SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

PFSweb, Inc.

(Exact name of registrant as specified in its charter)

Delaware		000-28275		75-2837058
(STATE OR OTHER JURISDICTION		(COMMISSION FILE NUMBER)		(IRS EMPLOYER
OF INCORPORATION)				IDENTIFICATION NO.)

500 NORTH CENTRAL EXPRESSWAY
PLANO, TX 75074
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

(972) 881-2900
(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE )

N/A
(FORMER NAME OR ADDRESS, IF CHANGED SINCE LAST REPORT)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o		Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

INFORMATION TO BE INCLUDED IN THE REPORT

ITEM 2.02. Results of Operations and Financial Condition

     On April 2 2007, PFSweb, Inc. issued a press release announcing its financial results for the quarter and year ended December 31, 2006. Attached to this current report on Form 8-K is a copy of the related press release dated April 2, 2007. The information in this Report on Form 8-K, and the exhibit hereto, shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section.

Exhibit No.		Description
99.1		Press Release Issued April 2, 2007

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

				PFSweb, Inc.
Dated: April 2, 2007		By:		/s/ Thomas J. Madden
				Thomas J. Madden
				Executive Vice President,
				Chief Financial and
				Accounting Officer

FOR IMMEDIATE RELEASE

Contact:
Mark C. Layton		Todd Fromer / Garth Russell
Senior Partner and Chief Executive Officer		Investor Relations
Or Thomas J. Madden		KCSA Worldwide
Senior Partner and Chief Financial Officer		(212) 896-1215 / (212) 896-1250
(972) 881-2900		tfromer@kcsa.com / grussell@kcsa.com

PFSweb Reports Fiscal 2006 Full Year Results
and Financial Guidance For Fiscal 2007

Service Fee revenue increased 25% in the fourth quarter of 2006

Company Targeting Adjusted EBITDA of $8 — $10 million for Fiscal 2007

PLANO, Texas, April 2, 2007 — PFSweb, Inc. (Nasdaq:PFSW), a global provider of business process outsourcing (“BPO”) solutions for both online and traditional commerce, today announced its financial results for the fourth quarter and fiscal year ended December 31, 2006.

“2006 was a major year of strategic evolution and transition for PFSweb,” stated Mark Layton, Chairman and Chief Executive Officer of PFSweb. “We entered the year with a clear strategy for achieving certain milestones and invigorating a new sense of excitement and growth objectives throughout the company. During this period we exceeded our internal goals for our Service Fee and Supplies Distributors businesses. For our eCOST.com business, while we encountered several unexpected roadblocks along the way, we accomplished our target of substantially completing our integration related work and are now operating on a stable platform with improved financial results for the December quarter. I look forward to carrying the momentum we have generated into 2007 and taking PFSweb to the next phase of our growth strategy while driving improved overall financial performance.”

Summary of consolidated results for the fourth quarter:

	•		Total reported revenue for the period was $109.0 million, compared to $83.4 million for the fourth quarter of 2005
	•		Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) was $0.9 million versus $2.7 million for the same period last year

o

Excluding eCOST.com, PFSweb’s Adjusted EBITDA was $2.5 million

•

Net loss was $6.5 million, or $0.13 per basic and diluted share, compared to net income of $0.5 million, or $0.02 per basic and diluted share, for the fourth quarter of fiscal 2005

o

Excluding eCOST.com’s results, which includes a goodwill charge, PFSweb’s net loss was $0.7 million

•

Merchandise sales (as defined) totaled approximately $789 million for the fourth quarter of 2006

Please note that 2006 consolidated results only include eCOST.com financial results for the eleven month period from the date of the merger closing, February 1, 2006, through December 31, 2006. Also, the comparable period, fiscal 2005, does not contain financial results for eCOST.com.

	•		Total reported revenue for the period was $423.3 million, compared to $331.7 million for 2005
	•		Adjusted EBITDA was $2.5 million compared to $9.5 million for 2005

o

Excluding eCOST.com’s operations, Adjusted EBITDA was $12.2 million for 2006

•

Income from Operations decreased to $(11.3) million from $2.0 million for 2005

o

Excluding eCOST.com’s operations, Income from Operations was $4.9 million for 2006

•

Net loss was $14.5 million, or $0.34 per basic and diluted share, compared to a net loss of $0.7 million, or $0.03 per basic and diluted share, for 2005

o

Excluding eCOST.com’s operations, net income was $1.6 million in 2006

	•		Merchandise sales increased 22% to approximately $2.7 billion
	•		Total cash, cash equivalents and restricted cash totaled $17.7 million as of December 31, 2006

For the fourth quarter of 2006, Service Fee revenue was $19.4 million, an increase of 25%, compared with $15.5 million in 2005. This increase in revenue is attributable to a combination of organic client growth and project work from existing clients, as well as fees related to new client growth that occurred in the fourth quarter of 2006. The Service Fee business reported Adjusted EBITDA of $1.2 million for the fourth quarter of 2006, compared to $0.6 million for the same period last year.

For the year ended December 31, 2006, the Service fee revenue was $67.1 million, an increase of 10%, compared to $60.8 million for 2005. The Service Fee business reported Adjusted EBITDA of $4.6 million for 2006, compared to $2.2 million for 2005.

For the fourth quarter of 2006, Supplies Distributors revenue was $59.8 million, compared to $63.6 million for the same period last year. Supplies Distributors business reported Adjusted EBITDA of $1.3 million for the fourth quarter of 2006, compared to $ 2.2 million for the same period last year.

For the year ended December 31, 2006, Supplies Distributors revenue was $245.0 million, a 3% decrease, compared to $252.9 million for 2005. Supplies Distributors business reported Adjusted EBITDA of $7.6 million for 2006, compared to $7.3 million for 2005.

For the fourth quarter of 2006, eCOST.com revenue was $21.1 million, compared to $40.5 million for the same period in 2005, which was prior to our February 1, 2006 merger. Adjusted EBITDA for eCOST.com in the quarter was a loss of $1.6 million, compared to a loss of $2.2 million for the same period last year.

For the period from February 1, 2006, when the merger closed, through December 31, 2006, eCOST.com revenue was $88.3 million. Adjusted EBITDA for eCOST.com during the same period was a loss of $9.7 million. For the twelve months ended December 31, 2005, eCOST.com reported revenue of $ 174.8 million and Adjusted EBITDA loss of $ 9.6 million.

While the eCOST.com business declined in terms of top line results, the overall health and outlook of the business is improved from its operations prior to the merger. However, given the smaller business size, and the capital infusion into the business to support eCOST.com’s operating loss in 2006, PFSweb was required to adjust the goodwill value of eCOST.com, which resulted in a non-cash charge of $3.5 million during the fourth quarter of 2006.

For eCOST.com’s selected operating data for the quarter and eleven months ended December 31, 2006 and quarter and year ended December 31, 2005, please see the table below.

Layton continued, “In 2006, our operating results for our Service Fee Business continued to experience top and bottom line growth. Through our continued efforts, eCOST.com improved operating performance and experienced a solid 2006 holiday season. As a result of the merger and our restructuring efforts, eCOST.com improved its Adjusted EBITDA in the December quarter by $0.6 million, compared to the same period in 2005. In 2007, we are looking to ramp up the sales and marketing efforts for eCOST.com to grow revenue and improve financial performance. In addition, we anticipate recognizing the cost savings previously described as one of the benefits of the merger, though a portion of such originally targeted savings will be dependent on sales volumes.”

As a result of the turnaround efforts for eCOST.com and new contracts signed in 2006 for the Service Fee Business, PFSweb is currently targeting total consolidated revenues, excluding pass-through revenues, of approximately $420 million to $435 million and consolidated Adjusted EBITDA of $8 – $10 million for 2007. Capital expenditures for 2007 are estimated to be approximately $3 — $5 million, excluding costs related to the implementation of new business contracts for the Service Fee Business. Achieving these targets will appropriately reflect the significant improvement in operations from eCOST.com and continued strong performance from our Service Fee and Supplies businesses on a year-over-year basis.

Significant operating events for Fourth Quarter of 2006 and 2007 year to date:

	•		PFSweb substantially completed its integration of eCOST.com in time for the 2006 holiday season, which included cost cutting measures, and implementing its world-class technology platform and customer service capabilities to support eCOST.com.
	•		PFSweb enhanced its Entente SuiteTM with the introduction of EntentePartnerConnect™, a data repository and retrieval service for providing its clients with access to comprehensive rich product and service information across a wide variety of product and service categories. Information provided through EntentePartnerConnect™ is aggregated from multiple sources including business partners such as Etilize that specialize in creating rich product content in specific categories. EntentePartnerConnect™ is initially available to PFSweb clients using our EntenteWeb hosted web service and GlobalMerchant Commerceware platform including eCOST.com. This enhancement will provide eCOST.com as well as Service Fee business clients the opportunity to minimize their inventory obsolescence risks.
	•		eCOST.com launched a redesigned website that offers customers easier navigation and an enhanced list of products to find the latest deals. Through the rich product content subscription agreement with Etilize and leveraging PFSweb’s EntentePartnerConnect™, eCOST.com has enhanced its ability to update new products on its site.

	•		PFSweb’s Service Fee Business launched logistics and order fulfillment services in Canada for Katun Corporation, a leading global alternative supplier to the office equipment industry.
	•		The Service Fee Business announced a new five-year agreement with LEGO Brand Retail, Inc., one of the world’s largest toy manufacturers and a global leader in construction toys. PFSweb will support order fulfillment through Lego’s direct to consumer online store, www.shop.lego.com.
	•		The Service Fee Business announced an agreement with Fathead, LLC, a provider of professionally licensed, life-sized sports wall graphics, whereby PFSweb provides an order processing, fulfillment and customer care solutions.
	•		The Service Fee Business launched a customized order management and logistics solution for Riverbed Technology, a performance leader in wide-area data services (WDS) solutions. This solution utilizes PFSweb’s distribution facility in Memphis, TN, advanced order management systems, supply chain and transportation management applications and warehouse management systems.
	•		PFSweb’s Service Fee Business also increased its capacity to manage new and expanded agreements by:

	o		Opening an expanded Canadian facility in Eastern Toronto to support existing and new client growth. The new facility is 22,000 square feet and will allow for implementation of expanded or new customer contracts.
	o		Expanding PFSweb’s North American headquarters in Texas and Memphis, TN distribution center by a combined 170 call seats, for a total of 480 call seats at the two facilities. The Plano headquarters now features a 40,000 square foot customer care facility.
	o		Opened a new 6,500 square foot facility in Manila, Philippines, with a dedicated staff of highly trained customer service representatives to supplement PFSweb’s existing call center operations in the U.S. The facility will initially be used to support certain functions for eCOST.com. Also located at the facility will be an expanded staff of web development professionals. The additional capacity will increase PFSweb’s ability to quickly address development plans for its web commerce capabilities for both eCOST.com and its service clients.

•

PFSweb recently completed renewals, extensions or amendments on all asset based financing facilities for all of its business units with terms that are similar to or improved from prior agreements. These extensions range from one to two years.

Michael Willoughby, President of Priority Fulfillment Services, stated, “We have signed agreements with several recognizable brands over the past several months, including Lego, Riverbed Technology, Katun and Fathead. We believe partnering with these leading companies further underscores our position as a major player in the business process outsourcing industry and the high level of services we are able to provide our customers. These new contracts are either already operational or in the process of being implemented in the U.S. and Canada. To implement these contracts, support the expansion of existing agreements, and support potential new contracts, we recently announced

increased capacity at our U.S. and Canadian facilities. While we are pleased with the new business we have signed recently, we are aggressively looking to continue to grow our Service Fee Business and have taken the needed steps to fully support these efforts.”

Management will host a conference call at 4:00 p.m. Central Time (5:00 p.m. Eastern Time) on April 2, 2007 to discuss the latest corporate developments and results. To listen to the call, please dial 888-200-2794 and enter the pin number (8611715) 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 May 2^nd at 877-519-4471, pin number (8611715). The replay also will be available at the company’s web site for a limited time.

This news release contains the non-GAAP measures EBITDA and adjusted EBITDA.

EBITDA represents earnings (or losses) before interest, taxes, depreciation, and amortization. Adjusted EBITDA further eliminates the effect of stock-based compensation, merger integration related expenses, a loss on sales transaction to a former eCOST.com customer, goodwill impairment and relocation-related costs. 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, as the calculation of EBITDA and Adjusted EBITDA eliminates the effect of financing, income taxes, the accounting effects of capital spending, stock-based compensation, merger related expenses and certain other expenses which items may vary from different companies for reasons unrelated to overall operating performance.

For 2005, prior to our merger, a reconciliation of eCOST.com’s net loss to EBITDA and Adjusted EBITDA is as follows:

		Three Months				Twelve Months
		Ended				Ended
		December 31,				December 31,
		2005				2005
Net loss		$	(4,840	)		$	(18,238	)
Income tax provision			—				5,350
Interest income, net			(17	)			(156	)
Depreciation and amortization			139				471
EBITDA		$	(4,718	)		$	(12,573	)
Stock-based compensation			125				500
Loss on sales transaction to former eCOST customer			1,272				1,272
Merger related expenses			1,153				1,153
Adjusted EBITDA			(2,168	)		$	$(9,648	)

Merchandise sales represent the estimated value of all fulfillment activity that flows through PFSweb including whether or not PFSweb is the seller of the merchandise or records the full amount of such sales on its financial statements, excluding service fee revenues that PFSweb might recognize for the underlying sales transactions. PFSweb uses merchandise sales as an operating metric to allow

investors to gain a more thorough understanding of its business and business volume, in addition to GAAP net revenue.

PFSweb develops and deploys integrated business infrastructure solutions and fulfilment services for Fortune 1000, Global 2000 and brand name companies, including third party logistics, call center support and e-commerce services. The company serves a multitude of industries and company types, including such clients as LEGO, Riverbed, Fathead, CHiA’SSO, FLAVIA^® Beverage Systems, Hewlett-Packard, International Business Machines, Hawker Beechcraft Corp., formerly Raytheon Aircraft Company, Rene Furterer USA, Roots Canada Ltd., The Smithsonian Institution 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 technology and consumer electronics for consumers and small to medium size business buyers. The eCOST.com brand markets more than 100,000 different products from leading manufacturers such as Apple, Canon, Citizen, Denon, Hewlett-Packard, Nikon, Onkyo, Seiko, Sony, and Toshiba 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, 2006 identifies 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 Report and the Risk Factors described therein. These factors include: our ability to retain and expand relationships with existing clients and attract and implement new clients; our reliance on the fees generated by the transaction volume or product sales of our clients; our reliance on our clients’ projections or transaction volume or product sales; our dependence upon our agreements with IBM; our dependence upon our agreements with our major clients; our client mix, their business volumes and the seasonality of their business; our ability to finalize pending contracts; the impact of strategic alliances and acquisitions; trends in the market for our services; trends in e-commerce; whether we can continue and manage growth; changes in the trend toward outsourcing; increased competition; our ability to generate more revenue and achieve sustainable profitability; effects of changes in profit margins; the customer and supplier concentration of our business; the unknown effects of possible system failures and rapid changes in technology; trends in government regulation both foreign and domestic; foreign currency risks and other risks of operating in foreign countries; potential litigation; our dependency on key personnel; the impact of new accounting standards and rules regarding revenue recognition, stock options and other matters; changes in accounting rules or the interpretations of those rules; our ability to raise additional capital or obtain additional financing; our ability and the ability of our subsidiaries to borrow under current financing arrangements and maintain compliance with debt covenants; relationship with and our guarantees of certain of the liabilities and indebtedness of our subsidiaries; whether outstanding warrants issued in a prior private placement will be exercised in the future; the transition costs resulting from our merger with eCOST; our ability to successfully integrate eCOST into our business to achieve the anticipated benefits of the merger: eCOST’s potential indemnification obligations to its former parent; eCOST’s ability to maintain existing and build new relationships with manufacturers and vendors and the success of its advertising and marketing efforts; eCOST’s ability to increase its sales revenue and sales margin and improve operating efficiencies and eCOST’s ability to generate projected cash flows to support the fair value of its intangible assets. 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.

(Tables Follow)

PFSweb, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations (A)
(In Thousands, Except Per Share Data)

		Three Months Ended								Twelve Months Ended
		December 31,								December 31,
		2006				2005				2006				2005
Revenues:
Product revenue, net		$	80,864			$	63,550			$	333,311			$	252,902
Service fee revenue			19,375				15,509				67,056				60,783
Pass-through revenue			8,758				4,371				22,886				17,972
Total revenues			108,997				83,430				423,253				331,657
Costs of revenues:
Cost of product revenue			75,719				58,933				311,417				235,584
Cost of service fee revenue			14,685				11,737				49,274				45,597
Pass-through cost of revenue			8,758				4,371				22,886				17,972
Total costs of revenues			99,162				75,041				383,577				299,153
Gross profit			9,835				8,389				39,676				32,504
Selling, general and administrative expenses			10,824				7,148				44,290				30,505
Stock-based compensation			214				14				899				16
Merger integration expense			365				—				1,495				—
Amortization of identifiable intangibles			194				—				749				—
Goodwill impairment			3,507				—				3,507				—
Total operating expenses			15,104				7,162				50,940				30,521
Income (loss) from operations			(5,269	)			1,227				(11,264	)			1,983
Interest expense, net			607				404				2,112				1,729
Loss before income taxes			(5,876	)			823				(13,376	)			254
Income tax expense			574				357				1,154				1,001
Net loss		$	(6,450	)		$	466			$	(14,530	)		$	(747	)
Net loss per share:
Basic		$	(0.14	)		$	0.02			$	(0.34	)		$	(0.03	)
Diluted		$	(0.14	)		$	0.02			$	(0.34	)		$	(0.03	)
Weighted average number of shares outstanding:
Basic			46,461				22,526				42,762				22,394
Diluted			46,461				24,041				42,762				22,394
EBITDA (B)		$	(3,226	)		$	2,732			$	(3,788	)		$	8,095
Adjusted EBITDA (B)		$	860			$	2,746			$	2,502			$	9,492

		Three Months Ended								Twelve Months Ended
		December 31,								December 31,
		2006				2005				2006				2005
Net loss		$	(6,450	)		$	466			$	(14,530	)		$	(747	)
Income tax provision			574				357				1,154				1,001
Interest expense, net			607				404				2,112				1,729
Depreciation and amortization			2,043				1,505				7,476				6,112
EBITDA		$	(3,226	)		$	2,732			$	(3,788	)		$	8,095
Stock-based compensation			214				14				899				16
Loss on sales transaction to former eCOST customer			—				—				389				—
Merger related integration expenses			365				—				1,495				—
Goodwill impairment			3,507				—				3,507				—
Relocation-related costs			—				—				—				1,381
Adjusted EBITDA			860			$	$2,746			$	2,502			$	9,492

PFSweb, Inc. and Subsidiaries

Consolidated Balance Sheets
(In Thousands, Except Share Data)

		December 31,				December 31,
		2006				2005
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	15,066			$	13,683
Restricted cash			2,653				2,077
Accounts receivable, net of allowance for doubtful accounts of $2,352 and $484 at December 31, 2006 and December 31, 2005, respectively			48,717				44,556
Inventories, net of reserves of $2,987 and $1,539 at December 31, 2006 and 2005, respectively			47,670				43,654
Other receivables			10,774				9,866
Prepaid expenses and other current assets			3,531				3,213
Total current assets			128,411				117,049
PROPERTY AND EQUIPMENT, net			12,884				13,040
RESTRICTED CASH			—				150
IDENTIFIABLE INTANGIBLES			6,647				—
GOODWILL			15,362				—
OTHER ASSETS			848				1,487
Total assets		$	164,152			$	131,726
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease obligations		$	23,802			$	21,626
Trade accounts payable			61,972				60,053
Accrued expenses			21,934				12,011
Total current liabilities			107,708				93,690
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion			6,076				6,289
OTHER LIABILITIES			1,528				1,813
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Preferred stock, $1.00 par value; 1,000,000 shares authorized; none issued and outstanding			—				—
Common stock, $0.001 par value; 75,000,000 shares authorized; 46,553,752 and 22,613,314 shares issued at December 31, 2006 and December 31, 2005, respectively; and 46,467,452 and 22,527,014 outstanding at December 31, 2006 and December 31, 2005, respectively			47				23
Additional paid-in capital			91,302				58,736
Accumulated deficit			(44,354	)			(29,824	)
Accumulated other comprehensive income			1,930				1,084
Treasury stock at cost, 86,300 shares			(85	)			(85	)
Total shareholders’ equity			48,840				29,934
Total liabilities and shareholders’ equity		$	164,152			$	131,726

PFSweb, Inc. and Subsidiaries
Unaudited Consolidating Statements of Operations
for the Year Ended December 31, 2006
(In Thousands)

		PFSweb				Supplies Distributors				ECOST				Eliminations				Consolidated
REVENUES:
Product revenue, net		$	—			$	244,979			$	88,332			$	—			$	333,311
Service fee revenue			67,056				—				—				—				67,056
Service fee revenue, affiliate			8,518				—				—				(8,518	)			—
Pass-through revenue			23,372				—				—				(486	)			22,886
Total revenues			98,946				244,979				88,332				(9,004	)			423,253
COSTS OF REVENUES:
Cost of product revenue			—				227,362				84,107				(52	)			311,417
Cost of service fee revenue			51,813				—				—				(2,539	)			49,274
Pass-through cost of revenue			23,372				—				—				(486	)			22,886
Total costs of revenues			75,185				227,362				84,107				(3,077	)			383,577
Gross profit			23,761				17,617				4,225				(5,927	)			39,676
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			25,592				10,003				14,622				(5,927	)			44,290
STOCK-BASED COMPENSATION			899				—				—				—				899
MERGER INTEGRATION EXPENSE			—				—				1,495				—				1,495
AMORTIZATION OF IDENTIFIABLE INTANGIBLES			—				—				749				—				749
GOODWILL IMPAIRMENT			—				—				3,507				—				3,507
Total operating expenses			26,491				10,003				20,373				(5,927	)			50,940
Income (loss) from operations			(2,730	)			7,614				(16,148	)			—				(11,264	)
INTEREST EXPENSE (INCOME), NET			(111	)			2,215				8				—				2,112
Income (loss) before income taxes			(2,619	)			5,399				(16,156	)			—				(13,376	)
INCOME TAX PROVISION (BENEFIT)			(883	)			2,037				—				—				1,154
NET INCOME (LOSS)		$	(1,736	)		$	3,362			$	(16,156	)		$	—			$	(14,530	)
EBITDA		$	3,690			$	7,625			$	(15,103	)		$	—			$	(3,788	)
Adjusted EBITDA		$	4,589			$	7,625			$	(9,712	)		$	—			$	2,502
A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA follows:
Net income (loss)		$	(1,736	)		$	3,362			$	(16,156	)		$	—			$	(14,530	)
Income tax expense (benefit)			(883	)			2,037				—				—				1,154
Interest expense (income)			(111	)			2,215				8				—				2,112
Depreciation and amortization			6,420				11				1,045				—				7,476
EBITDA		$	3,690			$	7,625			$	(15,103	)		$	—			$	(3,788	)
Stock-based compensation			899				—				—				—				899
Loss on sales transaction to former eCOST customer			—				—				389				—				389
Merger integration related expenses			—				—				1,495				—				1,495
Goodwill impairment			—				—				3,507				—				3,507
Adjusted EBITDA		$	4,589			$	7,625			$	(9,712	)		$	—			$	2,502

PFSweb, Inc. and Subsidiaries
Unaudited Condensed Consolidating Balance Sheets
as of December 31, 2006
(In Thousands)

						Supplies
		PFSweb				Distributors				ECOST				Eliminations				Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	11,691			$	2,021			$	1,354			$	—			$	15,066
Restricted cash			196				2,249				208				—				2,653
Accounts receivables, net			18,667				27,306				3,023				(279	)			48,717
Inventories, net			—				41,552				6,118				—				47,670
Other receivables			147				10,627				—				—				10,774
Prepaid expenses and other current assets			1,995				1,454				82				—				3,531
Total current assets			32,696				85,209				10,785				(279	)			128,411
PROPERTY AND EQUIPMENT, net			12,617				40				227				—				12,884
NOTE RECEIVABLE FROM AFFILIATE			17,145				—				—				(17,145	)			—
INVESTMENT IN AFFILIATE			37,049				—				—				(37,049	)			—
IDENTIFIABLE INTANGIBLES			—				—				6,647				—				6,647
GOODWILL			—				—				15,362				—				15,362
OTHER ASSETS			722				—				126				—				848
Total assets		$	100,229			$	85,249			$	33,147			$	(54,473	)		$	164,152
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease obligations		$	10,252			$	13,550			$	—			$	—			$	23,802
Trade accounts payable			6,531				48,770				6,950				(279	)			61,972
Accrued expenses			10,902				7,398				3,634				—				21,934
Total current liabilities			27,685				69,718				10,584				(279	)			107,708
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS,
less current portion			6,076				—				—				—				6,076
NOTE PAYABLE TO AFFILIATE			—				6,505				10,640				(17,145	)			—
OTHER LIABILITIES			1,528				—				—				—				1,528
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Common stock			47				—				19				(19	)			47
Capital contributions			—				1,000				—				(1,000	)			—
Additional paid-in capital			91,302				—				28,060				(28,060	)			91,302
Retained earnings (accumulated deficit)			(28,254	)			5,865				(16,156)	)			(5,809	)			(44,354	)
Accumulated other comprehensive income			1,930				2,161				—				(2,161	)			1,930
Treasury stock			(85	)			—				—				—				(85	)
Total shareholders’ equity			64,940				9,026				11,923				(37,049	)			48,840
Total liabilities and shareholders’ equity		$	100,229			$	85,249			$	33,147			$	(54,473	)		$	164,152

PFSweb, Inc. and Subsidiaries
Unaudited Consolidating Statements of Operations
for the Three Months Ended December 31, 2005
(In Thousands)

						Supplies
		PFSweb				Distributors				Eliminations				Consolidated
REVENUES:
Product revenue, net		$	—			$	63,550			$	—			$	63,550
Service fee revenue			15,509				—				—				15,509
Service fee revenue, affiliate			2,247				—				(2,247	)			—
Pass-through revenue			4,453				—				(82	)			4,371
Total revenues			22,209				63,550				(2,329	)			83,430
COSTS OF REVENUES:
Cost of product revenue			—				58,933				—				58,933
Cost of service fee revenue			12,440				—				(703	)			11,737
Pass-through cost of revenue			4,453				—				(82	)			4,371
Total costs of revenues			16,893				58,933				(785	)			75,041
Gross profit			5,316				4,617				(1,544	)			8,389
Selling, general and administrative expenses			6,248				2,444				(1,544	)			7,148
Stock-based compensation			14				—				—				14
Total operating expenses			6,262				2,444				(1,544	)			7,162
Income (loss) from operations			(946	)			2,173				—				1,227
INTEREST EXPENSE (INCOME), NET			(80	)			484				—				404
Income (loss) before income taxes			(866	)			1,689				—				823
INCOME TAX PROVISION (BENEFIT)			(444	)			801				—				357
NET INCOME (LOSS)		$	(422	)		$	888			$	—			$	466
EBITDA		$	559			$	2,173			$	—			$	2,732
Adjusted EBITDA		$	573			$	2,173			$	—			$	2,746
A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA follows:
Net income (loss)		$	(422	)		$	888			$	—			$	466
Income tax expense (benefit)			(444	)			801				—				357
Interest expense (income)			(80	)			484				—				404
Depreciation and amortization			1,505				—				—				1,505
EBITDA		$	559			$	2,173				—			$	2,732
Stock-based compensation			14				—				—				14
Adjusted EBITDA		$	573			$	2,173			$	—			$	2,746

PFSweb, Inc. and Subsidiaries
Unaudited Consolidating Statements of Operations
for the Year Ended December 31, 2005
(In Thousands)

						Supplies
		PFSweb				Distributors				Eliminations				Consolidated
REVENUES:
Product revenue, net		$	—			$	252,902			$	—			$	252,902
Service fee revenue			60,783				—				—				60,783
Service fee revenue, affiliate			8,883				—				(8,883	)			—
Pass-through revenue			18,217				—				(245	)			17,972
Total revenues			87,883				252,902				(9,128	)			331,657
COSTS OF REVENUES:
Cost of product revenue			—				235,584				—				235,584
Cost of service fee revenue			48,385				—				(2,788	)			45,597
Pass-through cost of revenue			18,217				—				(245	)			17,972
Total costs of revenues			66,602				235,584				(3,033	)			299,153
Gross profit			21,281				17,318				(6,095	)			32,504
Selling, general and administrative expenses			26,556				10,044				(6,095	)			30,505
Stock-based compensation			16				—				—				16
Total operating expenses			26,572				10,044				(6,095	)			30,521
Income (loss) from operations			(5,291	)			7,274				—				1,983
INTEREST EXPENSE (INCOME), NET			(273	)			2,002				—				1,729
Income (loss) before income taxes			(5,018	)			5,272				—				254
INCOME TAX PROVISION (BENEFIT)			(1,056	)			2,057				—				1,001
NET INCOME (LOSS)		$	(3,962	)		$	3,215			$	—			$	(747	)
EBITDA		$	821			$	7,274			$	—			$	8,095
Adjusted EBITDA		$	2,218			$	7,274			$	—			$	9,492
A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA follows :
Net income (loss)		$	(3,962	)		$	3,215			$	—			$	(747	)
Income tax expense (benefit)			(1,056	)			2,057				—				1,001
Interest expense (income)			(273	)			2,002				—				1,729
Depreciation and amortization			6,112				—				—				6,112
EBITDA		$	821			$	7,274				—			$	8,095
Stock-based compensation			16				—				—				16
Relocation-related costs			1,381				—				—				1,381
Adjusted EBITDA		$	2,218			$	7,274			$	—			$	9,492