PFSweb, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
will depend upon working capital requirements, bank financing availability as well
as eCOSTs continued ability to improve its financial results. Further advances to eCOST may be
limited by the Companys current cash and future cash flow and may be restricted by the Companys
credit facility obligations.
In the event eCOST is unable to increase its revenue and/or gross profit from its present
levels, it may fail to comply with one or more of the financial covenants required under its
working capital line of credit. In such event, absent a waiver, the working capital lender would
be entitled to accelerate all amounts outstanding thereunder and exercise all other rights and
remedies, including sale of collateral and demand for payment under the Company parent guaranty.
Any acceleration of the repayment of the credit facilities would have a material adverse impact on
the Companys financial condition and results of operations and no assurance can be given that the
Company would have the financial ability to repay all of such obligations.
Management currently believes eCOST will meet the Companys expectations related to improved
overall profitability. The Company reported improvement in eCOSTs financial results during 2007
and the first nine months of 2008 and currently expects continued improvement as a result of
efforts to increase sales, improve product mix and control operating costs, although there can be
no assurance that these future improvements will be achieved. If eCOST does not meet future
expectations, the Company currently anticipates that it would be able to terminate or sublease
eCOSTs facilities, liquidate remaining inventory through the eCOST website and reduce personnel
related costs as needed so as to minimize any material impact upon the Companys other segments.
Basis of Presentation
The unaudited interim condensed consolidated financial statements as of September 30, 2008,
and for the three and nine months ended September 30, 2008 and 2007, have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission (SEC) and are unaudited.
Certain information and note disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of America have been
condensed or omitted pursuant to the rules and regulations promulgated by the SEC. In the opinion
of management and subject to the foregoing, the unaudited interim condensed consolidated financial
statements of the Company include all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the Companys financial position as of September 30, 2008, its
results of operations for the three and nine months ended September 30, 2008 and 2007 and its cash
flows for the nine months ended September 30, 2008 and 2007. Results of the Companys operations
for interim periods may not be indicative of results for the full fiscal year.
Certain prior period data has been reclassified to conform to the current period presentation.
These reclassifications had no effect on previously reported net income (loss) or total
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements and related disclosures in conformity
with generally accepted accounting principles requires management to make judgments, estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and
disclosure of contingent assets and liabilities. The recognition and allocation of certain revenues
and operating expenses in these consolidated financial statements also require management estimates