PFSW Pfsweb Inc

PFSweb, Inc. (Nasdaq: PFSW), a global provider of business process outsourcing (�BPO�) solutions for both online and traditional commerce, today announced its financial results for the second quarter and six months ended June 30, 2007. Summary of consolidated results for the second quarter ended June 30, 2007: Total reported revenue was $108.4 million, compared to $109.3 million for the second quarter of 2006; -- eCOST.com revenue was $27.1 million, compared to $21.6 million in the first quarter of 2007 and $28.8 million for the same period in 2006; Adjusted EBITDA (as defined) was $3.4 million versus $3,000 for the same period last year; Net income was $154,000, or $0.00 per basic and diluted share, compared to a net loss of $3.2 million, or $0.07 per basic and diluted share, for the second quarter of 2006; Merchandise sales (as defined) totaled approximately $649 million for the second quarter of 2007 versus $662 million for the same period last year; Total cash, cash equivalents and restricted cash equaled $16.9 million as of June 30, 2007. Summary of consolidated results for the six months ended June 30, 2007: Total reported revenue was $212.8 million, compared to $220.0 million for the six months ended June 30, 2006; Adjusted EBITDA (as defined) was $4.1 million versus $1.6 million for the same period last year; Net loss was $2.2 million, or $0.05 per basic and diluted share, compared to a net loss of $4.8 million, or $0.12 per basic and diluted share, for the six months ended June 30, 2006; Merchandise sales (as defined) totaled nearly $1.3 billion versus $1.2 billion for the same period last year. Please note that the prior year�s six months consolidated results only include the financial results for eCOST.com from the date the merger closed on February 1, 2006 through June 30, 2006. Mark Layton, Chairman and Chief Executive Officer of PFSweb, stated, �We are pleased to report our first quarter of profitability on a consolidated basis since the merger of eCOST.com was completed approximately 18 months ago. Furthermore, Adjusted EBITDA grew from just $3,000 in the second quarter of 2006 to $3.4M in 2007. We believe this quarter was another solid step in the execution of our strategic plan to drive growth and improve financial performance by leveraging our world class technology and operational infrastructure across multiple channels. We have a good outlook for each of our businesses and I believe our overall financial health is rock solid. We believe we remain on track to meet our goal of consolidated annual revenue of $420 to $435 million and Adjusted EBITDA of $8 to $10 million in 2007.� Summary of results by business: Service Fee Business: For the second quarter of 2007, Service Fee revenue increased 9% to $17.6 million, compared with $16.2 million for the same period in 2006. The Service Fee business reported Adjusted EBITDA of $1.9 million for the second quarter of 2007, compared to $2.0 million for the same period last year. For the six months ended June 30, 2007, Service Fee revenue increased 8% to $34.6 million, from $32.1 million for the same period in 2006. The Service Fee business reported Adjusted EBITDA of $2.2 million for the six months ended June 30, 2007, compared to $3.3 million for the same period last year. The drop in Adjusted EBITDA is primarily attributable to a decrease in project work in 2007, lower gross profit margins on certain new client implementation activity, as well as increased SG&A costs primarily related to additional facility and personnel related expenses. Mike Willoughby, President of PFSweb�s services divisions commented, �We are pleased with the revenue growth experienced from the new contracts signed in the fourth quarter of 2006 and first quarter of 2007. This is the first quarter that all of these contracts, including Lego and Riverbed, have been fully implemented. Gross margins for the business remain within our targeted range of 25-30%. Next week we are hosting a ribbon cutting ceremony with the executive team of Lego at our Memphis distribution facility to formally launch the new initiative. Looking ahead, we are excited by the potential for new contracts as our new business pipeline has strengthened to approximately $38.5 million, compared to $25 million at the end of the first quarter.� Supplies Distributors Business: For the second quarter of 2007, Supplies Distributors revenue was $57.6 million, compared to $60.9 million for the same period last year. Adjusted EBITDA was $2.1 million for the second quarter of 2007, compared to $1.6 million for the same period last year. For the six months ended June 30, 2007, Supplies Distributors revenue was $116.4 million, compared to $129.3 million for the same period last year. Adjusted EBITDA was $3.4 million for the six months ended June 30, 2007, a slight increase compared to $3.3 million for the same period last year. Mr. Willoughby continued, �During the second quarter, results for the Supplies Distributors business were within our expectations, and margins improved to 8%, slightly above their normal range due to the impact of certain incremental inventory cost reductions. However, revenue for the six month period declined due to reduced vendor promotional activity, the impact of foreign currency fluctuations and lower unit volumes in the first quarter of 2007.� eCOST.com Business: For the second quarter of 2007, eCOST.com revenue was $27.1 million, compared to $21.6 million in the first quarter of 2007 and $28.8 million for the same period in 2006. Adjusted EBITDA for eCOST.com in the quarter was a loss of $0.6 million, compared to an Adjusted EBITDA loss of $0.9 million for the first quarter of 2007 and a loss of $3.6 million for the same period last year. For the six months ended June 30, 2007, eCOST.com revenues were $48.7 million, compared to $50.6 million for the same period in 2006. Adjusted EBITDA for eCOST.com in the six months ended June 30, 2007 was a loss of $1.5 million, compared to a loss of $4.9 million for the same period last year. Please note, the prior year period results for eCOST.com reflect only five months of activity from the date of acquisition of February 1, 2006 through June 30, 2006. Mr. Layton continued, �The eCOST.com business continues to show substantial improvements. Revenue for eCOST.com has increased sequentially in each of the last three quarters. Also, gross profit margins have improved strongly year-over-year, while costs have trended down. This has led to a sharp reduction in eCOST.com�s losses versus the second quarter of 2006.� �During the quarter, eCOST.com went live with several new enhancements that we believe will help drive overall growth and improved margins. These incremental enhancements include: the launch of a new home and outdoor products category, improved product detail pages and multiple images of products, addition of a related accessories tab to the product detail page, a new shopping cart �jump page� that also offers related products and other features, and improved �hot product� presentation in each of our major product categories. With these and many other improvements underway, we believe we are well-positioned for continued growth and are excited by the momentum we are seeing in the eCOST.com business.� Mr. Layton concluded. Significant operating events for second quarter of 2007: The Service Fee business successfully implemented a customized order management and logistics solution for LEGO Brand Retail The Service Fee business successfully implemented a customized international logistics and product configuration solution for Riverbed Technology Opening of a new Customer Care facility in Manila, Philippines to house customer service operations and additional support functions for eCOST.com Addition of new home and outdoor products and expansion of eCOST.com�s proprietary Bargain Countdown� Enhanced real time product listing capabilities on eCOST.com through a partnership with Etilize eCOST.com added 3 new Virtual Warehouses in the second quarter of 2007, bringing the total number of Virtual Warehouses to 12. Virtual Warehouses enable eCOST.com to market more new products, expand product categories and are targeted to generate higher margins on sales. Financial Guidance for Fiscal Year 2007 PFSweb continues to target total consolidated revenues, excluding pass-through revenues, of approximately $420 million to $435 million and consolidated Adjusted EBITDA of $8 � $10 million for 2007. Capital expenditures for 2007 are estimated to be approximately $3 - $5 million, excluding costs related to the implementation of new business contracts for the Service Fee Business. Achieving these targets will depend upon, among other things, achieving and maintaining the currently expected significant improvement in operations from eCOST.com and continued strong performance from our Service Fee and Supplies Distributors businesses on a year-over-year basis. Conference Call Information Management will host a conference call at 10:00 a.m. Central Time (11:00 a.m. Eastern Time) on August 14, 2007 to discuss the latest corporate developments and results. To listen to the call, please dial (888) 823-7459 and enter the pin number (9081135) 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 September 14, 2007 at (877) 519-4471, pin number (9081135). The replay also will be available at the company�s web site for a limited time. Non-GAAP Financial Measures This news release contains the non-GAAP measures Earnings Before Interest, Taxes, Depreciation and Amortization (�EBITDA�) and Adjusted EBITDA. EBITDA represents earnings (or losses) before interest, taxes, depreciation, and amortization. Adjusted EBITDA further eliminates the effect of stock-based compensation, merger integration related expenses and a loss on a sales transaction to a former eCOST.com customer. EBITDA and Adjusted EBITDA are used by management, analysts, investors and other interested parties in evaluating our operating performance compared to that of other companies in our industry, as the calculation of EBITDA and Adjusted EBITDA eliminates the effect of financing, income taxes, the accounting effects of capital spending, stock-based compensation, merger related expenses and certain other expenses, which items may vary from different companies for reasons unrelated to overall operating performance. Merchandise Sales Merchandise sales represent the estimated value of all fulfillment activity that flows through PFSweb including whether or not PFSweb is the seller of the merchandise or records the full amount of such sales on its financial statements, excluding service fee revenues that PFSweb might recognize for the underlying sales transactions. PFSweb uses merchandise sales as an operating metric to allow investors to gain a more thorough understanding of its business and business volume, in addition to GAAP net revenue. About PFSweb, Inc. PFSweb develops and deploys integrated business infrastructure solutions and fulfilment services for Fortune 1000, Global 2000 and brand name companies, including third party logistics, call center support and e-commerce services. The company serves a multitude of industries and company types, including such clients as LEGO, Riverbed, Fathead, CHiA�SSO, FLAVIA� Beverage Systems, Hewlett-Packard, International Business Machines, Hawker Beechcraft Corp. (formerly Raytheon Aircraft Company), Rene Furterer USA, Roots Canada Ltd. and Xerox. Through its wholly owned eCOST.com subsidiary, PFSweb also serves as a leading multi-category online discount retailer of high-quality new, "close-out" and manufacturer recertified brand-name technology and consumer electronics for consumers and small to medium size business buyers. The eCOST.com brand markets approximately 110,000 different products from leading manufacturers such as Apple, Canon, Citizen, Denon, Hewlett-Packard, Nikon, Onkyo, Seiko and Toshiba primarily over the Internet and through direct marketing. To find out more about PFSweb, Inc. (NASDAQ: PFSW), visit the company's websites at http://www.pfsweb.com and http://www.ecost.com. The matters discussed herein consist of forward-looking information under the Private Securities Litigation Reform Act of 1995 and is subject to and involves risks and uncertainties, which could cause actual results to differ materially from the forward-looking information. PFSweb's Annual Report on Form 10-K for the year ended December 31, 2006 identifies certain factors that could cause actual results to differ materially from those projected in any forward looking statements made and investors are advised to review the Annual Report and the Risk Factors described therein. These factors include: our ability to retain and expand relationships with existing clients and attract and implement new clients; our reliance on the fees generated by the transaction volume or product sales of our clients; our reliance on our clients' projections or transaction volume or product sales; our dependence upon our agreements with IBM; our dependence upon our agreements with our major clients; our client mix, their business volumes and the seasonality of their business; our ability to finalize pending contracts; the impact of strategic alliances and acquisitions; trends in the e-commerce, outsourcing, government regulation both foreign and domestic and the market for our services; whether we can continue and manage growth; increased competition; our ability to generate more revenue and achieve sustainable profitability; effects of changes in profit margins; the customer and supplier concentration of our business; the unknown effects of possible system failures and rapid changes in technology; foreign currency risks and other risks of operating in foreign countries; potential litigation; potential delisting; our dependency on key personnel; the impact of new accounting standards and changes in existing accounting rules or the interpretations of those rules; our ability to raise additional capital or obtain additional financing; our ability and the ability of our subsidiaries to borrow under current financing arrangements and maintain compliance with debt covenants; relationship with and our guarantees of certain of the liabilities and indebtedness of our subsidiaries; whether outstanding warrants issued in a prior private placement will be exercised in the future; our ability to successfully the anticipated benefits of the merger: eCOST's potential indemnification obligations to its former parent; eCOST's ability to maintain existing and build new relationships with manufacturers and vendors and the success of its advertising and marketing efforts; eCOST's ability to increase its sales revenue and sales margin and improve operating efficiencies and eCOST�s ability to generate a profit and cash flows sufficient to cover the values of its intangible assets. PFSweb undertakes no obligation to update publicly any forward-looking statement for any reason, even if new information becomes available or other events occur in the future. There may be additional risks that we do not currently view as material or that are not presently known. PFSweb, Inc. and Subsidiaries Unaudited Condensed Consolidated Statements of Operations (A) (In Thousands, Except Per Share Data) � Three Months Ended Six Months Ended June 30, June 30, 2007 2006 2007 2006 REVENUES: � � Product revenue, net $ 84,678 $ 89,650 $ 165,135 $ 179,854 Service fee revenue 17,646 16,209 34,608 32,128 Pass-thru revenue � 6,076 � � 3,445 � � 13,064 � � 7,990 � Total revenues � 108,400 � � 109,304 � � 212,807 � � 219,972 � � COSTS OF REVENUES: Cost of product revenue 77,798 84,486 152,569 168,809 Cost of service fee revenue 12,635 11,366 25,299 22,745 Cost of pass-thru revenue � 6,076 � � 3,445 � � 13,064 � � 7,990 � Total costs of revenues � 96,509 � � 99,297 � � 190,932 � � 199,544 � Gross profit � 11,891 � � 10,007 � � 21,875 � � 20,428 � SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 10,427 11,637 21,419 22,429 STOCK-BASED COMPENSATION 188 241 397 480 MERGER INTEGRATION EXPENSE - 449 150 642 AMORTIZATION OF IDENTIFIABLE INTANGIBLES � 204 � � 204 � � 408 � � 341 � Total operating expenses � 10,819 � � 12,531 � � 22,374 � � 23,892 � Income (loss) from operations 1,072 (2,524 ) (499 ) (3,464 ) INTEREST EXPENSE (INCOME), NET � 658 � � 517 � � 1,242 � � 948 � Income (loss) before income taxes 414 (3,041 ) (1,741 ) (4,412 ) INCOME TAX PROVISION (BENEFIT) � 260 � � 143 � � 466 � � 359 � NET INCOME (LOSS) $ 154 � $ (3,184 ) $ (2,207 ) $ (4,771 ) � NET LOSS PER SHARE: Basic $ 0.00 � $ (0.07 ) $ (0.05 ) $ (0.12 ) Diluted $ 0.00 � $ (0.07 ) $ (0.05 ) $ (0.12 ) � WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Basic � 46,477 � � 43,072 � � 46,476 � � 39,011 � Diluted � 47,011 � � 43,072 � � 46,476 � � 39,011 � � EBITDA $ 3,166 � $ (687 ) $ 3,589 � $ 125 � Adjusted EBITDA $ 3,354 � $ 3 � $ 4,136 � $ 1,636 � � (A) The financial data above should be read in conjunction with the audited consolidated financial statements of PFSweb, Inc. included in its Form 10-K for the year ended December 31, 2006. (B) A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA follows: � Three Months Ended Six Months Ended June 30, June 30, 2007 2006 2007 2006 Net income (loss) $ 154 $ (3,184 ) $ (2,207 ) $ (4,771 ) Income tax expense (benefit) 260 143 466 359 Interest expense (income) 658 517 1,242 948 Depreciation and amortization � 2,094 � � 1,837 � � 4,088 � � 3,589 � EBITDA $ 3,166 $ (687 ) $ 3,589 $ 125 Stock-based compensation 188 241 397 480 Merger integration related expenses - 449 150 642 Loss on sales transaction to former eCOST customer � - � � - � � - � � 389 � Adjusted EBITDA $ 3,354 � $ 3 � $ 4,136 � $ 1,636 � PFSweb, Inc. and Subsidiaries Unaudited Condensed Consolidated Balance Sheets (In Thousands, Except Share Data) � � June 30, December 31, 2007 2006 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 15,088 $ 15,066 Restricted cash 1,838 2,653 � Accounts receivable, net of allowance for doubtful accounts of $1,891 and $2,352 at June 30, 2007 and December 31, 2006, respectively 48,251 49,341 Inventories, net of reserves of $2,176 and $2,987 at June 30, 2007 and December 31, 2006, respectively 44,631 47,670 Other receivables 10,902 10,774 Prepaid expenses and other current assets � 3,449 � � 3,531 � Total current assets � 124,159 � � 129,035 � � PROPERTY AND EQUIPMENT, net 12,119 12,884 IDENTIFIABLE INTANGIBLES 6,227 6,647 GOODWILL 15,362 15,362 OTHER ASSETS � 840 � � 848 � Total assets � 158,707 � � 164,776 � � LIABILITIES AND SHAREHOLDERS EQUITY CURRENT LIABILITIES: Current portion of long-term debt and capital lease obligations $ 28,533 $ 23,802 Trade accounts payable 56,337 62,596 Accrued expenses � 22,325 � � 21,485 � Total current liabilities � 107,195 � � 107,883 � � LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion 2,653 6,076 OTHER LIABILITIES � 1,828 � � 1,977 � Total liabilities � 111,676 � � 115,936 � � � COMMITMENTS AND CONTINGENCIES � SHAREHOLDERS' EQUITY: Preferred stock, $1.00 par value; 1,000,000 shares authorized; none issued and outstanding - - Common stock, $.001 par value; 75,000,000 shares authorized; 46,563,008 and 46,553,752 shares issued at June 30, 2007 and December 31, 2006, respectively; and 46,476,708 and 46,467,452 outstanding as of June 30, 2007 and December 31, 2006, respectively 47 47 Additional paid-in capital 91,699 91,302 Accumulated deficit (46,561 ) (44,354 ) Accumulated other comprehensive income 1,931 1,930 Treasury stock at cost, 86,300 shares � (85 ) � (85 ) Total shareholders' equity � 47,031 � � 48,840 � Total liabilities and shareholders' equity $ 158,707 � $ 164,776 � PFSweb, Inc. and Subsidiaries Unaudited Consolidating Statements of Operations For the Three Months Ended June 30, 2007 (In Thousands) � Supplies PFSweb Distributors eCOST Eliminations Consolidated REVENUES: Product revenue, net $ - $ 57,595 � $ 27,083 $ - $ 84,678 � Service fee revenue 17,646 - - - 17,646 Service fee revenue - affiliate 2,040 - - (2,040 ) - Pass-thru revenue � 6,145 � � - � � - � � (69 ) � 6,076 � Total revenues � 25,831 � � 57,595 � � 27,083 � � (2,109 ) � 108,400 � � COSTS OF REVENUES: Cost of product revenue - 52,912 24,886 - 77,798 Cost of service fee revenue 13,297 - - (662 ) 12,635 Cost of pass-thru revenue � 6,145 � � - � � - � � (69 ) � 6,076 � Total costs of revenues � 19,442 � � 52,912 � � 24,886 � � (731 ) � 96,509 � Gross profit � 6,389 � � 4,683 � � 2,197 � � (1,378 ) � 11,891 � SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 6,363 2,623 2,819 (1,378 ) 10,427 STOCK-BASED COMPENSATION 188 - - - 188 MERGER INTEGRATION EXPENSE - - - - - AMORTIZATION OF IDENTIFIABLE INTANGIBLES � - � � - � � 204 � � - � � 204 � Total operating expenses � 6,551 � � 2,623 � � 3,023 � � (1,378 ) � 10,819 � Income (loss) from operations (162 ) 2,060 (826 ) - 1,072 INTEREST EXPENSE (INCOME), NET � 11 � � 661 � � (14 ) � - � � 658 � Income (loss) before income taxes (173 ) 1,399 (812 ) - 414 INCOME TAX PROVISION (BENEFIT) � (186 ) � 446 � � - � � - � � 260 � NET INCOME (LOSS) $ 13 � $ 953 � $ (812 ) $ - � $ 154 � � EBITDA $ 1,676 � $ 2,065 � $ (575 ) $ - � $ 3,166 � Adjusted EBITDA $ 1,864 � $ 2,065 � $ (575 ) $ - � $ 3,354 � � � A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA follows: � Net income (loss) $ 13 $ 953 $ (812 ) $ - $ 154 Income tax expense (benefit) (186 ) 446 - - 260 Interest expense (income) 11 661 (14 ) - 658 Depreciation and amortization � 1,838 � � 5 � � 251 � � - � � 2,094 � EBITDA $ 1,676 $ 2,065 $ (575 ) $ - $ 3,166 Stock-based compensation � 188 � � - � � - � � - � � 188 � Adjusted EBITDA $ 1,864 � $ 2,065 � $ (575 ) $ - � $ 3,354 � PFSweb, Inc. and Subsidiaries Unaudited Consolidating Statements of Operations For the Six Months Ended June 30, 2007 (In Thousands) � Supplies PFSweb Distributors eCOST Eliminations Consolidated � REVENUES: Product revenue, net $ - $ 116,405 $ 48,730 $ - $ 165,135 Service fee revenue 34,608 - - - 34,608 Service fee revenue - affiliate 4,066 - - (4,066 ) - Pass-thru revenue � 13,241 � � - � - � � (177 ) � 13,064 � Total revenues � 51,915 � � 116,405 � 48,730 � � (4,243 ) � 212,807 � � COSTS OF REVENUES: Cost of product revenue - 107,851 44,722 (4 ) 152,569 Cost of service fee revenue 26,599 - - (1,300 ) 25,299 Cost of pass-thru revenue � 13,241 � � - � - � � (177 ) � 13,064 � Total costs of revenues � 39,840 � � 107,851 � 44,722 � � (1,481 ) � 190,932 � Gross profit � 12,075 � � 8,554 � 4,008 � � (2,762 ) � 21,875 � SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 13,451 5,126 5,604 (2,762 ) 21,419 STOCK-BASED COMPENSATION 397 - - - 397 MERGER INTEGRATION EXPENSE - - 150 - 150 AMORTIZATION OF IDENTIFIABLE INTANGIBLES � - � � - � 408 � � - � � 408 � Total operating expenses � 13,848 � � 5,126 � 6,162 � � (2,762 ) � 22,374 � Income (loss) from operations (1,773 ) 3,428 (2,154 ) - (499 ) INTEREST EXPENSE (INCOME), NET � 47 � � 1,226 � (31 ) � - � � 1,242 � Income (loss) before income taxes (1,820 ) 2,202 (2,123 ) - (1,741 ) INCOME TAX PROVISION (BENEFIT) � (329 ) � 795 � - � � - � � 466 � NET INCOME (LOSS) $ (1,491 ) $ 1,407 $ (2,123 ) $ - � $ (2,207 ) � EBITDA $ 1,809 � $ 3,438 $ (1,658 ) $ - � $ 3,589 � Adjusted EBITDA $ 2,206 � $ 3,438 $ (1,508 ) $ - � $ 4,136 � � � A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA follows: � Net income (loss) $ (1,491 ) $ 1,407 $ (2,123 ) $ - $ (2,207 ) Income tax expense (benefit) (329 ) 795 - - 466 Interest expense (income) 47 1,226 (31 ) - 1,242 Depreciation and amortization � 3,582 � � 10 � 496 � � - � � 4,088 � EBITDA $ 1,809 $ 3,438 $ (1,658 ) $ - $ 3,589 Stock-based compensation 397 - - - 397 Merger integration expense � - � � - � 150 � � - � � 150 � Adjusted EBITDA $ 2,206 � $ 3,438 $ (1,508 ) $ - � $ 4,136 � PFSweb, Inc. and Subsidiaries Unaudited Condensed Consolidating Balance Sheets as of June 30, 2007 (In Thousands) � � Supplies PFSweb Distributors eCOST Eliminations Consolidated ASSETS CURRENT ASSETS: Cash and cash equivalents $ 11,352 $ 2,196 $ 1,540 $ - $ 15,088 Restricted cash 49 980 809 - 1,838 Accounts receivable, net 15,760 28,936 4,231 (676 ) 48,251 Inventories, net - 39,663 4,968 - 44,631 Other receivables 958 9,944 - - 10,902 Prepaid expenses and other current assets � 1,538 � � 1,451 � � 460 � � - � � 3,449 � Total current assets � 29,657 � � 83,170 � � 12,008 � � (676 ) � 124,159 � � PROPERTY AND EQUIPMENT, net 11,810 38 271 - 12,119 NOTES RECEIVABLE FROM AFFILIATES 17,645 - - (17,645 ) - INVESTMENT IN AFFILIATES 37,737 - - (37,737 ) - IDENTIFIABLE INTANGIBLES - - 6,227 - 6,227 GOODWILL - - 15,362 - 15,362 OTHER ASSETS � 700 � � - � � 140 � � - � � 840 � Total assets � 97,549 � � 83,208 � � 34,008 � � (56,058 ) � 158,707 � � LIABILITIES AND SHAREHOLDERS EQUITY CURRENT LIABILITIES: Current portion of long-term debt and capital lease obligations $ 13,450 $ 15,075 $ 8 $ - $ 28,533 Trade accounts payable 4,613 44,645 7,755 (676 ) 56,337 Accrued expenses � 10,123 � � 7,771 � � 4,431 � � - � � 22,325 � Total current liabilities � 28,186 � � 67,491 � � 12,194 � � (676 ) � 107,195 � � LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion 2,653 - - - 2,653 NOTES PAYABLE TO AFFILIATES - 6,005 11,640 (17,645 ) - OTHER LIABILITIES � 1,454 � � - � � 374 � � - � � 1,828 � Total liabilities � 32,293 � � 73,496 � � 24,208 � � (18,321 ) � 111,676 � � COMMITMENTS AND CONTINGENCIES � SHAREHOLDERS' EQUITY: Common stock 47 - 19 (19 ) 47 Capital contributions 1,000 (1,000 ) - Additional paid-in capital 91,699 - 28,059 (28,059 ) 91,699 Retained earnings (accumulated deficit) (28,336 ) 6,229 (18,278 ) (6,176 ) (46,561 ) Accumulated other comprehensive income 1,931 2,483 - (2,483 ) 1,931 Treasury stock � (85 ) � - � � - � � - � � (85 ) Total shareholders' equity � 65,256 � � 9,712 � � 9,800 � � (37,737 ) � 47,031 � Total liabilities and shareholders' equity $ 97,549 � $ 83,208 � $ 34,008 � $ (56,058 ) $ 158,707 � PFSweb, Inc. and Subsidiaries Unaudited Consolidating Statements of Operations For the Three Months Ended June 30, 2006 (In Thousands) � Supplies PFSweb Distributors eCOST Eliminations Consolidated REVENUES: Product revenue, net $ - $ 60,867 $ 28,783 $ - $ 89,650 Service fee revenue 16,209 - - - 16,209 Service fee revenue - affiliate 2,075 - - (2,075 ) - Pass-thru revenue � 3,575 � � - � � - � � (130 ) � 3,445 � Total revenues � 21,859 � � 60,867 � � 28,783 � � (2,205 ) � 109,304 � � COSTS OF REVENUES: Cost of product revenue - 56,776 27,721 (11 ) 84,486 Cost of service fee revenue 11,996 - - (630 ) 11,366 Cost of pass-thru revenue � 3,575 � � - � � - � � (130 ) � 3,445 � Total costs of revenues � 15,571 � � 56,776 � � 27,721 � � (771 ) � 99,297 � Gross profit � 6,288 � � 4,091 � � 1,062 � � (1,434 ) � 10,007 � SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 5,827 2,542 4,702 (1,434 ) 11,637 STOCK-BASED COMPENSATION 241 - - - 241 MERGER INTEGRATION EXPENSE - - 449 - 449 AMORTIZATION OF IDENTIFIABLE INTANGIBLES � - � � - � � 204 � � - � � 204 � Total operating expenses � 6,068 � � 2,542 � � 5,355 � � (1,434 ) � 12,531 � Income (loss) from operations 220 1,549 (4,293 ) - (2,524 ) INTEREST EXPENSE (INCOME), NET � (30 ) � 538 � � 9 � � - � � 517 � Income (loss) before income taxes 250 1,011 (4,302 ) - (3,041 ) INCOME TAX PROVISION (BENEFIT) � (200 ) � 343 � � - � � - � � 143 � NET INCOME (LOSS) $ 450 � $ 668 � $ (4,302 ) $ - � $ (3,184 ) � EBITDA $ 1,765 � $ 1,552 � $ (4,004 ) $ - � $ (687 ) Adjusted EBITDA $ 2,006 � $ 1,552 � $ (3,555 ) $ - � $ 3 � � � A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA follows: � Net income (loss) $ 450 $ 668 $ (4,302 ) $ - $ (3,184 ) Income tax expense (benefit) (200 ) 343 - - 143 Interest expense (income) (30 ) 538 9 - 517 Depreciation and amortization � 1,545 � � 3 � � 289 � � - � � 1,837 � EBITDA $ 1,765 $ 1,552 $ (4,004 ) $ - $ (687 ) Stock-based compensation 241 - - - 241 Merger integration expense � - � � - � � 449 � � - � � 449 � Adjusted EBITDA $ 2,006 � $ 1,552 � $ (3,555 ) $ - � $ 3 � PFSweb, Inc. and Subsidiaries Unaudited Consolidating Statements of Operations For the Six Months Ended June 30, 2006 (In Thousands) � Supplies PFSweb Distributors eCOST Eliminations Consolidated REVENUES: Product revenue, net $ - $ 129,282 $ 50,572 $ - $ 179,854 Service fee revenue 32,128 - - - 32,128 Service fee revenue - affiliate 4,502 - - (4,502 ) - Pass-thru revenue � 8,217 � � - � � - � � (227 ) � 7,990 � Total revenues � 44,847 � � 129,282 � � 50,572 � � (4,729 ) � 219,972 � � COSTS OF REVENUES: Cost of product revenue - 120,730 � 48,121 (42 ) 168,809 Cost of service fee revenue 24,071 - - (1,326 ) 22,745 Cost of pass-thru revenue � 8,217 � � - � � - � � (227 ) � 7,990 � Total costs of revenues � 32,288 � � 120,730 � � 48,121 � � (1,595 ) � 199,544 � Gross profit � 12,559 � � 8,552 � � 2,451 � � (3,134 ) � 20,428 � SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 12,388 5,248 7,927 (3,134 ) 22,429 STOCK-BASED COMPENSATION 480 - - - 480 MERGER INTEGRATION EXPENSE - - 642 - 642 AMORTIZATION OF IDENTIFIABLE INTANGIBLES � - � � - � � 341 � � - � � 341 � Total operating expenses � 12,868 � � 5,248 � � 8,910 � � (3,134 ) � 23,892 � Income (loss) from operations (309 ) 3,304 (6,459 ) - (3,464 ) INTEREST EXPENSE (INCOME), NET � (65 ) � 992 � � 21 � � - � � 948 � Income (loss) before income taxes (244 ) 2,312 (6,480 ) - (4,412 ) INCOME TAX PROVISION (BENEFIT) � (499 ) � 858 � � - � � - � � 359 � NET INCOME (LOSS) $ 255 � $ 1,454 � $ (6,480 ) $ - � $ (4,771 ) � EBITDA $ 2,797 � $ 3,307 � $ (5,979 ) $ - � $ 125 � Adjusted EBITDA $ 3,277 � $ 3,307 � $ (4,948 ) $ - � $ 1,636 � � � A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA follows: � Net income (loss) $ 255 $ 1,454 $ (6,480 ) $ - $ (4,771 ) Income tax expense (benefit) (499 ) 858 - - 359 Interest expense (income) (65 ) 992 21 - 948 Depreciation and amortization � 3,106 � � 3 � � 480 � � - � � 3,589 � EBITDA $ 2,797 $ 3,307 $ (5,979 ) $ - $ 125 Stock-based compensation 480 - - - 480 Merger integration expense - - 642 - 642 Loss on sales transaction to former eCOST customer � � 389 � � � 389 � Adjusted EBITDA $ 3,277 � $ 3,307 � $ (4,948 ) $ - � $ 1,636 � eCOST.com, Inc. Selected Operating Data � Three Months Ended June 30, 2007 2006 � Total Customers (1) 1,698,797 1,581,606 � Active Customers (2) 231,601 351,157 � New Customers (3) 25,417 70,590 � Number of Orders (4) 64,111 89,898 � Average Order Value (5) $ 422 $ 340 � Advertising Expense (6) $ 303,921 $ 986,293 � Cost to Acquire a New Customer (7) $ 9.76 $ 13.97 � � (1) Total customers have been calculated as the cumulative number of customers for which orders have been taken from eCOST.com's inception to the end of the reported period. � (2) Active customers consist of the approximate number of customers who placed orders during the 12 months prior to the end of the reported period. � (3) New Customers represent the number of persons that established a new account and placed an order during the reported period. � (4) Number of orders represents the total number of orders shipped during the reported period (not reflecting returns). � (5) Average order value has been calculated as gross sales divided by the total number of orders during the period presented. The impact of returns is not reflected in average order value. � (6) Advertising expense includes the total dollars spent on advertising during the reported period, including internet, direct mail, print and e-mail advertising, as well as customer list enhancement services. � (7) Catalog expense ($55,858) was not included in the 2007 calculation as it is used for retention and not acquisition. Previously, certain customer retention costs as reported were included in the cost to acquire new customers.