<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 September 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 November 7, 2002 there were 18,311,683 shares of registrant's common stock
outstanding, excluding 86,300 shares of common stock in treasury.



<PAGE>


                          PFSWEB, INC. AND SUBSIDIARIES
                                    FORM 10-Q
                               SEPTEMBER 30, 2002

                                      INDEX



<Table>
<Caption>

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

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

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

                      Unaudited Interim Condensed Consolidated Statements of Cash
                           Flows for the Three and Nine Months Ended September 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 .......................     26


      Item 4.     Controls and Procedures .........................................................     27


PART II.    OTHER INFORMATION


      Item 1.     Legal Proceedings...............................................................      28


      Item 2.     Changes in Securities and Use of Proceeds.......................................      28


      Item 3.     Defaults Upon Senior Securities..................................................     28


      Item 4.     Submission of Matters to a Vote of Security Holders..............................     28


      Item 5.     Other Information................................................................     28


      Item 6.     Exhibits and Reports on Form 8-K ................................................     28


SIGNATURES            .............................................................................     29
</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                                           September 30,   December 31,
                                                                                           2002            2001
                                                                                       ------------    ------------
                                                                                         (unaudited)
<S>                                                                                     <C>             <C>         
CURRENT ASSETS:
    Cash and cash equivalents .........................................................   $  8,611    $ 10,669
    Accounts receivable, net of allowance for doubtful accounts of $197
         and $254 at September 30, 2002 and December 31, 2001, respectively ...........      6,992       6,915
    Other receivables .................................................................         --          92
    Prepaid expenses and other current assets .........................................      1,946       2,646
                                                                                          --------    --------
                  Total current assets ................................................     17,549      20,322
                                                                                          --------    --------

PROPERTY AND EQUIPMENT, net ...........................................................     12,411      15,329
NOTE RECEIVABLE FROM AFFILIATE ........................................................      8,800      11,655
RESTRICTED CASH .......................................................................      2,877       2,722
INVESTMENT IN AFFILIATE ...............................................................      2,109         750
OTHER ASSETS ..........................................................................        401         833
                                                                                          --------    --------

                  Total assets ........................................................   $ 44,147    $ 51,611
                                                                                          ========    ========

                    LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
    Current portion of long-term debt and capital lease obligations ...................   $  1,482    $    995
    Trade accounts payable ............................................................      3,373       2,838
    Accrued expenses ..................................................................      7,219       5,300
                                                                                          --------    --------
                  Total current liabilities ...........................................     12,074       9,133
                                                                                          --------    --------

LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current
                  portion .............................................................      3,436       3,663
                                                                                          --------    --------
DEFERRED INCOME .......................................................................      1,540       2,210
                                                                                          --------    --------

COMMITMENTS AND CONTINGENCIES (Notes 8 and 10)

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;
        18,354,454 and 18,143,409 shares issued at September 30, 2002 and December
        31, 2001, respectively; and 18,268,154 and 18,057,109 outstanding at
        September 30, 2002 and December 31, 2001, respectively ........................         18          18
    Additional paid-in capital ........................................................     52,083      51,942
    Accumulated deficit ...............................................................    (24,486)    (14,157)
    Accumulated other comprehensive loss ..............................................       (433)     (1,113)
    Treasury stock at cost, 86,300 shares at September 30, 2002 and December 31,
        2001 ..........................................................................        (85)        (85)
                                                                                          --------    --------
                  Total shareholders' equity ..........................................     27,097      36,605
                                                                                          --------    --------

                  Total liabilities and shareholders' equity ..........................   $ 44,147    $ 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     Nine Months Ended
                                                            September  30,           September  30,
                                                         --------------------    --------------------
                                                           2002        2001        2002        2001
                                                         --------    --------    --------    --------
<S>                                                      <C>         <C>         <C>         <C>     
REVENUES:
    Gross service fee revenue ........................   $  8,583    $ 10,312    $ 26,289    $ 33,571
    Gross service fee revenue, affiliate (Note 8) ....      1,722         460       4,862         460
                                                         --------    --------    --------    --------
      Total gross service fee revenue ................     10,305      10,772      31,151      34,031
    Less pass-through charges ........................        783       1,483       2,973       4,084
                                                         --------    --------    --------    --------
      Net service fee revenue ........................      9,522       9,289      28,178      29,947
    Other net revenue ................................         --          --          --         497
                                                         --------    --------    --------    --------
        Total  net revenues ..........................      9,522       9,289      28,178      30,444
                                                         --------    --------    --------    --------

COSTS OF REVENUES:
    Cost of net service fee revenue ..................      5,797       5,755      17,552      19,583
    Cost of other revenue ............................         --        (627)         --        (568)
                                                         --------    --------    --------    --------
        Total costs of net revenues ..................      5,797       5,128      17,552      19,015
                                                         --------    --------    --------    --------

        Gross profit .................................      3,725       4,161      10,626      11,429

SELLING, GENERAL AND ADMINISTRATIVE
     EXPENSES ........................................      6,669       5,226      20,636      17,456
SEVERANCE AND OTHER TERMINATION
     COSTS (Note 9) ..................................      1,248          --       1,248          --
ASSET IMPAIRMENTS (Note 7) ...........................        922          --         922          --
OTHER ................................................         --        (500)         --      (4,780)
                                                         --------    --------    --------    --------
        Loss from operations .........................     (5,114)       (565)    (12,180)     (1,247)
EQUITY IN EARNINGS OF AFFILIATE ......................        265          --       1,163          --
INTEREST INCOME, NET .................................        155         112         688         494
                                                         --------    --------    --------    --------
         Loss before income taxes ....................     (4,694)       (453)    (10,329)       (753)

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

NET LOSS .............................................   $ (4,694)   $   (453)   $(10,329)   $   (742)
                                                         ========    ========    ========    ========

NET LOSS PER SHARE:
     Basic and diluted ...............................   $  (0.26)   $  (0.03)   $  (0.57)   $  (0.04)
                                                         ========    ========    ========    ========
WEIGHTED AVERAGE NUMBER OF SHARES
     OUTSTANDING:
     Basic and diluted ...............................     18,268      18,079      18,201      17,986
                                                         ========    ========    ========    ========
</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>
                                                                                          Nine Months Ended
                                                                                            September 30,
                                                                                         --------------------
                                                                                           2002       2001
                                                                                         --------    --------
<S>                                                                                      <C>         <C>      
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss .........................................................................   $(10,329)   $   (742)
    Adjustments to reconcile net loss to net cash provided by (used in) operating
          activities:
       Depreciation and amortization .................................................      4,607       4,720
       Asset impairments .............................................................        922          --
       Deferred income taxes .........................................................         --         109
       Allowances for doubtful accounts ..............................................        (29)        160
       Equity in earnings of affiliate ...............................................     (1,163)         --
       Non-cash compensation expense .................................................         28         696
       Gain on sale of distribution facility .........................................         --      (5,476)
       Changes in operating assets and liabilities:
           Accounts receivable .......................................................         26         703
           Prepaid expenses and other current assets .................................      1,227       5,362
           Accounts payable, accrued expenses and deferred income ....................      1,720      (3,728)
                                                                                         --------    --------
                Net cash provided by (used in) operating activities ..................     (2,991)      1,804
                                                                                         --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of property and equipment ..............................................     (1,485)     (2,470)
    Increase in restricted cash ......................................................       (154)     (2,742)
    (Loans to) proceeds from affiliate, net ..........................................      2,855      (8,800)
    Equity investment in affiliate ...................................................         --        (750)
    Proceeds from sale of distribution facility, net .................................         --       9,937
                                                                                         --------    --------
                Net cash provided by (used in) investing activities ..................      1,216      (4,825)
                                                                                         --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Payments on long-term debt and capital lease obligations .........................       (845)       (355)
    Purchase of treasury stock .......................................................         --         (85)
    Proceeds from issuance of common stock ...........................................        113         159
    Proceeds from debt ...............................................................        325          --
                                                                                         --------    --------
                Net cash used in financing activities ................................       (407)       (281)
                                                                                         --------    --------

EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS ................................        124          29
                                                                                         --------    --------

NET DECREASE IN CASH AND CASH EQUIVALENTS ............................................     (2,058)     (3,273)

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

CASH AND CASH EQUIVALENTS, end of period .............................................   $  8,611    $ 14,870
                                                                                         ========    ========

SUPPLEMENTAL CASH FLOW INFORMATION
  Non-cash investing and financing activities:
    Fixed assets acquired under capital leases .......................................   $    779    $  2,472
                                                                                         ========    ========

</Table>



         The accompanying 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
September 30, 2002, and for the three and nine months ended September 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 September 30, 2002, its results of operations for the
three and nine months ended September 30, 2002 and 2001 and its results of cash
flows for the nine months ended September 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 nine months ended September 30, 2002,
are approximately $0.8 and $2.3 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 nine months
ended September 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 Notes 8, 10 and
11). The Company recorded its interest in Holdings' net income, which was
allocated and distributed to the owners pursuant to the terms of Holdings'
operating agreement, under the modified equity method, which resulted 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 September 30, 2002 the Company
had 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 $8.0 million (previously $6.5 million, see Note 11) 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. The Company evaluates each period whether the
carrying value of the Note is impaired and whether it will be required to
perform under its primary 



                                       6

<PAGE>


                          PFSWEB, INC. AND SUBSIDIARIES

     NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


guarantee obligation associated with the Supplies Distributors debt obligations
($48.8 million at September 30, 2002) (see Notes 8 and 10). As of September 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 that 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 client basis taking into
consideration historical payment trends, current financial position, results of
independent credit evaluations and payment terms.

       Other revenue of $0.5 million for the nine months ended September 30,
2001 represents the fees charged to clients in conjunction with early contract
terminations. Cost of other revenue for the three and nine months ended
September 30, 2001 of $0.6 million primarily reflects the benefit associated
with the reversal of accruals made in the prior year for estimated client
terminated costs that were determined this period to be in excess of actual
costs incurred.

       The Company primarily performs its services under one 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 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.


                                       7

<PAGE>

                          PFSWEB, INC. AND SUBSIDIARIES

     NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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>
                                        September 30,  December 31, 
                                            2002           2001
                                        ------------   ------------
<S>                                     <C>            <C>         
Deferred implementation costs
  Current ...........................   $        732   $        857
  Non-current .......................            253            655
                                        ------------   ------------
                                        $        985   $      1,512
                                        ============   ============
Deferred implementation revenues
  Current ...........................          1,580          1,486
  Non-current .......................            370            988
                                        ------------   ------------
                                        $      1,950   $      2,474
                                        ============   ============
</Table>


       Current and non-current deferred implementation costs are a component of
prepaid expenses and other assets, respectively. Implementation costs associated
with technology infrastructure and development costs are a component of property
and equipment. 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 nine months ended September 30, 2002. In total,
these clients represented approximately 64% of the Company's net service fee
revenue, with the Company's largest client representing 35% of net revenues, and
Supplies Distributors and its affiliates (see Note 8) representing 17% of net
revenues. Service fee revenue from Daisytek accounted for approximately 53% of
the Company's total revenues for the nine months ended September 30, 2001, of
which 19% was from the Daisytek subsidiaries that were the predecessors to
Supplies Distributors. As of September 30, 2002, three clients accounted for
approximately 49% of accounts receivable, of which 28% was due from the
Company's largest client and 9.5% was due from Supplies Distributors and its
affiliates. 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 September 30, 2002 and December 31, 2001, the Company had a
subordinated note receivable, evidenced by the Note, 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 September
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 $4.6 million and $5.5 million, net of accumulated amortization of
approximately $3.1 million and $2.4 million, at September 30, 2002 and December
31, 2001, respectively.



                                       8

<PAGE>

                          PFSWEB, INC. AND SUBSIDIARIES

     NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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 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
does not believe that early adoption of SFAS No. 146 would have had a material
impact on the consolidated financial statements for the three and nine months
ended September 30, 2002 and currently expects to adopt the provisions of this
standard on January 1, 2003.

4. COMPREHENSIVE LOSS (IN THOUSANDS)


<Table>
<Caption>
                                          Three Months Ended      Nine Months Ended
                                              September 30,          September 30,
                                         --------------------    --------------------
                                           2002        2001        2002        2001
                                         --------    --------    --------    --------
<S>                                      <C>         <C>         <C>         <C>      
Net loss .............................   $ (4,694)   $   (453)   $(10,329)   $   (742)
Other comprehensive income (loss):
     Foreign currency translation
        adjustment ...................       (186)        438         680        (552)
                                         --------    --------    --------    --------
Comprehensive loss ...................   $ (4,880)   $    (15)   $ (9,649)   $ (1,294)
                                         ========    ========    ========    ========
</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. .

5. NET 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 nine months ended September 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 September 30, 2002 and
2001 there were 4,953,814 and 1,924,646 options outstanding, respectively. There
are no other potentially dilutive securities outstanding.

6. TRANSACTIONS WITH DAISYTEK

       As of September 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, 


                                       9

<PAGE>

                          PFSWEB, INC. AND SUBSIDIARIES

     NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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 technology services
that expired in November 2001.

       For the three and nine months ended September 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 $3.0 million, net of
$0.2 million of pass-through charges, and $16.1 million, net of $0.5 million of
pass-through charges, for the three and nine months ended September 30, 2001,
respectively.

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

7. DISPOSITION AND IMPAIRMENT 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 September 30, 2001, assuming the transaction had occurred in
January 2001, would have been $8.0 million and $(2.3) million, respectively. Pro
forma net revenues and pro forma loss from operations for the nine months ended
September 30, 2001, assuming the transaction had occurred in January 2001, would
have been $20.2 million and $(10.9) 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.

       In September 2002, the Company changed the manner in which certain
warehouse and order 


                                       10

<PAGE>


                          PFSWEB, INC. AND SUBSIDIARIES

     NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


management transactions are processed. These changes eliminated the future
service potential of selected software applications to the Company. Accordingly,
the Company recorded a $0.7 million asset impairment charge during the three
months ended September 30, 2002. The Company has also abandoned certain
distribution center assets and recorded a $0.2 million asset impairment charge
during the three months ended September 30, 2002.

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 Partners, LLC ("IFP") formed Holdings,
and Holdings formed a wholly-owned subsidiary, Supplies Distributors ("Supplies
Distributors") (see Note 11). 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 directors of the Company collectively owned a 49% non-voting
interest in IFP (see Note 11). 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 September 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 nine months ended September 30,
2002, the Company charged interest at 10% and earned $0.2 million and $0.8
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 $19.6 million) for the European operations, were
subsequently increased to $45 million and 27 million Euros (approximately $26.5
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 $27.5 million through its
expiration on March 29, 2003. The asset based credit facility with IBM Belgium
provides up to 22 million Euros (approximately $21.6 million) in financing for
purchasing IBM inventory. The IBM


                                       11

<PAGE>


                          PFSWEB, INC. AND SUBSIDIARIES

     NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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 10). Additionally,
the Company is required to maintain a subordinated loan to Supplies Distributors
of no less than $8.0 million and a minimum shareholders' equity balance, as
modified in November 2002 (see Note 11).

       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 7.5 million Euros (approximately $7.4
million) (previously 10 million Euros, see Note 11) 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 10). Additionally, the Company is required to maintain a
subordinated loan to Supplies Distributors of no less than $8.0 million
(previously $6.5 million, see Note 11) 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 $1.7 million, net
of $0.1 million of pass-through charges, for the three months ended September
30, 2002 and $4.7 million, net of $0.1 million of pass-through charges, for the
nine months ended September 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 $1.7
million, net of $0.2 million of pass-through charges, for the three months ended
September 30, 2001 and $6.0 million, net of $0.5 million of pass-through
charges, for the nine months ended September 30, 2001. As of September 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 allocated its earning
and distributed its cash flow, as defined, in the following order of priority:
first, to IFP until it received a one-time amount equal to its capital
contribution of $0.25 million; second, to IFP until it received an amount equal
to a 35% cumulative annual return on its capital contribution; third, to PFSweb
until it received a one-time amount equal to its capital contribution of $0.75
million; fourth, to PFSweb until it 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 could be made if, after giving effect thereto, the
net worth of Holdings would 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 $0.3 million and $1.2 million of equity in the earnings of
Holdings for the three and nine months ended September 30, 2002, respectively.
The 


                                       12

<PAGE>


                          PFSWEB, INC. AND SUBSIDIARIES

     NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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 September 30, 2002, resulted in a decrease of $0.2 million
to the Company's accumulated other comprehensive loss.

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


<Table>
<S>                                                     <C>
Cash and cash equivalents  (including restricted
    cash of $1,745) .................................   $ 2,578
Accounts receivable, net of allowance for
     doubtful accounts of $152 ......................    28,110
Inventories, net ....................................    37,193
Prepaid expenses ....................................       684
Other assets, net ...................................       455
                                                        -------
       Total assets .................................   $69,020
                                                        =======

Trade accounts payable ..............................   $ 3,611
Accrued expenses ....................................     1,901
Debt (guaranteed by PFSweb) .........................    48,823
Other debt ..........................................     3,070
Note payable to affiliate ...........................     8,800
Members' capital:
    Capital contributions ...........................     1,000
    Retained earnings ...............................     1,417
    Unrealized gain on investment ...................       260
    Accumulated other comprehensive loss ............       138
                                                        -------
       Total members' capital .......................     2,815
                                                        -------
       Total liabilities and members' capital .......   $69,020
                                                        =======
</Table>



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


<Table>
<Caption>
                                                       September 30, 2002
                                                    ---------------------------
                                                    Three Months    Nine Months
                                                    ------------   ------------
<S>                                                 <C>            <C>         
Net revenues ....................................   $     57,614   $    163,653
Cost of goods sold ..............................         54,423        154,274
                                                    ------------   ------------
Gross profit ....................................          3,191          9,379
Selling, general and administrative expenses ....          1,748          4,975
                                                    ------------   ------------
Income from operations ..........................          1,443          4,404
Interest expense ................................            843          2,424
                                                    ------------   ------------
Income before income taxes ......................            600          1,980
Income tax expense ..............................            201            754
                                                    ------------   ------------
Net income ......................................   $        399   $      1,226
                                                    ============   ============
</Table>


9. RESTRUCTURING

       In September 2002, the Company implemented a restructuring plan that
resulted in the termination of approximately 60 employees, of which 20 were
hourly employees. The Company recorded $1.2 million for severance and other
termination costs, of which $0.2 million was paid during September. The
remaining $1.0 million is included in accrued expenses, of which $0.7 million is
expected to be paid during the December 2002 quarter and the remainder paid by
March 2004. The Company did not finalize all restructuring activities as of
September 30, 2002, and expects to incur an additional amount totaling $0.5
million to $1.0 million of restructuring charges during the December 2002 and
March 2003 quarters.



                                       13

<PAGE>


                          PFSWEB, INC. AND SUBSIDIARIES

     NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


10. COMMITMENTS AND CONTINGENCIES

       The Company has provided collateralized guarantees to secure the
repayment of Supplies Distributors' credit facilities. As of September 30, 2002
the outstanding balance of the credit facilities guaranteed by the Company was
approximately $48.8 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 (see Note 11), or if the Company was to violate any of
the restricted transactions pursuant to the IBM Credit, IBM Belgium, or Congress
agreements (see Notes 8 and 11), 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 if
Supplies Distributors or its subsidiaries is unable to do so. 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 (see Note 11).

11. SUBSEQUENT EVENT

       Effective October 1, 2002, the Company purchased the remaining 51%
interest in Holdings from IFP for $0.3 million. As a result of the purchase, in
the future the Company will consolidate 100% of Holdings' financial position and
results of operations into the Company's consolidated financial statements. Pro
forma net revenues and pro forma net loss for the three months ended September
30, 2002, assuming the transaction had occurred in January 2002, would have been
$65.5 million and $(4.4) million, respectively. Pro forma net revenues and pro
forma net loss for the nine months ended September 30, 2002, assuming the
transaction had occurred in January 2002, would have been $187.1 million and
$(9.9) million, respectively. The pro forma data do not give effect to an
approximate $0.3 million extraordinary gain expected to result from the purchase
from IFP, primarily as a result of the purchase price being less than IFP's
capital account. The unaudited pro forma net revenue and pro forma net loss are
not necessarily indicative of the consolidated results of operations for future
periods or the results of operations that would have been realized had we
consolidated Supplies Distributors during the period noted. The purchase price
allocation is preliminary and subject to change.

       In November, 2002, Supplies Distributors amended its credit facility with
IBM Credit. The amendments modify certain financial covenants, such as
annualized revenue to working capital and total liabilities to tangible net
worth, as defined. The amendments also increase the Company's minimum required
subordinated loan to Supplies Distributors to $8.0 million and reduce the
Company's minimum shareholders' equity amount to $24.0 million as of September
30, 2002, $20.0 million for the period from October through December 2002, and
$18.0 million for the period from January through March 2003. Also, in 
November, 2002, SDSA modified its factoring agreement with Fortis to reduce the 
maximum factoring amount to 7.5 million Euros (approximately $7.4 million).



                                       14

<PAGE>


                          PFSWEB, INC. AND SUBSIDIARIES



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;

       o      our ability to raise additional capital;

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

       o      the ability of our subsidiary, Supplies Distributors, to maintain
              and renew its working capital indebtedness facilities;

       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.


                                       15

<PAGE>

                          PFSWEB, INC. AND SUBSIDIARIES


OVERVIEW

       We are an international provider of integrated business process
outsourcing solutions 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. We derive our revenues from
a broad range of services, including professional consulting, technology
collaboration, order management, managed web hosting and creative web
development, web-enabled customer contact centers, 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.

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       Nine Months Ended
                                                        September 30,           September 30,
                                                     -------------------     -------------------
                                                       2002        2001        2002        2001     
                                                     -------     -------     -------     -------
<S>                                                  <C>        <C>          <C>        <C>   
Gross service fee revenue ........................      90.1%      111.0%       93.3%      110.3%
Gross service fee revenue, affiliate .............      18.1         5.0        17.3         1.5
                                                     -------     -------     -------     -------
Total gross service fee revenue ..................     108.2       116.0       110.6       111.8
Pass-through charges .............................      (8.2)      (16.0)      (10.6)      (13.4)
                                                     -------     -------     -------     -------
Net service fee revenue ..........................     100.0       100.0       100.0        98.4
Other net revenue ................................        --          --          --         1.6
                                                     -------     -------     -------     -------
       Total net revenues ........................     100.0       100.0       100.0       100.0
Cost of net service fee revenue (as % of  net
    service fee revenue) .........................      60.9        62.0        62.3        65.4
</Table>



                                       16

<PAGE>


                          PFSWEB, INC. AND SUBSIDIARIES



<Table>
<Caption>
                                                     Three Months Ended       Nine Months Ended
                                                        September 30,           September 30,
                                                     -------------------     -------------------
                                                       2002        2001        2002        2001     
                                                     -------     -------     -------     -------
<S>                                                  <C>        <C>          <C>        <C>   
Cost of other net revenue (as % of total net
    revenue) .....................................        --        (6.7)         --        (1.9)
                                                     -------     -------     -------     -------
       Total costs of net revenues ...............      60.9        55.2        62.3        62.5
                                                     -------     -------     -------     -------
Gross profit .....................................      39.1        44.8        37.7        37.5
Selling, general and administrative expenses .....      70.0        56.3        73.2        57.3
Severance and other termination costs ............      13.1          --         4.4          --
Asset impairments ................................       9.7          --         3.3          --
Other ............................................        --        (5.4)         --       (15.7)
                                                     -------     -------     -------     -------
Loss from operations .............................     (53.7)       (6.1)      (43.2)       (4.1)
Equity in earnings of affiliate ..................       2.8          --         4.1          --
Interest income, net .............................       1.6         1.2         2.4         1.7
                                                     -------     -------     -------     -------
Loss before income taxes .........................     (49.3)       (4.9)      (36.7)       (2.4)
Income tax benefit ...............................        --          --          --          --
                                                     -------     -------     -------     -------
Net loss .........................................     (49.3)%      (4.9)%     (36.7)%      (2.4)%
                                                     =======     =======     =======     =======
</Table>



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

       Net Service Fee Revenue (including service fee revenue, affiliate). Net
service fee revenue was $9.5 million for the three months ended September 30,
2002 as compared to $9.3 million for the three months ended September 30, 2001,
an increase of $0.2 million or 2.5%. The increase in net service fee revenue
over the prior period was due to the impact of new service contract
relationships of $1.1 million and the increase in net service fee revenue from
existing clients of $0.7 million, partially offset by the impact of terminated
contracts in calendar year 2001 of $1.6 million, primarily the Daisytek
contracts. Net service fee revenue was $28.2 million for the nine months ended
September 30, 2002 as compared to $29.9 million for the nine months ended
September 30, 2001, a decrease of $1.7 million or 5.9%. 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 $11.5 million, primarily the
Daisytek contracts, partially offset by an increase in net service fee revenue
from existing clients of $6.3 million and the impact of new service contract
relationships of $3.5 million. Net service fee revenue for the three and nine
months ended September 30, 2002, included $0.3 million and $1.2 million,
respectively, of client relationships terminated in the current fiscal year. For
the three and nine months ended September 30, 2002, net service fee revenue from
existing clients increased from the prior periods, primarily related to the
addition of our largest client offset by 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 reduction in net service fee revenue of $1.3 million
and $10.1 million for the three and nine months ended September 30, 2002,
respectively.

       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 $1.7 million, net
of $0.1 million of pass-through charges, for the three months ended September
30, 2002 and $4.7 million, net of $0.1 million of pass-through charges, for the
nine months ended September 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 $1.7
million, net of $0.2 million of pass-through charges, for the three months ended
September 30, 2001 and $6.0 million, net of $0.5 million of pass-through
charges, for the nine months ended September 30, 2001. For the three and nine
months ended September, 2001, our revenue was negatively impacted by lower than
anticipated IBM related activity due to transition to Supplies Distributors from
Daisytek but was benefited by approximately $0.8 million of service fee
adjustments resulting from the finalization of the Daisytek contract.


                                       17

<PAGE>

                          PFSWEB, INC. AND SUBSIDIARIES

       Due to the consolidation of Holdings (see "Supplies Distributors" below),
in the future we will also report product revenue arising from the sale by
Supplies Distributors of IBM products. Based on Supplies Distributors' current
run rate, we currently expect to report product revenue of approximately $60
million on a quarterly basis.

       Other Revenue. Other revenue of $0.5 million for the nine months ended
September 30, 2001 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 $5.8
million for the three months ended September 30, 2002 and September 30, 2001.
The resulting service fee gross profit was $3.7 million, or 39.1% of net service
fee revenue, during the three months ended September 30, 2002 as compared to
$3.5 million, or 38.0% of net service fee revenue for the three months ended
September 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. Cost of net service fee revenue
was $17.6 million for the nine months ended September 30, 2002, as compared to
$19.6 million during the nine months ended September 30, 2001, a decrease of
$2.0 million or 10.4%. The resulting service fee gross profit was $10.6 million
or 37.7% of net service fee revenue, during the nine months ended September 30,
2002 as compared to $10.4 million, or 34.6% of net service fee revenue for the
nine months ended September 30, 2001. 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 $0.4
million of costs in excess of start up fees incurred for a new client
implementation during the nine months ended September 30, 2002. For the three
and nine months ended September, 2001, our gross profit margin was negatively
impacted by lower than anticipated IBM related activity due to transition to
Supplies Distributors from Daisytek but was benefited by approximately $0.8
million of service fee adjustments resulting from the finalization of the
Daisytek contract for which the related service activities were performed in
earlier periods.

       Due to the consolidation of Holdings (see "Supplies Distributors" below),
in the future we will also report cost of product revenue arising from the sale
by Supplies Distributors of IBM products. Based on Supplies Distributors'
current run rate, we currently expect to report cost of product revenue of
approximately $57 million on a quarterly basis.

       Cost of Other Net Revenue. Cost of other revenue for the three and nine
months ended September 30, 2001 of ($0.6) million primarily reflects the benefit
associated with the reversal of accruals made in prior years for estimated
client termination costs that were determined during the September 2001 period
to be in excess of actual costs incurred.

       Selling, General and Administrative Expenses. SG&A expenses were $6.7
million for the three months ended September 30, 2002, or 70.0% of revenues, as
compared to $5.2 million, or 56.3% of revenues, for the three months ended
September 30, 2001. SG&A expenses were $20.6 million for the nine months ended
September 30, 2002, or 73.2% of revenues, as compared to $17.5 million, or 57.3%
of revenues, for the nine months ended September 30, 2001. SG&A expenses
increased over the prior year due to approximately $0.8 million and $2.3 million
for the three and nine months ended September 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. In
addition, SG&A expenses for the three and nine months ended September 30, 2001,
were benefited by the favorable resolution of certain accounts and VAT
receivables. 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. In future
periods, as a result of personnel reductions and certain asset write-offs
recorded during the three months ended September 30, 2002, we believe our SG&A
expenses will decline by approximately $1.5 million per quarter. Due to the
consolidation of Holdings (see "Supplies Distributors" below), we will also
reclassify certain costs previously characterized as cost of service fee revenue
to SG&A.


                                       18

<PAGE>


                          PFSWEB, INC. AND SUBSIDIARIES

       Asset Impairments. For the three and nine months ended September 30,
2002, we recorded $0.9 million of expense for asset impairment and abandonment
charges. This charge relates to an older warehouse management system that was
upgraded to a new system during the quarter, as well as the disposition of
certain other assets no longer used in the business. We did not finalize all
restructuring activities as of September 30, 2002, and thus expect to incur an
additional amount totaling $0.5 million to $1.0 million of restructuring charges
during the December 2002 and March 2003 quarters.

       Severance and Other Terminations Costs. For the three and nine months
ended September 30, 2002, we recorded $1.2 million of severance and other
termination charges associated with a restructuring plan to reduce costs.

       Equity in Earnings of Affiliate. For the three and nine months ended
September 30, 2002, we recorded $0.3 million and $1.2 million, respectively, of
equity in earnings of affiliate that represents our allocation of Holdings
earnings. Due to the consolidation of Holdings (see "Supplies Distributors"
below), in the future we will not report equity in earnings of affiliate.

       Interest Income. Interest income was $0.2 million for the three months
ended September 30, 2002 as compared to interest income of $0.1 million for the
three months ended September 30, 2001. Interest income was $0.7 million for the
nine months ended September 30, 2002 as compared to interest income of $0.5
million for the nine months ended September 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. Due to the
consolidation of Holdings (see "Supplies Distributors" below), in the future we
will report a higher consolidated interest expense resulting from interest paid
under Holdings' credit facilities.

       Income Taxes. For the three and nine months ended September 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 September 30,
2002, which are primarily related to our net operating loss carryforwards. For
the nine months ended September 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. Due to
the consolidation of Holdings (see "Supplies Distributors" below), in the future
we anticipate that we will record an income tax provision associated with
Holdings' Canadian and European results of operations.

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


                                       19

<PAGE>


                          PFSWEB, INC. AND SUBSIDIARIES

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 directors of PFSweb owned 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
September 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 to this level. The
balance can be decreased to $8.0 million subject to Supplies Distributors'
financing requirements and 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 products. The
facilities, which at inception included $40 million for the U.S. operations and
20 million Euros (approximately $19.6 million) for the European operations, were
subsequently increased to $45 million and 27 million Euros (approximately $26.5
million), respectively, and extended through March 25, 2002. The Company
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 $27.5 million through its
expiration on March 29, 2003. The asset based credit facility with IBM Belgium
provides up to 22 million Euros (approximately $21.6 million) in financing for
purchasing IBM inventory. 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 minimum
subordinated loan balance due from Supplies Distributors and a minimum
shareholders' equity balance. In November, 2002, Supplies Distributors amended
the credit facility with IBM Credit. The amendments modify certain financial
covenants, such as annualized revenue to working capital and total liabilities
to tangible net worth, as defined. The amendments also increase our minimum
required subordinated loan to Supplies Distributors to $8.0 million and reduce
our minimum shareholders' equity amount to $24.0 million as of September 30,
2002, $20.0 million for the period from October through December 2002, and $18.0
million for the period from January through March 2003. Furthermore, we are
obligated to repay any over-advance made to Supplies Distributors or SDSA under
these facilities if Supplies Distributors or SDSA is unable to do so. 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 


                                       20

<PAGE>


                          PFSWEB, INC. AND SUBSIDIARIES

agreement with Fortis Commercial Finance N.V. ("Fortis") to provide factoring of
eligible accounts receivables. In November, 2002, SDSA amended the factoring
agreement with Fortis to reduce the maximum factoring amount to 7.5 million
Euros (approximately $7.4 million), from its previous maximum of 10 million
Euros (approximately $9.8 million). 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 if Supplies Distributors is unable to
do so. 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
service fee revenue, affiliate in the accompanying unaudited interim condensed
consolidated financial statements, of approximately $1.7 million, net of $0.1
million of pass-through charges, for the three months ended September 30, 2002
and $4.7 million, net of $0.1 million of pass-through charges, for the nine
months ended September 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 $1.7 million,
net of $0.2 million of pass-through charges, for the three months ended
September 30, 2001 and $6.0 million, net of $0.5 million of pass-through
charges, for the nine months ended September 30, 2001. As of September 30, 2002
and December 31, 2001 we had trade accounts receivables of $0.7 million and $0.9
million due from Supplies Distributors, respectively.

       We have historically recorded our interest in Holdings' net income, which
was allocated and distributed to the owners pursuant to the terms of Holdings'
operating agreement, under the modified equity method, which resulted 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 allocated its
earning and distributed its cash flow, as defined, in the following order of
priority: first, to IFP until it received a one-time amount equal to its capital
contribution of $0.25 million; second, to IFP until it received an amount equal
to a 35% cumulative annual return on its capital contribution; third, to PFSweb
until it received a one-time amount equal to its capital contribution of $0.75
million; fourth, to PFSweb until it 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 could be made if, after giving effect thereto, the
net worth of Holdings would 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 $0.3 million and $1.2 million of equity in the earnings of
Holdings for the three and nine months ended September 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 September 30, 2002, resulted in a decrease of $0.2 million to our
accumulated other comprehensive loss.



                                       21

<PAGE>

                          PFSWEB, INC. AND SUBSIDIARIES

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


<Table>
<S>                                                            <C>    
Cash and cash equivalents (including restricted
   cash of $1,745) .........................................   $ 2,578
Accounts receivable, net of allowance for
   doubtful accounts of $152 ...............................    28,110
Inventories, net ...........................................    37,193
Prepaid expenses ...........................................       684
Other assets, net ..........................................       455
                                                               -------
        Total assets .......................................   $69,020
                                                               =======

Trade accounts payable .....................................   $ 3,611
Accrued expenses ...........................................     1,901
Debt (guaranteed by PFSweb) ................................    48,823
Other debt .................................................     3,070
Note payable to affiliate ..................................     8,800
Members' capital:
    Capital contributions ..................................     1,000
    Retained earnings ......................................     1,417
    Unrealized loss on investment ..........................       260
    Accumulated other comprehensive loss ...................       138
                                                               -------
       Total members' capital ..............................     2,815
                                                               -------
       Total liabilities and members' capital ..............   $69,020
                                                               =======
</Table>


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



<Table>
<Caption>
                                                      September 30, 2002
                                                   -------------------------
                                                   Three Months  Nine Months
                                                   ------------  ----------
<S>                                                 <C>          <C>       
Net revenues ....................................   $   57,614   $  163,653
Cost of goods sold ..............................       54,423      154,274
                                                    ----------   ----------
Gross profit ....................................        3,191        9,379
Selling, general and administrative expenses ....        1,748        4,975
                                                    ----------   ----------
Income from operations ..........................        1,443        4,404
Interest expense ................................          843        2,424
                                                    ----------   ----------
Income before income taxes ......................          600        1,980
Income tax expense ..............................          201          754
                                                    ----------   ----------
Net income ......................................   $      399   $    1,226
                                                    ==========   ==========
</Table>



       In October 2002, we purchased the remaining 51% interest in Holdings from
IFP for $0.3 million. In the future, as a result of the purchase, we will
consolidate 100% of Holdings financial position and results of operations into
our consolidated financial statements. Pro forma net revenues and pro forma net
loss for the three months ended September 30, 2002, assuming the transaction had
occurred in January 2002, would have been $65.5 million and $(4.4) million,
respectively. Pro forma net revenues and pro forma net loss for the nine months
ended September 30, 2002, assuming the transaction had occurred in January 2002,
would have been $187.1 million and $(9.9) million, respectively. The pro forma
data do not give effect to an approximate $0.3 million extraordinary gain
expected to result from the purchase from IFP, primarily as a result of the
purchase price being less than IFP's capital account. The unaudited pro forma
net revenue and pro forma net loss are not necessarily indicative of the
consolidated results of operations for future periods or the results of
operations that would have been realized had we consolidated Supplies
Distributors during the period noted. The purchase price allocation is
preliminary and subject to change.


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


                                       22

<PAGE>


                          PFSWEB, INC. AND SUBSIDIARIES

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 $3.0 million for the nine
months ended September 30, 2002, and primarily resulted from cash used to fund
operating losses, partially offset by an increase in accounts payable and
accrued expenses of $1.7 million and a decrease in prepaid expenses and other
current assets of $1.2 million. The increase in accrued expenses relate
primarily to accrued severance costs. Of the $1.2 million severance and other
termination costs recorded in the September 2002 quarter, $0.2 million was paid
in September. Of the remaining $1.0 million, we expect to be pay $0.7 million in
the December quarter and the remainder by March 2004. The decrease in other
current assets primarily relates to the collection of VAT receivables associated
with our European operations. Net cash provided by operating activities was $1.8
million for the nine months ended September 30, 2001, and primarily resulted
from cash used to fund operating losses and the net impact of decreases in
prepaid expenses and other current assets of $5.4 million, accounts payable and
accrued expenses of $3.7 million and accounts receivable of $0.7 million. The 
prior year decrease in other current assets primarily relates to the 
collection of VAT receivables associated with our European operations. The 
decrease in accounts payable is primarily attributable to the remittance of the 
VAT monies due to one of our clients and the reversal of client termination 
reserves, previously reflected in prior years' costs, and of deferrals 
applicable to the finalization of the Daisytek related contract, for which the 
related activities occurred in earlier periods.

       Net cash provided by investing activities for the nine months ended
September 30, 2002 totaled $1.2 million, representing the net repayment of $2.9
million by Supplies Distributors of our subordinated loan, which totaled $8.8
million at September 30, 2002, offset by capital expenditures of $1.5 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. Net cash used by
investing activities totaled $4.8 million for the nine months ended September
30, 2001, which primarily included $2.5 million of capital expenditures, the
establishment of a restricted cash balance of $2.7 million, a subordinated loan
to Supplies Distributors of approximately $8.8 million, and an equity investment
of $0.8 million in Supplies Distributors offset by $9.9 million in net proceeds
from the sale of the distribution facility. 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 and upgrades to 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 $0.4 million for
the nine months ended September 30, 2002, representing $0.8 million of payments
on our long-term debt and capital lease obligations offset by the proceeds from
debt and from the issuance of common stock pursuant to our employee stock
purchase plan. Net cash used in financing activities was approximately $0.3
million for the nine months ended September 30, 2001, representing payments on
our capital lease obligations offset by the proceeds from issuance of common
stock.

       During the nine months ended September 30, 2002, our working capital
decreased to $5.5 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. 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, 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


                                       23

<PAGE>


                          PFSWEB, INC. AND SUBSIDIARIES

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 and other
obligations, which is comprised of operating leases, other obligations, which
represents $0.1 million of contingent obligations we believe will be paid in the
next twelve months, long-term debt and capital leases, including interest (in
millions):


<Table>
<Caption>
                                                                                   TOTAL
                                                    OPERATING      LONG-TERM    CONTRACTUAL
                                                    LEASES AND     DEBT AND      CASH AND
                                                      OTHER         CAPITAL        OTHER
                                                   OBLIGATIONS      LEASES      OBLIGATIONS
                                                    ---------      --------      ---------
<S>                                                 <C>            <C>           <C>      
Twelve Months Ended September 30,
  2003 ..........................................   $   6,072      $  1,755      $   7,827
  2004 ..........................................       4,940         1,519          6,459
  2005 ..........................................       2,785           905          3,690
  2006 ..........................................       2,785           720          3,505
  2007 ..........................................       1,902           425          2,327
  Thereafter ....................................       1,219           283          1,502
                                                    ---------      --------      ---------
          Total contractual cash obligations ....   $  19,703      $  5,607      $  25,310
                                                    =========      ========      =========
</Table>


       In support of certain debt instruments and leases, as of September 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 September 30, 2002, the
outstanding balance of the credit facilities guaranteed by PFSweb was
approximately $48.8 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, 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 if Supplies Distributors or its subsidiaries is unable to do so. 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. No liabilities have been
recorded in the accompanying financial statements for these guarantee
obligations. No assurance can be given that Supplies Distributors will be able
to renew their credit facilities upon their expiration in March 2003. The
failure to renew these credit facilities will require Supplies Distributors to
obtain replacement financing to repay these facilities. No assurance can be
given that Supplies Distributors will be able to obtain replacement financing or
repay its existing credit facilities. In the event Supplies Distributors is
unable to do so, the Company may be called upon to repay such credit facilities
under the terms of its guaranty. No assurance can be given that the Company will
be able to do so. As a result, the failure of Supplies Distributors to renew its
existing credit facilities will have a material adverse effect upon Holdings,
Supplies Distributors and PFSweb and their respective financial condition and
operations. We do not have any other material commercial commitments.


                                       24

<PAGE>
\
                          PFSWEB, INC. AND SUBSIDIARIES

       In September 2002, we implemented a restructuring plan and terminated
approximately 10% of our workforce. As a result of the terminations and certain
asset write-offs recorded during the three months ended September 30, 2002, we
believe we have reduced our annual operating expenses by approximately $6
million. We also continue to seek out other non-payroll related operating
expense reductions that could impact this amount further.

       We currently believe that we are still operating with and incurring costs
applicable to excess physical capacity in both our North American and European
operations. We believe that as we add revenue, and based upon our current cost
structure, we will be able to cover our reduced infrastructure and public
company costs and reach profitability. We currently estimate that the net
service fee revenue needed to leverage our existing infrastructure and cost
structure and reach profitability is approximately between $12 million to $13
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.

       In the future, we may attempt to acquire other businesses or seek an
equity or strategic partner to generate capital or 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
core 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.


                                       25

<PAGE>


                          PFSWEB, INC. AND SUBSIDIARIES


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 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 do not
believe that early adoption of SFAS No. 146 would have had a material impact on
our consolidated financial statements for the three and nine months ended
September 30, 2002 and we currently expect to adopt the provisions of this
standard in the first quarter of 2003.

CRITICAL ACCOUNTING POLICIES

       A description of critical accounting policies is included in Note 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.


                                       26

<PAGE>


                          PFSWEB, INC. AND SUBSIDIARIES

       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 the functional currency for our European
operations.


ITEM 4. CONTROLS AND PROCEDURES

       We maintain a system of controls and procedures designed to provide
reasonable assurance as to the reliability of the financial statements and other
disclosures included in this report, as well as to safeguard assets from
unauthorized use or disposition. We evaluated the effectiveness of the design
and operation of our disclosure controls and procedures under the supervision
and with the participation of management, including our Chief Executive Officer
and Principal Financial and Accounting Officer, within 90 days prior to the
filing date of this report. Based upon the evaluation, our Chief Executive
Officer and Principal Financial and Accounting Officer concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information required to be included in our periodic Securities and
Exchange Commission filings. No significant changes were made to our internal
controls or other factors that could significantly affect these controls
subsequent to the date of their evaluation.



                                       27

<PAGE>


PART II. OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

       None


ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

       None


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

       None


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

       None.


ITEM 5. OTHER INFORMATION

       None.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

      a)  Exhibits:

 
<Table>
<Caption>
EXHIBIT NO.     DESCRIPTION OF EXHIBITS
----------      ----------------------- 
<S>        <C>
 3.1*     Amended and Restated Certificate of Incorporation

 3.2*     Amended and Restated Bylaws

10.1      Option Purchase Agreement between the Company and C. Cliff Defee

10.2      Form of Severance Agreement between the Company and Lindsley Medlin,
          Martin Anderson and Valarie Remmers

10.3**    Assignment of Membership Interest Agreement between the Company and
          Inventory Financing Partners, LLC

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).

**        Incorporated by reference from PFSweb, Inc. Report on Form 8-K filed
          on November 12, 2002.

      b) Reports on Form 8-K:

         None.


                                       28

<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: November 14, 2002


                                                PFSweb, Inc.

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


                                       29

<PAGE>


                  CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER
                       PURSUANT TO 18 U.S.C. SECTION 1350

I, Mark Layton,  certify that:

1. I have reviewed this quarterly report on Form 10-Q of PFSweb, Inc. ;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the periods covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operation and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize, and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:    November 14, 2002
         -----------------------

By:      /s/ Mark C. Layton
         -----------------------
         Chief Executive Officer



                                       30

<PAGE>



                  CERTIFICATIONS OF PRINCIPAL FINANCIAL OFFICER
                       PURSUANT TO 18 U.S.C. SECTION 1350


I, Tom Madden, certify that:

1. I have reviewed this quarterly report on Form 10-Q of PFSweb, Inc. ;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the periods covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operation and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize, and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:    November 14, 2002
         -----------------------

By:      /s/ Thomas J. Madden
         -----------------------
         Chief Financial Officer and Chief Accounting Officer



                                       31

<PAGE>




                                INDEX TO EXHIBITS



<Table>
<Caption>
EXHIBIT

   NO.     DESCRIPTION OF EXHIBITS
-------    -----------------------
<S>        <C>
 3.1*      Amended and Restated Certificate of Incorporation

 3.2*      Amended and Restated Bylaws

10.1      Option Purchase Agreement between the Company and C. Cliff Defee

10.2      Form of Severance Agreement between the Company and Lindsley Medlin,
          Martin Anderson and Valarie Remmers

10.3**    Assignment of Membership Interest Agreement between the Company and
          Inventory Financing Partners, LLC

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).

**        Incorporated by reference from PFSweb, Inc. Report on Form 8-K filed
          on November 12, 2002.



                                       32





<PAGE>
                                                                    EXHIBIT 10.1

                            OPTION PURCHASE AGREEMENT

         THIS AGREEMENT is dated as of September 24, 2002 and is by and between
PFSWEB, INC., a Delaware corporation (the "Company") and C. CLIFF DEFEE, an
individual (the "Holder").

         WHEREAS, the Holder is the holder of (i) an option to purchase 35,000
shares of Company common stock with an exercise price of $1.92 per share issued
on August 15, 2000 and expiring on August 15, 2010 and evidenced by Certificate
No. 0.072, (ii) an option to purchase 80,000 shares of Company common stock with
an exercise price of $0.91 per share issued on December 5, 2001 and expiring on
December 5, 2011 and evidenced by Certificate No. P1-006, (iii) an option to
purchase 206,022 shares of Company common stock with an exercise price of $0.91
per share issued on December 5, 2001 and expiring on December 5, 2011 and
evidenced by Certificate No. P2-019, and (iv) an option to purchase 10,000
shares of Company common stock with an exercise price of $0.84 per share issued
on January 25, 2002 and expiring on January 25, 2012 and evidenced by
Certificate No. 02.022 (all of the foregoing options being collectively referred
to as the "Options"); and

         WHEREAS, as of September 24, 2002, the Holder was subject to a
Qualifying Termination of employment (as defined
 in that certain Executive
Severance Agreement between the Company and the Holder); and

         WHEREAS, the Holder has agreed to sell, transfer, assign and return to
the Company, and the Company has agreed to purchase, acquire, redeem and cancel,
an aggregate of 300,022 of the Options for the consideration hereinafter set
forth;

         NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows.

         1. The Holder does hereby sell, transfer, convey, assign and return to
the Company for redemption and cancellation, free and clear of all liens, claims
and encumbrances, all of the Holder's right, title and interest in, to and under
all of the Options, except for 31,000 of the options having an exercise price of
$0.91 per share issued on December 5, 2001 and expiring on December 5, 2011 and
evidenced, in part, by Certificate No. P2-019 (said 31,000 options having vested
prior to September 24, 2002 and being hereinafter referred to as the "Retained
Options"), which shall not be subject to this Agreement and shall remain in full
force and effect in accordance with their terms.

         2. In consideration of the sale, transfer, conveyance, assignment,
redemption, cancellation and return of the aforesaid Options, the Company shall
pay to the Holder the sum of Sixty Thousand Dollars ($60,000.00).

         3. The Holder shall return to the Company the original Certificates
evidencing the Options (or, if applicable, an affidavit of lost certificate and
indemnity satisfactory to the Company), and the Company shall pay to the Holder
the aforesaid consideration and shall issue to the Holder a new certificate
evidencing the 31,000 Retained Options. Such certificate for the Retained
Options shall provide for an exercise price of $0.91 per share and an expiration
date of December 5, 2011 and in all other respects the terms and provisions of
the Retained Options shall continue and remain in full force and effect in
accordance with their terms.

         4. The Holder represents and acknowledges that (i) except for the
Options, he has no other options or rights to purchase or acquire any shares of
Company common stock from the Company, (ii) except as set forth herein, he has
not pledged, sold, transferred or assigned his right, title and interest in, to
or under any of the Options and (iii) he has neither received nor relied upon
any representation or warranty of the Company, or any agent or representative
thereof, as to the present or future value of the Options, the Retained Options,
the Company common stock or any other matter involving the Company or otherwise,
including any tax, financial or legal advice.



<PAGE>


         5. No amendment, modification or waiver of any term or provision of
this Agreement shall be valid or effective unless in writing and signed by the
parties hereto. This Agreement may be executed in one or more counterparts and
each of such counterparts shall, for all purposes, be deemed to be an original,
but all of the counterparts shall constitute one and the same instrument, and
this Agreement shall be deemed effective on the date it is executed by the
parties hereto. This Agreement and all of its provisions shall be binding on and
inure to the benefit of the successors and assigns of the parties hereto. This
Agreement constitutes the entire understanding of the parties, and supersedes
all prior or contemporaneous agreements among them, with respect to the subject
matter hereof.

         IN WITNESS WHEREOF, the undersigned have hereunto executed this
Agreement as of the day and year first aforesaid.


                                                PFSWEB, INC.


                                                By:
                                                    -------------------------
                                                    Name:  Harvey H. Achatz
                                                    Title: Secretary


                                                ------------------------------
                                                C. Cliff DeFee


                                       2




<PAGE>
                                                                    EXHIBIT 10.2

September 24, 2002


                 THIS IS A LEGAL AGREEMENT, RELEASE AND COVENANT
                   NOT TO SUE. READ CAREFULLY BEFORE SIGNING.

As you know, we are implementing certain cost reduction activities which,
unfortunately, include staff reductions and the termination of your employment.
Although we have no obligation to do so, we have decided to offer to you certain
employee severance benefits which are described in this letter agreement.

1. In consideration of the terms and provisions set forth herein, it is mutually
agreed that your employment with PFSweb, Inc. and its subsidiaries
(collectively, "the Company") shall be terminated, effective as of September 24,
2002 (the "Termination Date"). Effective on the Termination Date, you shall not
be required to perform any further services on behalf of the Company as an
employee and no further compensation shall be paid to you or on your behalf,
except as set forth in this Agreement.

2. On or following the Termination Date, and within the time periods required by
law, the Company shall pay you any outstanding wages you accrued up to the
Termination Date, less all applicable statutory or required withholding.

3. In consideration for signing this Agreement, the Company will continue
 to pay
to your current salary (the "Severance Payment") for a period of six months from
the Termination Date (the "Payment Period"). The Severance Payment shall be
reduced by (i) the amount of any loans, advances or other amounts due or owing
by you to the Company, (ii) the amount of all wages, bonus and other cash
compensation or remuneration received by you for full-time services rendered to
an employer or other person or entity during the Payment Period and (iii) and
shall be net of any and all required withholding and taxes. The Severance
Payment shall be payable in periodic installments during the Payment Period in
accordance with the Company's payroll schedule. During the Payment Period, you
shall also continue to be entitled to participate in all employee benefits
provided to you prior to the Termination Date, upon the same terms and
conditions as in effect prior to the Termination Date (including employee
contributions), subject, however, to any changes or modifications (whether
additions or reductions) to such benefits as the Company shall establish during
such Payment Period and which apply to all employees generally. The foregoing
continuation of benefits does not include stock options which shall terminate as
of the Termination Date.

4. You shall be entitled to continue your group health and medical benefits
after the end of the Payment Period pursuant to the Consolidated Omnibus
Reconciliation Act of 1985 ("COBRA"). The Company shall provide you with a
separate notice of your rights to COBRA benefits.

5. By signing this Agreement, and in consideration of the payment of the
Severance Payment and the other terms set forth herein, you hereby release and
forever discharge the Company and its present and former officers, owners,
directors, stockholders, employees, representatives, attorneys, agents and its
divisions, affiliates, subsidiaries, predecessors, transferees, successors and
assigns (hereinafter "Released Parties") from any and all liability, actions,
causes of action, proceedings, suits, debts, covenants, contracts,
controversies, agreements, promises, damages, judgments, and demands of whatever
nature, in law or in equity, direct or indirect, known or unknown, matured or
not matured that you and/or your heirs, executors, administrators, successors or
assigns ever had, now have or may have in the future to the effective date of
this Agreement against the Released Parties or any of them, including, but not
limited to, any claim, charge or cause of action for breach of contract, tort or
harassment or discrimination under any federal, state or local law, rule,
regulation or executive order, such as the Age Discrimination in Employment Act
of 1967, as amended, the Older Workers Benefit Protection, the Rehabilitation
Act of 1973, the Americans with 



<PAGE>


Disabilities Act, the Family and Medical Leave Act, the Employee Income
Retirement Security Act of 1974, and Title VII of the Civil Rights Act of 1964,
as amended. You further represent that as of the date of your execution of this
Agreement, there are no complaints, charges or other matters filed by you or
pending before any federal, state or local court or agency against the Released
Parties, and that in the future, you will not file or cause to be filed any
court actions against the Released Parties or any of them arising out of events
occurring prior to your execution of this Agreement. Nothing contained in this
"Release" shall restrict your right to file a charge or participate in an
investigation, hearing or proceeding before the Equal Employment Opportunity
Commission, except that you agree that you will not accept any further recovery,
award and/or damages from the Company as a result of any such investigation. You
also hereby waive and releases in perpetuity any and all other employment rights
or claims that you may have against the Company.

6. You acknowledge that, during the course of your employment, you have had
access to and/or the Company has disclosed to you information relating to the
nature and operation of the Company's business, the Company's manner of
operation, its financial condition, its business operations, it business and
marketing plans and pricing methods (hereinafter "Confidential Information").
You agree that, at all times, you will retain in confidence such Confidential
Information and that you will not, either directly or indirectly, use,
misappropriate, reveal, disclose, publish, communicate or divulge any such
Confidential Information to any other person or entity for any purpose
whatsoever. You expressly agree that you shall keep secret and confidential all
such Confidential Information, except as authorized by the Company in writing.

7. You agree to return to the Company, all Company property in your possession
including, but not limited to all keys, laptop computers, cellular telephones,
beepers, credit cards and calling cards.

8. You hereby agree that you will not make any disparaging comments, negative
statements or do anything that derogates the Company, or its services,
reputation, officers, employees, financial status, or operations or that damages
the Company in any business relationship. You further agree not to make any such
disparaging comments on any electronic bulletin board.

9. You hereby acknowledge that the only consideration for signing this Agreement
is as set forth herein; that such consideration is in addition to any
consideration to which you are already entitled as a result of your employment
with the Company; that you have been advised, or have had sufficient opportunity
to consult advisors, legal and otherwise, of your own choosing; and that you
have signed this Agreement voluntarily and with a full understanding of its
terms and conditions, which, once effective, may not be amended, supplemented,
canceled or discharged except by a writing signed by you and the Company.

10. This Agreement shall not constitute nor be construed as an admission by
either party of any misconduct or violation of any federal, state or local law,
rule or regulation, or any contractual obligation or Company procedure.
Accordingly, this Agreement shall not be admissible in any proceeding except one
to enforce the terms of this Agreement.

11. This Agreement constitutes the complete understanding between you and the
Company and fully supersedes any prior understandings or agreements, whether
written or oral, between you and the Company regarding the subject matter
hereof.

12. If any provision of this Agreement is subsequently declared by any court or
agency of competent jurisdiction to be illegal, void or unenforceable, as
written, the remaining provisions of this Agreement shall nevertheless remain in
full force and effect.

13. You acknowledge that if you are over 40 years old: (i) you have 21 calendar
days from the date hereof to consider signing this Agreement, (ii) if you choose
not to sign and return this Agreement within the applicable time period, the
Company has no obligation to pay the Severance Payment, (iii) it is understood
and agreed that this Agreement shall not be effective for a period of seven days
following your signing it and you may revoke this Agreement for any reason
during such seven day period and (iv) it is further understood that the
Severance Payment will not be paid by the Company (1) until the expiration of
this seven day revocation period or (2) if you choose to revoke this Agreement.


                                       2

  




<PAGE>
         Please confirm that this letter accurately sets forth our agreement by
signing the signature page below.


                      SEVERANCE AND RELEASE SIGNATURE PAGE


I acknowledge that I have carefully read this Agreement and understand all of
its terms including the full and final Release of Claims set forth in paragraph
5, above. I further acknowledge that I have voluntarily entered into this
Agreement, that I have not relied upon any representation or statement, 
written or oral, not set forth in this Agreement, and that I have had this
Agreement reviewed by my attorney, or have been given the opportunity by the
Company to do so.



                                                ------------------------------
                                                Employee signature


                                                ------------------------------
                                                Print name


                                                ------------------------------
                                                Date


                                                PFSweb, Inc.


                                                By:
                                                    --------------------------
                                                    Name:
                                                    Title:


                                       3


<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 September 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
                                                   November 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 September 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
                                                   November 14, 2002