SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): November 15, 2010

PFSweb, Inc.

(Exact name of registrant as specified in its charter)

Delaware (STATE OR OTHER JURISDICTION OF INCORPORATION)		000-28275 (COMMISSION FILE NUMBER)		75-2837058 (IRS EMPLOYER IDENTIFICATION NO.)

500 NORTH CENTRAL EXPRESSWAY
PLANO, TX 75074
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

(972) 881-2900
(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE )

N/A
(FORMER NAME OR ADDRESS, IF CHANGED SINCE LAST REPORT)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o		Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

INFORMATION TO BE INCLUDED IN THE REPORT

ITEM 2.02.		Results of Operations and Financial Condition

     On November 15, 2010, PFSweb, Inc. issued a press release announcing its financial results for the quarter ended September 30, 2010. Attached to this current report on Form 8-K is a copy of the related press release dated November 15, 2010. The information in this Report on Form 8-K, and the exhibit hereto, shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section.

Exhibit No.				Description
	99.1			Press Release Issued November 15, 2010

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Exhibit 99.1

FOR IMMEDIATE RELEASE

Contact:
Mark C. Layton		Todd Fromer / Garth Russell
Chief Executive Officer		Investor Relations
or Thomas J. Madden		KCSA Strategic Communications
Chief Financial Officer		(212) 896-1215 / (212) 896-1250
(972) 881-2900		tfromer@kcsa.com / grussell@kcsa.com

PFSweb Reports Third Quarter 2010 Results

- - -

Third Quarter Service Fee Revenue Increases 25% Year-over-year

- - -

PLANO, Texas, November 15, 2010 — PFSweb, Inc. (Nasdaq: PFSW), an international business process outsourcing services provider of end-to-end web commerce solutions and an online discount retailer, today announced its financial results for the third quarter and nine months ended September 30, 2010.

Mark Layton, Chairman and Chief Executive Officer of PFSweb, stated, “We continue to be very encouraged by the exciting developments within our Service Fee business segment. Organic growth from our existing business to consumer clients, recent new client additions as well as a strong pipeline of potential new business opportunities are all key indicators of the momentum that our End2End eCommerce solution is building in the growing direct to consumer marketplace. This momentum resulted in a 25% increase in revenue and $1.1 million increase in Adjusted EBITDA for our Service Fee business segment during the third quarter, as compared to the prior year. This growth was offset by tempered results in our eCOST.com and Supplies Distributors segments. As discussed below, we have moved aggressively to address the eCOST.com business issue and continue to evaluate ways to improve this segment and reduce its negative impact on our overall business.”

Summary of consolidated results for the quarter ended September 30, 2010:

	•		Total revenue decreased to $80.0 million for the third quarter of 2010 compared to $85.6 million for third quarter of 2009;
	•		Total gross margin was 10.7% for the third quarter of 2010 compared to 11.2% for the same period last year;
	•		Adjusted EBITDA (as defined) was $0.9 million versus $1.2 million for the third quarter of 2009;
	•		Net loss was $1.9 million, or $0.16 per basic and diluted share, compared to net loss of $0.8 million or $0.09 per basic and diluted share, for the third quarter of 2009. Net loss for the third quarter of 2010 included a $0.6 million charge applicable to an executive’s disabilities benefits;
	•		Non-GAAP net loss (as defined) was $1.0 million, or $0.08 per basic and diluted share, compared to non-GAAP net loss of $0.7 million or $0.07 per basic and diluted share, for the third quarter of 2009;

•

Total cash, cash equivalents and restricted cash was $20.4 million as of September 30, 2010 compared to $16.9 million as of December 31, 2009.

Summary of consolidated results for the nine months ended September 30, 2010:

	•		Total reported revenue was $250.7 million compared to $256.9 million for the nine months ended September 30, 2009;
	•		Total gross margin was 10.8% compared to 11.3% for the same period last year;
	•		Adjusted EBITDA was $2.8 million compared to $3.1 million for the nine months ended September 30, 2009.
	•		Net loss was $4.6 million, or $0.42 per basic and diluted share, compared to net loss of $3.6 million, or $0.36 per basic and diluted share, for the nine month period ended September 30, 2009;
	•		Non-GAAP net loss was $3.0 million, or $0.27 per basic and diluted share, compared to non-GAAP net loss of $3.2 million, or $0.33 per basic and diluted share, for the same period last year.

Summary of results by business segment:

Service Fee Business:

For the third quarter of 2010, Service Fee revenue was $16.4 million, compared with $13.1 million for the same period in 2009. The Service Fee business reported Adjusted EBITDA of $0.3 million for the third quarter of 2010, compared to an Adjusted EBITDA loss of $0.8 million for the same period last year.

For the nine months ended September 30, 2010, Service Fee revenue was $48.9 million, compared with $42.6 million for the same period in 2009. Adjusted EBITDA for the Service Fee business was $1.0 million for the nine month period of 2010, compared to an Adjusted EBITDA loss of $0.5 million for the nine month period in 2009.

Mike Willoughby, President of PFSweb’s Services division, commented, “During the past three months, we launched a number of new client programs, including Volcom as well as our support of several eCommerce sites under our previously announced master agreement with a well-known fashion brands company geared mostly towards women and our previously announced relationship with a leading beauty and fragrance company. With our existing client base and potential new business pipeline, consisting primarily of major consumer brands, we believe we are well positioned to capture further growth in the rapidly expanding eCommerce industry, particularly in the fashion, apparel and accessories, beauty and fragrance and consumer packaged goods segments.”

Supplies Distributors Business:

For the third quarter of 2010, Supplies Distributors revenue was $39.1 million, compared to $45.1 million for the same period last year. Adjusted EBITDA was $1.0 million for the third quarter of 2010, compared to $2.2 million for the same period last year.

For the nine months ended September 30, 2010, Supplies Distributors revenue was $128.1 million, compared to $135.7 million for the same period last year. Adjusted EBITDA was $2.9 million for the nine month period in 2010, compared to $4.6 million for the nine month period in 2009.

“Our Supplies Distributors business experienced a reduction in business volume this past quarter partially due to temporary inventory supply shortages related to our largest supplier in this segment transitioning to a new ERP system. This migration is now generally completed and supply inflows have returned to more normalized levels, and, as such, we currently expect that overall business trends should improve during the December 2010 quarter,” Mr. Layton stated.

eCOST.com Business:

For the third quarter of 2010, eCOST.com revenue was $16.6 million, compared to $20.6 million for the same period in 2009. Adjusted EBITDA for eCOST.com was a loss of $0.5 million for the third quarter of 2010, compared to a loss of $0.2 million for the third quarter of 2009.

For the nine months ended September 30, 2010, eCOST.com revenue was $52.9 million, compared to $61.8 million for the same period in 2009. Adjusted EBITDA for eCOST.com in the nine month period ended September 30, 2010 was a loss of $1.1 million, as compared to a loss of $0.9 million for the same period last year.

“During the third quarter, we spent considerable time enhancing eCOST.com’s sales and marketing program to increase its effectiveness against the ever evolving email filtering algorithms being deployed by several internet/email service providers (ISP’s). While this issue negatively impacted our revenue during the quarter, I am pleased to say that by the end of the third quarter we were experiencing higher success rates when advertising to this portion of our customers than we had in the summer of 2010. We expect these efforts to be ongoing as the email filtering algorithms will continue to adjust,” stated Mr. Layton.

“This holiday season, eCOST.com will offer online shoppers the hottest computer and electronics deals in the industry through its patented Bargain Countdown showcase, including thousands of limited quantity, limited time offers. We expect HDTVs, netbooks, gaming products (like Kinect), HD cameras and camcorders to lead the way this holiday season in terms of the hot products that consumers are seeking. We are also excited about the exclusive free shipping offers in our weekly Secret Sale campaign and the very popular Make-an-Offer shopping format that has become a success over the past few months,” Layton concluded.

Conference Call Information

Management will host a conference call at 10:00 am Central Time (11:00 am Eastern Time) on Monday, November 15, 2010, to discuss the latest corporate developments and results. To listen to the call, please dial (888) 562-3356 and enter the pin number (22026323) at least five minutes before the scheduled start time. Investors can also access the call in a “listen only” mode via the Internet at the Company’s website, www.pfsweb.com. Please allow extra time prior to the call to visit the site and download any necessary audio software.

A digital replay of the conference call will be available through December 15, 2010 at (800) 642-1687, pin number (22026323). The replay also will be available at the Company’s website for a limited time.

Non-GAAP Financial Measures

This news release may contain certain non-GAAP measures, including non-GAAP net income (loss), Earnings Before Interest, Income Taxes, Depreciation and Amortization (“EBITDA”) and Adjusted EBITDA.

Non-GAAP net income (loss) represents net income (loss) calculated in accordance with U.S. GAAP as adjusted for the impact of non-cash stock-based compensation expense, amortization of identifiable intangible assets, the impairment of goodwill and identifiable intangible assets, if any, executive disability benefits and vendor settlement and other legal matter costs.

EBITDA represents earnings (or losses) before interest, income taxes, depreciation, and amortization. Adjusted EBITDA further eliminates the effect of stock-based compensation, impairment of goodwill and identifiable intangible assets, if any, executive disability benefits and vendor settlement and other legal matter costs.

Non-GAAP net income (loss), EBITDA and Adjusted EBITDA are used by management, analysts, investors and other interested parties in evaluating our operating performance compared to that of other companies in our industry. The calculation of non-GAAP net income (loss) eliminates the effect of stock-based compensation, amortization of intangible assets, impairment of goodwill and intangible assets, if any, executive disability benefits and vendor settlement and other legal matter costs and EBITDA and Adjusted EBITDA further eliminate the effect of financing, income taxes, and the accounting effects of capital spending, which items may vary from different companies for reasons unrelated to overall operating performance.

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

About PFSweb, Inc.

PFSweb develops and deploys comprehensive end-to-end eCommerce solutions for Fortune 1000, Global 2000 and brand name companies, including interactive marketing services, global fulfillment and logistics and high-touch customer care. The company serves a multitude of industries and company types, including such clients as P&G, LEGO, Carter’s, AAFES, Riverbed, InfoPrint Solutions Company, Hawker Beechcraft Corp., Roots Canada Ltd. and Xerox.

Through its wholly owned eCOST.com subsidiary, PFSweb also serves as a leading multi-category online discount retailer of high-quality new, “close-out” and manufacturer recertified brand-name merchandise for consumers and small to medium size business buyers. The eCOST.com brand markets approximately 290,000 different products from leading manufacturers such as Sony, Hewlett-Packard, Denon, JVC, Canon, Nikon, Panasonic, Toshiba, Microsoft, Garmin, Braun, Sharp, Cuisinart, Bissell and Hoover primarily over the Internet and through direct marketing.

To find out more about PFSweb, Inc. (NASDAQ: PFSW), visit the company’s websites at http://www.pfsweb.com and http://www.ecost.com.

The matters discussed herein consist of forward-looking information under the Private Securities Litigation Reform Act of 1995 and is subject to and involves risks and uncertainties, which could cause actual results to differ materially from the

forward-looking information. PFSweb’s Annual Report on Form 10-K for the year ended December 31, 2009 and Quarterly Report on Form 10-Q for the six months ended June 30, 2010 identify certain factors that could cause actual results to differ materially from those projected in any forward looking statements made and investors are advised to review the Annual and Quarterly Reports and the Risk Factors described therein. PFSweb undertakes no obligation to update publicly any forward-looking statement for any reason, even if new information becomes available or other events occur in the future. There may be additional risks that we do not currently view as material or that are not presently known.

(Tables Follow)

PFSweb, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations (A)
(In Thousands, Except Per Share Data)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
REVENUES:
Product revenue, net		$	55,724			$	65,713			$	181,082			$	197,522
Service fee revenue			16,402				13,118				48,948				42,604
Pass-thru revenue			7,842				6,776				20,662				16,748
Total revenues			79,968				85,607				250,692				256,874
COSTS OF REVENUES:
Cost of product revenue			51,576				59,611				167,480				180,746
Cost of service fee revenue			11,981				9,674				35,422				30,406
Cost of pass-thru revenue			7,842				6,776				20,662				16,748
Total costs of revenues			71,399				76,061				223,564				227,900
Gross profit			8,569				9,546				27,128				28,974
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			10,159				9,998				30,719				31,362
Loss from operations			(1,590	)			(452	)			(3,591	)			(2,388	)
INTEREST EXPENSE, NET			254				288				753				967
Loss before income taxes			(1,844	)			(740	)			(4,344	)			(3,355	)
INCOME TAX EXPENSE (BENEFIT)			76				106				280				268
NET LOSS		$	(1,920	)		$	(846	)		$	(4,624	)		$	(3,623	)
NON-GAAP NET LOSS		$	(974	)		$	(723	)		$	(2,967	)		$	(3,235	)
NET LOSS PER SHARE:
Basic and Diluted		$	(0.16	)		$	(0.09	)		$	(0.42	)		$	(0.36	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic and Diluted			12,237				9,931				10,998				9,927
EBITDA		$	(59	)		$	1,088			$	1,235			$	2,803
ADJUSTED EBITDA		$	852			$	1,185			$	2,787			$	3,112

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
NET LOSS		$	(1,920	)		$	(846	)		$	(4,624	)		$	(3,623	)
Income tax expense (benefit)			76				106				280				268
Interest expense			254				288				753				967
Depreciation and amortization			1,531				1,540				4,826				5,191
EBITDA		$	(59	)		$	1,088			$	1,235			$	2,803
Stock-based compensation			225				97				583				309
Executive disability benefits			650				—				650				—
Vendor settlement and other legal matters			36				—				319				—
ADJUSTED EBITDA		$	852			$	1,185			$	2,787			$	3,112

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
NET LOSS		$	(1,920	)		$	(846	)		$	(4,624	)		$	(3,623	)
Stock-based compensation			225				97				583				309
Amortization of identifiable intangible assets			35				26				105				79
Executive disability benefits			650				—				650				—
Vendor settlement and other legal matters			36				—				319				—
NON-GAAP NET LOSS		$	(974	)		$	(723	)		$	(2,967	)		$	(3,235	)
NET LOSS PER SHARE:
Basic and Diluted		$	(0.16	)		$	(0.09	)		$	(0.42	)		$	(0.36	)
NON-GAAP NET LOSS Per Share:
Basic and Diluted		$	(0.08	)		$	(0.07	)		$	(0.27	)		$	(0.33	)

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

		September 30,				December 31,
		2010				2009
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	18,784			$	14,812
Restricted cash			1,656				2,096
Accounts receivable, net of allowance for doubtful accounts of $914 and
$973 at September 30, 2010 and December 31, 2009, respectively			33,947				39,861
Inventories, net of reserves of $1,812 and $2,016 at September 30, 2010 and
December 31, 2009, respectively			37,638				37,949
Other receivables			12,847				11,605
Prepaid expenses and other current assets			4,067				4,170
Total current assets			108,939				110,493
PROPERTY AND EQUIPMENT, net			9,300				10,314
IDENTIFIABLE INTANGIBLES			687				805
GOODWILL			3,602				3,602
OTHER ASSETS			1,962				2,555
Total assets			124,490				127,769
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease obligations		$	18,452			$	19,179
Trade accounts payable			47,778				53,642
Deferred revenue			5,313				5,164
Accrued expenses			16,165				13,180
Total current liabilities			87,708				91,165
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion			1,219				3,348
OTHER LIABILITIES			3,549				3,903
Total liabilities			92,476				98,416
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Preferred stock, $1.00 par value; 1,000,000 shares authorized; none issued and outstanding			—				—
Common stock, $.001 par value; 37,300,000 shares authorized; 12,255,064 and 9,952,164 shares issued at September 30, 2010 and December 31, 2009, respectively; and 12,236,703 and 9,933,803 outstanding as of September 30, 2010 and December 31, 2009, respectively			12				10
Additional paid-in capital			101,004				93,152
Accumulated deficit			(70,587	)			(65,963	)
Accumulated other comprehensive income			1,670				2,239
Treasury stock at cost, 18,361 shares			(85	)			(85	)
Total shareholders’ equity			32,014				29,353
Total liabilities and shareholders’ equity		$	124,490			$	127,769

PFSweb, Inc. and Subsidiaries
Unaudited Consolidating Statements of Operations
For the Three Months Ended September 30, 2010
(In Thousands)

						Supplies
		PFSweb				Distributors				eCOST				Eliminations				Consolidated
REVENUES:
Product revenue, net		$	—			$	39,092			$	16,632			$	—			$	55,724
Service fee revenue			16,402				—				—				—				16,402
Service fee revenue — affiliate			1,484				—				—				(1,484	)			—
Pass-thru revenue			7,843				—				—				(1	)			7,842
Total revenues			25,729				39,092				16,632				(1,485	)			79,968
COSTS OF REVENUES:
Cost of product revenue			—				36,233				15,343				—				51,576
Cost of service fee revenue			12,543				—				—				(562	)			11,981
Cost of pass-thru revenue			7,843				—				—				(1	)			7,842
Total costs of revenues			20,386				36,233				15,343				(563	)			71,399
Gross profit			5,343				2,859				1,289				(922	)			8,569
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			7,318				1,896				1,867				(922	)			10,159
Income (loss) from operations			(1,975	)			963				(578	)			—				(1,590	)
INTEREST EXPENSE (INCOME), NET			(63	)			313				4				—				254
Income (loss) before income taxes			(1,912	)			650				(582	)			—				(1,844	)
INCOME TAX PROVISION (BENEFIT)			(139	)			207				8				—				76
NET INCOME (LOSS)		$	(1,773	)		$	443			$	(590	)		$	—			$	(1,920	)
NON-GAAP NET INCOME (LOSS)		$	(898	)		$	443			$	(519	)		$	—			$	(974	)
EBITDA		$	(542	)		$	970			$	(487	)		$	—			$	(59	)
ADJUSTED EBITDA		$	333			$	970			$	(451	)		$	—			$	852
A reconciliation of NET INCOME (LOSS) to EBITDA and ADJUSTED EBITDA follows:
NET INCOME (LOSS)		$	(1,773	)		$	443			$	(590	)		$	—			$	(1,920	)
Income tax expense (benefit)			(139	)			207				8				—				76
Interest expense (income)			(63	)			313				4				—				254
Depreciation and amortization			1,433				7				91				—				1,531
EBITDA		$	(542	)		$	970			$	(487	)		$	—			$	(59	)
Stock-based compensation			225				—				—				—				225
Executive disability benefits			650				—				—				—				650
Vendor settlement and other legal matters			—				—				36				—				36
ADJUSTED EBITDA		$	333			$	970			$	(451	)		$	—			$	852
A reconciliation of NET INCOME (LOSS) to NON-GAAP NET INCOME (LOSS) follows:
NET INCOME (LOSS)		$	(1,773	)		$	443			$	(590	)		$	—			$	(1,920	)
Stock-based compensation			225				—				—				—				225
Amortization of intangible assets			—				—				35				—				35
Executive disability benefits			650				—				—				—				650
Vendor settlement and other legal matters			—				—				36				—				36
NON-GAAP NET INCOME (LOSS)		$	(898	)		$	443			$	(519	)		$	—			$	(974	)

PFSweb, Inc. and Subsidiaries
Unaudited Consolidating Statements of Operations
For the Nine Months Ended September 30, 2010
(In Thousands)

						Supplies
		PFSweb				Distributors				eCOST				Eliminations				Consolidated
REVENUES:
Product revenue, net		$	—			$	128,142			$	52,940			$	—			$	181,082
Service fee revenue			48,948				—				—				—				48,948
Service fee revenue — affiliate			4,921				—				—				(4,921	)			—
Pass-thru revenue			20,682				—				—				(20	)			20,662
Total revenues			74,551				128,142				52,940				(4,941	)			250,692
COSTS OF REVENUES:
Cost of product revenue			—				119,039				48,441				—				167,480
Cost of service fee revenue			37,215				—				—				(1,793	)			35,422
Cost of pass-thru revenue			20,682				—				—				(20	)			20,662
Total costs of revenues			57,897				119,039				48,441				(1,813	)			223,564
Gross profit			16,654				9,103				4,499				(3,128	)			27,128
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			21,388				6,260				6,199				(3,128	)			30,719
Income (loss) from operations			(4,734	)			2,843				(1,700	)			—				(3,591	)
INTEREST EXPENSE (INCOME), NET			(178	)			916				15				—				753
Income (loss) before income taxes			(4,556	)			1,927				(1,715	)			—				(4,344	)
INCOME TAX PROVISION (BENEFIT)			(421	)			659				42				—				280
NET INCOME (LOSS)		$	(4,135	)		$	1,268			$	(1,757	)		$	—			$	(4,624	)
NON-GAAP NET INCOME (LOSS)		$	(2,902	)		$	1,268			$	(1,333	)		$	—			$	(2,967	)
EBITDA		$	(214	)		$	2,864			$	(1,415	)		$	—			$	1,235
ADJUSTED EBITDA		$	1,019			$	2,864			$	(1,096	)		$	—			$	2,787
A reconciliation of NET INCOME (LOSS) to EBITDA and ADJUSTED EBITDA follows:
NET INCOME (LOSS)		$	(4,135	)		$	1,268			$	(1,757	)		$	—			$	(4,624	)
Income tax expense (benefit)			(421	)			659				42				—				280
Interest expense (income)			(178	)			916				15				—				753
Depreciation and amortization			4,520				21				285				—				4,826
EBITDA		$	(214	)		$	2,864			$	(1,415	)		$	—			$	1,235
Stock-based compensation			583				—				—				—				583
Executive disability benefits			650				—				—				—				650
Vendor settlement and other legal matters			—				—				319				—				319
ADJUSTED EBITDA		$	1,019			$	2,864			$	(1,096	)		$	—			$	2,787
A reconciliation of NET INCOME (LOSS) to NON-GAAP NET INCOME (LOSS) follows:
NET INCOME (LOSS)		$	(4,135	)		$	1,268			$	(1,757	)		$	—			$	(4,624	)
Stock-based compensation			583				—				—				—				583
Amortization of intangible assets			—				—				105				—				105
Executive disability benefits			650				—				—				—				650
Vendor settlement and other legal matters			—				—				319				—				319
NON-GAAP NET INCOME (LOSS)		$	(2,902	)		$	1,268			$	(1,333	)		$	—			$	(2,967	)

PFSweb, Inc. and Subsidiaries
Unaudited Condensed Consolidating Balance Sheets
as of September 30, 2010
(In Thousands)

						Supplies
		PFSweb				Distributors				eCOST				Eliminations				Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	16,014			$	2,622			$	148			$	—			$	18,784
Restricted cash			777				666				213				—				1,656
Accounts receivable, net			15,857				16,601				2,020				(531	)			33,947
Inventories, net			—				33,208				4,430				—				37,638
Other receivables			—				12,183				664				—				12,847
Prepaid expenses and other current assets			2,391				1,483				193				—				4,067
Total current assets			35,039				66,763				7,668				(531	)			108,939
PROPERTY AND EQUIPMENT, net			8,996				30				274				—				9,300
NOTES RECEIVABLE FROM AFFILIATES			21,945				—				—				(21,945	)			—
INVESTMENT IN AFFILIATES			(2,179	)			—				—				2,179				—
IDENTIFIABLE INTANGIBLES			344				—				343				—				687
GOODWILL			—				—				3,602				—				3,602
OTHER ASSETS			1,760				—				202				—				1,962
Total assets			65,905				66,793				12,089				(20,297	)			124,490
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease obligations		$	8,139			$	10,278			$	35			$	—			$	18,452
Trade accounts payable			4,575				37,876				5,858				(531	)			47,778
Deferred revenue			4,441				—				872				—				5,313
Accrued expenses			9,195				5,956				1,014				—				16,165
Total current liabilities			26,350				54,110				7,779				(531	)			87,708
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion			1,114				—				105				—				1,219
NOTES PAYABLE TO AFFILIATES			—				4,255				17,690				(21,945	)			—
OTHER LIABILITIES			3,549				—				—				—				3,549
Total liabilities			31,013				58,365				25,574				(22,476	)			92,476
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Common stock			12				—				19				(19	)			12
Capital contributions			—				1,000				—				(1,000	)			—
Additional paid-in capital			101,004				—				28,059				(28,059	)			101,004
Retained earnings (accumulated deficit)			(67,694	)			5,119				(41,563	)			33,551				(70,587	)
Accumulated other comprehensive income			1,655				2,309				—				(2,294	)			1,670
Treasury stock			(85	)			—				—				—				(85	)
Total shareholders’ equity			34,892				8,428				(13,485	)			2,179				32,014
Total liabilities and shareholders’ equity		$	65,905			$	66,793			$	12,089			$	(20,297	)		$	124,490

PFSweb, Inc. and Subsidiaries
Unaudited Consolidating Statements of Operations
For the Three Months Ended September 30, 2009
(In Thousands)

						Supplies
		PFSweb				Distributors				eCOST				Eliminations				Consolidated
REVENUES:
Product revenue, net		$	—			$	45,120			$	20,593			$	—			$	65,713
Service fee revenue			13,118				—				—				—				13,118
Service fee revenue — affiliate			1,598				—				—				(1,598	)			—
Pass-thru revenue			6,778				—				—				(2	)			6,776
Total revenues			21,494				45,120				20,593				(1,600	)			85,607
COSTS OF REVENUES:
Cost of product revenue			—				40,881				18,730				—				59,611
Cost of service fee revenue			10,295				—				—				(621	)			9,674
Cost of pass-thru revenue			6,778				—				—				(2	)			6,776
Total costs of revenues			17,073				40,881				18,730				(623	)			76,061
Gross profit			4,421				4,239				1,863				(977	)			9,546
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			6,797				2,076				2,102				(977	)			9,998
Income (loss) from operations			(2,376	)			2,163				(239	)			—				(452	)
INTEREST EXPENSE (INCOME), NET			(54	)			333				9				—				288
Income (loss) before income taxes			(2,322	)			1,830				(248	)			—				(740	)
INCOME TAX PROVISION (BENEFIT)			(508	)			605				9				—				106
NET INCOME (LOSS)		$	(1,814	)		$	1,225			$	(257	)		$	—			$	(846	)
NON-GAAP NET INCOME (LOSS)		$	(1,717	)		$	1,225			$	(231	)		$	—			$	(723	)
EBITDA		$	(931	)		$	2,171			$	(152	)		$	—			$	1,088
ADJUSTED EBITDA		$	(834	)		$	2,171			$	(152	)		$	—			$	1,185
A reconciliation of NET INCOME (LOSS) to EBITDA and ADJUSTED EBITDA follows:
NET INCOME (LOSS)		$	(1,814	)		$	1,225			$	(257	)		$	—			$	(846	)
Income tax expense (benefit)			(508	)			605				9				—				106
Interest expense (income)			(54	)			333				9				—				288
Depreciation and amortization			1,445				8				87				—				1,540
EBITDA		$	(931	)		$	2,171			$	(152	)		$	—			$	1,088
Stock-based compensation			97				—				—				—				97
ADJUSTED EBITDA		$	(834	)		$	2,171			$	(152	)		$	—			$	1,185
A reconciliation of NET INCOME (LOSS) to NON-GAAP NET INCOME (LOSS) follows:
NET INCOME (LOSS)		$	(1,814	)		$	1,225			$	(257	)		$	—			$	(846	)
Stock-based compensation			97				—				—				—				97
Amortization of intangible assets			—				—				26				—				26
NON-GAAP NET INCOME (LOSS)		$	(1,717	)		$	1,225			$	(231	)		$	—			$	(723	)

PFSweb, Inc. and Subsidiaries
Unaudited Consolidating Statements of Operations
For the Nine Months Ended September 30, 2009
(In Thousands)

						Supplies
		PFSweb				Distributors				eCOST				Eliminations				Consolidated
REVENUES:
Product revenue, net		$	—			$	135,720			$	61,802			$	—			$	197,522
Service fee revenue			42,604				—				—				—				42,604
Service fee revenue — affiliate			5,393				—				—				(5,393	)			—
Pass-thru revenue			16,815				—				—				(67	)			16,748
Total revenues			64,812				135,720				61,802				(5,460	)			256,874
COSTS OF REVENUES:
Cost of product revenue			—				124,816				55,930				—				180,746
Cost of service fee revenue			32,310				—				—				(1,904	)			30,406
Cost of pass-thru revenue			16,815				—				—				(67	)			16,748
Total costs of revenues			49,125				124,816				55,930				(1,971	)			227,900
Gross profit			15,687				10,904				5,872				(3,489	)			28,974
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			21,447				6,345				7,059				(3,489	)			31,362
Income (loss) from operations			(5,760	)			4,559				(1,187	)			—				(2,388	)
INTEREST EXPENSE (INCOME), NET			(135	)			1,087				15				—				967
Income (loss) before income taxes			(5,625	)			3,472				(1,202	)			—				(3,355	)
INCOME TAX PROVISION (BENEFIT)			(623	)			873				18				—				268
NET INCOME (LOSS)		$	(5,002	)		$	2,599			$	(1,220	)		$	—			$	(3,623	)
NON-GAAP NET INCOME (LOSS)		$	(4,693	)		$	2,599			$	(1,141	)		$	—			$	(3,235	)
EBITDA		$	(850	)		$	4,585			$	(932	)		$	—			$	2,803
ADJUSTED EBITDA		$	(541	)		$	4,585			$	(932	)		$	—			$	3,112
A reconciliation of NET INCOME (LOSS) to EBITDA and ADJUSTED EBITDA follows:
NET INCOME (LOSS)		$	(5,002	)		$	2,599			$	(1,220	)		$	—			$	(3,623	)
Income tax expense (benefit)			(623	)			873				18				—				268
Interest expense (income)			(135	)			1,087				15				—				967
Depreciation and amortization			4,910				26				255				—				5,191
EBITDA		$	(850	)		$	4,585			$	(932	)		$	—			$	2,803
Stock-based compensation			309				—				—				—				309
ADJUSTED EBITDA		$	(541	)		$	4,585			$	(932	)		$	—			$	3,112
A reconciliation of NET INCOME (LOSS) to NON-GAAP NET INCOME (LOSS) follows:
NET INCOME (LOSS)		$	(5,002	)		$	2,599			$	(1,220	)		$	—			$	(3,623	)
Stock-based compensation			309				—				—				—				309
Amortization of intangible assets			—				—				79				—				79
NON-GAAP NET INCOME (LOSS)		$	(4,693	)		$	2,599			$	(1,141	)		$	—			$	(3,235	)