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 OF INCORPORATION)		(COMMISSION FILE NUMBER)		(IRS EMPLOYER 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 March 26, 2008, PFSweb, Inc. issued a press release announcing its financial results for the quarter and year ended December 31, 2007. Attached to this current report on Form 8-K is a copy of the related press release dated March 26, 2008. 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 March 26, 2008

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 / Garth Russell
Senior Partner and Chief Executive Officer		Investor Relations
Or Thomas J. Madden		KCSA Strategic Communications
Senior Partner and Chief Financial Officer		(212) 896-1215 / (212) 896-1250
(972) 881-2900		tfromer@kcsa.com / grussell@kcsa.com

PFSweb Reports December Quarter Adjusted EBITDA of $3.5 Million and Third
Consecutive Quarter of Net Income

- - -

eCOST.com Business Increases Revenue 35% in the Fourth Quarter

PLANO, Texas, March 26, 2008 — PFSweb, Inc. (Nasdaq: PFSW), an international business process outsourcing provider of end-to-end web commerce solutions and an online discount retailer, today announced its financial results for the fourth quarter and year ended December 31, 2007, which included 2007 Adjusted EBITDA results in excess of previously provided guidance.

Summary of consolidated results for the fourth quarter ended December 31, 2007:

•

Total reported revenue was $122.0 million, compared to $109.0 million for the fourth quarter of 2006;

•

eCOST.com revenue increased 35% to $28.5 million, compared to $21.1 million for the same period in the prior year;

	•		Adjusted EBITDA (as defined) was $3.5 million versus $0.9 million for the same period in the prior year;
	•		Net income, calculated in accordance with U.S. generally accepted accounting principles (GAAP), was $0.7 million or $0.01 per basic and diluted share, compared to a net loss of $6.5 million, or $0.14 per basic and diluted share, for the fourth quarter of 2006;
	•		Non-GAAP net income (as defined) was $1.1 million or $0.02 per basic and diluted share, compared to a non-GAAP net loss of $2.5 million, or $0.05 per basic and diluted share, for the fourth quarter of 2006;
	•		Merchandise sales (as defined) totaled approximately $850 million for the fourth quarter of 2007 versus approximately $789 million for the same period in the prior year;
	•		Total cash, cash equivalents and restricted cash equaled $16.3 million as of December 31, 2007.

Summary of consolidated results for the year ended December 31, 2007:

	•		Total reported revenue was $446.8 million, compared to $423.3 million for the year ended December 31, 2006;
	•		Adjusted EBITDA (as defined) was $10.9 million versus $2.5 million for the same period in the prior year;

	•		GAAP net loss was $1.4 million or $0.03 per basic and diluted share, compared to a net loss of $14.5 million, or $0.34 per basic and diluted share, for the year ended December 31, 2006;
	•		Non-GAAP net income (as defined) was $0.2 million, or $0.00 per basic and diluted share, compared to a non-GAAP net loss of $9.4 million, or $0.22 per basic and diluted share, for the year ended December 31, 2006;
	•		Merchandise sales (as defined) totaled nearly $2.9 billion versus $2.7 billion for the year ended December 31, 2006.

Please note that the prior year’s consolidated results only include the financial results for eCOST.com from the date the merger closed on February 1, 2006 through December 31, 2006.

Mark Layton, Chairman and Chief Executive Officer of PFSweb, stated, “2007 was a significant year for PFSweb, as we reported a substantial improvement in our bottom line performance, including our third consecutive quarter of profitability, and achieved $10.9 million in Adjusted EBITDA, exceeding our previously provided guidance for the year. In addition, we have won several new client agreements for the Service Fee business and expanded eCOST.com into new, higher margin product markets, including home, sports and leisure merchandise. We believe these activities have great potential to be significant factors in boosting our growth in 2008.”

Summary of results by business:

Service Fee Business:

For the fourth quarter of 2007, Service Fee revenue increased 11% to $21.5 million, compared with $19.4 million for the same period in 2006. The Service Fee business reported Adjusted EBITDA of $2.2 million for the fourth quarter of 2007, compared to $1.2 million for the same period in the prior year.

For the year ended December 31, 2007, Service Fee revenue increased 11% to $74.5 million, from $67.1 million in 2006. The Service Fee business reported Adjusted EBITDA of $6.5 million for the year ended December 31, 2007, compared to $4.6 million in the prior year.

Mike Willoughby, President of PFSweb’s Services Division, commented, “In the fourth quarter, the Service Fee business continued to demonstrate consistent top line growth that was in-line with the performance we exhibited earlier in the year. This growth is attributable to several new clients that were added in 2007 and late 2006 and increased project activity recorded in the fourth quarter of 2007. Looking to 2008, we are excited by a robust pipeline of pending proposals, currently valued based on client projections at approximately $35 million. Further, we believe our recently announced collaboration with Demandware can provide a significant competitive advantage in delivering to clients a complete end-to-end solution, while maintaining and stringently adhering to the established brand standards of each client.”

Supplies Distributors Business:

For the fourth quarter of 2007, Supplies Distributors revenue was $60.6 million, compared to $59.8 million for the same period in the prior year. Adjusted EBITDA was $1.6 million for the fourth quarter of 2007, compared to $1.3 million for the same period in the prior year.

For the year ended December 31, 2007, Supplies Distributors revenue was $235.4 million, compared to $245.0 million during the prior year. Adjusted EBITDA was $6.6 million for the year ended December 31, 2007, as compared to $7.6 million in 2006.

Mr. Willoughby continued, “In the fourth quarter, Supplies Distributors’ revenue remained relatively constant compared to the prior year period. On a calendar year basis, the decline in revenue in 2007 from 2006 reflects a decline year-over-year due to reduced vendor promotional activity, the impact of foreign currency fluctuations and lower unit volumes as compared to the prior year.”

eCOST.com Business:

For the fourth quarter of 2007, eCOST.com revenue increased 35% to $28.5 million, compared to $21.1 million in the fourth quarter of 2006. Adjusted EBITDA for eCOST.com in the quarter was a loss of $0.3 million, a significant improvement as compared to a loss of $1.6 million in the same quarter of 2006, and a continued improvement as compared to a loss of $0.4 million in the third quarter of 2007, a loss of $0.6 million in the second quarter of 2007 and a loss of $0.9 million for the first quarter of 2007.

For the year ended December 31, 2007, eCOST.com revenues increased 18% to $104.1 million, compared to $88.3 million in 2006. Adjusted EBITDA for eCOST.com in 2007 was a loss of $2.2 million, compared to a loss of $9.7 million in 2006. The prior year results for eCOST.com reflect only 11 months of activity from the date of acquisition of February 1, 2006 through December 31, 2006.

Mr. Layton continued, “In the fourth quarter of 2007, eCOST.com increased revenue by 35% from the prior year period, and improved gross margins to 9%, compared to 8% in the third quarter of 2007. Specifically, the improving fundamentals in the eCOST.com business continue to be driven by a broader mix of products, improved pricing and freight controls and a greater number of Virtual Warehouse agreements.

“In the coming weeks we will begin to aggressively market an increased number of home, sports and leisure products on eCOST.com. This will bring the total number of SKU’s available at eCOST.com to 170,000. We plan to continue our emphasis on expanding into new product categories and increasing the total merchandise available on the site as we believe these actions have great potential to drive continued sales growth and gross margin expansion in 2008,” concluded Mr. Layton.

Significant operating events for fourth quarter of 2007 and 2008 year-to-date:

•

Service Fee Business signed three new clients totaling $6 to $8 million in annualized service fee revenue, based on client projections once fully implemented.

	•		Urban Brands selected PFSweb to support its Marianne and Ashley Stewart Online Stores
	•		The Discovery Channel Store, Inc. signed a new agreement selecting PFSweb to provide a seamless solution in the U.S. that supports its catalog and eCommerce business
	•		PFSweb launched a new European eCommerce site for a major outdoor lifestyle brand. Under this agreement, PFSweb will provide a complete end-to-end solution, including ongoing site management, customer care services, fulfillment and on-line payment processing

•

PFSweb implemented and launched a new eCommerce site for a large retail farm and ranch store chain in November 2007 for which it is providing technology, customer care and fulfillment services.

	•		PFSweb implemented a customer care solution on behalf of a Fortune 100 big box retailer in October 2007.
	•		PFSweb signed a multi-year extension for a large Fortune 500 consumer products Service Fee client and one year extension for a large media client.
	•		In February 2008 PFSweb and Demandware launched a next-generation solution for end-to-end eCommerce. Competitively, we believe that this combination provides one of the most compelling single source eCommerce outsourcing solutions available in the industry. This strategically important partnership collectively empowers online retailers and brands with total control over their entire shopping experience and a continuous competitive differentiation.
	•		eCOST.com added one new “super VW” relationship that in itself brings over 600 new supplier relationships and over 40,000 additional SKU’s.
	•		PFSweb expects to complete renewals, extensions or amendments on certain of its asset-based financing facilities for its Service Fee and Supplies Distributors business segments with terms that are similar to or improved from prior agreements.

Financial Guidance for Fiscal Year 2008

PFSweb is currently targeting total consolidated revenues, excluding pass-through revenues, of approximately $445 million to $475 million and consolidated Adjusted EBITDA of $10 — $12 million for 2008. Non-GAAP net income, which excludes the impact of stock-based compensation and amortization of identifiable intangible assets, is targeted to be approximately $1 — $3 million for 2008. Our 2008 adjusted EBITDA guidance reflects the impact of restructuring one client contract. We expect this restructuring will result in lower service fee revenue under the contract and reduced capital asset charges on related equipment.

Conference Call Information

Management will host a conference call at 9:00 a.m. Central Time (10:00 a.m. Eastern Time) on March 26, 2008 to discuss the latest corporate developments and results. To listen to the call, please dial (888) 694-4728 and enter the pin number (38668568) 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 April 26, 2008 at (800) 642-1687, pin number (38668568). 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 non-GAAP net income (loss), Earnings Before Interest, Income Taxes, Depreciation and Amortization (“EBITDA”), and Adjusted EBITDA.

Non-GAAP net income represents net income calculated in accordance with U.S. GAAP as adjusted for the impact of non-cash stock-based compensation expense, amortization of identifiable intangible assets and impairment of goodwill.

EBITDA represents earnings (or losses) before interest, income taxes, depreciation, and amortization. Adjusted EBITDA further eliminates the effect of stock-based compensation, merger integration related expenses and a loss on a sales transaction to a former eCOST.com customer.

Non-GAAP net income, 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 non-GAAP net income eliminates the effect of stock-based compensation, amortization of intangible assets and goodwill impairment and EBITDA and Adjusted EBITDA further eliminates the effect of financing, income taxes, the accounting effects of capital spending, certain other merger related expenses and certain other expenses, which items may vary from different companies for reasons unrelated to overall operating performance.

PFSweb believes these non-GAAP measures provide useful information to both management and investors by excluding certain expenses that may not be indicative of its core operating results. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results. These non-GAAP measures included in this press release have been reconciled to the GAAP results in the attached tables.

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 eCommerce services. The company serves a multitude of industries and company types, including such clients as LEGO, Riverbed, Fathead, CHiA’SSO, MARS Drinks North America (formerly FLAVIA® Beverage Systems), Hewlett-Packard, International Business Machines, Hawker Beechcraft Corp. (formerly Raytheon Aircraft Company), Rene Furterer USA, Roots Canada Ltd. and Xerox.

Through its wholly owned eCOST.com subsidiary, PFSweb also serves as a leading multi-category online discount retailer of high-quality new, “close-out” and manufacturer recertified brand-name products across a broad group of categories, including technology, consumer electronics, home and sports and leisure. The eCOST.com brand markets approximately 170,000 different products from leading manufacturers such as Sony, JVC, Canon, Hewlett-Packard, Denon, Onkyo, Garmin, Panasonic, Toshiba and Microsoft 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 and Form 10-Q for the three and nine-months ended September 30, 2007 identify certain factors that could cause actual results to differ materially from those projected in any forward looking statements made and investors are advised to review the Annual Report and Form 10-Q 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 e-commerce, outsourcing, government regulation both foreign and domestic and the market for our services; whether we can continue and manage growth; 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; foreign currency risks and other risks of operating in foreign countries; potential litigation; potential delisting; our dependency on key personnel; the impact of new accounting standards and changes in existing 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; our ability to successfully 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 a profit and cash flows sufficient to cover the values 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,
		2007				2006				2007				2006
REVENUES:
Product revenue, net		$	89,102			$	80,864			$	339,500			$	333,311
Service fee revenue			21,474				19,375				74,480				67,056
Pass-thru revenue			11,424				8,758				32,822				22,886
Total revenues			122,000				108,997				446,802				423,253
COSTS OF REVENUES:
Cost of product revenue			82,392				75,719				313,835				311,417
Cost of service fee revenue			15,164				14,685				53,375				49,274
Cost of pass-thru revenue			11,424				8,758				32,822				22,886
Total costs of revenues			108,980				99,162				400,032				383,577
Gross profit			13,020				9,835				46,770				39,676
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			11,553				11,028				44,057				45,189
MERGER INTEGRATION EXPENSE			—				365				150				1,495
AMORTIZATION OF IDENTIFIABLE INTANGIBLES			204				204				806				749
GOODWILL IMPAIRMENT			—				3,507				—				3,507
Total operating expenses			11,757				15,104				45,013				50,940
Income (loss) from operations			1,263				(5,269	)			1,757				(11,264	)
INTEREST EXPENSE, NET			486				607				2,342				2,112
Income (loss) before income taxes			777				(5,876	)			(585	)			(13,376	)
INCOME TAX PROVISION			116				574				799				1,154
NET INCOME (LOSS)		$	661			$	(6,450	)		$	(1,384	)		$	(14,530	)
NON-GAAP NET INCOME (LOSS)		$	1,059			$	(2,525	)		$	186			$	(9,375	)
NET INCOME (LOSS) PER SHARE:
Basic		$	0.01			$	(0.14	)		$	(0.03	)		$	(0.34	)
Diluted		$	0.01			$	(0.14	)		$	(0.03	)		$	(0.34	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic			46,487				46,461				46,480				42,762
Diluted			47,931				46,461				46,480				42,762
EBITDA		$	3,320			$	(3,226	)		$	9,937			$	(3,788	)
ADJUSTED EBITDA		$	3,514			$	860			$	10,851			$	2,502

PFSweb, Inc. and Subsidiaries
Reconciliation of certain Non-GAAP Items to GAAP
(In Thousands, Except Per Share Data)

		Three Months Ended								Twelve Months Ended
		December 31,								December 31,
		2007				2006				2007				2006
NET INCOME (LOSS)		$	661			$	(6,450	)		$	(1,384	)		$	(14,530	)
Income tax expense			116				574				799				1,154
Interest expense			486				607				2,342				2,112
Depreciation and amortization			2,057				2,043				8,180				7,476
EBITDA		$	3,320			$	(3,226	)		$	9,937			$	(3,788	)
Stock-based compensation			194				214				764				899
Merger integration related expenses			—				365				150				1,495
Loss on sales transaction to former eCOST customer			—				—				—				389
Goodwill impairment			—				3,507				—				3,507
ADJUSTED EBITDA		$	3,514			$	860			$	10,851			$	2,502

		Three Months Ended								Twelve Months Ended
		December 31,								December 31,
		2007				2006				2007				2006
NET INCOME (LOSS)		$	661			$	(6,450	)		$	(1,384	)		$	(14,530	)
Stock-based compensation			194				214				764				899
Amortization of identifiable intangible assets			204				204				806				749
Goodwill impairment			—				3,507				—				3,507
NON-GAAP NET INCOME (LOSS)		$	1,059			$	(2,525	)		$	186			$	(9,375	)
NET INCOME (LOSS) PER SHARE:
Basic		$	0.01			$	(0.14	)		$	(0.03	)		$	(0.34	)
Diluted		$	0.01			$	(0.14	)		$	(0.03	)		$	(0.34	)
NON-GAAP NET INCOME (LOSS) Per Share:
Basic		$	0.02			$	(0.05	)		$	0.00			$	(0.22	)
Diluted		$	0.02			$	(0.05	)		$	0.00			$	(0.22	)

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

		December 31,				December 31,
		2007				2006
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	14,272			$	15,066
Restricted cash			2,021				2,653
Accounts receivable, net of allowance for doubtful accounts of $1,483 and $2,352 at December 31, 2007 and December 31, 2006, respectively			48,493				49,186
Inventories, net of reserves of $2,080 and $2,987 at December 31, 2007 and December 31, 2006, respectively			46,392				47,670
Other receivables			10,372				10,774
Prepaid expenses and other current assets			2,608				3,531
Total current assets			124,158				128,880
PROPERTY AND EQUIPMENT, net			11,918				12,884
IDENTIFIABLE INTANGIBLES			5,824				6,631
GOODWILL			15,362				15,362
OTHER ASSETS			911				864
Total assets			158,173				164,621
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease obligations		$	22,238			$	23,802
Trade accounts payable			56,975				62,441
Accrued expenses			22,438				21,485
Total current liabilities			101,651				107,728
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion			6,378				6,076
OTHER LIABILITIES			1,302				1,977
Total liabilities			109,331				115,781
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Preferred stock, $1.00 par value; 1,000,000 shares authorized; none issued and outstanding			—				—
Common stock, $.001 par value; 75,000,000 shares authorized; 46,574,189 and 46,553,752 shares issued at December 31, 2007 and December 31, 2006, respectively; and 46,487,889 and 46,467,452 outstanding as of December 31, 2007 and December 31, 2006, respectively			47				47
Additional paid-in capital			92,084				91,302
Accumulated deficit			(45,738	)			(44,354	)
Accumulated other comprehensive income			2,534				1,930
Treasury stock at cost, 86,300 shares			(85	)			(85	)
Total shareholders’ equity			48,842				48,840
Total liabilities and shareholders’ equity		$	158,173			$	164,621

PFSweb, Inc. and Subsidiaries
Unaudited Consolidating Statements of Operations
For the Three Months Ended December 31, 2007
(In Thousands)

						Supplies
		PFSweb				Distributors				eCOST				Eliminations				Consolidated
REVENUES:
Product revenue, net		$	—			$	60,639			$	28,463			$	—			$	89,102
Service fee revenue			21,474				—				—				—				21,474
Service fee revenue — affiliate			2,083				—				—				(2,083	)			—
Pass-thru revenue			11,592				—				—				(168	)			11,424
Total revenues			35,149				60,639				28,463				(2,251	)			122,000
COSTS OF REVENUES:
Cost of product revenue			—				56,496				25,896				—				82,392
Cost of service fee revenue			15,855				—				—				(691	)			15,164
Cost of pass-thru revenue			11,592				—				—				(168	)			11,424
Total costs of revenues			27,447				56,496				25,896				(859	)			108,980
Gross profit			7,702				4,143				2,567				(1,392	)			13,020
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			7,464				2,564				2,917				(1,392	)			11,553
AMORTIZATION OF IDENTIFIABLE INTANGIBLES			—				—				204				—				204
Total operating expenses			7,464				2,564				3,121				(1,392	)			11,757
Income (loss) from operations			238				1,579				(554	)			—				1,263
INTEREST EXPENSE (INCOME), NET			24				467				(5	)			—				486
Income (loss) before income taxes			214				1,112				(549	)			—				777
INCOME TAX PROVISION (BENEFIT)			110				6				—				—				116
NET INCOME (LOSS)		$	104			$	1,106			$	(549	)		$	—			$	661
NON-GAAP NET INCOME (LOSS)		$	298			$	1,106			$	(345	)		$	—			$	1,059
EBITDA		$	2,030			$	1,583			$	(293	)		$	—			$	3,320
ADJUSTED EBITDA		$	2,224			$	1,583			$	(293	)		$	—			$	3,514
A reconciliation of NET INCOME (LOSS) to EBITDA and ADJUSTED EBITDA follows:
NET INCOME (LOSS)		$	104			$	1,106			$	(549	)		$	—			$	661
Income tax expense (benefit)			110				6				—				—				116
Interest expense (income)			24				467				(5	)			—				486
Depreciation and amortization			1,792				4				261				—				2,057
EBITDA		$	2,030			$	1,583			$	(293	)		$	—			$	3,320
Stock-based compensation			194				—				—				—				194
ADJUSTED EBITDA		$	2,224			$	1,583			$	(293	)		$	—			$	3,514
A reconciliation of NET INCOME(LOSS) to NON-GAAP NET INCOME (LOSS) follows:
NET INCOME (LOSS)		$	104			$	1,106			$	(549	)		$	—			$	661
Stock-based compensation			194				—				—				—				194
Amortization of intangible assets			—				—				204				—				204
NON-GAAP NET INCOME (LOSS)		$	298			$	1,106			$	(345	)		$	—			$	1,059

PFSweb, Inc. and Subsidiaries
Unaudited Consolidating Statements of Operations
For the Year Ended December 31, 2007
(In Thousands)

						Supplies
		PFSweb				Distributors				eCOST				Eliminations				Consolidated
REVENUES:
Product revenue, net		$	—			$	235,357			$	104,143			$	—			$	339,500
Service fee revenue			74,480				—				—				—				74,480
Service fee revenue — affiliate			8,150				—				—				(8,150	)			—
Pass-thru revenue			33,248				—				—				(426	)			32,822
Total revenues			115,878				235,357				104,143				(8,576	)			446,802
COSTS OF REVENUES:
Cost of product revenue			—				218,642				95,199				(6	)			313,835
Cost of service fee revenue			56,039				—				—				(2,664	)			53,375
Cost of pass-thru revenue			33,248				—				—				(426	)			32,822
Total costs of revenues			89,287				218,642				95,199				(3,096	)			400,032
Gross profit			26,591				16,715				8,944				(5,480	)			46,770
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			28,012				10,138				11,387				(5,480	)			44,057
MERGER INTEGRATION EXPENSE			—				—				150				—				150
AMORTIZATION OF IDENTIFIABLE INTANGIBLES			—				—				806				—				806
Total operating expenses			28,012				10,138				12,343				(5,480	)			45,013
Income (loss) from operations			(1,421	)			6,577				(3,399	)			—				1,757
INTEREST EXPENSE (INCOME), NET			119				2,274				(51	)			—				2,342
Income (loss) before income taxes			(1,540	)			4,303				(3,348	)			—				(585	)
INCOME TAX PROVISION (BENEFIT)			(361	)			1,160				—				—				799
NET INCOME (LOSS)		$	(1,179	)		$	3,143			$	(3,348	)		$	—			$	(1,384	)
NON-GAAP NET INCOME (LOSS)		$	(415	)		$	3,143			$	(2,542	)		$	—			$	186
EBITDA		$	5,728			$	6,596			$	(2,387	)		$	—			$	9,937
ADJUSTED EBITDA		$	6,492			$	6,596			$	(2,237	)		$	—			$	10,851
A reconciliation of NET INCOME (LOSS) to EBITDA and ADJUSTED EBITDA follows:
NET INCOME (LOSS)		$	(1,179	)		$	3,143			$	(3,348	)		$	—			$	(1,384	)
Income tax expense (benefit)			(361	)			1,160				—				—				799
Interest expense (income)			119				2,274				(51	)			—				2,342
Depreciation and amortization			7,149				19				1,012				—				8,180
EBITDA		$	5,728			$	6,596			$	(2,387	)		$	—			$	9,937
Stock-based compensation			764				—				—				—				764
Merger integration expense			—				—				150				—				150
ADJUSTED EBITDA		$	6,492			$	6,596			$	(2,237	)		$	—			$	10,851
A reconciliation of NET INCOME (LOSS) to NON-GAAP NET INCOME (LOSS) follows:
NET INCOME (LOSS)		$	(1,179	)		$	3,143			$	(3,348	)		$	—			$	(1,384	)
Stock-based compensation			764				—				—				—				764
Amortization of intangible assets			—				—				806				—				806
NON-GAAP NET INCOME (LOSS)		$	(415	)		$	3,143			$	(2,542	)		$	—			$	186

PFSweb, Inc. and Subsidiaries
Unaudited Condensed Consolidating Balance Sheets
as of December 31, 2007
(In Thousands)

						Supplies
		PFSweb				Distributors				eCOST				Eliminations				Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	10,835			$	1,757			$	1,680			$	—			$	14,272
Restricted cash			50				1,464				507				—				2,021
Accounts receivable, net			21,366				25,126				2,585				(584	)			48,493
Inventories, net			—				39,596				6,796				—				46,392
Other receivables			211				10,161				—				—				10,372
Prepaid expenses and other current assets			923				1,321				364				—				2,608
Total current assets			33,385				79,425				11,932				(584	)			124,158
PROPERTY AND EQUIPMENT, net			11,549				21				348				—				11,918
NOTES RECEIVABLE FROM AFFILIATES			18,645				—				—				(18,645	)			—
INVESTMENT IN AFFILIATES			38,609				—				—				(38,609	)			—
IDENTIFIABLE INTANGIBLES			—				—				5,824				—				5,824
GOODWILL			—				—				15,362				—				15,362
OTHER ASSETS			762				—				149				—				911
Total assets			102,950				79,446				33,615				(57,838	)			158,173
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease obligations		$	10,063			$	12,175			$	—			$	—			$	22,238
Trade accounts payable			5,615				43,265				8,679				(584	)			56,975
Accrued expenses			11,604				7,416				3,418				—				22,438
Total current liabilities			27,282				62,856				12,097				(584	)			101,651
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion			6,378				—				—				—				6,378
NOTES PAYABLE TO AFFILIATES			—				6,005				12,640				(18,645	)			—
OTHER LIABILITIES			998				—				304				—				1,302
Total liabilities			34,658				68,861				25,041				(19,229	)			109,331
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Common stock			47				—				19				(19	)			47
Capital contributions			—				1,000				—				(1,000	)			—
Additional paid-in capital			92,084				—				28,059				(28,059	)			92,084
Retained earnings (accumulated deficit)			(26,288	)			6,601				(19,504	)			(6,547	)			(45,738	)
Accumulated other comprehensive income			2,534				2,984				—				(2,984	)			2,534
Treasury stock			(85	)			—				—				—				(85	)
Total shareholders’ equity			68,292				10,585				8,574				(38,609	)			48,842
Total liabilities and shareholders’ equity		$	102,950			$	79,446			$	33,615			$	(57,838	)		$	158,173

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

						Supplies
		PFSweb				Distributors				eCOST				Eliminations				Consolidated
REVENUES:
Product revenue, net		$	—			$	59,780			$	21,084			$	—			$	80,864
Service fee revenue			19,375				—				—				—				19,375
Service fee revenue — affiliate			2,103				—				—				(2,103	)			—
Pass-thru revenue			8,901				—				—				(143	)			8,758
Total revenues			30,379				59,780				21,084				(2,246	)			108,997
COSTS OF REVENUES:
Cost of product revenue			—				56,093				19,626				—				75,719
Cost of service fee revenue			15,258				—				—				(573	)			14,685
Cost of pass-thru revenue			8,901				—				—				(143	)			8,758
Total costs of revenues			24,159				56,093				19,626				(716	)			99,162
Gross profit			6,220				3,687				1,458				(1,530	)			9,835
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			6,984				2,437				3,137				(1,530	)			11,028
MERGER INTEGRATION EXPENSE			—				—				365				—				365
AMORTIZATION OF IDENTIFIABLE INTANGIBLES															204				204
GOODWILL IMPARIMENT			—				—				3,507				—				3,507
Total operating expenses			6,984				2,437				7,213				(1,530	)			15,104
Income (loss) from operations			(764	)			1,250				(5,755	)			—				(5,269	)
INTEREST EXPENSE (INCOME), NET			(13	)			623				(3	)			—				607
Income (loss) before income taxes			(751	)			627				(5,752	)			—				(5,876	)
INCOME TAX PROVISION (BENEFIT)			328				246				—				—				574
NET INCOME (LOSS)		$	(1,079	)		$	381			$	(5,752	)		$	—			$	(6,450	)
NON-GAAP NET INCOME (LOSS)		$	(865	)		$	381			$	(2,041	)		$	—			$	(2,525	)
EBITDA		$	995			$	1,254			$	(5,475	)		$	—			$	(3,226	)
ADJUSTED EBITDA		$	1,209			$	1,254			$	(1,603	)		$	—			$	860
A reconciliation of NET INCOME (LOSS) to EBITDA and ADJUSTED EBITDA follows:
NET INCOME (LOSS)		$	(1,079	)		$	381			$	(5,752	)		$	—			$	(6,450	)
Income tax expense (benefit)			328				246				—				—				574
Interest expense (income)			(13	)			623				(3	)			—				607
Depreciation and amortization			1,759				4				280				—				2,043
EBITDA		$	995			$	1,254			$	(5,475	)		$	—			$	(3,226	)
Stock-based compensation			214				—				—				—				214
Merger integration expense			—				—				365				—				365
Goodwill Impairment			—				—				3,507				—				3,507
ADJUSTED EBITDA		$	1,209			$	1,254			$	(1,603	)		$	—			$	860
A reconciliation of NET INCOME (LOSS) to NON-GAAP NET INCOME (LOSS) follows:
NET INCOME (LOSS)		$	(1,079	)		$	381			$	(5,752	)		$	—			$	(6,450	)
Stock-based compensation			214				—				—				—				214
Amortization of intangible assets			—				—				204				—				204
Goodwill impairment			—				—				3,507				—				3,507
NON-GAAP NET INCOME (LOSS)		$	(865	)		$	381			$	(2,041	)		$	—			$	(2,525	)