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pfsw-20210930

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 September 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 March 6, 2022, there were 22,160,376 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 September 30, 2021 (Unaudited) and December 31, 2020	4

	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss ) for the Three and Nine Months Ended September 30, 2021 and 2020	5

	Unaudited Condensed Consolidated Statements of Shareholders' Equity for the Three and N ine Months Ended September 30, 2021 and 2020	6

	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020	8

	Notes to Unaudited Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosure about Market Risk	26

Item 4.	Controls and Procedures	26

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	28

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 3.	Defaults Upon Senior Securities	28

Item 4.	Mine Safety Disclosure	28

Item 5.	Other Information	28

Item 6.	Exhibits	29

SIGNATURES		30

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

PFSWEB, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Data)


	(Unaudited) September 30, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	193,999	$	10,359
Restricted cash	214		214
Accounts receivable, net of allowance for doubtful accounts of $862 and $611 at September 30, 2021 and December 31, 2020, respectively	53,139		69,594

Inventories, net of reserves of $107 and $96 at September 30, 2021 and December 31, 2020, respectively	3,210		3,644
Other receivables	4,164		3,314
Prepaid expenses and other current assets	5,483		7,524
Current assets of discontinued operations	—		13,920
Total current assets	260,209		108,569
Property and equipment:
Cost	98,151		97,343
Less: accumulated depreciation	(79,785)		(79,826)
	18,366		17,517
Operating lease right-of-use assets, net	38,265		34,350

Goodwill	22,195		22,358
Other assets	3,582		385
Long-term assets of discontinued operations	—		31,717
Total assets	$	342,617	$	214,896
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable	$	26,595	$	34,613
Accrued expenses	23,256		25,381
Income taxes payable	31,528		861
Current portion of operating lease liabilities	10,337		9,399
Current portion of long-term debt and finance lease obligations	310		3,411
Deferred revenues	2,211		4,595
Current liabilities of discontinued operations	—		6,285
Total current liabilities	94,237		84,545
Long-term debt and finance lease obligations, less current portion	98		39,069
Deferred revenue, less current portion	1,330		1,341
Operating lease liabilities, less current portion	32,452		30,012
Other liabilities	6,131		5,286
Long-term liabilities of discontinued operations	—		545
Total liabilities	134,248		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; 21,244,350 and 20,408,558 issued and 21,210,883 and 20,375,091 outstanding at September 30, 2021 and December 31, 2020, respectively	21		20
Additional paid-in capital	175,675		168,244
Retained earnings (accumulated deficit)	33,797		(113,712)
Accumulated other comprehensive loss	(999)		(329)
Treasury stock at cost, 33,467 shares	(125)		(125)
Total shareholders’ equity	208,369		54,098
Total liabilities and shareholders’ equity	$	342,617	$	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 INCOME (LOSS)

(In Thousands, Except Per Share Data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenues:
Service fee revenue	$	44,275	$	42,383	$	132,804	$	123,961
Product revenue, net	4,096		4,229		12,896		17,677
Pass-through revenue	12,970		12,661		37,444		42,053
Total revenues	61,341		59,273		183,144		183,691
Costs of Revenues:
Cost of service fee revenue	33,383		31,524		98,776		88,357
Cost of product revenue	3,895		4,019		12,265		16,732
Cost of pass-through revenue	12,970		12,661		37,444		42,053
Total costs of revenues	50,248		48,204		148,485		147,142
Gross profit	11,093		11,069		34,659		36,549
Selling, general and administrative expenses	16,161		14,083		44,768		39,159
Loss from operations	(5,068)		(3,014)		(10,109)		(2,610)
Interest expense, net	165		365		873		1,154
Loss on extinguishment of debt	426		—		426		—
Loss from continuing operations before income taxes	(5,659)		(3,379)		(11,408)		(3,764)
Income tax expense, net	1,152		217		1,276		821
Net loss from continuing operations	(6,811)		(3,596)		(12,684)		(4,585)

Income from discontinued operations before income taxes	197,920		1,152		196,508		1,385
Income tax expense, net	33,758		241		36,315		436
Net income from discontinued operations	164,162		911		160,193		949

Net income (loss)	$	157,351	$	(2,685)	$	147,509	$	(3,636)

Basic earnings (loss) per share:
Net loss from continuing operations per share	$	(0.32)	$	(0.18)	$	(0.60)	$	(0.23)
Net income from discontinued operations per share	7.71		0.05		7.57		0.05
Basic earnings (loss) per share	$	7.39	$	(0.13)	$	6.97	$	(0.18)
Diluted earnings (loss) per share:
Net loss from continuing operations per share	$	(0.32)	$	(0.18)	$	(0.60)	$	(0.23)
Net income from discontinued operations per share	7.71		0.05		7.57		0.05
Diluted earnings (loss) per share	$	7.39	$	(0.13)	$	6.97	$	(0.18)
Weighted average number of shares outstanding:
Basic	21,282		20,211		21,164		19,899
Diluted	21,282		20,211		21,164		19,899
Comprehensive income (loss):
Net income (loss)	$	157,351	$	(2,685)	$	147,509	$	(3,636)
Foreign currency translation adjustment	(34)		944		(343)		(77)
Reclassifications of foreign currency translation adjustments realized upon disposal of business	(327)		—		(327)		—
Total comprehensive income (loss)	$	156,990	$	(1,741)	$	146,839	$	(3,713)

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 September 30, 2021

						Retained		Accumulated
				Additional		Earnings		Other					Total
	Common Stock			Paid-In		(Accumulated		Comprehensive		Treasury Stock			Shareholders'
	Shares	Amount		Capital		Deficit)		Income (Loss)		Shares	Amount		Equity
Balance, June 30, 2021	21,209,300	$	21	$	170,486	$	(123,554)	$	(638)	33,467	$	(125)	$	46,190
Net income	—	—		—		157,351		—		—	—		157,351
Stock-based compensation	—	—		4,962		—		—		—	—		4,962
Exercise of stock options	35,050	—		227		—		—		—	—		227
Issuance of shares under stock-based compensation awards	—	—		—		—		—		—	—		—
Tax withholding on shares under stock-based compensation awards	—	—		—		—		—		—	—		—
Foreign currency translation	—	—		—		—		(361)		—	—		(361)
Balance, September 30, 2021	21,244,350	$	21	$	175,675	$	33,797	$	(999)	33,467	$	(125)	$	208,369


	Nine Months Ended September 30, 2021

						Retained		Accumulated
				Additional		Earnings		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 income	—	—		—		147,509		—		—	—		147,509
Stock-based compensation	—	—		8,417		—		—		—	—		8,417
Exercise of stock options	178,133	—		923		—		—		—	—		923
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	—	—		—		—		(670)		—	—		(670)
Balance, September 30, 2021	21,244,350	$	21	$	175,675	$	33,797	$	(999)	33,467	$	(125)	$	208,369

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 September 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, June 30, 2020	19,976,731	$	19	$	163,139	$	(109,694)	$	(2,322)	33,467	$	(125)	$	51,017
Net loss	—	—		—		(2,685)		—		—	—		(2,685)
Stock-based compensation	—	—		3,235		—		—		—	—		3,235
Exercise of stock options	41,583	—		226		—		—		—	—		226
Issuance of shares under stock-based compensation awards	263,324	1		—		—		—		—	—		1
Tax withholding on shares under stock-based compensation awards	—	—		(396)		—		—		—	—		(396)
Foreign currency translation adjustment, net of taxes	—	—		—		—		944		—	—		944
Balance, September 30, 2020	20,281,638	$	20	$	166,204	$	(112,379)	$	(1,378)	33,467	$	(125)	$	52,342


	Nine Months Ended September 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	—	—		—		(3,636)		—		—	—		(3,636)
Stock-based compensation	—	—		8,934		—		—		—	—		8,934
Exercise of stock options	76,083	—		352		—		—		—	—		352
Issuance of shares under stock-based compensation awards	739,678	1		—		—		—		—	—		1
Tax withholding on shares under stock-based compensation awards	—	—		(1,274)		—		—		—	—		(1,274)
Foreign currency translation adjustment, net of taxes	—	—		—		—		(77)		—	—		(77)
Balance, September 30, 2020	20,281,638	$	20	$	166,204	$	(112,379)	$	(1,378)	33,467	$	(125)	$	52,342

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)


	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities:
Net income (loss)	$	147,509	$	(3,636)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	6,208		6,278
Loss on early extinguishment of debt	426		—
Gain on LiveArea Transaction	(200,817)		—
Deferred income taxes	2,717		126
Stock-based compensation expense	8,417		8,934
Other	95		494
Changes in operating assets and liabilities:
Accounts receivable	9,129		15,901
Inventories	410		(1,790)
Prepaid expenses, other receivables and other assets	(617)		(194)
Operating leases	(448)		(1,033)
Income taxes payable	30,211		573
Trade accounts payable, deferred revenues, accrued expenses and other liabilities	(6,409)		(24,150)
Net cash provided by (used in) operating activities	(3,169)		1,503

Cash flows from investing activities:
Purchases of property and equipment	(4,815)		(2,755)
Proceeds from LiveArea Transaction, net of cash divested	236,358		—
Proceeds from sale of property and equipment	31		145
Net cash provided by (used in) investing activities	231,574		(2,610)

Cash flows from financing activities:
Net proceeds from issuance of common stock	923		352
Taxes paid on behalf of employees for withheld shares	(1,908)		(1,274)
Payments on finance lease obligations	(732)		(968)
Payments on revolving loan	(160,181)		(88,407)
Borrowings on revolving loan	126,681		90,407
Payments on other debt	(10,046)		(1,414)
Borrowings on other debt	49		148
Net cash used in financing activities	(45,214)		(1,156)

Effect of exchange rates on cash, cash equivalents and restricted cash	57		226
Net increase (decrease) in cash and cash equivalents	183,248		(2,037)

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	193,999		8,940
Restricted cash, end of period	214		214
Cash and cash equivalents discontinued operations, end of period	—		1,457
Cash, cash equivalents and restricted cash, end of period	$	194,213	$	10,611

Supplemental cash flow information:
Cash paid for income taxes	$	6,293	$	1,079
Cash paid for interest	$	763	$	1,078
Non-cash investing and financing activities:
Property and equipment acquired under long-term debt and finance leases	$	2,139	$	4,454

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 income (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 consolidated 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"). All periods presented in the Company's Quarterly Report on Form 10-Q for the three and nine months ended September 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 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 and comprehensive income (loss) for the three months ended June 30, 2021 would be material to the Company’s results for that 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 nine months ended September 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 nine months ended September 30, 2020. See Note 3. Discontinued Operations.

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 September 30, 2020 is as follows (in thousands, except per share data):


	Three Months Ended September 30, 2020
			Adjustments
	As Previously Reported		Discontinued Operations		Deferred Tax Asset		As Revised
Income from discontinued operations before income taxes	$	—	$	1,152	$	—	$	1,152
Income tax expense (benefit), net	—		375		(134)		241
Net income from discontinued operations	—		777		134		911
Net income (loss)	$	(2,819)	$	—	$	134	$	(2,685)

Basic earnings (loss) per share:
Net income (loss) from discontinued operations per share	$	—	$	0.04	$	0.01	$	0.05
Basic income (loss) per share	$	(0.14)	$	—	$	0.01	$	(0.13)
Diluted earnings (loss) per share:
Net income (loss) from discontinued operations per share	$	—	$	0.04	$	0.01	$	0.05
Diluted income (loss) per share	$	(0.14)	$	—	$	0.01	$	(0.13)

Comprehensive income (loss):
Net income (loss)	$	(2,819)	$	—	$	134	$	(2,685)
Total comprehensive income (loss)	$	(1,875)	$	—	$	134	$	(1,741)

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


	Nine Months Ended September 30, 2020
			Adjustments
	As Previously Reported		Discontinued Operations		Deferred Tax Asset		As Revised
Income from discontinued operations before income taxes	$	—	$	1,385	$	—	$	1,385
Income tax expense (benefit), net	—		837		(401)		436
Net income from discontinued operations	—		548		401		949
Net income (loss)	$	(4,037)	$	—	$	401	$	(3,636)

Basic earnings (loss) per share:
Net income (loss) from discontinued operations per share	$	—	$	0.03	$	0.02	$	0.05
Basic income (loss) per share	$	(0.20)	$	—	$	0.02	$	(0.18)
Diluted earnings (loss) per share:
Net income (loss) from discontinued operations per share	$	—	$	0.03	$	0.02	$	0.05
Diluted income (loss) per share	$	(0.20)	$	—	$	0.02	$	(0.18)
Comprehensive income (loss):
Net income (loss)	$	(4,037)	$	—	$	401	$	(3,636)
Total comprehensive income (loss)	$	(4,114)	$	—	$	401	$	(3,713)

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


	Three Months Ended September 30, 2020
			Adjustments
Accumulated deficit	As Previously Reported		Discontinued Operations		Deferred Tax Asset		As Revised
Balance, June 30, 2020	$	(111,161)	$	—	$	1,467	$	(109,694)
Net loss	(2,819)		—		134		(2,685)
Balance, September 30 2020	$	(113,980)	$	—	$	1,601	$	(112,379)

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


	Nine Months Ended September 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	(4,037)		—		401		(3,636)
Balance, September 30 2020	$	(113,980)	$	—	$	1,601	$	(112,379)

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


	Nine Months Ended September 30, 2020
			Adjustments
	As Previously Reported		Discontinued Operations		Deferred Tax Asset		As Revised
Cash flows from operating activities:
Net loss	$	(4,037)	$	—	$	401	$	(3,636)
Deferred income taxes	$	527	$	—	$	(401)	$	126
Net cash provided by operating activities	$	1,503	$	—	$	—	$	1,503

2. Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements and related disclosures in conformity with U.S. 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 nine months ended September 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.

Income Taxes

For the three and nine months ended September 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 approximately $250.0 million in cash, subject to certain adjustments and customary closing conditions including receipt of regulatory approvals. As of June 30, 2021, the Company 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 in the Company's June 30, 2021 Form 10-Q and is reported as a discontinued operation in this Form 10-Q for the three and nine months periods ended September 30, 2021 and 2020.

The LiveArea Transaction closed on August 25, 2021 for gross proceeds of approximately $250.0 million in cash, resulting in a pre-tax gain of $200.8 million. The Company incurred approximately $15 million in cash-based transaction related costs during 2021 and used proceeds of approximately $35 million to make estimated income tax payments related to the LiveArea Transaction, of which approximately $30 million was paid during the December 2021 quarter.

In connection with the LiveArea Transaction, the Company entered into a transition services agreement with the purchaser to provide certain accounting and administrative services for a period of up to twelve months. Income generated from transition services provided to the purchaser were $0.4 million for the three and nine months ended September 30, 2021 and are recorded in selling, general and administrative expenses from continuing operations in the condensed consolidated statement of operations and comprehensive income (loss).

Additionally, in connection with the LiveArea Transaction, in July 2021 the Company's Board of Directors approved a modification to the Company's existing stock-based compensation plans to provide for accelerated vesting of certain restricted stock awards and stock options for LiveArea personnel. As a result of the LiveArea Transaction, approximately 635,000 shares of restricted stock and approximately 160,000 stock options previously awarded to certain executives and employees were accelerated and fully vested on August 25, 2021. Also as a result of the LiveArea Transaction, the Company's Board of Directors approved the full payout of the 2021 cash compensation plan to certain LiveArea executives and employees. We recorded incremental compensation expense of $3.3 million and $0.3 million related to the stock-based compensation modification and full targeted payout of the 2021 cash compensation plan, respectively, which is included in net income (loss) from discontinued operations on the condensed consolidated statement of operations and comprehensive income (loss) for the three months ended September 30, 2021.

Furthermore, certain executives and employees of PFSweb, inclusive of certain LiveArea personnel, received cash transaction bonuses as a result of the successful completion of the LiveArea Transaction. We recorded compensation expense of $3.5 million for executives and employees of the LiveArea business segment, which is included in net income (loss) from discontinued operations on the condensed consolidated statement of operations and comprehensive income (loss) for each of the three and nine months ended September 30, 2021. In addition, we recorded compensation expense of $1.0 million for the executives and employees of PFSweb, which is included in selling, general and administrative expense on the condensed consolidated statement of operations and comprehensive income (loss) for each of the three and nine months ended September 30, 2021. Furthermore, a total of $0.7 million of compensation expense will be reflected in the results of continuing operations during the period from October 1, 2021 through March 31, 2022.

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.

At September 30, 2021 there were no remaining assets and liabilities of LiveArea following the close of the 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 sheet (in thousands):


	December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	392
Accounts receivable, net of allowance for doubtful accounts of $854	11,184
Related party receivable	730
Other receivables	444
Prepaid expenses and other current assets	1,170
Current assets of discontinued operations	13,920
Property and equipment, net	1,661
Operating lease right-of use assets	632
Identifiable intangibles, net	665
Goodwill	23,257
Other assets	5,502
Long-term assets of discontinued operations	31,717
Total assets of discontinued operations	$	45,637
LIABILITIES
Current liabilities:
Trade accounts payable	$	1,035
Accrued expenses	4,639
Current portion of operating lease liabilities	88
Current portion of long-term debt and finance lease obligations	3
Deferred revenues	520
Current liabilities of discontinued operations	6,285
Long-term debt and capital lease obligations, less current portion	4
Operating lease liabilities	541
Long-term liabilities of discontinued operations	545
Total liabilities of discontinued operations	$	6,830

The following table presents the major components of net income of LiveArea through the August 25, 2021 LiveArea Transaction close date and a reconciliation to the amounts reported in the unaudited condensed consolidated statements of operations and comprehensive income (loss) (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenues:
Service fee revenue	$	13,616	$	17,563	$	50,197	$	52,256
Pass-through revenue	159		—		159		—
Related party revenue	—		248		574		272
Total revenues