PFSweb, Inc.

PFSweb Reports Third Quarter 2010 Results

Monday 15 November 2010

FOR IMMEDIATE RELEASE

- - -

Third Quarter Service Fee Revenue Increases 25% Year-over-year 

 

PLANO, Texas, November 15, 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 third quarter and nine months ended September 30, 2010.

 

Mark Layton, Chairman and Chief Executive Officer of PFSweb, stated, “We continue to be very encouraged by the exciting developments within our Service Fee business segment.  Organic growth from our existing business to consumer clients, recent new client additions as well as a strong pipeline of potential new business opportunities are all key indicators of the momentum that our End2End eCommerce solution is building in the growing direct to consumer marketplace. This momentum resulted in a 25% increase in revenue and $1.1 million increase in Adjusted EBITDA for our Service Fee business segment during the third quarter, as compared to the prior year. This growth was offset by tempered results in our eCOST.com and Supplies Distributors segments. As discussed below, we have moved aggressively to address the eCOST.com business issue and continue to evaluate ways to improve this segment and reduce its negative impact on our overall business.”

 

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

 

·         Total revenue decreased to $80.0 million for the third quarter of 2010 compared to $85.6 million for third quarter of 2009;

·         Total gross margin was 10.7% for the third quarter of 2010 compared to 11.2% for the same period last year;

·         Adjusted EBITDA (as defined) was $0.9 million versus  $1.2 million for the third quarter of 2009;

·         Net loss was $1.9 million, or $0.16 per basic and diluted share, compared to net loss of $0.8 million or $0.09 per basic and diluted share, for the third quarter of 2009.  Net loss for the third quarter of 2010 included a $0.6 million charge applicable to an executive’s disabilities benefits;

·         Non-GAAP net loss (as defined) was $1.0 million, or $0.08 per basic and diluted share, compared to non-GAAP net loss of $0.7 million or $0.07 per basic and diluted share, for the third quarter of 2009;

·         Total cash, cash equivalents and restricted cash was $20.4 million as of September 30, 2010 compared to $16.9 million as of December 31, 2009.

 

Summary of consolidated results for the nine months ended September 30, 2010:

 

·         Total reported revenue was $250.7 million compared to $256.9 million for the nine months ended September 30, 2009;

·         Total gross margin was 10.8% compared to 11.3% for the same period last year;

·         Adjusted EBITDA was $2.8 million compared to $3.1 million for the nine months ended September 30, 2009.

·         Net loss was $4.6 million, or $0.42 per basic and diluted share, compared to net loss of $3.6 million, or $0.36 per basic and diluted share, for the nine month period ended September 30, 2009;

·         Non-GAAP net loss was $3.0 million, or $0.27 per basic and diluted share, compared to non-GAAP net loss of $3.2 million, or $0.33 per basic and diluted share, for the same period last year.

 

Summary of results by business segment:

 

Service Fee Business:

 

For the third quarter of 2010, Service Fee revenue was $16.4 million, compared with $13.1 million for the same period in 2009. The Service Fee business reported Adjusted EBITDA of $0.3 million for the third quarter of 2010, compared to an Adjusted EBITDA loss of $0.8 million for the same period last year. 

 

For the nine months ended September 30, 2010, Service Fee revenue was $48.9 million, compared with $42.6 million for the same period in 2009. Adjusted EBITDA for the Service Fee business was $1.0 million for the nine month period of 2010, compared to an Adjusted EBITDA loss of $0.5 million for the nine month period in 2009.

 

Mike Willoughby, President of PFSweb’s Services division, commented, “During the past three months, we launched a number of new client programs, including Volcom as well as our support of several eCommerce sites under our previously announced master agreement with a well-known fashion brands company geared mostly towards women and our previously announced relationship with a leading beauty and fragrance company.  With our existing client base and potential new business pipeline, consisting primarily of major consumer brands, we believe we are well positioned to capture further growth in the rapidly expanding eCommerce industry, particularly in the fashion, apparel and accessories, beauty and fragrance and consumer packaged goods segments.”

 

Supplies Distributors Business:

 

For the third quarter of 2010, Supplies Distributors revenue was $39.1 million, compared to $45.1 million for the same period last year. Adjusted EBITDA was $1.0 million for the third quarter of 2010, compared to $2.2 million for the same period last year.

 

For the nine months ended September 30, 2010, Supplies Distributors revenue was $128.1 million, compared to $135.7 million for the same period last year. Adjusted EBITDA was $2.9 million for the nine month period in 2010, compared to $4.6 million for the nine month period in 2009.

 

“Our Supplies Distributors business experienced a reduction in business volume this past quarter partially due to temporary inventory supply shortages related to our largest supplier in this segment transitioning to a new ERP system.  This migration is now generally completed and supply inflows have returned to more normalized levels, and, as such, we currently expect that overall business trends should improve during the December 2010 quarter,” Mr. Layton stated.

 

eCOST.com Business:

 

For the third quarter of 2010, eCOST.com revenue was $16.6 million, compared to $20.6 million for the same period in 2009.  Adjusted EBITDA for eCOST.com was a loss of $0.5 million for the third quarter of 2010, compared to a loss of $0.2 million for the third quarter of 2009.

 

For the nine months ended September 30, 2010, eCOST.com revenue was $52.9 million, compared to $61.8 million for the same period in 2009. Adjusted EBITDA for eCOST.com in the nine month period ended September 30, 2010 was a loss of $1.1 million, as compared to a loss of $0.9 million for the same period last year.

“During the third quarter, we spent considerable time enhancing eCOST.com’s sales and marketing program to increase its effectiveness against the ever evolving email filtering algorithms being deployed by several internet/email service providers (ISP’s).  While this issue negatively impacted our revenue during the quarter, I am pleased to say that by the end of the third quarter we were experiencing higher success rates when advertising to this portion of our customers than we had in the summer of 2010. We expect these efforts to be ongoing as the email filtering algorithms will continue to adjust,” stated Mr. Layton.

 

“This holiday season, eCOST.com will offer online shoppers the hottest computer and electronics deals in the industry through its patented Bargain Countdown showcase, including thousands of  limited quantity, limited time offers. We expect HDTVs, netbooks, gaming products (like Kinect), HD cameras and camcorders to lead the way this holiday season in terms of the hot products that consumers are seeking.  We are also excited about the exclusive free shipping offers in our weekly Secret Sale campaign and the very popular Make-an-Offer shopping format that has become a success over the past few months,” Layton concluded.

 

Conference Call Information

 

Management will host a conference call at 10:00 am Central Time (11:00 am Eastern Time) on Monday, November 15, 2010, to discuss the latest corporate developments and results. To listen to the call, please dial (888) 562-3356 and enter the pin number (22026323) 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 December 15, 2010 at (800) 642-1687, pin number (22026323). 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, executive disability benefits 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, executive disability benefits 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, executive disability benefits 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, LEGO, Carter's, 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 290,000 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 six months ended June 30, 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   Nine Months Ended
        September 30,   September 30,
        2010   2009   2010   2009
 REVENUES:                    
   Product revenue, net    $      55,724    $    65,713    $  181,082    $  197,522
   Service fee revenue              16,402          13,118          48,948          42,604
   Pass-thru revenue               7,842            6,776          20,662          16,748
     Total revenues           79,968          85,607        250,692        256,874
                     
 COSTS OF REVENUES:                  
   Cost of product revenue            51,576          59,611        167,480        180,746
   Cost of service fee revenue            11,981            9,674          35,422          30,406
   Cost of pass-thru revenue             7,842            6,776          20,662          16,748
   Total costs of revenues            71,399          76,061        223,564        227,900
     Gross profit             8,569            9,546          27,128          28,974
 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES            10,159            9,998          30,719          31,362
           Loss from operations            (1,590)              (452)          (3,591)          (2,388)
 INTEREST EXPENSE, NET                   254               288               753               967
            Loss before income taxes            (1,844)              (740)          (4,344)          (3,355)
 INCOME TAX EXPENSE (BENEFIT)                  76               106               280               268
 NET LOSS       $     (1,920)    $       (846)    $    (4,624)    $    (3,623)
 NON-GAAP NET LOSS     $         (974)    $       (723)    $    (2,967)    $    (3,235)
                     
 NET LOSS PER SHARE:                 
  Basic and Diluted    $        (0.16)    $      (0.09)    $      (0.42)    $      (0.36)
                     
 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:               
  Basic and Diluted            12,237            9,931          10,998            9,927
                     
 EBITDA       $           (59)    $      1,088    $      1,235    $      2,803
 ADJUSTED EBITDA     $           852    $      1,185    $      2,787    $      3,112
                     
(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   Nine Months Ended
        September 30,   September 30,
        2010   2009   2010   2009
 NET LOSS       $    (1,920)    $        (846)    $    (4,624)    $    (3,623)
        Income tax expense (benefit)                76               106               280               268
        Interest expense                254               288               753               967
        Depreciation and amortization            1,531            1,540            4,826            5,191
 EBITDA       $          (59)    $      1,088    $      1,235    $      2,803
        Stock-based compensation               225                 97               583               309
        Executive disability benefits              650                    -               650                    -
        Vendor settlement and other legal matters                36                    -               319                    -
 ADJUSTED EBITDA     $         852    $      1,185    $      2,787    $      3,112
                     
                     
        Three Months Ended   Nine Months Ended
        September 30,   September 30,
        2010   2009   2010   2009
                     
 NET LOSS       $    (1,920)    $        (846)    $    (4,624)    $    (3,623)
        Stock-based compensation               225                 97               583               309
        Amortization of identifiable intangible assets                35                 26               105                 79
        Executive disability benefits              650                    -               650                    -
        Vendor settlement and other legal matters                36                    -               319                    -
 NON-GAAP NET LOSS     $       (974)    $        (723)    $    (2,967)    $    (3,235)
                     
 NET LOSS PER SHARE:                 
  Basic and Diluted    $      (0.16)    $       (0.09)    $      (0.42)    $       (0.36)
                     
 NON-GAAP NET LOSS Per Share:               
  Basic and Diluted    $      (0.08)    $       (0.07)    $      (0.27)    $       (0.33)
                     

PFSweb, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
(In Thousands, Except Share Data)
             
             
        September 30,   December 31,
        2010   2009
      ASSETS      
 CURRENT ASSETS:         
   Cash and cash equivalents   $          18,784    $          14,812
   Restricted cash                   1,656                  2,096
   Accounts receivable, net of allowance for doubtful accounts of $914 and       
        $973 at September 30, 2010 and December 31, 2009, respectively               33,947                39,861
   Inventories, net of reserves of $1,812 and $2,016 at September 30, 2010 and       
        December 31, 2009, respectively               37,638                37,949
   Other receivables                 12,847                11,605
   Prepaid expenses and other current assets                 4,067                  4,170
     Total current assets             108,939              110,493
             
 PROPERTY AND EQUIPMENT, net                 9,300                10,314
 IDENTIFIABLE INTANGIBLES                    687                     805
 GOODWILL                     3,602                  3,602
 OTHER ASSETS                     1,962                  2,555
     Total assets             124,490              127,769
             
   LIABILITIES AND SHAREHOLDERS EQUITY       
 CURRENT LIABILITIES:         
  Current portion of long-term debt and capital lease obligations  $          18,452    $          19,179
  Trade accounts payable              47,778                53,642
  Deferred revenue                  5,313                  5,164
  Accrued expenses                16,165                13,180
    Total current liabilities              87,708                91,165
             
 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion                 1,219                  3,348
 OTHER LIABILITIES                   3,549                  3,903
    Total liabilities              92,476                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;      
      12,255,064 and 9,952,164 shares issued at September 30, 2010 and      
       December 31, 2009, respectively; and 12,236,703 and 9,933,803      
       outstanding as of September 30, 2010 and December 31, 2009, respectively                     12                       10
  Additional paid-in capital            101,004                93,152
  Accumulated deficit              (70,587)              (65,963)
  Accumulated other comprehensive income                1,670                  2,239
  Treasury stock at cost, 18,361 shares                    (85)                      (85)
    Total shareholders' equity              32,014                29,353
    Total liabilities and shareholders' equity  $        124,490    $        127,769
             

PFSweb, Inc. and Subsidiaries
Unaudited Consolidating Statements of Operations
For the Three Months Ended September 30, 2010
(In Thousands)
                         
            Supplies            
        PFSweb   Distributors   eCOST   Eliminations   Consolidated
 REVENUES:                        
   Product revenue, net    $                    -    $          39,092    $          16,632    $                    -    $          55,724
   Service fee revenue                  16,402                          -                          -                          -                16,402
   Service fee revenue - affiliate                 1,484                          -                          -                 (1,484)                          -
   Pass-thru revenue                   7,843                          -                          -                        (1)                  7,842
     Total revenues               25,729                39,092                16,632                 (1,485)                79,968
                         
 COSTS OF REVENUES:                      
   Cost of product revenue                          -                36,233                15,343                          -                51,576
   Cost of service fee revenue                12,543                          -                          -                    (562)                11,981
   Cost of pass-thru revenue                 7,843                          -                          -                        (1)                  7,842
   Total costs of revenues                20,386                36,233                15,343                    (563)                71,399
     Gross profit                 5,343                  2,859                  1,289                    (922)                  8,569
 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                  7,318                  1,896                  1,867                    (922)                10,159
           Income (loss) from operations                 (1,975)                     963                    (578)                          -                 (1,590)
 INTEREST EXPENSE (INCOME), NET                      (63)                     313                         4                          -                     254
            Income (loss) before income taxes                 (1,912)                     650                    (582)                          -                 (1,844)
 INCOME TAX PROVISION (BENEFIT)                    (139)                     207                         8                          -                       76
 NET INCOME (LOSS)      $          (1,773)    $               443    $              (590)    $                    -    $          (1,920)
 NON-GAAP NET INCOME (LOSS)   $              (898)    $               443    $              (519)    $                    -    $              (974)
                         
 EBITDA        $              (542)    $               970    $              (487)    $                    -    $                (59)
 ADJUSTED EBITDA     $               333    $               970    $              (451)    $                    -    $               852
                         
                         
A reconciliation of NET INCOME (LOSS) to EBITDA and ADJUSTED EBITDA follows:                
                         
 NET INCOME (LOSS)     $          (1,773)    $               443    $              (590)    $                    -    $          (1,920)
        Income tax expense (benefit)                    (139)                     207                         8                          -                       76
        Interest expense (income)                      (63)                     313                         4                          -                     254
        Depreciation and amortization                  1,433                         7                       91                          -                  1,531
 EBITDA       $              (542)    $               970    $              (487)    $                    -    $                (59)
        Stock-based compensation                     225                          -                          -                          -                     225
        Executive disability benefits                    650                          -                          -                          -                     650
        Vendor settlement and other legal matters                         -                          -                       36                          -                       36
 ADJUSTED EBITDA     $               333    $               970    $              (451)    $                    -    $               852
                         
A reconciliation of NET INCOME (LOSS) to NON-GAAP NET INCOME (LOSS) follows:                
                         
 NET INCOME (LOSS)     $          (1,773)    $               443    $              (590)    $                    -    $          (1,920)
        Stock-based compensation                     225                          -                          -                          -                     225
        Amortization of intangible assets                         -                          -                       35                          -                       35
        Executive disability benefits                    650                          -                          -                          -                     650
        Vendor settlement and other legal matters                         -                          -                       36                          -                       36
 NON-GAAP NET INCOME (LOSS)   $              (898)    $               443    $              (519)    $                    -    $              (974)
                         

PFSweb, Inc. and Subsidiaries
Unaudited Consolidating Statements of Operations
For the Nine Months Ended September 30, 2010
(In Thousands)
                         
            Supplies            
        PFSweb   Distributors   eCOST   Eliminations   Consolidated
 REVENUES:                        
   Product revenue, net    $                    -    $        128,142    $          52,940    $                    -    $        181,082
   Service fee revenue                  48,948                          -                          -                          -                48,948
   Service fee revenue - affiliate                 4,921                          -                          -                 (4,921)                          -
   Pass-thru revenue                 20,682                          -                          -                      (20)                20,662
     Total revenues               74,551              128,142                52,940                 (4,941)              250,692
                         
 COSTS OF REVENUES:                      
   Cost of product revenue                          -              119,039                48,441                          -              167,480
   Cost of service fee revenue                37,215                          -                          -                 (1,793)                35,422
   Cost of pass-thru revenue               20,682                          -                          -                      (20)                20,662
   Total costs of revenues                57,897              119,039                48,441                 (1,813)              223,564
     Gross profit               16,654                  9,103                  4,499                 (3,128)                27,128
 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                21,388                  6,260                  6,199                 (3,128)                30,719
           Income (loss) from operations                 (4,734)                  2,843                 (1,700)                          -                 (3,591)
 INTEREST EXPENSE (INCOME), NET                    (178)                     916                       15                          -                     753
            Income (loss) before income taxes                 (4,556)                  1,927                 (1,715)                          -                 (4,344)
 INCOME TAX PROVISION (BENEFIT)                    (421)                     659                       42                          -                     280
 NET INCOME (LOSS)      $          (4,135)    $            1,268    $          (1,757)    $                    -    $          (4,624)
 NON-GAAP NET INCOME (LOSS)   $          (2,902)    $            1,268    $          (1,333)    $                    -    $          (2,967)
                         
 EBITDA        $              (214)    $            2,864    $          (1,415)    $                    -    $            1,235
 ADJUSTED EBITDA     $            1,019    $            2,864    $          (1,096)    $                    -    $            2,787
                         
                         
A reconciliation of NET INCOME (LOSS) to EBITDA and ADJUSTED EBITDA follows:                
                         
 NET INCOME (LOSS)     $          (4,135)    $            1,268    $          (1,757)    $                    -    $          (4,624)
        Income tax expense (benefit)                    (421)                     659                       42                          -                     280
        Interest expense (income)                    (178)                     916                       15                          -                     753
        Depreciation and amortization                  4,520                       21                     285                          -                  4,826
 EBITDA       $              (214)    $            2,864    $          (1,415)    $                    -    $            1,235
        Stock-based compensation                     583                          -                          -                          -                     583
        Executive disability benefits                    650                          -                          -                          -                     650
        Vendor settlement and other legal matters                         -                          -                     319                          -                     319
 ADJUSTED EBITDA     $            1,019    $            2,864    $          (1,096)    $                    -    $            2,787
                         
A reconciliation of NET INCOME (LOSS) to NON-GAAP NET INCOME (LOSS) follows:                
                         
 NET INCOME (LOSS)     $          (4,135)    $            1,268    $          (1,757)    $                    -    $          (4,624)
        Stock-based compensation                     583                          -                          -                          -                     583
        Amortization of intangible assets                         -                          -                     105                          -                     105
        Executive disability benefits                    650                          -                          -                          -                     650
        Vendor settlement and other legal matters                         -                          -                     319                          -                     319
 NON-GAAP NET INCOME (LOSS)   $          (2,902)    $            1,268    $          (1,333)    $                    -    $          (2,967)
                         

PFSweb, Inc. and Subsidiaries
Unaudited Condensed Consolidating Balance Sheets
as of September 30, 2010
(In Thousands)
                         
                         
            Supplies            
        PFSweb   Distributors   eCOST   Eliminations   Consolidated
      ASSETS                  
 CURRENT ASSETS:                     
   Cash and cash equivalents   $          16,014    $            2,622    $               148    $                    -    $          18,784
   Restricted cash                      777                     666                     213                          -                  1,656
   Accounts receivable, net               15,857                16,601                  2,020                    (531)                33,947
   Inventories, net                           -                33,208                  4,430                          -                37,638
   Other receivables                           -                12,183                     664                          -                12,847
   Prepaid expenses and other current assets                 2,391                  1,483                     193                          -                  4,067
     Total current assets               35,039                66,763                  7,668                    (531)              108,939
                         
 PROPERTY AND EQUIPMENT, net                 8,996                       30                     274                          -                  9,300
 NOTES RECEIVABLE FROM AFFILIATES               21,945                          -                          -              (21,945)                          -
 INVESTMENT IN AFFILIATES                (2,179)                          -                          -                  2,179                          -
 IDENTIFIABLE INTANGIBLES                    344                          -                     343                          -                     687
 GOODWILL                             -                          -                  3,602                          -                  3,602
 OTHER ASSETS                     1,760                          -                     202                          -                  1,962
     Total assets               65,905                66,793                12,089              (20,297)              124,490
                         
   LIABILITIES AND SHAREHOLDERS EQUITY                   
 CURRENT LIABILITIES:                     
  Current portion of long-term debt and capital lease obligations  $            8,139    $          10,278    $                 35    $                    -    $          18,452
  Trade accounts payable                4,575                37,876                  5,858                    (531)                47,778
  Deferred revenue                  4,441                          -                     872                          -                  5,313
  Accrued expenses                  9,195                  5,956                  1,014                          -                16,165
    Total current liabilities              26,350                54,110                  7,779                    (531)                87,708
                         
 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion                 1,114                          -                     105                          -                  1,219
 NOTES PAYABLE TO AFFILIATES                         -                  4,255                17,690              (21,945)                          -
 OTHER LIABILITIES                   3,549                          -                          -                          -                  3,549
    Total liabilities              31,013                58,365                25,574              (22,476)                92,476
                         
 COMMITMENTS AND CONTINGENCIES                   
                         
 SHAREHOLDERS' EQUITY:                     
  Common stock                       12                          -                       19                      (19)                       12
  Capital contributions                          -                  1,000                          -                 (1,000)                          -
  Additional paid-in capital            101,004                          -                28,059              (28,059)              101,004
  Retained earnings (accumulated deficit)            (67,694)                  5,119              (41,563)                33,551              (70,587)
  Accumulated other comprehensive income                1,655                  2,309                          -                 (2,294)                  1,670
  Treasury stock                      (85)                          -                          -                          -                      (85)
    Total shareholders' equity              34,892                  8,428              (13,485)                  2,179                32,014
    Total liabilities and shareholders' equity  $          65,905    $          66,793    $          12,089    $        (20,297)    $        124,490
                         

PFSweb, Inc. and Subsidiaries
Unaudited Consolidating Statements of Operations
For the Three Months Ended September 30, 2009
(In Thousands)
                         
            Supplies            
        PFSweb   Distributors   eCOST   Eliminations   Consolidated
 REVENUES:                        
   Product revenue, net    $                    -    $          45,120    $          20,593    $                    -    $          65,713
   Service fee revenue                  13,118                          -                          -                          -                13,118
   Service fee revenue - affiliate                 1,598                          -                          -                 (1,598)                          -
   Pass-thru revenue                   6,778                          -                          -                        (2)                  6,776
     Total revenues               21,494                45,120                20,593                 (1,600)                85,607
                         
 COSTS OF REVENUES:                      
   Cost of product revenue                          -                40,881                18,730                          -                59,611
   Cost of service fee revenue                10,295                          -                          -                    (621)                  9,674
   Cost of pass-thru revenue                 6,778                          -                          -                        (2)                  6,776
   Total costs of revenues                17,073                40,881                18,730                    (623)                76,061
     Gross profit                 4,421                  4,239                  1,863                    (977)                  9,546
 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                  6,797                  2,076                  2,102                    (977)                  9,998
           Income (loss) from operations                 (2,376)                  2,163                    (239)                          -                    (452)
 INTEREST EXPENSE (INCOME), NET                      (54)                     333                         9                          -                     288
            Income (loss) before income taxes                 (2,322)                  1,830                    (248)                          -                    (740)
 INCOME TAX PROVISION (BENEFIT)                    (508)                     605                         9                          -                     106
 NET INCOME (LOSS)      $          (1,814)    $            1,225    $              (257)    $                    -    $              (846)
 NON-GAAP NET INCOME (LOSS)   $          (1,717)    $            1,225    $              (231)    $                    -    $              (723)
                         
 EBITDA        $              (931)    $            2,171    $              (152)    $                    -    $            1,088
 ADJUSTED EBITDA     $              (834)    $            2,171    $              (152)    $                    -    $            1,185
                         
                         
A reconciliation of NET INCOME (LOSS) to EBITDA and ADJUSTED EBITDA follows:                
                         
 NET INCOME (LOSS)     $          (1,814)    $            1,225    $              (257)    $                    -    $              (846)
        Income tax expense (benefit)                    (508)                     605                         9                          -                     106
        Interest expense (income)                      (54)                     333                         9                          -                     288
        Depreciation and amortization                  1,445                         8                       87                          -                  1,540
 EBITDA       $              (931)    $            2,171    $              (152)    $                    -    $            1,088
        Stock-based compensation                       97                          -                          -                          -                       97
 ADJUSTED EBITDA     $              (834)    $            2,171    $              (152)    $                    -    $            1,185
                         
A reconciliation of NET INCOME (LOSS) to NON-GAAP NET INCOME (LOSS) follows:                
                         
 NET INCOME (LOSS)     $          (1,814)    $            1,225    $              (257)    $                    -    $              (846)
        Stock-based compensation                       97                          -                          -                          -                       97
        Amortization of intangible assets                         -                          -                       26                          -                       26
 NON-GAAP NET INCOME (LOSS)   $          (1,717)    $            1,225    $              (231)    $                    -    $              (723)
                         

PFSweb, Inc. and Subsidiaries
Unaudited Consolidating Statements of Operations
For the Nine Months Ended September 30, 2009
(In Thousands)
                         
            Supplies            
        PFSweb   Distributors   eCOST   Eliminations   Consolidated
 REVENUES:                        
   Product revenue, net    $                    -    $        135,720    $          61,802    $                    -    $        197,522
   Service fee revenue                  42,604                          -                          -                          -                42,604
   Service fee revenue - affiliate                 5,393                          -                          -                 (5,393)                          -
   Pass-thru revenue                 16,815                          -                          -                      (67)                16,748
     Total revenues               64,812              135,720                61,802                 (5,460)              256,874
                         
 COSTS OF REVENUES:                      
   Cost of product revenue                          -              124,816                55,930                          -              180,746
   Cost of service fee revenue                32,310                          -                          -                 (1,904)                30,406
   Cost of pass-thru revenue               16,815                          -                          -                      (67)                16,748
   Total costs of revenues                49,125              124,816                55,930                 (1,971)              227,900
     Gross profit               15,687                10,904                  5,872                 (3,489)                28,974
 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                21,447                  6,345                  7,059                 (3,489)                31,362
           Income (loss) from operations                 (5,760)                  4,559                 (1,187)                          -                 (2,388)
 INTEREST EXPENSE (INCOME), NET                    (135)                  1,087                       15                          -                     967
            Income (loss) before income taxes                 (5,625)                  3,472                 (1,202)                          -                 (3,355)
 INCOME TAX PROVISION (BENEFIT)                    (623)                     873                       18                          -                     268
 NET INCOME (LOSS)      $          (5,002)    $            2,599    $          (1,220)    $                    -    $          (3,623)
 NON-GAAP NET INCOME (LOSS)   $          (4,693)    $            2,599    $          (1,141)    $                    -    $          (3,235)
                         
 EBITDA        $              (850)    $            4,585    $              (932)    $                    -    $            2,803
 ADJUSTED EBITDA     $              (541)    $            4,585    $              (932)    $                    -    $            3,112
                         
                         
A reconciliation of NET INCOME (LOSS) to EBITDA and ADJUSTED EBITDA follows:                
                         
 NET INCOME (LOSS)     $          (5,002)    $            2,599    $          (1,220)    $                    -    $          (3,623)
        Income tax expense (benefit)                    (623)                     873                       18                          -                     268
        Interest expense (income)                    (135)                  1,087                       15                          -                     967
        Depreciation and amortization                  4,910                       26                     255                          -                  5,191
 EBITDA       $              (850)    $            4,585    $              (932)    $                    -    $            2,803
        Stock-based compensation                     309                          -                          -                          -                     309
 ADJUSTED EBITDA     $              (541)    $            4,585    $              (932)    $                    -    $            3,112
                         
A reconciliation of NET INCOME (LOSS) to NON-GAAP NET INCOME (LOSS) follows:                
                         
 NET INCOME (LOSS)     $          (5,002)    $            2,599    $          (1,220)    $                    -    $          (3,623)
        Stock-based compensation                     309                          -                          -                          -                     309
        Amortization of intangible assets                         -                          -                       79                          -                       79
 NON-GAAP NET INCOME (LOSS)   $          (4,693)    $            2,599    $          (1,141)    $                    -    $          (3,235)
                         

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    
          September 30,    
          2010   2009    
                   
    Total Customers (1)         2,173,542         2,006,689    
                   
    Active Customers (2)            208,582            224,297    
                   
    New Customers (3)              33,230              37,079    
                   
    Number of Orders (4)              53,652              74,770    
                   
    Average Order Value (5)    $             300    $             271    
                   
    Advertising Expense (6)    $      192,950    $      216,475    
                   
    Cost to Acquire a New Customer     $            5.81    $            5.84    
                   
                   
(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.