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

Exhibit 99.1

FOR IMMEDIATE RELEASE

Contact:
Mark C. Layton		Todd Fromer / Anne Donohoe
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) 896-1261
(972) 881-2900		tfromer@kcsa.com / adonohoe@kcsa.com

PFSweb Reports Third Quarter Financial Results

- - -
eCOST.com Integration Efforts Nearly Completed

PLANO, Texas, November 14, 2006 — PFSweb, Inc. (Nasdaq:PFSW), a global provider of business process outsourcing (“BPO”) solutions for both on-line and traditional commerce, today announced its financial results for the three and nine-month periods ended September 30, 2006.

Total reported revenue for the three months ending September 30, 2006 totaled $94.3 million, compared to $81.5 million for the same period last year. Service Fee revenue in the third quarter of 2006 was $15.6 million, compared to $14.9 million for the third quarter of 2005. Supplies Distributors revenue was $55.9 million in the third quarter of 2006, compared to $62.3 million for the third quarter of 2005. Revenue from the Company’s recently acquired wholly owned subsidiary, eCOST.com, was $16.7 million in the third quarter of 2006. eCOST.com reported $38.2 million of revenue for the same period last year prior to the February 1, 2006 merger. On a pro forma basis, total revenues including eCOST.com for the same period last year was $119.7 million.

“Our third quarter results show continuing strong performance and solid EBITDA financial contribution from our PFS Service Fee and Supplies Distributors divisions. As previously disclosed, our third quarter results were burdened significantly by events in our eCOST.com division. These events included costs required to complete the major portion of the operational integration and IT system conversion activities as well as costs we incurred for certain fraudulent credit card activity during the ERP systems integration process resulting in higher than normal chargebacks. We believe we have now completed the ‘heavy lifting’ portion of the transition and integration activities for eCOST.com and dramatically improved our control over credit card fraud and we are now prepared to focus eCOST.com on a march towards growth and profitability,” stated Mark Layton, Chief Executive Officer of PFSweb.

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

	•		Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) was $(0.7) million versus $1.9 million in the prior year. Excluding eCOST.com’s operations, EBITDA was $3.0 million, an increase of $1.0 million over the same period last year.
	•		Net loss for the 2006 third quarter was $3.3 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. Excluding eCOST.com, net income for the PFS Service Fee and Supplies Distributors businesses was $0.6 million, an increase of $1.1 million over the third quarter of last year.
	•		Net loss for eCOST.com for the period was $3.9 million. Excluding $1.2 million applicable to our previously disclosed, unusually high fraudulent credit card activity in conjunction with our system conversion, and $0.5 million applicable to integration related expenses, eCOST.com’s net loss was $2.2 million for the third quarter. This represents an improvement of approximately $1.0 million as compared to a similarly adjusted net loss result for the June 2006 period, which reflected $0.4 million of integration costs and $0.7 million of excess fraudulent credit card activity.
	•		Total merchandise sales totaled approximately $719 million.
	•		Total cash, cash equivalents and restricted cash totaled $15.3 million as of September 30, 2006.

“We made positive strides in each of our three business divisions this quarter. First, our PFS Service Fee and Supplies Distributors divisions remain collectively profitable and we continued to win new service contracts in the third quarter. During 2006 we modified our marketing focus towards web merchants in the Internet 500 and to technology/consumer electronics manufacturers. Through these efforts, we have increased our market penetration and experienced greater success in converting sales leads into client wins. During the year, we signed new services contracts, including the expansion of existing client relationships, with estimated annual service fees of approximately $12 million upon full implementation, based on current client projections. Many of these contracts are already operational with the remainder expected to be operational during the first half of 2007. We believe our ability to perform at a very high quality level with steady margins combined with a healthy sales pipeline of approximately $30 million should result in stable levels of growth for our PFS Service Fee business. In addition, while our product revenue for the Supplies Distributors segment declined this quarter as compared to the same period of the prior year, this decrease was primarily due to the timing of vendor promotional activity, and we expect annual revenue to remain relatively consistent with the prior year.”

Layton continued, “We are pleased to announce that during the quarter we have nearly completed the integration of our eCOST division, successfully overcoming many substantial business and financial challenges that eCOST.com has faced. When adjusted for lower revenue levels, we also achieved all of the projected cost savings from the integration activity that we sought going into the merger. With the business generally stabilized, service improving and costs under control, we are now shifting our focus

to growth and driving profitability. eCOST.com’s financial performance improved month-to-month during the third quarter and we experienced improved revenue and continued bottom line improvement in overall financial performance in the month of October. We have a number of projects underway to provide further enhancements to the eCOST.com shopping experience and operational excellence and we will release more information on these items as it becomes available.”

“We are excited about our business on every front. We believe the integration of eCOST.com will provide opportunities for many synergies between our world-class distribution capabilities and the unique eCommerce platform that our combined companies offer. With a strong foundation in our services business, we view eCOST.com as an opportunity to drive steady growth and increased value for our shareholders,” Layton concluded.

For eCOST.com’s selected operating data for the three and nine-month periods ended September 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 November 14, 2006 to discuss the latest corporate developments and results. To listen to the call, please dial (800) 922-9655 and enter the pin number (8074730) 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^th at (877) 519-4471 pin number (8074730). 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, merger integration related expenses, a loss on sales transaction and relocation-related costs. 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 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, 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								Nine Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Revenues:
Product revenue, net		$	72,593			$	62,284			$	252,447			$	189,352
Service fee revenue			15,553				14,891				47,681				45,274
Pass-through revenue			6,138				4,317				14,128				13,601
Total revenues			94,284				81,492				314,256				248,227
Costs of revenues:
Cost of product revenue			66,889				57,401				235,698				176,651
Cost of service fee revenue			11,768				10,990				34,513				33,860
Pass-through cost of revenue			6,138				4,317				14,128				13,601
Total costs of revenues			84,795				72,708				284,339				224,112
Gross profit			9,489				8,784				29,917				24,115
Selling, general and administrative expenses			11,124				8,439				33,552				23,343
Stock-based compensation			206				2				686				16
Merger integration expense			486				—				1,129				—
Amortization of identifiable intangibles			204				—				545				—
Total operating expenses			12,020				8,441				35,912				23,359
Income (loss) from operations			(2,531	)			343				(5,995	)			756
Interest expense, net			557				532				1,505				1,325
Loss before income taxes			(3,088	)			(189	)			(7,500	)			(569	)
Income tax expense			221				264				580				644
Net loss		$	(3,309	)		$	(453	)		$	(8,080	)		$	(1,213	)
Net loss per share:
Basic and Diluted		$	(0.07	)		$	(0.02	)		$	(0.19	)		$	(0.05	)
Weighted average number of shares outstanding:
Basic and Diluted			46,499				22,488				41,557				22,349
EBITDA (B)		$	(687	)		$	1,938			$	(562	)		$	5,363
Adjusted EBITDA (B)		$	5			$	3,127			$	1,642			$	6,760

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Net loss		$	(3,309	)		$	(453	)		$	(8,080	)		$	(1,213	)
Income tax provision			221				264				580				644
Interest expense, net			557				532				1,505				1,325
Depreciation and amortization			1,844				1,595				5,433				4,607
EBITDA		$	(687	)		$	1,938			$	(562	)		$	5,363
Stock-based compensation			206				2				686				16
Loss on sales transaction to former eCOST customer			—				—				389				—
Merger related integration expenses			486				—				1,129				—
Relocation-related costs			—				1,187				—				1,381
Adjusted EBITDA		$	5			$	3,127			$	1,642			$	6,760

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

		September 30,				December 31,
		2006				2005
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	14,068			$	13,683
Restricted cash			1,224				2,077
Accounts receivable, net of allowance for doubtful accounts of $2,070 and $484 at September 30, 2006 and December 31, 2005, respectively			46,535				44,556
Inventories, net			53,409				43,654
Other receivables			8,946				9,866
Prepaid expenses and other current assets			4,297				3,213
Total current assets			128,479				117,049
PROPERTY AND EQUIPMENT, net			12,709				13,040
RESTRICTED CASH			—				150
IDENTIFIABLE INTANGIBLES			7,112				—
GOODWILL			18,345				—
OTHER ASSETS			760				1,487
Total assets		$	167,405			$	131,726
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease obligations		$	25,872			$	21,626
Trade accounts payable			61,252				60,053
Accrued expenses			18,572				12,011
Total current liabilities			105,696				93,690
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion			5,660				6,289
OTHER LIABILITIES			1,310				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; 46,539,077 and 22,613,314 shares issued at September 30, 2006 and December 31, 2005, respectively; and 46,452,777 and 22,527,014 outstanding at September 30, 2006 and December 31, 2005, respectively			47				23
Additional paid-in capital			91,076				58,736
Accumulated deficit			(37,904	)			(29,824	)
Accumulated other comprehensive income			1,605				1,084
Treasury stock at cost, 86,300 shares			(85	)			(85	)
Total shareholders’ equity			54,739				29,934
Total liabilities and shareholders’ equity		$	167,405			$	131,726

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

						Supplies
		PFSweb				Distributors				eCOST				Eliminations				Consolidated
REVENUES:
Product revenue, net		$	—			$	55,917			$	16,676			$	—			$	72,593
Service fee revenue			15,553				—				—				—				15,553
Service fee revenue, affiliate			1,913				—				—				(1,913	)			—
Pass-through revenue			6,254				—				—				(116	)			6,138
Total revenues			23,720				55,917				16,676				(2,029	)			94,284
COSTS OF REVENUES:
Cost of product revenue			—				50,539				16,360				(10	)			66,889
Cost of service fee revenue			12,408				—				—				(640	)			11,768
Pass-through cost of revenue			6,254				—				—				(116	)			6,138
Total costs of revenues			18,662				50,539				16,360				(766	)			84,795
Gross profit			5,058				5,378				316				(1,263	)			9,489
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			6,509				2,318				3,560				(1,263	)			11,124
STOCK-BASED COMPENSATION			206				—				—				—				206
MERGER INTEGRATION EXPENSE			—				—				486				—				486
AMORTIZATION OF IDENTIFIABLE INTANGIBLES			—				—				204				—				204
Total operating expenses			6,715				2,318				4,250				(1,263	)			12,020
Income (loss) from operations			(1,657	)			3,060				(3,934	)			—				(2,531	)
INTEREST EXPENSE (INCOME), NET			(33	)			600				(10	)			—				557
Income (loss) before income taxes			(1,624	)			2,460				(3,924	)			—				(3,088	)
INCOME TAX PROVISION (BENEFIT)			(711	)			932				—				—				221
NET INCOME (LOSS)		$	(913	)		$	1,528			$	(3,924	)		$	—			$	(3,309	)
EBITDA		$	(102	)		$	3,064			$	(3,649	)		$	—			$	(687	)
Adjusted EBITDA		$	104			$	3,064			$	(3,163	)		$	—			$	5
A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA follows:
Net income (loss)		$	(913	)		$	1,528			$	(3,924	)		$	—			$	(3,309	)
Income tax expense (benefit)			(711	)			932				—				—				221
Interest expense (income)			(33	)			600				(10	)			—				557
Depreciation and amortization			1,555				4				285				—				1,844
EBITDA		$	(102	)		$	3,064			$	(3,649	)		$	—			$	(687	)
Stock-based compensation			206				—				—				—				206
Merger integration related expenses			—				—				486				—				486
Adjusted EBITDA		$	104			$	3,064			$	(3,163	)		$	—			$	5

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

						Supplies
		PFSweb, Inc.				Distributors				eCOST				Eliminations				Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	10,686			$	2,254			$	1,128			$	—			$	14,068
Restricted cash			340				571				313				—				1,224
Accounts receivables, net			18,180				26,662				3,703				(2,010	)			46,535
Inventories, net			—				45,533				7,876				—				53,409
Other receivables			1,000				7,946				—				—				8,946
Prepaid expenses and other current assets			2,747				1,278				272				—				4,297
Total current assets			32,953				84,244				13,292				(2,010	)			128,479
PROPERTY AND EQUIPMENT, net			12,091				41				577				—				12,709
NOTE RECEIVABLE FROM AFFILIATE			16,245				—				—				(16,245	)			—
INVESTMENT IN AFFILIATE			36,561				—				—				(36,561	)			—
IDENTIFIABLE INTANGIBLES			—				—				7,112				—				7,112
GOODWILL			—				—				18,345				—				18,345
OTHER ASSETS			611				—				149				—				760
Total assets		$	98,461			$	84,285			$	39,475			$	(54,816	)		$	167,405
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease obligations		$	9,592			$	16,278			$	2			$	—			$	25,872
Trade accounts payable			6,909				48,874				7,479				(2,010	)			61,252
Accrued expenses			9,901				4,091				4,580				—				18,572
Total current liabilities			26,402				69,243				12,061				(2,010	)			105,696
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion			5,660				—				—				—				5,660
NOTE PAYABLE TO AFFILIATE			—				6,505				9,740				(16,245	)			—
OTHER LIABILITIES			1,310				—				—				—				1,310
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Common stock			47				—				19				(19	)			47
Capital contributions			—				1,000				—				(1,000	)			—
Additional paid-in capital			91,076				—				28,059				(28,059	)			91,076
Retained earnings (accumulated deficit)			(27,554	)			5,486				(10,404	)			(5,432	)			(37,904	)
Accumulated other comprehensive income			1,605				2,051				—				(2,051	)			1,605
Treasury stock			(85	)			—				—				—				(85	)
Total shareholders’ equity			65,089				8,537				17,674				(36,561	)			54,739
Total liabilities and shareholders’ equity		$	98,461			$	84,285			$	39,475			$	(54,816	)		$	167,405

eCOST.com, Inc.
Selected Operating Data

		Three Months Ended
		September 30,
		2006				2005
Total customers (1)			1,615,730				1,343,989
Active customers (2)			326,530				507,029
New customers (3)			34,124				56,668
Number of orders (4)			51,922				102,022
Average order value (5)		$	361			$	389
Advertising expense (6)		$	436,000			$	1,307,000
Cost to acquire a new customer		$	12.78			$	23.06

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