ECST Ecost.Com (MM)

eCOST.com, Inc. (Nasdaq:ECST) (www.ecost.com), a leading online discount retailer, today announced financial results for its third quarter ended September 30, 2005. eCOST.com also announced today intentions to merge with PFSweb, Inc., an industry leader in logistics and fulfillment services. Net sales for the third quarter ended September 30, 2005 were $38.2 million, a decrease of $2.9 million or 7%, from $41.0 million in the second quarter of 2005, and a decrease of $5.2 million or 12%, from $43.4 million in the third quarter ended September 30, 2004. Pre-tax losses for the third quarter 2005, including a one-time severance charge of $147,000, were $2.3 million compared to $2.9 million in the second quarter 2005 and pre-tax loss of $1.4 million in the third quarter 2004. Pre-tax losses in the third quarter 2005, excluding the one-time severance charge, were $2.2 million. The reduced losses in the quarter were due to an improved gross margin percentage, reduced advertising expenditures and lower operating costs compared to the second quarter 2005. Adam Shaffer, Chairman and CEO of eCOST.com, commented, "We are pleased with the progress that we've made in the third quarter. We have implemented and are executing on initiatives which have helped us to reduce our losses from the second quarter on lower sales volume. In addition, our balance sheet at the end of the quarter included no debt, over $6.2 million in cash and reduced inventory levels compared to the prior quarter-end. Our average order value increased to $389 at a higher gross margin percentage, which translates into higher gross margin dollars per order compared to the prior quarter. We have also been able to maintain a positive spread between our average gross margin dollars per order and our cost to acquire a new customer. We still have much work to do and continue to focus on our gross margin improvement and cost savings initiatives, including implementing lower cost freight methods and enhancing certain operational functions offshore." The Company added 57,000 new customers during the quarter, expanding eCOST's customer base to over 1.3 million at September 30, 2005. This is an increase in the overall customer base of approximately 395,000 or 42% over the quarter ended September 30, 2004, and 4% sequentially. Net sales in the third quarter of 2005 declined approximately 12% compared with the same period last year and 7% sequentially as the Company focused on margin improvement over growth. The gross margin for the third quarter 2005 increased to 7.1%, a 45 basis-point sequential increase from 6.7% in the second quarter of 2005. Average order value increased to $389, or 11%, in Q3 2005 compared to $352 in Q2 2005, and a 22% increase compared with $320 in Q3 2004. Shaffer concluded, "Also today, we announced our intention, as reflected in a non-binding letter of intent, to merge with PFSweb, a global leader in logistics and fulfillment services. We are very excited by the prospect of merging with PFSweb. PFSweb's advanced distribution and fulfillment services and IT capabilities offer eCOST a solid platform to significantly improve its web commerce platform and increase customer service. We believe that the combination of our core strengths would further enhance our financial position and offer suppliers additional distribution and back-end capabilities. However, the proposed merger is subject to due diligence, the execution of a definitive agreement, the approval of the respective Boards of Directors and shareholders of each company and other customary conditions." "We are excited about the potential opportunity of combining with PFSweb, while at the same time, we are staying very focused on the ongoing improvements to the Company. We have been seeing positive signs in a number of areas and will continue to focus on achieving profitability. We believe we will continue to reduce the level of losses sequentially in the fourth quarter of 2005. With these continuing improvements, we expect to achieve operating profitability and positive net income for 2006 overall. We will continue our attention towards achieving profitability. As we realize earnings improvements, we will reinvest for sales growth," concluded Shaffer. Investor Webcast Management will host a live webcast of eCOST's Third Quarter Investor Conference Call today at 6:00 p.m. EST. To access the webcast, go to eCOST's website at www.ecost.com, enter the Investor Relations section, and click on the webcast icon. A conference call replay will be available for one week following the live call and can be accessed by calling: (888) 286-8010 (International 617-801-6888) and entering the reservation number, 92320474. About eCOST.com, Inc. eCOST.com, Inc. is a leading multi-category online discount retailer of high quality new, "close-out" and refurbished brand-name merchandise for consumers and small business buyers. eCOST.com markets over 100,000 different products from leading manufacturers such as Apple, Canon, Citizen, Denon, HP, Nikon, Onkyo, Seiko, Sony, and Toshiba primarily over the Internet (http://www.ecost.com) and through direct marketing. Prior to April 11, 2005, eCOST.com was a subsidiary of PC Mall, Inc. (NASDAQ:MALL). Forward-Looking Statements: This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include the Company's expectations, hopes or intentions regarding the future, including but not limited to statements regarding business and financial trends, the Company's expectations regarding profitability, the Company's implementation of certain cost savings initiatives, including establishing offshore operations and using new freight carriers, the Company's intention to merge with PFSweb and the expected benefits of such a merger. Forward-looking statements involve risks and uncertainties and actual results may differ materially from those discussed in any such statement. Among the factors that could cause actual results to differ materially are the following: reliance on PC Mall's maintenance of the Company's systems; the Company's ability to maintain existing and build new vendor and supplier relationships; ability to obtain favorable product pricing and vendor consideration; product availability; outages of the Company's systems and website; ability to attract customers on cost-effective terms; political, economic, legal and other risks associated with operating in a foreign country, risks due to shifts in market demand and the economic climate and, with respect to the proposed merger, the inability of the Company and PFSweb to, among other things, obtain approval from their respective boards of directors and shareholders for the transaction, reach agreement on definitive terms for, and subsequently close, the transaction, and, assuming the merger is consummated, the inability of the companies to successfully integrate their business to achieve the anticipated benefits of the transaction. Additional factors that could cause actual results to differ are discussed under the heading "Risk Factors" and in other sections of the Company's Annual Report on Form 10-K/A for the year ended December 31, 2004 filed with the Securities and Exchange Commission and in its other periodic reports filed from time to time with the Commission. All forward-looking statements in this document are made as of the date hereof, based on information available to the Company as of the date hereof, and the Company assumes no obligation to update any forward-looking statement. WHERE YOU CAN FIND ADDITIONAL INFORMATION: In connection with the Company's solicitation of proxies with respect to any meeting of its stockholders that may be called with respect to the prospective merger, the Company will file with the Securities and Exchange Commission (the "SEC"), and will furnish to its stockholders, a proxy statement. Stockholders of the Company are advised to read any proxy statement when it is finalized and distributed to stockholders because it will contain important information. Stockholders will be able to obtain a free-of-charge copy of any proxy statement (when available) and other relevant documents filed with the SEC from the SEC's website at www.sec.gov. Stockholders will also be able to obtain a free-of-charge copy of the proxy statement and other relevant documents (when available) by directing a request by mail or telephone to eCOST.com, Inc., 2555 West 190th Street, Suite 106, Torrance CA 90504 Attention: Corporate Secretary, Telephone: (310) 225-5025, or from eCOST.com's website, www.ecost.com. The Company and certain of its directors, executive officers and other members of management and employees may, under the rules of the SEC, be deemed to be "participants" in the solicitation of proxies from such company's stockholders in favor of the prospective merger. Information regarding the persons who may be considered "participants" in the solicitation of proxies will be set forth in any proxy statement that is filed with the SEC. Information regarding certain of these persons and their beneficial ownership of the Company's common stock is also set forth in the Schedule 14A filed by eCOST.com on May 27, 2005 with the SEC. -0- *T eCOST.com, Inc. STATEMENTS OF OPERATIONS (in thousands except per share data) Three months ended Nine months ended September 30, September 30, -------------------- ------------------- 2005 2004 2005 2004 --------- --------- -------- --------- Net Sales $ 38,186 $ 43,397 $134,290 $ 120,389 Cost of goods sold 35,456 39,294 125,084 109,055 --------- --------- -------- --------- Gross profit 2,730 4,103 9,206 11,334 Selling, general and administrative expenses 5,088 5,527 17,393 12,783 --------- --------- -------- --------- Loss from operations (2,358) (1,424) (8,187) (1,449) Interest income (49) (7) (139) (7) Interest expense -- PC Mall commercial line of credit -- 304 -- 1,264 Interest income -- PC Mall commercial line of credit -- (304) -- (1,264) --------- --------- -------- --------- Loss before income taxes (2,309) (1,417) (8,048) (1,442) Income tax provision (benefit) -- (525) 5,350 (535) --------- --------- -------- --------- Net loss $ (2,309) $ (892) $(13,398) (907) ========= ========= ======== ========= Loss per share: Basic $ (0.13) $ (0.06) $ (0.76) $ (0.06) ========= ========= ======== ========= Diluted $ (0.13) $ (0.06) $ (0.76) $ (0.06) ========= ========= ======== ========= Shares used in computing per share: (in thousands) Basic 17,738 15,155 17,576 14,385 ========= ========= ======== ========= Diluted 17,738 15,155 17,576 14,385 ========= ========= ======== ========= eCOST.com, Inc. BALANCE SHEETS (in thousands, except share data) September 30, December 31, 2005 2004 ------------- ------------- Assets Current assets: Cash and cash equivalents $ 6,290 $ 8,790 Short-term investments -- 7,000 Accounts receivable, net of allowance for doubtful accounts 5,080 2,039 Inventories, net 6,737 1,794 Prepaid expenses and other current assets 894 263 Due from Affiliate, net -- 813 Deferred income taxes -- 883 ------------- ------------- Total current assets 19,001 21,582 Property and equipment, net 1,868 342 Deferred income taxes -- 4,467 Other assets 179 123 ------------- ------------- Total assets $ 21,048 $ 26,514 ============= ============= Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 7,015 $ 585 Accrued expenses and other current liabilities 3,208 2,635 Due to Affiliate, net 1,082 -- Deferred revenue 1,167 2,014 ------------- ------------- Total current liabilities 12,472 5,234 ------------- ------------- Total liabilities 12,472 5,234 ------------- ------------- Stockholders' equity: Common stock, $.001 par value; 100,000,000 shares authorized; 17,747,133 and 17,465,000 shares issued and outstanding at September 30, 2005 and December 31, 2004, respectively 18 17 Additional paid-in capital 34,152 33,834 Deferred stock-based compensation (958) (1,333) Accumulated deficit (24,636) (11,238) ------------- ------------- Total stockholders' equity 8,576 21,280 ------------- ------------- Total liabilities and stockholders' equity $ 21,048 $ 26,514 ============= ============= eCOST.com, Inc. SELECTED OPERATING DATA Three months ended Nine months ended September 30, September 30, ---------------------- ---------------------- 2005 2004 2005 2004 ---------- ---------- ---------- ---------- Total customers (1) 1,343,989 949,056 1,343,989 949,056 Active customers (2) 507,029 389,133 507,029 389,133 New customers (3) 56,668 88,147 257,128 228,634 Number of orders (4) 102,022 140,468 415,417 376,828 Average order value (5) $ 389 $ 320 $ 338 $ 331 Advertising expense (6) $1,307,000 $1,377,000 $4,784,000 $3,878,000 (1) Total customers have been calculated as the cumulative number of customers for which orders have been taken from our inception to the end of the reported period. (2) Active customers consist of the 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. *T