaries    
Unaudited Condensed Consolidated Balance Sheets    
(In Thousands, Except Share Data)    
                 
                 
        June 30,   December 31,    
        2010   2009    
      ASSETS          
 CURRENT ASSETS:             
   Cash and cash equivalents   $          19,410    $          14,812    
   Restricted cash                   1,410                  2,096    
   Accounts receivable, net of allowance for doubtful accounts of $901 and           
        $973 at June 30, 2010 and December 31, 2009, respectively               35,456                39,861    
   Inventories, net of reserves of $2,003 and $2,016 at June 30, 2010 and           
        December 31, 2009, respectively               35,353                37,949    
   Other receivables                 11,881                11,605    
   Prepaid expenses and other current assets                 4,004                  4,170    
     Total current assets             107,514              110,493    
                 
 PROPERTY AND EQUIPMENT, net                 9,214                10,314    
 IDENTIFIABLE INTANGIBLES                    726                     805    
 GOODWILL                     3,602                  3,602    
 OTHER ASSETS                     2,084                  2,555    
     Total assets             123,140              127,769    
                 
   LIABILITIES AND SHAREHOLDERS EQUITY           
 CURRENT LIABILITIES:             
  Current portion of long-term debt and capital lease obligations  $          17,362    $          19,179    
  Trade accounts payable              47,383                53,642    
  Deferred revenue                  5,235                  5,164    
  Accrued expenses                15,439                13,180    
    Total current liabilities              85,419                91,165    
                 
 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion                 1,263                  3,348    
 OTHER LIABILITIES                   3,606                  3,903    
    Total liabilities              90,288                98,416    
                 
                 
 COMMITMENTS AND CONTINGENCIES           
                 
 SHAREHOLDERS' EQUITY:             
  Preferred stock, $1.00 par value; 1,000,000 shares authorized; none issued          
       and outstanding                          -                          -    
  Common stock, $.001 par value; 37,300,000 shares authorized;          
       12,254,957 and 9,952,164 shares issued at June 30, 2010 and          
       December 31, 2009, respectively; and 12,236,596 and 9,933,803          
       outstanding as of June 30, 2010 and December 31, 2009, respectively                     12                       10    
  Additional paid-in capital            100,793                93,152    
  Accumulated deficit              (68,667)              (65,963)    
  Accumulated other comprehensive income                   799                  2,239    
  Treasury stock at cost, 18,361 shares                    (85)                      (85)    
    Total shareholders' equity              32,852                29,353    
    Total liabilities and shareholders' equity  $        123,140    $        127,769    
                 

           

PFSweb, Inc. and Subsidiaries
Unaudited Consolidating Statements of Operations
For the Three Months Ended June 30, 2010
(In Thousands)
                         
            Supplies            
        PFSweb   Distributors   eCOST   Eliminations   Consolidated
 REVENUES:                        
   Product revenue, net    $                    -    $          43,548    $          16,163    $                    -    $          59,711
   Service fee revenue                  16,567                          -                          -                          -                16,567
   Service fee revenue - affiliate                 1,738                          -                          -                 (1,738)                          -
   Pass-thru revenue                   6,202                          -                          -                      (16)                  6,186
     Total revenues               24,507                43,548                16,163                 (1,754)                82,464
                         
 COSTS OF REVENUES:                      
   Cost of product revenue                          -                40,528                14,754                          -                55,282
   Cost of service fee revenue                12,572                          -                          -                    (585)                11,987
   Cost of pass-thru revenue                 6,202                          -                          -                      (16)                  6,186
   Total costs of revenues                18,774                40,528                14,754                    (601)                73,455
     Gross profit                 5,733                  3,020                  1,409                 (1,153)                  9,009
 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                  7,013                  2,153                  2,177                 (1,153)                10,190
           Income (loss) from operations                 (1,280)                     867                    (768)                          -                 (1,181)
 INTEREST EXPENSE (INCOME), NET                      (59)                     293                         3                          -                     237
            Income (loss) before income taxes                 (1,221)                     574                    (771)                          -                 (1,418)
 INCOME TAX PROVISION (BENEFIT)                    (146)                     196                       27                          -                       77
 NET INCOME (LOSS)      $           (1,075)    $               378    $              (798)    $                    -    $           (1,495)
 NON-GAAP NET INCOME (LOSS)   $              (813)    $               378    $              (480)    $                    -    $              (915)
                         
 EBITDA        $               277    $               874    $              (672)    $                    -    $               479
 ADJUSTED EBITDA     $               539    $               874    $              (389)    $                    -    $            1,024
                         
                         
A reconciliation of NET INCOME (LOSS) to EBITDA and ADJUSTED EBITDA follows:                
                         
 NET INCOME (LOSS)     $           (1,075)    $               378    $              (798)    $                    -    $           (1,495)
        Income tax expense (benefit)                    (146)                     196                       27                          -                       77
        Interest expense (income)                      (59)                     293                         3                          -                     237
        Depreciation and amortization                  1,557                         7                       96                          -                  1,660
 EBITDA       $               277    $               874    $              (672)    $                    -    $               479
        Stock-based compensation                     262                          -                          -                          -                     262
        Vendor settlement and other legal matters                         -                          -                     283                          -                     283
 ADJUSTED EBITDA     $               539    $               874    $              (389)    $                    -    $            1,024
                         
A reconciliation of NET INCOME (LOSS) to NON-GAAP NET INCOME (LOSS) follows:                
                         
 NET INCOME (LOSS)     $           (1,075)    $               378    $              (798)    $                    -    $           (1,495)
        Stock-based compensation                     262                          -                          -                          -                     262
        Amortization of intangible assets                         -                          -                       35                          -                       35
        Vendor settlement and other legal matters                         -                          -                     283                          -                     283
 NON-GAAP NET INCOME (LOSS)   $              (813)    $               378    $              (480)    $                    -    $              (915)
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         

PFSweb, Inc. and Subsidiaries
Unaudited Consolidating Statements of Operations
For the Six Months Ended June 30, 2010
(In Thousands)
                         
            Supplies            
        PFSweb   Distributors   eCOST   Eliminations   Consolidated
 REVENUES:                        
   Product revenue, net    $                    -    $          89,050    $          36,308    $                    -    $        125,358
   Service fee revenue                  32,546                          -                          -                          -                32,546
   Service fee revenue - affiliate                 3,438                          -                          -                 (3,438)                          -
   Pass-thru revenue                 12,839                          -                          -                      (19)                12,820
     Total revenues               48,823                89,050                36,308                 (3,457)              170,724
                         
 COSTS OF REVENUES:                      
   Cost of product revenue                          -                82,806                33,098                          -              115,904
   Cost of service fee revenue                24,672                          -                          -                 (1,231)                23,441
   Cost of pass-thru revenue               12,839                          -                          -                      (19)                12,820
   Total costs of revenues                37,511                82,806                33,098                 (1,250)              152,165
     Gross profit               11,312                  6,244                  3,210                 (2,207)                18,559
 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                14,071                  4,364                  4,332                 (2,207)                20,560
           Income (loss) from operations                 (2,759)                  1,880                 (1,122)                          -                 (2,001)
 INTEREST EXPENSE (INCOME), NET                    (115)                     603                       11                          -                     499
            Income (loss) before income taxes                 (2,644)                  1,277                 (1,133)                          -                 (2,500)
 INCOME TAX PROVISION (BENEFIT)                    (282)                     452                       34                          -                     204
 NET INCOME (LOSS)      $           (2,362)    $               825    $           (1,167)    $                    -    $           (2,704)
 NON-GAAP NET INCOME (LOSS)   $           (2,004)    $               825    $              (814)    $                    -    $           (1,993)
                         
 EBITDA        $               328    $            1,894    $              (928)    $                    -    $            1,294
 ADJUSTED EBITDA     $               686    $            1,894    $              (645)    $                    -    $            1,935
                         
                         
A reconciliation of NET INCOME (LOSS) to EBITDA and ADJUSTED EBITDA follows:                
                         
 NET INCOME (LOSS)     $           (2,362)    $               825    $           (1,167)    $                    -    $           (2,704)
        Income tax expense (benefit)                    (282)                     452                       34                          -                     204
        Interest expense (income)                    (115)                     603                       11                          -                     499
        Depreciation and amortization                  3,087                       14                     194                          -                  3,295
 EBITDA       $               328    $            1,894    $              (928)    $                    -    $            1,294
        Stock-based compensation                     358                          -                          -                          -                     358
        Vendor settlement and other legal matters                         -                          -                     283                          -                     283
 ADJUSTED EBITDA     $               686    $            1,894    $              (645)    $                    -    $            1,935
                         
A reconciliation of NET INCOME (LOSS) to NON-GAAP NET INCOME (LOSS) follows:                
                         
 NET INCOME (LOSS)     $           (2,362)    $               825    $           (1,167)    $                    -    $           (2,704)
        Stock-based compensation                     358                          -                          -                          -                     358
        Amortization of intangible assets                         -                          -                       70                          -                       70
        Vendor settlement and other legal matters                         -                          -                     283                          -                     283
 NON-GAAP NET INCOME (LOSS)   $           (2,004)    $               825    $              (814)    $                    -    $           (1,993)
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         

PFSweb, Inc. and Subsidiaries    
Unaudited Condensed Consolidating Balance Sheets    
as of June 30, 2010    
(In Thousands)    
                             
                             
            Supplies                
        PFSweb   Distributors   eCOST   Eliminations   Consolidated    
      ASSETS                      
 CURRENT ASSETS:                         
   Cash and cash equivalents   $          16,614    $            2,656    $               140    $                    -    $          19,410    
   Restricted cash                      776                     515                     119                          -                  1,410    
   Accounts receivable, net               16,459                17,830                  1,509                    (342)                35,456    
   Inventories, net                           -                30,669                  4,684                          -                35,353    
   Other receivables                           -                11,144                     737                          -                11,881    
   Prepaid expenses and other current assets                 2,398                  1,515                       91                          -                  4,004    
     Total current assets               36,247                64,329                  7,280                    (342)              107,514    
                             
 PROPERTY AND EQUIPMENT, net                 8,922                       33                     259                          -                  9,214    
 NOTES RECEIVABLE FROM AFFILIATES               21,195                          -                          -               (21,195)                          -    
 INVESTMENT IN AFFILIATES                (3,200)                          -                          -                  3,200                          -    
 IDENTIFIABLE INTANGIBLES                    357                          -                     369                          -                     726    
 GOODWILL                             -                          -                  3,602                          -                  3,602    
 OTHER ASSETS                     1,871                          -                     213                          -                  2,084    
     Total assets               65,392                64,362                11,723               (18,337)              123,140    
                             
   LIABILITIES AND SHAREHOLDERS EQUITY                       
 CURRENT LIABILITIES:                         
  Current portion of long-term debt and capital lease obligations  $            7,287    $          10,040    $                 35    $                    -    $          17,362    
  Trade accounts payable                4,611                37,468                  5,646                    (342)                47,383    
  Deferred revenue                  4,342                          -                     893                          -                  5,235    
  Accrued expenses                  9,251                  5,192                     996                          -                15,439    
    Total current liabilities              25,491                52,700                  7,570                    (342)                85,419    
                             
 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion                 1,158                          -                     105                          -                  1,263    
 NOTES PAYABLE TO AFFILIATES                         -                  4,255                16,940               (21,195)                          -    
 OTHER LIABILITIES                   3,606                          -                          -                          -                  3,606    
    Total liabilities              30,255                56,955                24,615               (21,537)                90,288    
                             
 COMMITMENTS AND CONTINGENCIES                       
                             
 SHAREHOLDERS' EQUITY:                         
  Common stock                       12                          -                       19                      (19)                       12    
  Capital contributions                          -                  1,000                          -                 (1,000)                          -    
  Additional paid-in capital            100,793                          -                28,059               (28,059)              100,793    
  Retained earnings (accumulated deficit)             (66,365)                  4,676               (40,972)                33,994               (68,667)    
  Accumulated other comprehensive income                   782                  1,731                         2                 (1,716)                     799    
  Treasury stock                      (85)                          -                          -                          -                      (85)    
    Total shareholders' equity              35,137                  7,407               (12,892)                  3,200                32,852    
    Total liabilities and shareholders' equity  $          65,392    $          64,362    $          11,723    $         (18,337)    $        123,140    
                             
                             
                             
                             
                             
                             

PFSweb, Inc. and Subsidiaries
Unaudited Consolidating Statements of Operations
For the Three Months Ended June 30, 2009
(In Thousands)
                         
            Supplies            
        PFSweb   Distributors   eCOST   Eliminations   Consolidated
 REVENUES:                        
   Product revenue, net    $                    -    $          45,269    $          20,277    $                    -    $          65,546
   Service fee revenue                  12,367                          -                          -                          -                12,367
   Service fee revenue - affiliate                 1,736                          -                          -                 (1,736)                          -
   Pass-thru revenue                   4,451                          -                          -                      (34)                  4,417
     Total revenues               18,554                45,269                20,277                 (1,770)                82,330
                         
 COSTS OF REVENUES:                      
   Cost of product revenue                          -                41,984                18,319                          -                60,303
   Cost of service fee revenue                10,052                          -                          -                    (638)                  9,414
   Cost of pass-thru revenue                 4,451                          -                          -                      (34)                  4,417
   Total costs of revenues                14,503                41,984                18,319                    (672)                74,134
     Gross profit                 4,051                  3,285                  1,958                 (1,098)                  8,196
 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                  7,033                  2,304                  2,431                 (1,098)                10,670
           Income (loss) from operations                 (2,982)                     981                    (473)                          -                 (2,474)
 INTEREST EXPENSE (INCOME), NET                      (59)                     377                         3                          -                     321
            Income (loss) before income taxes                 (2,923)                     604                    (476)                          -                 (2,795)
 INCOME TAX PROVISION (BENEFIT)                      (62)                    (213)                         9                          -                    (266)
 NET INCOME (LOSS)      $           (2,861)    $               817    $              (485)    $                    -    $           (2,529)
 NON-GAAP NET INCOME (LOSS)   $           (2,752)    $               817    $              (458)    $                    -    $           (2,393)
                         
 EBITDA        $           (1,452)    $               989    $              (388)    $                    -    $              (851)
 ADJUSTED EBITDA     $           (1,343)    $               989    $              (388)    $                    -    $              (742)
                         
                         
A reconciliation of NET INCOME (LOSS) to EBITDA and ADJUSTED EBITDA follows:                
                         
 NET INCOME (LOSS)     $           (2,861)    $               817    $              (485)    $                    -    $           (2,529)
        Income tax expense (benefit)                      (62)                    (213)                         9                          -                    (266)
        Interest expense (income)                      (59)                     377                         3                          -                     321
        Depreciation and amortization                  1,530                         8                       85                          -                  1,623
 EBITDA       $           (1,452)    $               989    $              (388)    $                    -    $              (851)
        Stock-based compensation                     109                          -                          -                          -                     109
 ADJUSTED EBITDA     $           (1,343)    $               989    $              (388)    $                    -    $              (742)
                         
A reconciliation of NET INCOME (LOSS) to NON-GAAP NET INCOME (LOSS) follows:                
                         
 NET INCOME (LOSS)     $           (2,861)    $               817    $              (485)    $                    -    $           (2,529)
        Stock-based compensation                     109                          -                          -                          -                     109
        Amortization of intangible assets                         -                          -                       27                          -                       27
 NON-GAAP NET INCOME (LOSS)   $           (2,752)    $               817    $              (458)    $                    -    $           (2,393)
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         

PFSweb, Inc. and Subsidiaries
Unaudited Consolidating Statements of Operations
For the Six Months Ended June 30, 2009
(In Thousands)
                         
            Supplies            
        PFSweb   Distributors   eCOST   Eliminations   Consolidated
 REVENUES:                        
   Product revenue, net    $                    -    $          90,600    $          41,209    $                    -    $        131,809
   Service fee revenue                  29,486                          -                          -                          -                29,486
   Service fee revenue - affiliate                 3,795                          -                          -                 (3,795)                          -
   Pass-thru revenue                 10,037                          -                          -                      (65)                  9,972
     Total revenues               43,318                90,600                41,209                 (3,860)              171,267
                         
 COSTS OF REVENUES:                      
   Cost of product revenue                          -                83,934                37,200                          -              121,134
   Cost of service fee revenue                22,016                          -                          -                 (1,283)                20,733
   Cost of pass-thru revenue               10,037                          -                          -                      (65)                  9,972
   Total costs of revenues                32,053                83,934                37,200                 (1,348)              151,839
     Gross profit               11,265                  6,666                  4,009                 (2,512)                19,428
 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                14,650                  4,268                  4,957                 (2,512)                21,363
           Income (loss) from operations                 (3,385)                  2,398                    (948)                          -                 (1,935)
 INTEREST EXPENSE (INCOME), NET                      (82)                     754                         6                          -                     678
            Income (loss) before income taxes                 (3,303)                  1,644                    (954)                          -                 (2,613)
 INCOME TAX PROVISION (BENEFIT)                    (114)                     269                         9                          -                     164
 NET INCOME (LOSS)      $           (3,189)    $            1,375    $              (963)    $                    -    $           (2,777)
 NON-GAAP NET INCOME (LOSS)   $           (2,977)    $            1,375    $              (910)    $                    -    $           (2,512)
                         
 EBITDA        $                 80    $            2,416    $              (780)    $                    -    $            1,716
 ADJUSTED EBITDA     $               292    $            2,416    $              (780)    $                    -    $            1,928
                         
                         
A reconciliation of NET INCOME (LOSS) to EBITDA and ADJUSTED EBITDA follows:                
                         
 NET INCOME (LOSS)     $           (3,189)    $            1,375    $              (963)    $                    -    $           (2,777)
        Income tax expense (benefit)                    (114)                     269                         9                          -                     164
        Interest expense (income)                      (82)                     754                         6                          -                     678
        Depreciation and amortization                  3,465                       18                     168                          -                  3,651
 EBITDA       $                 80    $            2,416    $              (780)    $                    -    $            1,716
        Stock-based compensation                     212                          -                          -                          -                     212
 ADJUSTED EBITDA     $               292    $            2,416    $              (780)    $                    -    $            1,928
                         
A reconciliation of NET INCOME (LOSS) to NON-GAAP NET INCOME (LOSS) follows:                
                         
 NET INCOME (LOSS)     $           (3,189)    $            1,375    $              (963)    $                    -    $           (2,777)
        Stock-based compensation                     212                          -                          -                          -                     212
        Amortization of intangible assets                         -                          -                       53                          -                       53
 NON-GAAP NET INCOME (LOSS)   $           (2,977)    $            1,375    $              (910)    $                    -    $           (2,512)
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         

PFSweb, Inc. and Subsidiaries    
Unaudited Condensed Consolidating Balance Sheets    
as of December 31, 2009    
(In Thousands)    
                             
                             
            Supplies                
        PFSweb   Distributors   eCOST   Eliminations   Consolidated    
      ASSETS                      
 CURRENT ASSETS:                         
   Cash and cash equivalents   $            9,698    $            2,628    $            2,486    $                    -    $          14,812    
   Restricted cash                      732                  1,137                     227                          -                  2,096    
   Accounts receivable, net               19,499                18,764                  1,719                    (121)                39,861    
   Inventories, net                           -                33,577                  4,372                          -                37,949    
   Other receivables                        49                11,556                          -                          -                11,605    
   Prepaid expenses and other current assets                 2,515                  1,575                       80                          -                  4,170    
     Total current assets               32,493                69,237                  8,884                    (121)              110,493    
                             
 PROPERTY AND EQUIPMENT, net                 9,900                       54                     360                          -                10,314    
 NOTES RECEIVABLE FROM AFFILIATES               20,845                          -                          -               (20,845)                          -    
 INVESTMENT IN AFFILIATES                   (149)                          -                          -                     149                          -    
 IDENTIFIABLE INTANGIBLES                    383                          -                     422                          -                     805    
 GOODWILL                             -                          -                  3,602                          -                  3,602    
 OTHER ASSETS                     2,244                          -                     311                          -                  2,555    
     Total assets               65,716                69,291                13,579               (20,817)              127,769    
                             
   LIABILITIES AND SHAREHOLDERS EQUITY                       
 CURRENT LIABILITIES:                         
  Current portion of long-term debt and capital lease obligations  $            8,770    $          10,374    $                 35    $                    -    $          19,179    
  Trade accounts payable                8,396                38,753                  6,614                    (121)                53,642    
  Deferred revenue                  3,948                          -                  1,216                          -                  5,164    
  Accrued expenses                  7,046                  4,701                  1,433                          -                13,180    
    Total current liabilities              28,160                53,828                  9,298                    (121)                91,165    
                             
 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion                 3,208                          -                     140                          -                  3,348    
 NOTES PAYABLE TO AFFILIATES                         -                  5,005                15,840               (20,845)                          -    
 OTHER LIABILITIES                   3,880                          -                       23                          -                  3,903    
    Total liabilities              35,248                58,833                25,301               (20,966)                98,416    
                             
 COMMITMENTS AND CONTINGENCIES                       
                             
 SHAREHOLDERS' EQUITY:                         
  Common stock                       10                          -                       19                      (19)                       10    
  Capital contributions                          -                  1,000                          -                 (1,000)                          -    
  Additional paid-in capital              93,152                          -                28,059               (28,059)                93,152    
  Retained earnings (accumulated deficit)             (64,828)                  6,781               (39,805)                31,889               (65,963)    
  Accumulated other comprehensive income                2,219                  2,677                         5                 (2,662)                  2,239    
  Treasury stock                      (85)                          -                          -                          -                      (85)    
    Total shareholders' equity              30,468                10,458               (11,722)                     149                29,353    
    Total liabilities and shareholders' equity  $          65,716    $          69,291    $          13,579    $         (20,817)    $        127,769    
                             
                             

eCOST.com, Inc.        
Selected Operating Data        
                         
          Three Months Ended          
          June 30,          
          2010   2009          
                         
    Total Customers (1)         2,140,312         1,969,610          
                         
    Active Customers (2)            142,387            222,095          
                         
    New Customers (3)              30,192              49,192          
                         
    Number of Orders (4)              66,778              96,186          
                         
    Average Order Value (5)    $             216    $             203          
                         
    Advertising Expense (6)    $      201,515    $      218,943          
                         
    Cost to Acquire a New Customer (7)    $            6.67    $            4.44          
                         
                         
(1) Total customers have been calculated as the cumulative number of customers for which orders have been taken from eCOST.com's inception to the end of the reported period.      
       
                         
(2) Active customers consist of the approximate number of customers who placed orders during the 12 months prior to the end of the reported period.      
       
                         
(3) New Customers represent the number of persons that established a new account and placed an order during the reported period.      
       
                         
(4) Number of orders represents the total number of orders shipped during the reported period (not reflecting returns).      
       
                         
(5) Average order value has been calculated as gross sales divided by the total number of orders during the period presented.  The impact of returns is not reflected in average order value.      
       
                         
(6) Advertising expense includes the total dollars spent on advertising during the reported period, including internet, direct mail, print and e-mail advertising, as well as customer list enhancement services.      
       
       
                         
(7) Catalog expense of $0 and  $303 was not included in the 2010 and 2009 calculation, respectively, as it is used for retention and not acquisition.