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PFSWEB INC FORM 10-K (Annual Report) Filed 03/31/08 for the Period Ending 12/31/07 Address 505 MILLENNIUM DRIVE ALLEN, TX 75013 Telephone 972-881-2900 CIK 0001095315 Symbol PFSW SIC Code 7389 - Business Services, Not Elsewhere Classified Industry Software & Programming Sector Technology Fiscal Year 12/31 http://www.edgar-online.com © Copyright 2014, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. Table of Contents Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2007 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 000-28275 PFSWEB, INC. (Exact name of registrant as specified in its charter) Delaware 75 -2837058 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 500 North Central Expressway, Plano, Texas 75074 (Address of principal executive offices) (Zip code) Registrant’s telephone number, including area code: 972-881-2900 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.001 per share Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No Indicate by a 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 check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer Accelerated filer Non-accelerated filer Smaller Reporting Company (Do not check if a smaller reporting company) Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2007 (based on the closing price as reported by the National Association of Securities Dealers Automated Quotation System) was $32,274,635. As of March 26, 2008, there were 46,579,564 shares of the registrant’s Common Stock, $.001 par value, outstanding. DOCUMENTS INCORPORATED BY REFERENCE The information required by Part III of this Annual Report, to the extent not set forth herein, is incorporated herein by reference from the registrant’s definitive proxy statement relating to the annual meeting of shareholders, which definitive proxy statement shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Annual Report relates. INDEX Page PART 1 Item 1. Business 1 Item 2. Properties 36 Item 3. Legal Proceedings 36 Item 4. Submission of Matters to a Vote of Security Holders 36 PART II Item 5. Market for Registrant ’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities 37 Item 6. Selected Consolidated Financial Data 37 Item 7. Management ’s Discussion and Analysis of Financial Condition and Results of Operations 40 Item 7a. Quantitative and Qualitative Disclosure about Market Risk 55 Item 8. Financial Statements and Supplementary Data 56 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 85 Item 9a. Controls and Procedures 85 Item 9b. Other Information 86 PART III Item 10. Directors and Executive Officers of the Registrant 87 Item 11. Executive Compensation 87 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters 87 Item 13. Certain Relationships and Related Transactions 87 Item 14. Principal Accountant Fees and Services 87 PART IV Item 15. Exhibits and Financial Statement Schedules 87 Signatures 97 Second Amendment to Industrial Lease Agreement Subsidiary Listing Consent of KPMG LLP Certifications of Principal Executive Officer Certifications of Principal Financial Officer Certifications pursuant to Section 906 Unless otherwise indicated, all references to “PFSweb” “the Company,” “we,” “us” and “our” refer to PFSweb, Inc., a Delaware corporation, and its subsidiaries. Table of Contents PART I Item 1. Business General PFSweb is an international provider of integrated business process outsourcing solutions to major brand name companies seeking to maximize their supply chain efficiencies and to extend their traditional business and e-commerce initiatives as well as a leading multi-category online discount retailer of new, “close-out” and recertified brand-name merchandise. We derive our revenues from three business segments: business process outsourcing, a master distributor and an online discount retailer. First, in our business process outsourcing business segment operated by our Priority Fulfillment Services subsidiaries (“PFS”), we derive our revenues from a broad range of services as we process individual business transactions on our clients’ behalf. These business transactions may include the answering of a phone call or an e-mail, the design and hosting of a client web-site, the receipt and storage of a client’s inventory, the kitting and assembly of products to meet a client’s specifications, the shipping of products to our client’s customer base, the management of a complex set of electronic data transactions designed to keep our client’s suppliers and customers accounting records in balance, or the processing of a returned package. In the business process outsourcing segment, we do not own the inventory or the resulting accounts receivable, but provide management services for these client-owned assets. In our second business segment operated by our Supplies Distributors’ subsidiaries we act as a master distributor of product for InfoPrint Solutions Company (“IPS”), a joint venture company owned by Ricoh and International Business Machines (“IBM”), and certain other clients. In this capacity, we purchase and resell for our own account, IPS and other manufacturers’ inventory. Accordingly, in this business segment, we recognize product revenue and own the accounts receivable and inventory. Our third business segment is eCOST.com (“eCOST”), an online discount retailer of new, “close-out” and recertified brand-name merchandise. This web-commerce product revenue model is focused on the sale of products to a broad range of consumer and business customers. We currently offer approximately 170,000 products in several primary merchandise categories, including computer hardware and software, home electronics, digital imaging, watches and jewelry, housewares, DVD movies, video games and cellular/wireless. We are headquartered in Plano, Texas where our executive and administrative offices, and our primary technology operations and hosting facilities are located. We have an office in El Segundo, CA which consists of sales, marketing and purchasing operations for our online discount retailer segment. We operate state-of-the-art call centers from our U.S. facilities located in Plano, Texas, and Memphis, Tennessee, and from our international facilities located in Markham, Canada, Liege, Belgium and Manila, Philippines. We lease or manage warehouse facilities of approximately 2.0 million square feet of warehouse space, many containing highly automated and state of the art material handling and communications equipment, in Memphis, TN, Southaven, MS, Grapevine, TX, Markham, Canada and Liege, Belgium, allowing us to provide global distribution solutions. BUSINESS PROCESS OUTSOURCING SEGMENT PFS is a global provider of web commerce and business process outsourcing solutions. PFS’ service breadth includes logistics and fulfillment, freight and transportation management, real-time order management, kitting and assembly, customer care, facility operations and management, turn-key web-commerce infrastructure, payment processing and financial services and more. Collectively, we define our offering as Business Process Outsourcing because we extend our clients’ infrastructure and technology capabilities, addressing an entire business transaction cycle from demand generation to product delivery. Our solutions support both business-to-business (“B2B”) and business-to- consumer (“B2C”) sales channels. PFS serves as the “brand behind the brand” for companies seeking to increase their operation’s efficiencies. As a business process outsourcer, we offer scalable and cost-effective solutions for manufacturers, distributors, online retailers and direct marketing organizations across a wide range of industry segments,