PFSweb Reports 82% Core Growth

Second Quarter Highlighted by New/Expanded Client Arrangements and Robust New Business Prospect Pipeline

PLANO, Texas--Aug. 12, 2002--PFSweb, Inc. (Nasdaq:PFSW), a leading provider of business process outsourcing solutions, today reported its results for the quarter ended June 30, 2002 and an optimistic outlook for new business opportunities.

"We are pleased with our improved financial results for the June 2002 quarter," said Thomas J. Madden, Senior Partner and Chief Financial Officer of PFSweb. "Our results include net revenues of $10.3 million, a solid gross profit margin of 38.3 percent, an LBITDA loss of $1.6 million, and a net loss of $2.4 million, or $(0.13) per common share. Excluding net service fee revenues from our former parent company in the prior year, net service fee revenue increased 82%, resulting largely from new client additions, and a seasonally high revenue period for our largest client. On a GAAP basis, net service fee revenue increased 10% over the prior year.

"Our balance sheet reflects more than $12 million in cash, of which $2.9 million is restricted, accounts receivable of $8.6 million, $10.8 million loaned to and invested in our affiliate company, Supplies Distributors, and total debt of only $5.0 million. Shareholders` equity remains solid at $31.9 million, or approximately $1.75 per share," Madden stated.

"The second quarter was a very solid quarter for PFSweb in terms of measuring our forward momentum and positive improvement in our financial results," said Mark C. Layton, Senior Partner and Chief Executive Officer of PFSweb. "I remain very optimistic about our future opportunities. This quarter was highlighted by the following key events:

Service fee revenue of $10.3 million, which was 82% greater than the same period last year (excluding former parent revenue);

Loss before D&A; of $1.6 million and loss per share of $0.13;

Strong cash controls that allowed us to maintain our cash reserves at $12 million, which was the same as last quarter, plus our investment in and subordinated financing of $10.8 million in our affiliate Supplies Distributors to support our growing IBM Printing Company client;

The addition of new and expanded client relationships, resulting in year-to-date new business wins of more than $10 million;

Continued robust new business prospect pipeline; and

Continued strong performance in our quality measurements leading to high levels of customer satisfaction.

"We continue to make progress toward growing our business through new and expanded client relationships," Layton said. "Since the beginning of the year, we have completed contracts, or are near finalization, on new business activity that is targeted to generate $8 million of annualized revenue, the majority of which is now fully implemented. In addition, we have won incremental non-recurring client projects amounting to approximately $2 million.

"One of our most significant new client additions this past quarter was the completion and integration of a new contract arrangement with The Smithsonian Institution," Layton added. "PFSweb`s agreement was made with Smithsonian Business Ventures, which operates all businesses and revenue-producing activities of the Smithsonian Institution, the world`s largest museum and research complex. As we previously disclosed, based on current projections, we expect this contract to generate approximately $14 million in revenue over the five-year life of the contract.

"Looking to the future, our primary focus is to evolve our business to a level of sustainable profitability," Layton said. "With a seasonally stronger second quarter, the positive impact of new client contracts and a continued strong new business prospect pipeline, we believe we are making progress towards this goal.

"While we continue to operate with excess infrastructure capacity in both our North American and European operations, we are targeting to significantly leverage this existing infrastructure by adding new revenue in the future. Meanwhile, we continue to control our overall costs to levels we believe are a prudent balance between maintaining the necessary resources to provide world class solutions to our clients and to support our growth initiatives, while minimizing our losses and the resulting cash burn rate," Layton continued.

"During 2001, we enacted a strategic action plan to adjust costs and to re-energize our new business pipeline and resulting revenue growth. I am pleased that as a result of our initiatives, the new business prospect pipeline has improved significantly. During 2002, we have begun to see a number of signs that the work we have been conducting is now showing results. We continue to be quite encouraged about the results that our reorganized and refocused marketing and sales efforts have driven to date," Layton explained. "Further, our new business lead pipeline continues to be robust. We currently have approximately 30 outstanding proposals for new business opportunities with both new and existing clients, estimated to represent over $35 million of annualized service fees.

"However, as I attempt to look forward a few quarters, visibility continues to be unclear," Layton added. "We continue to be faced with extending lead times to close new business that I believe is a by-product of the current economic and overall business environment volatility. There continue to be challenges that all businesses are facing in this current state of uncertainty, changing regulation and uncertain economic outlook. So while in my opinion our lead and proposal pipeline continues to be robust, the sales cycle is lengthier than in years past. Lead times to secure new business in many cases are extending to as long as one year from initial contact, versus the six month lead times we might have seen a year ago."

"Long lead times are a common characteristic of the outsourcing business model and as such, it may take some time before our financial results begin to materially reflect our progress, but we see our recent new client wins and the strong lead pipeline as positive indicators of momentum for the future. We continue to look forward to seeing our hard work result in improved financial results in the quarters to come," Layton added.