<PAGE>





                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

         [X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly
                  Period Ended June 30, 2002

                                       OR

         [ ]    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                                      75-2837058
-------------------------------              ----------------------------------
    (State of Incorporation)                    (I.R.S. Employer I.D. No.)

  500 NORTH CENTRAL EXPRESSWAY, PLANO, TEXAS                    75074
--------------------------------------------          -------------------------
  (Address of principal executive offices)                    (Zip Code)


Registrant's telephone number, including area code:           (972) 881-2900
                                                     ---------------------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                      Yes  X             No
                          ----               ----

At August 7, 2002 there were 18,268,154 shares of registrant's common stock
outstanding, excluding 86,300 shares of common stock in treasury.



<PAGE>






                          PFSWEB, INC. AND SUBSIDIARIES
                                    FORM 10-Q

                                  JUNE 30, 2002

                                      INDEX


<Table>
<Caption>


PART I.     FINANCIAL INFORMATION                                                                    PAGE NUMBER
                                                                                                     -----------
<S>                                                                                                  <C>

      Item 1.     Financial Statements:
                      Condensed Consolidated Balance Sheets as of June 30, 2002
                           (unaudited) and December 31, 2001.......................................      3

                      Unaudited Interim Condensed Consolidated Statements of
                           Operations for the Three and Six Months Ended June 30, 2002
                           and 2001................................................................      4

                      Unaudited Interim Condensed Consolidated Statements of Cash
                           Flows for the Three and Six Months Ended June 30, 2002 and
                           2001...................................................................       5

                      Notes to Unaudited Interim Condensed Consolidated Financial
                           Statements.............................................................       6


      Item 2.     Management's Discussion and Analysis of Financial
                      Condition and Results of Operations .........................................     15


      Item 3.     Quantitative and Qualitative Disclosure about Market Risk .......................     25


PART II.    OTHER INFORMATION


      Item 4.     Submission of Matters to a Vote of Security Holders..............................     26


      Item 6.     Exhibits and Reports on Form 8-K ................................................     27


SIGNATURES            .............................................................................     28
</Table>




                                        2



<PAGE>




PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                          PFSWEB, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

                        (IN THOUSANDS, EXCEPT SHARE DATA)

<Table>
<Caption>

                                      ASSETS                                                  June 30,        December 31,
                                                                                                2002              2001
                                                                                             ------------     ------------
                                                                                             (unaudited)
<S>                                                                                          <C>              <C>
CURRENT ASSETS:
    Cash and cash equivalents ...........................................................    $      9,124     $     10,669
    Accounts receivable, net of allowance for doubtful accounts of $238 and $254
        at June 30, 2002 and December 31, 2001, respectively ............................           8,560            6,915
    Other receivables ...................................................................              --               92
    Prepaid expenses and other current assets ...........................................           1,541            2,646
                                                                                             ------------     ------------
                  Total current assets ..................................................          19,225           20,322
                                                                                             ------------     ------------

PROPERTY AND EQUIPMENT, net .............................................................          14,250           15,329
NOTE RECEIVABLE FROM AFFILIATE ..........................................................           8,800           11,655
RESTRICTED CASH .........................................................................           2,884            2,722
INVESTMENT IN AFFILIATE .................................................................           1,955              750
OTHER ASSETS ............................................................................             541              833
                                                                                             ------------     ------------

                  Total assets ..........................................................    $     47,655     $     51,611
                                                                                             ============     ============

                                       LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
    Current portion of long-term debt and capital lease obligations .....................    $      1,344     $        995
    Trade accounts payable ..............................................................           3,000            2,838
    Accrued expenses ....................................................................           5,908            5,300
                                                                                             ------------     ------------
                  Total current liabilities .............................................          10,252            9,133
                                                                                             ------------     ------------

LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current
                  portion ...............................................................           3,620            3,663
                                                                                             ------------     ------------
DEFERRED INCOME .........................................................................           1,842            2,210
                                                                                             ------------     ------------

COMMITMENTS AND CONTINGENCIES (Notes 8 and 9)

SHAREHOLDERS' EQUITY:
    Preferred stock, $1.00 par value; 1,000,000 shares authorized; none issued and
        outstanding .....................................................................              --               --
    Common stock, $0.001 par value; 40,000,000 shares authorized;
        18,269,572 and 18,143,409 shares issued at June 30, 2002 and December
        31, 2001, respectively; and 18,183,272 and 18,057,109 outstanding at

        June 30, 2002 and December 31, 2001, respectively ...............................              18               18
    Additional paid-in capital ..........................................................          52,047           51,942
    Accumulated deficit .................................................................         (19,792)         (14,157)
    Accumulated other comprehensive loss ................................................            (247)          (1,113)
    Treasury stock at cost, 86,300 shares at June 30, 2002 and December 31, 2001 ........             (85)             (85)
                                                                                             ------------     ------------
                  Total shareholders' equity ............................................          31,941           36,605
                                                                                             ------------     ------------

                  Total liabilities and shareholders' equity ............................    $     47,655     $     51,611
                                                                                             ============     ============
</Table>


         The  accompanying notes are an integral part of these unaudited interim
              condensed consolidated financial statements.

                                        3



<PAGE>





                          PFSWEB, INC. AND SUBSIDIARIES

        UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)


<Table>
<Caption>
                                                            THREE MONTHS ENDED                SIX MONTHS ENDED
                                                                 JUNE  30,                        JUNE  30,
                                                         ---------------------------     ---------------------------
                                                            2002            2001            2002            2001
                                                         -----------     -----------     -----------     -----------
<S>                                                      <C>             <C>             <C>             <C>
REVENUES:
    Gross service fee revenue .......................    $     9,880     $    10,621     $    17,706     $    23,259
    Gross service fee revenue, affiliate (Note 8) ...          1,575              --           3,140              --
                                                         -----------     -----------     -----------     -----------
      Total gross service fee revenue ...............         11,455          10,621          20,846          23,259
    Less pass-through charges .......................          1,117           1,204           2,190           2,601
                                                         -----------     -----------     -----------     -----------
      Net service fee revenue .......................         10,338           9,417          18,656          20,658
    Other net revenue ...............................             --             100              --             497
                                                         -----------     -----------     -----------     -----------
        Total  net revenues .........................         10,338           9,517          18,656          21,155
                                                         -----------     -----------     -----------     -----------

COSTS OF REVENUES:
    Cost of net service fee revenue .................          6,376           6,087          11,605          13,678
    Cost of other revenue ...........................             --              --              --              59
                                                         -----------     -----------     -----------     -----------
        Total costs of  net revenues ................          6,376           6,087          11,605          13,737
                                                         -----------     -----------     -----------     -----------

        Gross profit ................................          3,962           3,430           7,051           7,418

SELLING, GENERAL AND ADMINISTRATIVE
     EXPENSES .......................................           7024           5,978          14,117          12,380
OTHER ...............................................             --          (4,280)             --          (4,280)
                                                         -----------     -----------     -----------     -----------
        Income (loss) from operations ...............         (3,062)          1,732          (7,066)           (682)

EQUITY IN EARNINGS OF AFFILIATE .....................            386              --             898              --

INTEREST INCOME, NET ................................            268             171             533             382
                                                         -----------     -----------     -----------     -----------
        Income (loss) before income taxes ...........         (2,408)          1,903          (5,635)           (300)

INCOME TAX BENEFIT ..................................             --              --              --              11
                                                         -----------     -----------     -----------     -----------

NET INCOME (LOSS) ...................................    $    (2,408)    $     1,903     $    (5,635)    $      (289)
                                                         ===========     ===========     ===========     ===========

NET INCOME (LOSS) PER SHARE:
     Basic and diluted ..............................    $     (0.13)    $      0.11     $     (0.31)    $     (0.02)
                                                         ===========     ===========     ===========     ===========

WEIGHTED AVERAGE NUMBER OF SHARES
     OUTSTANDING:
     Basic and diluted ..............................         18,183          17,970          18,166          17,939
                                                         ===========     ===========     ===========     ===========
</Table>






         The  accompanying notes are an integral part of these unaudited interim
              condensed consolidated financial statements.

                                        4



<PAGE>



                          PFSWEB, INC. AND SUBSIDIARIES

        UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)



<Table>
<Caption>
                                                                                                Six Months Ended
                                                                                                    June 30,

                                                                                         -----------------------------
                                                                                              2002             2001
                                                                                         ------------     ------------
<S>                                                                                      <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss ........................................................................    $     (5,635)    $       (289)
    Adjustments to reconcile net loss to net cash used in operating activities:
       Depreciation and amortization ................................................           3,098            3,274
       Deferred income taxes ........................................................              --              109
       Provision for doubtful accounts ..............................................              11              258
       Equity in earnings of affiliate ..............................................            (898)              --
       Non-cash compensation expense ................................................              28              696
       Gain on sale of distribution facility ........................................              --           (4,976)
       Changes in operating assets and liabilities:
           Accounts receivable ......................................................          (1,588)           2,679
           Prepaid expenses and other current assets ................................           1,496             (421)
           Accounts payable, accrued expenses and deferred income ...................             247           (2,831)
                                                                                         ------------     ------------
                Net cash used in operating activities ...............................          (3,241)          (1,501)
                                                                                         ------------     ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of property and equipment .............................................            (922)          (2,224)
    Increase in restricted cash .....................................................            (154)            (574)
    Proceeds from loan to affiliate, net ............................................           2,855               --
    Proceeds from sale of distribution facility, net ................................              --            9,437
                                                                                         ------------     ------------
                Net cash provided by investing activities ...........................           1,779            6,639
                                                                                         ------------     ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Payments on long-term debt and capital lease obligations ........................            (506)            (166)
    Proceeds from issuance of common stock ..........................................              77               64
    Proceeds from debt ..............................................................             172               --
                                                                                         ------------     ------------
                Net cash used in financing activities ...............................            (257)            (102)
                                                                                         ------------     ------------

EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS ...............................             174              (27)
                                                                                         ------------     ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................          (1,545)           5,009

CASH AND CASH EQUIVALENTS, beginning of period ......................................          10,669           18,143
                                                                                         ------------     ------------

CASH AND CASH EQUIVALENTS, end of period ............................................    $      9,124     $     23,152
                                                                                         ============     ============

SUPPLEMENTAL CASH FLOW INFORMATION Non-cash investing and financing activities:

      Fixed assets acquired under capital leases ....................................    $        633     $        592
                                                                                         ============     ============


</Table>



         Theaccompanying notes are an integral part of these unaudited interim
            condensed consolidated financial statements.

                                        5



<PAGE>



                          PFSWEB, INC. AND SUBSIDIARIES

     NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.       OVERVIEW AND BASIS OF PRESENTATION

         PFSweb, Inc. (the "Company" or "PFSweb") is an international provider
of integrated business process outsourcing services to major brand name
companies seeking to maximize their supply chain efficiencies and to extend
their traditional and e-commerce initiatives in the United States, Canada, and
Europe. The Company offers such services as professional consulting, technology
collaboration, managed hosting and creative web development, order management,
web-enabled customer contact centers, customer relationship management,
financial services including billing and collection services, information
management, option kitting and assembly services, and international fulfillment
and distribution services.

         The unaudited interim condensed consolidated financial statements as of
June 30, 2002, and for the three and six months ended June 30, 2002 and 2001,
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") and are unaudited. Certain information and footnote
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 Company's financial position as of June
30, 2002, its results of operations for the three and six months ended June 30,
2002 and 2001 and its results of cash flows for the six months ended June 30,
2002 and 2001. Results of the Company's 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 or shareholders' equity. Included in selling, general and
administrative expenses in the three and six months ended June 30, 2002, are
approximately $0.8 and $1.5 million, respectively, of technology infrastructure
costs that were incurred in both periods but that were recorded as a component
of cost of net service fee revenue in the three and six months ended June 30,
2001. These technology costs were principally dedicated to the activities that
generated service fee revenue under the transaction management services contract
with Daisytek International Corporation ("Daisytek"), the Company's former
parent corporation, which was terminated in November 2001 (see Note 6).

2.       SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

         All intercompany accounts and transactions have been eliminated in
consolidation.

INVESTMENT IN AFFILIATE

         In 2001 the Company paid $750,000 in cash for a 49% ownership interest
in Business Supplies Distributors Holdings, LLC, ("Holdings") (see Note 8). The
Company records its interest in Holdings' net income, which is allocated and
distributed to the owners pursuant to the terms of Holdings' operating
agreement, under the modified equity method, which results in the Company
recording its allocated earnings of Holdings or 100% of Holdings' losses and the
Company's proportionate share of Holdings' cumulative foreign currency
translation adjustments.

         In addition to the equity investment, at June 30, 2002 the Company has
an $8.8 million outstanding loan to Supplies Distributors, a subsidiary of
Holdings, in the form of a Subordinated Demand Note (the "Note"). The Note can
be decreased to $6.5 million subject to Holdings' compliance with the covenants
of its senior loan facilities, as amended. Management believes that the Note,
which is due on demand, will not be repaid in its entirety within the upcoming
year and has therefore classified the entire balance as long-term.

                                        6



<PAGE>



                          PFSWEB, INC. AND SUBSIDIARIES

     NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


         The Company evaluates each period whether the carrying value of the
Note from Supplies Distributors is impaired and whether it will be required to
perform under its primary guarantee obligation associated with the Supplies
Distributors debt obligations ($57.4 million at June 30, 2002) (See Note 8). As
of June 30, 2002, management believes the carrying value of the Note is
recoverable and that no liability should be recorded in the consolidated
financial statements of PFSweb associated with its guarantee obligation.

REVENUE AND COST RECOGNITION

         The Company's service fee revenues primarily relate to its (1)
distribution services, (2) order management/customer care services and (3) the
reimbursement of out-of-pocket and third-party vendor expenses.

         Distribution services relate primarily to inventory management, product
receiving, warehousing and fulfillment (i.e., picking, packing and shipping).
Revenue for these activities are either (i) earned on a per transaction basis or
(ii) earned at the time of product fulfillment which occurs at the completion of
the distribution services.

         Order management/customer care services relate primarily to taking
customer orders for our client's products via various channels such as telephone
call-center, electronic or facsimile. These services also entail addressing
customer questions related to orders, as well as cross-selling/up-selling
activities. Revenue is recognized as the services are rendered. Fees charged to
the client are on a per transaction basis based on either (i) a pre-determined
fee per order or fee per telephone minutes incurred, or (ii) are included in the
product fulfillment service fees which are recognized on product shipment. The
Company's cost of service fee revenue, representing the cost to provide the
services described above, is recognized as incurred. Cost of service fee revenue
also includes certain costs associated with technology collaboration and ongoing
technology support which consist of creative website development and
maintenance, web hosting, technology interfacing, and other ongoing programming
activities. These activities are primarily performed to support the distribution
and order management/customer care services and are recognized as incurred.

         The Company also performs billing services and information management
services for its clients. Billing services and information management services
are typically not billed separately to clients because the activities are
continually performed, and the costs are insignificant and are generally covered
by other fees described above. Therefore, any revenue attributable to these
services is often included in the distribution or order management fees which
are recognized as services are performed. The service fee revenue associated
with these activities is currently not significant and is incidental to the
above-mentioned services.

         The Company's billings for reimbursement of out-of-pocket expenses,
such as travel, and certain third-party vendor expenses such as shipping and
handling costs and telecommunication charges are included in gross service fee
revenue. The related reimbursable costs are reflected as pass-through charges
and reduce total gross service fee revenue in computing net service fee revenue.

         The Company recognizes revenue, and records trade accounts receivables,
pursuant to the methods described above when collectibility is reasonably
assured. Collectibility is evaluated on an individual customer basis taking into
consideration historical payment trends, current financial position, results of
independent credit evaluations and payment terms.

         Other revenue of $0.1 million and $0.5 million for the three and six
months ended June 30, 2001, respectively, represents the fees charged to clients
in conjunction with early contract terminations. Cost of other revenue for the
three and six months ended June 30, 2001 includes approximately $0.1 million of
certain uncollectible amounts receivable from, and liabilities applicable to,
clients who terminated contracts.

         The Company primarily performs its services under two to three year
contracts that can be terminated by either party. In conjunction with these
long-term contracts the Company generally receives start-up fees to

                                        7



<PAGE>



                          PFSWEB, INC. AND SUBSIDIARIES

     NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


cover its implementation costs, including certain technology infrastructure and
development costs. The Company defers the fees received, and the related costs,
and amortizes them over the life of the contract. The amortization of deferred
revenue is included as a component of service fee revenue. The amortization of
deferred implementation costs is included as a cost of service fee revenue. To
the extent implementation costs exceed the fees received, excess costs are
expensed as incurred.

         The following summarizes the deferred implementation costs and revenues
(in thousands):


<Table>
<Caption>
                                     JUNE 30, 2002             DECEMBER 31, 2001
                                     -------------             -----------------
<S>                                   <C>                         <C>
Deferred implementation costs

  Current .........................   $        626                $        857
  Non-current  ....................            382                         655
                                      ------------                ------------
                                      $      1,008                $      1,512
                                      ============                ============
Deferred implementation revenues

  Current .........................          1,134                       1,486
  Non-current .....................            606                         988
                                      ------------                ------------
                                      $      1,740                $      2,474
                                      ============                ============
</Table>


         Current and non-current deferred implementation costs are a component
of prepaid expenses and other assets, respectively. Current and non-current
deferred implementation revenues are a component of accrued expenses and
deferred income, respectively.

CONCENTRATION OF BUSINESS AND CREDIT RISK

         The Company had three clients that each exceeded 10% of the Company's
net service fee revenues for the six months ended June 30, 2002. In total, these
clients represented approximately 63% of the Company's net service fee revenue,
with the Company's largest client representing 33% of net revenues, and Supplies
Distributors and its affiliates (see Note 8) representing 16% of net revenues.
Service fee revenue from Daisytek accounted for approximately 62% of the
Company's total revenues for the six months ended June 30, 2001, of which 20%
was from the Daisytek subsidiaries that were the predecessors to Supplies
Distributors. As of June 30, 2002, the Company's largest client accounted for
approximately 40% of accounts receivable. As of December 31, 2001, two clients
accounted for approximately 36% of accounts receivable, of which 12% was due
from Supplies Distributors and its affiliates.

         As of June 30, 2002 and December 31, 2001, the Company had a note
receivable of $8.8 million and $11.7 million, respectively, outstanding from
Supplies Distributors.

RESTRICTED CASH

         In conjunction with certain long-term debt and leases, as of June 30,
2002 and December 31, 2001, the Company had $2.9 million and $2.7 million of
cash restricted, respectively, as collateral for letters of credit that secure
these debt and lease obligations. The letters of credit expire at various dates
through July, 2004.

PROPERTY AND EQUIPMENT

         The Company's property held under capital leases amounted to
approximately $5.3 million and $5.5 million, net of accumulated amortization of
approximately $3.4 million and $2.4 million at June 30, 2002 and December 31,
2001, respectively.

3.       RECENTLY ISSUED ACCOUNTING PRINCIPLES

         On January 1, 2002, the Company adopted the provisions of EITF D-103
"Income Characterization of Reimbursements Received for 'Out-of-Pocket' Expenses
Incurred." The Company's billings for out-of-pocket expenses, such as travel,
and certain third-party vendor expenses such as shipping and handling costs and
telecommunication charges are included in gross service fee revenue. The related
reimbursable costs are reflected as pass-through charges and reduce total gross
service fee revenue in computing net service fee revenues.

         In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which addresses the accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The Company is currently assessing the impact
on the

                                        8



<PAGE>



                          PFSWEB, INC. AND SUBSIDIARIES

     NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


consolidated financial statements and will adopt the provisions of this standard
in the first quarter of 2003.

         In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which addresses the financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." The Company is
currently assessing the impact on the consolidated financial statements and will
adopt the provisions of this standard by the first quarter of 2003.

4.       COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS)


<Table>
<Caption>
                                           Three Months Ended                 Six Months Ended
                                                 June 30,                         June 30,
                                      -----------------------------     -----------------------------
                                         2002             2001              2002             2001
                                      ------------     ------------     ------------     ------------
<S>                                   <C>              <C>              <C>              <C>
Net income (loss) ..................  $     (2,408)    $      1,903     $     (5,635)    $       (289)
Other comprehensive income:
     Foreign currency translation

        Adjustment .................         1,313           (1,000)             866             (990)
                                      ------------     ------------     ------------     ------------
Comprehensive income (loss) ........  $     (1,095)    $        903     $     (4,769)    $     (1,279)
                                      ============     ============     ============     ============
</Table>


         Effective April 1, 2001, in response to a change to the Euro for
transaction activity previously conducted in the U.S. dollar by the Company's
largest European client, the Company adopted the Euro as its functional currency
for its European operations. As a result, beginning April 1, 2001, all assets
and liabilities are translated at exchange rates in effect at the end of the
period, and income and expense items are translated at the average exchange
rates for the period. Translation adjustments are reported as a separate
component of shareholders' equity. Gains and losses from foreign currency
transactions are included in net income (loss).

5.       NET INCOME (LOSS) PER COMMON SHARE AND COMMON SHARE EQUIVALENT

         Basic and diluted net loss per common share attributable to PFSweb
common stock were determined based on dividing the income or loss available to
common stockholders by the weighted-average number of common shares outstanding.
During the three and six months ended June 30, 2002 and 2001, all outstanding
options to purchase common shares were anti-dilutive and have been excluded from
the weighted diluted average share computation. As of June 30, 2002 and 2001
there were 6,007,797 and 1,934,983 options outstanding, respectively. There are
no other potentially dilutive securities outstanding.

6.       TRANSACTIONS WITH DAISYTEK

         As of June 30, 2002, the Company had no receivables from Daisytek. As
of December 31, 2001 the Company had receivables from Daisytek of approximately
$0.1 million.

         In conjunction with the successful completion of an initial public
offering of PFSweb common stock, PFSweb entered into agreements with Daisytek,
including a tax sharing agreement, a transaction management services agreement,
a transition services agreement and a master separation agreement. In addition,
on a going forward basis, Daisytek continues to be an obligor and guarantor for
certain of the Company's facility and equipment leases.

         On May 25, 2001, the Company completed the sale of certain assets to
Daisytek pursuant to an Asset Purchase Agreement (the "Purchase Agreement") (See
Note 7). The Purchase Agreement included a termination by the Company and
Daisytek of certain transaction management services agreements previously
entered into between the Company and Daisytek and a Daisytek subsidiary.
Concurrently with the closing of the asset sale, the Company and Daisytek also
entered into a six-month transition services agreement under which the Company
provided Daisytek with certain transitional and information

                                        9



<PAGE>



                          PFSWEB, INC. AND SUBSIDIARIES

     NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


technology services that expired in November 2001.

         For the three and six months ended June 30, 2001, the unaudited interim
condensed consolidated financial statements include service fee revenues and
cost of service fee revenues for certain services subcontracted to PFSweb by
Daisytek under Daisytek's contractual agreements.

         Net service fee revenue charged to Daisytek under (i) the IBM Master
Distributor Agreements (See Note 8), entered into during the quarter ended
September 30, 1999, (ii) the transaction management services agreement with
Daisytek, and (iii) certain subcontracted services, were $5.7 million, net of
$0.1 million of pass-through charges, and $13.1 million, net of $0.1 million of
pass-through charges, for the three and six months ended June 30, 2001,
respectively.

         Effective November 2001, the Company is no longer a party to any
agreement to provide services for Daisytek.

7.       DISPOSITION OF ASSETS

         On May 25, 2001, the Company completed the sale of certain assets to
Daisytek pursuant to the Purchase Agreement. Under the Purchase Agreement, the
Company transferred and sold to Daisytek certain distribution and fulfillment
assets, including equipment and fixtures, that were previously used by the
Company to provide outsourcing services to Daisytek. Daisytek also assumed
certain related equipment leases and a warehouse lease and hired certain
employees who were associated with the warehouse facility. The consideration
payable under the Purchase Agreement of $11.0 million included a termination by
the Company and Daisytek of certain transaction management services agreements
previously entered into between the Company, Daisytek and a Daisytek subsidiary.
Proceeds of $10.9 million were received for assets with an approximately $4.5
million net book value with a resulting $5.8 million gain, after closing costs
of $0.6 million. Concurrently with the closing of the asset sale, the Company
and Daisytek also entered into a six-month transition services agreement under
which the Company provided Daisytek with certain transitional and information
technology services.

         Pro forma net revenues and pro forma loss from operations for the three
months ended June 30, 2001, assuming the transaction had occurred in January
2001, would have been $5.7 million and $(4.3) million, respectively. Pro forma
net revenues and pro forma loss from operations for the six months ended June
30, 2001, assuming the transaction had occurred in January 2001, would have been
$12.2 million and $(8.6) million, respectively. The pro forma data do not give
effect to any fees earned by PFSweb for services provided to Daisytek under a
six-month transition services agreement entered into on May 25, 2001 or the
effect of the $5.8 million gain on the sale of the assets. Additionally, these
pro forma adjustments do not consider certain infrastructure costs, such as
operating costs associated with the information technology function, salaries of
certain management and personnel, telephone and lease costs, and depreciation
expense which supported this business but that will continue in the future.
Because these ongoing costs were not considered, the pro forma adjustments to
the loss from operations are not indicative of the overall margin earned under
these transaction management services agreements.

8.       SUPPLIES DISTRIBUTORS

         The Company, Business Supplies Distributors (a Daisytek subsidiary --
"BSD"), Daisytek and IBM were parties to various Master Distributor Agreements
that had various scheduled expiration dates through September 2001. Under these
agreements, BSD and its affiliates Business Supplies Distributors Europe B.V.
("BSD Europe"), a Daisytek subsidiary, and BSD (Canada) Inc., a Daisytek
subsidiary ("BSD Canada" and together with BSD and BSD Europe, the "BSD
Companies"), acted as master distributors of various IBM products, Daisytek
provided financing and credit support to the BSD Companies and the Company
provided transaction management and fulfillment services to the BSD Companies.

         On June 8, 2001, Daisytek notified the Company and IBM that it did not
intend to renew these agreements upon their scheduled expiration dates. In July
2001, the Company and Inventory Financing




                                       10



<PAGE>



                          PFSWEB, INC. AND SUBSIDIARIES

     NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Partners, LLC ("IFP") formed Holdings, and Holdings formed a wholly-owned
subsidiary, Supplies Distributors ("Supplies Distributors"). Concurrently,
Supplies Distributors formed its wholly-owned subsidiaries Supplies Distributors
of Canada, Inc. ("SDC") and Supplies Distributors S.A. ("SDSA"), a Belgium
corporation. Supplies Distributors, SDSA, the Company and IBM entered into new
Master Distributor Agreements to replace the prior agreements. Under these
agreements, Supplies Distributors and SDSA act as master distributors of various
IBM products and, pursuant to a transaction management services agreement
between the Company and Supplies Distributors, the Company provides transaction
management and fulfillment services to Supplies Distributors.

         The Company made an equity investment of $0.75 million in Holdings,
which is included in investment in affiliate in the accompanying consolidated
financial statements, for a 49% voting interest, and IFP made an equity
investment of $0.25 million in Holdings for a 51% voting interest. Certain
officers and a director of the Company collectively own a 49% non-voting
interest in IFP. In addition to its equity investment in Holdings, the Company
has also provided Supplies Distributors with a subordinated loan, evidenced by
the Note, which, as of June 30, 2002, had an outstanding balance of $8.8 million
(see Note 2). In June 2002, Supplies Distributors repaid $3.0 million to the
Company, reducing the outstanding balance of the Note. The Note, which is
classified as a note receivable from affiliate, accrues interest at a
fluctuating rate per annum equal to the Company's cost of funds, as determined
by the Company. For the three and six months ended June 30, 2002, the Company
charged interest at 10% and earned $0.3 and $0.6 million, respectively,
associated with the Note.

         On September 26, 2001, Supplies Distributors purchased all of the stock
of the BSD Companies for a purchase price of $923,000. In conjunction with the
purchase, BSD and Supplies Distributors were merged with Supplies Distributors
being the surviving corporation. Effective December 31, 2001, BSD Canada and SDC
were amalgamated, with SDC being the surviving corporation. On September 27,
2001, Supplies Distributors entered into short-term credit facilities with IBM
Credit Corporation ("IBM Credit") and IBM Belgium Financial Services S.A. ("IBM
Belgium") for the purpose of financing its distribution of IBM products. The
facilities, which at inception included $40 million for the U.S. operations and
20 million Euros (approximately $19.8 million) for the European operations, were
subsequently increased to $45 million and 27 million Euros (approximately $26.8
million), respectively, and extended through March 25, 2002.

         On March 29, 2002, Supplies Distributors entered into amended credit
facilities with IBM Credit and SDSA and BSD Europe entered into amended credit
facilities with IBM Belgium. The asset based credit facility with IBM Credit
provides financing for purchasing IBM inventory up to $32.5 million through June
30, 2002 and $27.5 million from July 1, 2002 through its expiration on March 29,
2003. The asset based credit facility with IBM Belgium provides up to 27 million
Euros (approximately $26.8 million) in financing for purchasing IBM inventory
through June 30, 2002 and 22 million Euros (approximately $21.8 million)
thereafter. The IBM Belgium facility remains in force until not less than 60
days written notice by any party, but no sooner than March 29, 2003. These
credit facilities contain cross default provisions, various restrictions upon
the ability of Holdings, Supplies Distributors, SDSA and BSD Europe to, among
other things, merge, consolidate, sell assets, incur indebtedness, make loans
and payments to related parties, provide guarantees, make investments and loans,
pledge assets, make changes to capital stock ownership structure and pay
dividends, as well as financial covenants, such as annualized revenue to working
capital, net profit after tax to revenue, and total liabilities to tangible net
worth, as defined, and are secured by all of the assets of Supplies
Distributors, as well as collateralized guaranties of Holdings and PFSweb (See
Note 9). Additionally, the Company is required to maintain a subordinated loan
to Supplies Distributors of no less than $6.5 million and shareholders' equity
of at least $25.0 million.

         Concurrent with these amended agreements, Supplies Distributors entered
into a loan and security agreement with Congress Financial Corporation
(Southwest) ("Congress") to provide financing for up to $25 million of eligible
accounts receivables in the U.S. and Canada. The Congress facility expires on
the earlier of three years or the date on which the parties to the IBM Master
Distributor Agreement shall no longer operate under the terms of such agreement
and/or IBM no longer supplies products pursuant to such agreement. Borrowings
under the Congress facility accrue interest at prime rate plus 0.25% or
Eurodollar

                                       11



<PAGE>



                          PFSWEB, INC. AND SUBSIDIARIES

     NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


rate plus 3.0% or on an adjusted basis, as defined. In Europe, SDSA entered into
a two year factoring agreement with Fortis Commercial Finance N.V. ("Fortis") to
provide factoring for up to 10 million Euros (approximately $9.9 million) of
eligible accounts receivables. Borrowings under this agreement accrue interest
at 8.5%, or on an adjusted basis as defined. These credit facilities contain
cross default provisions, various restrictions upon the ability of Holdings,
Supplies Distributors and SDSA to, among other things, merge, consolidate, sell
assets, incur indebtedness, make loans and payments to related parties, provide
guarantees, make investments and loans, pledge assets, make changes to capital
stock ownership structure and pay dividends, as well as financial covenants,
such as minimum net worth, as defined, and are secured by all of the assets of
Supplies Distributors, as well as collateralized guaranties of Holdings and
PFSweb (See Note 9). Additionally, the Company is required to maintain a
subordinated loan to Supplies Distributors of no less than $6.5 million and may
not maintain restricted cash of more than $5.0 million as security for capital
leases, and is restricted with regard to transactions with related parties,
capital expenditures, indebtedness and changes to capital stock ownership
structure.

         Pursuant to the terms of the Company's transaction management services
agreement with Supplies Distributors, the Company earned service fees, which are
reported as service fee revenue, affiliate in the accompanying unaudited interim
condensed consolidated financial statements, of approximately $1.5 million, net
of $0.1 million of pass-through charges, for the three months ended June 30,
2002 and $3.0 million, net of $0.1 million of pass-through charges, for the six
months ended June 30, 2002. Prior to becoming a related party, service fees
earned by PFSweb from BSD (the Daisytek subsidiary and predecessor to Supplies
Distributors), associated with the same business activities, were $2.0 million,
net of $0.1 million of pass-through charges, for the three months ended June 30,
2001 and $4.3 million, net of $0.3 million of pass-through charges, for the six
months ended June 30, 2001. As of June 30, 2002 and December 31, 2001, the
Company has trade accounts receivables of $0.7 million and $0.9 million due from
Supplies Distributors, respectively.

         Pursuant to Holdings' operating agreement, Holdings allocates its
earning and distributes its cash flow, as defined, in the following order of
priority: first, to IFP until it has received a one-time amount equal to its
capital contribution of $0.25 million; second, to IFP until it has received an
amount equal to a 35% cumulative annual return on its capital contribution;
third, to PFSweb until it has received a one-time amount equal to its capital
contribution of $0.75 million; fourth, to PFSweb until it has received an amount
equal to a 35% cumulative annual return on its capital contribution; and fifth,
to PFSweb and IFP, pro rata, in accordance with their respective capital
accounts. Notwithstanding the foregoing, no distribution may be made if, after
giving effect thereto, the net worth of Holdings shall be less than $1.0
million. In May 2002, Holdings paid a $0.2 million dividend to IFP. Under the
terms of its credit agreements, Holdings is currently limited to annual cash
dividends of $0.6 million. The Company recorded $0.4 million and $0.9 million of
equity in the earnings of Holdings for the three and six months ended June 30,
2002, respectively. The Company's investment in Holdings includes the Company's
proportionate share of cumulative foreign currency translation adjustments
reflected in Holdings equity section, which, as of June 30, 2002, resulted in a
decrease of $0.3 million to the Company's accumulated other comprehensive loss.

                                       12



<PAGE>



                          PFSWEB, INC. AND SUBSIDIARIES

     NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

         Summarized financial information for Holdings as of June 30, 2002 is as
follows (in thousands):


<Table>
<S>                                                       <C>
Cash and cash equivalents  (including restricted
     cash of $738) ...................................    $      1,443
Accounts receivable, net of allowance for
     doubtful accounts of $312 .......................          29,988
Inventories, net .....................................          41,236
Prepaid expenses and other current assets ............           3,408
Other assets, net (including restricted
     cash of $875) ...................................           1,072
                                                          ------------
       Total assets ..................................    $     77,147
                                                          ============

Trade accounts payable ...............................    $      2,895
Accrued expenses .....................................           2,204
Debt (guaranteed by PFSweb) ..........................          57,445
</Table>



<Table>

<S>                                                       <C>
Other debt ...........................................           3,256
Note payable to affiliate ............................           8,800
Members' capital:
    Capital contributions ............................           1,000
    Retained earnings ................................           1,018
    Unrealized gain on investment ....................             294
    Accumulated other comprehensive loss .............             235
                                                          ------------
       Total members' capital ........................           2,547
                                                          ------------
       Total liabilities and members' capital ........    $     77,147
                                                          ============
</Table>



         Summarized operating information for Holdings for the three and six
months ending June 30, 2002 is as follows (in thousands):


<Table>
<Caption>

                                                              June 30, 2002
                                                      ------------------------------
                                                      Three Months      Six Months

                                                      -------------    -------------
<S>                                                   <C>              <C>
Net revenues .....................................    $      52,936    $     106,039
Cost of goods sold ...............................           49,771           99,851
                                                      -------------    -------------
Gross profit .....................................            3,165            6,188
Selling, general and administrative expenses .....            1,352            3,227
                                                      -------------    -------------
Income from operations ...........................            1,813            2,961
Interest expense .................................            1,148            1,581
                                                      -------------    -------------
Income before income taxes .......................              665            1,380
Income tax expense ...............................              257              553
                                                      -------------    -------------
Net income .......................................    $         408    $         827
                                                      =============    =============
</Table>



                                      13

<PAGE>

9.       COMMITMENTS AND CONTINGENCIES

         The Company has provided collateralized guarantees to secure the
repayment of Supplies Distributors' credit facilities. As of June 30, 2002 the
outstanding balance of the credit facilities guaranteed by the Company was
approximately $57.4 million. These guarantees expire concurrently with the
expiration of the underlying credit agreements. To the extent Supplies
Distributors or its subsidiaries fails to comply with its covenants, including
its monthly financial covenant requirements, and the lenders accelerate the
repayment of the credit facility obligations, Supplies Distributors or its
subsidiaries would be required to repay all amounts outstanding thereunder. In
such event, the Company would be obligated to perform under those guarantees and
repay, to the extent Supplies Distributors or its subsidiaries was unable to,
Supplies Distributors' or its subsidiaries credit facility obligations.
Additionally, if the Company was unable to maintain the Company's required level
of stockholders' equity of $25.0 million or if the Company was to violate any of
the restricted transactions pursuant to the IBM Credit, IBM Belgium, or Congress
agreements (see Note 8), the Company could also be obligated to perform under
these guarantees. Any requirement to perform under the Company's guarantees
would have a material adverse impact on the Company's financial condition and
results of operations and no assurance can be given that the Company will have
the financial ability to repay all of such guaranteed obligations. In addition,
in the event Supplies Distributors or its subsidiaries is, or would be, in
default of its obligations under its credit facilities, the Company is
restricted from receiving any payment of its Note and such event would also have
a material adverse impact upon the Company's financial condition and results of
operations. Furthermore, the Company is obligated to repay any over-advance made
to Supplies Distributors or its subsidiaries by its lenders. An over-advance
would arise in the event borrowings exceeded the maximum amount available under
the eligible borrowing base, as defined. The Company has also provided a
guarantee of the obligations of Supplies Distributors and its subsidiaries to
IBM, excluding the trade payables that are financed by IBM Credit. No
liabilities have been recorded in the accompanying financial statements for
these guarantee obligations.

         Although the parties to these credit facilities are currently in
compliance with all of the covenants and other provisions required thereunder,
the Company may seek the consent of the required lenders to modify, amend or
waive some of the restrictions and financial covenants thereunder prior to its
maturity in March 2003. No assurance can be given that the Company will be able
to obtain such modifications, amendments or waivers, and the failure to obtain
one or more of such modifications, amendments or waivers will have a material
adverse effect upon Holdings, Supplies Distributors and PFSweb and their
respective financial condition and operations.

                                       14



<PAGE>










ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

         The following discussion and analysis of our results of operations and
financial condition should be read in conjunction with the unaudited interim
condensed consolidated financial statements and related notes appearing
elsewhere in this Form 10-Q.

FORWARD-LOOKING INFORMATION

         We have made forward-looking statements in this Report on Form 10-Q.
These statements are subject to risks and uncertainties, and there can be no
guarantee that these statements will prove to be correct. Forward-looking
statements include assumptions as to how we may perform in the future. When we
use words like "seek," "strive," "believe," "expect," "anticipate," "predict,"
"potential," "continue," "will," "may," "could," "intend," "plan," "target" and
"estimate" or similar expressions, we are making forward-looking statements. You
should understand that the following important factors, in addition to those set
forth above or elsewhere in this Report on Form 10-Q and our Form 10-K for the
nine-month transition period ended December 31, 2001, could cause our results to
differ materially from those expressed in our forward-looking statements. These
factors include:

         o        our ability to retain and expand relationships with existing
                  clients and attract new clients;

         o        our reliance on the fees generated by the transaction volume
                  or product sales of our clients;

         o        our reliance on our clients' projections or transaction volume
                  or product sales;

         o        our client mix and the seasonality of their business;

         o        our ability to finalize pending contracts;

         o        the impact of strategic alliances and acquisitions;

         o        trends in the market for our services;

         o        trends in e-commerce;

         o        whether we can continue and manage growth;

         o        changes in the trend toward outsourcing;

         o        increased competition;

         o        our ability to generate more revenue and achieve sustainable
                  profitability;

         o        effects of changes in profit margins;

         o        the customer concentration of our business;

         o        the unknown effects of possible system failures and rapid
                  changes in technology;

         o        trends in government regulation both foreign and domestic;

         o        foreign currency risks and other risks of operating in foreign
                  countries;

         o        potential litigation involving our e-commerce intellectual
                  property rights;

         o        our dependency on key personnel;



                                       15



<PAGE>




         o        our ability to raise additional capital;

         o        our relationship with and our guarantees of the working
                  capital indebtedness of our affiliate, Supplies Distributors;

         o        the continued listing of our common stock on the NASDAQ
                  SmallCap Market; and

         o        our relationship with and separation from Daisytek, our former
                  parent corporation.


         We have based these statements on our current expectations about future
events. Although we believe that the expectations reflected in our
forward-looking statements are reasonable, we cannot guarantee you that these
expectations actually will be achieved. In addition, some forward-looking
statements are based upon assumptions as to future events that may not prove to
be accurate. Therefore, actual outcomes and results may differ materially from
what is expected or forecasted in such forward-looking statements. We undertake
no obligation to update publicly any forward-looking statement for any reason,
even if new information becomes available or other events occur in the future.
There may be additional risks that we do not currently view as material or that
are not presently known.

OVERVIEW

         We are an international outsourcing provider of integrated business
process outsourcing solutions to major brand name companies seeking to maximize
their supply chain efficiencies and to extend their e-commerce initiatives. We
derive our revenues from a broad range of services, including professional
consulting, technology collaboration, order management, managed web hosting and
web development, customer relationship management, financial services including
billing and collection services, options kitting and assembly services,
information management and international fulfillment and distribution services.
We offer our services as an integrated solution, which enables our clients to
outsource their complete infrastructure needs to a single source and to focus on
their core competencies. Our distribution services are conducted at our
warehouses and include real-time inventory management and customized picking,
packing and shipping of our clients' customer orders. We currently provide
infrastructure and distribution solutions to clients that operate in a range of
vertical markets, including technology manufacturing, computer products,
printers, cosmetics, fragile goods, high security collectibles, pharmaceuticals,
housewares, apparel, telecommunications and consumer electronics, among others.

         Our service fee revenue is typically charged on a percent of shipped
revenue basis or on a per-transaction basis, such as a per-minute basis for
Web-enabled customer contact center services and a per-item basis for
fulfillment services. Additional fees are billed for other services. We price
our services based on a variety of factors, including the depth and complexity
of the services provided, the amount of capital expenditures or systems
customization required, the length of contract and other factors. Our billings
for reimbursements of out-of-pocket expenses, such as travel and certain
third-party vendor expenses such as shipping and handling costs and
telecommunication charges are included in gross service fee revenue. The related
reimbursable costs are reflected as pass-through charges and reduce total gross
service fee revenue in computing net service fee revenue.

         Our expenses are comprised of (i) cost of service fee revenue, which
consists primarily of compensation and related expenses for our Web-enabled
customer contact center services, international fulfillment and distribution
services and professional consulting services, and other fixed and variable
expenses directly related to providing services under the terms of fee based
contracts, including certain occupancy and information technology costs and
depreciation and amortization expenses; and (ii) selling, general and
administrative expenses, which consist primarily of compensation and related
expenses for sales and marketing staff, executive, management and administrative
personnel and other overhead costs, including certain occupancy and information
technology costs and depreciation and amortization expenses.

                                       16



<PAGE>




RESULTS OF OPERATIONS

         The following table sets forth certain historical financial information
from our unaudited interim condensed consolidated statements of operations
expressed as a percent of revenue.


<Table>
<Caption>
                                                                   Three Months Ended                     Six Months Ended
                                                                         June 30,                             June 30,
                                                              ------------------------------      ------------------------------
                                                                  2002              2001               2002             2001
                                                              ------------      ------------      ------------      ------------
<S>                                                           <C>               <C>               <C>               <C>
Gross service fee revenue ................................            95.6%            111.6%             94.9%            110.0%
Gross service fee revenue, affiliate .....................            15.2                --              16.8                --
                                                              ------------      ------------      ------------      ------------
Total gross service fee revenue ..........................           110.8             111.6             111.7             110.0
Pass-through charges .....................................           (10.8)            (12.7)            (11.7)            (12.3)
                                                              ------------      ------------      ------------      ------------
Net service fee revenue ..................................           100.0              98.9             100.0              97.7
Other net revenue ........................................              --               1.1                --               2.3
                                                              ------------      ------------      ------------      ------------
       Total net revenues ................................           100.0             100.0             100.0             100.0
Cost of net service fee revenue (as % of  net
    service fee revenue) .................................            61.7              64.6              62.2              66.2
Cost of other net revenue (as % of total net revenue) ....              --                --                --               0.3
                                                              ------------      ------------      ------------      ------------
       Total costs of net revenues .......................            61.7              64.0              62.2              64.9
                                                              ------------      ------------      ------------      ------------
Gross profit .............................................            38.3              36.0              37.8              35.1
Selling, general and administrative expenses .............            67.9              62.8              75.7              58.5
Other ....................................................              --             (45.0)               --             (20.2)
                                                              ------------      ------------      ------------      ------------
Income (loss) from operations ............................           (29.6)             18.2             (37.9)             (3.2)
Equity in earnings of affiliate ..........................             3.7                --               4.8                --
Interest income, net .....................................             2.6               1.8               2.9               1.8
                                                              ------------      ------------      ------------      ------------
Income (loss) before income taxes ........................           (23.3)             20.0             (30.2)             (1.4)
Income tax benefit .......................................              --                --                --                --
                                                              ------------      ------------      ------------      ------------
Net income (loss) ........................................           (23.3)%            20.0%            (30.2)%            (1.4)%
                                                              ============      ============      ============      ============
</Table>



RESULTS OF OPERATIONS FOR THE INTERIM PERIODS ENDED JUNE 30, 2002 AND 2001

         Net Service Fee Revenue (including service fee revenue, affiliate). Net
service fee revenue was $10.3 million for the three months ended June 30, 2002
as compared to $9.4 million for the three months ended June 30, 2001, an
increase of $0.9 million or 9.8%. The increase in net service fee revenue over
the prior period was due to the impact of new service contract relationships of
$5.4 million and a seasonably high revenue period of our largest client. The
impact of such new contracts was partially offset by the impact of terminated
contracts in calendar year 2001 of $3.8 million, primarily the Daisytek
contracts. Net service fee revenue for the three months ended June 30, 2002,
included $0.4 million of contracts terminated in the current fiscal year. Net
service fee revenue was $18.7 million for the six months ended June 30, 2002 as
compared to $20.7 million for the six months ended June 30, 2001, a decrease of
$2.0 million or 9.7%. The decrease in net service fee revenue over the prior
period was due to the impact of certain client terminations in calendar year
2001 of $9.6 million, primarily the Daisytek contracts. This reduction was
partially offset by the impact of new service contract relationships of $8.6
million. Net service fee revenue for the six month period ended June 30, 2002
included $0.9 million of contracts terminated in the current fiscal year. For
the three and six month periods ended June 30, 2002, net service fee revenue
from existing clients declined $0.7 million and $1.0 million, respectively, from
the prior periods, primarily related to decreases in the net service fee
revenues earned from the business activity with Supplies Distributors versus its
predecessor company.

         In conjunction with the $10.9 million sale of a distribution facility
to Daisytek in May 2001 (discussed below in "Liquidity and Capital Resources"),
we terminated certain of our transaction management services agreements entered
into between us, Daisytek and a Daisytek subsidiary. Concurrently with the
closing of the facility sale, we entered into a six-month transition services
agreement to provide Daisytek with certain transitional and information
technology services. The net impact of the changes in our services provided to
Daisytek, excluding the business activity previously provided to BSD, another
Daisytek subsidiary, was a

                                       17



<PAGE>




reduction in net service fee revenue of $3.8 million and $9.0 million for the
three and six months ended June 30, 2002, respectively. Such terminated
contracts do not include the business activity previously provided to BSD, a
Daisytek subsidiary, which now operates through Supplies Distributors, our
affiliate company.

         Pursuant to the terms of the Company's transaction management services
agreement with Supplies Distributors, the Company earned service fees, which are
reported as service fee revenue, affiliate in the accompanying unaudited interim
condensed consolidated financial statements, of approximately $1.5 million, net
of $0.1 million of pass-through charges, for the three months ended June 30,
2002 and $3.0 million, net of $0.1 million of pass-through charges, for the six
months ended June 30, 2002. Prior to becoming a related party, service fees
earned by PFSweb from BSD (the Daisytek subsidiary and predecessor to Supplies
Distributors), associated with the same business activities, were $2.0 million,
net of $0.1 million of pass-through charges, for the three months ended June 30,
2001 and $4.3 million, net of $0.3 million of pass-through charges, for the six
months ended June 30, 2001.

         Other Revenue. Other revenue of $0.1 million and $0.5 million for the
three and six months ended June 30, 2001, respectively, represents the fees
charged to clients in conjunction with early contract terminations.

         Cost of Net Service Fee Revenue. Cost of net service fee revenue was
$6.4 million for the three months ended June 30, 2002, as compared to $6.1
million during the three months ended June 30, 2001, an increase of $0.3 million
or 4.7%. The resulting service fee gross profit was $4.0 million, or 38.3% of
net service fee revenue, during the three months ended June 30, 2002 as compared
to $3.3 million, or 35.4% of net service fee revenue for the three months ended
June 30, 2001. The increase in gross profit is primarily a result of the
increase in service fee revenue. Our gross profit as a percent of net service
fee revenue also increased in the current period because the gross profit
percentage earned on certain contracts terminated in calendar year 2001 was
lower than the contracts we currently operate. In addition, our net service fee
revenue with our new largest client is seasonally high during the June quarter,
which favorably impacts our gross margin percentage, as the fixed costs
represent a lower percentage of net service fee revenue. This was partially
offset by $0.3 million of costs in excess of start up fees incurred for a new
client implementation during the three months ended June 30, 2002. Cost of net
service fee revenue was $11.6 million for the six months ended June 30, 2002, as
compared to $13.7 million during the six months ended June 30, 2001, a decrease
of $2.1 million or 15.2%. The resulting service fee gross profit was $7.1
million or 37.8% of net service fee revenue, during the six months ended June
30, 2002 as compared to $7.0 million, or 33.8% of net service fee revenue for
the six months ended June 30, 2001. The reduction in gross profit is primarily a
result of the decrease in service fee revenue. However, our gross profit as a
percent of net service fee revenue increased in the current period because the
gross profit percentage earned on certain contracts terminated in calendar year
2001 was lower than the contracts we currently operate. This was partially
offset by $0.3 million of costs in excess of start up fees incurred for a new
client implementation during the six months ended June 30, 2002.

         Cost of Other Net Revenue. Cost of other revenue for the three and six
months ended June 30, 2001 reflect approximately $0.1 million of certain
uncollectible amounts receivable from, and accrued expenses applicable to,
clients who terminated contracts.

         Selling, General and Administrative Expenses. SG&A expenses were $7.0
million for the three months ended June 30, 2002, or 67.9% of revenues, as
compared to $6.0 million, or 62.8% of revenues, for the three months ended June
30, 2001. SG&A expenses were $14.1 million for the six months ended June 30,
2002, or 75.7% of revenues, as compared to $12.4 million, or 58.5% of revenues,
for the six months ended June 30, 2001. SG&A expenses increased over the prior
year due to approximately $0.8 million and $1.5 million for the three and six
months ended June 30, 2002, respectively, of technology infrastructure costs
that were incurred in both periods but that were recorded as a component of cost
of service fee revenue in the prior year. These technology costs were
principally dedicated to the activities that generated service fee revenue under
the transaction management services contract with Daisytek, which was terminated
in November 2001. Increases in sales and marketing costs in the current six
month period were offset by a net decrease in personnel compensation costs due
to head count reductions.

                                       18



<PAGE>




         Equity in Earnings of Affiliate. For the three and six months ended
June 30, 2002, we recorded $0.4 million and $0.9 million, respectively, of
equity in earnings of affiliate that represents our allocation of Holdings
earnings.

         Interest Income. Interest income was $0.3 million for the three months
ended June 30, 2002 as compared to interest income of $0.2 million for the three
months ended June 30, 2001. Interest income was $0.5 million for the six months
ended June 30, 2002 as compared to interest income of $0.4 million for the six
months ended June 30, 2001. The increase in interest income is attributable to
the impact of higher interest rates charged on our subordinated loan to Supplies
Distributors partially offset by lower interest rates earned by our cash and
cash equivalents and higher interest expense due to an increase in our long-term
debt and capital lease obligations. We anticipate that interest income will
decrease in the future due to the reduction of the outstanding balance on our
subordinated loan to Supplies Distributors.

         Income Taxes. For the three and six months ended June 30, 2002, we did
not record any tax benefits associated with our net loss since we have not
established a sufficient history of earnings for our operations. A valuation
allowance has been provided for our net deferred tax assets as of June 30, 2002,
which are primarily related to our net operating loss carryforwards. For the six
months ended June 30, 2001, we recorded an income tax benefit associated with
the true-up of previously estimated tax attributes for fiscal 2000, which were
due to us since our prior results were included in Daisytek's consolidated tax
return, offset by an income tax provision associated with a pre-tax income from
our Canadian operations. We did not record an income tax benefit for our
European pre-tax losses in the current or prior period.

SUPPLIES DISTRIBUTORS

         Business Supplies Distributors (a Daisytek subsidiary -- "BSD"),
Daisytek, IBM and us were parties to various Master Distributor Agreements that
had various scheduled expiration dates through September 2001. Under these
agreements, BSD and its affiliates Business Supplies Distributors Europe B.V.
("BSD Europe"), a Daisytek subsidiary, and BSD (Canada) Inc., a Daisytek
subsidiary ("BSD Canada" and together with BSD and BSD Europe, the "BSD
Companies"), acted as master distributors of various IBM products, Daisytek
provided financing and credit support to the BSD Companies and we provided
transaction management and fulfillment services to the BSD Companies.

         On June 8, 2001, Daisytek notified us and IBM that it did not intend to
renew these agreements upon their scheduled expiration dates. In July 2001, we
and Inventory Financing Partners, LLC ("IFP") formed Business Supplies
Distributors Holdings, LLC ("Holdings"), and Holdings formed a wholly-owned
subsidiary, Supplies Distributors ("Supplies Distributors"). Concurrently,
Supplies Distributors formed its wholly-owned subsidiaries Supplies Distributors
of Canada, Inc. ("SDC") and Supplies Distributors S.A. ("SDSA"), a Belgium
corporation. Supplies Distributors, SDSA, IBM and PFSweb entered into new Master
Distributor Agreements to replace the prior agreements. Under the new
agreements, Supplies Distributors and SDSA act as master distributors of various
IBM products and, pursuant to a transaction management services agreement
between us and Supplies Distributors, we provide transaction management and
fulfillment services to Supplies Distributors.

         We made an equity investment of $0.75 million in Holdings for a 49%
voting interest, and IFP made an equity investment of $0.25 million in Holdings
for a 51% voting interest. Certain officers and a director of PFSweb own a 49%
non-voting interest in IFP. In addition to its equity investment in Holdings, we
have also provided Supplies Distributors with a subordinated loan, which, as of
June 30, 2002, had an outstanding balance of $8.8 million and accrued interest
at approximately 10%. During June 2002, Supplies Distributors repaid us $3.0
million, reducing the balance of our subordinated loan. The balance can be
decreased to $6.5 million subject to Supplies Distributors' compliance with the
covenants of its senior loan facilities, as amended.

         On September 26, 2001, Supplies Distributors purchased all of the stock
of the BSD Companies for a purchase price of $923,000. In conjunction with the
purchase, BSD and Supplies Distributors were merged with Supplies Distributors
being the surviving corporation. Effective December 31, 2001, BSD Canada and SDC
were amalgamated, with SDC being the surviving corporation. On September 27,
2001, Supplies Distributors entered into short-term credit facilities with IBM
Credit Corporation ("IBM Credit") and IBM Belgium Financial Services S.A. ("IBM
Belgium") for the purpose of financing its distribution of IBM

                                       19



<PAGE>




products. The facilities, which at inception included $40 million for the U.S.
operations and 20 million Euros (approximately $19.8 million) for the European
operations, were subsequently increased to $45 million and 27 million Euros
(approximately $26.8 million), respectively, and extended through March 25,
2002. The Company has provided a collateralized guaranty to secure the repayment
of these credit facilities.

         On March 29, 2002, Supplies Distributors entered into amended credit
facilities with IBM Credit and SDSA and BSD Europe entered into amended credit
facilities with IBM Belgium. The asset based credit facility with IBM Credit
provides financing for purchasing IBM inventory up to $32.5 million through June
30, 2002 and $27.5 million from July 1, 2002 through its expiration on March 29,
2003. The asset based credit facility with IBM Belgium provides up to 27 million
Euros (approximately $26.8 million) in financing for purchasing IBM inventory
through June 30, 2002 and 22 million Euros (approximately $21.8 million)
thereafter. The IBM Belgium facility remains in force until not less than 60
days written notice by any party, but no sooner than March 29, 2003. These
credit facilities contain cross default provisions, various restrictions upon
the ability of Holdings, Supplies Distributors, SDSA and BSD Europe to, among
other things, merge, consolidate, sell assets, incur indebtedness, make loans
and payments to related parties, provide guarantees, make investments and loans,
pledge assets, make changes to capital stock ownership structure and pay
dividends, as well as financial covenants, such as annualized revenue to working
capital, net profit after tax to revenue, and total liabilities to tangible net
worth, as defined, and are secured by all of the assets of Supplies
Distributors, as well as collateralized guaranties of Holdings and PFSweb.
Additionally, we are required to maintain a subordinated loan to Supplies
Distributors of no less than $6.5 million, and shareholders' equity of at least
$25.0 million. Furthermore, we are obligated to repay any over-advance made to
Supplies Distributors or SDSA under these facilities. An over-advance would
arise in the event borrowings exceeded the maximum amount available under the
eligible borrowing base, as defined.

         Concurrent with these amended agreements, Supplies Distributors entered
into a loan and security agreement with Congress Financial Corporation
(Southwest) ("Congress") to provide financing for up to $25 million of eligible
accounts receivables in the U.S. and Canada. The Congress facility expires on
the earlier of three years or the date on which the parties to the IBM Master
Distributor Agreement shall no longer operate under the terms of such agreement
and/or IBM no longer supplies products pursuant to such agreement. Borrowings
under the Congress facility accrue interest at prime rate plus 0.25% or
Eurodollar rate plus 3.0% or on an adjusted basis, as defined. In Europe, SDSA
entered into a two year factoring agreement with Fortis Commercial Finance N.V.
("Fortis") to provide factoring for up to 10 million Euros (approximately $9.9
million) of eligible accounts receivables. Borrowings under this agreement
accrue interest at 8.5%, or on an adjusted basis as defined. These credit
facilities contain cross default provisions, various restrictions upon the
ability of Holdings, Supplies Distributors and SDSA to, among other things,
merge, consolidate, sell assets, incur indebtedness, make loans and payments to
related parties, provide guarantees, make investments and loans, pledge assets,
make changes to capital stock ownership structure and pay dividends, as well as
financial covenants, such as minimum net worth, as defined, and are secured by
all of the assets of Supplies Distributors, as well as collateralized guaranties
of Holdings and PFSweb. Additionally, we are required to maintain a subordinated
loan of no less than $6.5 million to Supplies Distributors and may not maintain
restricted cash of more than $5.0 million as security for capital leases, and
are restricted with regard to transactions with related parties, capital
expenditures, indebtedness and changes to capital stock ownership structure.
Furthermore, we are obligated to repay any over-advance made to Supplies
Distributors under the Congress facility. An over-advance would arise in the
event borrowings exceeded the maximum amount available under the eligible
borrowing base, as defined. PFS has also provided a guarantee of the obligations
of Supplies Distributors and SDSA to IBM, excluding the trade payables that are
financed by IBM credit.

         Pursuant to the terms of our transaction management services agreement
with Supplies Distributors, we earned service fees, which are reported as gross
service fee revenue, affiliate in the accompanying unaudited interim condensed
consolidated financial statements, of approximately $1.5 million, net of $0.1
million of pass-through charges, for the three months ended June 30, 2002 and
$3.0 million, net of $0.1 million of pass-through charges, for the six months
ended June 30, 2002. Prior to becoming a related party, service fees earned by
PFSweb from BSD (the Daisytek subsidiary and predecessor to Supplies
Distributors), associated with the same business activities, were $2.0 million,
net of $0.1 million of pass-through charges, for the three months ended June 30,
2001 and $4.3 million, net of $0.3 million of pass-through charges, for the six
months ended June 30, 2001. As of June 30, 2002 and December 31, 2001 we had
trade accounts receivables of $0.7 million and $0.9 million due from Supplies
Distributors, respectively.

                                       20



<PAGE>
We record our interest in Holdings' net income, which is allocated and
distributed to the owners pursuant to the terms of Holdings' operating
agreement, under the modified equity method, which results in us recording our
allocated earnings of Holdings or 100% of Holdings' losses and our proportionate
share of Holdings' cumulative foreign currency translation adjustments. Pursuant
to Holdings' operating agreement, Holdings allocates its earning and distributes
its cash flow, as defined, in the following order of priority: first, to IFP
until it has received a one-time amount equal to its capital contribution of
$0.25 million; second, to IFP until it has received an amount equal to a 35%
cumulative annual return on its capital contribution; third, to PFSweb until it
has received a one-time amount equal to its capital contribution of $0.75
million; fourth, to PFSweb until it has received an amount equal to a 35%
cumulative annual return on its capital contribution; and fifth, to PFSweb and
IFP, pro rata, in accordance with their respective capital accounts.
Notwithstanding the foregoing, no distribution may be made if, after giving
effect thereto, the net worth of Holdings shall be less than $1.0 million. In
May 2002, Holdings paid a $0.2 million dividend to IFP. Under terms of the
credit agreements described above, Holdings is currently limited to annual cash
dividends of $0.6 million. We recorded $0.4 million and $0.9 million of equity
in the earnings of Holdings for the three and six months ended June 30, 2002,
respectively. Our investment in Holdings includes our proportionate share of
cumulative foreign currency translation adjustments reflected in Holdings equity
section, which, as of June 30, 2002, resulted in a decrease of $0.3 million to
our accumulated other comprehensive loss.

         Summarized financial information for Holdings as of June 30, 2002 is as
follows (in thousands):


<Table>
<S>                                                       <C>
Cash and cash equivalents (including restricted
   cash of $738) .....................................    $      1,443
Accounts receivable, net of allowance for
   doubtful accounts of $312 .........................          29,988
Inventories, net .....................................          41,236
Prepaid expenses and other current assets ............           3,408
Other assets, net (including restricted
   cash of $875) .....................................           1,072
                                                          ------------
        Total assets .................................    $     77,147
                                                          ============

Trade accounts payable ...............................    $      2,895
Accrued expenses .....................................           2,204
Debt (guaranteed by PFSweb) ..........................          57,445
Other debt ...........................................           3,256
Note payable to affiliate ............................           8,800
Members' capital:
    Capital contributions ............................           1,000
    Retained earnings ................................           1,018
    Unrealized loss on investment ....................             294
    Accumulated other comprehensive loss .............             235
                                                          ------------
       Total members' capital ........................           2,547
                                                          ------------
       Total liabilities and members' capital ........    $     77,147
                                                          ============
</Table>



         Summarized operating information for Holdings for the three and six
months ended June 30, 2002 is as follows (in thousands):


<Table>
<Caption>

                                                             June 30, 2002
                                                      ----------------------------
                                                      Three Months     Six Months

                                                      ------------    ------------
<S>                                                   <C>             <C>
Net revenues .....................................    $     52,936    $    106,039
Cost of goods sold ...............................          49,771          99,851
                                                      ------------    ------------
Gross profit .....................................           3,165           6,188
Selling, general and administrative expenses .....           1,352           3,227
                                                      ------------    ------------
Income from operations ...........................           1,813           2,961
Interest expense .................................           1,148           1,581
                                                      ------------    ------------
Income before income taxes .......................             665           1,380
Income tax expense ...............................             257             553
                                                      ------------    ------------
Net income .......................................    $        408    $        827
                                                      ============    ============
</Table>






                                       21

<PAGE>







LIQUIDITY AND CAPITAL RESOURCES

         On May 25, 2001, we completed the sale of certain assets to Daisytek
pursuant to an Asset Purchase Agreement (the "Purchase Agreement"). Under the
Purchase Agreement, we transferred and sold to Daisytek certain distribution and
fulfillment assets, including equipment and fixtures, that were previously used
by us to provide outsourcing services to Daisytek. Daisytek also assumed certain
related equipment leases and a warehouse lease and hired certain employees who
were associated with the warehouse facility. The consideration payable under the
Purchase Agreement of $11.0 million included a termination by us and Daisytek of
certain transaction management services agreements previously entered into
between us and Daisytek and a Daisytek subsidiary. Proceeds of $10.9 million
were received for assets with an approximately $4.5 million net book value with
a resulting $5.8 million gain, after closing costs of $0.6 million. Concurrently
with the closing of the asset sale, we and Daisytek also entered into a
six-month transition services agreement, which terminated in November 2001,
under which we provided Daisytek with certain transitional and information
technology services.

         Net cash used in operating activities was $3.2 million for the six
months ended June 30, 2002, and primarily resulted from cash used to fund
operating losses and the net impact of an increase in accounts receivable of
$1.6 million, partially offset by an increase in accounts payable and accrued
expenses of $0.2 million and a decrease in prepaid expenses and other current
assets of $1.5 million. The increase in accounts receivable is primarily due to
increased service fee billings for our largest client, which has a seasonally
high second quarter of business activity, and a $0.4 million increase in credit
card charges owed to us as part of the billing and collection services we
perform on behalf of our clients. Once collected, these funds are remitted to
our clients. The decrease in other current assets primarily relates to the
collection of VAT receivables associated with our European operations. Net cash
used in operating activities was $1.5 million for the six months ended June 30,
2001, and primarily resulted from cash used to fund operating losses and the net
impact of an increase in prepaid expenses and other current assets of $0.4
million and a decrease in accounts payable and accrued expenses of $2.8 million
partially offset a decrease in accounts receivable of $2.7 million.

         Net cash provided by investing activities for the six months ended June
30, 2002 totaled $1.8 million, representing the net repayment of $2.9 million by
Supplies Distributors of our subordinated loan, which totaled $8.8 million at
June 30, 2002, offset by capital expenditures of $0.9 million and a $0.2 million
increase in our restricted cash balance to $2.9 million, which is to secure our
long-term debt and lease financing. Cash provided by investing activities
totaled $6.6 million for the six months ended June 30, 2001, which primarily
included $9.4 million in net proceeds from the sale of the distribution facility
offset by $2.2 million of capital expenditures. Capital expenditures have
historically consisted primarily of additions to upgrade our management
information systems, including our Internet-based customer tools, other methods
of e-commerce and general expansion of our facilities, both domestic and
foreign. We expect to incur capital expenditures in order to support new
contracts and anticipated future growth opportunities. We anticipate that our
total investment in upgrades and additions to facilities and information
technology services for the upcoming twelve months will be approximately $2 to
$4 million, although additional capital expenditures may be necessary to support
the infrastructure requirements of new clients. A portion of these expenditures
may be financed through operating or capital leases. We may elect to modify or
defer a portion of such anticipated investments in the event that we do not
achieve the revenue necessary to support such investments.

         Net cash used in financing activities was approximately $0.3 million
for the six months ended June 30, 2002, representing the proceeds from debt and
from the issuance of common stock pursuant to our employee stock purchase plan
offset by payments on our long-term debt and capital lease obligations. Net cash
used in financing activities was approximately $0.1 million for the six months
ended June 30, 2001, representing payments on our capital lease obligations
offset by the proceeds from issuance of common stock.

         During the six months ended June 30, 2002, our working capital
decreased to $9.0 million from $11.2 million at December 31, 2001, primarily due
to the funding of operations and capital expenditures, offset by the repayment
from Supplies Distributors of $2.9 million against our subordinated loan. In
order to obtain additional financing in the future, in addition to our current
cash position, we plan to evaluate various financing alternatives including
utilizing capital or operating leases, establishing our own credit facility,

                                       22



<PAGE>




entering into asset based lending or factoring programs, or transferring a
portion of our subordinated loan balances, due from Supplies Distributors, to
third-parties. In conjunction with certain of these alternatives, we may be
required to provide certain letters of credit to secure these arrangements. No
assurances can be given that we will be successful in obtaining any additional
financing or the terms thereof. We currently believe that our cash position and
funds generated from operations (including our anticipated revenue growth and/or
cost reductions to offset lower than anticipated revenue growth) will satisfy
our presently known operating cash needs, our working capital and capital
expenditure requirements and our lease obligations, and additional subordinated
loans to Supplies Distributors, if necessary, for at least the next twelve
months.

         The following is a schedule of our total contractual cash obligations,
which is comprised of operating leases, long-term debt and capital leases,
including interest (in millions):


<Table>
<Caption>

                                                                      LONG-TERM          TOTAL
                                                                       DEBT AND       CONTRACTUAL
                                                       OPERATING       CAPITAL           CASH
                                                        LEASES          LEASES        OBLIGATIONS
                                                      ------------    ------------    ------------
<S>                                                   <C>             <C>             <C>
Twelve Months Ended June 30,
  2003 ...........................................    $      6,053    $      1,615    $      7,668
  2004 ...........................................           5,521           1,542           7,063
  2005 ...........................................           3,012             921           3,933
  2006 ...........................................           2,794             790           3,584
  2007 ...........................................           2,254             447           2,701
  Thereafter .....................................           1,562             389           1,951
                                                      ------------    ------------    ------------
          Total contractual cash obligations .....    $     21,196    $      5,704    $     26,900
                                                      ============    ============    ============
</Table>


         In support of certain debt instruments and leases, as of June 30, 2002,
we had $2.9 million of cash restricted in the form of letters of credit. The
letters of credit expire at various dates through July 2004. As described above,
we have provided collateralized guarantees to secure the repayment of Supplies
Distributors' credit facilities. As of June 30, 2002, the outstanding balance of
the credit facilities guaranteed by PFSweb was approximately $57.4 million.
These guarantees expire concurrently with the expiration of the underlying
credit agreements. To the extent Supplies Distributors or its subsidiaries fails
to comply with its covenants, including its monthly financial covenant
requirements, and the lenders accelerate the repayment of the credit facility
obligations, Supplies Distributors or its subsidiaries would be required to
repay all amounts outstanding thereunder. In such event, we would be obligated
to perform under those guarantees and repay, to the extent Supplies Distributors
or its subsidiaries was unable to, Supplies Distributors' or its subsidiaries
credit facility obligations. Additionally, if we were unable to maintain our
required level of stockholders' equity of $25.0 million or if we were to violate
any of the restricted transactions pursuant to the IBM Credit, IBM Belgium, or
Congress agreements, we could also be obligated to perform under these
guarantees. Any requirement to perform under our guarantees would have a
material adverse impact on our financial condition and results of operations and
no assurance can be given that we will have the financial ability to repay all
of such guaranteed obligations. In addition, in the event Supplies Distributors
or its subsidiaries is, or would be, in default of its obligations under its
credit facilities, we are restricted from receiving any payment of our
subordinated loans and such event would also have a material adverse impact upon
our financial condition and results of operations. Furthermore, we are obligated
to repay any over-advance made to Supplies Distributors or its subsidiaries by
its lenders. An over-advance would arise in the event borrowings exceeded the
maximum amount available under the eligible borrowing base, as defined. Although
the parties to these credit facilities are currently in compliance with all of
the covenants and other provisions required thereunder, we may seek the consent
of the required lenders to modify, amend or waive some of the restrictions and
financial covenants thereunder prior to its maturity in March 2003. No assurance
can be given that we will be able to obtain such modifications, amendments or
waivers, and the failure to obtain one or more of such modifications, amendments
or waivers will have a material adverse effect upon Holdings, Supplies
Distributors and PFSweb and their respective financial condition and operations.
PFS has also provided a guarantee of the obligations of Supplies Distributors
and SDSA to IBM, excluding the trade payables that are financed by IBM credit.
No liabilities have been recorded in the accompanying financial statements for
these guarantee obligations. We do not have any other material commercial
commitments.

         Currently, we believe that we are operating with and incurring costs
applicable to excess capacity in both our North American and European
operations. We believe that as we add revenue, we will be able to cover our
existing infrastructure and public company costs and reach profitability. We
currently estimate that the net service fee revenue needed to leverage our
infrastructure and reach profitability is approximately $14 million per quarter.
No assurance can be given that we can achieve such operating levels, or that, if
achieved, we will be profitable in any particular fiscal period.

                                       23



<PAGE>
         In the future, we may attempt to acquire other businesses or seek an
equity or strategic partner to expand our services or capabilities in connection
with our efforts to grow our business. Acquisitions involve certain risks and
uncertainties and may require additional financing. Therefore, we can give no
assurance with respect to whether we will be successful in identifying
businesses to acquire or an equity or strategic partner, whether we or they will
be able to obtain financing to complete a transaction, or whether we or they
will be successful in operating the acquired business.

CONTINUED LISTING ON NASDAQ SMALLCAP MARKET

         In June 2002, the NASDAQ approved our transition from the NASDAQ
National Market System to the NASDAQ SmallCap Market. Our securities began
trading on the NASDAQ SmallCap Market on June 10, 2002.

         This transition occurred in response to NASDAQ Marketplace Rule
4450(a)(5), which requires a minimum bid price of $1.00 for continued listing on
the NASDAQ National Market. The SmallCap Market also has a minimum bid price of
$1.00 per share. However, as compared to the 90-day grace period provided by the
NASDAQ National Market, the SmallCap Market currently has a longer bid price
minimum grace period of 180 days from receipt of NASDAQ Delisting Notification
(February 14, 2002 for the Company). This grace period extended us through
August 13, 2002.

         Due to our compliance with the initial listing requirements for the
NASDAQ SmallCap Market, on August 14, 2002 we have been provided an additional
180 day grace period, or until February 10, 2003 to regain compliance. We can,
however, provide no assurance as to our ability to maintain compliance with the
listing standards and our continued listing in the NASDAQ SmallCap Market.

SEASONALITY

         The seasonality of our business is dependent upon the seasonality of
our clients' business and their sale of their products. Accordingly, our
management must rely upon the projections of our clients in assessing quarterly
variability. We believe that with our current client mix, our business activity
will be at it lowest in the quarter ended March 31 and at its highest in the
quarter ended June 30.

         We believe that results of operations for a quarterly period may not be
indicative of the results for any other quarter or for the full year.

INFLATION

         Management believes that inflation has not had a material effect on our
operations.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

         On January 1, 2002, we adopted the provisions of EITF D-103 "Income
Characterization of Reimbursements Received for 'Out-of-Pocket' Expenses
Incurred." For the periods presented above, our billings for reimbursements of
'out-of-pocket' expenses, such as travel, and certain third-party vendor
expenses such as shipping and handling costs and telecommunication charges are
included in gross service fee revenue. The related reimbursable costs are
reflected as pass-through charges and reduce total gross service fee revenue in
computing net service fee revenue.

         In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which addresses the accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. We are currently assessing the impact on the
consolidated financial statements and will adopt the provisions of this standard
by the first quarter of 2003.

         In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal


                                       24



<PAGE>



 Activities," which addresses the financial accounting and reporting for costs
associated with exit or disposal activities and nullifies Emerging Issues Task
Force (EITF) issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." We are currently assessing the impact on
the consolidated financial statements and will adopt the provisions of this
standard by the first quarter of 2003.

CRITICAL ACCOUNTING POLICIES

         A description of critical accounting policies is included in footnote 2
to the accompanying unaudited interim condensed consolidated financial
statements. For other significant accounting policies, see Note 2 to the
consolidated financial statements in our December 31, 2001 Annual Report on Form
10-K.


I
TEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         We are exposed to various market risks including interest rates on its
financial instruments and foreign exchange rates.

Interest Rate Risk

         The carrying value of our financial instruments, which include cash and
cash equivalents, accounts receivable, note receivable, accounts payable and
capital lease obligations, approximate their fair values based on short terms to
maturity or current market prices and rates. The impact of a 100 basis point
change in interest rates would not have a material impact on the Company's
results of operations or financial position.

Foreign Exchange Risk

         Currently, our foreign currency exchange rate risk is primarily limited
to Canadian dollars and the Euro. In the future, we believe our foreign currency
exchange risk will also include other currencies applicable to certain of our
international operations. We may, from time to time, employ a small number of
derivative financial instruments to manage our exposure to fluctuations in
foreign currency rate risk. To hedge our net investment and long-term
intercompany payable balance we might enter into forward currency exchange
contracts. We do not hold or issue derivative financial instruments for trading
purposes or enter into foreign currency transactions for speculative purposes.

         Effective April 1, 2001, in response to a change to the Euro for
transaction activity previously conducted in the U.S. dollar by our largest
European client, we adopted the Euro as our functional currency for our European
operations.

                                       25



<PAGE>







PART II. OTHER INFORMATION


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         On June 7, 2002, the Company held its Annual Meeting of Stockholders.
The following matters were acted upon and votes cast or withheld:

         1.       Election of three Class III directors:

                  Mark C. Layton

                  For: 15,268,730       Withheld: 953,587

                  Timothy M. Murray

                  For: 15,644,386       Withheld: 577,931

                  Dr. Neil W. Jacobs

                  For: 15,650,814       Withheld: 571,503

         2.       Approval of the amendment to the Company's Certificate of
                  Incorporation:

                  For: 13,987,203       Against: 2,205,559    Abstained: 29,555

         3.       Appointment of KPMG LLP as auditors for the fiscal year ending
                  December 31, 2002:

                  For: 15,905,954       Against: 293,622      Abstained: 22,741













                                       26



<PAGE>







ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

    a)   Exhibits:

          EXHIBIT


            NO.             DESCRIPTION OF EXHIBITS

           3.1*             Amended and Restated Certificate of Incorporation

           3.2*             Amended and Restated Bylaws

           10.1             Form of Executive Severance Agreement between the
                            Company and each of its executive officers

           99.1             Certification of Chief Executive Officer Pursuant to
                            18 U.S.C. Section 1350, as Adopted Pursuant to
                            Section 906 of the Sarbanes-Oxley Act of 2002

           99.2             Certification of Chief Financial Officer Pursuant to
                            18 U.S.C. Section 1350, as Adopted Pursuant to
                            Section 906 of the Sarbanes-Oxley Act of 2002

----------

*        Incorporated by reference from PFSweb, Inc. Registration Statement on
         Form S-1 (Commission File No. 333-87657).

b)       Reports on Form 8-K:

             Form 8-K filed on May 20, 2002 reporting Item 5, Other Events, that
             on May 16, 2002 PFSweb, Inc. (the "Company") received a letter from
             The NASDAQ Stock Market indicating that the Company no longer
             complied with the $1.00 minimum bid price requirement for continued
             listing set forth in Marketplace Rule 4450 (c)(5), and that the
             Company's stock is, therefore, subject to delisting from the Nasdaq
             National Market. The Company announced that it had requested a
             hearing from Nasdaq to appeal the Nasdaq stock determination.

                                       27



<PAGE>










                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Date: August 14, 2002




                                     PFSweb, Inc.

                                     By:  /s/ Thomas J. Madden
                                          -------------------------------------
                                          Thomas J. Madden
                                          Chief Financial Officer,
                                          Chief Accounting Officer,
                                          Executive Vice President




                                       28



<PAGE>





                                INDEX TO EXHIBITS


<Table>
<Caption>

         EXHIBIT

         NUMBER                    DESCRIPTION
         -------                   -----------
<S>                         <C>


           3.1*            Amended and Restated Certificate of Incorporation

           3.2*            Amended and Restated Bylaws

           10.1            Form of Executive Severance Agreement between the
                           Company and each of its executive officers

           99.1            Certification of Chief Executive Officer Pursuant to
                           18 U.S.C. Section 1350, as Adopted Pursuant to
                           Section 906 of the Sarbanes-Oxley Act of 2002

           99.2            Certification of Chief Financial Officer Pursuant to
                           18 U.S.C. Section 1350, as Adopted Pursuant to
                           Section 906 of the Sarbanes-Oxley Act of 2002

</Table>

----------

*        Incorporated by reference from PFSweb, Inc. Registration Statement on
         Form S-1 (Commission File No. 333-87657).










<PAGE>
                                                                    EXHIBIT 10.1

                          EXECUTIVE SEVERANCE AGREEMENT

         THIS AGREEMENT is made and entered into as of the ____day of ______,
2001 by and between _______________________ (the "Executive") and PFSWEB, INC.
(the "Company"), a corporation organized under the laws of Delaware.

                                   WITNESSETH

         WHEREAS, the Executive is presently employed as an officer of the
Company; and

         WHEREAS, the Company and Executive desire to set forth the terms and
conditions regarding the payment of severance to the Executive upon the
termination of Executive's employment.

         NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained, the Company and Executive hereby
agree as follows:

         1.       Definitions. As used in this Agreement, the following terms
shall have the respective meanings set forth below:

                  "Board" means the Board of Directors of the Company.

                  "Qualifying Termination" means the termination by the Company
of Executive's employment other than a Termination for Cause, but including
termination by reason of the Executive's death or disability. The term
"Qualifying Termination" shall not include the termination by Executive of his
employment, unless such termination is within 30 days of the reduction by the
Company of the Executive's annual
 base salary from its then current amount,
other than a reduction which is part of, and proportionate with, a general
reduction of annual base salaries of not less than three-quarters (in number) of
the Company's officers.

                  "Subsidiary" means any corporation or other entity in which
the Company has a direct or indirect ownership interest of 50% or more of the
total combined voting power of the then outstanding securities or interests of
such corporation or other entity entitled to vote generally in the election of
directors or in which the Company has the right to receive 50% or more of the
distribution of profits or 50% of the assets upon liquidation or dissolution.

                  "Termination for Cause" means the termination by the Company
of Executive's employment as the result of:

                  (i) the willful and continued failure of Executive to perform
                  substantially his duties with the Company (other than any such
                  failure resulting from Executive's incapacity due to physical
                  or mental illness); or



<PAGE>

                  (ii) the willful engaging by Executive in illegal conduct
                  (including without limitation, conviction of a felony) or
                  gross misconduct which is demonstrably and materially
                  injurious to the Company or its affiliates; or

                  (iii) any breach by Executive of the provisions of Sections 8
                  or 9 below.

         For purposes of this definition, no act or failure to act by Executive
shall be considered "willful" unless done or omitted to be done by Executive in
bad faith and without reasonable belief that Executive's action or omission was
in the best interests of the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board, based upon
the advice of counsel for the Company (or upon the instructions of the Company's
chief executive officer or another senior officer of the Company other than the
Executive) shall be conclusively presumed to be done, or omitted to be done, by
Executive in good faith and in the best interests of the Company.

                  "Years of Service" means the number of full calendar years in
which Executive was employed by the Company or Daisytek International
Corporation, or, in each case, any Subsidiary thereof as of the effective date
of any Qualifying Termination; provided, however, that, for purposes of
determining "Years of Service," employment for more than six consecutive months
in any calendar year shall be deemed employment for such full calendar year.

         2.       Severance and Status. (a) In the event of a Qualifying 
Termination, the Company shall pay to Executive the following amounts:

                  (i) within 15 days of the effective date of the Qualifying
Termination, an amount equal to all annual base salary, bonus, expense
reimbursement and other amounts which have accrued and are due and payable as of
such date; and

                  (ii) a severance payment ("Severance Payment") equal to the 
following:

                           [(S + B) / 4] x Y

                           where:

                           S = Executive's then annual base salary as of the 
                  effective date of the Qualifying Termination;

                           B = The bonus amount, if any, that, but for the
                  Qualifying Termination, Executive would have received for the
                  fiscal year in which the effective date of the Qualifying
                  Termination occurs (based upon Executive's targeted bonus
                  amount and the Company's actual results for such fiscal year);
                  and

                           Y = Executive's Years of Service, but not to exceed
                  4, unless Executive was designated as a Senior Partner, in
                  which case Years of Service shall not exceed 8.



                                       2

<PAGE>
            (b) The Severance Payment shall be reduced by (i) the amount of any
loans, advances or other amounts then due and owing by Executive to the Company,
(ii) the amount of all wages, bonus and other cash compensation or remuneration
received by the Executive for full-time services rendered to an employer or
other person or entity during the Payment Period (as hereinafter defined) and
(iii) and shall be net of any and all required withholding and taxes. To the
extent the Qualifying Termination arises from the disability of Executive, the
Severance Payment shall be reduced by the amount of any disability insurance
benefits payable to Executive.

            (c) The Severance Payment shall be payable in equal monthly
installments during the Payment Period. The "Payment Period" shall equal the
quotient obtained by dividing (i) Executive's Years of Service, but not to
exceed 4 (unless Executive was designated as a Senior Partner, in which case
Years of Service shall not exceed 8), by (ii) four.

            (d) In the event of a Qualifying Termination, Executive shall
continue to be deemed an employee of the Company during the Payment Period for
purposes of (i) receiving employee benefits as provided in Section 3 below, (ii)
exercising Options as provided in Section 4 below and (iii) all other matters,
rights and privileges in which Executive's status as an employee of the Company
would entitle Executive to some benefit, right or privilege.

         3. Benefits. In the event of a Qualifying Termination, Executive (and
Executive's dependents, as applicable) shall continue to be entitled to
participate in all employee benefits (including automobile, medical and other
benefits) provided to him prior to the Qualifying Termination, upon the same
terms and conditions as in effect prior to the Qualifying Termination (including
employee contributions), for the number of months (rounded up to whole months)
equal to the quotient obtained by dividing (i) the product obtained by
multiplying Executive's Years of Service, but not to exceed 4 (unless Executive
was designated as a Senior Partner, in which case Years of Service shall not
exceed 8), by 3, by (ii) 12 (hereinafter, the "Benefit Period"), subject,
however, to any changes or modifications (whether additions or reductions) to
such benefits as the Company shall establish during such Benefit Period and
which apply to all officers generally; provided, that, if Executive cannot
continue to participate in the Company plans providing such benefits, the
Company shall otherwise provide such benefits on the same after-tax basis as if
continued participation had been permitted. Notwithstanding the foregoing, in
the event Executive becomes reemployed with another employer and becomes
eligible to receive employee benefits from such employer, the employee benefits
described herein shall be secondary to such benefits during the period of
Executive's eligibility, but only to the extent that the Company reimburses
Executive for any increased cost and provides any additional benefits necessary
to give Executive the benefits provided hereunder.

         4. Options. In the event of a Qualifying Termination, all options
("Options") to purchase shares of the Company's common stock then held by
Executive shall, to the extent not vested, accelerate and immediately vest and
shall continue to be exercisable, notwithstanding such Qualifying Termination,
for the full stated term thereof.



                                       3

<PAGE>
         5. Termination of Employment. This Agreement does not constitute an
employment agreement, and the Company shall have the right to terminate
Executive's employment at any time, with or without Cause; provided, however,
that:

                  (a) in the event of a Qualifying Termination, the Company 
         shall pay to Executive the Severance Payment and other benefits 
         provided hereunder; and

                  (b) in the event of a Termination for Cause, the Company shall
         have no other liability or obligation to Executive hereunder except to
         pay to Executive, within 15 days of the effective date of the
         Termination for Cause, all annual base salary, bonus, expense
         reimbursement and other amounts which have accrued and are due and
         payable as of such date, reduced by the amount of any loans, advances
         or other amounts then due and owing by Executive to the Company and net
         of any and all required withholding and taxes.

         For purposes of this Agreement, "Cause" shall not exist unless and
until (i) the Company has delivered to Executive a copy of a resolution duly
adopted by a majority of the entire Board (excluding Executive if Executive is a
Board member) at a meeting of the Board called and held for such purpose (after
reasonable notice to Executive and an opportunity for Executive, together with
counsel, to be heard before the Board), finding that in the good faith opinion
of the Board an event constituting Cause has occurred and specifying the
particulars thereof in detail, and (ii) Executive has had a reasonable
opportunity (of not less than 90 days) to cure or correct, to the reasonable
satisfaction of a majority of the Board (excluding Executive if Executive is a
Board member) the event constituting Cause as determined in accordance with the
immediately preceding clause (i). The Company must notify Executive of any event
constituting Cause within 90 days following the Company's knowledge of its
existence or such event shall not constitute Cause under this Agreement.

         6. Dispute; Reimbursement of Expenses. If any contest or dispute shall
arise under this Agreement involving a Qualifying Termination or involving the
failure or refusal of the Company to pay any amount arising in connection with
such Qualifying Termination, the Company shall (i) pay interest on the unpaid
portion of the Severance Payment, at a fluctuating annual rate of interest equal
to the prime rate of Chase Bank of Texas plus two percent (2%) from the
effective date of the Qualifying Termination until paid in full and (ii)
reimburse Executive, on a current basis, for all reasonable legal fees and
expenses, if any, incurred by Executive in connection with such contest or
dispute; provided, however, Executive shall be required to repay any such
amounts to the Company to the extent that a court or arbitrator issues a final
order from which no appeal can be taken, or with respect to which the time
period to appeal has expired, setting forth the determination that the position
taken by Executive was frivolous or advanced by Executive in bad faith.

         7. No Mitigation; Coordination with Change in Control Benefits.

            (a) In the event of any Qualifying Termination, Executive shall be
under no obligation to seek other employment; provided, however, that in the
event Executive does obtain 




                                       4

<PAGE>

other employment, the offset provisions set forth in Section 2(b)(ii) in respect
of any remuneration attributable to any subsequent employment shall apply.

            (b) To the extent Executive and the Company have executed and
delivered that certain "Change in Control Severance Agreement" (the "COC
Severance Agreement"), then, notwithstanding anything contained herein, in the
event that (i) Executive's employment shall be terminated under circumstances
which constitute a "Qualifying Termination" during the "Termination Period" (as
such terms are defined in the COC Severance Agreement), and (ii) Executive shall
have fully received, or provision has been made for payment in full of, all of
the payments and benefits to which he may be entitled under the terms of the COC
Severance Agreement, then, in such event, the provisions of this Agreement shall
not apply and neither party shall have any liability or obligation hereunder.

         8. Confidentiality. Without limitation of any other agreement of 
Executive:

            (a) Confidential Information. Executive acknowledges the Company's
exclusive ownership of all information useful in the business of the Company,
its subsidiaries and its affiliates (including its dealings with suppliers,
customers and other third parties, whether or not a legal "trade secret"), which
at the time or times concerned is not generally known to persons engaged in
businesses similar to those conducted by the Company, and which has been or is
from time to time disclosed to, discovered by, or otherwise known by the
Executive as a consequence of his employment by the Company (including
information conceived, discovered or developed by the Executive during his
employment with the Company) (collectively, "Confidential Information").
Confidential Information includes, but is not limited to, the following
especially sensitive types of information:

                           (i) the identity, purchase and payment patterns of,
                  and special relations with, the Company's customers;

                           (ii) the Company's business development and marketing
                  plans;

                           (iii) the identity, net prices and credit terms of,
                  and special relations with, the Company's suppliers; and

                           (iv) the Company's finances, except to the extent
                  publicly disclosed.

                  (b) Proprietary Materials. The term "Proprietary Materials"
shall mean all business records, documents, drawings, writings, software,
programs and other tangible things which were or are created or received by or
for the Company in furtherance of its business, including, but not limited to,
those which contain Confidential Information. For example, Proprietary Materials
include the following especially sensitive types of materials: applications
software, the data bases of Confidential Information maintained in connection
with such software, and printouts generated from such data bases; market studies
and strategic plans; customer, supplier and employee lists; contracts and
correspondence with customers and suppliers; documents evidencing transactions
with customers and suppliers; sales calls reports, appointment 



                                       5

<PAGE>

books, calendars, expense statements and the like, reflecting conversations with
any company, customer or supplier; and purchasing, sales and policy manuals.
Proprietary Materials also include any such things that are created by Executive
or with Executive's assistance and all notes, memoranda and the like prepared
using the Proprietary Materials and/or Confidential Information.

                  (c) Acknowledgements By Executive. While some of the
information contained in Proprietary Materials may have been known to the
Executive prior to employment with the Company, or may now or in the future be
in the public domain, the Executive acknowledges that the compilation of that
information contained in the Proprietary Materials has or will cost the Company
a great effort and expense, and affords persons to whom Proprietary Materials
are disclosed, including the Executive, a competitive advantage over persons who
do not know the information or have the compilation of the Proprietary
Materials. The Executive further acknowledges that Confidential Information and
Proprietary Materials include commercially valuable trade secrets and become the
Company's exclusive property when they are conceived, created or received. The
Executive shall report to the Company promptly, orally (or, at the Company's
request, in writing) all discoveries, inventions and improvements, whether or
not patentable, and which either (i) relate to or arise out of any part of the
Company's business in which the Executive participates, or (ii) incorporate or
make use of Confidential Information or Proprietary Materials (all items
referred to in this Section 15 being sometimes collectively referred to herein
as the "Intellectual Property"). All Intellectual Property shall be deemed
Confidential Information of the Company, and any writing or other tangible
things describing, referring to, or containing Intellectual Property shall be
deemed the Company's Proprietary Materials. At the request of the Company, at
any time, the Executive (or after the Executive's death, the Executive's
personal representative) shall, at the expense of the Company, make, execute and
deliver all papers, assignments, conveyances, installments or other documents,
and perform or cause to be performed such other lawful acts, and give such
testimony, as the Company deems necessary or desirable to protect the Company's
ownership rights and Intellectual Property.

                  (d) Confidentiality Duties of Executive. Executive shall,
except as may be required by law, at all times while employed by the Company and
during the two-year period following any termination of Executive's employment:

                           (i) comply with all of the Company's reasonable
                  instructions (whether oral or written) for preserving the
                  confidentiality of Confidential Information and Proprietary
                  Materials;

                           (ii) use Confidential Information and Proprietary
                  Materials only in furtherance of the Company's business;

                           (iii) exercise appropriate care to advise other
                  employees of the Company (and, as appropriate, subcontractors)
                  of the sensitive nature of Confidential Information and
                  Proprietary Materials prior to their disclosure, and to
                  disclose the same only on a need-to-know basis;



                                       6

<PAGE>

                           (iv) not copy all or any part of Proprietary
                  Materials, other than in the course of carrying out the
                  Executive's duties and responsibilities for the Company;

                           (v) not sell, give, loan or otherwise transfer any
                  copy of all or any part of Proprietary Materials to any person
                  who is not an employee of the Company, other than in the
                  course of carrying out the Executive's duties and
                  responsibilities for the Company; and

                           (vi) not publish, lecture on or otherwise disclose to
                  any person who is not an employee of the Company, other than
                  in the course of carrying out the Executive's duties and
                  responsibilities for the Company, all or any part of
                  Confidential Information or Proprietary Materials; and not use
                  all or any part of any Confidential Information or Proprietary
                  Materials for the benefit of any third party without the
                  Company's written consent.

                  (e) Return Of Company Property. Promptly following the
termination of Executive's employment, the Executive (or in the event of death,
the Executive's personal representative) shall promptly surrender to the Company
the original and all copies of Proprietary Materials (including all notes,
memoranda and the like concerning or derived therefrom), whether prepared by the
Executive or others, which are then in the Executive's possession or control.
Records of payments made by the Company to or for the benefit of the Executive,
the Executive's copy of this Agreement, his rolodexes, personal diaries,
personal mementos, personal effects shall not be deemed Proprietary Materials
for purposes of this paragraph (e), and other such things, lawfully possessed by
the Executive which relate solely to taxes payable by the Executive, employee
benefits due to the Executive or the terms of the Executive's employment with
the Company, shall also not be deemed Proprietary Materials for purposes of this
paragraph.

         9.       Restrictive Covenant. Without limitation of any other 
agreement of Executive, and in order to protect the valid business interests of
the Company, and in consideration of the Severance Payment and other benefits
provided hereunder, Executive covenants and agrees as follows:

                  (a) For so long as Executive is employed by the Company and
during the longer of the Benefit Period or the one year period following the
termination of Executive's employment (herein, the "Restricted Period"):

                           (i) Executive will not, whether directly or
                  indirectly, and whether on his own behalf or as an employee,
                  officer, director, consultant, advisor, agent, representative,
                  shareholder, partner, independent contractor or in any
                  capacity on behalf of any sole proprietorship, corporation,
                  partnership, joint venture, person or other entity which in
                  any way competes with the Company or its business, solicit or
                  attempt to solicit any client or customer of the Company or
                  any person or entity which at any time during the six months
                  prior to the termination of Executive's employment was then a
                  prospective client or customer of the Company;



                                       7

<PAGE>
                           (ii) Executive will not attempt in any manner to
                  persuade any of the customers of the Company to cease doing
                  business or reduce the amount of business which any of such
                  customers has done or may contemplate doing with the Company;
                  and

                           (iii) Executive will not, whether directly or
                  indirectly, and whether on his own behalf or as an employee,
                  officer, director, consultant, advisor, agent, representative,
                  shareholder, partner, independent contractor or in any
                  capacity on behalf of any sole proprietorship, corporation,
                  partnership, joint venture, person or other entity, employ any
                  person who at any time during the Restricted Period is or was
                  an employee of the Company.

                  (b) Executive acknowledges that his position with the Company
requires the performance of services which are, and will be, special, unique and
extraordinary and such position places him, and will place him, in a position of
confidence and trust with the customers of the Company, and accordingly that the
restrictive covenants set forth above are necessary in order to protect and
maintain the legitimate business interests of the Company. The Executive further
acknowledges that the location of the Company's customers and business extends
beyond the geographic area of the Company's principal office or state of
incorporation and it is reasonable that the restrictive covenants set forth
above are not limited by any specific geographic area.

                  (c) Executive acknowledges that the remedy at law for any
breach of the confidentiality provisions of this Agreement or this restrictive
covenant by him will be inadequate and that, accordingly, the Company shall, in
addition to all other available remedies (including without limitation seeking
damages and an accounting for lost profits), be entitled to injunctive relief.

                  (d) Executive acknowledges that the restrictions imposed
herein are fair and reasonable and are required for the protection of the
Company and are given as an inducement to the Company to enter into this
Agreement and are an integral part of the transactions contemplated herein. The
Executive further acknowledges that he has the means, skills and ability to earn
a livelihood without violation of the terms of this restrictive covenant. If any
of the covenants contained in this Agreement, or any part hereof, is hereinafter
construed to be invalid or unenforceable, the same shall not affect the
remainder of the covenant or covenants, which shall be given full effect,
without regard to the invalid portions. If any of the covenants contained in
this Agreement, or any part hereof, is held to be unenforceable because of the
duration of such provision or the area covered thereby, the parties agree that
the court making such determination shall have the power to reduce the duration
and/or geographic area of such provision and, in its reduced form, said
provision shall then be enforceable.

                  (e) The parties agree that in the event that the courts of any
one or more of any state having jurisdiction shall hold the above covenants
wholly unenforceable by reason of the breadth of scope or otherwise, it is the
intention of the parties hereto that such determination not bar or in any way
affect the right of the Company to the relief provided above in the courts of
any other states within the geographical scope of such covenants, as to breaches
of such covenants in 




                                       8

<PAGE>

such other respective jurisdictions, the above covenants as they relate to each
state being, for this purpose, severable into diverse and independent covenants.

         10.       Successors; Binding Agreement.

                  (a) Subject to the provisions of Section 7(b) above, this
Agreement shall not be terminated by any the consummation of a merger,
consolidation, statutory share exchange or similar form of corporate transaction
involving the Company or any of its Subsidiaries (a "Business Combination"), and
in any such event, the provisions of this Agreement shall be binding upon the
surviving entity thereof, and such Surviving Corporation shall be treated as the
Company hereunder.

                  (b) Subject to the provisions of Section 7(b) above, the
Company agrees that in connection with any Business Combination, it will cause
any successor entity to the Company to unconditionally assume (and for any
parent corporation in such Business Combination to guarantee), by written
instrument delivered to Executive (or his beneficiary or estate), all of the
obligations of the Company hereunder. Failure of the Company to obtain such
assumption and guarantee at least three days prior to the effectiveness of any
such Business Combination (the "Assumption Date") shall be a breach of this
Agreement and shall, effective as of the Assumption Date, entitle Executive to
compensation and other benefits from the Company in the same amount and on the
same terms as Executive would be entitled hereunder by reason of a Qualifying
Termination.

                  (c) This Agreement shall inure to the benefit of and be
enforceable by Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive shall die while any amounts would be payable to Executive hereunder
had Executive continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to such
person or persons appointed in writing by Executive to receive such amounts or,
if no person is so appointed, to Executive's estate.

         11. Notice. For purposes of this Agreement, all notices and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered or five (5) days after deposit in
the United States mail, certified and return receipt requested, postage prepaid,
addressed as follows:

         If to the Executive: to the most recent address of such Executive on 
the books and records of the Company; and

         If to the Company: PFSweb, Inc., 500 North Central Expressway, Plano, 
TX 75074;

or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.



                                       9

<PAGE>
         12. Full Settlement. The Company's obligation to make any payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall be in full settlement of all claims and potential claims by
Executive against the Company and its officers, directors, employees, agents and
representatives in respect of the termination of Executive's employment or any
other matter relating to Executive's employment by the Company. The Company's
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action that the Company may have
against Executive or others. Subject to the provisions of Section 7(b) above,
the terms and provisions of this Agreement are in addition to, and not in lieu
of, the terms and provisions of the COC Severance Agreement, if any, between the
Company and Executive.

         13. Employment with Subsidiaries. Employment with the Company for
purposes of this Agreement shall include employment with any Subsidiary.

         14. Survival. The respective obligations and benefits afforded to the
Company and Executive shall survive any termination of Executive's employment or
the termination of this Agreement.

         15. GOVERNING LAW; VALIDITY. THE INTERPRETATION, CONSTRUCTION AND
PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAWS THEREOF, OF SUCH PRINCIPLES OF ANY OTHER
JURISDICTION WHICH COULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF DELAWARE. THE INVALIDITY OR UNENFORCEABILITY OF ANY
PROVISION OF THIS AGREEMENT SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF
ANY OTHER PROVISION OF THIS AGREEMENT, WHICH OTHER PROVISIONS SHALL REMAIN IN
FULL FORCE AND EFFECT.

         16. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original and all of which together shall
constitute one and the same instrument.

         17. Miscellaneous. No provision of this Agreement may be modified or
waived unless such modification or waiver is agreed to in writing and signed by
Executive and by a duly authorized officer of the Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. Failure by Executive
or the Company to insist upon strict compliance with any provision of this
Agreement or to assert any right Executive or the Company may have hereunder
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. This Agreement (and, as applicable, the COC
Severance 



                                       10

<PAGE>

Agreement) constitute the entire agreement among the parties pertaining to the
subject matter hereof and supersedes all prior agreements, understandings,
negotiations and discussions, whether oral or written, of the parties.

         18. Resolution of Disputes. Any disputes arising under or in connection
with this Agreement may, at the election of the Executive or the Company, be
resolved by binding arbitration, to be held in Dallas, Texas, in accordance with
the rules and procedures of the American Arbitration Association. If arbitration
is elected, the Executive and the Company shall mutually select the arbitrator.
If the Executive and the Company cannot agree on the selection of an arbitrator,
each party shall select an arbitrator and the two arbitrators shall select a
third arbitrator who shall resolve the dispute. Judgment upon the award rendered
by the arbitrator may be entered in any court having jurisdiction thereof. Costs
of the arbitration shall be borne by the Company. The foregoing shall not
restrict the ability of any party to seek injunctive or equitable relief in any
court having jurisdiction thereof.

         IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by a duly authorized officer of the Company and Executive has executed
this Agreement as of the day and year first above written.


                                      PFSWEB, INC.



                                      By:
                                         --------------------------------
                                      Its:
                                          -------------------------------


                                      EXECUTIVE:


                                      -----------------------------------
                                      Name:


                                       11





<PAGE>
                                                                    EXHIBIT 99.1


    CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of PFSweb, Inc. (the "Company") on Form
10-Q for the period ended June 30, 2002 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Mark C. Layton, Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.


                                                /s/ Mark C. Layton
                                                --------------------------------
                                                Mark C. Layton
                                                Chief Executive Officer
                                                August 14, 2002








<PAGE>


                                                                    EXHIBIT 99.2


    CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of PFSweb, Inc. (the "Company") on Form
10-Q for the period ended June 30, 2002 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Thomas J. Madden,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.


                                                     /s/ Thomas J. Madden
                                                     ---------------------------
                                                     Thomas J. Madden
                                                     Chief Financial Officer
                                                     August 14, 2002