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

DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MAY 15, 2006

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 May 15 2006, PFSweb, Inc. issued a press release announcing its financial results for the quarter ended March 31, 2006. Attached to this current report on Form 8-K is a copy of the related press release dated May 15, 2006. 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 May 15, 2006

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.

Exhibit 99.1

Contact: Mark C. Layton Senior Partner and Chief Executive Officer Or Thomas J. Madden Senior Partner and Chief Financial Officer (972) 881-2900		Todd Fromer / Lewis Goldberg Investor Relations / Media Relations KCSA Worldwide (212) 896-1215 / (212) 896-1233 tfromer@kcsa.com / lgoldberg@kcsa.com

PFSweb Reports First Quarter Financial Results

Net Revenue Increases 35%; Service Fee Revenue Climbs 13%

PLANO, Texas, May 15, 2006 — PFSweb, Inc. (Nasdaq:PFSW), a global provider of business process outsourcing (BPO) solutions and web commerce retailer, today announced financial results for the first quarter ended March 31, 2006.

Net revenue in the quarter totaled $110.7 million compared to $81.9 million in the 2005 first quarter, an increase of 35%. Service fee revenue rose 13% in the 2006 first quarter to $15.9 million from $14.1 million in the same period last year. First quarter revenue for PFSweb’s Supplies Distributors division (formerly exclusively reported as product revenue) increased 7.5% to $68.4 million from $63.6 million in the year-earlier period.

Revenue realized from the company’s recently acquired operating subsidiary, eCOST.com, was $21.8 million in the 2006 first quarter. Results attributable to eCOST.com reflect only two months of operations in PFSweb’s consolidated financials for the 2006 first quarter following PFSweb’s merger with eCOST.com on February 1, 2006. Revenue for eCOST.com for the full three-month period was $35.0 million versus $55.1 million for the three months ended March 31, 2005.

Additional consolidated financial information for PFSweb includes:

	•		Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) in the first quarter was $0.8 million versus $1.8 million in the same period last year.
	•		Net loss in the first quarter was $1.6 million, or $0.05 per basic and diluted share, compared to a net loss of $0.2 million, or $0.01 per basic and diluted share, in the same period a year ago.

¢

Our EBITDA and net loss in the period ended March 31, 2006 included the following:

	•		Stock option compensation expense of $0.2 million in conjunction with the Company’s adoption of Financial Accounting Standards Board Statement No. 123R.
	•		Amortization of identifiable intangible assets of $0.1 million applicable to valuation of assets assigned in conjunction with purchase of eCOST.
	•		Integration related costs applicable to eCOST of approximately $0.2 million.
	•		Loss applicable to sales to a former eCOST customer of $0.4 million, reflected as a reduction in product revenue.

¢

Excluding the impact of the items identified above, EBITDA, net loss and net loss per basic and diluted share for the March 31, 2006 quarter would have been $1.6 million, 0.6 million and $0.02, respectively.

	•		Merchandise sales totaled approximately $523 million during the three months ended March 31, 2006.
	•		Cash and cash equivalents and restricted cash totaled $17.2 million as of March 31, 2006.

Mark Layton, Chief Executive Officer of PFSweb, said, “Our first quarter results for fiscal 2006 reflect strong performance within our base Service Fee and Supplies Distributors businesses. Our service fee revenue increased over the same period of the prior year as a result of both business with new service contract relationships and increased business from existing clients, including special project activity. We have experienced improved results in the current year in winning new service fee business, including expansion of existing client relationships such as our expanded contract with Roots throughout United States and Canada, and our recently announced, undisclosed, web-based client for increased European services, as well as new client wins. Our pipeline for potential new business has improved and now includes pending proposals totaling approximately $40 million in annual service fees. We hope to maintain the momentum in signing new business we have seen thus far in 2006. Our integrated supply chain solutions remain a core component to our long-term growth strategy as we maintain our focus on larger service fee contracts with blue-chip companies.

“First quarter results also reflect initial contributions from our new eCOST.com subsidiary,” Layton added. “We believe our unique business model provides the ability to achieve substantial operating synergies by leveraging PFSweb’s world-class operating infrastructure and technology expertise with eCOST.com’s strong web platform and customer base. We continue to make important strides in merging our operations and expect eCOST to achieve a total of approximately $4 to $5 million in annual cost savings and capitalize on revenue enhancement opportunities upon completion of our integration plan.”

Since completing its merger with eCOST.com, PFSweb has implemented the following key merger-related initiatives:

	•		Introduction of a new freight efficiency program designed to reduce eCOST’s outbound freight costs
	•		Supplementing eCOST’s call center services with PFSweb’s facility in Plano, TX to assist in the handling of more than 1,000 eCOST customer service calls per day

	•		Reduction in public company expenses
	•		Expansion of certain eCOST vendor credit lines to improve its working capital flexibility

For eCOST’s selected operating data for the three month periods ended March 31, 2006 and 2005, please see the tables below.

Layton concluded, “We remain on track to complete the integration of our operations within our targeted timeframe of fall 2006. Once this integration is completed we believe we will be well poised to begin to expand and more aggressively grow our annual consolidated revenue base of approximately $500 million. We believe our integration efforts will provide the opportunity to achieve a turnaround of the eCOST business and significantly enhance our growth potential in the burgeoning $79 billion web commerce marketplace. Combined with our increasing momentum in our service fee business, we believe PFSweb is well positioned to drive overall future performance on both the top and bottom line.”

Conference Call Information
Management will host a conference call at 10:00 a.m. Central Time (11:00 a.m. Eastern Time) on May 15, 2006 to discuss the latest corporate developments and results. To listen to the call, please dial 973-582-2706 and enter the pin number (7347832) 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 29th at 973-341-3080 pin number (7347832). The replay also will be available at the company’s web site for a limited time.

Non-GAAP Financial Measures
This news release contains the non-GAAP measures EBITDA, adjusted EBITDA and Merchandise sales.

EBITDA represents earnings (or losses) before interest, taxes, depreciation, and amortization. Adjusted EBITDA further eliminates the effect of stock based compensation expense, merger integration related expenses and a loss on sales transaction. EBITDA and adjusted EBITDA is 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 expense and merger related expenses which items may vary from different companies for reasons unrelated to overall operating performance.

Merchandise sales represent the estimated value of all fulfillment activity which 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.

About PFSweb, Inc.
PFSweb develops and deploys integrated business infrastructure solutions and fulfillment 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 Adaptec, CHiA’SSO, FLAVIA^® Beverage Systems, Hewlett-Packard, International Business Machines, Nokia, Raytheon Aircraft Company, Rene Furterer USA, Roots Canada Ltd., Smithsonian Institute 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 refurbished brand-name merchandise for consumers and small 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.

For more information, please 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 and 10-K/A for the year ended December 31, 2005 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; and eCOST’s ability to increase its sales revenue and sales margin and improve operating efficiencies. 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
		March 31,
		2006				2005
Revenues:
Product revenue, net		$	90,204			$	63,630
Service fee revenue			15,919				14,085
Pass-through revenue			4,545				4,150
Total revenues			110,668				81,865
Costs of revenues:
Cost of product revenue			84,354				59,637
Cost of service fee revenue			11,348				10,768
Pass-through cost of revenue			4,545				4,150
Total costs of revenues			100,247				74,555
Gross profit			10,421				7,310
Selling, general and administrative expenses			11,361				6,966
Income (loss) from operations			(940	)			344
Interest expense, net			431				319
Income (loss) from before income taxes			(1,371	)			25
Income tax provision			216				239
Net income (loss)		$	(1,587	)		$	(214	)
Net income (loss) per share:
Basic and diluted		$	(0.05	)		$	(0.01	)
Weighted average number of shares outstanding:
Basic and diluted			34,904				22,136
EBITDA (B)		$	812			$	1,847
Adjusted EBITDA (B)		$	1,633			$	1,847

		Three Months Ended
		March 31,
		2006				2005
Net loss		$	(1,587	)		$	(214	)
Income tax provision			216				239
Interest expense, net			431				319
Depreciation and amortization			1,752				1,503
EBITDA		$	812			$	1,847
Stock-based compensation			239				—
Merger related integration expenses			193				—
Loss on sales transaction to former eCOST customer			389				—
Adjusted EBITDA		$	1,633			$	1,847

PFSweb, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share Data)

		March 31,				December 31,
		2006				2005
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	13,955			$	13,683
Restricted cash			3,238				2,077
Accounts receivable, net of allowance for doubtful accounts of $1,757 and $484 at March 31, 2006 and December 31, 2005, respectively			52,160				44,556
Inventories, net			53,629				43,654
Other receivables			8,609				9,866
Prepaid expenses and other current assets			2,912				3,213
Total current assets			134,503				117,049
PROPERTY AND EQUIPMENT, net			13,304				13,040
RESTRICTED CASH			—				150
IDENTIFIABLE INTANGIBLES			7,521				—
GOODWILL			18,265				—
OTHER ASSETS			1,007				1,487
Total assets		$	174,600			$	131,726
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease obligations		$	26,262			$	21,626
Trade accounts payable			73,319				60,053
Accrued expenses			15,565				12,011
Total current liabilities			115,146				93,690
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion			1,595				6,289
OTHER LIABILITIES			2,277				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; 41,501,559 and 22,613,314 shares issued at March 31, 2006 and December 31, 2005, respectively; and 41,415,259 and 22,527,014 outstanding at March 31, 2006 and December 31, 2005, respectively			42				23
Additional paid-in capital			85,749				58,736
Accumulated deficit			(31,411	)			(29,824	)
Accumulated other comprehensive income			1,287				1,084
Treasury stock at cost, 86,300 shares			(85	)			(85	)
Total shareholders’ equity			55,582				29,934
Total liabilities and shareholders’ equity		$	174,600			$	131,726

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

						Supplies
		PFSweb				Distributors				eCOST (A)				Eliminations				Consolidated
REVENUES:
Product revenue, net		$	—			$	68,415			$	21,789	(b)		$	—			$	90,204
Service fee revenue			15,919				—				—				—				15,919
Service fee revenue, affiliate			2,427				—				—				(2,427	)			—
Pass-through revenue			4,642				—				—				(97	)			4,545
Total revenues			22,988				68,415				21,789				(2,524	)			110,668
COSTS OF REVENUES:
Cost of product revenue			—				63,954				20,400				—				84,354
Cost of service fee revenue			12,075				—				—				(727	)			11,348
Pass-through cost of revenue			4,642				—				—				(97	)			4,545
Total costs of revenues			16,717				63,954				20,400				(824	)			100,247
Gross profit			6,271				4,461				1,389	(b)			(1,700	)			10,421
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			6,561				2,706				3,226				(1,700	)			10,793
STOCK BASED COMPENSATION EXPENSE			239				—				—				—				239
MERGER INTEGRATION EXPENSE			—				—				193				—				193
AMORTIZATION OF IDENTIFIABLE INTANGIBLES			—				—				136				—				136
Income (loss) from operations			(529	)			1,755				(2,166	)			—				(940	)
INTEREST EXPENSE (INCOME), NET			(35	)			454				12				—				431
Income (loss) before income taxes			(494	)			1,301				(2,178	)			—				(1,371	)
INCOME TAX PROVISION (BENEFIT)			(300	)			516				—				—				216
NET INCOME (LOSS)		$	(194	)		$	785			$	(2,178	)		$	—			$	(1,587	)
A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA follows:
Net income (loss)		$	(194	)		$	785			$	(2,178	)		$	—			$	(1,587	)
Income tax expense (benefit)			(300	)			516				—				—				216
Interest expense (income)			(35	)			454				12				—				431
Depreciation and amortization			1,561				—				191				—				1,752
EBITDA		$	1,032			$	1,755			$	(1,975	)		$	—			$	812
Stock-based compensation			239				—				—				—				239
Merger integration related expenses			—				—				193				—				193
Loss on sales transaction to former customer			—				—				389				—				389
Adjusted EBITDA		$	1,271			$	1,755			$	(1,393	)		$	—			$	1,633

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

						Supplies
		PFSweb, Inc.				Distributors				eCOST				Eliminations				Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	10,715			$	1,957			$	1,283			$	—			$	13,955
Restricted cash			515				2,165				558				—				3,238
Accounts receivables, net			16,759				30,855				5,422				(876	)			52,160
Inventories, net			—				43,459				10,170				—				53,629
Other receivables			—				8,609				—				—				8,609
Prepaid expenses and other current assets			1,603				1,220				89				—				2,912
Total current assets			29,592				88,265				17,522				(876	)			134,503
PROPERTY AND EQUIPMENT, net			12,619				34				651				—				13,304
NOTE RECEIVABLE FROM AFFILIATE			8,505				—				—				(8,505	)			—
INVESTMENT IN AFFILIATE			35,947				—				—				(35,947	)			—
IDENTIFIABLE INTANGIBLES			—				—				7,521				—				7,521
GOODWILL			—				—				18,265				—				18,265
OTHER ASSETS			821				—				186				—				1,007
Total assets		$	87,484			$	88,299			$	44,145			$	(45,328	)		$	174,600
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease obligations		$	13,244			$	12,285			$	733			$	—			$	26,262
Trade accounts payable			5,774				57,629				10,792				(876	)			73,319
Accrued expenses			7,498				3,957				4,110				—				15,565
Total current liabilities			26,516				73,871				15,635				(876	)			115,146
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion			1,595				—				—				—				1,595
NOTE PAYABLE TO AFFILIATE			—				6,505				2,000				(8,505	)			—
OTHER LIABILITIES			1,667				—				610				—				2,277
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Common stock			42				—				19				(19	)			42
Capital contributions			—				1,000				—				(1,000	)			—
Additional paid-in capital			85,749				—				28,059				(28,059	)			85,749
Retained earnings (accumulated deficit)			(29,287	)			5,278				(2,178	)			(5,224	)			(31,411	)
Accumulated other comprehensive income			1,287				1,645				—				(1,645	)			1,287
Treasury stock			(85	)			—				—				—				(85	)
Total shareholders’ equity			57,706				7,923				25,900				(35,947	)			55,582
Total liabilities and shareholders’ equity		$	87,484			$	88,299			$	44,145			$	(45,328	)		$	174,600

eCOST.com, Inc.
Selected Operating Data

		Three Months Ended
		March 31,
		2006				2005
Total customers (1)			1,505,831				1,212,119
Active customers (2)			393,512				521,999
New customers (3)			68,664				123,783
Number of orders (4)			98,586				190,642
Average order value (5)		$	384			$	302
Advertising expense (6)		$	1,330,251			$	2,010,000
Cost to acquire a new customer		$	19.37			$	16.24

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