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pfsw-20210630

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, 2021


☐			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 or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification Number)

505 Millennium Drive,

Allen, Texas

75013

(Address of principal executive offices)

(Zip Code)

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

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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value	PFSW	NASDAQ	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 filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller 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 February 2, 2022, there were 22,132,876 shares of registrant’s common stock outstanding.

PFSWEB, INC. AND SUBSIDIARIES

Form 10-Q

INDEX


PART I. FINANCIAL INFORMATION		Page Number

Item 1.	Financial Statements:

	Condensed Consolidated Balance Sheets as of June 30, 2021 (Unaudited) and December 31, 2020	4

	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 202 1 and 20 20	5

	Unaudited Condensed Consolidated Statements of Shareholders' Equity for the Three and Six Months Ended June 30, 202 1 and 20 20	6

	Unaudited Condensed Consolidated Statements of Cash Flows for the Si x Months Ended June 30, 202 1 and 20 20	8

	Notes to Unaudited Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosure about Market Risk	23

Item 4.	Controls and Procedures	23

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	25

Item 1A.	Risk Factors	25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26

Item 3.	Defaults Upon Senior Securities	26

Item 4.	Mine Safety Disclosure	26

Item 5.	Other Information	26

Item 6.	Exhibits	27

SIGNATURES		28

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

PFSWEB, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Data)


	(Unaudited) June 30, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	12,486	$	10,359
Restricted cash	214		214
Accounts receivable, net of allowance for doubtful accounts of $548 and $611 at June 30, 2021 and December 31, 2020, respectively	49,117		69,594

Inventories, net of reserves of $107 and $96 at June 30, 2021 and December 31, 2020, respectively	4,036		3,644
Other receivables	2,530		3,314
Prepaid expenses and other current assets	6,020		7,524
Current assets of discontinued operations	54,465		13,920
Total current assets	128,868		108,569
Property and equipment:
Cost	95,588		97,343
Less: accumulated depreciation	(78,415)		(79,826)
	17,173		17,517
Operating lease right-of-use assets, net	33,945		34,350

Goodwill	22,358		22,358
Other assets	1,557		385
Long-term assets of discontinued operations	—		31,717
Total assets	$	203,901	$	214,896
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable	$	26,982	$	34,613
Accrued expenses	20,008		26,242
Current portion of operating lease liabilities	9,391		9,399
Current portion of long-term debt and finance lease obligations	49,732		3,411
Deferred revenues	3,216		4,595
Current liabilities of discontinued operations	11,049		6,285
Total current liabilities	120,378		84,545
Long-term debt and capital lease obligations, less current portion	151		39,069
Deferred revenue, less current portion	1,374		1,341
Operating lease liabilities, less current portion	29,279		30,012
Other liabilities	6,529		5,286
Long-term liabilities of discontinued operations	—		545
Total liabilities	157,711		160,798

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; 21,209,300 and 20,408,558 issued at June 30, 2021 and December 31, 2020, respectively; and 21,175,833 and 20,375,091 outstanding at June 30, 2021 and December 31, 2020, respectively	21		20
Additional paid-in capital	170,486		168,244
Accumulated deficit	(123,554)		(113,712)
Accumulated other comprehensive loss	(638)		(329)
Treasury stock at cost, 33,467 shares	(125)		(125)
Total shareholders’ equity	46,190		54,098
Total liabilities and shareholders’ equity	$	203,901	$	214,896

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

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,
	2021		2020		2021		2020
Revenues:
Service fee revenue	$	43,009	$	44,852	$	88,529	$	81,577
Product revenue, net	4,492		5,915		8,800		13,447
Pass-through revenue	13,598		14,524		24,474		29,393
Total revenues	61,099		65,291		121,803		124,417
Costs of Revenues:
Cost of service fee revenue	31,863		31,561		65,393		56,833
Cost of product revenue	4,284		5,590		8,370		12,713
Cost of pass-through revenue	13,598		14,524		24,474		29,393
Total costs of revenues	49,745		51,675		98,237		98,939
Gross profit	11,354		13,616		23,566		25,478
Selling, general and administrative expenses	15,678		12,514		28,609		25,075
Income (loss) from operations	(4,324)		1,102		(5,043)		403
Interest expense, net	333		374		708		788
Income (loss) before income taxes	(4,657)		728		(5,751)		(385)
Income tax expense (benefit), net	(155)		332		124		613
Net income (loss) from continuing operations	(4,502)		396		(5,875)		(998)

Income (loss) from discontinued operations before income taxes	(590)		(1,088)		(1,410)		233
Income tax expense, net	2,528		161		2,557		186
Net income (loss) from discontinued operations	(3,118)		(1,249)		(3,967)		47

Net loss	$	(7,620)	$	(853)	$	(9,842)	$	(951)

Basic earnings (loss) per share:
Net income (loss) from continuing operations per share	$	(0.21)	$	0.02	$	(0.28)	$	(0.05)
Net income (loss) from discontinued operations per share	(0.15)		(0.06)		(0.19)		—
Basic loss per share	$	(0.36)	$	(0.04)	$	(0.47)	$	(0.05)
Diluted earnings (loss) per share:
Net income (loss) from continuing operations per share	$	(0.21)	$	0.02	$	(0.28)	$	(0.05)
Net income (loss) from discontinued operations per share	(0.15)		(0.06)		(0.19)		—
Diluted loss per share	$	(0.36)	$	(0.04)	$	(0.47)	$	(0.05)
Weighted average number of shares outstanding:
Basic	21,166		19,800		21,221		19,739
Diluted	21,166		20,527		21,221		19,739
Comprehensive loss:
Net loss	$	(7,620)	$	(853)	$	(9,842)	$	(951)
Foreign currency translation adjustment	46		(77)		(309)		(1,021)
Total comprehensive loss	$	(7,574)	$	(930)	$	(10,151)	$	(1,972)

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

PFSWEB, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In Thousands, Except Share Data)


	Three Months Ended June 30, 2021

								Accumulated
				Additional				Other					Total
	Common Stock			Paid-In		Accumulated		Comprehensive		Treasury Stock			Shareholders'
	Shares	Amount		Capital		Deficit		Income (Loss)		Shares	Amount		Equity
Balance, March 31, 2021	20,482,974	$	20	$	169,474	$	(115,934)	$	(684)	33,467	$	(125)	$	52,751
Net loss	—	—		—		(7,620)		—		—	—		(7,620)
Stock-based compensation	—	—		2,601		—		—		—	—		2,601
Exercise of stock options	68,667	—		320		—		—		—	—		320
Issuance of shares under stock-based compensation awards	657,659	1		(1)		—		—		—	—		—
Tax withholding on shares under stock-based compensation awards	—	—		(1,908)		—		—		—	—		(1,908)
Foreign currency translation	—	—		—		—		46		—	—		46
Balance, June 30, 2021	21,209,300	$	21	$	170,486	$	(123,554)	$	(638)	33,467	$	(125)	$	46,190


	Six Months Ended June 30, 2021

								Accumulated
				Additional				Other					Total
	Common Stock			Paid-In		Accumulated		Comprehensive		Treasury Stock			Shareholders'
	Shares	Amount		Capital		Deficit		Income (Loss)		Shares	Amount		Equity
Balance, December 31, 2020	20,408,558	$	20	$	168,244	$	(113,712)	$	(329)	33,467	$	(125)	$	54,098
Net loss	—	—		—		(9,842)		—		—	—		(9,842)
Stock-based compensation	—	—		3,454		—		—		—	—		3,454
Exercise of stock options	143,083	—		697		—		—		—	—		697
Issuance of shares under stock-based compensation awards	657,659	1		(1)		—		—		—	—		—
Tax withholding on shares under stock-based compensation awards	—	—		(1,908)		—		—		—	—		(1,908)
Foreign currency translation	—	—		—		—		(309)		—	—		(309)
Balance, June 30, 2021	21,209,300	$	21	$	170,486	$	(123,554)	$	(638)	33,467	$	(125)	$	46,190

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

PFSWEB, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (cont.)

(In Thousands, Except Share Data)


	Three Months Ended June 30, 2020

								Accumulated
				Additional				Other					Total
	Common Stock			Paid-In		Accumulated		Comprehensive		Treasury Stock			Shareholders'
	Shares	Amount		Capital		Deficit		Income (Loss)		Shares	Amount		Equity
Balance, March 31, 2020	19,499,220	$	19	$	158,664	$	(108,841)	$	(2,245)	33,467	$	(125)	$	47,472
Net loss	—	—		—		(853)		—		—	—		(853)
Stock-based compensation	—	—		5,153		—		—		—	—		5,153
Exercise of stock options	34,500	—		127		—		—		—	—		127
Issuance of shares under stock-based compensation awards	443,011	—		—		—		—		—	—		—
Tax withholding on shares under stock-based compensation awards	—	—		(805)		—		—		—	—		(805)
Foreign currency translation adjustment, net of taxes	—	—		—		—		(77)		—	—		(77)
Balance, June 30, 2020	19,976,731	$	19	$	163,139	$	(109,694)	$	(2,322)	33,467	$	(125)	$	51,017


	Six Months Ended June 30, 2020

								Accumulated
				Additional				Other					Total
	Common Stock			Paid-In		Accumulated		Comprehensive		Treasury Stock			Shareholders'
	Shares	Amount		Capital		Deficit		Income (Loss)		Shares	Amount		Equity
Balance, December 31, 2019	19,465,877	$	19	$	158,192	$	(108,743)	$	(1,301)	33,467	$	(125)	$	48,042
Net loss	—	—		—		(951)		—		—	—		(951)
Stock-based compensation	—	—		5,698		—		—		—	—		5,698
Exercise of stock options	34,500	—		127		—		—		—	—		127
Issuance of shares under stock-based compensation awards	476,354	—		—		—		—		—	—		—
Tax withholding on shares under stock-based compensation awards	—	—		(878)		—		—		—	—		(878)
Foreign currency translation adjustment, net of taxes	—	—		—		—		(1,021)		—	—		(1,021)
Balance, June 30, 2020	19,976,731	$	19	$	163,139	$	(109,694)	$	(2,322)	33,467	$	(125)	$	51,017

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

PFSWEB, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)


	Six Months Ended June 30,
	2021		2020
Cash flows from operating activities:
Net loss	$	(9,842)	$	(951)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	4,262		4,249
Deferred income taxes	(77)		102
Stock-based compensation expense	3,454		5,698
Other	62		471
Changes in operating assets and liabilities:
Accounts receivable	14,504		6,666
Inventories	(412)		(1,096)
Prepaid expenses, other receivables and other assets	1,714		(2,194)
Operating leases	(301)		(693)
Trade accounts payable, deferred revenues, accrued expenses and other liabilities	(13,688)		(15,056)
Net cash used in operating activities	(324)		(2,804)

Cash flows from investing activities:
Purchases of property and equipment	(1,985)		(1,722)
Proceeds from sale of property and equipment	6		142
Net cash used in investing activities	(1,979)		(1,580)

Cash flows from financing activities:
Net proceeds from issuance of common stock	697		127
Taxes paid on behalf of employees for withheld shares	(1,908)		(878)
Payments on finance lease obligations	(511)		(653)
Payments on revolving loan	(84,830)		(71,707)
Borrowings on revolving loan	92,630		74,707
Payments on other debt	(1,330)		(946)
Borrowings on other debt	49		1,193
Net cash provided by financing activities	4,797		1,843

Effect of exchange rates on cash, cash equivalents and restricted cash	(389)		(213)
Net increase (decrease) in cash and cash equivalents	2,105		(2,754)

Cash and cash equivalents, beginning of period	10,359		11,354
Restricted cash, beginning of period	214		214
Cash and cash equivalents discontinued operations, beginning of period	392		1,080
Cash, cash equivalents and restricted cash, beginning of period	10,965		12,648

Cash and cash equivalents, end of period	12,486		8,964
Restricted cash, end of period	214		214
Cash and cash equivalents discontinued operations, end of period	370		716
Cash, cash equivalents and restricted cash, end of period	$	13,070	$	9,894

Supplemental cash flow information:
Cash paid for income taxes	$	2,466	$	466
Cash paid for interest	$	619	$	742
Non-cash investing and financing activities:
Property and equipment acquired under long-term debt and finance leases	$	1,818	$	1,489

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

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, 2020. We refer to PFSweb, Inc. and its subsidiaries collectively as “PFSweb,” the “Company,” “us,” “we” and “our” in these unaudited condensed consolidated financial statements.

In July 2021, we announced an agreement to sell our LiveArea Professional Services business unit ("LiveArea") and the divestiture was completed on August 25, 2021 ("the LiveArea Transaction"). As of June 30, 2021, the criteria for reporting LiveArea as a discontinued operation were met and as such, all periods presented in the Company's Quarterly Report on Form 10-Q for the three and six months ended June 30, 2021 (this "Form 10-Q") have been recast to present LiveArea as a discontinued operation. Results of our operations for interim periods may not be indicative of results for the full fiscal year. See Note 3. Discontinued Operations and Note 9. Subsequent Events for additional information on our sale of LiveArea.

Revision of previously issued consolidated financial statements

In connection with the preparation of its financial statements for the quarter ended June 30, 2021, the Company identified an immaterial error related to deferred income taxes that were incorrectly recorded in prior periods. In accordance with Staff Accounting Bulletin (“SAB”) No. 99, Materiality and SAB No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements, the Company evaluated the materiality of this error both quantitatively and qualitatively and determined that it was not material to any previously issued interim or annual consolidated financial statements. However, adjusting for the cumulative effect of this error in the consolidated statement of operations for the three months ended June 30, 2021 would be material to the Company’s results for this period as the cumulative amount of the error increased over time. As such, the Company has revised its previously issued consolidated balance sheet as of December 31, 2020 and its unaudited condensed consolidated financial statements for the three and six months ended June 30, 2020 to correct the error.

The accompanying financial statements and relevant footnotes to the condensed consolidated financial statements in this Form 10-Q have been revised to correct for the immaterial error discussed above. The tables below provide reconciliations of our previously reported amounts to our revised amounts to correct for the immaterial error and to recast certain amounts in order to present LiveArea as a discontinued operation in the Company's consolidated balance sheet as of December 31, 2020 and its unaudited condensed consolidated financial statements for the three and six months ended June 30, 2020. See Note 3. Discontinued Operations and Note 9. Subsequent Events for additional information on our sale of LiveArea.

The effect of the above adjustments on the consolidated balance sheet at December 31, 2020 is as follows (in thousands):


	December 31, 2020
			Adjustments
	As Previously Reported		Discontinued Operations		Deferred Tax Asset		As Revised
Long-term assets of discontinued operations	$	—	$	29,982	$	1,735	$	31,717
Total assets	$	213,161	$	—	$	1,735	$	214,896
Accumulated deficit	$	(115,447)	$	—	$	1,735	$	(113,712)
Total shareholders’ equity	$	52,363	$	—	$	1,735	$	54,098
Total liabilities and shareholders’ equity	$	213,161	$	—	$	1,735	$	214,896

The effect of the above adjustments on the consolidated statement of operations and comprehensive income (loss) for the three months ended June 30, 2020 is as follows (in thousands, except per share data):


	Three Months Ended June 30, 2020
			Adjustments
	As Previously Reported		Discontinued Operations		Deferred Tax Asset		As Revised
Income (loss) from discontinued operations before income taxes	$	—	$	(1,088)	$	—	$	(1,088)
Income tax expense (benefit), net	—		295		(134)		161
Net income (loss) from discontinued operations	—		(1,383)		134		(1,249)
Net income (loss)	$	(987)	$	—	$	134	$	(853)

Basic earnings (loss) per share:
Net income (loss) from discontinued operations per share	$	—	$	(0.07)	$	0.01	$	(0.06)
Basic income (loss) per share	$	(0.05)	$	—	$	0.01	$	(0.04)
Diluted earnings (loss) per share:
Net income (loss) from discontinued operations per share	$	—	$	(0.07)	$	0.01	$	(0.06)
Diluted income (loss) per share	$	(0.05)	$	—	$	0.01	$	(0.04)

Comprehensive income (loss):
Net income (loss)	$	(987)	$	—	$	134	$	(853)
Total comprehensive income (loss)	$	(1,064)	$	—	$	134	$	(930)

The effect of the above adjustments on the consolidated statement of operations and comprehensive income (loss) for the six months ended June 30, 2020 is as follows (in thousands, except per share data):


	Six Months Ended June 30, 2020
			Adjustments
	As Previously Reported		Discontinued Operations		Deferred Tax Asset		As Revised
Income (loss) from discontinued operations before income taxes	$	—	$	233	$	—	$	233
Income tax expense (benefit), net	—		453		(267)		186
Net income (loss) from discontinued operations	—		(220)		267		47
Net income (loss)	$	(1,218)	$	—	$	267	$	(951)

Basic earnings (loss) per share:
Net income (loss) from discontinued operations per share	$	—	$	(0.01)	$	0.01	$	—
Basic income (loss) per share	$	(0.06)	$	—	$	0.01	$	(0.05)
Diluted earnings (loss) per share:
Net income (loss) from discontinued operations per share	$	—	$	(0.01)	$	0.01	$	—
Diluted income (loss) per share	$	(0.06)	$	—	$	0.01	$	(0.05)
Comprehensive income (loss):
Net income (loss)	$	(1,218)	$	—	$	267	$	(951)
Total comprehensive income (loss)	$	(2,239)	$	—	$	267	$	(1,972)

The effect of the above adjustments on the consolidated statement of shareholders’ equity for the three months ended June 30, 2020 is as follows (in thousands):


	Three Months Ended June 30, 2020
			Adjustments
Accumulated deficit	As Previously Reported		Discontinued Operations		Deferred Tax Asset		As Revised
Balance, March 31, 2020	$	(110,174)	$	—	$	1,333	$	(108,841)
Net loss	(987)		—		134		(853)
Balance, June 30, 2020	$	(111,161)	$	—	$	1,467	$	(109,694)

The effect of the above adjustments on the consolidated statement of shareholders’ equity for the six months ended June 30, 2020 is as follows (in thousands):


	Six Months Ended June 30, 2020
			Adjustments
Accumulated deficit	As Previously Reported		Discontinued Operations		Deferred Tax Asset		As Revised
Balance, December 31, 2019	$	(109,943)	$	—	$	1,200	$	(108,743)
Net loss	(1,218)		—		267		(951)
Balance, June 30, 2020	$	(111,161)	$	—	$	1,467	$	(109,694)

The effect of the above adjustments on the consolidated statement of cash flows for the six months ended June 30, 2020 is as follows (in thousands):


	Six Months Ended June 30, 2020
			Adjustments
	As Previously Reported		Discontinued Operations		Deferred Tax Asset		As Revised
Cash flows from operating activities:
Net loss	$	(1,218)	$	—	$	267	$	(951)
Deferred income taxes	$	369	$	—	$	(267)	$	102
Net cash used in operating activities	$	(2,804)	$	—	$	—	$	(2,804)

2. Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements and related disclosures in conformity with 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, costs of revenues and selling, general and administrative expenses in these unaudited condensed consolidated financial statements also require management estimates and assumptions.

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 U.S. 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, 2021; 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 the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020. Other than the presentation of LiveArea as a discontinued operation, there were no changes to our significant accounting policies during the three and six-month periods ended June 30, 2021.

Income Taxes

For the three and six months ended June 30, 2021 and 2020, we have utilized the discrete effective tax rate method, as allowed by Accounting Standards Codification (“ASC”) 740-270-30-18, “Income Taxes—Interim Reporting,” to calculate the interim income tax provision. The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year to date period as if it was the annual period and determines the income tax expense or benefit on that basis. We believe that, at this time, the use of this discrete method is more appropriate than the annual effective tax rate method as (i) the estimated annual effective tax rate method is not reliable due to the high degree of uncertainty in estimating annual pretax earnings by certain jurisdiction and (ii) our ongoing assessment that the recoverability of our deferred tax assets is not likely in certain jurisdictions.

Impact of Recently Issued Accounting Standards

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU No. 2019-12”). The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, as well as improve consistency of application by clarifying and amending existing guidance. The Company adopted ASU No. 2019-12 on January 1, 2021, the effect of which was not material on its financial position, results of operations, and cash flows.

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.

3. Discontinued Operations

On July 2, 2021, the Company entered into a definitive agreement to sell LiveArea for $250.0 million in cash, subject to certain adjustments and customary closing conditions including receipt of regulatory approvals. The LiveArea Transaction closed on August 25, 2021. As of June 30, 2021, we met the criteria set forth in ASC 205-20, "Presentation of Financial Statements - Discontinued Operations"; therefore, the LiveArea segment has been presented as a discontinued operation for all periods presented in this Form 10-Q. As a result of the LiveArea Transaction, we now only operate in one business segment, PFS Operations, and therefore will no longer present segment data. See Note 9. Subsequent Events for additional information on our LiveArea Transaction.

The following table presents the carrying amount of major classes of assets and liabilities of LiveArea and a reconciliation to the amounts reported in the condensed consolidated balance sheets (in thousands):


	(Unaudited) June 30, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	370	$	392
Accounts receivable, net of allowance for doubtful accounts of $884 and $854 at June 30, 2021 and December 31, 2020, respectively	17,222		11,184
Related party receivable	525		730
Other receivables	559		444
Prepaid expenses and other current assets	1,505		1,170
Current assets of discontinued operations			13,920
Property and equipment, net	1,578		1,661
Operating lease right-of use assets	3,133		632
Identifiable intangibles, net	524		665
Goodwill	23,339		23,257
Other assets	5,710		5,502
Long-term assets of discontinued operations			31,717
Total assets of discontinued operations	$	54,465	$	45,637
LIABILITIES
Current liabilities:
Trade accounts payable	$	1,120	$	1,035
Accrued expenses	6,655		4,639
Current portion of operating lease liabilities	557		88
Current portion of long-term debt and finance lease obligations	2		3
Deferred revenues	130		520
Current liabilities of discontinued operations			6,285
Long-term debt and capital lease obligations, less current portion	4		4
Operating lease liabilities	2,581		541
Long-term liabilities of discontinued operations			545
Total liabilities of discontinued operations	$	11,049	$	6,830

The following table presents the major components of net income (loss) of LiveArea and a reconciliation to the amounts reported in the unaudited condensed consolidated statements of operations (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenues:
Service fee revenue	$	19,783	$	17,120	$	36,581	$	34,693
Related party revenue	106		24		574		24
Total revenues	19,889		17,144		37,155		34,717
Costs of revenues:
Cost of service fee revenue	10,325		9,204		20,039		18,648
Gross profit	9,564		7,940		17,116		16,069
Selling, general and administrative expenses	10,154		9,027		18,526		15,836
Interest expense, net	—		1		—		—
Income (loss) from discontinued operations before income taxes	(590)		(1,088)		(1,410)		233
Income tax expense