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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2019
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| Delaware | 75-2837058 | |||
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505 Millennium Drive, Allen, Texas | 75013 | |||
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Emerging growth company | ☐ |
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(Unaudited) March 31, December 31, 2018 2017 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 16,646 $ 19,078 Restricted cash 214 214 Accounts receivable, net of allowance for doubtful accounts of $375 and $373 at March 31, 2018 and December 31, 2017, respectively 50,004 72,062 Inventories, net of reserves of $250 and $342 at March 31, 2018 and December 31, 2017, respectively 6,660 5,326 Other receivables 4,754 5,366 Prepaid expenses and other current assets 6,893 6,633 Total current assets 85,171 108,679 PROPERTY AND EQUIPMENT: Cost 116,953 120,403 Less: accumulated depreciation (93,833 ) (96,225 ) 23,120 24,178 IDENTIFIABLE INTANGIBLES, net 2,956 3,371 GOODWILL 45,961 45,698 OTHER ASSETS 3,742 3,861 Total assets $ 160,950 $ 185,787 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Trade accounts payable $ 32,038 $ 45,070 Accrued expenses 24,388 29,074 Current portion of long-term debt and capital lease obligations 6,017 9,460 Deferred revenues 5,969 7,405 Performance-based contingent payments 4,000 3,967 Total current liabilities 72,412 94,976 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion 36,685 37,866 DEFERRED REVENUES, less current portion 2,846 4,034 DEFERRED RENT 5,263 5,464 OTHER LIABILITIES 2,045 2,150 Total liabilities 119,251 144,490 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; 19,154,332 and 19,058,685 shares issued at March 31, 2018 and December 31, 2017, respectively; and 19,120,865 and 19,025,218 outstanding at March 31, 2018 and December 31, 2017, respectively 19 19 Additional paid-in capital 151,032 150,614 Accumulated deficit (109,754 ) (109,281 ) Accumulated other comprehensive income 527 70 Treasury stock at cost, 33,467 shares (125 ) (125 ) Total shareholders’ equity 41,699 41,297 Total liabilities and shareholders’ equity $ 160,950 $ 185,787 Three Months Ended March 31, 2018 2017 REVENUES: Service fee revenue $ 56,487 $ 57,265 Product revenue, net 9,765 11,318 Pass-through revenue 12,169 10,185 Total revenues 78,421 78,768 COSTS OF REVENUES: Cost of service fee revenue 35,608 39,584 Cost of product revenue 9,316 10,725 Cost of pass-through revenue 12,169 10,185 Total costs of revenues 57,093 60,494 Gross profit 21,328 18,274 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 20,659 21,718 Income (loss) from operations 669 (3,444 ) INTEREST EXPENSE, net 605 637 Income (loss) before income taxes 64 (4,081 ) INCOME TAX EXPENSE, net 813 775 NET LOSS $ (749 ) $ (4,856 ) NET LOSS PER SHARE: Basic $ (0.04 ) $ (0.26 ) Diluted $ (0.04 ) $ (0.26 ) WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Basic 19,145 18,736 Diluted 19,145 18,736 COMPREHENSIVE LOSS: Net loss $ (749 ) $ (4,856 ) Foreign currency translation adjustment 457 296 TOTAL COMPREHENSIVE LOSS $ (292 ) $ (4,560 ) SHAREHOLDERS' EQUITY Three Months Ended March 31, 2018 2017 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (749 ) $ (4,856 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 2,978 3,907 Amortization of debt issuance costs 37 37 Provision for doubtful accounts - (9 ) Provision for excess and obsolete inventory 59 20 Loss on disposal of fixed assets 27 - Deferred income taxes (33 ) 175 Stock-based compensation expense 646 524 Changes in operating assets and liabilities: Accounts receivable 22,480 19,739 Inventories (1,390 ) (1,433 ) Prepaid expenses, other receivables and other assets 490 1,779 Deferred rent (198 ) (162 ) Accounts payable, deferred revenues, accrued expenses and other liabilities (18,335 ) (19,812 ) Net cash provided by (used in) operating activities 6,012 (91 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (927 ) (666 ) Proceeds from sale of property and equipment 54 - Net cash used in investing activities (873 ) (666 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock 59 2 Taxes paid on behalf of employees for withheld shares (287 ) — Payments on capital lease obligations, net (531 ) (892 ) Payments on term loan (750 ) (563 ) Payments on revolving loan (32,133 ) (28,346 ) Borrowings on revolving loan 28,099 22,021 Payments on other debt (2,205 ) (589 ) Net cash used in financing activities (7,748 ) (8,367 ) EFFECT OF EXCHANGE RATES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH 177 339 NET DECREASE IN CASH AND CASH EQUIVALENTS (2,432 ) (8,785 ) Cash and cash equivalents, beginning of period 19,078 24,425 Restricted cash, beginning of period 214 215 CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period 19,292 24,640 Cash and cash equivalents, end of period 16,646 15,640 Restricted cash, end of period 214 215 CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period $ 16,860 $ 15,855 SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for income taxes 157 47 Cash paid for interest 491 561 Non-cash investing and financing activities: Property and equipment acquired under long-term debt and capital leases $ 894 $ 769 Note 9. lease term. See Note 9 for additional information. financial information on adoption. The standard had a material impact In March 31, January 1, 2018 2018 Accounts Receivable Trade Accounts Receivable, net $ 48,881 $ 70,923 Unbilled Accounts Receivable 1,604 172 Total Accounts Receivable $ 50,485 $ 71,095 Contract Liabilities Accrued Contract Liabilities $ 666 $ 583 Deferred Revenue 8,815 10,697 Total Contract Liabilities $ 9,481 $ 11,280 Changes in contract liabilities during the period was a decrease of 2019 were not material. Accrued contract liabilities below are included within accrued expenses in our condensed consolidated balance sheets. Changes in the contract asset and liability balances during the PFS Operations LiveArea Professional Services Total Revenues: Service fee revenue $ 34,922 $ 21,565 $ 56,487 Product revenue, net 9,765 - 9,765 Pass-through revenue 11,800 369 12,169 Total revenues $ 56,487 $ 21,934 $ 78,421 March 31, December 31, 2018 2017 U.S. Credit Agreement Revolver $ 9,200 $ 13,234 Term loan 26,250 27,000 Equipment loan 3,974 4,205 Debt issuance costs (342 ) (376 ) Master lease agreements 3,498 3,135 Other 122 128 Total 42,702 47,326 Less current portion of long-term debt 6,017 9,460 Long-term debt, less current portion $ 36,685 $ 37,866 2019 we were in compliance with all debt covenants. As of March 31, 2018 2017 Stock options 1,048 1,228 Performance shares and restricted stock units 423 138 Deferred stock units 199 133 Total anti-dilutive stock options, performance shares and deferred stock units 1,670 1,499 expenses. Three Months Ended March 31, 2018 2017 Revenues: PFS Operations $ 56,487 $ 58,236 LiveArea Professional Services 21,934 20,532 Eliminations - - Total revenues $ 78,421 $ 78,768 Business unit direct contribution: PFS Operations $ 6,333 $ 5,405 LiveArea Professional Services 2,968 2,331 Total business unit direct contribution $ 9,301 $ 7,736 Unallocated corporate expenses (8,632 ) (11,180 ) Income (loss) from operations $ 669 $ (3,444 ) Overview We are a global commerce solutions company. We manage the entire customer shopping experience for major branded manufacturers and retailers through two business segments, Many of our service fee contracts involve third-party vendors who provide additional services, such as package delivery. The costs we are charged by these third-party vendors for these services are often passed on to our clients. Our billings for reimbursements of these costs and other ‘out-of-pocket’ expenses include travel, shipping and handling costs and telecommunication charges and are included in pass-through revenue. Selling, General and Administrative expenses Three Months Ended % of Total March 31, Revenues 2018 2017 Change 2018 2017 Revenues Service fee revenue $ 56,487 $ 57,265 $ (778 ) 72.0 % 72.7 % Product revenue, net 9,765 11,318 (1,553 ) 12.5 % 14.4 % Pass-through revenue 12,169 10,185 1,984 15.5 % 12.9 % Total revenues 78,421 78,768 (347 ) 100.0 % 100.0 % Costs of Revenues Cost of service fee revenue (1) 35,608 39,584 (3,976 ) 63.0 % 69.1 % Cost of product revenue (2) 9,316 10,725 (1,409 ) 95.4 % 94.8 % Pass-through cost of revenue (3) 12,169 10,185 1,984 100.0 % 100.0 % Total costs of revenues 57,093 60,494 (3,401 ) 72.8 % 76.8 % Service fee gross profit (1) 20,879 17,681 3,198 37.0 % 30.9 % Product revenue gross profit (2) 449 593 (144 ) 4.6 % 5.2 % Pass-through gross profit (3) — — — — — Total gross profit 21,328 18,274 3,054 27.2 % 23.2 % Selling General and Administrative expenses 20,659 21,718 (1,059 ) 26.3 % 27.6 % Income (loss) from operations 669 (3,444 ) 4,113 0.9 % (4.4 )% Interest expense, net 605 637 (32 ) 0.8 % 0.8 % Income (loss) before income taxes 64 (4,081 ) 4,145 0.1 % (5.2 )% Income tax expense, net 813 775 38 1.0 % 1.0 % Net loss $ (749 ) $ (4,856 ) $ 4,107 (1.0 )% (6.2 )% Three Months Ended March 31, 2018 2017 Change Change, % Revenues: Service fee revenue $ 34,922 $ 37,007 $ (2,085 ) (6 )% Product revenue, net 9,765 11,318 (1,553 ) (14 )% Pass-through revenue 11,800 9,911 1,889 19 % Total revenues $ 56,487 $ 58,236 $ (1,749 ) (3 )% Costs of revenues: Cost of service fee revenue $ 25,338 $ 29,369 $ (4,031 ) (14 )% Cost of product revenue 9,316 10,725 (1,409 ) (13 )% Cost of pass-through revenue 11,800 9,911 1,889 19 % Total costs of revenues $ 46,454 $ 50,005 $ (3,551 ) (7 )% Gross profit $ 10,033 $ 8,231 $ 1,802 22 % Direct operating expenses 3,700 2,826 874 31 % Direct contribution $ 6,333 $ 5,405 $ 928 17 % result, in reduced product revenue activity. client projects. Three Months Ended March 31, 2018 2017 Change Change, % Revenues: Service fee revenue $ 21,565 $ 20,258 $ 1,307 6 % Pass-through revenue 369 274 95 35 % Total revenues $ 21,934 $ 20,532 $ 1,402 7 % Costs of revenues: Cost of service fee revenue $ 10,270 $ 10,215 $ 55 1 % Cost of pass-through revenue 369 274 95 35 % Total costs of revenues $ 10,639 $ 10,489 $ 150 1 % Gross profit $ 11,295 $ 10,043 $ 1,252 12 % Direct operating expenses 8,327 7,712 615 8 % Direct contribution $ 2,968 $ 2,331 $ 637 27 % Three Months Ended March 31, 2018 2017 Change Change, % Unallocated corporate expenses $ 8,632 $ 11,180 $ (2,548 ) (23 )% Liquidity and Capital Resources 2018. 2018. This decrease was primarily related to our adoption of ASC 842 and the inclusion of approximately $7.8 million in operating lease liabilities that were not included in the prior year, as well as the reduction of our debt from cash provided by operations. additional financing or the terms thereof. We currently believe our cash position, financing available under our credit facilities and funds generated from operations will satisfy our presently known operating cash needs, our working capital and capital expenditure requirements, our current debt and lease obligations, and additional loans to our subsidiaries, if necessary, for at least the next twelve months. Master Lease Agreements. Exhibit No. Description of Exhibits 3.1 (1) 3.1.1 (2) 3.1.2 (4) 3.1.3 (5) 3.1.4 (7) 3.2 (1) 3.2.1 (3) 3.2.2 (6) 3.2.3 (7) 4.1 31.1 31.2 32.1 101.INS XBRL Instance Document. 101.SCH XBRL Taxonomy Extension Schema. 101.CAL XBRL Taxonomy Extension Calculation Linkbase. 101.DEF XBRL Taxonomy Extension Definition Linkbase. 101.LAB XBRL Taxonomy Extension Label Linkbase. 101.PRE XBRL Taxonomy Extension Presentation Linkbase. Thomas J. Madden Chief Financial Officer Chief Accounting Officer Executive Vice PresidentPFSweb, Inc. and Subsidiaries (Unaudited)
March 31,
2019 December 31,
2018ASSETS CURRENT ASSETS: Cash and cash equivalents $ 14,679 $ 15,419 Restricted cash 207 207 52,545 72,415 4,124 6,090 Other receivables 3,906 4,014 Prepaid expenses and other current assets 7,202 6,943 Total current assets 82,663 105,088 PROPERTY AND EQUIPMENT: Cost 98,363 97,744 Less: accumulated depreciation (78,391 ) (76,248 ) 19,972 21,496 OPERATING LEASE RIGHT-OF-USE ASSETS 38,788 — IDENTIFIABLE INTANGIBLES, net 1,636 1,803 GOODWILL 45,348 45,185 OTHER ASSETS 3,560 3,501 Total assets $ 191,967 $ 177,073 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Trade accounts payable $ 35,147 $ 47,580 Accrued expenses 19,509 24,623 Current portion of operating lease liabilities 7,835 — Current portion of long-term debt and finance lease obligations 2,846 2,610 Deferred revenues 6,883 7,328 Total current liabilities 72,220 82,141 LONG-TERM DEBT AND FINANCE LEASE OBLIGATIONS, less current portion 32,698 39,348 DEFERRED REVENUES, less current portion 1,590 1,927 DEFERRED RENT — 4,625 OPERATING LEASE LIABILITIES 36,688 — OTHER LIABILITIES 2,668 2,449 Total liabilities 145,864 130,490 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS’ EQUITY: Preferred stock, $1.00 par value; 1,000,000 shares authorized; none issued or outstanding — — 19 19 Additional paid-in capital 156,108 155,455 Accumulated deficit (108,937 ) (107,773 ) Accumulated other comprehensive loss (962 ) (993 ) Treasury stock at cost, 33,467 shares (125 ) (125 ) Total shareholders’ equity 46,103 46,583 Total liabilities and shareholders’ equity $ 191,967 $ 177,073 Three Months Ended
March 31, 2019 2018 REVENUES: Service fee revenue $ 51,439 $ 56,487 Product revenue, net 7,499 9,765 Pass-through revenue 13,211 12,169 Total revenues 72,149 78,421 COSTS OF REVENUES: Cost of service fee revenue 33,958 35,608 Cost of product revenue 7,077 9,316 Cost of pass-through revenue 13,211 12,169 Total costs of revenues 54,246 57,093 Gross profit 17,903 21,328 18,346 20,659 Income (loss) from operations (443 ) 669 INTEREST EXPENSE, net 512 605 Income (loss) before income taxes (955 ) 64 INCOME TAX EXPENSE, net 209 813 NET LOSS $ (1,164 ) $ (749 ) NET LOSS PER SHARE: Basic $ (0.06 ) $ (0.04 ) Diluted $ (0.06 ) $ (0.04 ) Basic 19,486 19,145 Diluted 19,486 19,145 COMPREHENSIVE LOSS: Net loss $ (1,164 ) $ (749 ) Foreign currency translation adjustment 31 457 $ (1,133 ) $ (292 ) CASH FLOWSThousands)Thousands, Except Share Data) 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, 2018 19,294,296 19 $ 155,455 $ (107,773 ) $ (993 ) 33,467 $ (125 ) $ 46,583 Net loss — — — (1,164 ) — — — (1,164 ) Stock-based compensation expense — — 651 — — — — 651 Exercise of stock options 1,500 — 2 — — — — 2 Foreign currency translation adjustment,
net of taxes— — — — 31 — — 31 Balance, March 31, 2019 19,295,796 $ 19 $ 156,108 $ (108,937 ) $ (962 ) 33,467 $ (125 ) $ 46,103 5PFSweb, Inc. and SubsidiariesNotes to Unaudited Condensed Financial Statements 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, 2017 19,058,685 $ 19 $ 150,614 $ (109,281 ) $ 70 33,467 $ (125 ) $ 41,297 Net loss — — — (749 ) — — — (749 ) Impact of the adoption of new accounting pronouncement — — — 276 — — — 276 Stock-based compensation expense — — 646 — — — — 646 Exercise of stock options 11,930 — 59 — — — — 59 Tax withholding on restricted stock — — (287 ) — — — — (287 ) Foreign currency translation adjustment,
net of taxes— — — — 457 — — 457 Balance, March 31, 2018 19,070,615 $ 19 $ 151,032 $ (109,754 ) $ 527 33,467 $ (125 ) $ 41,699 Three Months Ended
March 31, 2019 2018 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (1,164 ) $ (749 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 2,715 2,978 Amortization of debt issuance costs 20 37 Provision for doubtful accounts (15 ) — Provision for excess and obsolete inventory (8 ) 59 Loss on disposal of fixed assets 4 27 Deferred income taxes 189 (33 ) Stock-based compensation expense 651 646 Changes in operating assets and liabilities: Accounts receivable 19,841 22,480 Inventories 1,973 (1,390 ) Prepaid expenses, other receivables and other assets 1,687 292 Trade accounts payable, deferred revenues, accrued expenses and other liabilities (19,526 ) (18,335 ) Net cash provided by operating activities 6,367 6,012 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (911 ) (927 ) Proceeds from sale of property and equipment — 54 Net cash used in investing activities (911 ) (873 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock 2 59 Taxes paid on behalf of employees for withheld shares — (287 ) Payments on finance lease obligations (495 ) (531 ) Payments on term loan — (750 ) Payments on revolving loan (42,428 ) (32,133 ) Borrowings on revolving loan 35,653 28,099 Payments on other debt (256 ) (2,205 ) Borrowings on other debt 1,616 — Net cash used in financing activities (5,908 ) (7,748 ) EFFECT OF EXCHANGE RATES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH (288 ) 177 NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH (740 ) (2,432 ) Cash and cash equivalents, beginning of period 15,419 19,078 Restricted cash, beginning of period 207 214 CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period 15,626 19,292 Cash and cash equivalents, end of period 14,679 16,646 Restricted cash, end of period 207 214 CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period $ 14,886 $ 16,860 SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for income taxes $ 101 $ 157 Cash paid for interest $ 588 $ 491 Non-cash investing and financing activities: Property and equipment acquired under long-term debt and capital leases $ — $ 894 (the “Company”) 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, and statements of cash flows for the periods indicated.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 the Company’sour Annual Report on Form 10-K for the year ended December 31, 2017. 2018. We refer to PFSweb, Inc. and its subsidiaries collectively as “PFSweb,” the “Company,” us,” “we” and “our” in these condensed consolidated financial statements.the Company’sour operations for interim periods may not be indicative of results for the full fiscal year. The Company reclassifiesWe reclassify certain prior year amounts, as applicable, to conform to the current year presentation.the Company’sour significant accounting policies, refer to the Company’sour Annual Report on Form 10-K for the year ended December 31, 2017. Changes in2018. During the three-month periods ended March 31, 2019, there were no significant changes to our significant accounting policies, duringother than those policies impacted by the three months ended March 31, 2018 arenew leasing guidance as described below.Revenuebelow in this Note 2 and Cost Recognitionderive revenue primarily from services provided under contractual arrangements with our clients or from the sale of products under our distributor agreements. The majority of our revenue is derived from contracts and projects that can span from a few months to three to five years.Revenue is recognized when (or as) we satisfy performance obligations by transferring a promised good or service, an asset, to a client or customer. An asset is transferred to a client or customer when, or as, the client or customer obtains control over that asset. The transaction price includes fixed and, in certain contracts, variable consideration.Variable consideration contained within our contracts includes discounts, rebates, incentives, penalties and other similar items. When a contract includes variable consideration, we estimate the variable consideration to determine whether any of it needs to be constrained. We include the variable consideration in the transaction price only to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. We estimate variable consideration and constraints based on our review of the contract terms and conditions. Variable consideration and constraint amounts are the most likely amounts based on our history with the customer. If no history is available, then we will book the most likely amount based on the range of possible consideration amounts. Variable consideration was not significantaccount for the three-month period ended March 31, 2018 or any other reporting period presented. Variable consideration and constraints are updated at each reporting date.We evaluate our contractual arrangements to determine whether or not they include multiple performance obligations. Revenue recognition is determined for each distinct performance obligation of the contractleases in accordance with Accounting Standard Codification (“ASC”ASC 842”) 606 (“ASC 606”)No. 842, We allocate revenue to each performance obligationOperating lease assets and liabilities are recognized at the commencement date, based on the transaction pricepresent value of the future minimum lease payments over the lease term. A certain number of these leases contain rent escalation clauses either fixed or adjusted periodically for inflation or market rates that are factored into our determination of lease payments. We also have variable lease payments that do not depend on a rate or index, primarily for items such as common area maintenance and real estate taxes, which are recorded as variable cost when incurred. The operating lease right-of-use asset excludes incentives and initial direct costs incurred. As most of our operating leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at the lease commencement date to discount payments to the present value. Most operating leases contain renewal options, some of which also include options to terminate the leases early. The exercise of these options is at our discretion. We include options to extend or terminate the total amount of consideration to whichlease when it is reasonably certain that we will be entitled to under the contract.Incremental contract costs (such as sales commissions) are expensed when incurred when the amortization period of the assetexercise that would have been recognized is one year or less; otherwise, incremental contract costs are recognized as an asset and amortized over time as promised goods and services are transferred to a customer. When losses are expected to be incurred on a contract, we recognize the entire anticipated loss in the accounting period when the loss becomes evident to the extent the project has been completed. The loss is recognized when the current estimate of the consideration we expect to receive, modified to include unconstrained variable consideration instead of constrained variable consideration, is less than the current estimate of total costs for the contract. We did not recognize any significant contract losses, and we did not have any significant incremental contract costs that needed to be capitalized in the three months ended March 31, 2018.Service Fee RevenueOur service fee revenue includes activities that relate to our PFS Operations and Live Area Professional Services business units. PFS Operations primarily includes distribution, customer care, order management and payment services. Live Area Professional Services primarily includes commerce and digital experience strategy consulting, creative website design and marketing support, and technology platform integration services. We typically charge our service fee revenue on either a time and materials, fixed price, cost-plus, a percent of shipped revenue, or retainer basis for our professional services, or a per transaction basis, such as a per item basis for fulfillment services or a per labor hour basis for web-enabled customer contact center services. Additional fees are billed for other services.6PFSweb, Inc. and SubsidiariesNotes to Unaudited Condensed Financial StatementsDistribution services relate primarily to inventory management, product receiving, warehousing and fulfillment (i.e., picking, packing and shipping product on our clients’ behalf). Order management and customer care services relate primarily to taking customer orders for our clients’ 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 merchandising activities. These performance obligations typically include related set-up and integration services in preparation of performing such activities.option.Professional services relate primarily to design, implementation and support of eCommerce platforms, website solutions and quality control for our clients. Additionally, the Company provides digital agency services that enable client marketing programs to attract new customers, convert buyers and increase website value. We recognize revenue as services are rendered and costs as they are incurred.We perform front-end set-up and integration services to support client eCommerce platforms and websites. These front-end set-up and integration services do not meet the criteria for recognition as a separate performance obligation, and as such, we recognize them with other design work, typically through time and material arrangements. We recognize revenue as services are rendered and costs as they are incurred.Most of our fixed price, professional services contracts require the customer to pay us for all costs plus a margin for work performed up until termination date, regardless of which party terminates. For these contracts, revenue is recognized based on input methods, generally hours expended. The input method measures progress toward the satisfaction of the performance obligation by multiplying the transaction price of the performance obligation by the percentage of hours incurred to total estimated hours as of the balance sheet date after giving effect to the most current estimates. If reasonable and reliable costs estimates cannot be made, we recognize revenue when the uncertainty is resolved or at completion of the project.Our billings for reimbursement of out-of-pocket expenses, including travel and certain third-party vendor expenses such as shipping and handling costs and telecommunication charges,pass-through revenue. The related reimbursable costs are reflected as cost"Operating lease right-of-use assets," "Current portion of pass-through revenue. Product RevenueDependingoperating lease liabilities" and "Operating lease liabilities" on the termscondensed consolidated balance sheets. Finance leases are included in "Property and equipment", "Long-term debt and finance lease obligations" and "current portion of long-term debt and finance lease obligations" on the customer arrangement, product revenue and product costcondensed consolidated balance sheets. Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheets. Operating lease expense is recognized at the point the customer gains control of the asset. The specific point in time when control transfers depends on the contract with the customer. We permit our customers to return product. Product revenue is reported net of estimated returns and allowances, which are estimated based upon historical return information. Management also considers any other current information and trends in making estimates.In instances where revenue is derived from product sales from a third-party, we record revenue on a grossstraight-line basis whenover the lease term. We have lease agreements with lease and non-lease components and have elected to account for the lease and non-lease components separately. In addition, we are a principalutilized the portfolio approach to the transactiongroup leases with similar characteristics and net of costs when we are acting as an agent between the customer or client and the vendor. We consider several factorsdid not use hindsight to determine whether we are a principal or an agent, most notably whether we are the primary obligor to the vendor or customer, have established our own pricing and have inventory and credit risks, if applicable.May 2014,February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases ("ASU 2016-02"), which requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. In July 2018, the FASB issued ASC 606, “Revenue from Contracts with Customers”, which replaces numerous requirements in U.S. GAAP, including industry-specific requirements, providesadditional authoritative guidance providing companies with a single revenue recognition model for recognizing revenue from contracts with clients and customers and significantly expandsan optional transition method to use the disclosure requirements for revenue arrangements. The new standard,effective date of ASU 2016-02 as amended, became effective for the Company for interim and annual reporting periods beginning on January 1, 2018. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application with disclosure of resultstransition and not restate comparative periods. We adopted the standard on January 1, 2019 using this optional transition method. As such, prior periods have not been recast under the new and old standards forstandard. We elected the first year of adoption.On January 1, 2018, the Company adopted ASC 606 using the modified retrospective method applied to the contracts that were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 605, “Revenue Recognition”.Practical expedientsThe standard allows entities to use several practical expedients. The standard requires public entities to disclose their usepackage of practical expedients, — the practical expedient associated with the determination of whether a significant financing component exists and the expedient for recording an immediate expense for certain incremental costs of obtaining a contract with a client or customer. Contracts of less than a year with a financing component will be expensed in that period as a practical expedient. Our current contracts7PFSweb, Inc. and SubsidiariesNoteswhich allows us to Unaudited Condensed Financial Statementsdo not have a financing component. Commissions on contracts of less than one year will be expensed as a practical expedient. Commissions will be capitalized on contracts over one year. As of March 31, 2018, our commission structure did not include commissions in excess of one year. We have electedcarry forward historical lease classification, the practical expedient to excludenot separate non-lease components from our disclosure contracts that involve projects with variable consideration,lease components, and contracts of one year or less.the short-term lease accounting policy election as defined in ASU 2016-02. We also present our revenues net of tax as a practical expedient.We recorded a net increase to opening retained earnings of $0.3 million as of January 1, 2018 due to the cumulative impact of adopting ASC 606, with the impact primarily related to our adjustments to deferred revenues and costs. We recorded a reduction of $0.7 million to deferred revenue, a reduction of $0.4 million to deferred costs,implemented internal controls and a contract liabilitylease accounting software to enable the preparation of $0.1 million.of applying ASC 606 for the three months ended March 31, 2018 was a decrease of $0.1 million to revenues and a decrease of $0.1 million to operating profits.In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments - a consensus of the Emerging Issues Task Force” (“ASU 2016-15”). ASU 2016-15 is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. Certain issues addressed in this guidance include debt payments or debt extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, distributions received from equity method investments and beneficial interests in securitization transactions. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. Adoption of ASU 2016-15 as of January 1, 2018on our condensed consolidated balance sheets, but did not have an impact on the Company’s consolidated financial statements.In November 2016, the FASB issued an ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”). ASU 2016-18 amends the presentation of restricted cash within thecondensed consolidated statements of operations and comprehensive income (loss) and had no impact on cash flows, requiring that restricted cash be added to cash and cash equivalentsprovided by or used in operating, investing or financing activities on theour condensed consolidated statements of cash flows. The most significant impact was the recognition of right-of-use assets of $40.7 million and operating lease liabilities of $46.4 million for operating leases. The difference between the right-of-use assets and operating lease liabilities was recorded as an adjustment to deferred rent (lease incentives). The adoption of ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company adopted ASU 2016-18 in the three-month period ended March 31, 2018 on a retrospective basis with2016-02 had substantially no impact to on our finance leases.the Company’s consolidated financial statements.January 2017,June 2016, the FASB issued ASU No. 2017-01,2016-13, " “Business CombinationsFinancial Instruments-Credit Losses (Topic 805)326): ClarifyingMeasurement of Credit Losses on Financial Instruments," which requires the Definitionmeasurement and recognition of a Business” (“expected credit losses for financial assets held at amortized cost. ASU 2017-01”).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 2017-01 clarifies the definition of a business when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses, ASU 2017-012016-13 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017. Adoption of ASU 2017-01 did not have an impact on the Company’s consolidated financial statements.In May 2017, the FASB issued ASU No. 2017-09, “Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”), clarifying when a change to the terms or conditions of a stock-based payment award must be accounted for as a modification. ASU 2017-09 requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. ASU 2017-09 is effective for the Company on a prospective basis beginning on January 1, 2018. Adoption of ASU 2017-09 did not have an impact on the Company’s consolidated financial statements as it is not the Company’s general practice to change either the terms or conditions of stock-based payment awards once they are granted.In March 2018, the FASB issued ASU 2018-05, “Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118” (“ASU 2018-05”). The amendments in ASU 2018-05 provide guidance on when to record and disclose provisional amounts for certain income tax effects of the Tax Cuts and Jobs Act (“Tax Reform Act”). The amendments also require any provisional amounts or subsequent adjustments to be included in net income. Additionally, ASU 2018-05 discusses required disclosures that an entity must make with regard to the Tax Reform Act. ASU 2018-05 is effective immediately as new information is available to adjust provisional amounts that were previously recorded. The Company has adopted ASU 2018-05 and will continue to evaluate indicators that may give rise to a change in our tax provision as a result of the Tax Reform Act.Pronouncements Not Yet AdoptedIn February 2016, the FASB issued ASU No. 2016-02, “Leases” (“ASU 2016-02”). ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscalwithin those years, beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital2019, and operating leases existing at, or entered into after,requires a cumulative effect adjustment to the balance sheet as of the beginning of the earliest comparativefirst reporting period presentedin which the guidance is effective. We are currently in the financial statements, with certain practical expedients available. The Company is currently assessingprocess of evaluating the impact of the adoption of ASU 2016-022016-13 on itsour condensed consolidated financial statements but does expectin order to adopt the adoption to have a material impact tonew standard in the balance sheet through the additionfirst quarter of an ROU asset and corresponding lease liability.fiscal 2020.8PFSweb, Inc. and SubsidiariesNotes to Unaudited Condensed Financial StatementsThe Company doesWe do not expect the adoption of ASU 2017-04 to have a material impact on the Company’sour condensed consolidated financial statements.CustomersPerformance ObligationsA performance obligation is a promise in a contract to transfer a distinct good or service to the client or customerClients and is the unitCustomers Three Months Ended
March 31, 2019 Total Revenues: Service fee revenue $ 33,055 $ 18,384 $ 51,439 Product revenue, net 7,499 — 7,499 12,876 335 13,211 Total revenues $ 53,430 $ 18,719 $ 72,149 Three Months Ended
March 31, 2018 PFS
Operations LiveArea
Professional Services Total Revenues: Service fee revenue $ 34,922 $ 21,565 $ 56,487 Product revenue, net 9,765 — 9,765 Pass-through
revenue11,800 369 12,169 Total revenues $ 56,487 $ 21,934 $ 78,421 account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Our performance obligations can be separated as PFS Operations, which includes distribution, customer care, order management and payment services, and Live Area Professional Services, which includes commerce strategy consulting, creative design and marketing support, and technology platform integration services. For contracts with multiple performance obligations, we base transaction price to each performance obligation using the most likely sales amount for the distinct good or service in the contract. The primary method used to calculate the most likely sales amount is the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service.Implementation services related to setup costs for PFS Operations are not distinct within the context of the contract because of the inter-dependence of the integrating services with other services promised in the contract into a bundle of services that represent the combined output for which the customer has contracted. Therefore, these are not separate performance obligations. These implementation revenues and costs are amortized from one month after go live through the end of the contract period. Transaction based fees are generally charged monthly based on volume and contract price.Substantially all of our professional services are satisfied over time, as the clients or customers simultaneously receive and consume the benefits provided by our service as we perform. Substantially all of our Operations Services, including Product Revenue, are recognized at a point in time, with the exception of initial integration services, which are deferred. The transaction price for each performance obligation is based on the consideration specified in the contract with the client or customer and contains fixed and/or variable consideration. Additionally, we have an enforceable right to payment for performance completed to date. Remaining performance obligations represent the transaction price of firm orders for which work has not been performed. As of March 31, 2018, the aggregate amount of the transaction price allocated to remaining performance obligations was $43.8 million. The Company expects to recognize revenue on approximately 35% of the remaining performance obligations in 2018, 64% through 2019, and the remaining recognized thereafter.Contract EstimatesA number of factors relating to our business affect the recognition of contract revenue. We typically structure our professional services contract pricing as time and materials, fixed-price or a cost plus fixed fee. We believe that our operating results should be evaluated over a time period during which major contracts are in progress, and change orders, cost recoveries and other claims are negotiated and realized.For fixed-price arrangements, we typically recognize revenue based on the input method, generally hours expended over time proportionately, based on actual hours to budgeted hours during the period, provided reliable cost estimates for a project can made. We use this method because we consider effort incurred to date to be the best available measure of progress on contract in progress. If we cannot reasonably estimate project costs or margin, we recognize revenue as costs are incurred as our contracts contain an enforceable right to payment for performance completed to date.Provisions for estimated losses on uncompleted contracts, if any, are made in the period in which such losses are determined. The loss is recognized, to the extent the loss has been incurred, based on actual hours incurred versus budgeted hours. We did not recognize any significant contract losses for the three months ended March 31, 2018.Contract modifications are routine in the performance of our contracts. Change orders that result from modification of an original contract are taken into consideration for revenue recognition when they result in a change of total contract value(in thousands): Three Months Ended
March 31, 2019 PFS
Operations LiveArea
Professional Services Total Revenues: Over time $ 45,931 $ 18,719 $ 64,650 Point-in-time 7,499 — 7,499 Total revenues $ 53,430 $ 18,719 $ 72,149 Three Months Ended
March 31, 2018 PFS
Operations LiveArea
Professional Services Total Revenues: Over time $ 46,722 $ 21,784 $ 68,506 Point-in-time 9,765 150 9,915 Total revenues $ 56,487 $ 21,934 $ 78,421 are approvedusage-based taxes, disaggregated by our clients. In most instances, contract modifications are for services that are not distinct, and therefore, are accounted for as part of the existing contract. If the contract has significant scope changes, of non-interrelated and non-interdependent products or services, then it will be viewed as a separate contract and accounted for separately.9PFSweb, Inc. and SubsidiariesNotes to Unaudited Condensed Financial Statements Three Months Ended
March 31, 2019 Total Revenues by region: North America $ 43,602 $ 16,718 $ 60,320 Europe 9,828 2,001 11,829 Total revenues $ 53,430 $ 18,719 $ 72,149 Three Months Ended
March 31, 2018 Total Revenues by region: North America $ 44,617 $ 19,166 $ 63,783 Europe 11,870 2,768 14,638 Total revenues $ 56,487 $ 21,934 $ 78,421 Contract assets primarily relatethe Company’s rights to consideration for work completed but not billed at the reporting date. Thefulfill contract assets during the period was an increase of $0.3 million from December 31, 2018 to March 31, 2019, primarily due to an increase of approximately $1.9 million from new projects, offset by approximately $1.6 million oftransferredincluded within other current assets, other assets, and to the receivables when the rights become unconditional. The contract liabilities primarily relate to the advance consideration received from customers for customer contracts.In certain ofsoftware development costs, which are included within property and equipment in our arrangements, billing occurs subsequent to revenue recognition, resulting in unbilled accounts receivable. However, the Company sometimes receives advances or deposits from our customers prior to revenue being recognized which results in contract liabilities.The Company’s payment terms vary by the type and location of our customers and the type of services offered. The term between invoicing and when payment is due is generally not significant.Contract balances consisted of the following (in thousands):$2.5$0.2 million in our net contract liabilities from December 31, 20172018 to March 31, 2018,2019, primarily due to a decreasean increase of approximately $2.4 million from new projects, offset by approximately $2.6 million in deferred revenue due toof amortization and recognition of revenue in the three months ended March 31, 2018, as well as2019. Contract losses recognized for the impact of the cumulative effect of the adoption of ASC 606. We have no contract assets atquarter ended March 31, 2018.These assets/liabilities are reported on the consolidated balance sheet on a contract basis at the end of each reporting period.three-month periodquarter ended March 31, 20182019 were not materially impacted by any other factors.PFS Operations March 31,
2019 December 31,
2018Contract Assets Trade Accounts Receivable, net $ 52,165 $ 72,180 Unbilled Accounts Receivable 380 235 Costs to Fulfill 5,554 5,214 Total Contract Assets 58,099 77,629 Contract Liabilities Accrued Contract Liabilities 1,104 535 Deferred Revenue 8,472 9,255 Total Contract Liabilities $ 9,576 $ 9,790 is primarily recognized at a point in time, based on the transaction volumes. LiveArea Professional Servicesright to invoice for services performed, or 3) variable consideration allocated entirely to a wholly unsatisfied performance obligation. Much of our revenue is primarily recognized over time, typically based on time and materials. The following table presents our revenues, excluding sales and usage-based taxes, disaggregated by revenue sourcequalifies for the three months endedone of these exemptions. As of March 31, 2018 (in thousands): 2019, the aggregate amount of the transaction price allocated to remaining performance obligations for contracts with an original expected duration of one year or more was $23.1 million. We expect to recognize revenue on approximately 71% of the remaining performance obligations in 2019, 23% in 2020, and the remaining recognized thereafter.products of Ricoh Company Limited and Ricoh USA, Inc., a strategic business unit within the Ricoh Family Group of Companies (collectively hereafter referred to as “Ricoh”),products in the United States, providing financing for eligible Ricoh inventory and certain receivables.In January 2018, Supplies Distributors entered into Amendment No. 19 to the IBM Credit Facility. The Amended IBM Credit Facility adjusted the maximum borrowing under the facility from $13.0 millionreceivables up to $11.0 million, as per amended agreement. The agreement has no stated maturity date and loweredprovides either party the minimum PFS Subordinated Note receivable PFSweb is requiredability to maintain from $2.5 million to $1.0 million.10PFSweb, Inc. and SubsidiariesNotes to Unaudited Condensed Financial Statementsthe Company haswe have classified the outstanding amounts under this facility, which were $5.1$5.2 millionand $7.1$4.7 million as of March 31, 20182019 and December 31, 2017,2018, respectively, as trade accounts payable in thecondensed consolidated balance sheets. As of March 31, 2018,2019, Supplies Distributors had $2.1$0.5 million of available credit under this facility. The credit facility contains cross default provisions, various restrictions upon the ability of Supplies Distributors to, among other things, merge, consolidate, sell assets, incur indebtedness, make loans and payments to related parties (including entities directly or indirectly owned by PFSweb, Inc.), provide guarantees, make investments and loans, pledge assets, make changes to capital stock ownership structure and pay dividends. The credit facility also contains 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 is secured by certain of the assets of Supplies Distributors, as well as a collateralized guaranty of PFSweb. Additionally, PFSweb is required to maintain a minimum Subordinated Note receivable balance from Supplies Distributors of $1.0 million, as per amended agreement. Borrowings under the credit facility accrue interest, after a defined free financing period, at prime rate plus 0.5%, which resulted in a weighted average interest rate of 5.00%6.00% and 4.75% as of5.75% as of March 31, 20182019 and December 31, 2017,2018, respectively. The facility also includes a monthly service fee. As of March 31, 2019, the Company was in compliance with all financial covenants.5.CapitalFinance Lease Obligationscapitalfinance lease obligations consist of the following (in thousands): March 31,
2019 December 31,
2018U.S. Credit Agreement Revolver $ 28,725 $ 35,500 Equipment loan 4,125 3,263 Debt issuance costs (362 ) (382 ) Master lease agreements 2,916 3,495 Other 140 82 Total 35,544 41,958 Less current portion of long-term debt 2,846 2,610 Long-term debt, less current portion $ 32,698 $ 39,348 2018, the Company2019, we had $23.3$31.3 million of available credit under the revolving loan facility of the credit agreement of PFSweb, Inc. and its U.S. subsidiaries with Regions Bank, as agent for itself and one or more future lenders (“Credit Agreement”).facility. As of March 31, 20182019 and December 31, 2017,2018, the weighted average interest rate on the revolving loan facility was 5.07%4.43% and 4.65%4.57%, respectively.2018 and December2019 we had $8.9 million of available credit in equipment financing.2017, the weighted average interest rate on the term loan facility of the Credit Agreement was 4.43% and 4.05%, respectively.The belowIn periods when we recognize a net loss, we exclude the impact of outstanding common stock equivalents werefrom the diluted loss per share calculation as their inclusion would have an antidilutive effect. As of March 31, 2019 and March 31, 2018, we had outstanding common stock equivalents of approximately 1.8 million and 1.7 million, respectively, that have been excluded from the calculationcalculations of net lossdiluted earnings per share attributable to common stockholders because their effect would have been anti-dilutive due to our net loss for the three months ended March 31, 2018 and 2017 (shares in thousands):antidilutive.7.. Segment InformationPrior to January 1, 2018, the Company’s operations were organized into two reportable segments: PFSweb and Business and Retail Connect. In accordance with ASC 280, Segment Reporting (“ASC 280”), an operating segment is defined as a component of an enterprise for which discrete financial information is available and is reviewed regularly by the Chief Operating Decision Maker (“CODM”), or decision-making group, to evaluate performance and make operating decisions.Effective January 1, 2018, we changed our organizational structure in an effort to create more effective and efficient operations and to improve client and service focus. In that regard, we revised the information that our chief executive officer and chief financial officer, who are also our Chief Operating Decision Makers, regularly review for purposes of allocating resources and assessing performance. As a result, beginning January 1, 2018, we now report our financial performance based on our new reportable segments.11PFSweb, Inc. and SubsidiariesNotes to Unaudited Condensed Financial StatementsTheseLiveArea (which provides client services in relation to the digital shopping experience of shopping online, such as strategic commerce consulting, strategy, design and digital marketing services and technology services). Each segment is led by a separate Business Unit Executive who reports directly to the Company’sour Chief Executive Officer.The CODM evaluates segment performance usingwhich is defined as business unit revenues less costs of fees and direct selling, general and administrative expenses, including depreciation and amortization. Direct contribution does notto include anycertain shared service costs. Prior period amounts have been reclassified to include those allocated Corporate expenses nor does it include stock-based compensation. The CODM does not routinely review assets by segment. The balance sheet by segment is not prepared and, therefore, we do not present segment assets below.Corporate operations is a non-operating segment that develops and implements strategic initiatives and supports the Company’s operations by centralizing certain administrative functions such as finance, treasury, information technology and human resources.All prior period segment information has been restated to conform to the 2018 presentation. The changes in the reportable segments have no effect on the consolidated balance sheets, statements of operations or cash flows for the periods presented.Subsequent to change in the Company’s operating segments, the Company’s reporting units changed. We now have two reporting units: PFS Operations and LiveArea Professional Services. We allocated goodwill to our new reporting units using a relative fair value approach. In addition, we completed an assessment of any potential goodwill impairment for all reporting units immediately prior to and after the reallocation and determined that no impairment existed. Three Months Ended
March 31, 2019 2018 Revenues: PFS Operations $ 53,430 $ 56,487 LiveArea Professional Services 18,719 21,934 Total revenues $ 72,149 $ 78,421 Business unit direct contribution: PFS Operations $ 2,527 $ 4,302 LiveArea Professional Services 1,873 2,114 Total business unit direct contribution $ 4,400 $ 6,416 Unallocated corporate expenses (4,843 ) (5,747 ) Income (loss) from operations $ (443 ) $ 669 The Companythe Companywe received notice from a municipality that itwe did not satisfy certain criteria necessary to maintain the abatements and that the municipal authority planned to make an adjustment to the Company’sour tax abatement. The CompanyWe disputed the adjustment and such dispute has been settled with the municipality. However, the amount of additional property taxes to be assessed against the Companyus and the timing of the related payments has not been finalized. As of March 31, 2018, the Company believes it has2019, we believe we have adequately accrued for the expected assessment. Three Months Ended
March 31, 2019 Finance lease costs: Amortization of ROU assets $ 512 Interest of lease liabilities 48 Operating lease costs 2,330 Variable lease costs 31 Short-term lease costs 419 Sublease income — Total lease costs $ 3,340 As of March 31, 2019 Operating Leases Finance Leases 2019 $ 6,935 $ 1,227 2020 9,650 1,127 2021 8,900 714 2022 8,070 54 2023 6,480 — Thereafter 11,990 — Total lease payments 52,027 3,122 Less interest (7,504 ) (206 ) Total lease obligations $ 44,523 $ 2,916 Three Months Ended
March 31, 2019 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 2,319 Operating cash flows from finance leases 48 Financing cash flows from finance leases 495 As of December 31, 2018 Operating Leases Finance Leases 2019 $ 9,659 $ 1,811 2020 10,028 1,169 2021 9,222 725 2022 8,407 55 2023 6,828 — Thereafter 12,840 — Minimum lease commitments $ 56,980 3,760 Less interest (265 ) Present value of net minimum lease obligations $ 3,495 We have madein this Report on Form 10-Q.within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that involve expectations, plans or intentions (such as those relating to future business, future results of operations or financial condition, new or planned features or services, or management strategies). You can identify these forward-looking statements by words such as “may,” “will,” “would,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan,” “potential,” “intend,” “project,” “estimate,” and other similar expressions. These forward-looking statements are subject toinvolve risks and uncertainties, and there can be no guarantee that these statements will prove to be correct. Forward-looking statementsmay 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,” “project” and “estimate” or similar expressions, we are making forward-looking statements. We have based these statements on our current expectations about future events. Although we believe the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee these expectations will actually be achieved. In addition, some forward-looking statements are based upon assumptions about future events that may not prove to be accurate. Therefore, our actual outcomes and results may differ materially from what is expectedthose expressed or forecastedimplied in suchour 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 occurSuch risks and uncertainties include, among others, those discussed in the future.Risk factors set forth in Part“Part I, Item 1A1A: Risk Factors” of the Company’sour Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed2018 (the “Annual Report”), as well as in our consolidated financial statements, related notes, and the other information appearing elsewhere in the Annual Report and our other filings with the Securities and Exchange Commission, could cause our resultsor the SEC. We do not intend, and undertake no obligation, to differ materially from those expressed inupdate any of our forward-looking statements.Key Transactionsstatements after the date of this report to reflect actual results or future events or circumstances. Given these risks and EventsDuring the three months ended March 31, 2018, we were impacted by the following key transactions and events that also affect comparability of our resultsuncertainties, readers are cautioned not to prior periods.Effective January 1, 2018, we changed our organizational structure in an effort to create more effective and efficient operations and to improve client and service focus. As a result, beginning January 1, 2018, we report our financial performance basedplace undue reliance on our new reportable segments PFS Operations and LiveArea Professional Services. All prior period segment information has been restated to conform with the 2018 presentation. The changes in the reportable segments have no effect on the consolidated balance sheets, statements of operations and comprehensive loss or cash flows for the periods presented.We adopted Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”) on January 1, 2018. We used the modified retrospective method for the transition. Under the modified retrospective method, the cumulative effect of applying the new standard was recorded at January 1, 2018 for open contracts. Therefore, results for the three months ended March 31, 2018 and March 31, 2017 may not be comparable.OverviewLive AreaLiveArea Professional Services and PFS Operations. The Live AreaLiveArea Professional Services segment provides services in relation to support and improve the digital shopping experience of shopping online, such as strategic commerce consulting, strategy, design and digital marketing services and technology services. The PFS Operations segment PFS, provides services in relation to support and improve the physical experience, such as order management, order fulfillment, customer care and payment services. for both of our business segments as the Service Fee model. In this model, our clients own the inventory and are the merchants of record and engage us to provide various infrastructure, technology and digital agency services in support of their business operations. We derive our service fee revenues from a broad range of service offerings that include digital agency and marketing, eCommerce technologies, system integration, order management, customer care, logistics and fulfillment, financial management and professional consulting. We offer our services as an integrated solution, which enables our clients to outsource their complete ecommerceeCommerce needs to a single source and to focus on their core competencies, though clients are also able to select individual or groupings of our various service offerings on an à la carte basis. We currently provide services to clients that operate in a range of vertical markets, including technology manufacturing, computer products, cosmetics, fragile goods, coins and collectibles, apparel, telecommunications, consumer electronics and consumer packaged goods, among others.per-transactionper transaction basis, such as a per-laborper labor hour 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.In this model, which is primarily conducted through our Supplies Distributor subsidiaries, weWe place the initial and replenishment purchase orders with the client and take ownership of the product either upon shipment to or delivery to our facility. In this model, depending on the terms of our client arrangements, we may own the inventory and the accounts receivable arising from our product sales. Under the Retail model, depending upon the product category and sales characteristics, we may require the client to provide product price protection as well as product purchase payment terms, right of return, and obsolescence protection appropriate to the product sales profile. Depending on the terms of our client arrangements in the Retail model, we record in our condensed consolidated statement of operations either: 1) product revenue as a component of product revenue, or 2) product revenue net of cost of product revenue as a component of service fee revenue. In general, we seek to structure client relationships in our Retail model under the net revenue approach to more closely align with our service fee revenue financial presentation and mitigate inventory ownership risk, although we have one client still utilizingoperating under the gross revenueGrowth is a key element to achieving our future goals, including achieving and maintaining sustainable profitability. Growth in our Service Fee and Agent models is driven by two main elements: new client relationships and organic growth from existing clients. We focus our sales efforts on larger contracts with brand-name companies within four primary target markets, health and beauty, home goods and collectibles, fashion and consumer packaged goods, which, by nature, require a longer duration to close but also have the potential to be higher quality and longer duration engagements. Through recent acquisitions, we have expanded our service offering capabilities and added new client relationships, which we currently expect to enhance our growth opportunities.(product revenue net of cost of product revenue) in our condensed consolidated statement of operations as opposed to product revenue as generated in the Agent or Flash model above.operations. These relationships are often driven by the sales and marketing efforts of the manufacturers and third party sales partners. In addition, as a result of certain operational restructuring of its business, our primary client relationship operating in the Retail model, Ricoh, has implemented, and will continue to implement, certain changes in the sale and distribution of Ricoh products. The changes have resulted, and are expected to continue to result, in reduced product revenues and profitability under our Retail model.–- consists primarily of compensation and related expenses for our web-enabled customer contact center services, international fulfillment and distribution services and professional, digital agency and technology 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.–- consists of the purchase price of product sold and freight costs, which are reduced by certain reimbursable expenses. These reimbursable expenses include pass-through customer marketing programs, direct costs incurred in passing on any price decreases offered by vendors to cover price protection and certain special bids, the cost of products provided to replace defective product returned by customers and certain other expenses as defined under the distributor agreements.–- the related reimbursable costs for pass-through expenditures are reflected as cost of pass-through revenue.–- consist of expenses such as compensation and related expenses for sales and marketing staff, distribution costs (excluding freight) applicable to the Agent and the Retail model, executive, management and administrative personnel and other overhead costs, including certain occupancy and information technology costs, and depreciation and amortization expenses and acquisition related, restructuring and other costs.(1)Represents the percent of Service fee revenue. (2)Represents the percent of Product revenue, net.(3)Represents the percent of Pass-through revenue. 2019 2018 Change 2019 2018 Revenues Service fee revenue $ 51,439 $ 56,487 $ (5,048 ) 71.3 % 72.0 % Product revenue, net 7,499 9,765 (2,266 ) 10.4 % 12.5 % Pass-through revenue 13,211 12,169 1,042 18.3 % 15.5 % Total revenues 72,149 78,421 (6,272 ) 100.0 % 100.0 % Costs of Revenues 33,958 35,608 (1,650 ) 66.0 % (1 ) 63.0 % Cost of product revenue 7,077 9,316 (2,239 ) 94.4 % (2 ) 95.4 % 13,211 12,169 1,042 100.0 % (3 ) 100.0 % Total costs of revenues 54,246 57,093 (2,847 ) 75.2 % 72.8 % 17,481 20,879 (3,398 ) 34.0 % (1 ) 37.0 % 422 449 (27 ) 5.6 % (2 ) 4.6 % Total gross profit 17,903 21,328 (3,425 ) 24.8 % 27.2 % 18,346 20,659 (2,313 ) 25.4 % 26.3 % (443 ) 669 (1,112 ) (0.6 )% 0.9 % Interest expense, net 512 605 (93 ) 0.7 % 0.8 % (955 ) 64 (1,019 ) (1.3 )% 0.1 % Income tax expense, net 209 813 (604 ) 0.3 % 1.0 % Net loss $ (1,164 ) $ (749 ) $ (415 ) -1.6 % -1.0 %
(1) Represents the percent of Service fee revenue. 2019 2018 Change Change % Revenues: Service fee revenue $ 33,055 $ 34,922 $ (1,867 ) (5 )% Product revenue, net 7,499 9,765 (2,266 ) (23 )% Pass-through revenue 12,876 11,800 1,076 9 % Total revenues 53,430 56,487 (3,057 ) (5 )% Costs of revenues: Cost of service fee revenue 23,920 25,338 (1,418 ) (6 )% Cost of product revenue 7,077 9,316 (2,239 ) (24 )% Cost of pass-through revenue 12,876 11,800 1,076 9 % Total costs of revenues 43,873 46,454 (2,581 ) (6 )% Gross profit 9,557 10,033 (476 ) (5 )% Direct operating expenses 7,030 5,731 1,299 23 % Direct contribution $ 2,527 $ 4,302 $ (1,775 ) (41 )% 20182019 decreased by $1.7$3.1 million compared with the corresponding period in 2017.2018. Service fee revenue decreased by $2.1$1.9 million due to the impacttransition of certain client transitions, including certain lower-margin engagements,accounts, partially offset by new and expanded client relationships.growth from existing clients. Product revenue, net, decreased by $1.6$2.3 million due to thatthe revenue stream being primarily dependent on one client, whose businesswhom restructured its operations and discontinued certain product lines which has resulted, and is expected to continue to decline.improvedincreased slightly to 17.8%17.9% for the three months ended March 31, 20182019 as compared to 14.1%17.8% in the same period of the prior year due to an increase in service fee related gross margin, whichyear.to 27.4%by $1.3 million for the three months ended March 31, 2018 as2019 compared to 20.6%the corresponding period in the prior year. This service fee gross margin2018. The increase was primarily due to higher personnel and facility costs. Revenues: 2019 2018 Change Change % Service fee revenue $ 18,384 $ 21,565 $ (3,181 ) (15 )% Pass-through revenue 335 369 (34 ) (9 )% Total revenues 18,719 21,934 (3,215 ) (15 )% Cost of revenues: Cost of service fee revenue 10,038 10,270 (232 ) (2 )% Cost of pass-through revenue 335 369 (34 ) (9 )% Total cost of revenues 10,373 10,639 (266 ) (3 )% Gross profit 8,346 11,295 (2,949 ) (26 )% Direct operating expenses 6,473 9,181 (2,708 ) (29 )% Direct contribution $ 1,873 $ 2,114 $ (241 ) (11 )% transitionthree months ended March 31, 2019 decreased by $3.2 million as compared with the corresponding period in 2018. The decrease in revenues are primarily due to reduced technology services project activity, as well as client terminations. lower margin engagements, improved operational efficiency and focus on higher margin service offerings.increaseddecreased by $2.7 million for the three months ended March 31, 2019, compared to the corresponding period in 2018. The decrease was primarily due to lower personnel related costs attributable to our cost reduction efforts in response to lower revenues. 2019 2018 Change Change % Unallocated corporate expenses $ 4,843 $ 5,747 $ (904 ) (16 )% 20182019 compared to the corresponding period in 2017. The increase was primarily due to higher facility and personnel costs.LiveArea Professional Services (in thousands, except percentages)LiveArea Professional revenues for the three months ended March 31, 2018 increased by $1.4 million compared with the corresponding period in 2017, while gross margin increased to 51.5% from 48.9% due to new and expanded client relationships.Direct operating expenses increased by $0.6 million for the three months ended March 31, 2018 compared to the corresponding period in 2017. The increase was primarily due to underutilization of certain billable resources driven by a delay in project starts as well as increased sales related personnel expenses.Corporate (in thousands, except percentages)Unallocated corporate expenses decreased by $2.5 million for the three months ended March 31, 2018 compared to the corresponding period in 2017.2018. The decrease was primarily due to $1.3 milliona decrease in severance costs and $1.3 million earnout expensepersonnel related to our 2015 acquisition of CrossView, Inc. recorded in the three months ended March 31, 2017, partially offset by an increase in personnel-related and stock-based compensation expenses and certain technology systems costs.2018,2019, we recorded a tax provision of $0.2 million comprised primarily of $0.6 million related to the majority of our international operations, $0.1 million related to state income taxes, and $0.1 million associated with the tax amortization of goodwill relation to our CrossView2015 acquisition. A valuation allowance has been provided for the majority of our domestic net deferred tax assets, which are primarily related to our net operating loss carryforwards, and for certain foreign deferred tax assets.and 2017, the Company haswe 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 its 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. The Company believesWe 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 and (ii) the Company’sour ongoing assessment that the recoverability of itsour deferred tax assets is not likely in several jurisdictions.On December 22, 2017, the United States government enacted the Tax Cuts and Jobs Act, commonly referred to as the Tax Reform Act. The Tax Reform Act includes significant changes to the U.S. income tax system, including, but not limited to: a federal corporate rate reduction from 35% to 21%; limitations on the deductibility of interest expense and executive compensation; repeal of the Alternative Minimum Tax (“AMT”); full expensing provisions related to business assets; creation of new minimum taxes, such as the base erosion anti-abuse tax (“BEAT”) and Global Intangible Low Taxed Income (“GILTI”) tax; and the transition of U.S. international taxation from a worldwide tax system to a modified territorial tax system, which will result in a one-time U.S. tax liability on those earnings which have not previously been repatriated to the U.S. (the “Transition Tax”). The provisional impacts of this legislation are outlined below:Beginning January 1, 2018, the U.S. corporate income tax rate is 21%. The Company is required to recognize the impacts of this rate change on its deferred tax assets and liabilities in the period enacted. At December 31, 2017, we remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, we are still analyzing certain aspects of the Tax Reform Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount related to the remeasurement of our deferred tax balance was $12.1 million that was mostly offset by a change in the valuation allowance, except for a $0.6 million benefit that was recorded to our income statement related to tax amortization of goodwill for the period ended December 31, 2017.The Transition Tax on unrepatriated foreign earnings is a tax on previously untaxed accumulated and current earnings and profits ("E&P") of the Company's foreign subsidiaries. To determine the amount of the Transition Tax, the Company must determine, among other factors, the amount of post-1986 E&P of its foreign subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. Based on the Company’s reasonable estimate of the Transition Tax, there is no provisional Transition Tax expense. The Company has not completed accounting for the income tax effects of the transition tax and is continuing to evaluate this provision of the Tax Reform Act.The Tax Reform Act creates a new requirement that Global Intangible Low Tax Income (“GILTI”) earned by foreign subsidiaries must be included currently in the gross income of the U.S. shareholder. Due to the complexity of the new GILTI tax rules, the Company is continuing to evaluate this provision of the Tax Reform Act. Under U.S. GAAP, the Company is permitted to make an accounting policy election to either treat taxes due on future inclusions in U.S. taxable income related to GILTI as a current period expense when incurred or to factor such amounts into the Company's measurement of its deferred taxes. The Company has not yet completed its analysis of the GILTI tax rules and is not yet able to reasonably estimate the effect of this provision of the Tax Reform Act or make an accounting policy election for the accounting treatment whether to record deferred taxes attributable to the GILTI tax. The Company has not recorded any amounts related to potential GILTI tax in the Company’s consolidated financial statements.The income tax effects recorded in the Company’s consolidated financial statements as a result of the Tax Reform Act are provisional in accordance with ASU 2018-05, ASU 2018-05, “Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118” (“SAB 118”) (“ASU 2018-05”), as the Company has not yet completed its evaluation of the impact of the new law. SAB 118 allows for a measurement period of up to one year after the enactment date of the Tax Reform Act to finalize the recording of the related tax impacts.The preliminary net tax effects recorded may differ in the future due to changes in the interpretations of the Tax Reform Act, legislative action, and changes to estimates we have utilized to calculate the tax impact. We expect to finalize the tax analysis related to the Tax Reform Act with the filing of our tax return and record any differences between the final and provisional amounts in the 2018 fourth quarter at that time, if any.To obtain additional financing in the future, in addition to our current cash position, we plan to evaluate various financing alternatives including the sale of equity, utilizing capital or operating leases, borrowing under our credit facilities, expanding our current credit facilities or entering into new debt agreements. No assurances can be given we will be successful in obtaining any additional financing or the terms thereof.20182019 primarily from using cash generated from operations to pay downpayments on our outstanding debt obligations.2018,2019, net cash incomeprovided from operations before working capital changes was $3.0$6.4 million, compared to a cash loss of $0.2$6.0 million in the same period of the prior year. In addition, we received cashCash flow benefits from operating activities for both periods are primarily due to decreaseschanges in accounts receivable, prepaid expenses, other receivablesworking capital for the three months ended March 31, 2019 and other assets. The above cash proceeds were partially offset by decreases in accounts payable, deferred revenues, accrued expenses and other liabilities. compared to $0.7 million in the same period of 2017, exclusive of property and equipment acquired under debt and capital lease financing, which consisted primarily of capitalized software costs and equipment purchases.$7.7$5.9 million and $7.8 million, respectively, which are primarily relateddue to repaymentsreductions in on our debt and capital lease obligations, partially offset by borrowings under our revolving loan. obligations.2017, cash used in financing activities was $8.4 million, primarily related to repayments on our debt and capital lease obligations, partially offset by borrowings under our revolving loan. Working CapitalDuring the three months ended March 31, 2018,2019, our working capital decreased to $12.8$10.4 million as of March 31, 20182019 compared to $13.7$22.9 million at December 31, 2017.2018,2019, we were in compliance with all debt covenants. Further, non-renewal of any of our credit facilities may have a material adverse impact on our business and financial condition.receivables.receivables for up to $11.0 million. We have provided a collateralized guarantee to secure the repayment of this credit facility. The IBM Credit facility does not have a stated maturity and both parties have the ability to exit the facility following a 90-day notice. The Company has direct vendor credit terms with Ricoh to finance Supplies Distributors European subsidiary’s inventory purchases.In January 2018, Supplies Distributors entered into Amendment No. 19 to the IBM Credit Facility. The Amended IBM Credit Facility adjusts the maximum borrowing under the facility from $13.0 million to $11.0 million and lowers the minimum PFS Subordinated Note receivable PFSweb is required to maintain from $2.5 million to $1.0 million.Bank of America N.A., HSBC Bank USA, National Association and one or more future lenders (the “Lenders”). Under thisthe Credit Agreement, and subject to the terms set forth therein, the Lenders have agreed to provideprovided us with a revolving loan facility for up to $32.5 million and a term loan facility for up to $30 million. Subject to the terms of the Credit Agreement, we have the ability to increase the total loan facilities to $75 million. Availability under the revolving loan facility, which was approximately $23.3 million as of March 31, 2018, may not exceed a borrowing base of eligible accounts receivable (as defined). AdvancesBorrowings under the Credit Agreement accrueaccrued interest at a variable rate based on prime rate or Libor, plus an applicable margin,margin.have a five year maturity, with scheduled amortization payments forthe elimination of the term loan. Amounts outstanding under the term loan advances.were reconstituted as revolving loans. The Credit AgreementAmended Facility also extends the maturity date to November 1, 2023.Company and its U.S. subsidiariesUS entities and a pledge of 65% of the shares of certain of the Company’sour foreign subsidiaries. The Credit AgreementAmended Facility contains cross default provisions, various restrictions upon ourthe Company’s ability to, among other things, merge, consolidate, sell assets, incur indebtedness, make loans and payments to subsidiaries, affiliates and related parties, make capital expenditures, make investments and loans, pledge assets, make changes to capital stock ownership structure, as well as financial covenants, as defined, of a minimum consolidated fixed charge ratio and a maximum consolidated leverage ratio.In June 2016, PFSweb also entered into a Master Agreement with Regions Bank to provide equipment loans financing for certain capital expenditures. The Company hasWe have various agreements that provide for leasing or financing transactions of equipment and other assets and will continue to enter into such arrangements as needed to finance the purchasing or leasing of certain equipment or other assets. Borrowings under these agreements, which generally have terms of three to five years, are generally secured by the related equipment, and in certain cases, by a Company parent guarantee. performance-based contingent payments applicable to our CrossView acquisition, and our capital and operating lease commitments, we do not have any other material financial commitments, although future client contracts may require capital expenditures and lease commitments to support the services provided to such clients. comprehensive set of disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”). As of March 31, 2018,2019, an evaluation of the effectiveness of our disclosure controls and procedures was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, these disclosure controls and procedures were effective.Duringthree months ended March 31, 2018,implementation of new controls related to the adoption of the new leasing standard, there was no change in internal control over financial reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.reporting during the three months ended March 31, 2019.the Company’sour Annual Report on Form 10-K for the fiscal year ended December 31, 20172018 filed with the Securities and Exchange Commission.ExhibitsExhibitsa)Exhibits:(8)4.1 (9)(10)(10)(10)(10)(10)(10)(10)(10)(10)(1)(1) Incorporated by reference from PFSweb, Inc. Registration Statement on Form S-1 (Commission File No. 333-87657). (2)(2) Incorporated by reference from PFSweb, Inc. Form 10-K for the fiscal year ended December, 31, 2005 filed on March 31, 2006. (3)(3) Incorporated by reference from PFSweb, Inc. Report on Form 8-K filed on November 13, 2007. (4)(4) Incorporated by reference from PFSweb, Inc. Report on Form 8-K filed on June 2, 2008. (5)(5) Incorporated by reference from PFSweb, Inc. Form 10-Q filed on August 14, 2009. (6)(6) Incorporated by reference from PFSweb, Inc. Report on Form 8-K filed on July 2, 2010. (7)(7) Incorporated by reference from PFSweb, Inc. Report on Form 8-K filed on July 18, 2013. (8)(8) Incorporated by reference from PFSweb, Inc. Report on Form 8-K filed on June 19, 2015. (9)(9) Incorporated by reference from PFSweb, Inc. Report on Form 8-K filed on July 30, 2015. (10)(10) Incorporated by reference from PFSweb, Inc. Report on Form 8-K filed on June 28, 2018. (12) Filed Herewith. 14, 201810, 2019PFSweb, Inc.By:PFSweb, Inc. By: /s/ Thomas J. Madden 23