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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________
FORM 10-Q
__________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2020
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)
___________________________________________
Delaware75-2837058
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
 
505 Millennium Drive,
Allen,Texas75013
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (972881-2900
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
__________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par valuePFSWNASDAQ Capital Market

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      No  
Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller Reporting Company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 



Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes      No  
As of August 5, 2020, there were 20,195,259 shares of registrant’s common stock outstanding.



PFSWEB, INC. AND SUBSIDIARIES
Form 10-Q
INDEX
PART I. FINANCIAL INFORMATIONPage
Number
2


PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
3


PFSWEB, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
(Unaudited) June 30,
2020
December 31,
2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$9,680  $12,434  
Restricted cash214  214  
Accounts receivable, net of allowance for doubtful accounts of $1,696 and $1,071 at June 30, 2020 and December 31, 2019, respectively64,597  72,262  
Inventories, net of reserves of $164 and $291 at June 30, 2020 and December 31, 2019, respectively4,399  3,281  
Other receivables4,005  3,324  
Prepaid expenses and other current assets8,282  6,954  
Total current assets91,177  98,469  
PROPERTY AND EQUIPMENT:
Cost100,094  99,750  
Less: accumulated depreciation(82,655) (81,314) 
17,439  18,436  
OPERATING LEASE RIGHT-OF-USE ASSETS32,399  36,403  
IDENTIFIABLE INTANGIBLES, net889  1,135  
GOODWILL44,868  45,393  
OTHER ASSETS3,853  3,772  
Total assets$190,625  $203,608  
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Trade accounts payable$29,146  $44,640  
Accrued expenses22,663  21,625  
Current portion of operating lease liabilities8,798  8,904  
Current portion of long-term debt and finance lease obligations3,121  2,971  
Deferred revenues5,072  6,058  
Total current liabilities68,800  84,198  
LONG-TERM DEBT AND FINANCE LEASE OBLIGATIONS, less current portion37,514  34,829  
DEFERRED REVENUES, less current portion1,671  1,398  
OPERATING LEASE LIABILITIES28,629  33,295  
OTHER LIABILITIES4,461  3,046  
Total liabilities141,075  156,766  
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Preferred stock, $1.00 par value; 1,000,000 shares authorized; none issued or outstanding    
Common stock, $0.001 par value; 35,000,000 shares authorized; 19,976,731 and 19,465,877 issued at June 30, 2020 and December 31, 2019, respectively; and 19,943,264 and 19,432,410 outstanding at June 30, 2020 and December 31, 2019, respectively19  19  
Additional paid-in capital163,139  158,192  
Accumulated deficit(111,161) (109,943) 
Accumulated other comprehensive loss(2,322) (1,301) 
Treasury stock at cost, 33,467 shares(125) (125) 
Total shareholders’ equity49,550  46,842  
Total liabilities and shareholders’ equity$190,625  $203,608  
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4


PFSWEB, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
(In Thousands, Except Per Share Data)
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
REVENUES:
Service fee revenue$61,996  $50,331  $116,294  $101,769  
Product revenue, net5,915  6,138  13,447  13,638  
Pass-through revenue14,524  12,041  29,393  25,253  
Total revenues82,435  68,510  159,134  140,660  
COSTS OF REVENUES:
Cost of service fee revenue40,765  32,809  75,481  66,767  
Cost of product revenue5,590  5,791  12,713  12,868  
Cost of pass-through revenue14,524  12,041  29,393  25,253  
Total costs of revenues60,879  50,641  117,587  104,888  
Gross profit21,556  17,869  41,547  35,772  
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES21,541  18,096  40,911  36,443  
Income (loss) from operations15  (227) 636  (671) 
INTEREST EXPENSE, net375  448  788  959  
Income (loss) before income taxes(360) (675) (152) (1,630) 
INCOME TAX EXPENSE, net627  300  1,066  509  
NET LOSS$(987) $(975) $(1,218) $(2,139) 
NET LOSS PER SHARE:
Basic$(0.05) $(0.05) $(0.06) $(0.11) 
Diluted$(0.05) $(0.05) $(0.06) $(0.11) 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic19,800  19,444  19,739  19,465  
Diluted19,800  19,444  19,739  19,465  
COMPREHENSIVE LOSS:
Net loss$(987) $(975) $(1,218) $(2,139) 
Foreign currency translation adjustment(77) 95  (1,021) 126  
TOTAL COMPREHENSIVE LOSS$(1,064) $(880) $(2,239) $(2,013) 














The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5


PFSWEB, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In Thousands, Except Share Data)

Three Months Ended June 30, 2020
Accumulated
AdditionalOtherTotal
Common StockPaid-InAccumulatedComprehensiveTreasury StockShareholders'
SharesAmountCapitalDeficitIncome (Loss)SharesAmountEquity
Balance, March 31, 202019,499,220  $19  $158,664  $(110,174) $(2,245) 33,467  $(125) $46,139  
Net loss—  —  —  (987) —  —  —  (987) 
Stock-based compensation—  —  5,153  —  —  —  —  5,153  
Exercise of stock options34,500  —  127  —  —  —  —  127  
Issuance of shares under stock-based compensation awards443,011  —  —  —  —  —  —    
Tax withholding on shares under stock-based compensation awards—  —  (805) —  —  —  —  (805) 
Foreign currency translation—  —  —  —  (77) —  —  (77) 
Balance, June 30, 202019,976,731  $19  $163,139  $(111,161) $(2,322) 33,467  $(125) $49,550  


Six Months Ended June 30, 2020
Accumulated
AdditionalOtherTotal
Common StockPaid-InAccumulatedComprehensiveTreasury StockShareholders'
SharesAmountCapitalDeficitIncome (Loss)SharesAmountEquity
Balance, December 31, 201919,465,877  $19  $158,192  $(109,943) $(1,301) 33,467  $(125) $46,842  
Net loss—  —  —  (1,218) —  —  —  (1,218) 
Stock-based compensation—  —  5,698  —  —  —  —  5,698  
Exercise of stock options34,500  —  127  —  —  —  —  127  
Issuance of shares under stock-based compensation awards476,354  —  —  —  —  —  —    
Tax withholding on shares under stock-based compensation awards—  —  (878) —  —  —  —  (878) 
Foreign currency translation—  —  —  —  (1,021) —  —  (1,021) 
Balance, June 30, 202019,976,731  $19  $163,139  $(111,161) $(2,322) 33,467  $(125) $49,550  



















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

6


PFSWEB, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (cont.)
(In Thousands, Except Share Data)

Three Months Ended June 30, 2019

Accumulated
AdditionalOtherTotal
Common StockPaid-InAccumulatedComprehensiveTreasury StockShareholders'
SharesAmountCapitalDeficitIncome (Loss)SharesAmountEquity
Balance, March 31, 201919,295,796  $19  $156,108  $(108,937) $(962) 33,467  $(125) $46,103  
Net loss—  —  —  (975) —  —  —  (975) 
Stock-based compensation—  —  678  —  —  —  —  678  
Exercise of stock options8,000  —  12  —  —  —  —  12  
Issuance of shares under stock-based compensation awards162,081  —  —  —  —  —  —    
Tax withholding on shares under stock-based compensation awards—  —  (304) —  —  —  —  (304) 
Foreign currency translation adjustment, net of taxes—  —  —  —  95  —  —  95  
Balance, June 30, 201919,465,877  $19  $156,494  $(109,912) $(867) 33,467  $(125) $45,609  


Six Months Ended June 30, 2019

Accumulated
AdditionalOtherTotal
Common StockPaid-InAccumulatedComprehensiveTreasury StockShareholders'
SharesAmountCapitalDeficitIncome (Loss)SharesAmountEquity
Balance, December 31, 201819,294,296  $19  $155,455  $(107,773) $(993) 33,467  $(125) $46,583  
Net loss—  —  —  (2,139) —  —  —  (2,139) 
Stock-based compensation—  —  1,329  —  —  —  —  1,329  
Exercise of stock options9,500  —  14  —  —  —  —  14  
Issuance of shares under stock-based compensation awards162,081  —  —  —  —  —  —    
Tax withholding on shares under stock-based compensation awards—  —  (304) —  —  —  —  (304) 
Foreign currency translation adjustment, net of taxes—  —  —  —  126  —  —  126  
Balance, June 30, 201919,465,877  $19  $156,494  $(109,912) $(867) 33,467  $(125) $45,609  
















The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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PFSWEB, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Six Months Ended June 30,
20202019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss$(1,218) $(2,139) 
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization4,249  5,268  
Deferred income taxes369  338  
Stock-based compensation expense5,698  1,329  
Other471  880  
Changes in operating assets and liabilities:
Accounts receivable6,666  18,644  
Inventories(1,096) (444) 
Prepaid expenses, other receivables and other assets(2,194) 1,341  
Operating leases(693) 109  
Trade accounts payable, deferred revenues, accrued expenses and other liabilities(15,056) (20,438) 
Net cash provided by (used in) operating activities(2,804) 4,888  
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment(1,722) (1,927) 
Proceeds from sale of property and equipment142    
Net cash used in investing activities(1,580) (1,927) 
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock127  14  
Taxes paid on behalf of employees for withheld shares(878) (304) 
Payments on finance lease obligations(653) (929) 
Payments on revolving loan(71,707) (71,640) 
Borrowings on revolving loan74,707  64,007  
Payments on other debt(946) (581) 
Borrowings on other debt1,193  2,776  
Net cash provided by (used in) financing activities1,843  (6,657) 
EFFECT OF EXCHANGE RATES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH(213) 89  
NET DECREASE IN CASH AND CASH EQUIVALENTS(2,754) (3,607) 
Cash and cash equivalents, beginning of period12,434  15,419  
Restricted cash, beginning of period214  207  
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period12,648  15,626  
Cash and cash equivalents, end of period9,680  11,812  
Restricted cash, end of period214  207  
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period$9,894  $12,019  
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes$466  $603  
Cash paid for interest742  1,008  
Non-cash investing and financing activities:
Property and equipment acquired under long-term debt and finance leases1,489  398  






The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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PFSWEB, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of PFSweb, Inc. and its subsidiaries have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and include all normal and recurring adjustments necessary to present fairly the unaudited condensed consolidated balance sheets, statements of operations and comprehensive loss, statements of shareholders' equity, and statements of cash flows for the periods indicated. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the SEC. This report should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019.  We refer to PFSweb, Inc. and its subsidiaries collectively as “PFSweb,” the “Company,” “us,” “we” and “our” in these unaudited condensed consolidated financial statements.
Results of our operations for interim periods may not be indicative of results for the full fiscal year. We reclassify certain prior year amounts, as applicable, to conform to the current year presentation.
Recent Developments
We continue to monitor the impact of the 2019 novel coronavirus, or COVID-19, on all aspects of our business. COVID-19 was declared a global pandemic by the World Health Organization on March 11, 2020 and the President of the United States declared the COVID-19 outbreak a national emergency. While the COVID-19 pandemic has not had a material adverse impact on our results of operations to date, the future impacts of the pandemic and any resulting economic impact are largely unknown and rapidly evolving.  Beginning in late March 2020 and continuing through the second quarter of 2020, we experienced an increase in demand from certain clients for our services in our PFS Operations segment, as more consumers around the world practiced social distancing, complied with stay-at-home restrictions and many retail stores were closed. This generated increased volume of online ordering. This trend has continued into the third quarter of 2020 but at a reduced rate from the March through June 2020 period.  However, going forward there could be significant volatility in customer demand and buying habits as the pandemic continues and the resulting adverse economic impacts continue or deepen. We have begun experiencing labor rate increases in certain of our markets for fulfillment activities. We believe this will continue and that this could impact our overall fulfillment related costs and staffing.
We have taken a number of precautionary measures designed to help minimize the risk of the spread of the virus to our employees and adjusted our operations wherever necessary to help ensure a safe environment for our staff across business functions. Beginning in April 2020, we began to receive requests from a limited number of our clients to assist them with extended payment terms and/or pricing adjustments for a short time period.  We have also experienced delays in certain limited projects and requests from certain clients to reduce current staffing on some of our projects.  While we believe this will have a short-term impact on cash flow and revenues, prolonged delays or cancellations could have a material adverse impact to our overall business and financial results. As a result of the impact of COVID-19, many businesses have or will be experiencing short-term or long-term liquidity issues. It is possible that the COVID-19 pandemic, the restrictive measures taken by national and local governments to contain the virus and the resulting economic impact may cause disruptions and impact our business as we continue to move through the fiscal year which may materially and adversely affect the Company’s results of operations, cash flows and financial position as well as that of our customers.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted. The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States’ economy and fund a nationwide effort to curtail the effect of COVID-19. The Company has made use of the allowance granted under section 2302 of the CARES Act, which permits employers to forgo timely payment of the employer portions of Social Security and RRTA taxes that would otherwise be due from March 27 through December 31, 2020, without penalty or interest charges. Similarly, the UK and Belgium governments have granted businesses the option to defer the payment of certain value-added tax ("VAT") amounts. The Company has elected this option and we continue to examine the impact that the CARES Act and similar international statutes may have on our business.

2. Significant Accounting Policies
Use of Estimates
The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. The recognition and allocation of certain revenues and selling, general and administrative expenses in these unaudited condensed consolidated financial statements also require management estimates and assumptions.
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Estimates and assumptions about future events and their effects cannot be determined with certainty. The Company bases its estimates on historical experience and various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as the operating environment changes. These changes have been included in the unaudited condensed consolidated financial statements as soon as they became known. In addition, management is periodically faced with uncertainties, the outcomes of which are not within its control and will not be known for prolonged periods of time. Based on a critical assessment of accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes the Company’s unaudited condensed consolidated financial statements are fairly stated in accordance with US GAAP and provide a fair presentation of the Company’s financial position and results of operations.
Furthermore, we considered the impact of the COVID-19 pandemic on the use of estimates and assumptions used for financial reporting and determined that there was no adverse material impact to our results of operations for the three and six months ended June 30, 2020; however, the extent and duration of future impacts of the COVID-19 pandemic and any resulting economic impact are largely unknown and difficult to predict due to these unknown factors which may have a material impact on our financial position and results of operations in the future.
For a complete set of our significant accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2019. During the three and six-month periods ended June 30, 2020, there were no significant changes to our significant accounting policies.  
Impact of Recently Issued Accounting Standards
Pronouncements Recently Adopted
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill impairment” (“ASU 2017-04”), which removes Step 2 of the goodwill impairment test. A goodwill impairment will now be determined by the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.  ASU 2017-04 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2019, with early adoption permitted. The adoption of ASU 2017-04 did not have a material impact on our condensed consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15 "Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract; Disclosures for Implementation Costs Incurred for Internal-Use Software and Cloud Computing Arrangements" (“ASU 2018-15”), which aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software under ASC Subtopic 350-40, in order to determine which costs to capitalize and recognize as an asset. ASU 2018-15 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019, and can be applied either prospectively to implementation costs incurred after the date of adoption or retrospectively to all arrangements. We have adopted ASU 2018-15 on January 1, 2020 on a prospective basis. The adoption of ASU 2018-15 did not have a material impact on our condensed consolidated financial statements.
Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," ("ASU 2016-13") which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019 for all public entities, excluding smaller reporting companies, and after December 15, 2022 for smaller reporting companies. It requires a cumulative effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective. We will adopt ASU 2016-13 on January 1, 2023. We are currently in the early phase of evaluating the impact of the adoption of ASU 2016-13 on our condensed consolidated financial statements.

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3. Revenue from Contracts with Clients and Customers
The following table presents our revenues, excluding sales and usage-based taxes, disaggregated by revenue source (in thousands):
Three Months Ended
June 30, 2020
Six Months Ended
June 30, 2020
PFS OperationsLiveArea Professional ServicesTotal