PFSweb, Inc. and Subsidiaries

Notes to Unaudited Interim Consolidated Financial Statements

     RICOH has advised Supplies Distributors that it is restructuring its IPS business which will include certain realignment and operational changes in the sale and distribution of IPS products. The Company is currently evaluating the impact of these changes to its business, though it believes the changes will result in reduced revenues and profitability for Supplies Distributors beginning in 2012.

Inventories

     Inventories (all of which are finished goods) are stated at the lower of weighted average cost or market. 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.

     Supplies Distributors assumes responsibility for slow-moving inventory under its IPS 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 PFS, 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 $2.4 million and $1.5 million, net of accumulated amortization of approximately $2.1 million and $2.8 million, at September 30, 2011 and December 31, 2010, respectively.

Income Taxes

      The Company records a tax provision primarily associated with state income taxes and its Supplies Distributors subsidiary’s international operations. The Company has recorded a valuation allowance for the majority of its net deferred tax assets.

Cash Paid for Interest and Taxes

     The Company made payments for interest of approximately $0.8 million and $0.7 million in the nine months ended September 30, 2011 and 2010, respectively. Income taxes of approximately $0.4 million were paid by the Company during each of the nine month periods ended September 30, 2011 and 2010.

Impact of Recently Issued Accounting Standards

     In June 2011, the Financial Accounting Standards Board issued new accounting guidance regarding the presentation of comprehensive income. The new guidance requires the presentation of items of net income and comprehensive income in either a single continuous financial statement or in two separate but consecutive financial statements. This account guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The impact of adoption will not have a material effect on the Company’s consolidated financial statements as it only requires a change in the format of the Company’s current presentation.

3. COMPREHENSIVE LOSS (in thousands)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Net loss		$	(1,825	)		$	(1,920	)		$	(5,326	)		$	(4,624	)
Other comprehensive income (loss):
Foreign currency translation adjustment			(622	)			871				163				(569	)
Comprehensive loss		$	(2,447	)		$	(1,049	)		$	(5,163	)		$	(5,193	)

4. NET LOSS PER COMMON SHARE

     Basic and diluted net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding for the reporting period. For the three and nine months ended September