##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 000-28275
 PFSWEB, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    75-2837058(I.R.S. Employer
Identification Number)500 North Central Expressway, Plano, Texas(Address of principal executive offices)
    
    75074(Zip code)
 Registrants telephone number, including area code:
972-881-2900
 Securities registered pursuant to Section 12(b) of the Act: None
 Securities registered pursuant to Section 12(g) of the Act:  Common Stock, par value $.001 per share
 o þ
 o þ
 þ o
 o o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller Reporting Company þ(Do not check if a Smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



INDEX
 PagePART 1Item 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    14Item 1B. Unresolved Staff Comments
    
    
    23Item 2. Properties
    
    
    23Item 3. Legal Proceedings
    
    
    23Item 4. Reserved
    
    
    23PART IIItem 5. Market for Registrants Common Equity, Related Shareholder Matters
and Issuer Purchases of Equity Securities
    
    
    24Item 6. Selected Consolidated Financial Data
    
    
    24Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    24Item 8. Financial Statements and Supplementary Data
    
    
    37Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
    
    
    62Item 9a. Controls and Procedures
    
    
    62Item 9b. Other Information
    
    
    63PART IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    63Item 11. Executive Compensation
    
    
    63Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Shareholder Matters
    
    
    63Item 13. Certain Relationships and Related Transactions
    
    
    63Item 14. Principal Accountant Fees and Services
    
    
    63PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    64Signatures
    
    
    74EX-10.96EX-21EX-23.1EX-31.1EX-31.2EX-32.1
 Unless otherwise indicated, all references to PFSweb, the Company, we, us and our refer
to PFSweb, Inc., a Delaware corporation, and its subsidiaries; references to PFS refer to our
wholly-owned subsidiaries, Priority Fulfillment Services, Inc. PFS Canada and PFS Europe; and
references to Supplies Distributors refer to our wholly-owned subsidiary Supplies Distributors,
Inc. and its subsidiaries.




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PART I
 
 Item 1. Business
 General
 PFSwebs End2End eCommerce ®
 
    
    Digital Marketing
    
    eCommerce Technologies
    
    Order Management
    
    Customer Care
    
    Logistics and Fulfillment
    
    Financial Management
    
    Professional Consulting
    Recent Events
 ®
 1




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PFSWEBS END2END ECOMMERCE ® SERVICES
 ®
   Quickly Capitalize on Market Opportunities.
 Improve the Customer Experience.
 Minimize Investment and Improve Operating Efficiencies.
 2




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Access a Sophisticated Technology Infrastructure.
 PFSwebs End2End eCommerce ®
 Digital Marketing Services
  Search Engine Optimization (SEO).
 Pay-Per-Click.
 Affiliate Marketing.
 Comparison Shopping Engines.
 Merchandising.
 Web Analytics.
 Customer Experience.
 3




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Email Marketing.
 Social Media.
 eCommerce Technology Services
 Direct-to-Consumer eCommerce. PFSwebs End2End eCommerce ®
 Business-to-Business eCommerce. PFSwebs End2End eCommerce ® ®
 Order Management Services
 Order Management Interfaces.
 
    
    Statistical measurements critical to creating a quality customer experience, containing
real-time order status, order exceptions, back order tracking, allocation of product based
on timing of online purchase and business rules, the ratio of customer inquiries to
purchases, average order sizes and order response time;
    
    B2B supply chain management information critical to evaluating inventory positioning,
for the purpose of reducing inventory turns, and assessing product flow through and
end-consumer demand;
    
    Reverse logistics information including customer response and reason for the return or
rotation of product and desired customer action;
 4




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
    
    Detailed marketing information about what was sold and to whom it was sold, by location
and preference; and
    
    Web traffic reporting showing the number of visits (hits) received, areas visited,
and products and information requested.
 Technology Collaboration.
 Information Management.
 Customer Care Services
 Customer Relationship Management.
 Customer Order Assistance.
  Customer Self-Help.
 5




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Logistics and Fulfillment Services
 Advanced Distribution Facilities and Infrastructure.
     Facility Operations and Management.
 Kitting and Assembly Services.
 6




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Product Management and Inspection Services.
  Financial Management Services
  Business-to-Business Financial Management.
 7




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Direct-to-Consumer Financial Management.
 Professional Consulting Services
   SELLER SERVICES FINANCIAL MODELS
 Enablement Financial Model
   Agent (Flash) Financial Model
   8




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Retail Financial Model
     INDUSTRY INFORMATION AND COMPETITIVE LANDSCAPE
 Industry Overview
  
    
    Manufacturers strive to restructure their supply chains to maximize efficiency and
reduce costs in both B2B and DTC markets and to create a variable-cost supply chain able to
support the multiple, unique needs of each of their initiatives, including traditional and
electronic commerce.
    
    Companies in a variety of industries seek outsourcing as a method to address one or
more business functions that are not within their core business competencies, to reduce
operating costs or to improve the speed or cost of implementation.
 Supply Chain Management Trend
   9




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Outsourcing Trend
  
    
    Enter new business markets or geographic areas rapidly;
    
    Increase flexibility to meet changing business conditions and demand for products and
services;
    
    Enhance customer satisfaction and gain competitive advantage;
    
    Reduce capital and personnel investments and convert fixed investments to variable
costs;
    
    Improve operating performance and efficiency; and
    
    Capitalize on skills, expertise and technology infrastructure that would otherwise be
unavailable or expensive given the scale of the business.
   Competition
  10




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PFSwebs End2End eCommerce ®
  
    
    operating performance and reliability;
    
    ease of implementation and integration;
    
    experience of the people required to successfully and efficiently design and implement
solutions;
    
    experience operating similar solutions dynamically;
    
    leading edge technology capabilities;
    
    global reach; and
    
    price.
  COMPANY INFORMATION
 Clients and Marketing
     11




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Technology
   PFSwebs End2End eCommerce ®
    12




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Strategy
  Quality
 Growth .
 Profit:
   Employees
   13




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Internet Access to Reports
 www.pfsweb.com
 Government Regulation
   
 Item 1A. RISK FACTORS
 Our business, financial condition and operating results could be adversely affected by any or
all of the following factors, in which event the trading price of our common stock could decline,
and you could lose part or all of your investment.
 14




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General Risks Related to Our Business
 Our business and future growth depend on our continued access to bank and commercial financing. An
uncertain or recessed economy may negatively impact our business, results of operations, financial
condition or liquidity.
   Our clients and customers may be unable to pay us for our products and services
  We anticipate incurring significant expenses in the foreseeable future, which may reduce our
ability to achieve or maintain profitability.
  Changes to financial accounting standards may affect our reported results of operations.
  We operate with significant levels of indebtedness and are required to comply with certain
financial and non-financial covenants; we are required to maintain a minimum level of subordinated
loans to our subsidiary
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Supplies Distributors; and we have guaranteed certain indebtedness and obligations of our
subsidiaries Supplies Distributors and eCOST.
  We are dependent on our key personnel, and we need to hire and retain skilled personnel to sustain
our business.
  We are subject to risks associated with our international operations.
  
    
    changing regulatory requirements;
    
    legal uncertainty regarding foreign laws, tariffs and other trade barriers;
    
    political instability;
    
    potentially adverse tax consequences;
    
    foreign currency fluctuations; and
    
    cultural differences.
  We are uncertain about our need for and the availability of additional funds.
  16




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We may engage in future strategic alliances or acquisitions that could dilute our existing
shareholders, cause us to incur significant expenses or harm our business.
  If we fail to maintain an effective system of internal controls, we may not be able to accurately
report our financial results or prevent fraud. As a result, current and potential shareholders
could lose confidence in our financial reporting, which could harm our business and the trading
price of our common stock.
  Delivery of our and our clients products could be delayed or disrupted by factors beyond our
control, and we could lose customers and clients as a result.
  
    
    reduced visibility of order status and package tracking;
    
    delays in order processing and product delivery;
    
    increased cost of delivery, resulting in reduced margins; and
    
    reduced shipment quality, which may result in damaged products and customer
dissatisfaction.
 Our profitability could be adversely affected if the operation of our distribution or call center
facilities were interrupted or shut down as the result of a natural disaster.
  17




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We may be a party to litigation involving our eCommerce intellectual property rights. If third
parties claim we are infringing their intellectual property rights, we could incur significant
litigation costs, be required to pay damages, or change our business or incur licensing expenses.
   A breach of our eCommerce security measures could reduce demand for our services. Credit card fraud
and other fraud could adversely affect our business.
   We may be liable for misappropriation of our customers and our clients customers personal
information.
  18




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Specific Risks Related to Our Business Process Outsourcing Business
 Our service fee revenue and gross margin is dependent upon our clients business and transaction
volumes and our costs; many of our client service agreements are terminable by the client at will;
we may incur financial penalties if we fail to meet contractual service levels under certain client
service agreements.
  We subcontract a portion of our client services to third parties, and we are subject to various
risks and liabilities if such subcontractors do not provide the subcontracted services or provide
them in a manner that does not meet required service levels.
  19




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Our business is subject to the risk of customer and supplier concentration.
    Our operating results are materially impacted by our client mix and the seasonality of their
business.
  Our systems may not accommodate significant growth in our number of clients.
  We may not be able to recover all or a portion of our start-up costs associated with one or more of
our clients.
  20




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Our revenue and margins may be materially impacted by client transaction volumes that differ from
client projections and business assumptions.
  We face competition from many sources that could adversely affect our business.
  Our sales and implementation cycles are highly variable and our ability to finalize pending
contracts may cause our operating results to vary widely.
  Our business could be adversely affected by a systems or equipment failure, whether that of us or
our clients.
   21




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Risks Related to the Business Process Outsourcing Industry
 If the trend toward outsourcing does not continue, our business could be adversely affected.
  Our market is subject to rapid technological change and to compete we must continually enhance our
systems to comply with evolving standards.
  Risks Related to Our Stock
 The market price of our common stock may be volatile. You may not be able to sell your shares at or
above the price at which you purchased such shares.
  Our stock price could decline if a significant number of shares become available for sale.
  Our certificate of incorporation, our bylaws, our shareholder rights plan and Delaware law make it
difficult for a third party to acquire us, despite the possible benefit to our shareholders.
 22




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There are limitations on the liabilities of our directors and executive officers.
  
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
     
 Item 3. Legal Proceedings
  
 Item 4. Reserved
 23




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities
  PriceHigh
    
    
    LowYear Ended December 31, 2009
First Quarter
    
    $
    1.90
    
    
    $
    0.70Second Quarter
    
    $
    1.74
    
    
    $
    0.90Third Quarter
    
    $
    1.90
    
    
    $
    1.11Fourth Quarter
    
    $
    1.83
    
    
    $
    1.22Year Ended December 31, 2010
First Quarter
    
    $
    4.70
    
    
    $
    1.48Second Quarter
    
    $
    5.23
    
    
    $
    2.73Third Quarter
    
    $
    3.57
    
    
    $
    2.21Fourth Quarter
    
    $
    4.19
    
    
    $
    3.05
    Number ofsecurities to beissued upon
    
    
    Weighted-average
    
    
    Number ofexercise of
    
    
    exercise price of
    
    
    securitiesoutstanding options
    
    
    outstanding options
    
    
    remaining availablePlan category (1)
    
    and warrants
    
    
    and warrants
    
    
    for future issuanceEquity
compensation plans
approved by security
holders
    
    
    2,193,673
    
    
    $
    4.28
    
    
    
    845,443Equity compensation
plans not approved
by security holders
    
    
    88,719
    
    
    $
    4.28
    
    
    
    Total
    
    
    2,282,392
    
    
    
    
    
    
    
    845,443
 
 (1)
    
    See Note 5 to the Consolidated Financial Statements for more detailed information
regarding the Companys equity compensation plans. 
 Item 6. Selected Consolidated Financial Data
  
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 We believe the following discussion and analysis provides information that is relevant to an
assessment and understanding of our consolidated results of operations and financial condition. The
discussion and analysis should be read in conjunction with the consolidated financial statements
and related notes thereto appearing elsewhere in this Form 10-K . This Managements Discussion and
Analysis will help you understand:
 24




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
    
    The impact of forward looking statements;
    
    Our financial structure, including our historical financial presentation;
    
    Our results of operations for the previous two years;
    
    Certain of our relationships with our subsidiaries;
    
    Our liquidity and capital resources;
    
    The impact of seasonality, inflation and recently issued accounting standards
on our financial statements; and
    
    Our critical accounting policies and estimates.
 Forward-Looking Information
  
    
    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 International Business Machines Corporation
(IBM) and InfoPrint Solutions Company (IPS);
    
    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 eCommerce, 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 reliance on third-party subcontracted services;
    
    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;
    
    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; and
    
    taxation on the sale of our products.
  25




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Overview
        26




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Cost of product revenue
 Cost of service fee revenue
 Cost of pass-through revenue
 Selling, General and Administrative expenses
  27




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Results of Operations
 Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
  % of TotalChange
    
    
    Revenue2010
    
    
    2009
    
    
    $
    
    
    %
    
    
    2010
    
    
    2009Revenues:Product revenue, net
    
    $
    174.6
    
    
    $
    183.0
    
    
    $
    (8.4
    )
    
    
    (4.6
    )%
    
    
    63.6
    %
    
    
    68.3
    %Service fee revenue
    
    
    70.6
    
    
    
    58.6
    
    
    
    12.0
    
    
    
    20.5
    %
    
    
    25.7
    %
    
    
    21.9
    %Pass-through revenue
    
    
    29.3
    
    
    
    26.3
    
    
    
    3.0
    
    
    
    11.4
    %
    
    
    10.7
    %
    
    
    9.8
    %Total net revenues
    
    
    274.5
    
    
    
    267.9
    
    
    
    6.6
    
    
    
    2.5
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of RevenuesCost of product revenue
    
    
    162.5
    
    
    
    168.8
    
    
    
    (6.3
    )
    
    
    (3.8
    )%
    
    
    93.1
    %(1)
    
    
    92.3
    %Cost of service fee revenue
    
    
    51.1
    
    
    
    41.9
    
    
    
    9.2
    
    
    
    22.1
    %
    
    
    72.4
    %(2)
    
    
    71.5
    %Pass-through cost of revenue
    
    
    29.3
    
    
    
    26.3
    
    
    
    3.0
    
    
    
    11.4
    %
    
    
    100.0
    %(3)
    
    
    100.0
    %Total cost of revenues
    
    
    242.9
    
    
    
    237.0
    
    
    
    5.9
    
    
    
    2.5
    %
    
    
    88.5
    %
    
    
    88.5
    %Product revenue gross profit
    
    
    12.1
    
    
    
    14.2
    
    
    
    (2.1
    )
    
    
    (14.3
    )%
    
    
    6.9
    %(1)
    
    
    7.7
    %Service fee gross profit
    
    
    19.5
    
    
    
    16.7
    
    
    
    2.8
    
    
    
    16.6
    %
    
    
    27.6
    %(2)
    
    
    28.5
    %Pass-through gross profit
    
    
    
    
    
    
    
    
    
    
    Total gross profit
    
    
    31.6
    
    
    
    30.9
    
    
    
    0.7
    
    
    
    2.4
    %
    
    
    11.5
    %
    
    
    11.5
    %Selling, General and Administrative
Expenses
    
    
    33.6
    
    
    
    34.3
    
    
    
    (0.7
    )
    
    
    (1.9)
    %
    
    
    12.2
    %
    
    
    12.8
    %Loss from operations
    
    
    (2.0
    )
    
    
    (3.4
    )
    
    
    1.4
    
    
    
    41.5
    %
    
    
    (0.7
    )%
    
    
    (1.3
    )%Interest expense, net
    
    
    0.9
    
    
    
    1.2
    
    
    
    (0.3
    )
    
    
    (20.6
    )%
    
    
    0.3
    %
    
    
    0.4
    %Loss from continuing
operations
before income taxes
    
    
    (2.9
    )
    
    
    (4.6
    )
    
    
    1.7
    
    
    
    36.1
    %
    
    
    (1.0
    )%
    
    
    (1.7
    )%Income tax expense, net
    
    
    0.5
    
    
    
    0.3
    
    
    
    0.2
    
    
    
    44.2
    %
    
    
    0.2
    %
    
    
    0.1
    %Loss from continuing operations
    
    
    (3.4
    )
    
    
    (4.9
    )
    
    
    1.5
    
    
    
    30.9
    %
    
    
    (1.2)
    %
    
    
    (1.8)
    %Income (loss) from
discontinued operations, net
of tax
    
    
    (4.0
    )(4)
    
    
    0.3
    
    
    
    (4.3
    )
    
    
    (1262.3)
    %
    
    
    (1.4)
    %
    
    
    (0.1)
    %Net loss
    
    $
    (7.4
    )
    
    $
    (4.6
    )
    
    $
    (2.8
    )
    
    
    (61.3
    )%
    
    
    (2.6
    )%
    
    
    (1.7
    )%
 
 (1)
    
    Represents the percent of Product revenue, net.(2)
    
    Represents the percent of Service fee revenue.(3)
    
    Represents the percent of Pass-through revenue.(4)
    
    Includes a $2.8 million goodwill impairment charge. Product Revenue, net.
 Service Fee Revenue
 28




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Year ended December 31, 2009
    
    $
    58.6New service contract relationships
    
    
    10.3Change in existing client service fees including clients
implemented during 2009
    
    
    10.1Terminated clients not included in 2010 revenue
    
    
    (8.4
    )Year ended December 31, 2010
    
    $
    70.6
  Cost of Product Revenue.
 Cost of Service Fee Revenue
  Selling, General and Administrative Expenses
 Income Taxes.
 Income (Loss) from Discontinued Operations, Net of Tax.
 29




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Supplies Distributors and its Subsidiaries
   Liquidity and Capital Resources
        30




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31




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Supplies Distributors Financing
     PFS Financing
  32




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eCOST Financing
   Public Offering
  Off-Balance Sheet Arrangements
  Inventory Management
  33




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Seasonality
   Inflation
  Impact of Recently Issued Accounting Standards
 Multiple-Deliverable Revenue Arrangements  a consensus of the FASB Emerging Issues Task Force FASB Accounting Standards Codification TM Revenue
Recognition
 Certain Revenue Arrangements That Include Software Elements
 a consensus of the FASB Emerging Issues Task Force Software
  Critical Accounting Policies and Estimates
   34




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Product Revenue Recognition
   Cost of Service Fee Revenue
   Allowance for Doubtful Accounts
    35




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Inventory Reserves
  Income Taxes
   36




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Item 8. Financial Statements and Supplementary Data
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
 PagePFSweb, Inc. and SubsidiariesReport of Independent Registered Public Accounting Firm
    
    
    38Consolidated Balance Sheets
    
    
    39Consolidated Statements of Operations
    
    
    40Consolidated Statements of Shareholders Equity and Comprehensive Loss
    
    
    41Consolidated Statements of Cash Flows
    
    
    42Notes to Consolidated Financial Statements
    
    
    43Supplementary DataSchedule I  Condensed Financial Information of Registrant
    
    
    70Schedule II  Valuation and Qualifying Accounts
    
    
    73
 37




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Report of Independent Registered Public Accounting Firm
 
     
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PFSWEB, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
 December 31,
    
    
    December 31,2010
    
    
    2009ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    18,430
    
    
    $
    14,812Restricted cash
    
    
    1,853
    
    
    
    2,096Accounts receivable, net of allowance for doubtful accounts of $754
and $973 at December 31, 2010 and 2009, respectively
    
    
    41,438
    
    
    
    39,861Inventories, net of reserves of $1,561 and $1,760 at December 31,
2010 and 2009, respectively
    
    
    35,161
    
    
    
    33,577Assets of discontinued operations
    
    
    2,776
    
    
    
    4,372Other receivables
    
    
    14,539
    
    
    
    11,605Prepaid expenses and other current assets
    
    
    3,580
    
    
    
    4,170Total current assets
    
    
    117,777
    
    
    
    110,493PROPERTY AND EQUIPMENT, net
    
    
    9,124
    
    
    
    10,314ASSETS OF DISCONTINUED OPERATIONS
    
    
    1,126
    
    
    
    4,024OTHER ASSETS
    
    
    2,203
    
    
    
    2,938Total assets
    
    $
    130,230
    
    
    $
    127,769LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Current portion of long-term debt and capital lease obligations
    
    $
    18,320
    
    
    $
    19,179Trade accounts payable
    
    
    55,692
    
    
    
    53,642Deferred revenue
    
    
    5,254
    
    
    
    5,164Accrued expenses
    
    
    15,870
    
    
    
    13,180Total current liabilities
    
    
    95,136
    
    
    
    91,165LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current
portion
    
    
    2,136
    
    
    
    3,348OTHER LIABILITIES
    
    
    3,608
    
    
    
    3,903Total liabilities
    
    
    100,880
    
    
    
    98,416COMMITMENTS AND CONTINGENCIESSHAREHOLDERS EQUITY:Preferred stock, $1.00 par value; 1,000,000 shares authorized;
none issued and outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value; 35,000,000 shares authorized;12,255,064 and 9,952,164 shares issued at December 31, 2010
and 2009, respectively; and 12,236,703 and 9,933,803
outstanding at December 31, 2010 and 2009, respectively
    
    
    12
    
    
    
    10Additional paid-in capital
    
    
    101,229
    
    
    
    93,152Accumulated deficit
    
    
    (73,332
    )
    
    
    (65,963
    )Accumulated other comprehensive income
    
    
    1,526
    
    
    
    2,239Treasury stock at cost, 18,361 shares
    
    
    (85
    )
    
    
    (85
    )Total shareholders equity
    
    
    29,350
    
    
    
    29,353Total liabilities and shareholders equity
    
    $
    130,230
    
    
    $
    127,769
  39




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##### Table of Contents



PFSWEB, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
(In thousands, except per share data)
 2010
    
    
    2009REVENUES:Product revenue, net
    
    $
    174,613
    
    
    $
    183,008Service fee revenue
    
    
    70,636
    
    
    
    58,619Pass-through revenue
    
    
    29,267
    
    
    
    26,265Total revenues
    
    
    274,516
    
    
    
    267,892COSTS OF REVENUES:Cost of product revenue
    
    
    162,485
    
    
    
    168,864Cost of service fee revenue
    
    
    51,144
    
    
    
    41,898Cost of pass-through revenue
    
    
    29,267
    
    
    
    26,265Total costs of revenues
    
    
    242,896
    
    
    
    237,027Gross profit
    
    
    31,620
    
    
    
    30,865SELLING, GENERAL AND ADMINISTRATIVE EXPENSES, including
stock based compensation expense of $809 and $407 in the
years ended December 31, 2010 and 2009, respectively
    
    
    33,611
    
    
    
    34,270Loss from operations
    
    
    (1,991
    )
    
    
    (3,405
    )INTEREST EXPENSE, net
    
    
    940
    
    
    
    1,186Loss from continuing operations before income taxes
    
    
    (2,931
    )
    
    
    (4,591
    )INCOME TAX EXPENSE
    
    
    463
    
    
    
    321LOSS FROM CONTINUING OPERATIONS
    
    
    (3,394
    )
    
    
    (4,912
    )INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF
TAX
    
    
    (3,975
    )
    
    
    342NET LOSS
    
    $
    (7,369
    )
    
    $
    (4,570
    )LOSS PER SHARE FROM CONTINUING OPERATIONS:Basic and Diluted
    
    $
    (0.30
    )
    
    $
    (0.49
    )LOSS PER SHARE INCLUDING DISCONTINUED OPERATIONS:Basic and Diluted
    
    $
    (0.65
    )
    
    $
    (0.46
    )WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:Basic and Diluted
    
    
    11,310
    
    
    
    9,929
  40




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##### Table of Contents



PFSWEB, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND
COMPREHENSIVE LOSS
(In thousands, except share data)
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    ComprehensiveCommon Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Treasury Stock
    
    
    Shareholders
    
    
    IncomeShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Income (Loss)
    
    
    Shares
    
    
    Amount
    
    
    Equity
    
    
    (Loss)Balance, January 1, 2009
    
    
    9,935,095
    
    
    $
    10
    
    
    $
    92,728
    
    
    $
    (61,393
    )
    
    $
    1,825
    
    
    
    18,361
    
    
    $
    (85
    )
    
    $
    33,085Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,570
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,570
    )
    
    $
    (4,570
    )Stock-based
compensation expense
    
    
    
    
    
    
    
    
    
    
    407
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    407Employee stock purchase plan
    
    
    17,069
    
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17Other comprehensive
income foreign
currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    414
    
    
    
    
    
    
    
    
    
    
    
    414
    
    
    
    414Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (4,156
    )Balance, December 31, 2009
    
    
    9,952,164
    
    
    $
    10
    
    
    $
    93,152
    
    
    $
    (65,963
    )
    
    $
    2,239
    
    
    
    18,361
    
    
    $
    (85
    )
    
    $
    29,353Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,369
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,369
    )
    
    $
    (7,369
    )Stock-based
compensation expense
    
    
    
    
    
    
    
    
    
    
    809
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    809Employee stock purchase plan
    
    
    2,900
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Issuance of common stock
    
    
    2,300,000
    
    
    
    2
    
    
    
    7,264
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,266Other comprehensive loss
foreign currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (713
    )
    
    
    
    
    
    
    
    
    
    
    (713
    )
    
    
    (713
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (8,082
    )Balance, December 31, 2010
    
    
    12,255,064
    
    
    $
    12
    
    
    $
    101,229
    
    
    $
    (73,332
    )
    
    $
    1,526
    
    
    
    18,361
    
    
    $
    (85
    )
    
    $
    29,350
  41




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##### Table of Contents



PFSWEB, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
(In thousands)
 2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (7,369
    )
    
    $
    (4,570
    )Income (Loss) from discontinued operations
    
    
    (3,975
    )
    
    
    342Loss from continuing operations
    
    
    (3,394
    )
    
    
    (4,912
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Depreciation and amortization
    
    
    6,060
    
    
    
    6,544Provision for doubtful accounts
    
    
    156
    
    
    
    147Provision for excess and obsolete inventory
    
    
    233
    
    
    
    174Deferred income taxes
    
    
    (33
    )
    
    
    (65
    )Stock-based compensation expense
    
    
    809
    
    
    
    407Changes in operating assets and liabilities:Restricted cash
    
    
    35
    
    
    
    (11
    )Accounts receivable
    
    
    (2,984
    )
    
    
    4,982Inventories, net
    
    
    (2,709
    )
    
    
    8,189Prepaid expenses, other receivables and other assets
    
    
    (1,545
    )
    
    
    75Accounts payable, deferred revenue, accrued expenses
and other liabilities
    
    
    6,128
    
    
    
    (9,485
    )Net cash provided by continuing operating activities
    
    
    2,756
    
    
    
    6,045Net cash provided by discontinued operating activities
    
    
    715
    
    
    
    2,081Net cash provided by operating activities
    
    
    3,471
    
    
    
    8,126CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (3,774
    )
    
    
    (4,440
    )Net cash used in investing activities
    
    
    (3,774
    )
    
    
    (4,440
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net proceeds from issuance of common stock
    
    
    7,270
    
    
    
    17Decrease (increase) in restricted cash
    
    
    208
    
    
    
    (77
    )Payments on capital lease obligations
    
    
    (1,215
    )
    
    
    (1,680
    )Payments on debt, net
    
    
    (1,987
    )
    
    
    (3,642
    )Net cash provided by (used in) financing activities
    
    
    4,276
    
    
    
    (5,382
    )EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS
    
    
    (355
    )
    
    
    458NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    3,618
    
    
    
    (1,238
    )CASH AND CASH EQUIVALENTS, beginning of year
    
    
    14,812
    
    
    
    16,050CASH AND CASH EQUIVALENTS, end of year
    
    $
    18,430
    
    
    $
    14,812SUPPLEMENTAL CASH FLOW INFORMATIONNon-cash investing and financing activities:Property and equipment acquired under debt and capital leases
    
    $
    1,258
    
    
    $
    412
  42




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##### Table of Contents



PFSWEB, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Overview
  PFSweb Overview
  Supplies Distributors Overview
    eCOST Overview
  43




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##### Table of Contents



PFSWEB, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 2. Significant Accounting Policies
 Principles of Consolidation
  Investment in Affiliates
   Use of Estimates
  Revenue and Cost Recognition
    44




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##### Table of Contents



PFSWEB, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
        December 31,
    
    
    December 31,2010
    
    
    2009Deferred implementation revenuesCurrent
    
    $
    4,487
    
    
    $
    3,948Non-current
    
    
    3,258
    
    
    
    3,680$
    7,745
    
    
    $
    7,628Deferred implementation costsCurrent
    
    $
    1,515
    
    
    $
    1,621Non-current
    
    
    1,076
    
    
    
    1,394$
    2,591
    
    
    $
    3,015
 45




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##### Table of Contents



PFSWEB, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  Concentration of Business and Credit Risk
  December 31,
    
    
    December 31,2010
    
    
    2009Product Revenue (as a percentage of
Product Revenue):Customer 1
    
    
    10
    %
    
    
    14
    %Customer 2
    
    
    17
    %
    
    
    17
    %Service Fee Revenue (as a percentage of
Service Fee Revenue):Client 1
    
    
    7
    %
    
    
    15
    %Client 2
    
    
    7
    %
    
    
    10
    %Accounts Receivable:Customer/Client 1
    
    
    7
    %
    
    
    11
    %
    Cash and Cash Equivalents
  46




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##### Table of Contents



PFSWEB, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Restricted Cash
  December 31,
    
    
    December 31,2010
    
    
    2009Customer remittances
    
    $
    1,076
    
    
    $
    1,364Bond financing (see Note 4)
    
    
    777
    
    
    
    732Total restricted cash
    
    $
    1,853
    
    
    $
    2,096
  Other Receivables
  Inventories
     Property and Equipment
  December 31,
    
    
    December 31,2010
    
    
    2009
    
    
    Depreciable LifeFurniture and fixtures
    
    $
    19,036
    
    
    $
    19,552
    
    
    2-10 yearsPurchased and capitalized software costs
    
    
    22,478
    
    
    
    19,311
    
    
    3-5 yearsComputer equipment
    
    
    9,894
    
    
    
    11,887
    
    
    3-5 yearsLeasehold improvements
    
    
    7,217
    
    
    
    7,838
    
    
    3-5 yearsOther
    
    
    901
    
    
    
    1,003
    
    
    3-5 years59,526
    
    
    
    59,591Less-accumulated depreciation and
amortization
    
    
    (50,402
    )
    
    
    (49,277
    )Property and equipment, net
    
    $
    9,124
    
    
    $
    10,314
 47




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##### Table of Contents



PFSWEB, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
    Foreign Currency Translation and Transactions
   Impact of Recently Issued Accounting Standards
 Multiple-Deliverable Revenue Arrangements  a consensus of the FASB Emerging Issues Task Force FASB Accounting Standards Codification TM Revenue
Recognition
 Certain Revenue Arrangements That Include Software Elements
 a consensus of the FASB Emerging Issues Task Force Software
  48




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##### Table of Contents



PFSWEB, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Income Taxes
    Self Insurance
  Fair Value of Financial Instruments
  Comprehensive Income (Loss)
  Net Loss Per Common Share
  Cash Paid For Interest and Taxes During Year
  49




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##### Table of Contents



PFSWEB, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Reclassifications
  3. Vendor Financing
  December 31,
    
    
    December 31,2010
    
    
    2009Inventory and working capital financing agreements:United States
    
    $
    16,472
    
    
    $
    16,073Europe
    
    
    11,318
    
    
    
    15,649Total
    
    $
    27,790
    
    
    $
    31,722
 Inventory and Working Capital Financing Agreement, United States
   Inventory and Working Capital Financing Agreement, Europe
  50




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##### Table of Contents



PFSWEB, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
   4. Debt and Capital Lease Obligations:
  December 31,
    
    
    December 31,2010
    
    
    2009Loan and security agreements, United States:Supplies Distributors
    
    $
    7,220
    
    
    $
    8,921PFS
    
    
    6,000
    
    
    
    6,000Credit facility  eCOST
    
    
    
    
    
    
    Factoring agreement, Europe
    
    
    2,302
    
    
    
    1,074Taxable revenue bonds
    
    
    1,600
    
    
    
    2,400Master lease agreements
    
    
    2,660
    
    
    
    3,467Other
    
    
    674
    
    
    
    665Total
    
    
    20,456
    
    
    
    22,527Less current portion of long-term debt
    
    
    18,320
    
    
    
    19,179Long-term debt, less current portion
    
    $
    2,136
    
    
    $
    3,348
 Loan and Security Agreement  Supplies Distributors
   51




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##### Table of Contents



PFSWEB, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Loan and Security Agreement  PFSweb
   Credit Facility  eCOST
  Factoring Agreement
  52




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##### Table of Contents



PFSWEB, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  Taxable Revenue Bonds
   Debt Covenants
  Master Lease Agreements
   53




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##### Table of Contents



PFSWEB, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Debt and Capital Lease Maturities
  Fiscal year ended December 31,2011
    
    $
    17,5152012
    
    
    1,2292013
    
    
    2422014
    
    
    35Thereafter
    
    
    Total
    
    $
    19,021
  Fiscal year ended December 31,2011
    
    $
    8662012
    
    
    4392013
    
    
    217Thereafter
    
    
    Total minimum lease payments
    
    $
    1,522Less amount representing interest at rates ranging from 4.7%
to 12.0%
    
    
    (87
    )Present value of net minimum lease payments
    
    
    1,435Less: Current portion
    
    
    (805
    )Long-term capital lease obligations
    
    $
    630
 5. Stock and Stock Options
 Preferred Stock Purchase Rights
  Employee Stock Purchase Plan
  Stock Options and Stock Option Plans
  54




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##### Table of Contents



PFSWEB, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
   PFSweb Plan Options
    WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicExercise
    
    
    Life (in
    
    
    Value (inShares
    
    
    Price Per Share
    
    
    Price
    
    
    years)
    
    
    millions)Outstanding, December 31, 2009
    
    
    1,666,258
    
    
    $
    1.01$13.91
    
    
    $
    4.77Granted
    
    
    653,500
    
    
    $
    2.39$4.00
    
    
    $
    3.95Exercised
    
    
    (107
    )
    
    $
    1.01
    
    
    $
    1.01Canceled
    
    
    (125,978
    )
    
    $
    1.01$12.64
    
    
    $
    8.98Outstanding, December 31, 2010
    
    
    2,193,673
    
    
    $
    1.01$13.91
    
    
    $
    4.28Exercisable, December 31, 2010
    
    
    1,453,788
    
    
    $
    1.01$13.91
    
    
    $
    4.73
    
    
    
    4.4
    
    
    $
    0.7Exercisable and expected to vest,
December 31, 2010
    
    
    2,059,155
    
    
    $
    1.01$13.91
    
    
    $
    4.34
    
    
    
    3.9
    
    
    $
    1.1
  PFSweb Non-plan Options
    55




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##### Table of Contents



PFSWEB, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicExercise
    
    
    Life (in
    
    
    Value (inShares
    
    
    Price Per Share
    
    
    Price
    
    
    years)
    
    
    millions)Outstanding, December 31, 2009
    
    
    91,022
    
    
    $
    4.28
    
    
    $
    4.28Granted
    
    
    
    
    
    $
    
    
    
    $
    Exercised
    
    
    
    
    
    $
    
    
    
    $
    Canceled
    
    
    (2,303
    )
    
    $
    4.28
    
    
    $
    4.28Outstanding, December 31, 2010
    
    
    88,719
    
    
    $
    4.28
    
    
    $
    4.28
    
    
    
    0.9
    
    
    $
    Exercisable, December 31, 2010
    
    
    88,719
    
    
    $
    4.28
    
    
    $
    4.28
    
    
    
    0.9
    
    
    $
    
 Fair Value
  Year Ended
    
    Year EndedDecember 31, 2010
    
    December 31, 2009Expected dividend yield
    
    
    
    Expected stock price volatility
    
    82% - 84%
    
    77% - 82%Weighted average stock price volatility
    
    83%
    
    81%Risk-free interest rate
    
    1.7% - 2.9%
    
    2.0% - 3.2%Expected life of options (years)
    
    6
    
    6
  6. Master Distributor Agreements
   56




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##### Table of Contents



PFSWEB, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 7. Supplies Distributors
  8. Income Taxes
  Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,2010
    
    
    2009Domestic
    
    $
    (4,402
    )
    
    $
    (7,073
    )Foreign
    
    
    1,471
    
    
    
    2,482Total
    
    $
    (2,931
    )
    
    $
    (4,591
    )
  Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,2010
    
    
    2009Income tax benefit computed at statutory rate
    
    $
    (997
    )
    
    $
    (1,561
    )Impact of foreign taxation
    
    
    4
    
    
    
    2Foreign dividends received
    
    
    893
    
    
    
    1,187Items not deductible for tax purposes
    
    
    462
    
    
    
    232Change in valuation reserve
    
    
    (123
    )
    
    
    1,285Other
    
    
    224
    
    
    
    (824
    )Provision for income taxes
    
    $
    463
    
    
    $
    321
  Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,2010
    
    
    2009CurrentDomestic
    
    $
    
    
    
    $
    13State
    
    
    45
    
    
    
    195Foreign
    
    
    451
    
    
    
    178Total current
    
    
    496
    
    
    
    386DeferredDomestic
    
    
    
    
    
    
    State
    
    
    15
    
    
    
    (41
    )Foreign
    
    
    (48
    )
    
    
    (24
    )Total deferred
    
    
    (33
    )
    
    
    (65
    )Total
    
    $
    463
    
    
    $
    321
 57




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##### Table of Contents



PFSWEB, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  December 31,
    
    
    December 31,2010
    
    
    2009Deferred tax assets:Allowance for doubtful accounts
    
    $
    757
    
    
    $
    797Inventory reserve
    
    
    630
    
    
    
    713Property and equipment
    
    
    1,336
    
    
    
    1,071Net operating loss carryforwards
    
    
    19,569
    
    
    
    20,066Other
    
    
    1,476
    
    
    
    1,32623,768
    
    
    
    23,973Less  Valuation allowance
    
    
    23,203
    
    
    
    23,326Total deferred tax asset
    
    
    565
    
    
    
    647Deferred tax liabilities:Intangible assets
    
    
    (108
    )
    
    
    (143
    )Other
    
    
    (48
    )
    
    
    (107
    )Total deferred tax liabilities
    
    
    (156
    )
    
    
    (250
    )Deferred tax assets, net
    
    $
    409
    
    
    $
    397
   9. Commitments and Contingencies
   OperatingLeasePaymentsFiscal year ended December 31,2011
    
    $
    5,7252012
    
    
    4,1702013
    
    
    3,3192014
    
    
    1,9782015
    
    
    433Thereafter
    
    
    Total
    
    $
    15,625
  58




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##### Table of Contents



PFSWEB, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
    10. Segment and Geographic Information
  Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,2010
    
    
    2009Revenues (in thousands):PFSweb
    
    $
    106,552
    
    
    $
    92,047Supplies Distributors
    
    
    174,613
    
    
    
    183,008Eliminations
    
    
    (6,649
    )
    
    
    (7,163
    )$
    274,516
    
    
    $
    267,892Income (loss) from operations (in thousands):PFSweb
    
    $
    (5,442
    )
    
    $
    (8,770
    )Supplies Distributors
    
    
    3,451
    
    
    
    5,365Eliminations
    
    
    
    
    
    
    $
    (1,991
    )
    
    $
    (3,405
    )
 Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,2010
    
    
    2009Depreciation and amortization (in thousands):PFSweb
    
    $
    6,032
    
    
    $
    6,509Supplies Distributors
    
    
    28
    
    
    
    35Eliminations
    
    
    
    
    
    
    $
    6,060
    
    
    $
    6,544
 59




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##### Table of Contents



PFSWEB, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 December 31,
    
    
    December 31,2010
    
    
    2009Capital expenditures (in thousands):PFSweb
    
    $
    3,774
    
    
    $
    4,438Supplies Distributors
    
    
    
    
    
    
    2Eliminations
    
    
    
    
    
    
    $
    3,774
    
    
    $
    4,440Assets (in thousands):PFSweb
    
    $
    62,617
    
    
    $
    65,716Supplies Distributors
    
    
    73,992
    
    
    
    69,291eCOST
    
    
    8,183
    
    
    
    13,579Eliminations
    
    
    (14,562
    )
    
    
    (20,817
    )$
    130,230
    
    
    $
    127,769
  Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,2010
    
    
    2009Revenues (in thousands):United States
    
    $
    194,791
    
    
    $
    183,937Europe
    
    
    77,758
    
    
    
    81,460Canada
    
    
    5,439
    
    
    
    5,389Inter-segment eliminations
    
    
    (3,472
    )
    
    
    (2,894
    )$
    274,516
    
    
    $
    267,892Other long-lived assets (in thousands):United States
    
    $
    11,525
    
    
    $
    16,181Europe
    
    
    765
    
    
    
    900Canada
    
    
    163
    
    
    
    195$
    12,453
    
    
    $
    17,276
 11. Employee Savings Plan
  12. Discontinued Operations
   Twelve MonthsEndedDecember 31,2010
    
    
    2009Product revenue, net
    
    $
    69,172
    
    
    $
    84,607Expenses
    
    
    70,327
    
    
    
    84,257Goodwill and intangible asset impairment
    
    
    2,792
    
    
    
    Income (loss) before provision for income taxes
    
    
    (3,947
    )
    
    
    350Provision for income taxes
    
    
    28
    
    
    
    8Discontinued operations, net of income taxes
    
    $
    (3,975
    )
    
    $
    342
 60




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##### Table of Contents



PFSWEB, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  As ofDecember 31,2010
    
    
    2009Inventories, net
    
    $
    2,776
    
    
    $
    4,372Identifiable intangibles
    
    
    316
    
    
    
    422Goodwill
    
    
    810
    
    
    
    3,602Assets of discontinued operations
    
    $
    3,902
    
    
    $
    8,396
   61




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##### Table of Contents



Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
  
 Item 9A. CONTROLS AND PROCEDURES.
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  Managements Report on Internal Control Over Financial Reporting
   Internal ControlIntegrated Framework
  62




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##### Table of Contents



Item 9B. Other Information
  
 PART III
 
 Item 10. Directors and Executive Officers of the Registrant
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters
   Number ofsecurities to beissued upon
    
    
    Weighted-average
    
    
    Number ofexercise of
    
    
    exercise price of
    
    
    securitiesoutstanding options
    
    
    outstanding options
    
    
    remaining availablePlan category (1)
    
    and warrants
    
    
    and warrants
    
    
    for future issuanceEquity
compensation plans
approved by security
holders
    
    
    2,193,673
    
    
    $
    4.28
    
    
    
    845,443Equity compensation
plans not approved
by security holders
    
    
    88,719
    
    
    $
    4.28
    
    
    
    Total
    
    
    2,282,392
    
    
    
    
    
    
    
    845,443
 
 (2)
    
    See Note 5 to the Consolidated Financial Statements for more detailed information
regarding the Companys equity compensation plans. 
 Item 13. Certain Relationship and Related Transactions
  
 Item 14. Principal Accountant Fees and Services
  63




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 (a)
    
    The following documents are filed as part of this report:1.
    
    Financial Statements
PFSweb, Inc. and SubsidiariesReport of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Shareholders Equity and Comprehensive Loss
Consolidated Statements of Cash Flows
Notes to Consolidated Financial StatementsFinancial Statement SchedulesSchedule I  Condensed Financial Information of Registrant
Schedule II  Valuation and Qualifying Accounts
All other schedules are omitted because the required information is not present in
amounts sufficient to require submission of the schedule or because the information required
is included in the financial statements or notes thereto.
 2.
    
    Exhibits
 ExhibitNumber
    
    Description of Exhibits3.1 (1)
    
    Amended and Restated Certificate of Incorporation of PFSweb, Inc.3.1.1 (20)
    
    Certificate of Amendment to Amended and Restated Certificate of
Incorporation of PFSweb, Inc.3.1.2 (32)
    
    Certificate of Amendment to Certificate of Incorporation of
PFSweb, Inc.3.1.3 (36)
    
    Certificate of Amendment to Amended and Restated Certificate of
Incorporation of PFSweb, Inc.3.2 (1)
    
    Amended and Restated Bylaws3.2.1 (26)
    
    Amendment to the Amended and Restated By-Laws of PFSweb, Inc.2.2.2 (39)
    
    Amendment to the Amended and Restated By-Laws of PFSweb, Inc.4.1 (30)
    
    Rights Agreement, dated as of June 8, 2000, between the Company
and ChaseMellon Shareholder Services, LLC4.1 (31)
    
    Amendment No. 1 to Rights Agreement, dated as of May 30, 2008
between the Company and Mellon Investor Services LLC, as
successor to ChaseMellon Shareholder Services, L.L.C., as rights
agent.4.1 (38)
    
    Amendment No. 2 to Rights Agreement, dated as of May 24, 2010
between the Company and Mellon Investor Services LLC, as
successor to ChaseMellon Shareholder Services, L.L.C., as rights
agent.4.1 (39)
    
    Amendment No. 3 to Rights Agreement, dated as of July 2, 2010
between the Company and Mellon Investor Services LLC, as
successor to ChaseMellon Shareholder Services, L.L.C., as rights
agent.10.1 (17)
    
    PFSweb, Inc. 2005 Employee Stock Purchase Plan.10.2 (18)
    
    Amendment 3 to Loan and Security Agreement.10.3 (18)
    
    Amendment 6 to Agreement for Inventory Financing.10.4 (18)
    
    Amendment 1 to First Amended and Restated Loan and Security
Agreement.10.5 (16)
    
    Amendment 5 to Amended and Restated Platinum Plan Agreement.10.6 (16)
    
    Agreement for IBM Global Financing Platinum Plan Invoice
Discounting Schedule.10.7 (16)
    
    Amendment No. 5 to Agreement for Inventory Financing.10.8 (1)
    
    Industrial Lease Agreement between Shelby Drive Corporation and
Priority Fulfillment Services, Inc.10.9 (1)
    
    Lease Contract between Transports Weerts and Priority
Fulfillment Services Europe B.V.
 64




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.10 (2)
    
    Form of Change of Control Agreement between the Company and each
of its executive officers10.11 (4)
    
    Ninth Amendment to Lease Agreement by and between AGBRI ATRIUM.
L.P., and Priority Fulfillment Services, Inc.10.12 (5)
    
    Agreement for Inventory Financing by and among Business Supplies
Distributors Holdings, LLC, Supplies Distributors, Inc.,
Priority Fulfillment Services, Inc., PFSweb, Inc., Inventory
Financing Partners, LLC and IBM Credit Corporation10.13 (5)
    
    Amended and Restated Collateralized Guaranty by and between
Priority Fulfillment Services, Inc. and IBM Credit Corporation10.14 (5)
    
    Amended and Restated Guaranty to IBM Credit Corporation by
PFSweb, Inc.10.15 (5)
    
    Amended and Restated Notes Payable Subordination Agreement by
and between Priority Fulfillment Services, Inc., Supplies
Distributors, Inc. and IBM Credit Corporation10.16 (5)
    
    Amended and Restated Platinum Plan Agreement (with Invoice
Discounting) by and among Supplies Distributors, S.A., Business
Supplies Distributors Europe B.V., PFSweb B.V., and IBM Belgium
Financial Services S.A.10.17 (5)
    
    Amended and Restated Collateralized Guaranty between Priority
Fulfillment Services, Inc. and IBM Belgium Financial Services
S.A.10.18 (5)
    
    Amended and Restated Guaranty to IBM Belgium Financial Services
S.A. by PFSweb, Inc.10.19 (5)
    
    Subordinated Demand Note by and between Supplies Distributors,
Inc. and Priority Fulfillment Services, Inc.10.20 (5)
    
    Notes Payable Subordination Agreement between Congress Financial
Corporation (Southwest) and Priority Fulfillment Services, Inc.10.21 (5)
    
    Guarantee in favor of Congress Financial Corporation (Southwest)
by Business Supplies Distributors Holdings, LLC, Priority
Fulfillment Services, Inc. and PFSweb, Inc.10.22 (5)
    
    General Security Agreement by Priority Fulfillment Services,
Inc. in favor of Congress Financial Corporation (Southwest).10.23 (5)
    
    Inducement Letter by Priority Fulfillment Services, Inc. and
PFSweb, Inc. in favor of Congress Financial Corporation
(Southwest).10.24 (6)
    
    Form of Executive Severance Agreement between the Company and
each of its executive officers.10.24.1 (33)
    
    Form of Amendment to Executive Severance Agreement.10.24.2 (33)
    
    Form of Amendment to Change in Control Severance Agreement.10.24.3 (39)
    
    Severance, Nondisclosure, Nonsolicitation and Noncompete
Agreement dated July 2, 2010 between the Company and Cynthia
Almond.10.25 (7)
    
    Amendment to Agreement for Inventory Financing by and among
Business Supplies Distributors Holdings, LLC, Supplies
Distributors, Inc., Priority Fulfillment Services, Inc., PFSweb,
Inc., Inventory Financing Partners, LLC and IBM Credit
Corporation10.26 (7)
    
    Amendment to Amended and Restated Platinum Plan Agreement (with
Invoice Discounting) by and among Supplies Distributors, S.A.,
Business Supplies Distributors Europe B.V., PFSweb B.V., and IBM
Belgium Financial Services S.A.10.27 (7)
    
    Amended and Restated Notes Payable Subordination Agreement by
and between Priority Fulfillment Services, Inc., Supplies
Distributors, Inc. and IBM Credit Corporation10.28 (7)
    
    Amendment to Factoring agreement dated March 29, 2002 between
Supplies Distributors S.A. and Fortis Commercial Finance N.V.10.29 (8)
    
    Unconditional Guaranty of PFSweb, Inc. to Comerica Bank 
California10.30 (8)
    
    Security Agreement of PFSweb, Inc. to Comerica Bank  California
 65




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.31 (8)
    
    Intellectual Property Security Agreement between Priority
Fulfillment Services, Inc. and Comerica Bank  California10.32 (8)
    
    Amendment 2 to Amended and Restated Platinum Plan Agreement
(with Invoice Discounting) by and among Supplies Distributors,
S.A., Business Supplies Distributors B.V., PFSweb B.V., and IBM
Belgium Financial Services S.A.10.33 (8)
    
    Amendment to Agreement for Inventory Financing by and among
Business Supplies Distributors Holdings, LLC, Supplies
Distributors, Inc., Priority Fulfillment Services, Inc., PFSweb,
Inc., and IBM Credit LLC10.34 (9)
    
    Amendment to factoring agreement dated April 30, 2003 between
Supplies Distributors S.A. and Fortis Commercial Finance N.V.10.35 (9)
    
    Loan and Security Agreement by and between Congress Financial
Corporation (Southwest), as Lender and Supplies Distributors,
Inc., as Borrower dated March 29, 2002.10.36 (9)
    
    General Security Agreement  Business Supplies Distributors
Holdings, LLC in favor of Congress Financial Corporation
(Southwest)10.37 (9)
    
    Stock Pledge Agreement between Supplies Distributors, Inc. and
Congress Financial Corporation (Southwest)10.38 (9)
    
    First Amendment to General Security Agreement by Priority
Fulfillment Services, Inc. in favor of Congress Financial
Corporation (Southwest)10.39 (12)
    
    Industrial Lease Agreement between New York Life Insurance
Company and Daisytek, Inc.10.40 (12)
    
    First Amendment to Industrial Lease Agreement between New York
Life Insurance Company, Daisytek, Inc. and Priority Fulfillment
Services, Inc.10.41 (12)
    
    Second Amendment to Industrial Lease Agreement between ProLogis
North Carolina Limited Partnership and Priority Fulfillment
Services, Inc.10.42 (12)
    
    Modification, Ratification and Extension of Lease between Shelby
Drive Corporation and Priority Fulfillment Services, Inc.10.43 (13)
    
    Amendment to Agreement for Inventory Financing by and among
Business Supplies Distributors Holdings, LLC, Supplies
Distributors, Inc., Priority Fulfillment Services, Inc., PFSweb,
Inc., and IBM Credit LLC10.44 (13)
    
    Amendment 4 to Amended and Restated Platinum Plan Agreement
(with Invoice Discounting) by and among Supplies Distributors,
S.A., Business Supplies Distributors B.V., PFSweb B.V., and IBM
Belgium Financial Services S.A.10.45 (13)
    
    Third Amended and Restated Notes Payable Subordination Agreement
by and between Priority Fulfillment Services, Inc., Supplies
Distributors, Inc. and IBM Credit Corporation.10.46 (13)
    
    First Amendment to Loan and Security Agreement by and between
Congress Financial Corporation (Southwest), as Lender and
Supplies Distributors, Inc., as Borrower.10.47 (13)
    
    Form of Modification to Executive Severance Agreement.10.48 (14)
    
    Industrial Lease Agreement by and between Industrial
Developments International, Inc. and Priority Fulfillment
Services, Inc.10.49 (14)
    
    Guaranty by PFSweb, Inc. in favor of Industrial Developments
International, Inc.10.50 (14)
    
    Lease between Fleet National Bank and Priority Fulfillment
Services, Inc.10.51 (14)
    
    Guaranty by PFSweb, Inc. in favor of Fleet National Bank10.52 (14)
    
    Amendment No. 3 to Lease dated as of March 3, 1999 between Fleet
National Bank and Priority Fulfillment Services, Inc.10.53 (15)
    
    Loan Agreement between Mississippi Business Finance Corporation
and Priority Fulfillment Services, Inc. dated as of November 1,
200410.54 (15)
    
    Reimbursement Agreement between Priority Fulfillment Services,
Inc. and Comerica Bank10.55 (15)
    
    First Amended and Restated Loan and Security Agreement by and
between Comerica Bank and Priority Fulfillment Services, Inc.
 66




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.56 (15)
    
    Remarketing Agreement between Priority Fulfillment Services,
Inc. and Comerica Securities10.57 (20)
    
    Amendment to factoring agreement dated December 12, 2005 between
Supplies Distributors S.A. and Fortis Commercial Finance N.V.10.58 (21)
    
    Fourth Amended and Restated Notes Payable Subordination
Agreement by and between Priority Fulfillment Services, Inc.,
Supplies Distributors, Inc. and IBM Credit Corporation.10.59 (21)
    
    Amendment 7 to Agreement for Inventory Financing.10.60 (21)
    
    Amendment 6 to Amended and Restated Platinum Plan Agreement.10.61 (21)
    
    Agreement for IBM Global Financing Platinum Plan Invoice
Discounting Schedule.10.62 (21)
    
    Second Amendment to Loan and Security Agreement by and between
eCOST.com, Inc. and Wachovia Capital Finance Corporation
(Western).10.63 (21)
    
    Amendment 4 to Loan and Security Agreement.10.64 (21)
    
    Guaranty by PFSweb, Inc., in favor of Wachovia Capital Finance
Corporation (Western).10.65 (21)
    
    Second Amendment to First Amended and Restated Loan and Security
Agreement by and between Comerica Bank and Priority Fulfillment
Services, Inc.10.66 (23)
    
    Tenth Amendment to Lease Agreement by and between Plano Atrium,
LLC and Priority Fulfillment Services, Inc.10.67 (24)
    
    Fifth Amended and Restated Notes Payable Subordination Agreement
by and between Priority Fulfillment Services, Inc., Supplies
Distributors, Inc. and IBM Credit Corporation.10.68 (24)
    
    Amendment 8 to Agreement for Inventory Financing.10.69 (24)
    
    Fourth Amendment to the Loan and Security Agreement by and
between eCOST.com, Inc. and Wachovia Capital Finance Corporation
(Western).10.70 (24)
    
    Amendment 5 to Loan and Security Agreement.10.71 (24)
    
    Amendment 7 to Amended and Restated Platinum Plan Agreement.10.72 (24)
    
    Agreement for IBM Global Financing Platinum Plan Invoice
Discounting Schedule.10.73 (25)
    
    Fifth Amendment to First Amended and Restated Loan and Security
Agreement by and between Comerica Bank and Priority Fulfillment
Services, Inc.10.74 (27)
    
    Second Amendment to Industrial Lease Agreement by and between
Industrial Property Fund VI, LLC and Priority Fulfillment
Services, Inc.10.75 (29)
    
    Sixth Amended and Restated Notes Payable Subordination Agreement
by and between Priority Fulfillment Services, Inc., Supplies
Distributors, Inc. and IBM Credit Corporation.10.76 (29)
    
    Amendment 9 to Agreement for Inventory Financing.10.77 (29)
    
    Amendment 8 to Amended and Restated Platinum Plan Agreement.10.78 (29)
    
    Agreement for IBM Global Financing Platinum Plan Invoice
Discounting Schedule.10.79 (29)
    
    Sixth Amendment to First Amended and Restated Loan and Security
Agreement by and between Comerica Bank and Priority Fulfillment
Services, Inc.10.80 (34)
    
    Sixth Amendment to Loan and Security Agreement dated January 6,
2009 between Wachovia Bank and Supplies Distributors, Inc.10.81 (34)
    
    Fifth Amendment to Loan and Security Agreement dated January 6,
2009 between Wachovia Bank and eCOST.com Inc.10.82 (35)
    
    Seventh Amended and Restated Notes Payable Subordination
Agreement by and between Priority Fulfillment Services, Inc.,
Supplies Distributors, Inc. and IBM Credit Corporation.10.83 (35)
    
    Amendment 10 to Agreement for Inventory Financing.10.84 (35)
    
    Amendment 9 to Amended and Restated Platinum Plan Agreement.10.85 (35)
    
    Agreement for IBM Global Financing Platinum Plan Invoice
Discounting Schedule.
 67




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.86 (35)
    
    Seventh Amendment to First Amended and Restated Loan and
Security Agreement by and between Comerica Bank and Priority
Fulfillment Services, Inc.10.87 (36)
    
    Amended and Restated 2005 Employee Stock and Incentive Plan of
PFSweb, Inc.10.88 (36)
    
    Amended and Restated Non-Employee Director Stock Option and
Retainer Plan of PFSweb, Inc.10.89 (37)
    
    Eighth Amended and Restated Notes Payable Subordination
Agreement by and between Priority Fulfillment Services, Inc.,
Supplies Distributors, Inc. and IBM Credit Corporation.10.90 (37)
    
    Amendment 11 to Agreement for Inventory Financing.10.91 (37)
    
    Amendment 10 to Amended and Restated Platinum Plan Agreement.10.92 (37)
    
    Agreement for IBM Global Financing Platinum Plan Invoice
Discounting Schedule.10.93 (37)
    
    Eighth Amendment to First Amended and Restated Loan and Security
Agreement by and between Comerica Bank and Priority Fulfillment
Services, Inc.10.94 (37)
    
    2010 Management Bonus Plan10.95 (40)
    
    Asset Purchase Agreement by and between eCOST.com., PC Mall,
Inc. and Mall Acquisition 3, Inc. dated as of February 17, 2011.10.96 (41)
    
    Consent and Lien release dated as of February 17, 2011, by and
between Wells Fargo Bank, National Association and eCOST.com,
Inc.21 (41)
    
    Subsidiary Listing23.1 (41)
    
    Consent of GRANT THORNTON, LLP, Independent Registered Public
Accounting Firm31.1 (41)
    
    Certifications of Principal Executive Officer Pursuant to 18
U.S.C. Section 135031.2 (41)
    
    Certifications of Principal Financial Officer Pursuant to 18
U.S.C. Section 135032.1 (41)
    
    Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 (1)
    
    Incorporated by reference from PFSweb, Inc. Registration Statement on Form S-1
(Commission File No. 333-87657).(2)
    
    Incorporated by reference from PFSweb, Inc. Form 10-K for the fiscal year ended
March 31, 2001(3)
    
    Incorporated by reference from PFSweb, Inc. Form 10-Q/A for the quarterly period
ended September 30, 2001(4)
    
    Incorporated by reference from PFSweb, Inc. Form 10-K for the transition period
ended December 31, 2001(5)
    
    Incorporated by reference from PFSweb, Inc. Form 10-Q for the quarterly period
ended March 31, 2002(6)
    
    Incorporated by reference from PFSweb, Inc. Form 10-Q for the quarterly period
ended June 30, 2002(7)
    
    Incorporated by reference from PFSweb, Inc. Form 10-K for the year ended December
31, 2002(8)
    
    Incorporated by reference from PFSweb, Inc. Form 10-Q for the quarterly period
ended March 31, 2003(9)
    
    Incorporated by reference from PFSweb, Inc. Form 10-Q for the quarterly period
ended June 30, 2003(10)
    
    Incorporated by reference from PFSweb, Inc. Form 10-Q for the quarterly period ended
September 30, 2003(11)
    
    Incorporated by reference from PFSweb, Inc. Report on Form 8-K filed on November 10,
2003(12)
    
    Incorporated by reference from PFSweb, Inc. Form 10-K for the year ended December 31,
2003(13)
    
    Incorporated by reference from PFSweb, Inc. Form 10-Q for the quarterly period ended
March 31, 2004(14)
    
    Incorporated by reference from PFSweb, Inc. Form 10-Q for the quarterly period ended
September 30, 2004(15)
    
    Incorporated by reference from PFSweb, Inc. Form 10-K for the year ended December 31,
2004.(16)
    
    Incorporated by reference from PFSweb, Inc. Form 10-Q for the quarterly period ended
March 31, 2005.(17)
    
    Incorporated by reference from PFSweb, Inc. Report on Form 8-K filed on June 14,
2005. 68




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##### Table of Contents



(18)
    
    Incorporated by reference from PFSweb, Inc. Form 10-Q for the quarterly period ended
June 30, 2005.(19)
    
    Incorporated by reference from PFSweb, Inc. Current Report on Form 8-K filed on
November 30, 2005.(20)
    
    Incorporated by reference from PFSweb, Inc. Form 10-K for the year ended December 31,
2005.(21)
    
    Incorporated by reference from PFSweb, Inc. Form 10-Q for the quarterly period ended
March 31, 2006.(22)
    
    Incorporated by reference from PFSweb, Inc. Current Report on Form 8-K filed on June
2, 2006.(23)
    
    Incorporated by reference from PFSweb, Inc. Form 10-Q for the quarterly period ended
September 30,
2006.(24)
    
    Incorporated by reference from PFSweb, Inc. Form 10-K for the year ended December 31,
2006.(25)
    
    Incorporated by reference from PFSweb, Inc. Form 10-Q for the quarterly period ended
March 31, 2007.(26)
    
    Incorporated by reference from PFSweb, Inc. Report on Form 8-K filed on November 13,
2007.(27)
    
    Incorporated by reference from PFSweb, Inc. Form 10-K for the year ended December 31,
2007.(28)
    
    Incorporated by reference from PFSweb, Inc. Report on Form 8-K filed on May 2, 2008.(29)
    
    Incorporated by reference from PFSweb, Inc. Form 10-Q for the quarterly period ended
March 31, 2008.(30)
    
    Incorporated by reference from PFSweb, Inc. Registration Statement on Form 8-A filed
on June 14, 2000.(31)
    
    Incorporated by reference from PFSweb, Inc. Report on Form 8K filed on May 30, 2008.(32)
    
    Incorporated by reference from PFSweb, Inc. Report on Form 8-K filed on June 2, 2008.(33)
    
    Incorporated by reference from PFSweb, Inc. Report on Form 8-K filed on January 6,
2009.(34)
    
    Incorporated by reference from PFSweb, Inc. Report on Form 8-K filed on January 9,
2009.(35)
    
    Incorporated by reference from PFSweb, Inc. Form 10-Q filed on May 15, 2009.(36)
    
    Incorporated by reference from PFSweb, Inc. Form 10-Q filed on August 14, 2009.(37)
    
    Incorporated by reference from PFSweb, Inc. Form 10-Q filed on May 17, 2010.(38)
    
    Incorporated by reference from PFSweb, Inc. Report on Form 8-K filed on May 25, 2010.(39)
    
    Incorporated by reference from PFSweb, Inc. Report on Form 8-K filed on July 2, 2010.(40)
    
    Incorporated by reference from PFSweb, Inc. Report on Form 8-K filed on February 23,
2011.(41)
    
    Filed herewith. 69




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##### Table of Contents



SCHEDULE I
 PFSWEB, INC. AND SUBSIDIARIES
 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS  PARENT COMPANY ONLY
(In thousands)
 December 31,
    
    
    December 31,2010
    
    
    2009ASSETS:Cash and cash equivalents
    
    $
    5,006
    
    
    $
    182Receivable from Priority Fulfillment Services, Inc.
    
    
    5,394
    
    
    
    5,390Receivable from eCOST.com, Inc.
    
    
    7,400
    
    
    
    4,950Investment in subsidiaries
    
    
    11,550
    
    
    
    18,831Total assets
    
    $
    29,350
    
    
    $
    29,353LIABILITIES:Total liabilities
    
    $
    
    
    
    $
    SHAREHOLDERS EQUITY:Preferred stock
    
    
    
    
    
    
    Common stock
    
    
    12
    
    
    
    10Additional paid-in capital
    
    
    101,229
    
    
    
    93,152Accumulated deficit
    
    
    (73,332
    )
    
    
    (65,963
    )Accumulated other comprehensive income
    
    
    1,526
    
    
    
    2,239Treasury stock
    
    
    (85
    )
    
    
    (85
    )Total shareholders equity
    
    
    29,350
    
    
    
    29,353Total liabilities and shareholders equity
    
    $
    29,350
    
    
    $
    29,353
  70




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##### Table of Contents



SCHEDULE I
 PFSWEB, INC. AND SUBSIDIARIES
 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS  PARENT COMPANY ONLY
FOR THE YEARS ENDED DECEMBER 31
(In thousands)
 2010
    
    
    2009EQUITY IN NET LOSS OF CONSOLIDATED SUBSIDIARIES
    
    $
    (7,369
    )
    
    $
    (4,570
    )NET LOSS
    
    $
    (7,369
    )
    
    $
    (4,570
    )
  71




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##### Table of Contents



SCHEDULE I
 PFSWEB, INC. AND SUBSIDIARIES
 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS  PARENT COMPANY ONLY
FOR THE YEARS ENDED DECEMBER 31
(In thousands)
 2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (7,369
    )
    
    $
    (4,570
    )Adjustments to reconcile net loss to net cash
provided by operating activities:Equity in net loss of consolidated subsidiaries
    
    
    7,369
    
    
    
    4,570Net cash provided by operating activities
    
    
    
    
    
    
    CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of common stock
    
    
    7,270
    
    
    
    17Increase in receivable from eCOST.com, Inc.
    
    
    (2,450
    )
    
    
    (250
    )Increase (decrease) in payable due to PFSweb BV SPRL
    
    
    
    
    
    
    (737
    )Increase (decrease) in receivable from Priority
Fulfillment Services, Inc., net
    
    
    (6
    )
    
    
    234Net cash provided by (used in) financing activities
    
    
    4,814
    
    
    
    (736
    )EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS
    
    
    10
    
    
    
    (8
    )NET INCREASE (DECREASE) IN CASH
    
    
    4,824
    
    
    
    (744
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    182
    
    
    
    926CASH AND CASH EQUIVALENTS, end of period
    
    $
    5,006
    
    
    $
    182
  72




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##### Table of Contents



SCHEDULE II
 PFSWEB, INC. AND SUBSIDIARIES
 VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31
(Amounts in thousands)
 AdditionsBalance at
    
    
    Charges to CostBeginning
    
    
    and
    
    
    Charges to Other
    
    
    
    
    
    
    Balance at Endof Period
    
    
    Expenses
    
    
    Accounts
    
    
    Deductions
    
    
    of PeriodYear Ended December 31, 2009:Allowance for doubtful accounts
    
    $
    980
    
    
    
    147
    
    
    
    
    
    
    
    (154
    )
    
    $
    973Year Ended December 31, 2010:Allowance for doubtful accounts
    
    $
    973
    
    
    
    156
    
    
    
    
    
    
    
    (375
    )
    
    $
    754
 73




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##### Table of Contents



SIGNATURES
  By:
    /s/ Thomas J. MaddenThomas J. Madden,Executive Vice President and
Chief Financial and Accounting Officer  Signature
    
    Title
    
    Date/s/ Mark C. Layton
    
    Chairman of the Board, President and
    
    March 31, 2011Mark C. Layton
    
    Chief Executive Officer (Principal
Executive Officer)/s/ Thomas J. Madden
    
    Executive Vice President and Chief
    
    March 31, 2011Thomas J. Madden
    
    Financial and Accounting Officer
(Principal Financial and Accounting
Officer)/s/ Neil Jacobs

Dr. Neil Jacobs
    
    Director
    
    March 31, 2011/s/ Timothy M. Murray

Timothy M. Murray
    
    Director
    
    March 31, 2011/s/ James F. Reilly

James F. Reilly
    
    Director
    
    March 31, 2011/s/ David I. Beatson

David I. Beatson
    
    Director
    
    March 31, 2011
 74