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 August 14, 2006, PFSweb, Inc. issued a press release announcing its financial results for the quarter ended June 30, 2006. Attached to this current report on Form 8-K is a copy of the related press release dated August 14, 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 August 14, 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.

				PFSweb, Inc.
Dated: August 14, 2006		By:		/s/ Thomas J. Madden
				Thomas J. Madden
				Executive Vice President,
				Chief Financial and
				Accounting Officer

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

PFSweb Reports Second Quarter Financial Results

PLANO, Texas, August 14, 2006 — PFSweb, Inc. (Nasdaq:PFSW), a global provider of business process outsourcing (BPO) solutions and web commerce retailer, today announced financial results for the three and six-month periods ended June 30, 2006.

Total reported revenue for the three months ending June 30, 2006 totaled $109.3 million, compared to $84.9 million for the same period last year. Service Fee revenue in the second quarter of 2006 was $16.2 million compared to $16.3 million for the second quarter of 2005. Supplies Distributors revenue was $60.9 million in the second quarter of 2006, compared to $63.4 million for the second quarter of 2005. Revenue from the company’s recently acquired wholly owned subsidiary, eCOST.com, was $28.8 million in the second quarter of 2006. eCOST.com reported $41.0 million of revenue for the same period last year prior to the merger. On a pro forma basis total revenues including eCOST.com for the same period last year was $125.9 million.

Additional consolidated financial information for PFSweb for the three months ending June 30, 2006 compared to the year-earlier period includes:

	•		Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) was $(0.7) million versus $1.6 million in the prior year. EBITDA for the 2006 second quarter included $(4.0) million applicable to eCOST.com. Excluding eCOST.com, EBITDA for the Service Fee and Supplies Distributors businesses was $3.3 million, an increase of $1.7 million over the same period last year.
	•		Net loss for the 2006 second quarter was $3.2 million, or $0.07 per basic and diluted share, compared to a net loss of $0.5 million, or $0.02 per basic and diluted share for the prior year’s period. Net loss in the current year included a net loss of $4.3 million applicable to eCOST. Excluding eCOST.com, net income for the Service Fee and Supplies Distributors businesses was $1.1 million, an increase of $1.6 million over the second quarter of last year.

o

EBITDA and net loss for the three months ended June 30, 2006 included the following:

	•		Stock option compensation expense of $0.2 million in conjunction with Financial Accounting Standards Board Statement No. 123R.
	•		Integration related costs applicable to eCOST of approximately $0.4 million.

	o		Additionally, net loss for the period ended June 30, 2006 included the amortization of identifiable intangible assets of $0.2 million applicable to valuation of assets assigned in conjunction with the purchase of eCOST.com.
	o		Excluding the impact of the items identified above, EBITDA, net loss and net loss per basic and diluted share for the period ended June 30,2006 would have been $3 thousand, $2.3 million and $0.05, respectively.

	•		Merchandise sales totaled approximately $662 million during the June 2006 quarter.
	•		Cash and cash equivalents and restricted cash totaled $19.0 million as of June 30, 2006.

Mark Layton, Chief Executive Officer of PFSweb, said, “We are pleased by the continued improved profitability of our Service Fee and Supplies Distributors businesses. This improvement included (1) improved gross margin performance, including the favorable impact of contracts that became operational in calendar year 2005 and experienced incremental startup related expenses in that year, and (2) reduced selling, general and administrative expenses, including the impact of ongoing cost controls and favorable exchange rates. We continue to experience improved results in the current year in winning new Service Fee business relationships, including the expansion of existing client relationships. During 2006, we have signed new contracts with estimated ongoing annual service fees of approximately $7 million, based on client projections, plus special projects of approximately $1 million. Our solid pipeline of potential new business, including pending proposals, remains a robust $40 million in annual service fees. We are targeting to maintain our steady stream of new business activity and strengthen our existing client relationships going forward.”

Consolidated revenue for the six months ending June 30, 2006 totaled $220.0 million, compared to $166.7 million for the same period last year, an increase of more than 30%. Service Fee revenue rose 5.7% for the six months ended June 30, 2006 to $32.1 million from $30.4 million for the same period in 2005. Supplies Distributors revenue increased 1.7% to $129.3 million in the six months ended June 30, 2006, compared to $127.1 million for the same period last year. eCOST.com revenue, including $12.9 million of revenue for the month of January 2006, prior to the merger, was $63.5 million in the first six months of 2006. eCOST.com reported $96.1 million of revenue for the same period of 2005. On a pro forma basis, total revenues including eCOST.com for the same period last year was $262.8 million.

PFSweb’s consolidated financials for the six months ending June 30, 2006 only reflect five months of operations for eCOST.com, as the merger closed on February 1, 2006. For additional information on PFSweb’s consolidated results for the six months ending June 30, 2006, please refer to the financial tables below.

Layton continued, “We have experienced challenges in achieving our plans to improve the service and financial performance of the eCOST.com business segment since the merger. The time and effort needed to meet certain quality and service targets for eCOST.com has been greater than we expected and has also contributed to lower than targeted revenue and gross profit margins during the June 2006 quarter and this is expected to continue into the September 2006 quarter. In addition, we experienced a significantly higher than normal level of fraudulent credit card activity in June and July, 2006 due in part to problems experienced in the ERP systems conversion. We believe that these system issues have now been resolved. We remain focused on the turnaround of eCOST.com, including the integration of our operations and driving improved financial and service level performance in the future. Profit, not revenue, will be our near term focus with an emphasis on stronger gross profit performance, controlling costs and improving quality of our operations and customer service. Once we achieve that goal, we can then turn our attention towards revenue growth and increased scale and begin to focus on the many exciting opportunities in product and international expansion we see for this business.”

“We are making progress in the turnaround of eCOST.com and plan to complete our integration in the fall of 2006, in time for the holiday season,” Layton added. “Over the past several months, we have made significant improvements in eCOST’s infrastructure, which we believe will increase operating efficiencies and enhance long-term performance. As previously discussed, we anticipate our merger with eCOST.com to produce total cost savings of approximately $4 — $5 million on an annual basis once our integration efforts are fully implemented.”

Recent highlights for eCOST.com and related merger with PFSweb include:

	•		The relocation of eCOST.com’s headquarters to El Segundo, CA in a move expected to generate cost savings of approximately $20,000 per month.
	•		The relocation of eCOST.com’s warehouse facility into an existing PFSweb warehouse to improve performance and reduce costs.
	•		eCOST.com’s early adoption of Google Checkout, a new service from Google that offers a more convenient and secure online shopping experience.
	•		The appointment of ExactTarget to assist in eCOST.com’s direct marketing campaign, providing the ability to send personalized emails to subscribers using list segmentation and unique content features as well as advanced reporting functions.
	•		Nearing the completion of eCOST.com’s transition to PFSweb’s advanced ERP platform from its legacy ERP technology platform.

Layton concluded, “We remain confident in our ability to transform eCOST.com into a premier Internet retailer based on our world-class technology and operational infrastructure. Once our integration plan is complete, we expect to leverage our global platform and deliver sustainable growth within the $79 billion web commerce marketplace.”

For eCOST.com’s selected operating data for the three and six-month periods ended June 30, 2006 and 2005, please see the table below.

Conference Call Information

Management will host a conference call at 10:00 a.m. Central Time (11:00 a.m. Eastern Time) on August 14, 2006 to discuss the latest corporate developments and results. To listen to the call, please dial 888-338-6760 and enter the pin number (7710682) 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 August 28^th at 877-519-4471 pin number (7710682). 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 and adjusted EBITDA.

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

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.

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, Chiasso, FLAVIA(R) Beverage Systems, Hewlett-Packard, International Business Machines, Nokia, Pfizer, Inc., 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 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.

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 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								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Revenues:
Product revenue, net		$	89,650			$	63,438			$	179,854			$	127,068
Service fee revenue			16,209				16,298				32,128				30,383
Pass-through revenue			3,445				5,134				7,990				9,284
Total revenues			109,304				84,870				219,972				166,735
Costs of revenues:
Cost of product revenue			84,486				59,613				168,809				119,250
Cost of service fee revenue			11,366				12,102				22,745				22,870
Pass-through cost of revenue			3,445				5,134				7,990				9,284
Total costs of revenues			99,297				76,849				199,544				151,404
Gross profit			10,007				8,021				20,428				15,331
Selling, general and administrative expenses			12,531				7,952				23,892				14,918
Income (loss) from operations			(2,524	)			69				(3,464	)			413
Interest expense, net			517				474				948				793
Loss before income taxes			(3,041	)			(405	)			(4,412	)			(380	)
Income tax provision			143				141				359				380
Net loss		$	(3,184	)		$	(546	)		$	(4,771	)		$	(760	)
Net loss per share:
Basic		$	(0.07	)		$	(0.02	)		$	(0.12	)		$	(0.03	)
Diluted		$	(0.07	)		$	(0.02	)		$	(0.12	)		$	(0.03	)
Weighted average number of shares outstanding:
Basic			43,072				22,419				39,011				22,278
Diluted			43,072				22,419				39,011				22,278
EBITDA (B)		$	(687	)		$	1,579			$	125			$	3,425
Adjusted EBITDA (B)		$	3			$	1,579			$	1,636			$	3,425

		Three Months Ended								Six Months Ended
		june 30,								june 30,
		2006				2005				2006				2005
Net loss		$	(3,184	)		$	(546	)		$	(4,771	)		$	(760	)
Income tax provision			143				141				359				380
Interest expense, net			517				474				948				793
Depreciation and amortization			1,837				1,510				3,589				3,012
EBITDA		$	(687	)		$	1,579			$	125			$	3,425
Stock-based compensation			241				—				480				—
Loss on sales transaction to former eCOST customer			—				—				389				—
Merger related integration expenses			449				—				642				—
Adjusted EBITDA		$	3			$	1,579			$	1,636			$	3,425

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

		June 30,				December 31,
		2006				2005
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	17,553			$	13,683
Restricted cash			1,406				2,077
Accounts receivable, net of allowance for doubtful accounts of $1,875 and $484 at June 30, 2006 and December 31, 2005, respectively			48,538				44,556
Inventories, net			57,519				43,654
Other receivables			9,816				9,866
Prepaid expenses and other current assets			3,223				3,213
Total current assets			138,055				117,049
PROPERTY AND EQUIPMENT, net			13,525				13,040
RESTRICTED CASH			¾				150
IDENTIFIABLE INTANGIBLES			7,316				¾
GOODWILL			18,545				¾
OTHER ASSETS			836				1,487
Total assets		$	178,277			$	131,726
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease obligations		$	27,709			$	21,626
Trade accounts payable			70,718				60,053
Accrued expenses			18,667				12,011
Total current liabilities			117,094				93,690
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion			1,892				6,289
OTHER LIABILITIES			1,432				1,813
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Preferred stock, $1.00 par value; 1,000,000 shares authorized; none issued and outstanding			¾				¾
Common stock, $0.001 par value; 75,000,000 shares authorized; 46,526,100 and 22,613,314 shares issued at June 30, 2006 and December 31, 2005, respectively; and 46,439,800 and 22,527,014 outstanding at June 30, 2006 and December 31, 2005, respectively			47				23
Additional paid-in capital			90,858				58,736
Accumulated deficit			(34,595	)			(29,824	)
Accumulated other comprehensive income			1,634				1,084
Treasury stock at cost, 86,300 shares			(85	)			(85	)
Total shareholders’ equity			57,859				29,934
Total liabilities and shareholders’ equity		$	178,277			$	131,726

PFSweb, Inc. and Subsidiaries
Unaudited Consolidating Statements of Operations
for the Three Months Ended June 30, 2006
(In Thousands)

						Supplies
		PFSweb				Distributors				eCOST				Eliminations				Consolidated
REVENUES:
Product revenue, net		$	—			$	60,867			$	28,783			$	—			$	89,650
Service fee revenue			16,209				—				—				—				16,209
Service fee revenue, affiliate			2,075				—				—				(2,075	)			—
Pass-through revenue			3,575				—				—				(130	)			3,445
Total revenues			21,859				60,867				28,783				(2,205	)			109,304
COSTS OF REVENUES:
Cost of product revenue			—				56,776				27,721				(11	)			84,486
Cost of service fee revenue			11,996				—				—				(630	)			11,366
Pass-through cost of revenue			3,575				—				—				(130	)			3,445
Total costs of revenues			15,571				56,776				27,721				(771	)			99,297
Gross profit			6,288				4,091				1,062				(1,434	)			10,007
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			5,827				2,542				4,702				(1,434	)			11,637
STOCK BASED COMPENSATION EXPENSE			241				—				—				—				241
MERGER INTEGRATION EXPENSE			—				—				449				—				449
AMORTIZATION OF IDENTIFIABLE INTANGIBLES			—				—				204				—				204
Income (loss) from operations			220				1,549				(4,293	)			—				(2,524	)
INTEREST EXPENSE (INCOME), NET			(30	)			538				9				—				517
Income (loss) before income taxes			250				1,011				(4,302	)			—				(3,041	)
INCOME TAX PROVISION (BENEFIT)			(200	)			343				—				—				143
NET INCOME (LOSS)		$	450			$	668			$	(4,302	)		$	—			$	(3,184	)
EBITDA		$	1,765			$	1,552			$	(4,004	)		$	—			$	(687	)
Adjusted EBITDA		$	2,006			$	1,552			$	(3,555	)		$	—			$	3
A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA follows:
Net income (loss)		$	450			$	668			$	(4,302	)		$	—			$	(3,184	)
Income tax expense (benefit)			(200	)			343				—				—				143
Interest expense (income)			(30	)			538				9				—				517
Depreciation and amortization			1,545				3				289				—				1,837
EBITDA		$	1,765			$	1,552			$	(4,004	)		$	—			$	(687	)
Stock-based compensation			241				—				—				—				241
Merger integration related expenses			—				—				449				—				449
Adjusted EBITDA		$	2,006			$	1,552			$	(3,555	)		$	—			$	3

PFSweb, Inc. and Subsidiaries
Unaudited Condensed Consolidating Balance Sheets
as of June 30, 2006
(In Thousands)

						Supplies
		PFSweb, Inc.				Distributors				eCOST				Eliminations				Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	15,161			$	2,392			$	—			$	—			$	17,553
Restricted cash			340				893				173				—				1,406
Accounts receivables, net			16,182				29,323				4,614				(1,581	)			48,538
Inventories, net			—				47,623				9,896				—				57,519
Other receivables			—				9,816				—				—				9,816
Prepaid expenses and other current assets			1,898				1,262				63				—				3,223
Total current assets			33,581				91,309				14,746				(1,581	)			138,055
PROPERTY AND EQUIPMENT, net			12,826				44				655				—				13,525
NOTE RECEIVABLE FROM AFFILIATE			12,505				—				—				(12,505	)			—
INVESTMENT IN AFFILIATE			36,602				—				—				(36,602	)			—
IDENTIFIABLE INTANGIBLES			—				—				7,316				—				7,316
GOODWILL			—				—				18,545				—				18,545
OTHER ASSETS			662				—				174				—				836
Total assets		$	96,176			$	91,353			$	41,436			$	(50,688	)		$	178,277
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease obligations		$	12,801			$	14,891			$	17			$	—			$	27,709
Trade accounts payable			7,006				56,876				8,417				(1,581	)			70,718
Accrued expenses			8,760				4,503				5,404				—				18,667
Total current liabilities			28,567				76,270				13,838				(1,581	)			117,094
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion			1,892				—				—				—				1,892
NOTE PAYABLE TO AFFILIATE			—				6,505				6,000				(12,505	)			—
OTHER LIABILITIES			1,432				—				—				—				1,432
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Common stock			47				—				19				(19	)			47
Capital contributions			—				1,000				—				(1,000	)			—
Additional paid-in capital			90,858				—				28,059				(28,059	)			90,858
Retained earnings (accumulated deficit)			(28,169	)			5,499				(6,480	)			(5,445	)			(34,595	)
Accumulated other comprehensive income			1,634				2,079				—				(2,079	)			1,634
Treasury stock			(85	)			—				—				—				(85	)
Total shareholders’ equity			64,285				8,578				21,598				(36,602	)			57,859
Total liabilities and shareholders’ equity		$	96,176			$	91,353			$	41,436			$	(50,688	)		$	178,277

eCOST.com, Inc.
Selected Operating Data

		Three Months Ended
		June 30,
		2006				2005
Total customers (1)			1,581,606				1,287,321
Active customers (2)			351,157				536,172
New customers (3)			70,590				75,202
Number of orders (4)			89,898				122,753
Average order value (5)		$	340			$	352
Advertising expense (6)		$	986,293			$	1,467,000
Cost to acquire a new customer		$	13.97			$	19.51

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