3. ACQUISITIONS

Acquisition of REV

On September 3, 2014, PFS acquired the outstanding capital stock of REV, which provides eCommerce website technical design, development and support services, enabling retailers, manufacturers and suppliers to optimize the customer experience across multiple channels. REV maintains operations in the United States and India. The initial consideration paid for the shares was $3.2 million in cash payments. The purchase agreement provides for future earn-out payments (“REV Earn-out Payments”) payable in 2015 and 2016 based on REV’s achievement of certain 2014 and 2015 financial targets (the “2014 REV Earn-out Payments” and “2015 REV Earn-out Payments”, respectively), in each case, subject to guaranteed minimum and maximum payments and possible offsets for indemnification and other claims arising under the purchase agreement. During the three months ended June 30, 2015, the Company paid $1.1 million and issued 27,407 shares of common stock of the Company (approximately $0.3 million in value as of payment date) in payment of the 2014 REV Earn-out Payments. At PFS’ election, up to $0.2 million of the 2015 REV Earn-out Payments are payable in unregistered shares of common stock of the Company. As of September 30, 2015, the Company has recognized a total current liability of $1.7 million applicable to the 2015 REV Earn-out Payments which have a guaranteed minimum of $0.7 million and maximum of $1.8 million.

The following table summarizes the estimated fair value of the tangible and intangible assets acquired and liabilities assumed (in thousands):

Cash and cash equivalents	$	765
Accounts receivable		1,753
Property and equipment		289
Identifiable intangibles		1,019
Other assets		16
Total assets acquired		3,842
Total liabilities assumed		655
Net assets acquired		3,187
Goodwill		2,756
Total purchase price	$	5,943

Purchase price for REV is as follows (in thousands, except share data):

Number of shares of common stock issued		27,407
Multiplied by PFSweb Inc.'s stock price	$	10.95
Share consideration for settlement of performance-based contingent payments	$	300
Aggregate cash payments		4,254
Performance-based contingent payments (based on fair value at acquisition date)		1,389
Total purchase price	$	5,943

The excess of the purchase price over the fair value of the net identifiable assets acquired and liabilities assumed was allocated to goodwill. Total goodwill of $2.8 million, none of which is deductible for tax purposes, is not being amortized but is subject to an annual impairment test using a fair-value-based approach.

The Company is amortizing the identifiable intangible assets acquired using a pattern in which the economic benefit of the assets are expected to be realized by the Company over their estimated remaining useful lives. There are no residual values for any of the intangible assets subject to amortization acquired during the REV acquisition.

Definite lived intangible assets acquired in the REV acquisition consist of (in thousands):

			September 30, 2015					Estimated
	Fair Value		Accumulated			Net Carrying		Useful Life
	at Acquisition		Amortization			Value		from Acquisition

Non-compete agreements	$	94	$	(46	)	$	48	1-3.5 years
Leasehold		45		(19	)		26	2.5 years
Customer relationships		880		(325	)		555	6 years
Total definite lived intangible assets	$	1,019	$	(390	)	$	629

Acquisition of LAL

On September 22, 2014, PFS acquired the outstanding capital stock of LAL, which provides digital agency services including strategy, branding, website design, visual design, copywriting, interactive development and support services primarily to manufacturers and retailers. LAL operates in the United States. Consideration paid for the shares included an initial $4.0 million cash payment and 54,604 unregistered shares of common stock of the Company (approximately $0.5 million in value as of acquisition date). The purchase agreement provides for future earn out payments (“LAL Earn-out Payments”) payable in 2015 and 2016 based on LAL’s achievement of certain 2014 and 2015 financial targets (the “2014 LAL Earn-out Payments” and “2015 LAL Earn-out Payments,” respectively), in each case, subject to a maximum payment and possible offsets for indemnification and other claims arising under the purchase agreement. During the three months ended June 30, 2015, the Company paid $1.0 million for the 2014 LAL Earn-out Payments. As of September 30, 2015, the Company has recognized a total current liability of $1.8 million applicable to the projected 2015 LAL Earn-out Payments with a maximum payment of $2.0 million. At PFS’ election, up to 25% of the 2015 LAL Earn-out Payments are payable in unregistered shares of common stock of the Company.

The following table summarizes the estimated fair value of the tangible and intangible assets acquired and liabilities assumed (in thousands):

Cash	$	30
Accounts receivable, net		1,299
Property and equipment		253
Identifiable intangibles		1,290
Other assets		28
Total assets acquired		2,900
Total liabilities assumed		1,617
Net assets acquired		1,283
Goodwill		5,610
Total purchase price	$	6,893

Purchase price for LAL is as follows (in thousands, except share data):

Number of shares of common stock issued		54,604
Multiplied by PFSweb Inc.'s stock price	$	9.96
Share consideration	$	544
Aggregate cash payments		4,950
Performance-based contingent payments (based on fair value at acquisition date)		1,399
Total purchase price	$	6,893

The excess of the purchase price over the fair value of the net identifiable assets acquired and liabilities assumed was allocated to goodwill. Total goodwill of $5.6 million, none of which is deductible for tax purposes, is not being amortized but is subject to an annual impairment test using a fair-value-based approach.

Definite lived intangible assets acquired in the LAL acquisition consist of (in thousands):

			September 30, 2015					Estimated
	Fair Value		Accumulated			Net Carrying		Useful Life
	at Acquisition		Amortization			Value		from Acquisition

Non-compete agreements	$	150	$	(43	)	$	107	3.5 years
Trade name		150		(67	)		83	2.25 years
Customer relationships		990		(329	)		661	6 years
Total definite lived intangible assets	$	1,290	$	(439	)	$	851

Acquisition of Moda

On June 11, 2015, PFSweb, Inc. acquired the outstanding capital stock of Moda, an eCommerce system integrator and consultancy that provides unique digital experiences for fashion brands and retailers. Moda maintains primary operations in London. Consideration paid for the shares included an initial £650,000 (approximately $1.0 million) cash payment and 16,116 unregistered shares of Company stock (approximately $0.3 million in value as of the acquisition date). The purchase agreement provides for future earn-out payments (“Moda Earn-out Payments”) payable in 2016 and 2017 based on Moda’s achievement of certain 2015 and 2016 financial targets, with no guaranteed minimum and an aggregate maximum each year of £500,000 (approximately $0.8 million), in each case, subject to possible offsets for indemnification and other claims arising under the purchase agreement. As of September 30, 2015, the Company has recognized a total liability of $0.5 million applicable to the projected Moda Earn-out Payments. At the Company’s election, up to 25% of each of the 2015 and 2016 Moda Earn-out Payments are payable in restricted shares of common stock of the Company.

The transaction was accounted for using the purchase method of accounting for business combinations and, accordingly, the assets acquired and liabilities assumed, including a preliminary allocation of purchase price, and the results of operations of Moda have been included in the Company's condensed consolidated financial statements since the date of acquisition. The following table summarizes the preliminary unaudited, estimated fair value of the assets acquired and liabilities assumed. This allocation requires the significant use of estimates and is based on the information available to management at the time these financial statements were prepared. The Company has not yet completed its assessment of the fair value of the assets acquired, as such, the estimated purchase price in excess of net assets acquired and liabilities assumed has initially been recorded as an estimated allocation between goodwill and intangible assets. Goodwill is not deductible for tax purposes and will not be amortized but is subject to annual impairment tests using a fair-value-based approach. The detail of finite identifiable intangibles is in the process of being identified and allocated to non-compete agreements and customer relationships. The Company is in the process of finalizing the purchase price allocation and, accordingly, the following preliminary allocation of the purchase price is subject to adjustment.

The following table summarizes the unaudited estimated fair value of the assets acquired and liabilities assumed (in thousands):

Cash and cash equivalents	$	126
Accounts receivable		335
Property and equipment		27
Identifiable intangibles		300
Other assets		23
Total assets acquired		811
Total liabilities assumed		542
Net liabilities assumed		269
Goodwill		1,439
Total purchase price	$	1,708

The estimated purchase price for Moda is as follows (in thousands, except share data):

Number of shares of common stock issued		16,116
Multiplied by PFSweb Inc.'s stock price	$	14.60
Share consideration	$	235
Aggregate cash payments		1,005
Performance-based contingent payments (based on estimated fair value at acquisition date)		468
Total purchase price	$	1,708

The excess of the purchase price over the fair value of the net identifiable assets acquired and liabilities assumed was allocated to goodwill. Total goodwill of $1.4 million, none of which is deductible for tax purposes, is not being amortized but is subject to an annual impairment test using a fair-value-based approach.

Estimated definite lived intangible assets acquired in the Moda acquisition consist of (in thousands):

September 30, 2015

Estimated

Fair Value

Accumulated

Net Carrying

Useful Life

at Acquisition

Amortization

Value

from Acquisition

Total definite lived intangible assets

300

(63

)

237

2-3 years

Acquisition of CrossView

On August 5, 2015, PFSweb, Inc. acquired substantially all of the assets, and assumed substantially all of the liabilities, in each case, other than certain specified assets and liabilities of CrossView, Inc., (“CrossView”) an ecommerce systems integrator and provider of a wide range of ecommerce services in the U.S. and Canada.

Consideration paid by the Company included an initial cash payment of $30.7 million and 553,223 unregistered shares of Company common stock (approximately $6.6 million in value as of the acquisition date). The initial cash payment is subject to adjustment based upon a post-closing balance sheet reconciliation. In addition, the Company will pay future earn-out payments (“CrossView Earn-out Payments”) in 2016, 2017 and 2018 based on the achievement of certain 2015, 2016 and 2017 financial targets. The CrossView Earn-out Payments have no guaranteed minimum and an aggregate maximum of $18.0 million and are subject to possible offsets for indemnification and other claims. The Company will pay 20% of the 2015 earn-out and 15% of the 2016 and 2017 earn-outs in restricted shares of Company common stock, based on its then current market value at the time of issuance. As of September 30, 2015 the Company has recognized a receivable of $1.2 million applicable to the post-closing balance sheet reconciliation adjustment and a total liability of $12.7 million applicable to the projected CrossView Earn-out Payments.

The transaction was accounted for using the purchase method of accounting for business combinations and, accordingly, the assets acquired and liabilities assumed, including a preliminary allocation of purchase price, and the results of operations of CrossView have been included in the Company's condensed consolidated financial statements since the date of acquisition. The following table summarizes the preliminary unaudited, estimated fair value of the assets acquired and liabilities assumed. This allocation requires the significant use of estimates and is based on the information available to management at the time these financial statements were prepared. The detail of finite identifiable intangibles is in the process of being identified and allocated to customer relationships, trademarks, non-compete agreements and technology development. The Company is in the process of finalizing the purchase price allocation and, accordingly, the following preliminary allocation of the purchase price is subject to adjustment.

The following table summarizes the unaudited estimated fair value of the assets acquired and liabilities assumed (in thousands):

Accounts receivable	$	7,698
Property and equipment		336
Other assets		254
Identifiable intangibles		11,850
Total assets acquired		20,138
Total liabilities assumed		2,404
Net liabilities assumed		17,734
Goodwill		30,973
Total purchase price	$	48,707

The estimated purchase price for CrossView is as follows (in thousands, except share data):

Number of shares of common stock issued		553,223
Multiplied by PFSweb Inc.'s stock price	$	12.00
Share consideration	$	6,639
Aggregate cash payments		30,740
Performance-based contingent payments (based on estimated fair value at acquisition date), net of the estimated post-closing balance sheet reconciliation adjustment		11,328
Total purchase price	$	48,707

The excess of the purchase price over the fair value of the net identifiable assets acquired and liabilities assumed was allocated to goodwill. Total goodwill of $31.0 million, which, given the structure of the acquisition, is expected to be deductible for tax purposes and is amortized over 15 years.

Estimated definite lived assets acquired in the CrossView acquisition consist of (in thousands):

September 30, 2015

Estimated

Fair Value

Accumulated

Net Carrying

Useful Life

at Acquisition

Amortization

Value

from Acquisition

Total definite lived intangible assets

11,850

(741

)

11,109

2-8 years

Pro Forma Information

The following table presents selected pro forma information, for comparative purposes, assuming the acquisitions of REV, LAL had occurred on January 1, 2013 and CrossView had occurred on January 1, 2014 (unaudited) (in thousands, except per share amounts):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2015			2014			2015			2014
Total revenues	$	73,843		$	69,172		$	219,747		$	206,493
Net loss		(1,493	)		(1,447	)		(7,676	)		(9,507	)
Basic and diluted net loss per share		(0.08	)		(0.08	)		(0.44	)		(0.57	)

The unaudited pro forma total revenues and pro forma net loss are not necessarily indicative of the consolidated results of operations for future periods or the results of operations that would have been realized had the Company consolidated REV, LAL and CrossView during the periods noted. Moda did not meet the significant test requirements and thus is not included in the pro forma presentation above.

Definite Lived Intangible Asset Amortization

The Company recognized $1.0 million and $1.5 million of amortization expense, related to the acquired definite lived intangible assets in selling, general and administrative expenses in the three and nine months ended September 30, 2015, respectively. The estimated amortization expense for each of the next five years is as follows (in thousands):

2015	$	2,911
2016		5,110
2017		4,848
2018		1,310
2019		138

Acquisition Related Expenses

The acquisitions are expected to enhance the overall product and service offering of the Company to its existing clients and customers as well as support anticipated growth opportunities. The Company recorded $2.2 million and $3.7 million in the three and nine months ended September 30, 2015, respectively, and $1.4 million and $1.5 million in the three and nine months ended September 30, 2014, respectively, of acquisition related costs in selling, general and administrative expenses in the statement of operations.