PFSWEB, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PFSweb, Inc. and its subsidiaries, including Supplies Distributors, Inc., and eCOST.com, Inc.,
are collectively referred to as the Company; Supplies Distributors refers to Supplies
Distributors, Inc. and its subsidiaries; eCOST refers to eCOST.com, Inc.; and PFSweb refers to
PFSweb, Inc. and its subsidiaries excluding Supplies Distributors and eCOST.
PFSweb is an international business process outsourcing provider of end-to-end eCommerce
solutions to major brand name companies seeking to optimize their supply chain and to enhance their
traditional and online business channels and initiatives in the United States, Canada, and Europe.
PFSweb offers a broad range of service offerings that include digital marketing, eCommerce
technologies, order management, customer care, logistics and fulfillment, financial management and
Supplies Distributors Overview
Supplies Distributors, PFSweb and InfoPrint Solutions Company (IPS) have entered into master
distributor agreements under which Supplies Distributors acts as a master distributor of various
products, primarily IPS product.
Supplies Distributors has obtained certain financing (see Notes 3 and 4) that allows it to
fund the working capital requirements for the sale of primarily IPS products. Pursuant to the
transaction management services agreements between PFSweb and Supplies Distributors, PFSweb
provides to Supplies Distributors transaction management and fulfillment services, such as managed
web hosting and maintenance, procurement support, web-enabled customer contact center services,
customer relationship management, financial services including billing and collection services,
information management, and international distribution services. Supplies Distributors does not
have its own sales force and relies upon IPSs sales force and product demand generation activities
for its sale of IPS products. Supplies Distributors sells its products in the United States,
Canada and Europe.
All of the agreements between PFSweb and Supplies Distributors were made in the context of a
related party relationship and were negotiated in the overall context of PFSwebs and Supplies
Distributors arrangement with IPS. Although management believes that the terms of these agreements
are generally consistent with fair market values, there can be no assurance that the prices charged
to or by each company under these arrangements are not higher or lower than the prices that may be
charged by, or to, unaffiliated third parties for similar services.
Until February 2011 the Company operated eCOST as a multi-category online discount retailer of
new, close-out and recertified brand-name merchandise, which sold products primarily to customers
in the United States. In February 2011 the Company sold substantially all of the inventory and
certain intangible assets of the eCOST business unit for a cash purchase price of $2.3 million
(before expenses of approximately $0.2 million) and the assumption by the purchaser of certain
limited liabilities of eCOST. The purchase price represented approximately $1 million for
inventory and the balance for the intangible assets. In connection with the closing of this
business unit, the Company currently expects to incur exit costs of approximately $0.2 million to
$0.4 million related to employee termination costs and excess property and equipment and may incur
additional costs, including excess facility costs. In December 2010, the Company recorded a
non-cash goodwill impairment charge of approximately $2.8 million as a result of this sale. For
all periods presented, the Company has reported the operating results of the eCOST segment,
excluding costs expected to continue to occur in the future, as discontinued operations (see Note
12). In conjunction with this sale, the Company renamed its eCOST.com subsidiary in February 2011.
The newly named subsidiary, PFSweb Retail Connect, Inc., will
service certain of the Companys client relationships on an ongoing basis.