e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended June 30, 2010
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from to
Commission File Number 000-28275
PFSweb, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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75-2837058 |
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(State of Incorporation)
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(I.R.S. Employer I.D. No.) |
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500 North Central Expressway, Plano, Texas
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75074 |
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(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code: (972) 881-2900
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by checkmark whether the registrant has submitted electronically and posted on its
corporate website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). Yes o No þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer or a non-accelerated filer.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller Reporting Company þ |
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o No þ
At August 16, 2010 there were 12,236,596 shares of registrants common stock outstanding.
PFSWEB, INC. AND SUBSIDIARIES
Form 10-Q
June 30, 2010
INDEX
2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
PFSWEB, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
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June 30, |
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December 31, |
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2010 |
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2009 |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
19,410 |
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$ |
14,812 |
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Restricted cash |
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1,410 |
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2,096 |
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Accounts receivable, net of allowance for doubtful accounts of $901
and $973 at June 30, 2010 and December 31, 2009, respectively |
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35,456 |
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39,861 |
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Inventories, net of reserves of $2,003 and $2,016 at June 30, 2010
and December 31, 2009,
respectively |
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35,353 |
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37,949 |
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Other receivables |
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11,881 |
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11,605 |
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Prepaid expenses and other current assets |
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4,004 |
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4,170 |
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Total current assets |
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107,514 |
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110,493 |
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PROPERTY AND EQUIPMENT, net |
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9,214 |
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10,314 |
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IDENTIFIABLE INTANGIBLES |
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726 |
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805 |
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GOODWILL |
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3,602 |
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3,602 |
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OTHER ASSETS |
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2,084 |
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2,555 |
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Total assets |
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$ |
123,140 |
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$ |
127,769 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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CURRENT LIABILITIES: |
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Current portion of long-term debt and capital lease obligations |
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$ |
17,362 |
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$ |
19,179 |
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Trade accounts payable |
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47,383 |
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53,642 |
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Deferred revenue |
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5,235 |
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5,164 |
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Accrued expenses |
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15,439 |
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13,180 |
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Total current liabilities |
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85,419 |
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91,165 |
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LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current
portion |
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1,263 |
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3,348 |
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OTHER LIABILITIES |
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3,606 |
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3,903 |
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Total liabilities |
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90,288 |
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98,416 |
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COMMITMENTS AND CONTINGENCIES |
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SHAREHOLDERS EQUITY: |
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Preferred stock, $1.00 par value; 1,000,000 shares authorized;
none issued and outstanding |
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Common stock, $0.001 par value; 37,300,000 shares authorized;
12,254,957 and 9,952,164 shares issued at June 30, 2010 and
December 31, 2009, respectively; and 12,236,596 and
9,933,803 outstanding at June 30, 2010 and December 31,
2009, respectively |
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12 |
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10 |
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Additional paid-in capital |
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100,793 |
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93,152 |
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Accumulated deficit |
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(68,667 |
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(65,963 |
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Accumulated other comprehensive income |
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799 |
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2,239 |
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Treasury stock at cost, 18,361 shares |
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(85 |
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(85 |
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Total shareholders equity |
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32,852 |
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29,353 |
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Total liabilities and shareholders equity |
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$ |
123,140 |
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$ |
127,769 |
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The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
3
PFSWEB, INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2010 |
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2009 |
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2010 |
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2009 |
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REVENUES: |
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Product revenue, net |
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$ |
59,711 |
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$ |
65,546 |
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$ |
125,358 |
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$ |
131,809 |
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Service fee revenue |
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16,567 |
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12,367 |
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32,546 |
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29,486 |
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Pass-through revenue |
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6,186 |
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4,417 |
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12,820 |
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9,972 |
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Total net revenues |
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82,464 |
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82,330 |
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170,724 |
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171,267 |
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COSTS OF REVENUES: |
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Cost of product revenue |
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55,282 |
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60,303 |
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115,904 |
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121,134 |
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Cost of service fee revenue |
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11,987 |
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9,414 |
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23,441 |
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20,733 |
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Pass-through cost of revenue |
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6,186 |
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4,417 |
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12,820 |
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9,972 |
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Total costs of revenues |
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73,455 |
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74,134 |
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152,165 |
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151,839 |
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Gross profit |
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9,009 |
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8,196 |
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18,559 |
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19,428 |
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SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES, including stock based
compensation expense of $262
and $109 in the three months
ended June 30, 2010 and 2009,
respectively and $358 and $212
in the six months ended June
30, 2010 and 2009, respectively |
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10,190 |
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10,670 |
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20,560 |
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21,363 |
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Loss from operations |
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(1,181 |
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(2,474 |
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(2,001 |
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(1,935 |
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INTEREST EXPENSE, NET |
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237 |
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321 |
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499 |
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678 |
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Loss before income taxes |
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(1,418 |
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(2,795 |
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(2,500 |
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(2,613 |
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INCOME TAX EXPENSE (BENEFIT), NET |
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77 |
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(266 |
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204 |
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164 |
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NET LOSS |
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$ |
(1,495 |
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$ |
(2,529 |
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$ |
(2,704 |
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$ |
(2,777 |
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NET LOSS PER SHARE: |
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Basic and Diluted |
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$ |
(0.14 |
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$ |
(0.25 |
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$ |
(0.26 |
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$ |
(0.28 |
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WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING: |
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Basic and Diluted |
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10,796 |
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9,927 |
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10,369 |
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9,925 |
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The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
4
PFSWEB, INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
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Six Months Ended |
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June 30, |
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2010 |
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2009 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
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$ |
(2,704 |
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$ |
(2,777 |
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Adjustments to reconcile net loss to net cash provided by operating activities: |
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Depreciation and amortization |
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3,295 |
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3,651 |
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Provision for doubtful accounts |
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76 |
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(159 |
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Provision for excess and obsolete inventories |
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424 |
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564 |
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Deferred income taxes |
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(8 |
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(42 |
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Stock-based compensation |
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358 |
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212 |
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Changes in operating assets and liabilities: |
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Restricted cash |
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108 |
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(8 |
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Accounts receivable |
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2,985 |
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12,180 |
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Inventories, net |
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50 |
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6,294 |
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Prepaid expenses, other receivables and other assets |
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(803 |
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1,333 |
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Accounts payable, accrued expenses and other liabilities |
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(619 |
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(16,621 |
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Net cash provided by operating activities |
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3,162 |
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4,627 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchases of property and equipment |
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(1,876 |
) |
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(1,949 |
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Net cash used in investing activities |
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(1,876 |
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(1,949 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Payments on capital lease obligations |
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(738 |
) |
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(876 |
) |
Decrease (increase) in restricted cash |
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578 |
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(73 |
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Proceeds from issuance of common stock |
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7,286 |
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9 |
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Payments on debt, net |
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(3,256 |
) |
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(2,971 |
) |
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Net cash provided by (used in) financing activities |
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3,870 |
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(3,911 |
) |
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EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS |
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(558 |
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330 |
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
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4,598 |
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(903 |
) |
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CASH AND CASH EQUIVALENTS, beginning of period |
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14,812 |
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16,050 |
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CASH AND CASH EQUIVALENTS, end of period |
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$ |
19,410 |
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$ |
15,147 |
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SUPPLEMENTAL CASH FLOW INFORMATION |
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Non-cash investing and financing activities: |
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Property and equipment acquired under debt and capital leases |
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$ |
355 |
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$ |
369 |
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The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
5
PFSweb, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
1. OVERVIEW AND BASIS OF PRESENTATION
PFSweb, Inc. and its subsidiaries, including Supplies Distributors, Inc., and eCOST.com, Inc.,
are collectively referred to as the Company; Supplies Distributors refers to Supplies
Distributors, Inc. and its subsidiaries; eCOST refers to eCOST.com, Inc.; and PFSweb refers to
PFSweb, Inc. and its subsidiaries excluding Supplies Distributors and eCOST.
PFSweb Overview
PFSweb is an international business process outsourcing provider of end-to-end eCommerce
solutions to major brand name companies seeking to optimize their supply chain and to enhance their
traditional and online business channels and initiatives in the United States, Canada, and Europe.
PFSweb offers such services as professional consulting, technology collaboration, managed web
hosting and internet application development, interactive marketing services, order management,
web-enabled customer contact centers, customer relationship management, financial services
including billing and collection services and working capital solutions, information management,
facilities and operations management, kitting and assembly services, and international fulfillment
and distribution services.
Supplies Distributors Overview
Supplies Distributors, PFSweb and InfoPrint Solutions Company (IPS) have entered into master
distributor agreements under which Supplies Distributors acts as a master distributor of various
products, primarily IPS product.
Supplies Distributors has obtained certain financing that allows it to fund the working
capital requirements for the sale of primarily IPS products. Pursuant to the transaction management
services agreements between PFSweb and Supplies Distributors, PFSweb provides to Supplies
Distributors transaction management and fulfillment services such as managed web hosting and
maintenance, procurement support, web-enabled customer contact center services, customer
relationship management, financial services including billing and collection services, information
management, and international distribution services. Supplies Distributors does not have its own
sales force and relies upon IPS sales force and product demand generation activities for its sale
of IPS products. Supplies Distributors sells its products in the United States, Canada and Europe.
All of the agreements between PFSweb and Supplies Distributors were made in the context of a
related party relationship and were negotiated in the overall context of PFSwebs and Supplies
Distributors arrangement with IPS. Although management believes that the terms of these agreements
are generally consistent with fair market values, there can be no assurance that the prices charged
to or by each company under these arrangements are not higher or lower than the prices that may be
charged by, or to, unaffiliated third parties for similar services.
eCOST Overview
eCOST is a multi-category online discount retailer of new, close-out and recertified
brand-name merchandise, selling products primarily to customers in the United States. eCOST offers
products in several merchandise categories, including computers, networking, electronics and
entertainment, TVs, monitors and projectors, cameras and camcorders, memory and storage, For the
Home and sports and leisure. eCOST carries products from leading manufacturers such as Sony, JVC,
Canon, Hewlett-Packard, Denon, Cuisinart, Nikon, Braun, Sharp, Hoover, Bissell, Garmin, Panasonic,
Toshiba and Microsoft.
The Companys liquidity has been negatively impacted as a result of the merger with eCOST.
Since the merger, eCOST has experienced a net use of cash primarily due to operating losses. As a
result, the Company has had to support eCOSTs cash needs with the goal of reducing losses. The
amount of additional cash needed to support eCOST operations will depend upon working capital
requirements, bank financing availability as well as eCOSTs ability to improve its financial
results. Further advances to
6
PFSweb, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
eCOST may be limited by the Companys current cash and future cash flow and may be restricted
by the Companys credit facility obligations.
In the event eCOST is unable to increase its revenue and/or gross profit from its present
levels, it may fail to comply with one or more of the financial covenants required under its
working capital line of credit. In such event, absent a waiver, the working capital lender would
be entitled to accelerate all amounts outstanding thereunder and exercise all other rights and
remedies, including sale of collateral and demand for payment under the Company parent guaranty.
Any acceleration of the repayment of the credit facility would have a material adverse impact on
the Companys financial condition and results of operations and no assurance can be given that the
Company would have the financial ability to repay all of such obligations.
Management currently believes eCOST will meet the Companys expectations related to improved
overall financial performance. If eCOST does not meet these financial expectations, the Company
anticipates that it would be able to terminate or sublease eCOSTs facilities, liquidate remaining
inventory through the eCOST website and reduce certain personnel related costs as needed so as to
minimize any material impact upon the Companys other segments.
Basis of Presentation
The unaudited interim condensed consolidated financial statements as of June 30, 2010, and for
the three and six months ended June 30, 2010 and 2009, have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC) and are unaudited. Certain
information and note disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America have been condensed
or omitted pursuant to the rules and regulations promulgated by the SEC. In the opinion of
management and subject to the foregoing, the unaudited interim condensed consolidated financial
statements of the Company include all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the Companys financial position as of June 30, 2010, its
results of operations for the three and six months ended June 30, 2010 and 2009 and its cash flows
for the six months ended June 30, 2010 and 2009. Results of the Companys operations for interim
periods may not be indicative of results for the full fiscal year.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements and related disclosures in conformity
with generally accepted accounting principles requires management to make judgments, estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and
disclosure of contingent assets and liabilities. The recognition and allocation of certain revenues
and selling, general and administrative expenses in these consolidated financial statements also
require management estimates and assumptions.
Estimates and assumptions about future events and their effects cannot be determined with
certainty. The Company bases its estimates on historical experience and on various other
assumptions believed to be applicable and reasonable under the circumstances. These estimates may
change as new events occur, as additional information is obtained and as the operating environment
changes. These changes have been included in the consolidated financial statements as soon as they
became known. In addition, management is periodically faced with uncertainties, the outcomes of
which are not within its control and will not be known for prolonged periods of time. These
uncertainties are discussed in this report and in the Companys Annual Report on Form 10-K for the
year ended December 31, 2009 in the section entitled Risk Factors.
7
PFSweb, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
Based on a critical assessment of accounting policies and the underlying judgments and uncertainties
affecting the application of those policies, management believes the Companys consolidated
financial statements are fairly stated in accordance with generally accepted accounting principles
in the United States of America, and provide a fair presentation of the Companys financial
position and results of operations.
Investment in Affiliates
Priority Fulfillment Services, Inc. (PFS), a wholly-owned subsidiary of PFSweb, Inc., has
made advances to Supplies Distributors that are evidenced by a Subordinated Demand Note (the
Subordinated Note). Under the terms of certain of the Companys debt facilities, the outstanding
balance of the Subordinated Note cannot be increased to more than $5.5 million or decreased to less
than $4.3 million without prior approval of the Companys lenders. At June 30, 2010 and December
31, 2009, the outstanding balance of the Subordinated Note was $4.3 million and $5.0 million,
respectively. The Subordinated Note is eliminated in the Companys consolidated financial
statements.
PFS has also made advances to eCOST, which aggregated $11.1 million as of June 30, 2010 and
$10.9 million as of December 31, 2009. Certain terms of the Companys debt facilities provide that
the total advances to eCOST may not be less than $2.0 million without prior approval of eCOSTs
lender, if needed. PFSweb, Inc. has also advanced to eCOST an additional $5.8 million and $5.0
million as of June 30, 2010 and December 31, 2009, respectively. As of June 30, 2010, PFSweb, Inc.
has approximately $6.8 million available to be advanced to eCOST and/or other affiliates.
Concentration of Business and Credit Risk
The Companys service fee revenue is generated under contractual service fee relationships
with multiple client relationships. No service fee client or product revenue customers exceeded
10% of the Companys consolidated total net revenue during the six months ended June 30, 2010. A
summary of the nonaffiliated customer and client concentrations is as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2010 |
|
2009 |
Product Revenue (as a percentage of
Product Revenue): |
|
|
|
|
|
|
|
|
Customer 1 |
|
|
11 |
% |
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
Service Fee Revenue (as a percentage of Service
Fee Revenue): |
|
|
|
|
|
|
|
|
Client 1 |
|
|
13 |
% |
|
|
15 |
% |
Client 2 |
|
|
|
% |
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
Accounts Receivable: |
|
|
|
|
|
|
|
|
Customer 1 |
|
|
9 |
% |
|
|
12 |
% |
PFS currently operates three distinct geographical contract arrangements with Client 1, which
are aggregated in the service fee revenue percentages reflected above. Client 1 has notified PFS
that it is not renewing substantially all of its contracts with PFS which expire during 2010.
Client 2 did not renew its contract with PFS effective January 2009, though certain project work
continued to occur through April 2009.
PFSweb has provided certain collateralized guarantees of its subsidiaries financings and
credit arrangements. These subsidiaries ability to obtain financing on similar terms would be
significantly impacted without these guarantees.
The Company has multiple arrangements with International Business Machines Corporation (IBM)
and IPS and is dependent upon the continuation of such arrangements. These arrangements, which are
8
PFSweb, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
critical to the Companys ongoing operations, include Supplies Distributors master
distributor agreements and certain of Supplies Distributors working capital financing agreements.
Substantially all of the Supplies Distributors revenue is generated by its sale of product
purchased from IPS. Supplies Distributors also relies upon IPS sales force and product demand
generation activities and the discontinuance of such services would have a material impact upon
Supplies Distributors business. In addition, Supplies Distributors has product sales to IBM and
IPS business units and the Company has an IBM term master lease agreement applicable to its
financing of property and equipment.
eCOSTs arrangements with its vendors are terminable by either party at will. Loss of any
vendors could have a material adverse effect on eCOSTs financial position, results of operations
and cash flows. Sales of HP and HP-related products represented 56% of eCOSTs net revenues (12%
of the Companys consolidated total net revenues) in the six months ended June 30, 2010 and 42% of
eCOSTs net revenues (10% of the Companys consolidated total net revenues) in the comparable 2009
period.
Inventories
The Company establishes inventory reserves based upon estimates of declines in values due to
inventories that are slow moving or obsolete, excess levels of inventory or values assessed at
lower than cost. Recoverability of the inventory on hand is measured by comparison of the carrying
value of the inventory to the fair value of the inventory.
Supplies Distributors assumes responsibility for slow-moving inventory under certain master
distributor agreements, subject to certain termination rights, but has the right to return product
rendered obsolete by engineering changes, as defined. In the event PFSweb, Supplies Distributors
and IPS terminate the master distributor agreements, the agreements provide for the parties to
mutually agree on a plan of disposition of Supplies Distributors then existing inventory.
Property and Equipment
The Companys property held under capital leases amounted to approximately $1.1 million and
$2.1 million, net of accumulated amortization of approximately $6.3 million and $6.7 million, at
June 30, 2010 and December 31, 2009, respectively.
Cash Paid for Interest and Taxes
The Company made payments for interest of approximately $0.5 million and $0.7 million during
the six months ended June 30, 2010 and 2009, respectively. Income taxes of approximately $0.3 and
$0.5 million were paid by the Company during the six months ended June 30, 2010 and 2009,
respectively.
Impact of Recently Issued Accounting Standards
In October 2009, the FASB issued Accounting Standards Update (ASU) 2009-13,
Multiple-Deliverable Revenue Arrangements a consensus of the FASB Emerging Issues Task Force to
amend certain guidance in FASB Accounting Standards CodificationTM (ASC) 605, Revenue
Recognition, 25, Multiple-Element Arrangements. The amended guidance in ASC 605-25 (1) modifies
the separation criteria by eliminating the criterion that requires objective and reliable evidence
of fair value for the undelivered item(s), and (2) eliminates the use of the residual method of
allocation and instead requires that arrangement consideration be allocated, at the inception of
the arrangement, to all deliverables based on their relative selling price.
The FASB also issued ASU 2009-14, Certain Revenue Arrangements That Include Software Elements
a consensus of the FASB Emerging Issues Task Force, to amend the scope of arrangements under ASC
985, Software, 605, Revenue Recognition to exclude tangible products containing software
components and non-software components that function together to deliver a products essential
functionality.
9
PFSweb, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
The amended guidance in ASC 605-25 and ASC 985-605 is effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or after June
15, 2010, with early application and retrospective application permitted. The amendments to ASC
605-25 and ASC 985-605 have no material impact on the Companys consolidated financial statements.
3. COMPREHENSIVE LOSS (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net loss |
|
$ |
(1,495 |
) |
|
$ |
(2,529 |
) |
|
$ |
(2,704 |
) |
|
$ |
(2,777 |
) |
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustment |
|
|
(812 |
) |
|
|
801 |
|
|
|
(1,440 |
) |
|
|
116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(2,307 |
) |
|
$ |
(1,728 |
) |
|
$ |
(4,144 |
) |
|
$ |
(2,661 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
4. NET LOSS PER COMMON SHARE
Basic and diluted net income (loss) per share is computed by dividing net income (loss) by the
weighted-average number of common shares outstanding for the reporting period. For both the three
and six months ended June 30, 2010 and 2009, outstanding options to purchase common shares of 2.4
million and 1.8 million, respectively, were anti-dilutive and have been excluded from the diluted
weighted average share computation.
5. STOCK AND STOCK OPTIONS
In May 2010, the Company completed a public offering pursuant to which the Company issued and
sold an aggregate of 2.3 million shares of common stock, par value $.001 per share, at $3.50 per
share, resulting in net proceeds after deducting offering expenses of approximately $7.3 million.
During the six months ended June 30, 2010, the Company issued an aggregate of 650,000 options
to purchase shares of common stock to officers, directors, employees and consultants of the
Company.
6. VENDOR FINANCING:
Outstanding obligations under vendor financing arrangements consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Inventory and working capital financing agreements: |
|
|
|
|
|
|
|
|
United States |
|
$ |
15,975 |
|
|
$ |
16,073 |
|
Europe |
|
|
16,513 |
|
|
|
15,649 |
|
|
|
|
|
|
|
|
Total |
|
$ |
32,488 |
|
|
$ |
31,722 |
|
|
|
|
|
|
|
|
Inventory and Working Capital Financing Agreement, United States
Supplies Distributors has a short-term credit facility with IBM Credit LLC to finance its
distribution of IPS products in the United States, providing financing for eligible IPS inventory
and certain receivables up to $30.5 million through its expiration in April 2011. As of June 30,
2010, Supplies Distributors had $1.8 million of available credit under this facility. The credit
facility contains cross default provisions, various restrictions upon the ability of Supplies
Distributors to, among others, merge, consolidate, sell assets, incur indebtedness, make loans and
payments to related parties (including entities directly or indirectly owned by PFSweb, Inc.),
provide guarantees, make investments and loans, pledge assets, make changes to capital stock
ownership structure and pay dividends, as well as financial covenants, such as annualized revenue
to working capital, net profit after tax to revenue, and total liabilities to tangible net worth,
as defined, and are
10
PFSweb, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
secured by certain of the assets of Supplies Distributors, as well as a
collateralized guaranty of PFSweb. Additionally, PFS is required to maintain a minimum Subordinated
Note receivable balance from Supplies
Distributors of $3.5 million and the Company is required to maintain a minimum shareholders
equity of $18.0 million. Borrowings under the credit facility accrue interest, after a defined free
financing period, at prime rate plus 0.5% (3.75% as of June 30, 2010). The facility also includes a
monthly service fee. Given the structure of this facility and as outstanding balances, which
represent inventory purchases, are repaid within twelve months, the Company has classified the
outstanding amounts under this facility as accounts payable in the consolidated balance sheets.
Inventory and Working Capital Financing Agreement, Europe
Supplies Distributors European subsidiary has a short-term credit facility with IBM Belgium
Financial Services S.A. (IBM Belgium) to finance its distribution of IPS products in Europe. The
asset based credit facility with IBM Belgium provides up to 16.0 million euros (approximately $19.6
million as of June 30, 2010) in inventory financing and cash advances based on eligible inventory
and accounts receivable through its expiration in April 2011. As of June 30, 2010, Supplies
Distributors European subsidiaries had 0.2 million euros (approximately $0.2 million) of available
credit under this facility. The credit facility contains cross default provisions, various
restrictions upon the ability of Supplies Distributors and its European subsidiaries to, among
others, merge, consolidate, sell assets, incur indebtedness, make loans and payments to related
parties (including entities directly or indirectly owned by PFSweb, Inc.), provide guarantees, make
investments and loans, pledge assets, make changes to capital stock ownership structure and pay
dividends, as well as financial covenants, such as annualized revenue to working capital, net
profit after tax to revenue, and total liabilities to tangible net worth, as defined, and are
secured by certain of the assets of Supplies Distributors European subsidiary, as well as
collateralized guaranties of Supplies Distributors and PFSweb. Additionally, PFS is required to
maintain a minimum Subordinated Note receivable balance from Supplies Distributors of $3.5 million
and the Company is required to maintain a minimum shareholders equity of $18.0 million. Borrowings
under the credit facility accrue interest at Euribor plus 1.82% for cash advances, and, after a
defined free financing period, at Euribor plus 4.1% for inventory financings. As of June 30, 2010,
the interest rate was 4.6% on the $16.5 million of outstanding inventory financings. Supplies
Distributors European subsidiary pays a monthly service fee on the commitment. Given the
structure of this facility and as outstanding inventory financing balances are repaid within twelve
months, the Company has classified the outstanding inventory financing amounts under this facility
as accounts payable in the consolidated balance sheets.
6. DEBT AND CAPITAL LEASE OBLIGATIONS;
Outstanding obligations under debt and capital lease obligations consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Loan and security agreements, United States |
|
|
|
|
|
|
|
|
Supplies Distributors |
|
$ |
8,866 |
|
|
$ |
8,921 |
|
PFS |
|
|
4,000 |
|
|
|
6,000 |
|
Credit facility eCOST |
|
|
|
|
|
|
|
|
Factoring agreement, Europe |
|
|
770 |
|
|
|
1,074 |
|
Taxable revenue bonds |
|
|
1,600 |
|
|
|
2,400 |
|
Master lease agreements |
|
|
2,633 |
|
|
|
3,467 |
|
Other |
|
|
756 |
|
|
|
665 |
|
|
|
|
|
|
|
|
Total |
|
|
18,625 |
|
|
|
22,527 |
|
Less current portion of long-term debt |
|
|
17,362 |
|
|
|
19,179 |
|
|
|
|
|
|
|
|
Long-term debt, less current portion |
|
$ |
1,263 |
|
|
$ |
3,348 |
|
|
|
|
|
|
|
|
Loan and Security Agreement Supplies Distributors
Supplies Distributors has a loan and security agreement with Wachovia Bank, N.A. (Wachovia)
to provide financing for up to $25 million of eligible accounts receivable in the United States and
Canada. As
11
PFSweb, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
of June 30, 2010, Supplies Distributors had $0.9 million of available credit under this
agreement. The Wachovia facility expires on the earlier of March 2011 or the date on which the
parties to the IPS master distributor agreement no longer operate under the terms of such agreement and/or IPS no longer
supplies products pursuant to such agreement. Borrowings under the Wachovia facility accrue
interest at prime rate plus 0.25% to 0.75% (3.75% as of June 30, 2010) or Eurodollar rate plus 2.5%
to 3.0%, dependent on excess availability and subject to a minimum of 3.0%, as defined. The
interest rate as of June 30, 2010 was 3.75% for $8.9 million of outstanding borrowings. This
agreement contains cross default provisions, various restrictions upon the ability of Supplies
Distributors to, among other things, merge, consolidate, sell assets, incur indebtedness, make
loans and payments to related parties (including entities directly or indirectly owned by PFSweb,
Inc.), provide guarantees, make investments and loans, pledge assets, make changes to capital stock
ownership structure and pay dividends, as well as financial covenants, such as minimum net worth,
as defined, and is secured by all of the assets of Supplies Distributors, as well as a
collateralized guaranty of PFSweb. Additionally, PFS is required to maintain a Subordinated Note
receivable balance from Supplies Distributors of no less than $4.3 million and may not maintain
restricted cash of more than $5.0 million, and is restricted with regard to transactions with
related parties, indebtedness and changes to capital stock ownership structure. Supplies
Distributors has entered into blocked account agreements with its banks and Wachovia pursuant to
which a security interest was granted to Wachovia for all U.S. and Canadian customer remittances
received in specified bank accounts. At June 30, 2010 and December 31, 2009, these bank accounts
held $0.5 million and $1.0 million, respectively, which was restricted for payment to Wachovia.
Loan and Security Agreement PFS
PFS has a Loan and Security Agreement (Comerica Agreement) with Comerica Bank (Comerica).
The Comerica Agreement provides for up to $10.0 million of eligible accounts receivable financing
through March 2011. As of June 30, 2010, PFS had $5.8 million of available credit under this
facility. Borrowings under the Comerica Agreement accrue interest at a defined rate, which will
generally be prime rate plus 2%, with a minimum of 4.5% (5.25% at June 30, 2010). The Comerica
Agreement contains cross default provisions, various restrictions upon PFS ability to, among other
things, merge, consolidate, sell assets, incur indebtedness, make loans and payments to related
parties (including entities directly or indirectly owned by PFSweb, Inc.), make capital
expenditures, make investments and loans, pledge assets, make changes to capital stock ownership
structure, as well as financial covenants of a minimum tangible net worth of $20 million, as
defined, a minimum earnings before interest and taxes, plus depreciation, amortization and non-cash
compensation accruals, if any, as defined, and a minimum liquidity ratio, as defined. The Comerica
Agreement restricts the amount of the subordinated note receivable from Supplies Distributors to a
maximum of $5.5 million. Comerica has provided approval for PFS to advance incremental amounts
subject to certain cash inflows to PFS, as defined, to certain of its subsidiaries and/or
affiliates, including eCOST, if needed. The Comerica Agreement is secured by all of the assets of
PFS, as well as a guarantee of PFSweb, Inc.
Credit Facility eCOST
eCOST has an asset-based line of credit facility of up to $7.5 million from Wachovia, through
May 2011, which is collateralized by substantially all of eCOSTs assets. Borrowings under the
facility are limited to a percentage of eligible accounts receivable and inventory. Outstanding
borrowings under the facility bear interest at rates ranging from prime rate plus 0.75% to 1.25% or
Eurodollar rate plus 3.0% to 4.0%, depending on eCOSTs financial results. There were no
outstanding borrowings as of June 30, 2010. As of June 30, 2010, eCOST had $0.9 million of letters
of credit outstanding and $1.5 million of available credit under this facility. In connection with
the line of credit, eCOST entered into a cash management arrangement whereby eCOSTs operating
amounts are considered restricted and swept and used to repay outstanding amounts under the line of
credit. As of June 30, 2010 and December 31, 2009, the restricted cash amount was $0.1 million and
$0.2 million, respectively. The credit facility restricts eCOSTs ability to, among other things,
merge, consolidate, sell assets, incur indebtedness, make loans, investments and payments to
subsidiaries, affiliates and related parties (including entities directly or indirectly owned by
PFSweb, Inc.), make investments and loans, pledge assets, make changes to capital
12
PFSweb, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
stock ownership
structure, and requires a minimum tangible net worth for eCOST of $0 million, as defined. PFSweb
has guaranteed all current and future obligations of eCOST under this line of credit.
Factoring Agreement
Supplies Distributors European subsidiary has a factoring agreement with Fortis Commercial
Finance N.V. (Fortis) to provide factoring for up to 7.5 million euros (approximately $9.2
million as of June 30, 2010) of eligible accounts receivables through March 2011. As of June 30,
2010, Supplies Distributors European subsidiary had approximately 1.1 million euros (approximately
$1.3 million) of available credit under this agreement. Borrowings accrue interest at Euribor plus
1.2% (1.6% at June 30, 2010). This agreement contains various restrictions upon the ability of
Supplies Distributors European subsidiary to, among other things, merge, consolidate and incur
indebtedness, as well as financial covenants, such as minimum net worth. This agreement is secured
by a guarantee of Supplies Distributors, up to a maximum of 200,000 euros.
Taxable Revenue Bonds
PFS has a Loan Agreement with the Mississippi Business Finance Corporation (the MBFC) in
connection with the issuance by the MBFC of MBFC Taxable Variable Rate Demand Limited Obligation
Revenue Bonds, Series 2004 (Priority Fulfillment Services, Inc. Project) (the Bonds). The MBFC
loaned the proceeds of the Bonds to PFS for the purpose of financing the acquisition and
installation of equipment, machinery and related assets located in one of the Companys Southaven,
Mississippi distribution facilities. The Bonds bear interest at a variable rate (0.5% as of June
30, 2010), as determined by Comerica Securities, as Remarketing Agent. PFS, at its option, may
convert the Bonds to a fixed rate, to be determined by the Remarketing Agent at the time of
conversion.
The primary source of repayment of the Bonds is a letter of credit (the Letter of Credit)
issued by Comerica pursuant to a Reimbursement Agreement between PFS and Comerica under which PFS
is obligated to pay to Comerica all amounts drawn under the Letter of Credit. The Letter of Credit
has a maturity date of April 2011 at which time, if not renewed or replaced, will result in a draw
on the undrawn face amount thereof. If the Letter of Credit is renewed or replaced, the Bonds
require future annual principal repayments of $800,000 in January of 2011 and 2012. PFS
obligations under the Reimbursement Agreement are secured by substantially all of the assets of
PFS, including restricted cash of $0.8 million and a Company parent guarantee.
Debt Covenants
To the extent the Company or any of its subsidiaries fail to comply with covenants applicable
to its debt or vendor financing obligations, including the monthly financial covenant requirements
and required level of shareholders equity or net worth, and one or all of the lenders accelerate
the repayment of the credit facility obligations, the Company would be required to repay all
amounts outstanding thereunder. In particular, in the event eCOST is unable to increase its
revenue and/or gross profit from its present levels, or if PFS service fee revenue declines from
expected levels and it is unable to reduce costs to correspond to such reduced revenue levels or if
Supplies Distributors revenue or gross profit declines from expected levels, such events may result
in a breach of one or more of the financial covenants required under its working capital line of
credit. In such event, absent a waiver, the working capital lender would be entitled to accelerate
all amounts outstanding thereunder and exercise all other rights and remedies, including sale of
collateral and demand for payment under the Company parent guaranty. Any acceleration of the
repayment of the credit facilities would have a material adverse impact on the Companys financial
condition and results of operations and no assurance can be given that the Company would have the
financial ability to repay all of such obligations. As of June 30, 2010, the Company was in
compliance with all debt covenants.
13
PFSweb, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
Master Lease Agreements
The Company has a Term Lease Master Agreement with IBM Credit Corporation (Master Lease
Agreement) that provides for leasing or financing transactions of equipment and other assets,
which generally have terms of three years. The amounts outstanding under this Master Lease
Agreement ($1.2 million as of June 30, 2010 and $1.6 million as of December 31, 2009) are secured by the
related equipment.
The Company has another master agreement with a financing company that provides for leasing or
financing transactions of certain equipment. The amounts outstanding under this agreement were $0.7
million as of both June 30, 2010 and December 31, 2009, and are secured by the related equipment.
The Company has other leasing and financing agreements and will continue to enter into those
arrangements as needed to finance the purchasing or leasing of certain equipment or other assets.
Borrowings under these agreements are generally secured by the related equipment.
7. SEGMENT INFORMATION
The Company is organized into three operating segments: PFSweb is an international provider of
integrated eCommerce and business process outsourcing solutions and operates as a service fee
business; Supplies Distributors is a master distributor primarily of IPS products; and eCOST is a
multi-category online discount retailer of new, close-out and recertified brand-name merchandise.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Revenues (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PFSweb |
|
$ |
24,506 |
|
|
$ |
18,554 |
|
|
$ |
48,822 |
|
|
$ |
43,318 |
|
Supplies Distributors |
|
|
43,548 |
|
|
|
45,269 |
|
|
|
89,050 |
|
|
|
90,600 |
|
eCOST |
|
|
16,163 |
|
|
|
20,277 |
|
|
|
36,308 |
|
|
|
41,209 |
|
Eliminations |
|
|
(1,753 |
) |
|
|
(1,770 |
) |
|
|
(3,456 |
) |
|
|
(3,860 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
82,464 |
|
|
$ |
82,330 |
|
|
$ |
170,724 |
|
|
$ |
171,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PFSweb |
|
$ |
(1,280 |
) |
|
$ |
(2,982 |
) |
|
$ |
(2,759 |
) |
|
$ |
(3,385 |
) |
Supplies Distributors |
|
|
867 |
|
|
|
981 |
|
|
|
1,880 |
|
|
|
2,398 |
|
eCOST |
|
|
(768 |
) |
|
|
(473 |
) |
|
|
(1,122 |
) |
|
|
(948 |
) |
Eliminations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1,181 |
) |
|
$ |
(2,474 |
) |
|
$ |
(2,001 |
) |
|
$ |
(1,935 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PFSweb |
|
$ |
1,557 |
|
|
$ |
1,530 |
|
|
$ |
3,087 |
|
|
$ |
3,465 |
|
Supplies Distributors |
|
|
6 |
|
|
|
8 |
|
|
|
14 |
|
|
|
18 |
|
eCOST |
|
|
97 |
|
|
|
85 |
|
|
|
194 |
|
|
|
168 |
|
Eliminations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,660 |
|
|
$ |
1,623 |
|
|
$ |
3,295 |
|
|
$ |
3,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PFSweb |
|
$ |
978 |
|
|
$ |
688 |
|
|
$ |
1,854 |
|
|
$ |
1,846 |
|
Supplies Distributors |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
eCOST |
|
|
12 |
|
|
|
44 |
|
|
|
22 |
|
|
|
101 |
|
Eliminations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
990 |
|
|
$ |
734 |
|
|
$ |
1,876 |
|
|
$ |
1,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Assets (in thousands): |
|
|
|
|
|
|
|
|
PFSweb |
|
$ |
65,392 |
|
|
$ |
65,716 |
|
Supplies Distributors |
|
|
64,362 |
|
|
|
69,291 |
|
eCOST |
|
|
11,723 |
|
|
|
13,579 |
|
Eliminations |
|
|
(18,337 |
) |
|
|
(20,817 |
) |
|
|
|
|
|
|
|
|
|
$ |
123,140 |
|
|
$ |
127,769 |
|
|
|
|
|
|
|
|
14
PFSweb, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
8. COMMITMENTS AND CONTINGENCIES
The Company receives municipal tax abatements in certain locations. During 2004 the Company
received notice from a municipality that it did not satisfy certain criteria necessary to maintain
the abatements. In December 2006, the Company received notice that the municipal authority planned
to make an adjustment to the Companys tax abatement. The Company disputed the adjustment and such
dispute has been settled with the municipality. However, the amount of additional property taxes
to be assessed against the Company and the timing of the related payments has not been finalized.
As of June 30, 2010, the Company believes it has adequately accrued for the expected assessment.
In April 2010, a sales employee of eCOST was charged with violating various federal criminal
statutes in connection with the sales of eCOST products to certain customers, and approximately
$620,000 held in an eCOST deposit account was seized and turned over to the Office of the U.S.
Attorney in connection with such activity. Shortly thereafter, the Company received a subpoena from
the Office of the U.S. Attorney requesting information regarding the employee and other matters,
and the Company provided such information and is fully cooperating with the Office of the U.S.
Attorney. The Company has commenced its own investigation into the actions of the employee. Neither
the Company nor eCOST have been charged with any criminal activity, and eCOST intends to seek the
recovery or reimbursement of the funds which are currently classified as other receivables on the
June 30, 2010 financial statements. Based on the information available to date, eCOST is unable to
determine the amount of the loss, if any, relating to the seizure of such funds. No assurance can
be given, however, that the seizure of such funds, or the inability of eCOST to recover such funds
or any significant portion thereof, or any costs and expenses incurred by the Company in connection
with this matter will not have a material adverse effect upon the Companys financial condition or
results of operations.
The Company is subject to claims in the ordinary course of business, including claims of
alleged infringement by the Company or its subsidiaries of the patents, trademarks and other
intellectual property rights of third parties. In particular, eCOST and other manufacturers,
distributors and retailers of consumer electronic and computer products, may be subject to claims
of patent holders alleging that the manufacture, distribution and sale of such products infringe
their patents. Neither the Company nor eCOST is currently subject to any such patent claims.
15
|
|
|
ITEM 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis of our results of operations and financial condition
should be read in conjunction with the unaudited interim condensed consolidated financial
statements and related notes appearing elsewhere in this Form 10-Q.
Forward-Looking Information
We have made forward-looking statements in this Report on Form 10-Q. These statements are
subject to risks and uncertainties, and there can be no guarantee that these statements will prove
to be correct. Forward-looking statements include assumptions as to how we may perform in the
future. When we use words like seek, strive, believe, expect, anticipate, predict,
potential, continue, will, may, could, intend, plan, target and estimate or
similar expressions, we are making forward-looking statements. You should understand that the
following important factors, in addition to those set forth above or elsewhere in this Report on
Form 10-Q and our Form 10-K for the year ended December 31, 2009, could cause our results to differ
materially from those expressed in our forward-looking statements. 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 International Business Machines Corporation
(IBM) and InfoPrint Solutions Company (IPS); |
|
|
|
|
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 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 reliance on third-party subcontracted services; |
|
|
|
|
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; |
|
|
|
|
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; |
|
|
|
|
taxation on the sale of our products; |
|
|
|
|
eCOSTs ability to maintain existing and build new relationships with manufacturers and
vendors and the success of its advertising and marketing efforts; |
|
|
|
|
eCOSTs ability to increase its sales revenue and sales margin and improve operating
efficiencies; |
|
|
|
|
eCOSTs ability to generate projected cash flows sufficient to cover the values of its
intangible assets; and |
|
|
|
|
whether the contingencies noted in Note 8 of our unaudited financial statements
included in this report have a material adverse effect upon our financial condition or
results of operations. |
16
We have based these statements on our current expectations about future events. Although we
believe that the expectations reflected in our forward-looking statements are reasonable, we cannot
guarantee you that these expectations actually will be achieved. In addition, some forward-looking
statements are based upon assumptions as to future events that may not prove to be accurate.
Therefore, actual outcomes and results may differ materially from what is expected or forecasted in
such forward-looking statements. We undertake 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.
Overview
We are an international business process outsourcing provider of end-to-end eCommerce
solutions. We provide these solutions to major brand name companies seeking to optimize their
supply chain and to enhance their traditional and online business channels and initiatives.
Through our eCOST.com® business unit, we are also a leading multi-category online discount retailer
of new, close-out and recertified brand-name merchandise. We derive our revenues from three
business segments: eCommerce and business process outsourcing, master distribution and an online
discount retailing.
First, in our eCommerce and business process outsourcing segment, we derive our revenues from
a broad range of services, including professional consulting, technology collaboration, interactive
marketing services, order management, managed web hosting and web development, the development of
an eCommerce technology platform, customer relationship management, financial services including
billing and collection services and working capital solutions, kitting and assembly services,
information management and international fulfillment and distribution services. We offer our
services as an integrated solution, which enables our clients to outsource their complete
infrastructure needs to a single source and to focus on their core competencies. Our distribution
services are conducted at warehouses that we lease or manage and include real-time inventory
management and customized picking, packing and shipping of our clients customer orders. We
currently offer the ability to provide infrastructure and distribution solutions to clients that
operate in a range of vertical markets, including technology manufacturing, computer products,
cosmetics, fragile goods, contemporary home furnishings, apparel, aviation, telecommunications and
consumer electronics, among others.
In this eCommerce and business process outsourcing segment, we do not own the underlying
inventory or the resulting accounts receivable, but provide management services for these
client-owned assets. We typically charge our service fee revenue on a cost-plus basis, a percent
of shipped revenue basis or a per-transaction basis, such as a per-minute basis for web-enabled
customer contact center services and a per-item basis for fulfillment services. Additional fees are
billed for other services. We price our services based on a variety of factors, including the depth
and complexity of the services provided, the amount of capital expenditures or systems
customization required, the length of contract and other factors.
Many of our service fee contracts involve third-party vendors who provide additional services
such as package delivery. The costs we are charged by these third-party vendors for these services
are often passed on to our clients. Our billings for reimbursements of these and other
out-of-pocket expenses include travel, shipping and handling costs and telecommunication charges
are included in pass-through revenue.
Our second business segment is a product revenue model. In this segment, we are a master
distributor of product for IPS and certain other clients. In this capacity, we purchase, and thus
own, inventory and recognize the corresponding product revenue. As a result, upon the sale of
inventory, we own the accounts receivable. Freight costs billed to customers are reflected as
components of product revenue. This business segment requires significant working capital
requirements, for which we have senior credit facilities to provide for approximately $86 million
of available financing.
Our third business segment is a web-commerce product revenue model focused on the sale of
products to a broad range of consumer and small business customers. In this segment we operate as
a multi-category online discount retailer of new, close-out and recertified brand-name
merchandise. Our product line currently offers approximately 270,000 products in several primary
merchandise categories, primarily including computers, networking, electronics and entertainment,
TVs, monitors and projectors, cameras and camcorders, memory and storage, For the Home and
sports and leisure.
17
Growth is a key element to achieving our future goals, including achieving and maintaining
sustainable profitability. Growth in our eCommerce and business process outsourcing segment is
driven by two main elements: new client relationships and organic growth from existing clients. We
focus our sales efforts on larger contracts with brand-name companies within two primary target
markets, online brands and retailers and technology manufacturers, which, by nature, require a
longer duration to close but also have the potential to be higher-quality and longer duration
engagements.
Growth within our product revenue business is primarily driven by our ability to attract new
master distributor arrangements with IPS or other manufacturers and the sales and marketing efforts
of the manufacturers and third party sales partners.
Growth within our web-commerce product revenue model is primarily driven by eCOSTs ability to
increase sales by generating organic growth, attracting new customers and expanding its product
line.
We continue to monitor and control our costs to focus on profitability. While we are
targeting our new service fee contracts to yield incremental gross profit, we also expect to incur
incremental investments to implement new contracts, investments in infrastructure and sales and
marketing to support our targeted growth and increased public company professional fees.
Our expenses comprise primarily four categories: 1) cost of product revenue, 2) cost of
service fee revenue, 3) cost of pass-through revenue and 4) selling, general and administrative
expenses.
Cost of product revenues consists of the purchase price of product sold and freight costs,
which are reduced by certain reimbursable expenses. These reimbursable expenses include
pass-through customer marketing programs, direct costs incurred in passing on any price decreases
offered by vendors to cover price protection and certain special bids, the cost of products
provided to replace defective product returned by customers and certain other expenses as defined
under the master distributor agreements. Vendor marketing programs, such as co-op advertising,
also reduce cost of product revenue.
Cost of service fee revenue consists primarily of compensation and related expenses for our
web-enabled customer contact center services, international fulfillment and distribution services
and professional consulting services, and other fixed and variable expenses directly related to
providing services under the terms of fee based contracts, including certain occupancy and
information technology costs and depreciation and amortization expenses.
Cost of pass-through revenue the related reimbursable costs for pass-through expenditures
are reflected as cost of pass-through revenue.
Selling, General and Administrative expenses consist of expenses such as compensation and
related expenses for sales and marketing staff, advertising, online marketing and catalog
production, distribution costs (excluding freight) applicable to the Supplies Distributors and
eCOST businesses, executive, management and administrative personnel and other overhead costs,
including certain occupancy and information technology costs and depreciation and amortization
expenses.
Monitoring and controlling our available cash balances and our expenses continues to be a
primary focus. Our cash and liquidity positions are important components of our financing both
current operations and our targeted growth. To aid this, in May 2010, we completed a public
offering of 2.3 million shares of our common stock that provided net proceeds of approximately $7.3
million.
18
Results of Operations
For the Interim Periods Ended June 30, 2010 and 2009
The following table sets forth certain historical financial information from our unaudited
interim condensed consolidated statements of operations expressed as a percent of net revenues (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Net Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Net Revenues |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
2010 |
|
|
2009 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue, net |
|
$ |
59.7 |
|
|
$ |
65.5 |
|
|
$ |
(5.8 |
) |
|
|
72.4 |
% |
|
|
79.6 |
% |
|
$ |
125.4 |
|
|
$ |
131.8 |
|
|
$ |
(6.4 |
) |
|
|
73.4 |
% |
|
|
77.0 |
% |
Service fee revenue |
|
|
16.6 |
|
|
|
12.4 |
|
|
|
4.2 |
|
|
|
20.1 |
% |
|
|
15.0 |
% |
|
|
32.5 |
|
|
|
29.5 |
|
|
|
3.0 |
|
|
|
19.1 |
% |
|
|
17.2 |
% |
Pass-through revenue |
|
|
6.2 |
|
|
|
4.4 |
|
|
|
1.8 |
|
|
|
7.5 |
% |
|
|
5.4 |
% |
|
|
12.8 |
|
|
|
10.0 |
|
|
|
2.8 |
|
|
|
7.5 |
% |
|
|
5.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues |
|
|
82.5 |
|
|
|
82.3 |
|
|
|
0.2 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
170.7 |
|
|
|
171.3 |
|
|
|
(0.6 |
) |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue (1) |
|
|
55.3 |
|
|
|
60.3 |
|
|
|
(5.0 |
) |
|
|
92.6 |
% |
|
|
92.0 |
% |
|
|
115.9 |
|
|
|
121.1 |
|
|
|
(5.2 |
) |
|
|
92.5 |
% |
|
|
91.9 |
% |
Cost of service fee revenue (2) |
|
|
12.0 |
|
|
|
9.4 |
|
|
|
2.6 |
|
|
|
72.4 |
% |
|
|
76.1 |
% |
|
|
23.4 |
|
|
|
20.7 |
|
|
|
2.7 |
|
|
|
72.0 |
% |
|
|
70.3 |
% |
Pass-through cost of revenue (3) |
|
|
6.2 |
|
|
|
4.4 |
|
|
|
1.8 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
12.8 |
|
|
|
10.0 |
|
|
|
2.8 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
73.5 |
|
|
|
74.1 |
|
|
|
(0.6 |
) |
|
|
89.1 |
% |
|
|
90.1 |
% |
|
|
152.1 |
|
|
|
151.8 |
|
|
|
__ 0.3 |
|
|
|
89.1 |
% |
|
|
88.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue gross profit |
|
|
4.4 |
|
|
|
5.2 |
|
|
|
(0.8 |
) |
|
|
7.4 |
% |
|
|
9.0 |
% |
|
|
9.5 |
|
|
|
10.7 |
|
|
|
(1.2 |
) |
|
|
7.5 |
% |
|
|
8.1 |
% |
Service fee gross profit |
|
|
4.6 |
|
|
|
3.0 |
|
|
|
1.6 |
|
|
|
27.6 |
% |
|
|
23.9 |
% |
|
|
9.1 |
|
|
|
8.8 |
|
|
|
0.3 |
|
|
|
28.0 |
% |
|
|
29.7 |
% |
Pass-through gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
|
9.0 |
|
|
|
8.2 |
|
|
|
0.8 |
|
|
|
10.9 |
% |
|
|
9.9 |
% |
|
|
18.6 |
|
|
|
19.5 |
|
|
|
(0.9 |
) |
|
|
10.9 |
% |
|
|
11.3 |
% |
Selling, General and Administrative expenses |
|
|
10.2 |
|
|
|
10.7 |
|
|
|
(0.5 |
) |
|
|
12.4 |
% |
|
|
12.9 |
% |
|
|
20.6 |
|
|
|
21.4 |
|
|
|
(0.8 |
) |
|
|
12.0 |
% |
|
|
12.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(1.2 |
) |
|
|
(2.5 |
) |
|
|
1.3 |
|
|
|
(1.4 |
)% |
|
|
(3.0) |
% |
|
|
(2.0 |
) |
|
|
(1.9 |
) |
|
|
(0.1 |
) |
|
|
(1.1) |
% |
|
|
(1.1) |
% |
Interest expense, net |
|
|
0.2 |
|
|
|
0.3 |
|
|
|
(0.1 |
) |
|
|
0.3 |
% |
|
|
0.4 |
% |
|
|
0.5 |
|
|
|
0.7 |
|
|
|
(0.2 |
) |
|
|
0.3 |
% |
|
|
0.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(1.4 |
) |
|
|
(2.8 |
) |
|
|
1.4 |
|
|
|
(1.7 |
)% |
|
|
(3.4) |
% |
|
|
(2.5 |
) |
|
|
(2.6 |
) |
|
|
0.1 |
|
|
|
(1.4) |
% |
|
|
(1.5) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense, net |
|
|
0.1 |
|
|
|
(0.3 |
) |
|
|
(0.4 |
) |
|
|
0.2 |
% |
|
|
(0.4) |
% |
|
|
0.2 |
|
|
|
0.2 |
|
|
|
|
|
|
|
0.1 |
% |
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(1.5 |
) |
|
$ |
(2.5 |
) |
|
$ |
1.0 |
|
|
|
(1.9 |
)% |
|
|
(3.0) |
% |
|
$ |
(2.7 |
) |
|
$ |
(2.8 |
) |
|
$ |
0.1 |
|
|
|
(1.5) |
% |
|
|
(1.6) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
% of net revenues represents the percent of Product revenue, net. |
|
(2) |
|
% of net revenues represents the percent of Service fee revenue. |
|
(3) |
|
% of net revenues represents the percent of Pass-through revenue. |
Product Revenue, net. eCOST product revenue was $16.2 million in the three months ended
June 30, 2010, a 20.3% decrease as compared to $20.3 million in the comparable quarter of the prior
year. eCOST product revenue was $36.3 million in the six months ended June 30, 2010, an 11.9%
decrease as compared to $41.2 million in the comparable period of the prior year. The decrease has
resulted primarily from a combination of the continued impact of the current economic environment
and the negative impact of certain external service provider changes that have limited the
effectiveness of our email advertising and thus sales generation.
Supplies Distributors product revenue of $43.5 million decreased $1.7 million, or 3.8%, in the
three months ended June 30, 2010 as compared $45.3 million in the same quarter of the prior year.
Product revenue of $89.1 million decreased $1.6 million, or 1.7%, in the six months ended June 30,
2010 as compared $90.6 million in the same period of the prior year. The decrease was primarily
due to the impact of the euro currency conversion rate.
Service Fee Revenue. Service fee revenue of $16.6 million increased $4.2 million, or 34.0%,
in the three months ended June 30, 2010 as compared to the same quarter of the prior year. Service
fee revenue of $32.5 million increased $3.0 million, or 10.4%, in the six months ended June 30,
2010 as compared to the same period of the prior year. The increase in service fee revenue for the
three and six months ended June 30, 2010 is primarily due to increased service fees from new client
relationships that began in late 2009 and early 2010, organic growth in existing clients and
incremental project work partially offset by the
19
non-renewal of certain service contract relationships, including the non-renewal of a U.S.
government agency client relationship, which ended in early 2009. The change in service fee
revenue is shown below ($ millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
Period ended June 30, 2009 |
|
$ |
12.4 |
|
|
$ |
29.5 |
|
New service contract relationships |
|
|
3.8 |
|
|
|
6.6 |
|
Change in existing client service fees |
|
|
1.8 |
|
|
|
4.4 |
|
Terminated clients not included in 2010 revenue |
|
|
(1.4 |
) |
|
|
(8.0 |
) |
|
|
|
|
|
|
|
Period ended June 30, 2010 |
|
$ |
16.6 |
|
|
$ |
32.5 |
|
|
|
|
|
|
|
|
The service fee revenue for the current year three and six month periods include approximately
$2.1 million and $4.4 million, respectively, of revenue generated from clients who have given
notice of their intent to terminate their contractual relationships with the Company during 2010.
Cost of Product Revenue. The gross margin for eCOST was $1.4 million or 8.7% of product
revenue in the three months ended June 30, 2010 and $1.9 million or 9.7% of product revenue during
the comparable period of 2009. The gross margin for eCOST was $3.2 million or 8.8% of product
revenue in the six months ended June 30, 2010 and $4.0 million or 9.7% of product revenue during
the comparable period of 2009. The decline in gross margin is primarily due to a decrease in sales
in the higher margin business to consumer sales channel compared to prior year. We are targeting
an increasing percentage of eCOST revenues to be generated from the business-to-consumer channel,
although we continue to strive to improve our product sales and gross margin in our
business-to-business channel.
Supplies Distributors cost of product revenue decreased by $1.5 million, or 3.5%, to $40.5
million in the three months ended June 30, 2010 primarily as a result of decreased product sales.
The resulting gross profit margin was $3.0 million, or 6.9% of product revenue, for the three
months ended June 30, 2010 and $3.3 million, or 7.3% of product revenue, for the comparable 2009
period. Supplies Distributors cost of product revenue decreased by $1.1 million, or 1.3%, to $82.6
million in the six months ended June 30, 2010 primarily as a result of decreased product sales.
The resulting gross profit margin was $6.3 million, or 7.0% of product revenue, for the six months
ended June 30, 2010 and $6.7 million, or 7.4% of product revenue, for the comparable 2009 period.
The three and six month periods ending June 30, 2010 and 2009 include the impact of certain
incremental gross margin earned on product sales resulting from certain product price increases and
the impact of certain incremental inventory cost reductions.
Cost of Service Fee Revenue. Gross profit as a percentage of service fees was 27.6% in the
three months ended June 30, 2010, compared to 23.9% in the same period of the prior year. Gross
profit as a percentage of service fees was 28.0% in the six months ended June 30, 2010, compared to
29.7% in the same period of the prior year. The three and six months ended June 30, 2010 includes
the margin impact of new client relationships that began in late 2009 and early 2010. The margin
in the six month period of 2009 includes the benefit of higher margin incremental project work
associated with the U.S. government contract relationship that was not renewed and was completed in
the second quarter of 2009.
We target to earn an overall average gross profit of 25-30% on existing and new service fee
contracts, but we have and may continue to accept lower gross margin percentages on certain
contracts depending on contract scope and other factors.
Selling, General and Administrative Expenses. Selling, General and Administrative expenses for
the three months ended June 30, 2010 decreased to $10.2 million from $10.7 million in the same 2009
period. As a percentage of total net revenue, selling, general and administrative expenses were
12.4% in the three months ended June 30, 2010 and 12.9% in the prior year period.
Selling, General and Administrative expenses for the six months ended June 30, 2010 decreased
to $20.6 million from $21.4 million in the same 2009 period. As a percentage of total net revenue,
selling, general and administrative expenses were 12.0% in the six months ended June 30, 2010 and
12.4% in the comparable period. The three and six month periods ending June 30, 2010 include the
impact of a certain vendor settlement and other legal matters as well as distribution facility
relocation expenses partially offset by decreases in depreciation and amortization, information technology services and a reduction
in advertising related costs due to timing of events.
20
Income Taxes. We record a tax provision associated primarily with state income taxes and our
subsidiary Supplies Distributors Canadian and European operations. A valuation allowance has been
provided for the majority of our net deferred tax assets as of June 30, 2010 and December 31, 2009,
which are primarily related to our net operating loss carryforwards, and certain foreign deferred
tax assets. We expect that we will continue to record an income tax provision associated with state
income taxes and Supplies Distributors Canadian and European results of operations.
Liquidity and Capital Resources
Net cash provided by operating activities was $3.2 million for the six months ended June 30,
2010, and primarily resulted from a $3.0 million decrease in accounts receivable and cash income
before working capital changes of $1.4 million partially offset by an $0.8 million decrease in
prepaid expenses, other receivables and other assets and an $0.6 million decrease in accounts
payable, accrued expenses and other liabilities.
Net cash provided by operating activities was $4.6 million for the six months ended June 30,
2009, and primarily resulted from a $12.2 million decrease in accounts receivable, a decrease in
inventories of $6.3 million, cash income before working capital changes of $1.4 million and a $1.3
million decrease in prepaid expenses, other receivables and other assets, partially offset by a
$16.6 million decrease in accounts payable, accrued expenses and other liabilities.
Net cash used in investing activities for the six months ended June 30, 2010 and 2009 totaled
$1.9 million resulting from capital expenditures.
Capital expenditures have historically consisted primarily of additions to upgrade our
management information systems, development of customized technology solutions to support and
integrate with our service fee clients, and general expansion and upgrades to our facilities, both
domestic and foreign. We expect to incur capital expenditures to support new contracts and
anticipated future growth opportunities. Based on our current client business activity and our
targeted growth plans, we anticipate our total investment in upgrades and additions to facilities
and information technology services for the upcoming twelve months will be approximately $4 to $7
million, although additional capital expenditures may be necessary to support the infrastructure
requirements of new clients. To maintain our current operating cash position, a portion of these
expenditures may be financed through client reimbursements, debt, operating or capital leases or
additional equity. We may elect to modify or defer a portion of such anticipated investments in
the event we do not obtain the financing or achieve the financial results necessary to support such
investments.
Net cash provided by financing activities was approximately $3.9 million for the six months
ended June 30, 2010, representing net proceeds of $7.3 million from the issuance of common stock
pursuant to a public offering and a decrease in restricted cash partially offset by payments on
debt and capital lease obligations.
Net cash used in financing activities was approximately $3.9 million for the six months ended
June 30, 2009, primarily representing payments on debt and capital lease obligations.
Our liquidity has been negatively impacted as a result of the merger with eCOST. Since the
merger, eCOST has experienced a net use of cash primarily due to operating losses. As a result,
PFSweb has had to support eCOSTs cash needs with the goal of reducing operating losses. The
amount of further cash needed to support eCOST operations will depend upon the financing available
as well as eCOSTs ability to improve its financial results. eCOSTs results, excluding the impact
of any non-cash impairment charges, have improved in recent years, and we expect continued
improvement as a result of efforts to increase sales, improve product mix and further improve
operational efficiencies.
During the six months ended June 30, 2010, our working capital increased to $22.2 million from
$19.3 million at December 31, 2009 primarily due to net proceeds from an equity offering that was
completed in
21
May 2010 partially offset by the paydown of debt facilities along with the impact of
certain technology and development costs incurred during 2010 that were prepaid by certain clients in 2009. To
obtain additional financing in the future, in addition to our current cash position, we plan to
evaluate various financing alternatives including the sale of equity, utilizing capital or
operating leases, borrowing under our credit facilities, expanding our current credit facilities,
entering into new debt agreements or transferring to third parties a portion of our subordinated
loan balance due from Supplies Distributors. In conjunction with certain of these alternatives, we
may be required to provide certain letters of credit to secure these arrangements. We currently
believe our cash position, financing available under our credit facilities and funds generated from
operations (including cost reductions related to the nonrenewal or termination of one or more
service fee contracts) will satisfy our presently known operating cash needs, our working capital
and capital expenditure requirements, our current debt and lease obligations, and additional loans
to our subsidiaries Supplies Distributors and eCOST, if necessary, for at least the next twelve
months.
During the past two years, the credit markets and the financial services industry have been
experiencing a period of unprecedented turmoil and upheaval characterized by the bankruptcy,
failure, collapse or sale of various financial institutions and an unprecedented level of
intervention from the United States and foreign governments. While the ultimate outcome of these
events cannot be predicted, they may have a material adverse effect on our liquidity, financial
condition, results of operations and our ability to renew our credit facilities.
In support of certain debt instruments and leases, as of June 30, 2010, we had $1.4 million of
cash restricted for repayment to lenders. In addition, as described above, we have provided
collateralized guarantees to secure the repayment of certain of our subsidiaries credit
facilities. Many of these facilities include both financial and non-financial covenants, and also
include cross default provisions applicable to other credit facilities and agreements. These
covenants include minimum levels of net worth for the individual borrower subsidiaries and
restrictions on the ability of the borrower subsidiaries to advance funds to other borrower
subsidiaries. As a result, it is possible for one or more of these borrower subsidiaries to fail
to meet their respective covenants even if another borrower subsidiary otherwise has available
excess funds, which, if not restricted, could be used to cure the default. To the extent we fail
to comply with our debt covenants, including the monthly financial covenant requirements and our
required level of shareholders equity, and the lenders accelerate the repayment of the credit
facility obligations, we would be required to repay all amounts outstanding thereunder. In
particular, in the event eCOST is unable to increase its revenue and/or gross profit from its
present levels, or if PFS service fee revenue declines from expected levels and it is unable to
reduce costs to correspond to such reduced revenue levels or if Supplies Distributors revenue or
gross profit declines from expected levels, such events may result in a breach of one or more of
the financial covenants required under its working capital lines of credit. In such event, absent
a waiver, the working capital lender would be entitled to accelerate all amounts outstanding
thereunder and exercise all other rights and remedies, including sale of collateral and payment
under our parent guaranty. A requirement to accelerate the repayment of the credit facility
obligations would have a material adverse impact on our financial condition and results of
operations. We can provide no assurance that we will have the financial ability to repay all of
such obligations. As of June 30, 2010, we were in compliance with all debt covenants. Further, any
non-renewal of any of our credit facilities would have a material adverse impact on our business
and financial condition. We do not have any other material financial commitments, although future
client contracts may require capital expenditures and lease commitments to support the services
provided to such clients.
In the future, we may attempt to acquire other businesses or seek an equity or strategic
partner to generate capital or expand our services or capabilities in connection with our efforts
to grow our business. Acquisitions involve certain risks and uncertainties and may require
additional financing. Therefore, we can give no assurance with respect to whether we will be
successful in identifying businesses to acquire or an equity or strategic partner, whether we or
they will be able to obtain financing to complete a transaction, or whether we or they will be
successful in operating the acquired business.
To finance their distribution of IPS products, Supplies Distributors and its subsidiaries have
short-term credit facilities with IBM Credit LLC (IBM Credit) and IBM Belgium Financial Services
S.A. (IBM Belgium). We have provided a collateralized guaranty to secure the repayment of these
credit facilities. These asset-based credit facilities provided financing for up to $30.5 million
and up to 16 million euros (approximately $19.6 million as of June 30, 2010) with IBM Credit and
IBM Belgium, respectively. These agreements expire in April 2011.
22
Supplies Distributors also has a loan and security agreement with Wachovia Bank, N.A.
(Wachovia) to provide financing for up to $25 million of eligible accounts receivables in the
United States and Canada. The Wachovia facility expires on the earlier of March 2011 or the date on
which the parties to the IPS master distributor agreement no longer operate under the terms of such
agreement and/or IPS no longer supplies products pursuant to such agreement.
Supplies Distributors European subsidiary has a factoring agreement with Fortis Commercial
Finance N.V. (Fortis) to provide factoring for up to 7.5 million euros (approximately $9.2
million as of June 30, 2010) of eligible accounts receivables through March 2011.
These credit facilities contain cross default provisions, various restrictions upon the
ability of Supplies Distributors and its subsidiaries to, among other things, merge, consolidate,
sell assets, incur indebtedness, make loans, investments and payments to related parties (including
entities directly or indirectly owned by PFSweb, Inc.), provide guarantees, make investments and
loans, pledge assets, make changes to capital stock ownership structure and pay dividends, as well
as financial covenants, such as cash flow from operations, annualized revenue to working capital,
net profit after tax to revenue, minimum net worth and total liabilities to tangible net worth, as
defined, and are secured by all of the assets of Supplies Distributors, as well as a collateralized
guaranty of PFSweb. Additionally, we are required to maintain a subordinated loan to Supplies
Distributors of no less than $4.3 million, maintain restricted cash of not more than $5.0 million,
are restricted with regard to transactions with related parties, indebtedness and changes to
capital stock ownership structure and a minimum shareholders equity of at least $18.0 million.
Furthermore, we are obligated to repay any over-advance made to Supplies Distributors or its
subsidiaries under these facilities if they are unable to do so. We have also provided a guarantee
of the obligations of Supplies Distributors and its subsidiaries to IBM and IPS, excluding the
trade payables that are financed by IBM credit.
Our subsidiary, Priority Fulfillment Services, Inc. (PFS), has a Loan and Security Agreement
(Agreement) with Comerica Bank (Comerica), which provides for up to $10 million of eligible
accounts receivable financing through March 2011. We entered this Agreement to supplement our
existing cash position, and provide funding for our current and future operations, including our
targeted growth. The Agreement contains cross default provisions, various restrictions upon our
ability to, among other things, merge, consolidate, sell assets, incur indebtedness, make loans and
payments to subsidiaries, affiliates and related parties (including entities directly or indirectly
owned by PFSweb, Inc.), make capital expenditures, make investments and loans, pledge assets, make
changes to capital stock ownership structure, as well as financial covenants of a minimum tangible
net worth of $20 million, as defined, a minimum earnings before interest and taxes, plus
depreciation, amortization and non-cash compensation accruals, if any, as defined, and a minimum
liquidity ratio, as defined. The agreement also limits PFS ability to increase the subordinated
loan to Supplies Distributors to more than $5.5 million and permits PFS to advance incremental
amounts subject to certain cash inflows to PFS, as defined, to certain of its subsidiaries and/or
affiliates, including eCOST. The Agreement is secured by all of the assets of PFS, as well as a
guarantee of PFSweb.
In May 2010, we completed a public offering of our common stock pursuant to which we issued
and sold an aggregate of 2.3 million shares of our common stock, par value $.001 per share, at
$3.50 per share, resulting in net proceeds after deducting offering expenses of approximately $7.3
million. We have advanced a portion of the net proceeds to eCOST to support their operating
requirements.
eCOST currently has an asset-based line of credit facility of up to $7.5 million with
Wachovia, which is collateralized by substantially all of eCOSTs assets and expires in May 2011.
Borrowings under the facility are limited to a percentage of eligible accounts receivable and
letter of credit availability is limited to a percentage of accounts receivable and inventory. As
of June 30, 2010, eCOST had $0.9 million of letters of credit outstanding and $1.5 million of
available credit under this facility. The credit facility restricts eCOSTs ability to, among
other things, merge, consolidate, sell assets, incur indebtedness, make loans, investments and
payments to subsidiaries, affiliates and related parties, make investments and loans, pledge
assets, make changes to capital stock ownership structure, as well as a minimum tangible net worth
of $0 million, as defined. PFSweb has guaranteed all current and future obligations of eCOST under
this line of credit.
23
We financed certain capital expenditures through a Loan Agreement with the Mississippi
Business Finance Corporation (the MBFC) pursuant to which the MBFC issued MBFC Taxable Variable
Rate Demand Limited Obligation Revenue Bonds, Series 2004 (Priority Fulfillment Services, Inc.
Project) (the Bonds). The MBFC loaned PFS the proceeds of the Bonds for the purpose of financing
the acquisition and installation of equipment, machinery and related assets to support incremental
business from a Southaven, Mississippi distribution facility. The primary source of repayment of
the Bonds is a letter of credit (the Letter of Credit) issued by Comerica pursuant to a
Reimbursement Agreement between us and Comerica under which PFS is obligated to pay to Comerica all
amounts drawn under the Letter of Credit. The Letter of Credit has a maturity date of April 2011
at which time, if not renewed or replaced, will result in a draw on the undrawn face amount
thereof. The amount outstanding on this Loan Agreement as of June 30, 2010 was $1.6 million. PFS
obligations under the Reimbursement Agreement are secured by substantially all of its assets,
including restricted cash of $0.8 million and a Company parent guarantee.
eCOST has historically incurred significant operating losses and used cash to fund its
operations. As a result, we have been required to invest cash to fund eCOSTs operations and we
expect that further investments will be required. The amount of further cash needed to support
eCOST operations depends upon the financing available under its credit line as well as eCOSTs
ability to improve its financial results. As a result of our May 2010 secondary stock offering, as
of June 30, 2010, we have approximately $6.8 million available to be advanced to eCOST and/or other
affiliates, if needed. In the event we need to advance additional cash to eCOST and/or other
affiliates, we may be required to seek approval from our lenders to provide such funds. We can
provide no assurance that we will receive such approval from our lenders or any terms or conditions
required by our lenders in order to obtain such approval. In addition, PFSweb has provided a
guaranty of eCOSTs bank line of credit and certain eCOST vendor trade payables.
We receive municipal tax abatements in certain locations. During 2004 we received notice from
a municipality that we did not satisfy certain criteria necessary to maintain the abatements. In
December 2006, we received notice that the municipal authority planned to make an adjustment to our
tax abatement. We disputed the adjustment and such dispute has been settled with the municipality.
However, the amount of additional property taxes to be assessed against us and the timing of the
related payments has not been finalized. As of June 30, 2010, we believe we have adequately
accrued for the expected assessment.
In April 2010, a sales employee of eCOST was charged with violating various federal criminal
statutes in connection with the sales of eCOST products to certain customers, and approximately
$620,000 held in an eCOST deposit account was seized and turned over to the Office of the U.S.
Attorney in connection with such activity. Shortly thereafter, the Company received a subpoena from
the Office of the U.S. Attorney requesting information regarding the employee and other matters,
and the Company provided such information and is fully cooperating with the Office of the U.S.
Attorney. The Company has commenced its own investigation into the actions of the employee.
Neither the Company nor eCOST have been charged with any criminal activity, and eCOST intends to
seek the recovery or reimbursement of the funds which are currently classified as other receivables
on the June 30, 2010 financial statements. Based on the information available to date, eCOST is
unable to determine the amount of the loss, if any, relating to the seizure of such funds. No
assurance can be given, however, that the seizure of such funds, or the inability of eCOST to
recover such funds or any significant portion thereof, or any costs and expenses incurred by the
Company in connection with such matter will not have a material adverse effect upon the Companys
financial condition or results of operations.
Seasonality
The seasonality of our service fee business is dependent upon the seasonality of our clients
business and sales of their products. Accordingly, our management must rely upon the projections of
our clients in assessing quarterly variability. We believe with our current client mix and their
current business volumes, our run rate service fee business activity will be at its lowest in the
quarter ended March 31 and highest in the quarter ended December 31. We anticipate our Supplies
Distributors product revenue will be highest during the quarter ended December 31. Our eCOST
business is moderately seasonal, reflecting the general pattern of peak sales for the retail
industry during the holiday shopping season. Typically, a larger portion
24
of our eCOST revenues
occur during the fourth fiscal quarter. We believe our historical revenue growth makes it
difficult to predict the effect of seasonality on our future revenues and results of operations.
We believe that results of operations for a quarterly period may not be indicative of the
results for any other quarter or for the full year.
Inflation
Management believes that inflation has not had a material effect on our operations.
Critical Accounting Policies
A description of our critical accounting policies, including goodwill and long-lived assets,
is included in Note 2 of the consolidated financial statements in our December 31, 2009 Annual
Report on Form 10-K.
25
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
Not required.
ITEM 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain a system of controls and procedures designed to provide reasonable assurance as to
the reliability of the financial statements and other disclosures included in this report, as well
as to safeguard assets from unauthorized use or disposition. We evaluated the effectiveness of the
design and operation of our disclosure controls and procedures under the supervision and with the
participation of management, including our Chief Executive Officer and Principal Financial and
Accounting Officer. Based upon the evaluation, our Chief Executive Officer and Principal Financial
and Accounting Officer concluded that our disclosure controls and procedures are effective in
timely alerting them to material information required to be included in our periodic Securities and
Exchange Commission filings. No significant changes were made to our internal controls or other
factors that could significantly affect these controls subsequent to the date of their evaluation.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal controls over financial reporting (as defined in
Rule 13(a)-15(f) or Rule 15-d-15(f) of the Exchange Act) during the six months ended June 30, 2010
that have materially affected, or are reasonable likely to materially affect, our internal controls
over financial reporting.
26
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 1A. Risk Factors
In addition to the risk factors set forth in Part I, Item 1A of the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 2009 filed with the Securities and Exchange
Commission on March 31, 2010, and the risk factors set forth in Part I, Item 1A of the Companys
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2010 filed with the Securities
and Exchange Commission on May 17, 2010, our business, financial condition and operating results
could be adversely affected by any or all of the following factors.
Risks Related to All Our Business Segments
Our business and future growth depend on our continued access to bank and commercial financing.
The current economic crisis may negatively impact our business, results of operations, financial
condition or liquidity.
During the past two years, the credit markets and the financial services industry have been
experiencing a period of unprecedented turmoil and upheaval characterized by the bankruptcy,
failure, collapse or sale of various financial institutions and an unprecedented level of
intervention from the United States and foreign governments. An uncertain or recessed economy could
also adversely impact our customers operations or ability to maintain liquidity which may
negatively impact our business and results of operations.
Our business and future growth currently depend on our ability to access bank and commercial
lines of credit. We currently depend on an aggregate of approximately $105 million in line of
credit facilities provided by various banks and commercial lenders. These lines of credit currently
mature at various dates through May 2011 and are secured by substantially all our assets. Our
ability to renew our lines of credit facilities depends upon various factors, including the
availability of bank loans and commercial credit in general, as well as our financial condition and
prospects. Therefore, we cannot guarantee that these credit facilities will continue to be
available beyond their current maturities on reasonable terms or at all. Our inability to renew or
replace our credit facilities or find alternative financing would materially adversely affect our
business, financial condition, operating results and cash flow.
We operate with significant levels of indebtedness and are required to comply with certain
financial and non-financial covenants; we are required to maintain a minimum level of subordinated
loans to our subsidiary Supplies Distributors; and we have guaranteed certain indebtedness and
obligations of our subsidiaries Supplies Distributors and eCOST.
As of June 30, 2010, our total credit facilities outstanding, including debt, capital lease
obligations and our vendor accounts payable related to financing of IPS product inventory, was
approximately $51.1 million. We cannot provide assurance that our credit facilities will be renewed
by the lending parties. Additionally, these credit facilities include both financial and
non-financial covenants, many of which also include cross default provisions applicable to other
agreements. These covenants also restrict our ability to transfer funds among our various
subsidiaries, which may adversely affect the ability of our subsidiaries to operate their
businesses or comply with their respective loan covenants. We cannot provide assurance that we will
be able to maintain compliance with these covenants. Any non-renewal or any default under any of
our credit facilities would have a material adverse impact upon our business and financial
condition. In addition we have provided $4.3 million of subordinated indebtedness to Supplies
Distributors as of June 30, 2010. The maximum level of this subordinated indebtedness to Supplies
Distributors that may be provided without approval from our lenders is $5.5 million. The
restrictions on increasing this amount without lender approval may limit our ability to comply with
certain loan covenants or further grow and develop Supplies Distributors business. We have
guaranteed most of the indebtedness of Supplies Distributors. Furthermore, we are obligated to
repay any over-advance made to Supplies Distributors by its lenders to the extent Supplies
Distributors is unable to do so. We have also guaranteed eCOSTs $7.5
27
million credit line, as well as certain of its vendor trade payables. We currently expect that it may be necessary to
provide additional guarantees of certain eCOST vendor trade payables in the future.
Risks Related to Our PFS and Supplies Distributors Operating Segments
Our business is subject to the risk of customer and supplier concentration.
For the six months ended June 30, 2010 and 2009, a technology company and a U.S. government
agency represented the source of approximately 13% and 0%, respectively, and approximately 15% and
13%, respectively, of our total service fee revenue, excluding pass-through revenue. Our activity
under our contract with the U.S. government agency concluded in the second quarter of 2009. PFS
currently operates three distinct geographical contract arrangements with the technology company
which are aggregated in the service fee revenue percentages above. The technology company has
notified PFS that it is not renewing substantially all of its contracts with PFS which expire in
2010. The non-renewal of these contracts has had, and may continue to have, a material adverse
effect upon our business.
A substantial portion of our Supplies Distributors product revenue is generated by sales of
product purchased under master distributor agreements with IPS. These agreements are terminable at
will and no assurance can be given that IPS will continue the master distributor agreements with
Supplies Distributors. Supplies Distributors does not have its own sales force and relies upon IPS
sales force and product demand generation activities for its sale of IPS product. Discontinuance
of such activities would have a material adverse effect on Supplies Distributors business and our
overall financial condition.
Sales by Supplies Distributors to three customers accounted for, in the aggregate,
approximately 40% of Supplies Distributors total product revenue for both the six months ended
June 30, 2010 and 2009 (21% of our consolidated net revenues in both six month periods). The loss
of any one or all of such customers, or non-payment of any material amount by these or any other
customer, are likely to have a material adverse effect upon Supplies Distributors business.
Risks Related to eCOST, our Online Discount Retailer Segment
Our business is subject to the risk of supplier concentration.
Our business is dependent on sales of Hewlett Packard (HP) and HP-related products, which
represented approximately 56% of eCOSTs net revenues (12% of our consolidated net revenues) in the
six months ended June 30, 2010 and 42% of eCOSTs net revenues (10% of our consolidated net
revenues) in the comparable period of 2009. If our ability to purchase direct from HP is
terminated or restricted, or if the demand for HP and HP-related products declines, our business
will be materially adversely affected.
Risks Related to Our Stock
Our stock price could decline if a significant number of shares become available for sale.
As of June 30, 2010, we have an aggregate of 2.4 million stock options outstanding to
employees, directors and others with a weighted average exercise price of $4.55 per share. The
shares of common stock that may be issued upon exercise of these options may be resold into the
public market. Sales of substantial amounts of common stock in the public market as a result of the
exercise of these options, or the perception that future sales of these shares could occur, could
reduce the market price of our common stock and make it more difficult to sell equity securities in
the future.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
ITEM 3. Defaults Upon Senior Securities
None
28
ITEM 4. [Removed and Reserved]
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibits:
|
|
|
Exhibit |
|
|
No. |
|
Description of Exhibits |
1.1 (6)
|
|
Form of Underwriting Agreement between the Company and
Craig-Hallum Capital Group LLC, as representative of the
underwriters indentified in Schedule I thereto. |
|
|
|
3.1(1)
|
|
Amended and Restated Certificate of Incorporation of PFSweb, Inc. |
|
|
|
3.1.1(2)
|
|
Certificate of Amendment to Amended and Restated Certificate of
Incorporation of PFSweb, Inc. |
|
|
|
3.1.2(4)
|
|
Certificate of Amendment to Certificate of Incorporation of
PFSweb, Inc. |
|
|
|
3.1.3(5)
|
|
Certificate of Amendment to Amended and Restated Certificate of
Incorporation of PFSweb, Inc. |
|
|
|
3.2(1)
|
|
Amended and Restated By-Laws |
|
|
|
3.2.1(3)
|
|
Amendment to the Amended and Restated By-Laws of PFSweb, Inc. |
|
|
|
4.1 (6)
|
|
Amendment No. 2 to Rights Agreement, dated as of May 24, 2010
between the Company and Mellon Investor Services LLC, as
successor to ChaseMellon Shareholder Services, L.L.C., as rights
agent. |
|
|
|
31.1*
|
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 |
|
|
|
31.2*
|
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 |
|
|
|
32.1*
|
|
Certifications of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
(1) |
|
Incorporated by reference from PFSweb, Inc. Registration Statement on Form S-1 (Commission
File No. 333-87657). |
|
(2) |
|
Incorporated by reference from PFSweb, Inc. Form 10-K for the fiscal year ended December, 31,
2005 filed on March 31, 2006. |
|
(3) |
|
Incorporated by reference from PFSweb, Inc. Report on Form 8-K filed on November 13, 2007. |
|
(4) |
|
Incorporated by reference from PFSweb, Inc. Report on Form 8-K filed on June 2, 2008. |
|
(5) |
|
Incorporated by reference from PFSweb, Inc. Form 10-Q filed on August 14, 2009. |
|
(6) |
|
Incorporated by reference from PFSweb, Inc. Report on Form 8-K filed on May 25, 2010. |
|
* |
|
Filed Herewith |
29
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 thereunto duly authorized.
Date: August 16, 2010
|
|
|
|
|
|
PFSweb, Inc.
|
|
|
By: |
/s/ Thomas J. Madden
|
|
|
|
Thomas J. Madden |
|
|
|
Chief Financial Officer,
Chief Accounting Officer,
Executive Vice President |
|
30
exv31w1
EXHIBIT 31.1
CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
I, Mark Layton, certify that:
1. I have reviewed this quarterly report on Form 10-Q of PFSweb, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a) |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared; |
b) |
|
Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles; |
c) |
|
Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; |
d) |
|
Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and |
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent function):
a) |
|
All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize, and report financial information; and |
b) |
|
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting. |
Date: August 16, 2010
|
|
|
|
|
By:
|
|
/s/ Mark C. Layton
Chief Executive Officer
|
|
|
exv31w2
EXHIBIT 31.2
CERTIFICATIONS OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
I, Tom Madden, certify that:
1. I have reviewed this quarterly report on Form 10-Q of PFSweb, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a) |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared; |
b) |
|
Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles; |
c) |
|
Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; |
d) |
|
Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and |
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent function):
a) |
|
All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize, and report financial information; and |
b) |
|
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting. |
Date: August 16, 2010
|
|
|
|
|
By:
|
|
/s/ Thomas J. Madden
Chief Financial Officer
|
|
|
exv32w1
EXHIBIT 32.1
CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section
1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of PFSweb, Inc.
(the Company), does hereby certify that:
The Quarterly Report on Form 10-Q for the period ended June 30, 2010 (the Form 10-Q) of the
Company fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the
Securities Exchange Act of 1934 and the information contained in the Form 10-Q fairly presents, in
all material respects, the financial condition and results of operations of the Company as of, and
for, the periods presented in the Form 10-Q.
|
|
|
|
|
|
|
|
August 16, 2010 |
/s/ Mark C. Layton
|
|
|
Mark C. Layton |
|
|
Chief Executive Officer |
|
|
|
|
|
August 16, 2010 |
/s/ Thomas J. Madden
|
|
|
Thomas J. Madden |
|
|
Chief Financial Officer |
|
|
The foregoing certification is being furnished as an exhibit to the Form 10-Q pursuant to Item
601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and
(b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being
filed as part of the Form 10-Q for purposes of Section 18 of the Securities Exchange Act of 1934,
as whether made before or after the date hereof, regardless of any general incorporation language
in such filing.
A signed original of this written statement required by Section 906 has been provided to PFSweb,
Inc. and will be retained by PFSweb, Inc. and furnished to the Securities and Exchange Commission
or its staff upon request.