PFSweb, Inc. and Subsidiaries

Notes To Unaudited Interim Condensed Consolidated Financial Statements

Company’s consolidated net revenues, respectively.

Inventories

     The Company establishes inventory reserves based upon estimates of declines in values due to inventories that are slow moving or obsolete, excess levels of inventory or values assessed at lower than cost. Recoverability of the inventory on hand is measured by comparison of the carrying value of the inventory to the estimated fair value of the inventory.

     Supplies Distributors assumes responsibility for slow-moving inventory under certain master distributor agreements, subject to certain termination rights, but has the right to return product rendered obsolete by engineering changes, as defined. In the event PFSweb, Supplies Distributors and IPS terminate the master distributor agreements, the agreements provide for the parties to mutually agree on a plan of disposition of Supplies Distributors’ then existing inventory.

Property and Equipment

     The Company’s property held under capital leases amounted to approximately $4.2 million and $4.6 million, net of accumulated amortization of approximately $11.2 million and $10.5 million, at March 31, 2008 and December 31, 2007, respectively.

Long-Lived Assets

     The Company reviews long-lived assets for impairment periodically, but at a minimum annually, or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets include property, intangible assets, goodwill and certain other assets. Recoverability of assets is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Fair value would be determined using appraisals, discounted cash flow analysis or similar valuation techniques. The Company makes judgments and estimates in conjunction with the carrying value of these assets, including amounts to be capitalized, depreciation and amortization methods and useful lives. The Company records impairment losses in the period in which it determines that the carrying amount is not recoverable. This may require the Company to make judgments regarding long-term forecasts of their future revenues and costs related to the assets subject to review.

Cash Paid

     The Company made payments for interest of approximately $0.4 million and $0.7 million during the three months ended March 31, 2008 and 2007, respectively. Income taxes of approximately $43,000 and $0.4 million were paid by the Company during the three months ended March 31, 2008 and 2007, respectively.

3. COMPREHENSIVE INCOME (LOSS) (in thousands)

		Three Months Ended
		March 31,
		2008				2007
Net income (loss)		$	414			$	(2,361	)
Other comprehensive loss:
Foreign currency translation Adjustment			677				67
Comprehensive income (loss)		$	1,091			$	(2,294	)

4. NET INCOME (LOSS) PER COMMON SHARE