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 $11.3 million for the nine months ended
September 30, 2008, and primarily resulted from cash income before working capital changes of $6.8
million, a $5.6 million of increase in accounts payable, accrued expenses and other liabilities and
a $7.1 million decrease in accounts receivable. These benefits were offset by a $3.1 million
increase in prepaid expenses, other receivables and other assets and a $5.3 million increase in
Net cash provided by operating activities was $2.1 million for the nine months ended September
30, 2007, and primarily resulted from $5.3 million of benefit from net loss as adjusted for
non-cash items, a $3.8 million decrease in inventory, a decrease in prepaid expenses, other
receivables and other assets of $2.0 million and a $1.6 million decrease in accounts receivable
partially offset by a decrease in accounts payable, accrued expenses and other liabilities of $10.0
million and an increase in restricted cash of $0.6 million.
cash used in investing activities for the nine months ended
September 30, 2008 and 2007 totaled
$4.6 million and $2.8 million, respectively, resulting primarily from capital expenditures.
Capital expenditures have historically consisted primarily of additions to upgrade our
management information systems, 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 as well as the eCOST infrastructure. To maintain our current operating cash position, a
portion of these expenditures may be financed through 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
Net cash used in financing activities was approximately $6.2 million for the nine months ended
September 30, 2008, primarily representing $4.0 million of payments on debt, a $1.0 million
increase in restricted cash and payments on capital leases of $1.4 million.
Net cash used in financing activities was approximately $0.7 million for the nine months ended
September 30, 2007, primarily representing $1.5 million of payments on capital leases partially
offset by a $0.5 million decrease in restricted cash and $0.2 million of proceeds from debt.
Our liquidity has been negatively impacted as a result of the merger with eCOST. eCOST has
experienced a net usage of cash primarily due to losses incurred. As a result, PFSweb has had to
support eCOSTs cash needs with the goal of achieving a stabilized operational position. The
amount of further cash needed to support eCOST operations will depend upon the financing available
as well as eCOSTs continued ability to improve its financial
results. eCOSTs results improved in 2007 and during the first nine months of 2008 and we currently expect continued improvement
as a result of efforts to increase sales, improve product mix and further improve operational
Our liquidity may also be negatively impacted by an expected decline in service fee revenue
due to the current general economic decline as well as the nonrenewal of a large contract with an
agency of the U.S. government. We currently intend to seek to offset the impact of lower service
fee revenue by reducing variable costs and expenses and redeploying existing infrastructure to
other client activities. No assurance can be given that we will be successful, in whole or in part,
in such efforts, nor can any assurance be given that the decline in service fee revenue will not
have a material adverse effect upon our business, financial condition or results of operations.