8-K/A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report: December 4, 2009 (November 17, 2009)
(Date of earliest event reported)

GSI COMMERCE, INC.

(Exact name of registrant as specified in its charter)

Delaware	0-16611	04-2958132
(State or other	(Commission File No.)	(IRS Employer
jurisdiction of incorporation)		Identification No.)

935 First Avenue, King of Prussia, PA 19406
(Address of principal executive offices and zip code)

(610) 491-7000
(Registrant’s telephone number, including area code)

Not Applicable
(Former name or former address, if changed since last report)

     Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Explanatory Note

     This amendment (this “Amendment”) to the Current Report on Form 8-K amends the Current Report on Form 8-K filed by GSI Commerce, Inc. (“GSI”) on November 18, 2009, which disclosed the completion, on November 17, 2009, of GSI’s acquisition of Retail Convergence, Inc., a Delaware corporation (“RCI”). This Amendment is filed solely to include the financial statements and pro forma financial information described in Item 9.01 below.

Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired

     (i) The audited consolidated balance sheets of RCI as of January 31, 2009 and February 2, 2008, and the related consolidated statements of operations, cash flows, and changes in stockholders’ deficit and redeemable convertible preferred stock for the fiscal year ended January 31, 2009 and for the fiscal periods from December 12, 2007 to February 2, 2008 and from February 4, 2007 to December 11, 2007 (predecessor basis) are included as Exhibit 99.2 to this report and incorporated by reference herein.

     (ii) The unaudited consolidated balance sheets of RCI as of October 31, 2009 and January 31, 2009 and the related consolidated statements of operations and cash flows for the fiscal periods ended October 31, 2009 and November 1, 2008 are included as Exhibit 99.3 to this report and incorporated by reference herein.

(b) Pro Forma Financial Information

     GSI’s unaudited pro forma combined balance sheet as of October 3, 2009 and pro forma combined statements of operations for the fiscal year ended January 3, 2009 and the nine-month period ended October 3, 2009 are included as Exhibit 99.4 to this report and incorporated by reference herein.

(d) Exhibits

Exhibit No.		Description
	23.1	Consent of Independent Auditor of RCI
	99.1*	Press Release issued by GSI Commerce, Inc. dated November 18, 2009.
	99.2	Audited Consolidated Financial Statements of RCI as of January 31, 2009 and February 2, 2008, for the fiscal year ended January 31, 2009 and for the fiscal periods from December 12, 2007 to February 2, 2008 and from February 4, 2007 through December 11, 2007 (predecessor basis).
	99.3	Unaudited Consolidated Financial Statements of RCI as of October 31, 2009 and January 31, 2009 and for the fiscal periods ended October 31, 2009 and November 1, 2008.
	99.4	Unaudited Pro Forma Combined Financial Information of GSI Commerce, Inc.

* Previously filed with GSI’s Current Report on Form 8-K as filed with the SEC on November 18, 2009, and hereby incorporated by reference herein.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

GSI COMMERCE, INC.
By:	/s/ Michael R. Conn
	Michael R. Conn
	Executive Vice President, Finance and Chief Financial Officer

Dated: December 4, 2009

EXHIBIT INDEX

Exhibit No.		Description
	23.1	Consent of Independent Auditor of RCI
	99.1*	Press Release issued by GSI Commerce, Inc. dated November 18, 2009.
	99.2	Audited Consolidated Financial Statements of RCI as of January 31, 2009 and February 2, 2008, for the fiscal year ended January 31, 2009 and for the fiscal periods from December 12, 2007 to February 2, 2008 and from February 4, 2007 through December 11, 2007 (predecessor basis).
	99.3	Unaudited Consolidated Financial Statements of RCI as of October 31, 2009 and January 31, 2009 and for the fiscal periods ended October 31, 2009 and November 1, 2008.
	99.4	Unaudited Pro Forma Combined Financial Information of GSI Commerce, Inc.
	23.1	Consent of Independent Auditor of RCI

* Previously filed with GSI’s Current Report on Form 8-K as filed with the SEC on November 18, 2009, and hereby incorporated by reference herein.

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-145921 and 333-163167) and Form S-8 (Nos. 333-49363, 333-122186, 333-54060, 333-54062, 333-53982, 333-65694, 333-109043, 333-132523, 333-132526, 333-152896, and 333-145923) of GSI Commerce Inc. of our report dated June 26, 2009 relating to the financial statements of Retail Convergence, Inc., which appears in this Current Report on Form 8-K/A of GSI Commerce Inc.

/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
December 4, 2009

EX-99.2

Exhibit 99.2

Retail Convergence, Inc.

Consolidated Financial Statements

Retail Convergence, Inc.
Index to Consolidated Financial Statements
For the Fiscal Year Ended January 31, 2009, the Fiscal Periods from December 12,
2007 to February 2, 2008 and from February 4, 2007 to December 11, 2007
(predecessor basis)

Page(s)

Report of Independent Auditors	1
Consolidated Financial Statements:
Consolidated Balance Sheets as of January 31, 2009 and February 2, 2008	2
Consolidated Statements of Operations for the Fiscal Year ended January 31, 2009 and for the Fiscal Periods from December 12, 2007 to February 2, 2008 and from February 4, 2007 through December 11, 2007 (predecessor basis)	3
Consolidated Statements of Cash Flows for the Fiscal Year ended January 31, 2009 and for the Fiscal Periods from December 12, 2007 to February 2, 2008 and From February 4, 2007 through December 11, 2007 (predecessor basis)	4
Consolidated Statements of Changes in Stockholders’ Deficit and Redeemable Convertible Preferred Stock for the Fiscal Year ended January 31, 2009 and for the Fiscal Periods from December 12, 2007 to February 2, 2008 and February 4, 2007 to December 11, 2007 (predecessor basis)	5
Notes to Consolidated Financial Statements	6–24

Report of Independent Auditors

To the Board of Directors and Stockholders of
Retail Convergence, Inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders’ deficit and redeemable convertible preferred stock and cash flows present fairly, in all material respects, the financial position of Retail Convergence, Inc. and its subsidiaries at January 31, 2009 and February 2, 2008, and the results of their operations and their cash flows for the fiscal year ended January 31, 2009 and the periods from December 12, 2007 to February 2, 2008 and February 4, 2007 to December 11, 2007 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
June 26, 2009

1

Retail Convergence, Inc.
Consolidated Balance Sheets
January 31, 2009, and February 2, 2008

	January 31, 2009			February 2, 2008
(in thousands, except share and per share amounts)	(successor basis)			(successor basis)
Assets
Current assets:
Cash and cash equivalents	$	7,114		$	8,194
Restricted cash		—			3,863
Accounts receivable, net		408			520
Inventories		8,109			8,108
Prepaid expenses and other current assets		1,129			359
Total current assets		16,760			21,044
Property and equipment, net		2,883			2,278
Other assets		516			—
Intangibles, net		3,088			4,831
Goodwill		6,231			6,231
Total assets	$	29,478		$	34,384
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	6,293		$	5,425
Accrued expenses		6,616			6,088
Deferred revenue		665			549
Short-term obligations under capital lease		64			10
Total current liabilities		13,638			12,072
Long-term obligations under capital lease		123			—
Total liabilities		13,761			12,072
Commitments and contingencies (Notes 12 and 14)
Redeemable convertible preferred stock
Series A, $0.001 par value; 12,500,000 shares authorized; 12,500,000 and 11,300,000 shares issued and outstanding (with liquidation preferences of $26,811 and $22,797) at January 31, 2009 and February 2, 2008, respectively		30,095			22,774
Stockholders’ Deficit:
Common stock $0.001 par value; 180,000,000 shares authorized; 15,628,906 and 0 shares issued and outstanding at January 31, 2009 and February 2, 2008, respectively		16			—
Shareholders’ Notes Receivable		(335	)		—
Accumulated deficit		(14,059	)		(462	)
Total stockholders’ deficit		(14,378	)		(462	)
Total liabilities, redeemable convertible preferred stock and stockholders’ deficit	$	29,478		$	34,384

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

2

Retail Convergence, Inc.
Consolidated Statements of Operations
For the Fiscal Year Ended January 31, 2009
and the Fiscal Periods from December 12, 2007 to February 2, 2008 and February 4,
2007 to December 11, 2007

				Fiscal Period			Fiscal Period
	Fiscal Year Ended			from December 12, 2007 to			from February 4, 2007 to
	January 31, 2009			February 2, 2008			December 11, 2007
(in thousands)	(sucessor basis)			(sucessor basis)			(predecessor basis)
Net sales	$	82,946		$	12,003		$	66,179
Operating expenses:
Cost of goods sold (exclusive of depreciation and amortization)		51,838			7,328			43,842
Merchandising and marketing		10,149			1,292			8,425
Fulfillment and customer service		11,618			1,601			9,872
General and administration		14,972			1,575			9,573
Depreciation and amortization		3,264			428			984
Acquisition costs		—			—			1,885
Total operating expenses		91,841			12,224			74,581
Loss from operations		(8,895	)		(221	)		(8,402	)
Unrealized gain on change in fair value of warrants		—			—			1,125
Interest income		163			19			63
Interest expense		(499	)		(63	)		(1,190	)
Loss before income taxes	$	(9,231	)	$	(265	)	$	(8,404	)
Income taxes		—			—			—
Net loss	$	(9,231	)	$	(265	)	$	(8,404	)

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

3

Retail Convergence, Inc.
Consolidated statements of Cash Flows
For the Fiscal Year Ended January 31, 2009
and the Fiscal Periods from December 12, 2007 to February 2, 2008 and February
4, 2007 to December 11, 2007

				Fiscal Period from			Fiscal Period from
	Fiscal Year Ended			December 12, 2007 to			February 4, 2007 to
	January 31, 2009			February 2, 2008			December 11, 2007
(in thousands)	(successor basis)			(successor basis)			(predecessor basis)
Cash flows provided by (used in) operating activities
Net loss	$	(9,231	)	$	(265	)	$	(8,404	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		1,521			162			984
Amortization expense		1,743			266			—
Change in valuation of preferred stock warrants		—			—			(1,125	)
Stock-based compensation expense		363			—			519
Amoritization of deferred financing costs		120			—			—
Loss on disposal of property and equipment		—			4			6
Change in assets and liabilities net of the effect of the acquisition of SmartBargains, Inc.
Accounts receivable		112			253			(340	)
Inventories		(1	)		2,441			4,558
Prepaid expenses and other current assets		(211	)		9			238
Accounts payable		868			(975	)		225
Accrued expenses		528			(858	)		2,673
Deferred revenue		116			(168	)		149
Net cash provided by (used in) operating activities		(4,072	)		869			(517	)
Cash flows provided by (used in) investing activities
Purchases of property and equipment		(1,912	)		(960	)		(753	)
Release (Deposit) of restricted cash		3,863			(3,863	)		—
Payment for purchase of SmartBargains, Inc. net of cash acquired		—			(9,774	)		—
Net cash provided by (used in) investing activities		1,951			(14,597	)		(753	)
Cash flows provided by financing activities
Net proceeds from issuance of Series A redeemable convertible preferred stock		1,400			21,928			—
Net proceeds from isssuance of short-term debt		—			—			5,390
Net decrease in cash overdraft		—			—			(1,513	)
Proceeds from exercise of stock options		—			—			3
Payments for shareholder notes receivable		(322	)		—			—
Payments under capital lease obligations		(37	)		(6	)		(33	)
Net cash provided by financing activities		1,041			21,922			3,847
Net increase/(decrease) in cash and cash equivalents		(1,080	)		8,194			2,577
Cash and cash equivalents at beginning of fiscal period		8,194			—			—
Cash and cash equivalents at end of fiscal period	$	7,114		$	8,194		$	2,577
Supplemental disclosure of cash flow information
Cash paid for interest	$	69		$	21		$	116
Cash paid for taxes		—			—			—
Non-cash investing and financing activities:
Accretion of preferred stock		4,726			197			10,608
Assets acquired under capital leases		214			—			—
Interest income on shareholders notes receivable		13			—			—
Issuance of preferred stock in exchange for guarantees on borrowings		1,195			—			—
Issuance of preferred stock in exchange for Merger consideration		—			649			—

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

4

Retail Convergence, Inc.
Statement of Changes in Stockholders’ Deficit and Redeemable Convertible Preferred Stock
For the Fiscal Year ended January 31, 2009, and for the Fiscal Periods from December 12, 2007 to February 2,
2008 and February 4, 2007 to December 11, 2007
(in thousands, except share and per share amounts)

	Redeemable Convertible						Class A						Class A			Additional									Total
	Preferred Stock						Common Stock						Common			Paid-in			Shareholder			Accumulated			Stockholders’
	Shares			$			Shares			$			Treasury Stock			Capital			Notes Receivable			Deficit			Deficit
Balance at February 3, 2007		107,072,465		$	158,451			18,714,769		$	187		$	(19	)	$	—					$	(161,147	)	$	(160,979	)
Stock-based compensation expense																	519									519
Exercise of stock options								12,445			—						3									3
Conversion of preferred stock to common stock		(10,203,035	)		(16,777	)		18,059,786			1,806			—			14,971									16,777
Accretion of redeemable convertible preferred stock		—			10,608									—			(10,608	)								(10,608	)
Net Loss																							(8,404	)		(8,404	)
Balance at December 11, 2007 (predecessor basis)		96,869,430		$	152,282			36,787,000		$	1,993		$	(19	)	$	4,885		$	—		$	(169,551	)	$	(162,692	)
Elimination of predecessor equity upon acquisition		(96,869,430	)		(152,282	)		(36,787,000	)		(1,993	)		19			(4,885	)					169,551			162,692
Issuance of Series A redeemable convertible preferred stock, net of issuance costs of $23		11,300,000			22,577																					—
Issuance of Common Stock								100			0						—									—
Cancellation of Common Stock								(100	)		(0	)					—									—
Accretion of redeemable convertible preferred stock dividends		—			197																		(197	)		(197	)
Net Loss																							(265	)		(265	)
Balance at February 2, 2008 (successor basis)		11,300,000		$	22,774			—			—		$	—		$	—		$	—		$	(462	)	$	(462	)
Issuance of Series A redeemable convertible preferred stock		700,000			1,400																					—
Issuance of Series A redeemable convertible preferred stock in exchange for a guarantee		500,000			1,195																					—
Issuance of Restricted Stock								15,625,000			16						(16	)		(322	)					(322	)
Interest on Shareholder Notes Receivable																	13			(13	)					—
Exercise of Stock Options								3,906			—						—									—
Stock Based Compensation Expense																	363									363
Accretion of redeemable convertible preferred stock dividends					1,419												(360	)					(1,059	)		(1,419	)
Accretion of redeemable convertible preferred stock to estimated redemption value					3,307																		(3,307	)		(3,307	)
Net Loss																							(9,231	)		(9,231	)
Balance at January 31, 2009 (successor basis)		12,500,000		$	30,095			15,628,906		$	16		$	—		$	—		$	(335	)	$	(14,059	)	$	(14,378	)

5

Retail Convergence, Inc.
Notes to Consolidated Financial Statements
January 31, 2009, and February 2, 2008
(in thousands, except share and per share amounts)

1.	Nature of the Business
	Retail Convergence, Inc. (“RCI” or the “Company”) was formed on October 31, 2007 and incorporated in Delaware for the purpose of acquiring SmartBargains, Inc. (“SB” or “Predecessor Company”) via a merger (“Merger” or the “Acquisition”). On December 12, 2007, the Merger was consummated and RCI acquired 100% of the outstanding stock and ownership interests of SmartBargains, Inc. (Note 4 — Acquisition of SmartBargains, Inc.).
	The consolidated financial statements present the Company as of January 31, 2009 and February 2, 2008 and the periods December 12, 2007 to February 2, 2008 and the fiscal year end January 31, 2009 (successor basis reflecting the RCI acquisition of SB), and the period February 4, 2007 to December 11, 2007 (predecessor basis). In accordance with the requirements of purchase accounting, the assets and liabilities of SB were adjusted to their estimated fair values and the resulting goodwill computed as of the acquisition date. The application of purchase accounting generally results in higher depreciation and amortization expense in future periods. Accordingly, and because of other effects of purchase accounting, the accompanying consolidated financial statements as of and for the period prior to December 11, 2007, are not comparable.
	The Company continues to operate SmartBargains, Inc. and to leverage its assets in launching new and innovative ecommerce websites. Its first new ecommerce initiative, RueLaLa.com, was developed in the Company’s initial operating period through February 2, 2008 and the quarter ending May 1, 2008 and officially launched on April 9, 2008. The following describes the Company’s current ecommerce website businesses:
	RueLaLa.com is an invitation-only, private sale site focused on fashion and home products. The private sale model provides consumers exclusive access to scheduled sales of upscale brands. Each private sale is brand-specific, lasts approximately two days and features current-season merchandise. Access to RueLaLa.com is by invitation only, driven primarily by user-generated membership (“www.RueLaLa.com”).
	SmartBargains.com is an online, off-price retailer serving the value conscious customer. SmartBargains.com provides an assortment of branded merchandise in categories such as home products, apparel, jewelry, and shoes. SmartBargains, Inc. was incorporated on February 29, 2000 and launched its website on April 15, 2000 (“www.smartbargains.com”).
	At January 31, 2009, the Company had cash and cash equivalents of $7.1 million. Management believes that its cash and cash equivalents will be sufficient to meet the Company’s obligations as they become due for the foreseeable future and at least through January 31, 2010. Management also believes that, should revenue not achieve expected

6

Retail Convergence, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)

	levels during the next fiscal year, it has the ability and intent to reduce expenses in order to meet the Company’s obligations.
	The Company is subject to a number of risks similar to other companies in the industry, including but not limited to, rapid technological change, competition from substitute products and larger companies, protection of proprietary technology, dependence on third parties and dependence on key individuals. Adverse affects arising from any of these situations could have a significant impact on the Company’s operations.
2.	Summary of Significant Accounting Policies
	Basis of Presentation and Consolidation
	The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, SmartBargains, Inc., SmartBargains Security Corporation, SB.com, Inc., and Retail Convergence.com, LP (formerly known as SmartBargains.com, LP). All intercompany transactions and balances have been eliminated.
	Fiscal Year
	The Company’s fiscal year-end is either January 31 or the closest Saturday prior to or subsequent to January 31. For the period from February 4, 2007 through December 11, 2007, the results of operations and statement of cash flows are on a predecessor basis. As RCI had no operations prior to the acquisition of SmartBargains, Inc., the results of operations for the fiscal period ending February 2, 2008 reflect the period from the completion of the merger to the fiscal year end, which period was 53 days from December 12, 2007 to February 2, 2008. The results of operations for the fiscal year ended January 31, 2009 (fiscal 2008) reflect a full fiscal year of operations.
	Use of Estimates
	The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
	Cash and Cash Equivalents
	The Company considers all highly liquid investments with an original maturity of 90 days or less at the date of purchase to be cash equivalents. Cash equivalents are stated at cost plus accrued interest, which approximates fair value. Cash equivalents of $6,964 and $7,939 at January 31, 2009 and February 2, 2008, respectively, consisted of money market investments. The Company had no amounts classified as short-term investments at January 31, 2009.

7

Retail Convergence, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, which include cash equivalents, accounts receivable, accounts payable, accrued expenses and capital lease obligations, approximate their fair values due to their short-term maturities.

Concentration of Credit Risk and Significant Customers

Financial instruments, which potentially expose the Company to concentrations of credit risk, consist primarily of cash and accounts receivable. Cash and cash equivalents are deposited with financial institutions which the Company believes to be of high credit quality. Such amounts were in excess of federally insured limits as of January 31, 2009. However, the Company does not believe that it is subject to any unusual financial credit risk related to cash and cash equivalents beyond the normal risk associated with commercial banking relationships. The Company primarily sells to customers that reside in the United States. The Company had no significant customers in either the fiscal year ended January 31, 2009, the fiscal period ended February 2, 2008, or the fiscal period from February 4, 2007 to December 11, 2007. To minimize accounts receivable risk, credit card authorizations are obtained prior to the shipment of product to customers.

Inventories

Inventories, which consist primarily of finished good merchandise purchased for resale, are stated at the lower of cost or market. Cost is determined using the weighted average cost method. The Company evaluates inventory levels and expected sales of inventory on a periodic basis and records adjustments to reduce inventory to net realizable value, as necessary.

Property and Equipment

Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to income. Repairs and maintenance costs are expensed as incurred. Certain equipment held under capital leases is classified as property and equipment and amortized using the straight-line method over the lease terms and the related lease obligations are recorded as liabilities.

The Company expenses all costs incurred that relate to the planning and post implementation phases of development for website development and other internally developed software. Costs incurred related to website development and other internally developed software in the development phase are capitalized and then amortized over a period of eighteen months to three years, depending upon the estimated life of the asset, beginning on the date the software was placed in service. Costs associated with repair or

8

Retail Convergence, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)

maintenance of the existing website or the development of website content is included in general and administration expenses in the consolidated statement of operations.

Goodwill and Intangibles

Acquired intangible assets are initially recorded at their estimated fair value and amortized over their estimated useful life using a weighted average method.

Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets of the businesses the Company acquired. The Company performs an annual impairment test of its goodwill unless interim indicators of impairment exist. There was no impairment loss recorded in the fiscal year ended January 31, 2009 or the fiscal period ended February 2, 2008.

Long-Lived Assets

The Company periodically evaluates the recoverability of its long-lived assets, including its intangible assets, when circumstances indicate that an event of impairment may have occurred. The Company recognizes an impairment loss only if the carrying amount of a long-lived asset group is not recoverable based on its undiscounted future cash flows. If impairment is indicated, the asset group is written down to the estimated fair values of all long-lived assets within the group utilizing a discounted cash flow analysis. There were no impairment charges recorded in the fiscal year ended January 31, 2009 or the fiscal period ended February 2, 2008.

Stock-Based Compensation

The Company recognizes stock compensation expense based upon the awards estimated fair value at the date of grant. Compensation cost is recognized for awards expected to vest. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results differ from estimates, such amounts will be recorded as an adjustment in the period estimates are revised. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class and historical experience. Actual results may differ substantially from these estimates. The Company uses the straight-line attribution method in recognizing stock-based compensation expense for awards that vest based on service conditions.

For awards that vest based upon the achievement of performance criteria, the Company is required to assess the likelihood that the awards will ultimately vest at the end of each reporting period. Compensation expense for awards with performance based vesting is recognized using the graded-vesting attribution method. The Company began to issue both stock options and restricted stock during the fiscal year ended January 31, 2009 (Note 9 — Common Stock and Stock Award Plans). No stock options or restricted stock were granted during the period ended February 2, 2008, and thus no compensation was recorded

9

Retail Convergence, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)

during that period. No stock options or restricted stock were granted during the fiscal period ended December 11, 2007.

The fair value of stock options granted during the fiscal year ended January 31, 2009 was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:

	Fiscal Year Ended
	January 31, 2009
Expected Volatility	77.30%
Risk Free Interest Rate	2.75% - 3.41%
Expected Life (years)	5.6 - 6.1
Expected Dividend Yield	0%

Expected Volatility: The volatility factor is based on the historical volatility of publicly traded peer companies with operations similar to the Company’s operations over a period similar to the expected term of the option grants.

Expected Term: The Company estimates expected term using the “simplified method”. The Company will continue to use the simplified method in developing the expected term used for its valuation of stock-based compensation until such a time that sufficient historical exercise and forfeiture activity is available.

Expected Dividend: The Company has not paid any dividends and does not anticipate paying dividends in the foreseeable future.

Risk-Free Interest Rate: The Company bases the risk-free interest rate used on the implied yield currently available on U.S. Treasury zero-coupon issues with remaining term equivalent to the expected term of the options.

Freestanding Preferred Stock Warrants

The Company accounted for freestanding preferred stock warrants, which are exercisable into redeemable securities, as a liability on the consolidated balance sheet. The warrants were subject to remeasurement of their fair values each balance sheet date and any change in fair value was recognized in the consolidated statement of operations. As a result of the purchase of SB by RCI, all freestanding preferred stock warrants outstanding were cancelled effective December 11, 2007. The Company recorded income of $1,125 for the fiscal period ended December 11, 2007 to reflect the decrease in fair value of these warrants as a result of their cancellation.

Revenue Recognition

For the fiscal year ended January 31, 2009, the Company derived its revenue primarily through the sale of goods to customers through its websites, www.smartbargains.com and

10

Retail Convergence, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)

www.RueLaLa.com, which was launched on April 9, 2008. For the fiscal periods ended February 2, 2008 and December 11, 2007, revenues were derived primarily through www.smartbargains.com. Net sales include shipping and handling costs billed to customers and is reduced for promotional discounts, provisions for expected returns and credit card chargebacks, and excludes sales tax. Revenue is recognized when all the following criteria are met:

• A customer executes an order;

• The product price and the shipping and handling fee have been determined;

• Credit card authorization has occurred and collection is reasonably assured; and

• The product has been shipped and received by the customer.

The Company evaluates each type of transaction to determine whether it should be recorded based upon the gross amount of product sales and related costs of goods sold or the net amount earned as commissions from the product supplier. When the Company is primarily obligated in a transaction, is subject to inventory risk, has latitude in establishing prices and selecting suppliers, or has several but not all of these indicators, revenue is recorded on a gross basis. If the Company is not primarily obligated and amounts earned are determined using a fixed percentage, a fixed amount, or a combination of the two, revenue is recorded on a net basis as the commission is earned. Sales of product that are recorded on a net basis are generally shipped directly to the Company’s customers by the vendor or manufacturer and are not fulfilled from the Company’s warehouse.

Cash received for product that has been shipped but not yet received by the customer are recorded as deferred revenue. Additionally, cash received in advance for SmartShoppers Club membership fees are recorded as deferred revenue and recognized ratably over the membership period. The Company also offers a stored value card. The Company records a liability upon the sale of the card and revenue is recognized when the card is used.

The Company generally permits customers to return products for any reason within 30 days of purchase. The Company performs credit card authorizations and checks the verifications of its customers prior to shipment of merchandise. Accordingly, net sales reflect an adjustment for estimated future returns based primarily on historical experience.

Accounts receivable is presented on the consolidated balance sheet net of the allowance for doubtful accounts. The allowance for doubtful accounts was $1 and $7 as of January 31, 2009 and February 2, 2008, respectively.

Cost of Goods Sold (exclusive of depreciation and amortization)

Cost of goods sold consists of the cost of merchandise, inbound and outbound shipping costs and any adjustments to write down merchandise inventory to net realizable value.

Merchandising and Marketing

11

Retail Convergence, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)

	Merchandising expenses are comprised primarily of salaries and benefits and expenses incurred by the Company’s merchandising and buying operations.
	Marketing expenses are comprised primarily of advertising costs and salaries and benefits for the marketing function. The costs associated with advertising are expensed as incurred and there were no amounts capitalized at January 31, 2009 or February 2, 2008. Advertising expenses for the fiscal year ended January 31, 2009 and the fiscal period ended February 2, 2008 were $5,621 and $740, respectively. Advertising expenses for the fiscal period ended December 11, 2007 were $4,950.
	Fulfillment and Customer Service
	The Company utilizes a third party to perform all order fulfillment activities including receiving labor, warehousing, picking labor, packaging, and returns processing. Fulfillment and customer service also includes credit card fees and internal personnel dedicated to these functions. Handling costs that are included in fulfillment and customer service expenses were $2,800 and $430 for the fiscal year ended January 31, 2009 and for the fiscal period ended February 2, 2008, respectively. Handling costs that are included in fulfillment and customer service expenses were $2,400 for the fiscal period ended December 11, 2007.
	Acquisition Costs
	Acquisition costs consists of fees paid by the predecessor company to facilitate the sale of SmartBargains, Inc. and subsidiaries and consisted primarily of legal and investment banking fees.
	Income Taxes
	Deferred taxes are determined based on the difference between the financial statement income and taxable income multiplied by the enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are provided, if, based upon available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
	Reclassifications
	The Company has reclassified changes in restricted cash from financing activities to investing activities in the consolidated statements of cash flows.
3.	Restricted Cash
	As required by SmartBargains, Inc.’s previous lender (Note 7 — Loan Agreement), in order to transition accounts to a new credit facility following the Acquisition, the Company had restricted cash for use as collateral against letters of credit and outstanding checks in the

12

Retail Convergence, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)

amount of $3,863 as of February 2, 2008. The restriction was subsequently released on March 13, 2008 when the transition to a new bank relationship was completed. On November 18, 2008, the Company entered into a new loan agreement that no longer requires cash collateral to be used against the Company’s letters of credit (Note 7 — Loan Agreement). Therefore, there is no restricted cash as of January 31, 2009.

4.	Acquisition of SmartBargains, Inc.
	On December 12, 2007, the Company, via a Merger transaction, acquired all the issued and outstanding stock of SmartBargains, Inc. for $11,115. The Merger consideration consisted of $10,466 of cash and the issuance of $649 in value at $2.00 per share of Series A Redeemable Convertible Preferred Stock in lieu of cash to certain investors in SmartBargains, Inc. Additionally, the Company assumed $1,885 of SmartBargains, Inc. Merger related liabilities. As a result of the Merger, (i) the Company incurred transactional costs totaling $276; and (ii) became the parent corporation of SmartBargains, Inc. and its subsidiaries. This transaction was a taxable reverse subsidiary merger treated as a stock purchase. Goodwill is not tax deductible for income tax purposes.
	The following table summarizes the fair value of the assets acquired and liabilities assumed at the date of Acquisition:

	December 12, 2007
Cash	$	2,577
Current Assets		1,141
Inventories, net		10,549
Property and equipment, net		1,484
Intangibles		5,097
Goodwill		6,231
Total Assets Acquired	$	27,079
Current liabilities		15,688
Total Liabilities Assumed		15,688
Total Purchase price including acquisition costs	$	11,391

The $5,097 of acquired intangible assets is attributed to the acquired customer relationships and amortized on a weighted average basis over a seven year useful life. The useful life is determined based upon the historical productivity of the customer file and is heavily weighted in the early periods. The asset will be amortized on the following schedule for each annual period since its acquisition: 36%; 24%; 17%; 11%; 7%; 4%; and 1%. Amortization for the fiscal year ended January 31, 2009 and the period ended February 2, 2008 was $1,743 and $266, respectively.

13

Retail Convergence, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)

5.	Property and Equipment
	Property and equipment, net consisted of the following:

	Estimated Useful	January 31,			February 2,
Asset Class	Life	2009			2008
Computer hardware and purchased software	3 - 5 years	$	941		$	642
Furniture, fixtures, and leasehold improvements	5 years		588			216
Website and internally developed software	1.5 - 3 years		2,600			1,566
Equipment under capital lease	3 years		214			16
			4,343			2,440
Less: Accumulated depreciation			(1,460	)		(162	)
Property and equipment, net		$	2,883		$	2,278

	During the fiscal year ended January 31, 2009 and the fiscal period ended February 2, 2008, the Company disposed of assets totaling $223 and $625 that were no longer being utilized. Substantially all of these assets were fully depreciated, resulting in a loss upon disposal of $0 and $4 for the fiscal year ended January 31, 2009 and the fiscal period ended February 2, 2008, respectively. During the fiscal period ending December 11, 2007, the predecessor Company disposed of assets totaling $438, resulting in a loss on disposal of $15.
	Accumulated depreciation for capitalized website development was $768 and $49 as of January 31, 2009 and February 2, 2008, respectively. Accumulated depreciation for equipment under capital lease was $50 and $5 as of January 31, 2009 and February 2, 2008, respectively.
6.	Accrued Expenses
	Accrued expenses consisted of the following:

	January 31, 2009		February 2, 2008
Marketing	$	508	$	575
Fulfillment and Freight		866		1,017
Taxes other than income and payroll		2,542		2,021
Accrued professional services		452		791
Employee compensation, related tax and benefits		494		468
Sales returns reserve		543		284
Accrued vendor payments		909		307
Other		302		625
Accrued expenses	$	6,616	$	6,088

7. Loan Agreement

14

Retail Convergence, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)

On December 12, 2007, the Company terminated the SmartBargains, Inc. $20,000 credit facility with Wells Fargo Retail Finance, LLC (“Wells Fargo”).

On January 17, 2008, the Company entered into a Loan Agreement with Bank of America, N.A. (“Bank of America”) for the purpose of providing the Company the ability to issue standby letters of credit up to an aggregate amount of $4,000. This facility was cash collateralized to the extent of the value of the outstanding standby letters of credit and was to expire on June 30, 2009. The Company incurred a non-refundable fee in the amount of 1.5% per annum of the outstanding undrawn amount of each standby letter of credit. The Company had an outstanding standby letter of credit under the agreement in the amount of $1,851 at February 2, 2008. This loan agreement was subsequently cancelled on November 18, 2008, upon the Company entering into a new loan agreement, as discussed below.

On March 13, 2008, the Company completed the transition of all outstanding letters of credit and accounts from Wells Fargo to Bank of America. With this transition, the related restricted cash of $2,012 was released and the funds were transferred to Bank of America for use by the Company.

On November 18, 2008, the Company entered into a new loan agreement with Bank of America to replace the existing agreement. Under this new agreement, the Company has the ability to issue standby letters of credit up to an aggregate amount of $6,000 without cash collateral. The Company incurs a non-refundable fee in the amount of 1.5% per annum of the outstanding undrawn amount of each standby letter of credit. After the issuance of any standby letters of credit, any remaining portion of the $6,000 may be used as a revolving line of credit by the Company, up to a maximum of $2,000. Interest on each advance will bear interest at an annual rate equal to the bank’s prime interest rate plus fifty basis points (0.5%). As of January 31, 2009, the Company had not taken any advances under this line of credit. This loan agreement is collateralized by substantially all of the Company’s assets and has been guaranteed by certain of the Company’s preferred shareholders. The agreement expires on November 18, 2010. As of January 31, 2009, the Company had outstanding standby letters of credit in the amount of $3,650.

The Company is required to meet certain quarterly thresholds of tangible net worth and unencumbered liquid assets as well as a minimum annual EBITDA covenant under the borrowing agreement. As of January 31, 2009 the Company is in compliance with all covenants under the agreement.

On November 18, 2008, as part of this new loan agreement, certain preferred shareholders and related parties (Note 11 — Related Parties) were issued an additional 500,000 shares of Series A Redeemable Convertible Preferred Stock in exchange for guaranteeing borrowings under this loan. The Company has recognized deferred financing costs for the fair value of the stock issuance, which was estimated to be $2.39 per share, or $1,195 on the date of issuance. These deferred financing costs will be amortized to interest expense

15

Retail Convergence, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)

over the two-year term of the loan guarantee period. The Company recorded $120 of interest expense related to the amortization of these deferred financing costs during the fiscal year ended January 31, 2009.

8.	Redeemable Convertible Preferred Stock
	The Company was formed on October 31, 2007 and issued 100 shares of its common stock. In December 2007, in connection with the Merger, the Company amended and restated its Certificate of Incorporation by authorizing a total of 170,000,000 shares of common stock and authorizing a total of 11,500,000 shares of preferred stock, of which 11,500,000 shares were designated as Series A Redeemable Convertible Preferred Stock. The original 100 shares of common stock were cancelled effective as of the date of the completion of the Merger.
	In January 2008, the Company further amended its Restated Certificate of Incorporation to provide for an increase in the number of authorized shares of common stock from 170,000,000 to 180,000,000 shares and an increase in the number of authorized shares of preferred stock from 11,500,000 to 12,500,000 shares, of which 12,500,000 shares were designated as Series A Redeemable Convertible Preferred Stock.
	Preferred Stock Financing
	Between inception and February 2, 2008, the Company issued an aggregate of 10,975,439 shares of Series A Redeemable Convertible Preferred Stock at a price of $2.00 per share for total gross proceeds of $21,951. As a result of the Acquisition (Note 4 — Acquisition of SmartBargains, Inc.) an additional 324,561 shares were issued to existing shareholders of SmartBargains, Inc. for a total of $649 as consideration for the purchase in lieu of cash.
	On February 27, 2008, the Company issued an additional 700,000 shares of Series A Redeemable Convertible Preferred Stock at a price of $2.00 per share for total gross proceeds of $1,400.
	On November 18, 2008, the Company issued an additional 500,000 shares of Series A Redeemable Convertible Preferred Stock to certain existing preferred shareholders in exchange for guaranteeing borrowings under the Company’s new Loan Agreement (Note 7 — Loan Agreement).
	Terms of Series A Redeemable Convertible Preferred Stock
	Voting
	The holders of the Series A Redeemable Convertible Preferred Stock are entitled to vote, together with the holders of common stock, on all matters submitted to stockholders for a vote. Each preferred stockholder is entitled to the number of votes equal to the number of shares of common stock into which each preferred share is convertible at the time of such

16

Retail Convergence, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)

vote. The holders of the redeemable convertible preferred stock are also entitled to vote as a separate class on certain matters set forth in the Company’s Restated Certificate of Incorporation, as amended, and as otherwise required by applicable law.

Dividends

The holders of the Series A Redeemable Convertible Preferred Stock are entitled to receive, out of funds legally available, a cumulative annual dividend when and as they may be declared by the Company’s Board of Directors accruing at a rate of 6% per annum, compounded quarterly. The dividends shall accrue whether or not earned or declared. No dividends shall be made with respect to the common stock (other than dividends on shares of common stock payable in shares of common stock), until any and all dividends on the preferred stock have been paid. No dividends have been declared or paid by the Company during the fiscal year ended January 31, 2009 or the fiscal period ended February 2, 2008. Dividends in arrears on the preferred stock through January 31, 2009 and February 2, 2008 totaled $1,616 and $197, respectively and have been accreted through a charge to additional paid in capital, if available, or accumulated deficit.

Liquidation Preference

In the event of any liquidation, dissolution, or winding-up of the affairs of the Company, including certain change of control transactions, the holders of the then outstanding Series A Redeemable Convertible Preferred Stock, before any payment is made to the holders of common stock, shall receive for each share an amount equal to the sum of the original purchase price (as adjusted for stock dividends, stock splits or other similar recapitalization) plus all dividends accrued but unpaid, whether declared or not.

Conversion

Each share of Series A Redeemable Convertible Preferred Stock is convertible, at the option of the holder thereof, at any time and from time to time, into a number of fully paid shares of common stock as determined by dividing the respective preferred stock issue price by the conversion price in effect at the time (the “Conversion Right”). As of both January 31, 2009 and February 2, 2008, the conversion price for this preferred stock was $0.20. Conversion is mandatory and automatic immediately upon the closing of an underwritten public offering in which the public offering price equals or exceeds $1.00 per share and the aggregate proceeds raised are at least $20,000. Conversion may also occur upon the vote or written consent from holders of a majority of the outstanding shares of this preferred stock. In the event of any liquidation, dissolution, or winding-up of the affairs of the Company, including certain change of control transactions, the Conversion Right, if not previously exercised, terminates at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holder of this preferred stock.

Redemption

The holders of at least a majority of the outstanding Series A Redeemable Convertible Preferred Stock may, by written request delivered after December 12, 2012, require the Company to redeem this preferred stock pro rata in three annual installments, beginning on

17

Retail Convergence, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)

the date seventy-five days subsequent to receipt of the written request, for a price equal to the greater of (i) the original purchase price and all dividends accrued but unpaid, whether declared or not, and (ii) the fair market value of the preferred stock. If the Company does not have sufficient funds legally available to redeem all shares of preferred stock to be redeemed at the respective redemption date, then the Company shall redeem a pro-rata portion of each holders redeemable shares out of funds then legally available, and shall redeem the remaining shares to have been redeemed as soon as practicable after the Company has funds legally available.

The carrying value of preferred stock is increased to the greater of its estimated fair market value or liquidation amount as of January 31, 2009 and February 2, 2008, respectively to reflect the estimated amount at which the preferred stock is redeemable. These increases are recorded through charges against additional paid-in-capital, if available, or accumulated deficit. The Company’s required redemption amount would be not less than $36,039, which would be payable in three annual installments no sooner than February 2013, 2014, and 2015.

9.	Common Stock and Stock Award Plans
	Common Stock
	Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Company’s Board of Directors, subject to the prior rights of holders of the Series A Redeemable Convertible Preferred Stock. At January 31, 2009 and February 2, 2008 the Company had authorized 180,000,000 shares of its common stock for issuance, of which 15,628,906 and 0 were issued and outstanding, respectively.
	Stock Incentive Plan
	In March 2008, the Company adopted the 2008 Stock Incentive Plan (the “Plan”), under which the Company may grant incentive stock options, nonqualified stock options, restricted stock, or other stock based awards. Incentive stock options may only be granted to employees. Options granted to employees typically vest 25% after the first anniversary of grant and then quarterly thereafter over a total of four years, with a maximum term of ten years. Under the Plan, 31,250,000 shares of common stock are reserved for issuance.
	In March 2000, the Predecessor Company adopted the 2000 Employee, Director and Consultant Stock Option Plan (the “2000 Stock Plan”), which has since been amended and restated, under which the Predecessor Company was enabled to grant incentive stock options, nonqualified stock options, restricted stock, or other stock based awards. On December 11, 2007, the Predecessor Company terminated this plan, cancelling all issued and outstanding options.

18

Retail Convergence, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)

Stock Options

On March 6, 2008, May 15, 2008, and September 17, 2008, the Company issued an aggregate of 11,515,625 stock options under the Plan to employees and non-employees as option grants. For employees with two or more years of service as of December 12, 2007, 25% of the option grants vested upon the date of grant, 25% vested on December 12, 2008, and the remainder vest over the subsequent three years. For employees with less than two years of service as of December 12, 2007, 25% of the option grants vested on December 12, 2008, and the remainder vest over the subsequent three years. For all other employees, the options vest over a four year period and provide for a vesting start date as of the date of hire. For non-employees, the options vest over a four year period and provide for a vesting start date as of the date of grant.

A summary of stock option activity under the Plan for the year ended January 31, 2009 is as follows:

						Weighted-
						Average
				Weighted-		Remaining
	Number of			Average		Contractual Term
	Shares			Exercise Price		(in years)
February 2, 2008		—
Granted		11,515,625		$	0.05
Cancelled		(1,914,063	)	$	0.05
Exercised		(3,906	)	$	0.05
Oustanding at January 31, 2009		9,597,656		$	0.05		9.15
Exerciseable at January 31, 2009		3,332,008		$	0.05		9.10
Vested and Expected to Vest at January 31, 2009		8,408,039		$	0.05		9.15

The weighted average grant date fair value of options granted to employees was $0.03 per share for the year ended January 31, 2009. No options or awards were granted during the fiscal period ended February 2, 2008 or December 11, 2007.

Total unrecognized compensation costs related to unvested stock option awards was $178 as of January 31, 2009 This cost is expected to be recognized over a weighted average period of 2.8 years. The aggregate intrinsic value of stock options exercised during the year ended January 31, 2009 was not material.

Stock compensation expense related to non- employees was not material for all periods presented.

Restricted Stock

19

Retail Convergence, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)

On March 6, 2008, the Company issued 14,062,500 shares of restricted stock under the Plan to employees, which vest over a period of three years based upon the employees’ continued service. An additional 1,562,500 shares of restricted stock with performance conditions were issued on that date but did not vest during the year ended January 31, 2009, and thus no compensation expense related to these shares was recorded during that period. Subsequent to January 31, 2009, the Board of Directors approved a resolution allowing these shares to begin vesting as of March 4, 2009 over a three year period without performance conditions (Note 13 - Subsequent Events).

As part of these restricted stock grants, the Company loaned an aggregate amount of $322 to the employees, in the form of Promissory Notes, which bear interest at an annual rate of 4.27% compounded annually, and become due at the earlier of March 6, 2018, or an event whereby the employees receive consideration for their shares, as outlined in the agreement. Based upon the nature of these awards, the awards have been accounted for as stock options and measured at fair value using the Black-Scholes option pricing model. The Company recorded $13 of interest income related to these notes in the year ended January 31, 2009. Both the notes and the interest income have been recorded as part of stockholder’s equity.

At January 31, 2009, all of the restricted stock shares granted remained outstanding, and 5,625,000 restricted shares were vested. The shares granted had a weighted average grant date fair value of $0.04 per share. The total fair value of the vested restricted awards for the year ended January 31, 2009 was $900. At January 31, 2009, unrecognized compensation cost related to the restricted stock was $328 and is expected to be recognized over a weighted average period of 1.9 years.

As a result of the purchase of SB by RCI, all unvested options and awards outstanding under the predecessor plan were cancelled effective December 11, 2007. A total of $519 of compensation expense was recorded in the fiscal period ended December 11, 2007 to reflect the fair value of awards vested prior to cancellation.

10. Income Taxes

The following reconciles the U.S. federal statutory rate to the effective tax rate for each of the fiscal periods ending:

20

Retail Convergence, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)

	January 31,					February 2,					December 11,
	2009					2008					2007
Statutory rate	$	(3,139	)	(34.0	%)	$	(90	)	(34.0	%)		(2,858	)	(34.0	%)
State taxes, net		(631	)	(6.8	%)		502		189.5	%		65		0.8	%
Change in State Tax Rate		(28	)	(.3	%)		—		0.0	%		—		0.0	%
Other Permanent Differences		153		1.6	%		16		5.8	%		443		5.2	%
Effect of change in valuation allowance	$	3,645		39.5	%	$	(427	)	(161.3	%)		2,350		28.0	%
Total tax expense		—		0.0	%		—		0.0	%		—		0.0	%

The Company’s deferred tax assets consisted of the following:

	January 31,			February 2,
	2009			2008
Deferred tax assets
Net operating loss	$	6,519		$	4,183
Inventory		181			92
Accrual and reserves		807			61
Other		461			440
Total Assets		7,967			4,777
Deferred tax liabilities
Restricted Stock, 83b Election		(222	)		—
Intangibles		(1,270	)		(1,946	)
Net Deferred tax aset		6,476			2,831
Deferred tax asset valuation allowance		(6,476	)		(2,831	)
Net deferred tax asset/liabilitiy	$	—		$	—

As of January 31, 2009, the Company had U.S. federal net operating loss (“NOL”) carry forwards of approximately $17,278, which begin to expire in 2021. As of January 31, 2009, the Company had outstanding state net operating loss carry forwards of approximately $9,058, which are subject to expiration over the next 5 fiscal years. Management of the Company evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based on the cumulative losses of Retail Convergence, Inc., management has determined that it is more likely than not these deferred tax assets will not be realized and a full valuation allowance is deemed necessary. In the event that the Company is able to realize any deferred tax assets in the future, an adjustment to the valuation allowance would increase income in the period such determination is made.

The Company’s NOLs result from activity from inception to date, and from approximately $90,457 federal and $57,134 state carry forwards acquired from SmartBargains, Inc. at December 12, 2007. SmartBargains, Inc. was acquired by the Company (Note 4 — Acquisition of SmartBargains, Inc.) in a transaction treated as a stock purchase which has likely resulted in an ownership change for SmartBargains, Inc. In general, an ownership

21

Retail Convergence, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)

change as defined by Section 382 results from transactions increasing the ownership of certain shareholders or public groups in stock of a corporation by more than 50% over a three year period. The Company’s utilization of NOL and general business tax credit carry forwards may be subject to substantial annual limitations imposed by Section 382 of the IRC due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of NOL and general business tax credit carry forwards that can be utilized to offset future taxable income and tax, respectively. The NOL carry forwards and net deferred tax asset as of January 31, 2009 reflect an estimated limitation.

11.	Related Parties
	A board member, who is also a significant member of an LLC that is the Company’s largest investor (“the Investor”), is a direct family member of the Company’s chief executive officer. The Investor Rights Agreement between the Company and the stockholders of the Series A Redeemable Convertible Preferred Stock provides that any affiliated transaction between the Company or its subsidiaries and a director, officer or stockholder of the Company must be approved by either (i) a majority of disinterested directors of the Company, or (ii) a majority of the Preferred Stock held by investors not affiliated with such director, officer or investor. This provision would also cover any transaction involving either of these related parties.
	On January 23, 2008, the majority of the disinterested directors authorized the issuance of 1,500,000 shares of Series A Redeemable Convertible Preferred Stock (Note 8 — Redeemable Convertible Preferred Stock) to the Investor.
	On March 6, 2008, the majority of the disinterested directors authorized a restricted stock grant of 10,937,500 shares of common stock and an associated Promissory Note to the Company’s chief executive officer (Note 9 — Common Stock and Stock Award Plans).
	On November 18, 2008, the majority of the disinterested directors authorized the issuance of up to 201,502 shares of Series A Redeemable Convertible Preferred Stock associated with a guarantee of the Company’s loan agreement (Note 7 — Loan Agreement) to the Investor.
	No other transactions requiring an approval have occurred during the fiscal year ended January 31, 2009 or the fiscal period ended February 2, 2008 or the fiscal period ended December 11, 2007.
12.	Commitments and Contingencies
	The Company leases its office and website hosting space under non-cancelable operating leases. Total expense under these operating leases was $848 and $121 for the fiscal year ended January 31, 2009 and the fiscal period ended February 2, 2008, respectively. For the

22

Retail Convergence, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)

fiscal period ended December 11, 2007, total expense under these operating leases was $696.

Future minimum payments under non-cancelable operating and capital leases at January 31, 2009 are as follows:

	Operating Lease		Capital Lease
	Commitments		Commitments
2009	$	613	$	81
2010		169		83
2011		19		52
2012		8		—
2013		—		—
Total minimum payments	$	809	$	216
Less amount representing interest				(29	)
Less obligations due within one year				(64	)
Long-term obligations under capital lease			$	123

	The Company’s existing lease agreement for its office space terminates in August 2009. Subsequent to January 31, 2009 the Company entered into a new lease agreement (Note 14 — Subsequent Events).
	Pursuant to an agreement that the Company has with its third party fulfillment provider, the Company would incur cancellation fees under certain circumstances if this contract is terminated prior to June 1, 2010. At January 31, 2009 these cancellation fees would be $567, with such fees decreasing ratably each month through June 1, 2010.
	Pursuant to an agreement that the Company has with a third party payment processor, the Company would incur cancellation fees under certain circumstances if this contract is terminated prior to June 10, 2010. At January 31, 2009 these cancellation fees would be $220, with such fees decreasing each month through June 10, 2010.
	As of January 31, 2009 the Company had marketing purchase commitments in connection with email services and agency fees of $30 through April 30, 2009 and technology purchase commitments of $67 for technology services to be provided through January 31, 2010.
	In the ordinary course of business the Company is subject to periodic lawsuits, investigations and claims. Although the Company cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted, the Company does not believe that any currently pending legal proceedings to which it is a party will have a material adverse effect on the business, prospects, financial condition or results of operations.
13.	401(k) Savings Plan

23

Retail Convergence, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)

	The Company established a defined contribution savings plan under Section 401(k) of the Internal Revenue Code. This plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. Company contributions to the plan may be made at the discretion of the Board of Directors. During the fiscal year ended January 31, 2009 and the fiscal period ended February 2, 2008 there were no contributions made to the plan by the Company.
14.	Subsequent Events
	As of January 31, 2009, there were 1,562,500 shares of restricted stock with performance conditions outstanding that did not vest. On March 4, 2009, the Board of Directors approved a resolution allowing these shares to begin vesting as of that date. These shares will vest over the subsequent three years based upon the employee’s continued service without performance conditions.
	In March 2009, the Company entered into a new lease agreement for office space whereby the Company will move to a new location in Boston, Massachusetts. The Company anticipates occupying the new space by August 2009. The new lease will expire in February 2017. Upon signing of the agreement, the Company issued a $500 letter of credit under its loan agreement (Note 7 — Loan Agreement) as a security deposit for the new space. The future minimum lease payments under this new agreement for the next five fiscal years will be as follows:

	Minimum
	Lease
Fiscal Year	Commitment
2009	$	104
2010		1,252
2011		1,295
2012		1,453
2013		1,389
Thereafter		4,571
Total Minimum payments	$	10,064

24

EX-99.3

Exhibit 99.3

Retail Convergence, Inc.

Consolidated Financial Statements

Retail Convergence, Inc.
Index to Unaudited Consolidated Financial Statements
For the fiscal periods ended October 31, 2009 and November 1, 2008

	Page(s)
Unaudited Consolidated Financial Statements:
Consolidated Balance Sheets as of October 31, 2009 and January 31, 2009		2
Consolidated Statements of Operations for the fiscal periods ended October 31, 2009 and November 1, 2008		3
Consolidated Statements of Cash Flows for the fiscal periods ended October 31, 2009 and November 1, 2008		4
Notes to Unaudited Consolidated Financial Statements		5-10

Retail Convergence, Inc.
Unaudited Consolidated Balance Sheets
October 31, 2009, and January 31, 2009
(in thousands, except share and per share amounts)

	October 31, 2009			January 31, 2009
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	7,461		$	7,114
Accounts receivable, net		948			408
Inventories		14,796			8,109
Prepaid expenses and other current assets		2,311			1,129
Total current assets		25,516			16,760
Property and equipment, net		7,757			2,883
Other assets		34			516
Intangibles, net		2,170			3,088
Goodwill		6,231			6,231
Total assets	$	41,708		$	29,478
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	13,024		$	6,293
Accrued expenses		9,625			6,616
Short-term deferred rent liability		112			—
Deferred revenue		676			665
Short-term obligations under capital lease		71			64
Other current liabilities		2,303			—
Total current liabilities		25,811			13,638
Long-term deferred rent liability		3,271			—
Long-term obligations under capital lease		70			123
Total liabilities		29,152			13,761
Commitments and contingencies (Note 7)
Redeemable convertible preferred stock
Series A, $0.001 par value; 12,500,000 shares authorized; 12,500,000 shares issued and outstanding (with liquidation preferences of $28,021 and $26,818) at October 31, 2009 and and January 31, 2009, respectively		180,855			30,095
Stockholders’ Deficit:
Common stock $0.001 par value; 180,000,000 shares authorized; 15,700,520 and 15,628,906 shares issued and outstanding at October 31, 2009 and January 31, 2009, respectively		17			16
Shareholders’ Notes Receivable		(345	)		(335	)
Accumulated deficit		(167,971	)		(14,059	)
Total stockholders’ deficit		(168,299	)		(14,378	)
Total liabilities, redeemable convertible preferred stock and stockholders’ deficit	$	41,708		$	29,478

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

2

Retail Convergence, Inc.
Unaudited Consolidated Statements of Operations
For the Fiscal Periods Ended October 31, 2009 and November 1, 2008
(in thousands)

	Fiscal Period Ended			Fiscal Period Ended
	October 31, 2009			November 1, 2008
	(unaudited)
Net sales	$	93,368		$	53,647
Operating expenses:
Cost of goods sold (exclusive of depreciation and amortization)		57,537			33,216
Merchandising and marketing		8,983			7,511
Fulfillment and customer service		11,327			7,947
General and administration		14,392			10,684
Acquisition costs		968			—
Depreciation and amortization		2,916			2,395
Total operating expenses		96,123			61,753
Loss from operations		(2,755	)		(8,106	)
Interest income		29			141
Interest expense		(801	)		(260	)
Loss before income taxes	$	(3,527	)	$	(8,225	)
Income taxes		—			—
Net loss	$	(3,527	)	$	(8,225	)

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

3

Retail Convergence, Inc.
Unaudited Consolidated Statement of Cash Flows
For the fiscal periods ended October 31, 2009, and November 1, 2008
(in thousands, except share and per share amounts)

	Fiscal Period Ended			Fiscal Period Ended
	October 31, 2009			November 1, 2008
	(unaudited)
Cash flows provided by (used in) operating activities
Net loss	$	(3,527	)	$	(8,225	)
Adjustments to reconcile net loss for the period to net cash provided by (used in) operating activities:
Depreciation expense		1,997			1,023
Amortization expense		918			1,372
Stock-based compensation expense		363			203
Amoritization of deferred financing costs		486			—
Change in assets and liabilities
Accounts receivable		(540	)		(14	)
Inventories		(6,687	)		(4,536	)
Prepaid expenses and other current assets		(225	)		(258	)
Accounts payable		6,731			3,167
Accrued expenses		3,009			18
Deferred rent		2,422			—
Deferred revenue		11			99
Other current liabilities		2,303			—
Net cash provided by (used in) operating activities		7,261			(7,151	)
Cash flows used in investing activities
Purchases of property and equipment		(6,871	)		(1,558	)
Release of restricted cash		—			1,009
Net cash used in investing activities		(6,871	)		(549	)
Cash flows provided by (used in) financing activities
Net proceeds from issuance of Series A redeemable convertible preferred stock		—			1,400
Proceeds from exercise of stock options		3			—
Payments for shareholder notes receivable		—			(322	)
Payments under capital lease obligations		(46	)		(22	)
Net cash provided by (used in) financing activities		(43	)		1,056
Net increase/(decrease) in cash and cash equivalents		347			(6,644	)
Cash and cash equivalents at beginning of fiscal period		7,114			8,194
Cash and cash equivalents at end of fiscal period	$	7,461		$	1,550
Supplemental disclosure of cash flow information
Cash paid for interest		52			28
Cash paid for taxes		—			—
Non-cash Activities
Accretion of preferred stock		150,760			1,034
Assets acquired under capital lease		—			214
Leasehold improvement reimbursement receivable		961			—
Interest expense on shareholder notes receivable		10			9

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

4

Retail Convergence, Inc.
Notes to Unaudited Consolidated Financial Statements
October 31, 2009, and November 1, 2008
(in thousands, except share and per share amounts)

1.	Nature of the Business and Basis of Presentation and Consolidation
	Retail Convergence, Inc. (“RCI” or the “Company”) was formed on October 31, 2007 and incorporated in Delaware for the purpose of acquiring SmartBargains, Inc. (“SB”) via a merger (“Merger” or the “Acquisition”). On December 12, 2007, the Merger was consummated and RCI acquired 100% of the outstanding stock and ownership interests of SmartBargains, Inc.
	The Company continues to operate SmartBargains, Inc. and to leverage its assets in launching new and innovative ecommerce websites. Its first new ecommerce initiative, RueLaLa.com, was developed in the Company’s initial operating period through February 2, 2008 and the quarter ending May 1, 2008 and officially launched on April 9, 2008. The following describes the Company’s current ecommerce website businesses:
	RueLaLa.com is an invitation-only, private sale site focused on fashion and home products. The private sale model provides consumers exclusive access to scheduled sales of upscale brands. Each private sale is brand-specific, lasts approximately two days and features current-season merchandise. Access to RueLaLa.com is by invitation only, driven primarily by user-generated membership (“www.RueLaLa.com”).
	SmartBargains.com is an online, off-price retailer serving the value conscious customer. SmartBargains.com provides an assortment of branded merchandise in categories such as home products, apparel, jewelry, and shoes. SmartBargains, Inc. was incorporated on February 29, 2000 and launched its website on April 15, 2000 (“www.smartbargains.com”).
	The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, SmartBargains, Inc., SmartBargains Security Corporation, SB.com, Inc., and Retail Convergence.com, LP (formerly known as SmartBargains.com, LP). All intercompany transactions and balances have been eliminated.
	The balance sheet as of October 31, 2009 and the statements of operations and cash flows for the fiscal periods ended October 31, 2009 and November 1, 2008 have been presented without audit. In the opinion of the Company’s management, all adjustments (which include normal recurring adjustments) necessary for a fair presentation of financial position, results of operations and cash flows as of and for the periods ended October 31, 2009 and November 1, 2008 have been made.
	Fiscal Year
	The Company’s fiscal year-end is either January 31 or the closest Saturday prior to or subsequent to January 31. The results of operations for the fiscal period ending October 31, 2009 reflect the period from February 1, 2009 to October 31, 2009. The results of

5

Retail Convergence, Inc.
Unaudited Consolidated Statement of Cash Flows
For the fiscal periods ended October 31, 2009, and November 1, 2008
(in thousands, except share and per share amounts)

	operations for the fiscal period ending November 1, 2008 reflect the period from February 3, 2008 to November 1, 2008. The Company has evaluated subsequent events through December 4, 2009, and has no material subsequent event transactions to report other than those discussed in Note 8.
	The Company is subject to a number of risks similar to other companies in the industry, including but not limited to, rapid technological change, competition from substitute products and larger companies, protection of proprietary technology, dependence on third parties and dependence on key individuals. Adverse affects arising from any of these situations could have a significant impact on the Company’s operations.
	Acquisition Costs
	Acquisition Costs consists primarily of professional services fees incurred by the Company related principally to the sale of the Company to GSI Commerce, Inc. which was completed on November 17, 2009 (see Note 8).
2.	Inventories
	Inventories, which consist primarily of finished goods merchandise purchased for resale, are stated at the lower of cost or market. Cost is determined using the weighted average cost method. The Company evaluates inventory levels and expected sales of inventory on a periodic basis and records adjustments to reduce inventory to net realizable value, as necessary.
3.	Lease
	In March 2009, the Company entered into a lease for new office space in Boston, MA. The Company began occupying the new office space in August 2009 and the lease will expire in 2017. The first payment under the lease is required in January 2010. Additionally, as part of the lease agreement, the lessor agreed to reimburse the Company up to $2,691 for allowable tenant improvements (the “Tenant Improvement Allowance”). The Tenant Improvement Allowance has been recorded as a deferred rent liability in the accompanying balance sheet as of October 31, 2009. The deferred rent liability will be amortized on a straight line basis over the life of the lease as a reduction of rent expense.
4.	Loan Agreement
	On November 18, 2008, the Company entered into a credit agreement that allows it to issue standby letters of credit up to an aggregate amount of $6,000. After the issuance of any standby letters of credit, any remaining portion of the $6,000 may be used as a revolving line of credit by the Company up to $2,000. Each advance will bear interest at an annual rate equal to the bank’s prime rate plus fifty basis points (0.5%) As of October 31, 2009,

6

Retail Convergence, Inc.
Unaudited Consolidated Statement of Cash Flows
For the fiscal periods ended October 31, 2009, and November 1, 2008
(in thousands, except share and per share amounts)

	the Company had not taken any advances under the credit agreement. As of October 31, 2009 and January 31, 2009, the Company had $4,687 and $3,650 of outstanding standby letters of credit issued, respectively.
	The Company is required to meet certain quarterly thresholds of tangible net worth and unencumbered liquid assets as well as a minimum annual EBITDA covenant under the borrowing agreement. As of October 31, 2009, the Company was not in compliance with the tangible net worth covenant. As part of the acquisition by GSI Commerce Inc. on November 17, 2009, the credit agreement was terminated (see Note 8).
5.	Stock Award Plans
	Stock Options
	On March 6, 2008, May 15, 2008, and September 17, 2008, the Company issued an aggregate of 11,515,625 stock options under the 2008 Stock Incentive Plan (“the Plan”) to employees and non-employees as option grants. For employees with two or more years of service as of December 12, 2007, 25% of the option grants vested upon the date of grant, 25% vested on December 12, 2008, and the remainder vest over the subsequent three years. For employees with less than two years of service as of December 12, 2007, 25% of the option grants vested on December 12, 2008, and the remainder vest over the subsequent three years. For all other employees, the options vest over a four year period and provide for a vesting start date as of the date of hire. For non-employees, the options vest over a four year period and provide for a vesting start date as of the date of grant.
	A summary of stock option activity under the Plan for the fiscal period ended October 31, 2009 is as follows:

						Average
				Weighted-		Remaining
	Number of			Average		Contractual Term
	Shares			Exercise Price		(in years)
Outstanding at January 31, 2009		9,597,656
Granted		4,031,250		$	0.11
Cancelled		(869,792	)	$	0.05
Exercised		(71,614	)	$	0.05
Oustanding at October 31, 2009		12,687,500		$	0.07		8.75
Exercisable at October 31, 2009		4,872,007		$	0.05		8.39
Vested and Expected to Vest at October 31, 2009		11,268,762		$	0.07		8.75

7

Retail Convergence, Inc.
Unaudited Consolidated Statement of Cash Flows
For the fiscal periods ended October 31, 2009, and November 1, 2008
(in thousands, except share and per share amounts)

The weighted average grant date fair value of options granted to employees was $0.07 per share for the period ended October 31, 2009.

For the fiscal periods ended October 31, 2009 and November 1, 2008, the Company recognized stock-based compensation expense of $83 and $73, respectively related to options granted to employees. Total unrecognized compensation costs related to unvested stock option awards was $330 as of October 31, 2009 This cost is expected to be recognized over a weighted average period of 2.7 years. The aggregate intrinsic value of stock options exercised during the year ended October 31, 2009 was not material.

For the fiscal period ended October 31, 2009, the Company recognized stock-based compensation expense related to non-employees of $67. Stock compensation expense related to non-employees was not material for the fiscal period ended November 1,2008.

Restricted Stock

On March 6, 2008, the Company issued 14,062,500 shares of restricted stock under the Plan to employees, which vest over a period of three years based upon the employees’ continued service. An additional 1,562,500 shares of restricted stock with performance conditions were issued on that date but did not vest during the year ended January 31, 2009, and thus no compensation expense related to these shares was recorded during that period. Subsequent to January 31, 2009, the Board of Directors approved a resolution allowing these shares to begin vesting as of March 4, 2009 over a three year period without performance conditions. The incremental fair value of this award resulting from this modification (the “Modified Award”) is equal to the fair value of the Modified Award of $146, which will be recognized over the new vesting period.

The Company loaned an aggregate amount of $322 to the employees, in the form of non recourse Promissory Notes, which bear interest at an annual rate of 4.27% compounded annually, and become due at the earlier of March 6, 2018, or an event whereby the employees receive consideration for their shares, as outlined in the agreement. Based upon the nature of these awards, the awards have been accounted for as stock options and measured at fair value using the Black-Scholes option pricing model.

For the fiscal periods ended October 31, 2009 and November 1, 2008, total stock-based compensation expense related to restricted shares (including the Modified Award) was $213 and $130, respectively. At October 31, 2009, all of the restricted stock shares granted remained outstanding, and 9,843,750 restricted shares were vested. At October 31, 2009, unrecognized compensation cost related to the restricted stock was $265 and is expected to be recognized over a weighted average period of 1.5 years.

8

Retail Convergence, Inc.
Unaudited Consolidated Statement of Cash Flows
For the fiscal periods ended October 31, 2009, and November 1, 2008
(in thousands, except share and per share amounts)

6.	Redeemable Convertible Preferred Stock
	The carrying value of redeemable convertible preferred stock is recorded at the greater of its estimated fair market value or liquidation amount to reflect the estimated amount at which the preferred stock is redeemable. Increases in the estimated redemption value are recorded through charges against additional paid-in-capital, if available or accumulated deficit. The redemption value of the Redeemable Convertible Preferred stock as of October 31, 2009, was based upon the estimated value implied by GSI Commerce, Inc.’s acquisition of the Company on November 17, 2009 (See Note 8).
7.	Commitments and Contingencies
	The Company leases its office and website hosting space under non-cancelable operating leases. Total expense under these operating leases was $1,156 and $574 for the fiscal periods ended October 31, 2009 and November 1, 2008, respectively.
	Future minimum payments under non-cancelable operating and capital leases at October 31, 2009 are as follows:

	Operating Lease		Capital Lease
	Commitments		Commitments
2009	$	209	$	21
2010		1,571		83
2011		1,493		53
2012		1,486		—
2013		1,415		—
Total minimum payments	$	6,174	$	157
Less amount representing interest				(16	)
Less obligations due within one year				(71	)
Long-term obligations under capital lease			$	70

Pursuant to an agreement that the Company has with its third party fulfillment provider, the Company would incur cancellation fees under certain circumstances if this contract is terminated prior to June 1, 2010. At October 31, 2009 these cancellation fees would be $283, with such fees decreasing ratably each month through June 1, 2010.

Pursuant to an agreement that the Company has with a third party payment processor, the Company would incur cancellation fees under certain circumstances if this contract is terminated prior to June 10, 2010. At October 31, 2009 these cancellation fees would be $128, with such fees decreasing each month through June 10, 2010.

In the ordinary course of business the Company is subject to periodic lawsuits, investigations and claims. Although the Company cannot predict with certainty the

9

Retail Convergence, Inc.
Unaudited Consolidated Statement of Cash Flows
For the fiscal periods ended October 31, 2009, and November 1, 2008
(in thousands, except share and per share amounts)

	ultimate resolution of lawsuits, investigations and claims asserted, the Company does not believe that any currently pending legal proceedings to which it is a party will have a material adverse effect on the business, prospects, financial condition or results of operations.
8.	Subsequent Events
	On November 17, 2009, GSI Commerce, Inc. (“GSI”) completed its acquisition of the Company pursuant to an Agreement and Plan of Merger, dated as of October 27, 2009, by and among GSI, Cola Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of GSI (“Acquisition Sub”), the Company, and certain of the principal stockholders of RCI and a stockholders representative (the “Merger Agreement”). Under the terms of the Merger Agreement, Cola Acquisition Corporation merged with and into the Company, with the Company surviving as a subsidiary of GSI.
	Under the Merger Agreement, the stockholders and option holders of the Company were entitled to receive an initial payment of approximately $180.0 million, consisting of $90.0 million cash (less certain transaction expenses) and shares of GSI common stock with an aggregate value of approximately $90.0 million. The stockholders and employees of the Company will be eligible tor receive an earnout payable in cash and shares of GSI common stock for each of the 2010, 2011, and 2012 fiscal years with an aggregate value of up to $170.0 million if certain financial performance targets are achieved. As a result of the acquisition, the Company is obligated to pay a merger termination fee of up to 2% of the Merger Agreement consideration to an unrelated party.

10

EX-99.4

Exhibit 99.4

Unaudited Pro Forma Combined Financial Information

     GSI Commerce, Inc (the “Company”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Retail Convergence, Inc. (“RCI”) on October 27, 2009, and completed the acquisition on November 17, 2009 (“Acquisition Date”). The Company also completed the acquisition of e-Dialog, Inc. (“e-Dialog”) on February 13, 2008 and a registered public offering of the Company’s common stock (“Public Offering”) on August 18, 2009. The following unaudited pro forma combined financial statements are derived by applying pro forma adjustments to the Company’s historical consolidated financial statements incorporated by reference herein. The following unaudited pro forma combined financial statements for the fiscal year ended January 3, 2009 and the nine months ended October 3, 2009 assume the Company’s acquisitions of RCI and e-Dialog, and the Public Offering occurred on December 30, 2007, the first day of the Company’s fiscal 2008, and have been prepared to illustrate the effects of the following:

     Retail Convergence Acquisition:

     On November 17, 2009, the Company completed the acquisition of RCI. Under the terms of the Merger Agreement, Cola Acquisition Corporation, a wholly owned subsidiary of the Company, merged with and into RCI (the “Merger”), with RCI surviving as a subsidiary of the Company. At the effective time of the Merger, the Company acquired substantially all of the outstanding capital stock of RCI. The Company has the right to acquire the remaining capital stock of RCI on or after December 31, 2009.

     Under the Merger Agreement, the stockholders and optionholders of RCI were entitled to receive an initial payment of approximately $180.0 million, consisting of $90.0 million cash (less certain transaction expenses) and shares of the Company’s common stock (“GSI Stock”) with an aggregate value of approximately $90.0 million. Any stockholder or optionholder who held 0.2 million or fewer shares of RCI common stock (or vested options, in the case of an optionholder) received cash in lieu of shares of GSI Stock. The initial payment disclosed above includes the initial payment payable upon the Company’s acquisition of the remaining capital stock of RCI which may be acquired on or after December 31, 2009. The stockholders and employees of RCI will be eligible to receive an earnout payable in cash and shares of GSI Stock for each of the 2010, 2011 and 2012 fiscal years with an aggregate value of up to $170.0 million based upon RCI achieving minimum earnings before interest, taxes, depreciation, amortization, stock compensation and certain other adjustments (“Financial Performance Target”) for fiscal 2010, fiscal 2011 and fiscal 2012. The maximum earn-out payment for the fiscal 2010 Financial Performance Target is $40.0 million. The maximum earn-out payment for the fiscal 2011 Financial Performance Target is $95.0 million less any payments made for the 2010 Financial Performance Target, if any. The maximum earn-out payment for the fiscal 2012 Financial Performance Target is $170.0 million less any payments made for the 2010 and 2011 Financial Performance Targets, if any. Of the maximum earnout payment of $170.0 million, approximately $46.2 million is payable to RCI employees based on the same financial performance targets in 2010, 2011 and 2012 but receipt of these payments, to the extent paid, is contingent upon the employee’s continuing employment with RCI, subject to certain exceptions. These payments will be accounted for as compensation expense over the earn-out period to the extent the financial targets are achieved and the earn-out is paid and will not be included as consideration under the acquisition method of accounting.

     The accompanying unaudited pro forma combined financial statements give pro forma effect to the Company’s acquisition of RCI using the acquisition method of accounting assuming an estimated purchase price of approximately $246.4 million. The purchase price consists of cash of approximately $92.1 million, shares of GSI Stock valued at $93.2 million, or approximately 4.6 million shares at $20.38 per share, the Company’s closing stock price on the Acquisition Date, estimated payroll tax liability of $1.3 million being paid by the Company on the value of GSI Stock issued to certain RCI optionholders, and the estimated $59.8 million fair value of the earnout payments. This acquisition price includes cash of $2.6 million and shares of GSI Stock valued at $3.1 million, or approximately 0.2 million shares at $20.38, payable upon the Company’s acquisition of the remaining stock of RCI expected to be paid on December 31, 2009. Additionally the Company expects to incur approximately $1.7 million in transaction costs directly related to the acquisition that will be expensed as incurred.

     e-Dialog Acquisition:

     Pursuant to an Agreement and Plan of Merger dated as of January 23, 2008 among the Company, Dolphin Acquisition Corporation (“Dolphin”), a wholly-owned subsidiary of the Company, e-Dialog and the stockholders’ representative, Dolphin merged with e-Dialog and e-Dialog survived the merger as a wholly-owned subsidiary of the Company. The accompanying fiscal year ended January 3, 2009 unaudited pro forma combined statement of operations give pro forma effect to the Company’s acquisition of e-Dialog using the acquisition method of accounting with a

1

cash purchase price of approximately $150.8 million including acquisition costs of $1.7 million and an additional cash payment of $0.75 million in fiscal 2009 from e-Dialog achieving net revenue targets in fiscal 2008. In connection with the acquisition, the Company issued approximately $9.3 million of restricted common stock and restricted stock units to certain employees of e-Dialog based on the market price of GSI Stock on the closing date. Recipients are required to remain employed for specified periods of time subsequent to the acquisition for their restricted stock or restricted stock units to vest. The $9.3 million will be recognized as compensation expense, net of estimated forfeitures, over the required service period.

     Registered Public Offering:

     On August 18, 2009, the Company completed a registered public offering of GSI Stock consisting of approximately 5.4 million shares of GSI Stock sold by the Company and approximately 8.2 million shares of GSI Stock sold by selling stockholders (“Public Offering”). The Public Offering price was $17.00 per share and the Company received net proceeds from the sale of the common shares of $88.0 million after deducting underwriting discounts and commissions and offering expenses. The Company did not receive any proceeds from the sale of shares by the selling stockholders.

     Pursuant to the requirements of Article 11 of Regulation S-X, the unaudited pro forma combined balance sheet and combined statements of operations give effect to adjustments for transactions regardless of whether they have a continuing impact on the Company or are non-recurring, that are (1) directly attributable to the acquisition and are factually supportable, and (2) represent material events which have occurred after December 30, 2007 (the beginning of fiscal 2008) and had or will have a material effect on our historical financial statements and capital structure.

     The following unaudited pro forma combined financial statements were prepared using the historical consolidated financial statements of the Company and RCI, and should be read in conjunction with the:

• Financial statements of the Company as of and for the fiscal year ended January 3, 2009, included in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on August 4, 2009.

• Unaudited financial statements of the Company as of and for the nine months ended October 3, 2009 included in the Company’s Quarterly Report on Form 10-Q for the nine month period ended October 3, 2009 filed with the SEC on November 12, 2009.

• Financial statements of RCI as of and for the year ended January 31, 2009 included in this Current Report on Form 8-K/A.

• Unaudited financial statements of RCI as of and for the nine months ended October 31, 2009 included in this Current Report on Form 8-K/A.

     The pro forma adjustments related to the acquisition of RCI are preliminary and do not reflect the final purchase price or final allocation of the excess of the purchase price over the net book value of the net assets of RCI as the Company has yet to finalize its valuation of RCI’s net assets. Final adjustments could result in a materially different purchase price and/or allocations of the purchase price, which would affect the values assigned to tangible or intangible assets and the amount of depreciation and amortization expense recorded in the combined statements of operations. The effect of any changes to the pro forma combined statements of operations would depend on the final purchase price and the nature and amount of the final purchase price allocation and could be material.

     The pro forma financial statements do not reflect potential revenue opportunities and cost savings that the Company expects to realize after the acquisitions. No assurance can be given with respect to the estimated revenue opportunities and operating cost savings that are expected to be realized as a result of the acquisitions. The pro forma financial information also does not reflect pro forma adjustments for non-recurring charges related to integration activities or exit costs that may be incurred by the Company, RCI, or e-Dialog in connection with the acquisitions.

     The accompanying unaudited pro forma combined balance sheet assumes that the acquisition of RCI took place on October 3, 2009, the end of the Company’s fiscal third quarter, and combines the Company’s unaudited October 3, 2009 balance sheet with the unaudited balance sheet of RCI as of October 31, 2009, the end of RCI’s fiscal third quarter. The Company’s October 3, 2009 balance sheet includes the purchase accounting effects of e-Dialog, and the effects of the Public Offering which both occurred prior to October 3, 2009. Accordingly, no pro forma adjustments were made to the unaudited pro forma combined balance sheet related to the purchase accounting for the e-Dialog acquisition and effects of the Public Offering.

     The accompanying unaudited pro forma combined statement of operations for the Company’s fiscal year ended January 3, 2009 and the nine-months ended October 3, 2009 assume that acquisitions of RCI and e-Dialog, as well as the Public Offering took place on December 30, 2007, the first day of the Company’s fiscal 2008. The unaudited pro forma combined statement of operations for the fiscal year ended January 3, 2009 combines the Company’s audited consolidated statement of operations for the fiscal year ended January 3, 2009 with RCI’s audited consolidated statement of operations for the fiscal year ended January 31, 2009 and e-Dialog’s unaudited consolidated statement of operations for the six-weeks ended February 13, 2008.

2

     The unaudited pro forma combined statement of operations for the nine-months ended October 3, 2009 combines the Company’s unaudited consolidated statement of operations for the nine-months ended October 3, 2009 with RCI’s unaudited consolidated statement of operations for the nine-months ended October 31, 2009, and takes into effect an adjustment to the basic and diluted weighted average shares outstanding for the Public Offering for the period January 4, 2009 to August 18, 2009, as the Company’s statement of operations of the nine-months ended October 3, 2009 takes into effect the Public Offering from August 19, 2009 through October 3, 2009. Reclassifications have been made to the consolidated statements of operations of RCI in order to conform to the Company’s financial statement classifications as described in “Note 3 — Unaudited Pro Forma Adjustments.” The Company’s unaudited consolidated statement of operations for the nine months ended October 3, 2009 includes the revenue and expense activity for e-Dialog for the entire period. Accordingly, no pro forma adjustments were made to the unaudited pro forma consolidated statement of operations relating to the acquisition of e-Dialog.

     The unaudited pro forma combined financial statements are accounted for under accounting standards for “Business Combinations.” In merger transactions in which the consideration given is not in the form of cash (that is, in the form of non-cash assets, liabilities incurred, or equity interests issued), measurement of the acquisition consideration is based on the fair value of the consideration given or the fair value of the asset (or net assets) acquired, whichever is more clearly evident and, thus, more reliably measurable.

     The Business Combinations accounting standards require that all the assets acquired and liabilities assumed in a business combination be recognized at their acquisition-date fair value, while transaction costs and restructuring costs associated with the business combination are expensed as incurred. The excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill. For those assets in the combined company that may be phased out or may no longer be used, additional amortization, depreciation and possibly impairment charges may be recorded.

     The pro forma financial information is based on the estimates and assumptions set forth in the notes to such information. The pro forma financial information is preliminary and is being furnished solely for information purposes and, therefore, is not necessarily indicative of the combined results of operations or financial position that might have been achieved for the dates or periods indicated, nor is it necessarily indicative of the results of operations or financial position that may occur in the future.

3

GSI COMMERCE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(In thousands)

				Retail			Preliminary
	GSI Commerce, Inc.			Convergence Inc.			Pro Forma			Pro Forma
	October 3, 2009			October 31, 2009			Adjustments			Combined
ASSETS
Current assets:
Cash and cash equivalents	$	135,273		$	7,461		$	(92,133	) (a)	$	50,601
Accounts receivable, net		66,065			948			(533	) (b)		66,480
Inventory		43,943			14,796			2,950	(c)		61,689
Deferred tax assets		18,184			—			(1,180	) (d)		17,004
Prepaid expenses and other current assets		13,263			2,311			(648	) (e)		14,926
Total current assets		276,728			25,516			(91,544	)		210,700
Property and equipment, net		155,870			7,757			—			163,627
Goodwill		199,653			6,231			179,572	(f)		385,456
Intangible assets, net		42,939			2,170			88,601	(g)		133,710
Long-term deferred tax assets		27,544			—			(27,544	) (h)		—
Other assets, net		13,017			34			—			13,051
Total assets	$	715,751		$	41,708		$	149,085		$	906,544
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	58,237		$	13,024		$	—		$	71,261
Accrued expenses		76,573			9,625			749	(i)		86,947
Deferred revenue		19,089			676			—			19,765
Short-term deferred rent liability		—			112			(112	) (j)		—
Other current liabilities		—			2,303			112	(k)		2,415
Convertible notes		54,280			—			—			54,280
Short-term obligation under capital lease		—			71			(71	) (l)		—
Current portion of long-term debt		5,019			—			71	(l)		5,090
Total current liabilities		213,198			25,811			749			239,758
Convertible notes		115,436			—			—			115,436
Contingent acquisition payment		—			—			59,819	(m)		59,819
Long-term obligations under capital lease		—			70			(70	) (n)		—
Long-term debt		29,239			—			70	(n)		29,309
Long-term deferred rent liability		—			3,271			(3,271	) (j)		—
Long-term deferred tax liabilities		—			—			7,896	(h)		7,896
Deferred revenue and other long-term liabilities		9,116			—			3,271	(k)		12,387
Total liabilities		366,989			29,152			68,464			464,605
Commitments and contingencies		—			—			—			—
Mandatorily redeemable preferred stock		—			180,855			(180,855	) (o)		—
Stockholders’ equity:
Preferred stock		—			—			—			—
Common stock		551			17			29	(o)		597
Stockholders’ note receivable		—			(345	)		345	(o)		—
Additional paid in capital		538,818			—			93,131	(o)		631,949
Accumulated other comprehensive income		(1,392	)		—			—			(1,392	)
Accumulated deficit		(189,215	)		(167,971	)		167,971	(o)		(189,215	)
Total stockholders’ equity		348,762			(168,299	)		80,621			441,939
Total liabilities and stockholders’ equity	$	715,751		$	41,708		$	149,085		$	906,544

See accompanying notes to unaudited pro forma combined financial statements, including Note 3 for an explanation of the preliminary pro forma adjustments.

GSI COMMERCE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(In thousands, except per share data)

	GSI Commerce, Inc.			Retail Convergence Inc.			Preliminary						e-Dialog Inc.						Public Offing
	Fiscal Year Ended			Fiscal Year Ended			Pro Forma			Pro Forma			Six Weeks Ended			Pro Forma			Pro Forma			Pro Forma
	January 3, 2009			January 31, 2009			Adjustments			Combined			February 13, 2008			Adjustments			Adjustments			Combined
Revenues:
Net revenues from product sales	$	577,073		$	—		$	77,929	(p)	$	655,002		$	—		$	—		$	—		$	655,002
Service fee revenues		389,853			—			5,017	(p)		394,870			4,971			—			—			399,841
Net sales		—			82,946			(82,946	) (p)		—			—			—			—			—
Net revenues		966,926			82,946			—			1,049,872			4,971			—			—			1,054,843
Costs and expenses:
Cost of goods sold		—			51,838			(51,838	) (q)		—			—			—			—			—
Cost of revenues from product sales		405,254			—			54,788	(r)		460,042			—			—			—			460,042
Marketing		70,282			—			5,666	(s)		75,948			—			—			—			75,948
Merchandising and marketing		—			10,149			(10,149	) (t)		—			—			—			—			—
Account management and operations		260,325			—			20,533	(u)		280,858			1,391			—			—			282,249
Fulfillment and customer service		—			11,618			(11,618	) (v)		—			—			—			—			—
Product development		104,208			—			4,267	(w)		108,475			1,992			—			—			110,467
General and administrative		68,964			14,972			(8,705	) (x)		75,231			1,054			—			—			76,285
Depreciation and amortization		68,153			3,264			7,644	(y)		79,061			184			583	(dd)		—			79,828
Total costs and expenses		977,186			91,841			10,588			1,079,615			4,621			583			—			1,084,819
Income (loss) from operations		(10,260	)		(8,895	)		(10,588	)		(29,743	)		350			(583	)		—			(29,976	)
Other (income) expense:
Interest expense		18,841			499			—			19,340			8			—			—			19,348
Interest income		(1,772	)		(163	)		1,935	(z)		—			(11	)		11	(ee)		—			—
Other expense (income), net		1,562			—			6	(aa)		1,568			—			—			—			1,568
Impairment of equity investments		1,665			—			—			1,665			—			—			—			1,665
Total other expense (income)		20,296			336			1,941			22,573			(3	)		11			—			22,581
Income (loss) before income taxes		(30,556	)		(9,231	)		(12,529	)		(52,316	)		353			(594	)		—			(52,557	)
(Benefit) provision for income taxes		(7,585	)		—			(5,012	) (bb)		(12,597	)		—			(238	) (ff)		—			(12,835	)
Net income (loss)	$	(22,971	)	$	(9,231	)	$	(7,517	)	$	(39,719	)	$	353		$	(356	)	$	—		$	(39,722	)
Earnings (loss) per share — basic	$	(0.49	)							$	(0.77	)										$	(0.69	)
Earnings (loss) per share — diluted	$	(0.49	)							$	(0.77	)										$	(0.69	)
Weighted average shares outstanding — basic		47,347						4,572	(cc)		51,919									5,439	(gg)		57,358
Weighted average shares outstanding — diluted		47,347						4,572	(cc)		51,919									5,439	(gg)		57,358

See accompanying notes to unaudited pro forma combined financial statements, including Note 3 for an explanation of the preliminary pro forma adjustments.

GSI COMMERCE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(In thousands, except per share data)

	GSI Commerce, Inc.			Retail Convergence Inc.			Preliminary			Public Offering
	Nine Months Ended			Nine Months Ended			Pro Forma			Pro Forma			Pro Forma
	October 3, 2009			October 31, 2009			Adjustments			Adjustments			Combined
Revenues:
Net revenues from product sales	$	288,150		$	—			$86,300	(hh)	$	—		$	374,450
Service fee revenues		285,817			—			7,068	(hh)		—			292,885
Net sales		—			93,368			(93,368	) (hh)		—			—
Net revenues		573,967			93,368			—			—			667,335
Costs and expenses:
Cost of goods sold		—			57,537			(57,537	) (ii)		—			—
Cost of revenues from product sales		217,345			—			57,537	(ii)		—			274,882
Marketing		27,002			—			4,777	(jj)		—			31,779
Merchandising and marketing		—			8,983			(8,983	) (kk)		—			—
Account management and operations		176,969			—			19,761	(ll)		—			196,730
Fulfillment and customer service		—			11,327			(11,327	) (mm)		—			—
Product development		84,871			—			3,918	(nn)		—			88,789
General and administrative		58,169			14,392			(7,178	) (oo)		—			65,383
Acquisition costs		—			968			(968	) (pp)		—			—
Depreciation and amortization		46,335			2,916			5,072	(qq)		—			54,323
Total costs and expenses		610,691			96,123			5,072			—			711,886
(Loss) income from operations		(36,724	)		(2,755	)		(5,072	)		—			(44,551	)
Other (income) expense:
Interest expense		14,452			801			—			—			15,253
Interest income		(304	)		(29	)		333	(rr)		—			—
Other expense, net		(197	)		—			—			—			(197	)
Impairment of equity investments		—			—			—			—			—
Total other (income) expense		13,951			772			333			—			15,056
Income (loss) before income taxes		(50,675	)		(3,527	)		(5,405	)		—			(59,607	)
(Benefit) provision for income taxes		(16,046	)		—			(2,162	) (ss)		—			(18,208	)
Net income (loss)	$	(34,629	)	$	(3,527	)	$	(3,243	)	$	—		$	(41,399	)
Basic and diluted loss per share	$	(0.73	)										$	(0.72	)
Weighted average shares outstanding — basic and diluted		47,144						4,572	(tt)		5,439	(uu)	57,155

See accompanying notes to unaudited pro forma combined financial statements, including Note 3 for an explanation of the preliminary pro forma adjustments.

GSI COMMERCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(in thousands)

NOTE 1—BASIS OF PRESENTATION

     The unaudited pro forma combined financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and certain note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted pursuant to such rules and regulations; however, management believes that the disclosures are adequate to make the information presented not misleading.

     Acquisition of Retail Convergence

     On October 27, 2009, GSI Commerce, Inc. (the “Company”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Retail Convergence, Inc. (“RCI”), and completed the acquisition on November 17, 2009 (“Acquisition Date”). Pursuant to the Merger Agreement among the Company, Cola Acquisition Corporation (“Acquisition Sub”), a wholly-owned subsidiary of the Company, and RCI, Acquisition Sub merged with and into RCI with RCI surviving as a subsidiary of the Company. RCI operates RueLaLa.com, an operator of online private sales and SmartBargains.com, an off-price e-commerce marketplace.

     The accompanying unaudited pro forma combined financial statements give pro forma effect to the Company’s acquisition of RCI using the acquisition method of accounting assuming an estimated purchase price of approximately $246,411. The purchase price consists of cash of approximately $92,133, shares of the Company’s common stock valued at $93,177, or 4,572 shares at $20.38 per share, the Company’s closing stock price on the Acquisition Date, estimated payroll tax liability of $1,282 being paid by the Company on the value of the Company’s common stock issued to certain RCI optionholders, and the estimated $59,819 fair value of the earnout payments This acquisition price includes cash of $2,648 and shares of the Company’s common stock valued at $3,117, or 153 shares at $20.38, upon the Company’s acquisition of the remaining stock of RCI expected to be paid on December 31, 2009. Additionally the Company expects to incur approximately $1,700 in transaction expense directly related to the acquisition.

     The maximum earn-out payment per the Merger Agreement is $170,000 based upon RCI achieving minimum earnings before interest, taxes, depreciation, amortization, stock compensation and certain other adjustments (“Financial Performance Target”) for fiscal 2010, fiscal 2011 and fiscal 2012. The maximum earn-out payment for the fiscal 2010 Financial Performance Target is $40,000. The maximum earn-out payment for the fiscal 2011 Financial Performance Target is $95,000 less any payments made for the 2010 Financial Performance Target, if any. The maximum earn-out payment for the fiscal 2012 Financial Performance Target is $170,000 less any payments made for the 2010 and 2011 Financial Performance Targets, if any. Of the maximum earnout payment of $170,000, approximately $46,200 is payable to RCI employees based on the same financial performance targets in 2010, 2011 and 2012 but receipt of these payments, to the extent paid, is contingent upon the employee’s continuing employment with RCI, subject to certain exceptions. These payments will be accounted for as compensation expense over the earn-out period to the extent the financial targets are achieved and the earn-out is paid and will not be included as consideration under the acquisition method of accounting.

     Acquisition of e-Dialog

     On February 13, 2008, the Company completed the acquisition of e-Dialog, Inc. (“e-Dialog”). Pursuant to an Agreement and Plan of Merger dated as of January 23, 2008 among the Company, Dolphin Acquisition Corporation (“Dolphin”), a wholly-owned subsidiary of the Company, e-Dialog and the stockholders’ representative, Dolphin merged with e-Dialog and e-Dialog survived the merger as a wholly-owned subsidiary of the Company. e-Dialog is an e-mail marketing solutions provider that offers e-mail marketing and marketing strategies.

     The total cash purchase price was $150,800, including acquisition related transaction costs of $1,700.

7

     Registered Public Offering

     On August 18, 2009, the Company completed a registered public offering of 5,439 common shares sold by the Company and 8,189 common shares sold by selling stockholders (“Public Offering”). The Public Offering price was $17.00 per share and the Company received net proceeds from the sale of the common shares after deducting underwriting discounts and commissions and offering expenses were approximately $88,000. The Company did not receive any proceeds from the sale of shares by the selling stockholders.

NOTE 2—PRO FORMA COMBINED FINANCIAL STATEMENTS

     The accompanying unaudited pro forma combined balance sheet assumes that the acquisition of RCI took place on October 3, 2009, the end of the Company’s fiscal third quarter, and combines the Company’s unaudited October 3, 2009 balance sheet with the unaudited balance sheet of RCI as of October 31, 2009, the end of RCI’s fiscal third quarter. The Company’s October 3, 2009 balance sheet includes the acquisition of e-Dialog, and the effects of the Public Offering which both occurred prior to October 3, 2009. Accordingly, no pro forma adjustments were made to the unaudited pro forma combined balance sheet related to the purchase accounting for the e-Dialog acquisition and effects of the Public Offering.

     The accompanying unaudited pro forma combined statements of operations for the fiscal year ended January 3, 2009 and the nine months ended October 3, 2009 assume that the acquisitions of RCI and e-Dialog and the Public Offering took place on December 30, 2007, the first day of the Company’s fiscal 2008. The unaudited pro forma combined statement of operations for the fiscal year ended January 3, 2009 combines the Company’s audited consolidated statement of operations for the fiscal year ended January 3, 2009 with RCI’s audited consolidated statement of operations for the year ended January 31, 2009, and e-Dialog’s unaudited consolidated statement of operations for the period from January 1, 2008 to February 13, 2008. e-Dialog’s revenues, expenses and net income for December 30 through December 31, 2008 were immaterial.

     The unaudited pro forma combined statement of operations for the nine months ended October 3, 2009 combines the Company’s unaudited consolidated statement of operations for the nine months ended October 3, 2009 with RCI’s unaudited consolidated statement of operations for the nine months ended October 31, 2009, while taking into effect adjustments for the Public Offering for the period of January 4, 2009 to August 7, 2009. The Company’s October 3, 2009 unaudited consolidated statement of operations includes the revenue and expense activity for e-Dialog for the nine months ended October 3, 2009, and as such, no pro forma adjustments were made to the unaudited pro forma consolidated statement of operations relating to the acquisition of e-Dialog.

     The pro forma combined statements of operations have been prepared for informational purposes only and do not purport to be indicative of the actual results that would have been achieved by the Company or the combined Company for the periods presented or that will be achieved by the Company or the combined Company in the future.

NOTE 3—UNAUDITED PRO FORMA ADJUSTMENTS

     The pro forma adjustments related to the acquisition of RCI are preliminary and do not reflect the final purchase price or allocation of the excess purchase price over the net book value of the net assets of RCI as the Company has yet to finalize RCI’s valuation of net assets. Final adjustments could result in a materially different purchase price and/or allocations of the purchase price, which would affect the values assigned to tangible or intangible assets and the amount of depreciation and amortization expense recorded in the combined statements of operations. The effect of any changes to the consolidated statements of operations would depend on the final purchase prices and the nature and amount of final purchase price allocations and could be material.

8

     The pro forma adjustments included in the unaudited pro forma combined balance sheet as of October 3, 2009 are as follows:

(a)	Reduction to cash and cash equivalents represents the upfront $92,133 cash purchase price to acquire RCI.
(b)	Represents a reclassification of $533 from accrued expenses to accounts receivable, net for the reclassification of RCI’s accrued sales returns to conform to the presentation of the Company’s Balance Sheet.
(c)	Reflects an increase of $2,950 to record RCI’s inventory at its estimated net realizable value. The Company’s pro forma fair value adjustment to inventory is based on RCI’s inventory as of October 31, 2009. The Company believes that the fair value of inventory approximates net realizable value, which is defined as expected sales price less cost to sell plus a reasonable margin for selling effort. In addition, as the Company sells the acquired inventory, its cost of sales will reflect the increased valuation of RCI’s inventory, which will temporarily reduce the Company’s gross margin.
(d)	Represents the deferred tax effect from the preliminary pro forma adjustment to RCI’s inventory as noted in footnote (c) above, recorded at the Company’s estimated statutory tax rate of 40%.
(e)	Represents a decrease of $648 to prepaid expenses and other current assets to eliminate RCI’s deferred financing costs related to its line of credit that was terminated at the time of acquisition.
(f)	Represents the following:

• an increase of $179,572 to goodwill related to the Company’s acquisition of RCI. A preliminary calculation of the goodwill resulting from the Company’s acquisition of RCI is shown below. The final allocation of the purchase price may have a material impact on the pro forma balance sheet primarily due to the final valuation of purchase price and intangible assets. Therefore, the final purchase price allocation and goodwill recorded could be materially different than the amount calculated below. In addition, the Company’s estimate of the fair value of the earn-out to be paid could materially differ from the amount that is actually paid which could have a material impact to its financial results.

Purchase Price of Retail Convergence:
Cash consideration (including cash of $2,600 expected to be paid on December 31, 2009)	$	92,133
Fair value of the Company’s common shares issued upon acquisition		90,060
Estimated fair value of the Company’s common shares expected to be issued on or after December 31, 2009		3,117
Estimated payroll taxes payable by the Company on the value of shares issued to certain RCI optionholders		1,282
Fair value of estimated earnout consideration allocated to purchase price		59,819
		246,411
Net Assets Acquired:
RCI’s total assets		41,708
RCI’s liabilities		(29,152	)
		12,556
Excess of net purchase price over carrying value of net tangible assets acquired		233,855
Estimated adjustments to reflect fair value of acquired assets and liabilities:
Removal of RCI’s deferred financing costs as stated in footnote (e) above		648
Estimated fair value of intangible assets		(88,601	)
Estimated fair value adjustment to inventory		(2,950	)
Estimated short-term deferred tax adjustment as stated in footnote (d) above		1,180
Estimated long-term deferred tax adjustment as stated in footnote (h) below		35,440
Pro forma adjustment to goodwill	$	179,572

9

(g)	Represents an increase of $88,601 related to the estimated fair value of RCI’s intangible assets, which consist of $58,569 of indefinite lived intangible assets for RCI’s trade name, and $30,032 of finite lived intangible assets with an estimated useful life of five years which relate to RCI’s membership list, supplier list and non-compete agreements. These are only estimates, as the valuation of RCI’s intangible assets is not yet complete. The final valuation of RCI’s intangible assets could be materially different.
(h)	Represents the estimated the total long-term deferred tax effect from RCI’s intangible asset valuation as noted in footnote (g) above, recorded at the Company’s estimated statutory tax rate of 40%. The Company estimated the total long-term deferred tax effect to be a liability of $35,440, which reduces its long-term deferred tax assets balance of $27,544 to $0, and increases its long-term deferred tax liabilities to $7,896.
(i)	Represents the following:

• an increase of $1,282 for estimated payroll taxes payable by the Company on the value of shares issued to certain RCI optionholders;

• a decrease for the reclassification of $533 from accrued expenses to accounts receivable, net for the reclassification of RCI’s accrued sales returns as stated in footnote (b) above.

(j)	Represents the elimination of RCI’s short-term deferred rent liability of $112 and long-term deferred rent liability of $3,271.
(k)	Represents an increase of $112 to other current liabilities and an increase of $3,271 to deferred revenue and other long-term liabilities for an RCI operating lease that has terms unfavorable relative to current market terms.
(l)	Represents a reclassification of $71 from short-term obligation under capital lease to current portion of long-term debt to conform to the presentation of the Company’s Balance Sheet.
(m)	Represents the fair value of the component of the earn-out payment that is expected to be accounted for as purchase price. Any future change in the fair value of the purchase price component of the earn-out payment will be recorded in the Company’s statement of operations and could have a material impact. See Note 1, Basis of Presentation, for information related to the maximum earn-out payments.
(n)	Represents a reclassification of $70 from long-term obligations under capital lease to long-term debt to conform to the presentation of the Company’s Balance Sheet.
(o)	Represents the following:

• a decrease of $12,556 for the elimination of the historical equity and mandatorily redeemable preferred stock of RCI, based on RCI’s balances of its mandatorily redeemable preferred stock ($180,855), common stock ($17), stockholders’ note receivable $345, and accumulated deficit $167,971;

• an increase to common stock of $46 and additional paid in capital of $93,131 to reflect the issuance of the Company’s common stock of 4,572 shares at $20.38 per share, the closing price of the Company’s stock on the closing date of the acquisition.

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     The pro forma adjustments included in the unaudited pro forma combined statement of operations for the fiscal year ended January 3, 2009 are as follows:

     Preliminary pro forma adjustments for the acquisition of RCI:

(p) Represents the following:

• an increase of $77,929 for the reclassification of RCI’s reported net sales to net revenues from product sales to conform to the presentation of the Company’s Statement of Operations;

• an increase of $5,017 for the reclassification of RCI’s reported net sales to service fee revenues to conform to the presentation of the Company’s Statement of Operations;

• a decrease of $82,946 for the reclassification of RCI’s reported net sales to net revenues from product sales and service fee revenues to conform to the presentation of the Company’s Statement of Operations.

(q)	Represents a decrease of $51,838 for the reclassification of RCI’s reported cost of goods sold to cost of revenues from product sales to conform to the presentation of the Company’s Statement of Operations.
(r)	Represents the following:

• an increase of $51,838 for the reclassification of RCI’s reported cost of goods to cost of revenues from product sales as stated in footnote (q) above;

• an increase of $2,950 from the adjustment of RCI’s inventory to its estimated net realizable value as noted in footnote (c) above. The Company increased the cost of revenues from product sales for the entire adjusted inventory amount as the Company assumes the entire existing inventory held as of the acquisition date would be sold during the fiscal year.

(s)	Represents a $5,666 reclassification of RCI’s reported merchandising and marketing expense to marketing expense to conform to the presentation of the Company’s Statement of Operations. These costs relate to RCI’s marketing and advertising expenses.
(t)	Represents the following:

• a decrease of $5,666 for the reclassification of a portion of RCI’s reported merchandising and marketing expense to marketing expense as stated in footnote (s) above;

• a decrease of $4,483 to reflect the reclassification of a portion of RCI’s reported merchandising and marketing expense to account management and operations expense to conform to the presentation of the Company’s Statement of Operations. These costs primarily relate to RCI’s payroll for its buying, business management and marketing functions.

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(u) Represents the following:

• an increase of $11,618 to reflect the reclassification of RCI’s reported fulfillment and customer service expense to account management and operations expense to conform to the presentation of the Company’s Statement of Operations;

• an increase of $4,483 to reflect the reclassification of a portion of RCI’s reported merchandising and marketing expense to account management and operations expense as stated in footnote (t) above;

• an increase of $4,432 to reflect the reclassification of a portion of RCI’s reported general and administrative expense to account management and operations expense to conform to the presentation of the Company’s Statement of Operations. These costs relate to RCI’s merchandising and marketing department expenses.

(v)	Represents a decrease of $11,618 for the reclassification of RCI’s reported fulfillment and customer service expense to account management and operations expense as stated in footnote (u) above.
(w)	Represents an increase of $4,267 for the reclassification of a portion of RCI’s reported general and administrative expense to product development expense, to conform to the presentation of the Company’s Statement of Operations.
(x)	Represents the following:

• a decrease of $4,432 for the reclassification of a portion of RCI’s reported general and administrative expense to account management and operations expense as stated in footnote (u) above;

• a decrease of $4,267 for the reclassification of a portion of RCI’s reported general and administrative expense to product development expense as stated in footnote (w) above;

• a decrease of $6 for the reclassification of a portion of RCI’s reported general and administrative expense to other expense (income), net relating to foreign currency exchange losses.

(y)	Represents an increase of $7,644 to reflect the amortization expense per the Company’s estimated valuation of RCI’s intangible assets. Any adjustment to the valuation of intangible assets could have a material impact on depreciation and amortization expense. A ten percent adjustment to the Company’s estimated valuation of RCI’s intangible assets would have a corresponding impact to amortization expense of approximately $760. A one year reduction to the estimated useful life would have a corresponding impact to amortization expense of approximately $1,171.
(z)	Represents a decrease of $1,935 to interest income to reflect the use of the Company’s cash and cash equivalents to fund the acquisition on the first day of the period presented.
(aa)	Represents an increase of $6 for the reclassification of a portion of RCI’s reported general and administrative expense to other expense (income) as stated in footnote (x) above.

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(bb)	Represents an increase to the income tax benefit of $5,012 for the income tax effect of the pro forma adjustments, recorded at the Company’s statutory tax rate of 40.0%. This rate is not necessarily indicative of the Company’s future effective tax rate.
(cc)	Represents an increase of 4,572 of basic and diluted weighted average shares outstanding shares that represent the Company’s common stock valued at $93,177 or $20.38 per share, the closing price of the Company’s stock on the closing date of the acquisition.

     Pro forma adjustments for the acquisition of e-Dialog:

(dd) Represents the following:

• an increase of $8 to reflect the additional depreciation expense per the increase in the fair valuation of e-Dialog’s fixed assets;

• an increase of $575 to reflect the amortization expense per the fair valuation of e-Dialog’s intangible assets.

(ee)	Represents a decrease of $11 to interest income to reflect the use of the Company’s cash and cash equivalents to fund the acquisition on the first day of the period presented.
(ff)	Represents an increase to the income tax benefit of $238 for the income tax effect of the pro forma adjustments, recorded at the Company’s statutory tax rate of 40.0%. This rate is not necessarily indicative of the Company’s future effective tax rate.

     Pro forma adjustments for the Public Offering:

(gg) Represents an increase of 5,439 of basic and diluted weighted average shares outstanding shares that were issued by the Company in the Public Offering.

     The pro forma adjustments included in the unaudited pro forma combined statement of operations for the nine-months ended
October 3, 2009 are as follows:

     Preliminary pro forma adjustments for the acquisition of RCI:

(hh) Represents the following:

• an increase of $86,300 for the reclassification of RCI’s reported net sales to net revenues from product sales to conform to the presentation of the Company’s Statement of Operations;

• an increase of $7,068 for the reclassification of RCI’s reported net sales to service fee revenues to conform to the presentation of the Company’s Statement of Operations;

• a decrease of $93,368 for the reclassification of RCI’s reported net sales to net revenues from product sales and service fee revenues to conform to the presentation of the Company’s Statement of Operations.

(ii) Represents a decrease of $57,537 for the reclassification of RCI’s reported cost of goods sold to cost of revenues from product sales to conform to the presentation of the Company’s Statement of Operations.

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(jj)	Represents a $4,777 reclassification of RCI’s reported merchandising and marketing expense to marketing expense to conform to the presentation of the Company’s Statement of Operations. These costs relate to RCI’s marketing and advertising expenses.
(kk)	Represents the following:

• a decrease of $4,777 for the reclassification of a portion of RCI’s reported merchandising and marketing expense to marketing expense as stated in footnote (jj) above;

• a decrease of $4,206 to reflect the reclassification of a portion of RCI’s reported merchandising and marketing expense to account management and operations expense to conform to the presentation of the Company’s Statement of Operations. These costs primarily relate to RCI’s payroll for its buying, business management and marketing functions.

(ll) Represents the following:

• an increase of $11,327 to reflect the reclassification of RCI’s reported fulfillment and customer service expense to account management and operations expense to conform to the presentation of the Company’s Statement of Operations;

• an increase of $4,228 to reflect the reclassification of a portion of RCI’s reported general and administrative expense to account management and operations expense to conform to the presentation of the Company’s Statement of Operations. These costs relate to RCI’s merchandising and marketing department expenses;

• an increase of $4,206 to reflect the reclassification of a portion of RCI’s reported merchandising and marketing expense to account management and operations expense as stated in footnote (kk) above.

(mm)	Represents a decrease of $11,327 for the reclassification of RCI’s reported fulfillment and customer service expense to account management and operations expense as stated in footnote (ll) above.
(nn)	Represents the reclassification of $3,918 a portion of RCI’s reported general and administrative expense to product development expense, to conform to the presentation of the Company’s Statement of Operations.
(oo)	Represents the following:

• a decrease of $3,918 for the reclassification of a portion of RCI’s reported general and administrative expense to product development expense as stated in footnote (nn) above;

• a decrease of $4,228 for the reclassification of a portion of RCI’s reported general and administrative expense to account management and operations expense as stated in footnote (ll) above;

• an increase of $968 for the reclassification of RCI’s reported acquisition costs to general and administrative expense, to conform to the presentation of the Company’s Statement of Operations.

(pp) Represents a decrease of $968 for the reclassification of RCI’s reported acquisition costs to general and administrative expense as stated in footnote (oo) above.

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(qq)	Represents an increase of $5,072 to reflect the amortization expense per the Company’s estimated valuation of RCI’s intangible assets. Any adjustment to the valuation of intangible assets could have a material impact on depreciation and amortization expense. A ten percent adjustment to the Company’s estimated valuation of RCI’s intangible assets would have a corresponding impact to amortization expense of approximately $500. A one year reduction to the estimated useful life would have a corresponding impact to amortization expense of approximately $777.
(rr)	Represents a decrease of $333 to interest income to reflect the use of the Company’s cash and cash equivalents to fund the acquisition on the first day of the period presented.
(ss)	Represents an increase to the income tax benefit of $2,162 for the income tax effect of the pro forma adjustments, recorded at the Company’s estimated statutory tax rate of 40.0%. This rate is not necessarily indicative of the Company’s future effective tax rate.
(tt)	Represents an increase of 4,572 of basic and diluted weighted average shares outstanding shares that represent the Company’s common stock valued at $93,177 or $20.38 per share, the closing price of the Company’s stock on the closing date of the acquisition.

     Pro forma adjustments for the Public Offering:

(uu) Represents an increase of 5,439 of basic and diluted weighted average shares outstanding shares that were issued by the Company in the Public Offering.

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